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Thursday, 30 April 1987
Page: 2103

Senator WATSON(5.17) —I want to take this opportunity to congratulate my colleague Senator Messner on his timing and punchy address on this matter of public importance concerning the depressed business investment climate in Australia. I wish to remind you, Mr Deputy President, and the rest of our colleagues that 1986-1987 is the fourth year in succession where business investment as a proportion of gross domestic product is likely to be well down on the average level achieved during the 1960s and 1970s.

The first indicators of investment activity for the year suggest improvement to be very unlikely. Why is that? It is because business simply lacks the confidence in the economic outlook to take on board substantial capital expenditure. In a nutshell, it lacks the confidence in the ability of this Government to manage the economy. Therefore, the ability of business to invest is being sapped by the highest interest rate structure in Australia since the depression.

The notions that I have just put before the Senate are supported by the Economic Planning Advisory Council, which recently warned that the Federal Government's reliance on high interest rates to restrain domestic demand was threatening prospects for recovery because of the depressing effect on business investment. It is true that, during the past few days, there has been some reduction in the 90-day bill rate. However, the Government is taking that on board as a great achievement-as though an 800 metre runner had won the race after the first 50 metres. There is a long way to go yet.

The position of prime interest rates since the last election is interesting. They are 17 per cent at the moment, whereas they were 13.5 per cent at the time of the election. The small overdraft rate at that time was 14.5 per cent. I do not have to remind anyone in Australia with an overdraft of the current rate. Everyone knows, and everyone is seething about it. When prime interest rates in most other Western developed countries are in decline, interest rates in Australia are still far too high. This Government has a sorry record in relation to new investment. I repeat: New investment is essential for industry restructuring. It is essential if the eventual reversal of the balance of payment situation is to be successful. But small business-the sector of the economy forgotten by this Labor Government-is suffering at the hands of government. Bankruptcies are at record levels. Figures for the first half of 1986-87 suggest that no reversal of this trend is in sight. According to the Australian Bureau of Statistics, small enterprises employ 1.9 million people, or 46 per cent of the private sector work force. If the Government is serious about reducing the 8 to 9 per cent unemployment rate, I suggest that it give far more consideration to its policies. We are stifling the ability to employ, particularly by small business.

Let us look at some of the individual records of what is happening in the economy, in business. I hope that the Minister who is in the chamber this evening, the Minister for Veterans' Affairs (Senator Gietzelt), is aware that 5,500 jobs have been lost in the retail sector of the motor vehicle industry because of the continuing sales slump and that the projections for 1987 indicate a further increase in unemployment in this area of 5 to 10 per cent. Much of this decline can be sheeted home to the policies of this Labor Government, policies which are resulting in increasingly high rates of unemployment and which have caused 5,500 jobs to be lost in the retail sector of the motor vehicle industry. What is this decline due to? The industry has acknowledged that one of the factors involved in the decline is the fringe benefits tax, an iniquitous tax. There have also been changes to sales tax regulations and increases in the excise on fuel, to name just a couple. The Labor Government must take full responsibility.

Businesses have to contend not only with high interest rates but also with a mountain of what I might term ambiguous and excessive taxes. Some of the taxes businesses now have to pay have not even been set out and passed in legislative form. That is how indolent and sloppy this Government is in relation to tax reform. As I said, business now has to contend with a mountain of ambiguous and excessive taxes.

During the Hawke Government's period in office a string of anti-business taxes have been implemented. All these taxes have had a discouraging effect on much needed investment by reducing the levels of return. People will not invest in this country-there will not be a climate for investment-until they can see an adequate return on their investment. But any form of profit is a dirty word to this Government. Let us consider some of these new taxes. I have already told honourable senators that 5,500 jobs have been lost in the retail sector of the motor vehicle industry as a result of the car slump. I have mentioned that one of the contributing factors has been the fringe benefits tax. The tax is unduly complicated and imposes onerous duties on Australian businesses. It requires them to keep excessive records and excessive declarations from the employees.

The New South Wales Chamber of Commerce conducted earlier this year a survey which showed-listen to this!-that 81 per cent of firms would retrench staff this year because of the fringe benefits tax. Fifty-one per cent of firms stated that the tax had affected their viability-a very high proportion. It is about time the Government started taking note of some of this information which surely is available to it. For example, small businesses which may already be operating at a loss are still obliged to pay tax on their vehicles, despite the fact that they are already accumulating income tax losses.

Then there is the iniquitous capital gains tax, the big sleeper so far as the Australian Labor Party is concerned. This tax will lose the Government many votes at the next election, but Government members close their eyes to it. The capital gains tax is the big sleeper the Government is failing to acknowledge. Those who may have been tempted to invest, despite major disincentives, are directly discouraged from doing so by the capital gains tax. The capital gains tax taxes at the highest marginal rate in the world-almost 60 per cent-of certain gains which have no capital base. Most countries which levy a capital gains tax usually levy it at a flat rate of about 25 to 30 per cent. Even they are pulling back. The tax is a severe disincentive to risk taking, to expanding existing business and to establishing new business operations. We have seen the great harm that has been done already to the investment market in relation to private rental accommodation as a result of a policy implemented by a government which is determined to impose its ideology on the community, regardless of the effect that that ideology will have on the poorest sections of the community. Senator Gietzelt knows what I am referring to. The Government is showing less and less compassion to a section of the community which traditionally has supported it. It is walking away from its traditional responsibilities to those in the community who can least afford to bear the crippling effects of many Labor Party policies.

From 1 July this year company tax will be increased from 46 to 49 per cent-one of the highest rates in the world. Again, the Labor Government is pushing us in tax directions, particularly so far as company tax rates are concerned, which are contrary to those in other countries. This is deplorable. The Government is going to introduce a tax imputation system but it has not even modelled it properly on the United Kingdom system. So there is tremendous uncertainty as to the extent to which dividends can be franked.

Senator Messner —They have only got half the legislation, anyway.

Senator WATSON —As my colleague Senator Messner says, the Government has introduced only half the legislation. We read daily of boards of directors who are not in a position to plan their future investments because of the uncertainty surrounding the imputations system. They are unsure how to declare dividends and of the extent of the taxability of bonus shares in the future. We have a deplorable state of affairs. The Government cannot even tell people who own gold mining companies the extent to which their shares can be franked. Worst of all, the companies in Australia which are doing something about easing the balance of payments problems, which are going out and earning export income and which are setting up in overseas countries suddenly find that their full dividends may not be franked because there is an overseas component of company tax. To the extent that there are to be overseas components in company tax, these companies that are going overseas will be placed at a company tax disadvantage.

Even the ANZ bank will be placed at a company tax disadvantage compared with a number of other Australian banks. Is it not deplorable that a company which is prepared to go overseas to buy out overseas operations, which will effectively bring control into Australia in the banking sphere, such as the ANZ bank, will be worse off than a number of other banks which operate in Australia? It will be worse off than a number of foreign banks which are setting up operations in Australia. I can tell Senator Gietzelt that the Government is encouraging the wrong sorts of operations in Australia. It should be supporting operations that are Australian-based and Australian-controlled, that have the incentive and initiative to go overseas and get the valuable income which is so vital to offset our chronic balance of payments problems. But what will the Government do? It will penalise them by legislation which is about to be introduced. It is shutting its eyes. We are warning the Government now but it is not prepared to do anything about it. It is not even prepared to follow the United Kingdom line. I believe this is an absolute disgrace. The Government is not going to improve investment performance in this country. It is going to continue to allow the living standards of ordinary Australians to decline. I think it is a sorry state of affairs, and the sooner the Government gets kicked out of office, the better.