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Wednesday, 7 December 1960

Mr UREN (Reid) .- The honorable member for Wentworth (Mr. Bury) made a very embarrassed speech. He is very uncomfortable about the bill because he is torn between two loyalties - his loyalty to the political party to which he belongs and his loyalty to the business interests that he represents. That is why he has an uncomfortable feeling about the amendment that he foreshadowed.

When the Treasurer (Mr. Harold Holt) made his economic statement to the House on 15th November it was thought that his proposals were going to be of a revolutionary character. As a matter of fact, many of my colleagues were surprised and they said that they had not thought the Government would go so far. Now that we see the legislation we find that proposals do not go very far at all.

Although the Opposition is supporting the Government's measures we believe that they will not solve the problem because of the difficult circumstances existing in this country. We think that the Government is not getting anywhere because of the way it is fiddling around trying this and trying that and saying, " We don't want to go too far because we don't want to embarrass our friends. It is to be only a temporary measure." We can remember other temporary measures that the Government has taken up to date. For instance, in a series of temporary measures during its term of office it has increased sales tax by 400 per cent, altogether. I am afraid that this temporary measure now before us will be another of the Government's permanent temporary measures, but this one at least does not go very far.

I want to turn now to what has been happening in relation to the share capital of companies. Statistics issued by the Commonwealth Bureau of Census and Statistics regarding new money raised by Australian companies from 1st July, 1954 to 30th June, 1960, show quite plainly how companies listed on the stock exchange allocate their share capital. In his secondreading speech announcing the bill the Treasurer said -

To allow the deduction of interest as business expenses has, of course, been a long-standing practice in taxation.

We know that. We know also that the capitalist interests to-day also realize where the loopholes are in the taxation system. So we find that in the year ended June, 1955 the share capital of companies listed on the stock exchange was £59,700,000. In the same year debentures, registered notes and deposits amounted to £27,500,000. By the end of June, 1956, share capital was £59,200,000 but debentures, registered notes and deposits had risen to £50,000,000. By the end of June, 1957 share capital was down to £43,700,000 but the debentures and so on had taken the lead and were up to £51.000,000. By the end of June. 1958. share capital was down to £35,200,000 and the other figure was up to £78.300.000. By the end of June, 1959, share capital was £48,700,000 but registered notes, deposits ?nd debentures had risen to £139.500.000. By the end of last June share capital was £48,200,000 and debentures &c. had risen to £193,600,000. Was not that sufficient warning that even though it was traditional to allow the capitalist system, which controls the big monopoly concerns which in turn control the finances of this country, to have the benefit of the tax-free provision, this benefit was being abused? Surely the Treasurer had enough warning over the last few years from the members on this side about this trend.

On the morning of 15th November last - that is, the very day on which the Treasurer made his economic statement - I asked the Treasurer the following question: - 1 preface a question to the Treasurer by directing the right honorable gentleman's attention to the increase of 6d. in the £1 made in company taxation last year, bringing the maximum rate of company tax to 8s. in the £1. This has given great assistance to companies which raise money by the issue of debentures, in order to evade company tax, because, as the Treasurer knows, such companies pay interest on the debentures before paying company tax. Does the Government intend to take action against this type of capital raising?

The companies were in a better position because, as a result of the deduction allowed in respect of interest, the capital which they raised and on which they were offering 8 per cent, was costing them only 5 per cent. Every £1 that they raised was costing them only 12s. 6d. because^ interest was being paid before taxation. When the company tax was increased to 8s. in the £1 it cost the companies only 4.8 per cent, to raise their capital. On 20th October, speaking in this chamber, I made the following statement, which is reported in " Hansard " at page 2240:-

It is common knowledge that companies pay interest on debentures before taxation is assessed. In effect, this means that although a company may be advertising that it pays 8 per cent, on money paid for debentures the actual cost to the company is only 5 per cent.

One of the Treasurer's colleagues, the Minister for Supply (Mr. Hulme) interjected -

That is not right.

That is how informed the Cabinet was. I replied -

If the Minister will keep quiet for a moment longer ! shall explain the position to him.

Again the Minister for Supply interjected. He said -

It will be interesting to listen to your logic.

I then said -

Most of these companies pay taxation at the rate of 7s. 6d. in the £1. This leaves them with 12s. 6d. or five-eights of £1. They therefore pay 8 per cent, interest on only five-eighths of £1, so that in effect they pay only 5 per cent, on 20s. in the £1.

That is the warning that I issued to the Government.

Mr Bryant - That was last year, was it not?

Mr UREN - Yes. Of course, I first warned the Government twelve months ago, and one has only to read " Hansard " to see how many warnings the Government has had by Opposition members who have repeatedly brought these anomalies to the Government's attention. In his statement of 15th November last the Treasurer also said -

The position so created has been a matter of concern to the Government for a good while past. It figured prominently in our Budget discussions in July.

So the Government discussed this matter in July but the Minister for Supply (Mr. Hulme) was not aware of what had happened. The Treasurer also stated -

The value of this to such borrowers is very substantial indeed. With the general rate of company tax at 8s. in the £1, the net cost to a company of a S per cent, loan is only 3 per cent., and an 8 per cent, loan only 4.8 per cent.

Have I not brought this matter to the Government's attention on numerous occasions? Are not the figures that I have quoted issued by the Bureau of Census and Statistics which comes under the control of the Treasurer? If he studied these figures a little more closely he would be aware of the trends in Australia.

We know that the activities of hirepurchase companies have increased enormously. According to the Bureau of Census and Statistics, in 1953 Australians owed hirepurchase organizations £88,000,000. As at 3 1st August last that debt had reached the enormous amount of £427,000,000. Just to remind the Treasurer of the position in the last year of the Chifley Government's term of office, the Commonwealth Bank was owed £16,000,000 for hire-purchase transactions and the private hire-purchase companies were owed £70,000,000. To-day the Commonwealth Bank has maintained its loans at £16.000.000, but the debt to the private hire-purchase companies has increased to £427.000,000. The Government has never allowed the Commonwealth Bank to compete with the private hirepurchase giants in this field.

We have warned the Government time and time again of the serious problems that confront Australia. Lend Lease Corporation, a great building organization that operates mostly in the Sydney metropolitan area - I am sure the honorable member for Wentworth knows this firm - only recently sought a public loan of £1,000,000. The loan was over-subscribed by £900,000. Not long before that, Hookers wanted to borrow £500,000, and the loan was oversubscribed by £2,000,000. At about that time a Commonwealth loan was undersubscribed by £3,500,000. These giant institutions prefer to spend their money on luxury hotels, modern insurance offices and luxurious bank chambers. We need hospitals, schools and homes for the people, but the Government has been channelling its funds into avenues where they are used to erect luxury hotels before hospitals, insurance offices before schools and banks before homes for the people. One could go further and say that the Government prefers to see bigger and better bumper bars on bigger and better motor cars than to see better roads. Our economy is in a sorry plight.

We have directed the Government's attention to the anomalies that exist in our taxing laws which enable these great institutions to evade taxes, and one would have thought that the Government would have taken some drastic action to meet the position. In his second-reading speech on the Income Tax and Social Services Contribution Assessment Bill (No. 3) the Treasurer stated -

In my statement I outlined why the Government had decided upon these measures. I pointed out how the bidding of higher and higher rates of interest for borrowed money had been working to the disadvantage of governments and other public authorities and, through them, to the disadvantage of the general taxpayer. This was because the less governments could borrow on reasonable terms the more they had to obtain in taxation to finance basic developmental works and the provision of community services.

The Government's proposals do not go far enough. Within a few months it will have to take further measures to stem the economic tide. As at 30th June, 1960, companies listed on the stock exchange had borrowed £193,000,000. By November this year the amount had increased, so that these organizations are evading company taxes because they are still being granted the concession. This so-called temporary measure does not go far enough.

We know that institutions which issue debentures or registered notes or accept deposits, and organizations which borrow in excess of £200,000,000 a year now will have to pay interest on those debentures and notes on the same basis as income tax is paid on dividends. But bank overdraft interest is still excluded.

Yesterday I asked the Treasurer what measures the Government proposed to take to prevent banks from channelling to their respective hire-purchase subsidiaries a good deal of the funds that are at present made available on overdraft. To give the honorable members some idea of the actual position I shall read from a book titled " Philosophy of Hire Purchase " which was written by V. H. Stanley Low. All honorable members received a copy of this publication and the honorable member for Melbourne Ports quoted from it. The Bank of New South Wales controls 40 per cent, of Australian Guarantee Corporation, which is a hire purchase company. The Commercial Bank of Sydney controls 40 per cent, of the Commercial General Acceptance Company. The National Bank of Australasia controls 40 per cent, of Customs Credit Corporation. The English Scottish and Australian Bank controls 100 per cent, of Esanda, another hire purchase company. The Bank of Adelaide controls 40 per cent, of the Finance Corporation of Australia and the Commercial Bank of Australia controls 45 per cent, of General Credits.

As honorable members can see, the banking institutions are well tied up with the hire-purchase field. For a long time, if one went to a bank for a legitimate loan, which is normal banking business, the answer would be, " I am sorry, the money is not available at bank rates ". One would then be directed to the end of the counter, to the bank's hire-purchase subsidiary. What is to stop these companies, which are borrowing up to £200,000,000 a year, and the banks, under the present legislation, from diverting some of the money obtained from these channels to their subsidiaries by means of overdraft so that they can still evade company taxation? The interest on bank overdrafts is not covered by the provisions of this legislation.

Yesterday morning I asked the Minister a question at question time. He did not take that opportunity of replying, but said he would answer me during his secondreading speech later in the day. I have read his second-reading speech carefully and I find that the Minister did not give a reply to my question. There is ample opportunity under this legislation for the banking institutions to divert money to the hire-purchase companies by means of overdrafts. This applies not only to the banking institutions. What about undertakings like L. J. Hooker's and Lend Lease and others which are borrowing money? One has only to look at the daily newspapers to see what is going on with reference to the banking institutions. In this morning's issue of the " Sydney Morning Herald " Esanda is advertising for money at 7 ner cent, for from six to ten years. H. G. Palmer's is seeking to borrow money at 8i per cent, for five years and at 9 per cent, for ten years. Marcus Clark, a retail store in Sydney, is borrowing money at 8i per cent. Lend Lease is quoting notes for Si per cent, for five or six years. Bradford Cotton Mills is offering 7i per cent.; and Reid Murray are offering 9 per cent, for eight to ten years. These are just a few of the companies which are still advertising - even in the " Sydney Morning Herald " this morning - for finance.

I do not think this legislation will control this great social evil which is not being curbed by this Government. When the Treasurer made his statement On 15th November, we thought we were going to get some definite policy and that the Governmen would bring forward legislation to control the destiny of this country. We now find that it is still lukewarm on this issue and that the legislation does not go far enough. This Government should have faced up to the issues raised by the Constitutional Review Committee. Many proposals were brought forward by that allparty committee in relation to the powers necessary to curb the inflationary economic trend in this country. That was a committee with even party representation, and its decisions were unanimous; yet the Government will not act.

A warning has been given by members of the Opposition. We have warned the Government that the measures now being taken are insufficient to overcome the economic problems of this country. . In this mornings issue of the Melbourne " Age " Mr. Warren D. McDonald, Chairman of the

Commonwealth Banking Corporation, is reported as having said that he was really shocked by the amount paid in Australia to hire-purchase companies. Mr. McDonald, of course, was formerly general manager of Trans-Australia Airlines. He is a man who has had a great deal of business training, and he strongly criticizes the amount of money still being diverted to hire-purchase in Australia. In this article in the Melbourne " Age " he is reported as saying -

The Australian worker to-day could not meet his commitments under hire-purchase unless he worked six days a week. The Federal Government had had a lot of encouragement to make it difficult for hire-purchase companies under the new economic measures announced last month. Hire-purchase was one factor contributing to the high costs of Australian manufactured goods.

We have made the position clear. We support this legislation but say that these proposals do not go far enough. The economic position is becoming so bad that the Government is not facing up to it. It must gain the courage to face up to the real issues and ask the people of Australia to empower this Parliament to control effectively the economy of the country. Many other issues which obtain under the existing law must be stressed. Some of these matters have been mentioned by the honorable member for Melbourne Ports (Mr. Crean). In particular, I refer to undistributed profits. Under the Chifley Government there was a tax on undistributed profits. In the last year of the Chifley Administration, undistributed profits amounted to only £81,000,000, but to-day the figure is £205,000,000. Depreciation of plant has risen from £96,000,000 in the last year of the Chifley Administration to £512,000,000 to-day.

It is interesting to note that in the last year of that administration depreciation of plant amounted to only 4.2 per cent, of the gross national product whereas last year the figure was 7.7 per cent. This is another anomaly which makes the wealthy wealthier. We should examine the position regarding depreciation of plant more closely and should tighten up on it in non-essential industries.

Mfr. Wight. - Name a non-essential industry.

Mr UREN - If the honorable member does not know what is in the best interests of the nation, I see no reason why I should tell him. We know that he is not concerned about the real problems which exist in our country. Depreciation allowance in respect of plant should be withdrawn in non-essential industries and we should ensure that money flowing to that section of the community is diverted to the Treasury.

There is another important taxation concession that should be reviewed by the Government. I refer to the deductible allowance in respect of expenditure on packaging and advertising. The Government is virtually subsidizing commercial undertakings to the extent of £100,000,000 a year by way of this taxation concession.

We know that the Government stands for indirect taxation, and it raises greater and greater proportions of its revenues by indirect means. I suggest that, besides reviewing the various taxation provisions to which I have referred, the Government should endeavour to reduce the incidence of indirect taxation and to raise a greater proportion of its revenue directly. The Government could take a major antiinflationary step if it followed this suggestion.

The honorable member for Wentworth (Mr. Bury) spoke about foreign capital. Many misleading statements have been made about the inflow of foreign capital, which is really coming into this country in no more than dribs and drabs.

Mr Wight - Nonsense! The Premier of New South Wales does not agree with that statement.

Mr UREN - In reply to the interjection of the honorable member for Lilley, let me cite some figures from the " Bulletin of Oversea Investment". New capital inflow from the United States of America last year amounted to £11,600,000. Capital outflow was £16,300,000. Because of the double taxation agreement with the United States of America in 1953, American investors effected a saving of £4,000,000, so that actually the new capital inflow was not £11,600,000, but only £7,600,000, because £4,000,000 of it was our own money.

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