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Monday, 20 June 1994
Page: 1755

Senator GIBSON (6.49 p.m.) —I rise on behalf of the coalition to support my colleague Senator Short. As he pointed out, we are not opposing this bill, which makes minor changes to the PDF scheme. I will not take much time of the Senate, but I would like to point out a couple of key things about this scheme.

  Even though this bill is changing the structure and broadening the size of the company that can be invested in and the proportion of funds that can be put into companies, which is fine, the fundamental thing is that it is really a tax incentive scheme. Even though the government has given notice that its tax incentive will be improved in legislation that is still to come through the chamber by reducing the tax rate from 25 per cent to 15 per cent, I make the point to the Senate that that still will not be very attractive to the main source of likely funds in the Australian industry—that is, the superannuation funds.

  The essential reason is that superannuation funds already enjoy a nominal taxation rate of 15 per cent. In addition, they are able to claim imputation credits from income they derive. So for many superannuation funds there is an effective tax rate of substantially less than 15 per cent—sometimes as low as nine per cent and more commonly 11 and 12 per cent. Superannuation funds are unlikely to take the route of putting dollars into PDFs at a fixed 15 per cent rate when they can of their own volition invest and suffer an average tax rate of significantly less than that.

  I also point out that the superannuation funds prefer to invest through trusts where the income goes straight back to the fund and is subject to a lower tax rate, rather than in the PDF company where it must incur the 15 per cent rate. Even though the government has signalled that lower tax rate, we in the coalition do not believe it will work. The whole idea of the scheme was to encourage finance of small and medium sized businesses and, as Senator Spindler said, also venture capital.

  One of the things the government has been missing in this scheme is something that has really been under its own control. As the Industry Commission in its report on the availability of capital pointed out, capital is available to match the risk that is associated with the investment, so special schemes are really not required providing there is sufficient capital available. One of the fundamental things that is wrong in the Australian economy and one of the fundamental things that this government has failed to address is the level of savings in the Australian economy.

  We had the FitzGerald report of last year pointing out that savings are at a very low level in Australia. Who is the main culprit for the low level of savings? It is in fact the Commonwealth government by running large deficits. In fact, if the government were running in surplus rather than in deficit, we would have a significantly improved savings regime in Australia. That is really what is wrong.

  In other words, if there were a greater savings pool within this nation we would have people more willing to put a proportion of their savings into riskier ventures. That is the fundamental problem with small and medium sized businesses: they are riskier than many other businesses. If there were a larger savings pool then more and more persons, companies, superannuation funds, et cetera, would be willing to devote a proportion of those funds to riskier ventures. As I said before, the level of savings in Australia is at a record low and, as FitzGerald pointed out, the federal government is in fact the main culprit.

  What really is required is a scheme from the government to encourage savings. If we had higher levels of savings there would be savings available to be invested across a whole range of investment opportunities, including risky small and medium sized businesses to which this pooled development fund is aimed.