Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Thursday, 30 April 1987
Page: 2093

Senator MESSNER(4.10) —I move:

That the Senate-

(a) notes the depressed business investment climate in this country as exemplified by a number of recent surveys published by the Australian Bureau of Statistics and other private sector organisations, including the Australian Chamber of Manufacturers;

(b) condemns the Federal Government for this depressed investment environment which is a direct result of the high interest rate policy pursued by the Government, pushing the small business and prime interest rates to record levels;

(c) notes the depressing effect which ever-increasing Government taxes and charges, such as the fringe benefits tax and the capital gains tax, are having on the after-tax real rate of return on business investment; and

(d) deplores the lack of appreciation by the Government of the anti-business impact of the new legislation on dividend imputation and its interaction with the foreign tax credit system.

The purpose of this motion is to draw attention to the disastrous investment climate in this country. This, of course, has resulted directly from the Government's policies in regard to interest rates, taxation, and inflation, all of which are way beyond the norm for the rest of the world and which make Australia internationally uncompetitive. Consequently, we find fewer and fewer people interested in investing in new markets in this country. There is no other word with which to describe the investment situation than disastrous. It is a fair measure of the concern of the Senate that this matter was allowed to be brought on today, having been given notice of this motion only yesterday. Quite clearly, the Senate feels the urgency of this matter and wants to discuss it as promptly as possible so it can force the Government to take urgent action to ensure that there is an improved balance and weight given to the issue of investment in this country.

Perhaps we will see in the economic statement to be brought down on 13 May some major changes, such as the removal of the crazy fringe benefits tax, the lunatic capital gains tax and other measures which will help to improve the investment psychology. The Treasurer (Mr Keating) gives us absolutely no hope. He will clumsily bowl along with the silly measures which have destroyed business confidence in this country and which are leading us into a disastrous future.

This is what investment is all about. It is not about the present; it is about the future. The future, of course, relies on the amount of investment, in cash, in know-how, in technological understanding, in sheer hard work, in brains and, if you like, in all other kinds of human effort which lead to the creation of new industries, of new jobs. It is our children and our children's children-to use that well-worn phrase-who will receive the benefit of money expended by companies in the Australian economy today in order to create new opportunities for those who will come to work in those new industries in the future. That is what investment is all about. It is about the creation of new jobs for Australians.

Having recognised that, it is important to recognise that investment does not just happen. It occurs because there is a reason for it to happen, and that is that businessmen, entrepreneurs, can see opportunities to develop their businesses and industries so that they can earn more profits and, of course, employ more people. That is the basic drive of our free enterprise system. The psychology that is required to be built up in order to get people to invest requires a great deal of care on the part of government to ensure that industry is brought up with a proper psychological approach to the circumstances of the time. But today we see business down in the dumps as far as investment is concerned. That is brought home quite clearly from the latest statistics that have been published recently, particularly by the Australian Bureau of Statistics, which give us a very depressed outlook for investment at present.

The most recent survey of private capital expenditure indicates that zero or even negative business investment is likely to occur in the 1987-88 financial year. The January-February survey of this year indicated that the reported capital spending plans for next year would be worth only $17.4 billion. That represents a reduction in nominal terms of only 2 per cent compared with the previous year, but when we take inflation into account the reduction is more of the order of 10 per cent. The point needs to be made here that at a time when it is important for us to increase the commitment to investment in new jobs, we are seeing a reduction of investment occurring under this Government's mistaken policies.

Perhaps more indicative of the nature of the psychological problem with business at the moment is the joint survey undertaken by the Confederation of Australian Industry and the Westpac Banking Corporation. That survey indicates that in the first two weeks of March the companies expecting to increase capital expenditure on plant and equipment over the coming 12 months were outnumbered by those reporting lower investment plans. The gap between those two groups was 4 per cent. In other words, a very important and substantial majority of future employers were looking to reduce their total investment plans in the coming year rather than to increase them. It is a very sad state of affairs when we consider that 25 per cent of our young people are currently on the dole, unemployed, without jobs to be found for them.

The net balance for manufacturing plant and equipment has been negative now for four of the past five quarterly results since the early part of 1986. Obviously, this indicates that a long term trend is developing, that investment is suffering. Who could doubt that that is so having seen the Government's introduction of the fringe benefits tax and the capital gains tax during 1986? To take perhaps a longer perspective on the problem, let us just look back to the years of the Fraser Government. We hear Senator Walsh in here every day attempting to castigate the former Government for what it did or did not do in the economic area, but it might surprise honourable senators to find out that during the last three years of the Fraser Government, which was supposed to be so horrendous according to Senator Walsh, the average rate of increase as a percentage of gross domestic product on new capital investment was of the order of 9.3 per cent per annum. Today, that average is down to 7.5 per cent. There has been a substantial fall, notwithstanding that in those last three years of the Fraser Government there was an international recession in 1982 of great order, and there was the great drought of 1982-83 which substantially ruined investment opportunities and profit opportunities in Australia.

So, compared with those very difficult years of the Fraser Government, the Hawke Labor Government is doing worse than the Fraser Government did in its last three years. We know why this is occurring. It is because of the matters we referred to earlier. We have repressive taxes and interest rates. Those are certainly major factors and I will return to them in a few minutes. There is one other major factor-or theme if you like-in the underlying problem with investment that really is at the core of the difficulty. It is the total failure of this Government to recognise that, notwithstanding the fact that it has allowed the Australian currency to depreciate enormously in the last several months and, of course, over the last two years in order to try to attract a more competitive international market scene, it has not adjusted the situation with investment so as to ensure that investment flows automatically into new industry opportunities that are created as a result of that falling dollar.

It is one of the great omissions of industry and economic policy in this country that, having sought to achieve a devalued currency to re-establish Australia's competitiveness, the Government has failed to take the opportunity at its full by ensuring that adequate incentive is given to investment so that new industries can be created to take advantage of it. The Government has failed in that respect. It is not just a failure of omission, it is not just that the Government overlooked not to do it; the Government has compounded the problem by imposing higher taxes-the highest taxes in this nation's history. The Government collects some 25 1/2 per cent of gross domestic product in taxes and has a deliberate policy to have the highest interest rates in real terms since the Great Depression.

To see the extent to which this problem is becoming substantially recognised in the community-consequently it is not contributing to the welfare of the Australian people in the way it might-we should perhaps consider, in statistical terms, the share of GDP that is going to company profits. In the 1960s and the early 1970s, the share of GDP going to profits was about 16 to 17 per cent. During the period of the Whitlam Government, the battered 1970s, the rate dropped back to about 13 per cent. However, under the Hawke Government, when we would have expected that to have changed and improved-from all the rhetoric we hear from Treasurer Keating and the misstatements of fact from the Prime Minister (Mr Hawke) from time to time-the rate has dropped back further to 12 per cent. The amount of profits being retained by business after tax, which can be reinvested to create more jobs in the Australian community, has fallen back by more than 50 per cent compared with the rate of the 1960s and early 1970s.

If the Minister for Finance (Senator Walsh) were here, no doubt he would argue and say: `What happened during the Fraser years? It must have been pretty horrendous'. The facts are that from the time of the worst possible situation following the period of the Whitlam Government in 1975-76, when the share of GDP going to profits was only about 13 per cent, the rate was brought up to nearer 15 per cent as a result of very conscious, deliberate and careful policies undertaken by the former Government. That is a fact. However, that position has been reversed under the Hawke Labor Government to the stage where the rate is now down to about 12 per cent. Quite clearly, if business is not able to retain profits, or make profits, and ensure that, after tax, it has enough to reinvest in its business, job creation opportunities pass it by and, consequently, there is not the same commitment to the expansion of the Australian economy by individual entrepreneurs in Australia.

Interest rates are the major determining factor in any investment decision. We must recognise that it has been the deliberate policy of this Government to maintain the highest interest rates-that is, in real terms-since Federation. Even today, the prime interest rate is about four to five times the rate being charged by equivalent companies in Japan or Germany. The prime overdraft rate for business is a little more than twice the rate that is charged in New York. Quite obviously, it is far better for overseas companies which are interested in investing in new opportunities, perhaps in Australia, to invest in countries whose interest rates are low. We are in a competitive situation. We must compete against those countries which have substantially lower interest rates. Consequently, businessmen with flair, ideas and with new opportunities to create jobs go to other parts of the world where they can borrow and create business opportunities, and Australia misses out. We are totally uncompetitive in those terms. High interest rates pose a major difficulty for investment in Australia. Yet that matter is totally within the control of the Hawke Labor Government. The Government has deliberately maintained interest rates at such a high level to ensure that it keeps the value of the dollar at a reasonably high level so that the politics of the falling exchange rate do not damage its electoral credibility too much.

Very closely related to the question of interest rates is the question of inflation. It has been confirmed again today that inflation in Australia is running at a rate of over 9 per cent. We cannot be certain because the statistics are not complete. However, it looks as if the rate will be 9.3 or 9.4 per cent across the Australian community. That compares with a rate of about 9.8 per cent to the end of December. It is only a very marginal drop compared with that period. It clearly indicates that inflation in this country is not under control. As we pointed out during the discussion on the Budget last year, this was likely to be so. It is only at this late stage that the Treasurer has acknowledged that the inflation rate is likely to be substantially higher than the 8 per cent that he estimated in his Budget Papers.

Let me turn to the area of taxation which is, quite clearly, the area in which the Government has failed more than any other. Earlier I mentioned the very high proportion of gross domestic product which is going to the Government by way of taxation. The level of 25 1/2 per cent is the highest in this nation's history. If the Government had kept its promise that there would be no increase in the percentage of taxes from gross domestic product compared with the previous year-and this started back in 1985-Australian taxpayers would have been $400m better off in the financial year ended 1986. In this financial year, Australian taxpayers would have been $1,400m better off had the Australian Labor Party kept its promise that it would not raise taxes to a level higher than that of the previous year. However, it failed to keep that promise. That is why the Australian people are paying substantially more than they have to in taxes. The Government has said that it will introduce some tax cuts on 1 July. They have been long enough coming. All we will get back is what the Government did not give us as a result of breaking its promise.

Under the Fraser Government, incentives were given to people in business and in companies to invest and that led to substantially higher investment. The rate of increase in business taxes was negative during that period. However, under the Hawke Government there has been an increase of 3 per cent in real terms each year. Plenty of new taxes have been introduced. We have seen the infamous capital gains tax-a tax on incentive, a tax on investment-which will ensure that people do not develop the right psychological attitude to investment for the future. We have seen the fringe benefits tax which destroys jobs because it takes away the profits of businesses which would otherwise have been invested to create job opportunities. The Government has introduced a higher corporate tax rate which will apply in the next financial year. Whereas every other country of the world is reducing its rate-the Americans are now down to 33 per cent and the English are about to go down to 35 per cent-this country sees fit to raise the corporate tax rate from 46 per cent to 49 per cent. One can just imagine what effect that will have in terms of the number of people who might be thinking of investing in this country when they see that tax rates have actually gone up compared with those of countries such as the United States of America.

While we are on the area of corporate taxation, I think we should just note that these increases in tax in Australia compare in their net effect most unfavourably, particularly with those nations with which we most have to compete in this area of the world at the end of Asia. I will take the opportunity to compare some of these tax rates. For instance, Singapore has a corporate tax rate of 33 per cent; Hong Kong has a rate as low as 18 per cent; and, as I mentioned earlier, the United States has a tax rate of 34 per cent. In other words, in this specific region of the world Australia's corporate tax rate is about the highest. We are supposed to be trying to encourage people to invest in this country from off-shore, but we still apply the highest tax rates of any country in this particular area. It is crazy. We have seen the introduction of the foreign tax credit system and, along with that, the so-called advantage of the new dividend imputation tax system. We have only just seen the legislation on this, but it is pretty clear that overseas companies which would like to invest in this country are going to be disadvantaged because of the way in which the foreign tax credit system interacts with the dividend imputation system. I will quote from an article appearing in the Australian Financial Review yesterday which points out the disadvantage that could occur. It states:

. . . an Australian company . . . which might pay 34 per cent on its US earnings, under the foreign tax credit system has to top up its US taxes with an additional 15 per cent-

that is the difference between 34 per cent and 49 per cent-

to bring it up to Australian domestic tax rates.

But in franking dividends-

that is a technical term under this new legislation-

under imputation, the company would only be allowed to frank dividends to the extent of the Australian tax and would not be given any credit for US tax already paid.

Consequently, companies seeking to invest here are going to be down the tube to the extent of any foreign tax paid. That means that there will be a positive disadvantage for foreign companies to invest in Australia just at a time when we are seeking to encourage them to come to this country so that they can engage in job creation activities and to bring know-how to this country so as to expand opportunities for all Australians. It seems lunatic, and it is.

Among other taxes, the tax on fuel, which is an input for most businesses, adds substantially to the cost of running businesses. Since August 1985 under this Government we have seen the excise on fuel rise from 10c a litre to the figure in the August 1986 Budget of 23.8c. In other words, it has more than doubled during that period under this Government. This is an enormous impost on the running of ordinary businesses in Australia and must be a major reason why there is such a low rate of investment in this country at present. The Government is doing all it can to destroy the climate for successful investment on the part of business, which has to be encouraged if we are to increase the opportunities for Australians.

Quite apart from the problems of not attracting new investment, particularly from overseas, caused by this Government's actions, we have the reverse situation, which is induced by its silly tax approach as well. We now see the opportunities for Australian businesses frittering away because of high taxes and, consequently, they start to look off-shore. They start to look at countries such as Singapore, Hong Kong and the US and start thinking about how they can move their businesses to some other part of the world in order to ensure that they maintain their competitiveness on the international scene. We have seen people refer to that already in recent times. Some might say `Well, that is unpatriotic', but clearly those companies have duties and obligations to their shareholders to ensure that they carry out their businesses and create profits in the best possible climate. Those companies are the lifeblood of Australia, yet this Government sees fit through its lackadaisical, disastrous approach to investment to allow such a thing to happen. This Government stands condemned on that basis. Consequently, I hope that all honourable senators in this place will see fit to support my motion today and condemn this Government for its neglect to encourage investment in Australia.