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Thursday, 25 August 1994
Page: 386

Senator MICHAEL BAUME (3.28 p.m.) —I rise to support Senator Alston in outlining how little Senator Collins—if only he were here—understands about the real world, and how little he certainly understands about the word `goodwill'. I suppose most people would not think of applying that word to him or to the way he has administered his various disaster departments over the last few years. The fact is that this company, ANL, has an item called `goodwill' in its balance sheet under the heading, `Intangibles: Goodwill on consolidation: Less accumulated amortisation', and the net figure is $2.24 million.

  In that particular instance, this particular goodwill and consolidation means the excess of the cost price of those assets over their book value. That is a specific and clear statement. Goodwill is the excess, if you like, in this case, of the cost over book value. It is, in this instance, a clear and precise accounting principle. When we pay goodwill for a company, we are paying more than the book value of that company says it is worth. It is the difference between the book value and the market value, as Senator Alston quite properly said.

  When Senator Collins uses the word loosely, as I believe he wants to, I presume that he means something else; and I am not quite certain what it is. I think he means the goodwill of the customers in the sense that they are still prepared to use ANL—with, I might say, diminishing rewards to ANL. He means that the customers are still prepared to use ANL. That is not what `goodwill' in any financial sense means. We can see as a clear example of goodwill how nonsensical it can be and how it can evaporate, as Senator Alston said—

Senator Alston —They like the company, other than the goodwill.

Senator MICHAEL BAUME —Exactly. If the company is doing well, people are prepared to pay more than the book value of the assets to acquire it. If it is doing very badly, as ANL is, there may be a negative goodwill; one would be able to buy the assets for less than their book value. That is the essence of the point that Senator Alston has been trying to get through the fairly strong and significant incompetence and lack of comprehension of the minister. This is very worrying. Here we have a minister who is supposed to be in charge of this government business enterprise and who does not understand how businesses work. I understand now why, given admittedly the stimulus of drought, he managed to do so badly as a rural businessman.

  We can see very clearly the impact and significance of goodwill and how ephemeral it can be. When Mr John Brown, for example, effectively sold his piggeries to Mr Keating, there was a $4 1/2 million goodwill element in it. In other words, Mr Keating bought what could be loosely be described as a pig in a poke. The company structure that he bought involved $4 1/2 million worth of goodwill. No-one, after that group's years of losses, would say that that goodwill exists. In fact, the directors themselves have been steadily writing it down each year.

  Let us get this clear: there is no doubt that over recent years the goodwill element—in other words, the preparedness of people to buy ANL at a higher price than the value of its assets—would have deteriorated to a situation where it is now reported that it could be sold only for a lot less than its book value and, in other words, has massive negative goodwill. Everything that Senator Alston said was exactly right. What Senator Collins said was, I presume, the result of incompetence and ignorance. I hope that it was not the result of his knowing what it was and setting out deliberately to mislead the Senate.

  Question resolved in the affirmative.