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Tuesday, 24 November 1959


Mr CAIRNS (Yarra) .- This legislation represents part of the Government's policy of encouraging overseas investment in Australia. In introducing the measure, the Treasurer (Mr. Harold Holt) pointed out that this legislation had three features. The Opposition makes ho comment about two of them. We accept the second and third proposals - exemption from tax of premiums paid by the Commonwealth on -special bonds, and the establishment of a basis for taxing income from seasonal securities to be issued by the Commonwealth.

The Opposition did not approve the introduction of seasonal securities, but, as they have come into existence, there is no reason why they should not be put in the same position as other securities. We direct the attention of the House, however, to the first and main provision in this legislation. This is the introduction of a dividend withholding tax to be deducted from dividends paid by Australian companies to shareholders not residing in Australia. Prior to this legislation those shareholders paid their tax at the end of a period at the rate which then prevailed. This legislation has two effects: It allows them to withhold the tax on the income as it is being earned at a flat rate. Secondly, it reduces the amount of tax that they will actually pay. This represents part of the pattern of encouraging foreign investment in Australia. It is in relation to that encouragement that the Opposition mainly bases its opposition to this provision.

I think it is time that the House and the people gave serious consideration to the policy of the Menzies Government in encouraging foreign capital. It has been pointed out in this debate by the honorable member for Melbourne Ports (Mr. Crean) and the honorable member for Reid (Mr. Uren) that the Government - or its leader at any rate; - does not appear to understand the position completely. The Prime Minister was recently reported as saying that the inflow of overseas investment had risen in an almost fantastic way. The only thing fantastic about this is the unfairness of it. As the honorable member for Melbourne Ports has pointed out, the actual rise has not been fantastic. The Prime Minister modified his remarks a couple of days later when be stated that it was truly remarkable. So, on one occasion, it had risen in an almost fantastic way and, two days later, it was truly remarkable!

But what has happened with regard to this? That is the question the House has to answer. We have to go back to the balance of payments to find out what is happening. Our balance of payments position has in recent years become very unsatisfactory. The White Paper on National Income shows that there has been a deficit in the current account in each of the last five years with one exception, and the total now stands at £771,000,000. In the year 1956-57 there was a surplus of £90,000,000. The deficit in 1958-59 was £187,000,000. In 1957-58 it was £177,000,000; in 1955-56 it was £238,000,000 and in 1954-55, £259,000,000. That is a total deficit of £771,000,000 In five years. This means that the amount of payments which Australia has made overseas for imports, foreign travel and other transactions has exceeded the payments made to us by £771,000,000 in five years.

It is on that basically weak situation in our balance of payments that the Government bases its policy of encouraging overseas investment by every conceivable means. When the country is facing a serious situation such as that, the first thing the Government does is to reduce its overseas funds. I want to point out to the House what happens with regard to overseas funds. Here again is a basic weakness. When the Government came into office there was an accumulation of £800,000,000 in our overseas funds. It was not long before the inrush of imports in 1952-53 reduced that sum to about £355,000,000. In other words, in the first three years of this Government's life it reduced that accumulation left by the previous government by that amount. Then there was a rise in overseas funds, and in 1954 the figure stood at £570,000,000. That is a characteristic feature. A windfall increase occurs in a particular year and the funds go up, but then they are run down over a period of three or four years. They were run down to £355,000,000 in 1955-56. The year 1957 saw another windfall increase and the funds rose to £565,000,000. They reached £589,000,000 by the end of 1957. But ever since the end of 1957 overseas funds have been running down until according to the latest figures I have, for December last year, the fund stood at £500,000,000. That figure was slightly higher than the figure of £480,000,000 for the previous month. This underlying weakness in our balance of payments position causes this Government to encourage overseas investments in every conceivable way.

The question arises as to how successful this policy has been. The figures which have been provided for us, as previous speakers on this side have pointed out, are certainly far from adequate. I want to point out to the House that what is shown as the actual inflow of private investment in the Annual Bulletin of Overseas Investment, has, in addition to the actual amounts of investment, a residual or bookkeeping item which might be quite considerable. It is interesting to see the totals and to ask whether this is the fantastic increase of which the Prime Minister spoke. I will take the figures published in the official publication compiled by the Commonwealth Bureau of Census and Statistics and then ask whether these are fantastic figures. In the last year of the Chifley Government, 1949-50, the figure stood at £67,500,000. That represented income from all sources. In the next year it was £66,800,000; the next year it was £86,400,000 and in 1 952-53, it was £19,600,000. Then in the next year it rose to £64,300,000; in 1954-55 it rose to £100,800,000, and in 1955-56 to £113,500,000. Then it fell in 1956-57 to £96,500,000, and rose in 1957-58 to £97,000,000. Is that a fantastic increase? When we consider that the Government has accumulated a deficit of £771,000,000 over the last five years, is this a fantastic increase in overseas investment? The figure rose from £67,500,000 in 1949-50 to £97,000,000 in the most recent year. Again I ask: Is that a fantastic increase? We must not forget that in 1949-50, prices were about 75 per cent, lower than they are to-day, so that the £67,500,000 would buy at least two-thirds as much as the corresponding figure would buy to-day. Therefore, the real value in goods and services which these investments could command is less to-day than it was in 1949-50.

Now let us look at the fluctuation that has taken place. The figure was as low as £19,600,000 in 1952-53. We must look also at a point which the Prime Minister seems to be completely unaware of. In the course of his speech I think he quoted a figure of £100,000,000. The overseas funds stood at £100,800,000 in 1954-55 and rose to £113,500,000 in 1955-56. The Prime Minister called that figure an inflow of capital. He was giving the impression that this was the amount of capital which had come into Australia from overseas. That is completely incorrect because that figure is the amount of investment in Australian industry which is owned by foreign investors; and it includes two kinds of money - new money and profits that have been made here and been re-invested. That is the point which the Prime Minister appears to have missed completely. At any rate, he ignored it or gave the impression that it was all new money coming in.

Let us look at the actual amounts broken up into new money and undistributed income that has been re-invested, and see how they compare. In the most recent year, out of a total of £97,000,000 only £58,000,000 was new money and £39,700,000 represented profit made in Australia and re-invested. In the year before, of £96,000,000, £53,000,000 was new money and £43,000,000 was reinvested Australian money. In the previous year, the £113,000,000 was made up of £77,000,000 new money and £36,000,000 Australian money re-invested. In the year previous to that again the total of £100,000,000 was made up of £70,000,000 new money and £30,000,000 Australian money re-invested.

It is interesting to observe the proportion of Australian money re-invested by those who have come to own it - the foreign investors - and see how that proportion has risen. The proportion of Australian money as a component part of the total in 1954-55 was 29 per cent., in 1955-56 it was- 36 per cent., in 1956-57 it was 41 per cent, and in 1957-58 it was 40 per cent. What the Prime Minister failed to understand or point out is that the total that he dealt with is made up substantially of Australian money re-invested by foreign owners and that that proportion is rising continuously. In other words what is happening is that there is an inflow of new money by foreign investors who gain control of a company in Australia and then that company is used to make fantastically high profits. From those profits investment takes place and so the actual holding, the ownership, the economic power of the foreign investor grows only partly as a result of new money.

Some of the characteristic companies, such as General Motors-Holden's Proprietary Limited have only a very small proportion of new money coming in - perhaps only 5 per cent, of the total of the value of General Motors-Holden's in Australia. The remaining 95 per cent, of that capital value represents profit made in Australia by General Motors-Holden's and reinvested in that industry. It is not new money; it is Australian money.

The Government is arguing that the value of foreign investment is that it brings new money to Australia and so helps with the balance of payments problem. I am saying that an increasing proportion of what is regarded as foreign investment is not new money at all, and does not assist the balance of payments one fraction. In fact, I will point out later that it does nothing but injure our balance of payments situation. What is happening is that a great deal of what appears to be the foreign investment about which the Prime Minster spoke is nothing more than a case of the foreign holder in a company acquiring the economic means in Australia to charge high prices for products, like motor cars, which are in demand. He can sell those products at prices which allow him to obtain profits which he does not distribute, but re-invests them in order to expand the company. That is not really new money at all. It is not foreign investment in any real sense of the term. It is Australian investment under the control of people from overseas.

The second point I want to examine is what is happening in relation to tax concessions. In recent years, the Government has set out to give the overseas investor special concessions. In some cases, certainly in the case of some British investors, no secondary tax is paid by the investor. He pays only the primary tax in Australia. What effect is this having? I say it is having this effect: It is causing the proportion of investments made from undistributed profits to rise, and the proportion of new money invested to fall. In other words, this concession is having exactly the opposite effect from that which the Government wants it to have. Why does it have this effect? I think it is for this reason: When the overseas investor in an Australian company wants funds to invest he will look in two places - overseas and his earning capacity in Australia. If he increases his earning capacity in Australia by reducing his tax, that gives him the additional funds for investment in Australia, and so he will need to bring less money from overseas. That means that instead of paying taxation in Australia with that money he is investing it in the industries he controls. So, instead of the money going to the Commonwealth Treasury in the form of taxation, it is going into investment in the company controlled by the investor. That is to say, we give the foreign investor money which he would otherwise have to pay in taxes if he were an Australian taxpayer, and he can invest that money in the company, in his own name. The effect is very largely to do nothing more than transfer money from the Commonwealth Treasury to the company concerned. That means that the overseas investor is investing in the company that he controls in Australia money that he has obtained from the Australian Government in the form of a tax concession. It seems to me that the effect of this is the very opposite of encouraging investment in Australia from overseas. Instead of having the effect of encouraging investment it tends to enable the foreign investor to use funds already in Australia in order to enlarge his shareholdings instead of bringing new money from overseas for the same purpose.

Let us look at some of the points made in relation to this measure, for instance those made by the honorable member for Wentworth (Mr. Bury). In an attempt to answer the case made by the honorable member for Melbourne Ports the honorable member for Wentworth began his speech by asking, "Does the honorable member for Melbourne Ports want a big modern motor car industry in Australia? " He said that, if so, we had to pay for it. Now, I think that the answer to that is that the honorable member for Melbourne Ports does not want a big modern motor car industry in Australia if we have to pay 700 per cent, or 800 per cent, profits to that industry. We want a motor car industry that makes reasonable profits and not one that makes the kind of profits that General Motors-Holden's Limited has been able to extract from this country. Speaking for myself, I think that we would be better off with fewer Holdens if we could have the same amount of money invested in the neglected and much more essential fields of housing, schools and public facilities, which require such urgent attention. The great majority of the Australian people of the working class are travelling in 1914- model trains and 1920-model trams, while the fortunate few are able to travel in 1959- model motor cars.


Mr Calwell - And our shipping is on a level with the T-model Ford.


Mr CAIRNS - Yes, our shipping is even more outdated than our other means of transport. It seems to me that when we are deciding what we are going to do about a great modern motor car industry in Australia those are some of the things we ought to take into account. The honorable member for Wentworth went on to ask, " Does it hurt to have such an industry controlled from overseas? " I want to suggest, for the consideration of the House, four ways in which it can, and does, hurt to have this particular industry controlled from overseas. The first is that the output, the methods and the production of this industry are determined by decisions made in the United States of America and not by decisions made in Australia. The conditions that determine the making of those decisions by General Motors-Holden's Limited originate in the United States, and are American decisions based on the interests of the parent company there. If it is in the interests of the American company to contract the activities of the Australian industry, then the activities of the Australian industry will be contracted, depending on the overall pattern of the world-wide General Motors' interests, with which the Australian pattern is very small indeed in comparison. General Motors has a world interest, not just an Australian interest, and the company will be concerned with considerations that arise in that world pattern, and not with the small situation here in Australia.

Every government in the world has had this particular problem to deal with.

Recently, Cuba and Venezuela have had to lay down, in a dictatorial manner, conditions about the prices that were going to be paid for their oil, because the pattern of prices had been laid down by the international oil cartel without regard to Cuban and Venezuelan interests. Similarly, the pattern of production and methods and the general outlook of General Motors-Holden's Limited is determined by American, not Australian, considerations. Of course, we all know that the supporters of this Government were once more British than Australian. Now, with the decline of the British Commonwealth as a world power, they are becoming more American than Australian. We on this side of the House say that the prime consideration in these matters must be for Australia, and the prime loyalty must be to Australia. We want Australian people in control of our Australian industries, even if they are Australian capitalists, rather than having our industries under the control of American capitalists, because the interests of American capitalists are not always the same as our interests. That is a point which I think even the loyal Americans on the other side of the House will have to take into account some time. They will have to realize that the decisions regarding General Motors-Holden's Limited are made in accordance with the overall world pattern of the interests of the General Motors company, and not in accordance with the Australian pattern.

What Australia needs from the motor car industry is not more elaborate Holdens. The Holdens we now have are good enough for the majority of the Australian people. We want a 2-ton or 3-ton utility truck to serve Australians. The company could proceed with the production of such a vehicle instead of ploughing back its profits into the production of more elaborate Holdens and into the opening of overseas markets for Holdens. If the profits were put into the production of such a truck, Australia would benefit, but there is no sign that General Motors-Holden's Limited will do this. Probably the rate of profit on such a truck would be less than the rate on the more expensive and more advertisingworthy Holden. So, there is one way in which the control of the industry from overseas can be harmful to Australia.

When are we going to get a utility truck manufactured in Australia to meet Australians conditions? I believe that General Motors-Holden's Limited ought to be told that this is one of the things it should be making plans for. Of course, there is no sign of their doing that, because they are interested in making the most profit and not in producing the most useful motor vehicle.

The third factor I want to mention is the limitation of exports. Over a period there has been accumulating evidence that international cartels divide the world markets up between them and produce in the most convenient place goods for sale in other parts of the world market. It appears that the Australian product is to be used to supply certain markets. The Minister for Defence (Mr. Townley), who is now at the table, knows that in the production of aircraft for war purposes we have been tied hand and foot. We have not been allowed to produce them for sale overseas, but only for use by Australia. This has never been denied, and the Minister has avoided, from time to time, giving a direct answer to questions on the subject. We have been similarly tied down in the production of the Holden motor car, and also of many other products the manufacture of which is controlled by international cartels.

It is useless for the Prime Minister (Mr. Menzies) to say that this great growth in overseas investment, which he said was fantastic, is soon going to make Australia a great exporter of manufactured goods for sale in overseas markets. The Prime Minister will sooner or later have to concern himself with the problems posed by internationally controlled manufacturing corporations, which divide up the markets of the world so as to give industries in the United States of America and Japan, foi instance, a major share, while excluding Australian industries. We all know that restrictions are imposed on the export of practically every Australian product the manufacture of which is under international control.

Now I come to the fourth way in which it may be disadvantageous to have Australian companies controlled from overseas. This brings me to the basic alleged justification for the legislation before us. The Government says, " We will give these tax concessions so that overseas companies will invest more money in Australia ". We have already pointed out that there has been no fantastic increase of overseas investment in Australia, and, in fact, no real increase at all, in the last ten years. The increase that has taken place has been to a very large extent the result of undistributed profits remaining in Australia, and new capital has contributed only to a very limited extent. Of course, the fundamental difficulty is that the larger the volume of investment in Australia, the larger the outflow necessary to service that investment. As the amount of foreign investment grows, the amount paid out to service it increases in the same proportion, and it is not long before the outflow in this way begins to exceed the amount of new capital. In those circumstances our balance of payments position must deteriorate, because the net movement of capital shows an outflow.

In this connexion let me give the House some figures. In 1949-50 the total inflow, including undistributed profits, which constitute no contribution at all towards the balance of payments, was £67,500,000. The amount of profit that was withdrawn overseas in the same year was £16,000,000, representing 24 per cent, of the total inflow of overseas investment. But in the last year for which we have a record the inflow was £96,500,000, and the withdrawn profits £34,000,000. In other words, the withdrawn profits had risen from 24 per cent, to 35 per cent, of the annual inflow in nine years. This proportion is increasing year by year, and it will not be more than seven or eight years before we will find the annual outflow of distributed profits equalling the inflow of investment.

If we add the undistributed profits to the distributed profits, we find that in 1949-50 the total represented 45 per cent., or almost half, of the inflow, while in 1956-57 it had risen to 70 per cent, of the inflow. If a situation arose in which overseas investors encountered difficulties and decided they needed more funds, these undistributed profits could be drawn upon, and the amount withdrawn in a particular year could vastly exceed the amount that came in. This did, in fact, occur, causing very special difficulties for us, in 1952-53, when the inflow of capital was only £19,600,000, the undistributed profits totalled £32,000,000 and the distributed profits £28,000,000. In that year of crisis the amount that was withdrawn and undistributed profits were considerably more than double the total that came in. Here is seen the fourth difficulty in allowing the big business corporations to be controlled by foreign investors. The outflow of funds necessary to service overseas investment is growing continuously, becoming a bigger and bigger proportion of the inflow of investment, and possibly, in periods of crisis such as 1952-53, greatly exceeding it. This, in fact, was the main cause of the depression coming to Australia in 1929. We could not borrow overseas, but we still had to pay interest, dividends and other charges on the amount we had previously borrowed.







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