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Thursday, 8 December 1960

Mr BURY (Wentworth) .- I move -

In proposed section 51aa, sub-section (11.), after paragraph (b), insert the following paragraph: - " (c) that-

(i)   on or before that date, the company agreed to acquire, construct, improve or alter any property; and

(ii)   since that day, the company borrowed money for the purpose of paying for the cost of the acquisition, construction, improvement or alteration of that property,".

The aim of the amendment is simple.It is designed to carry out the general policy of the Treasurer (Mr. Harold Holt) that this measure should not be retrospective. The Treasurer has in proposed sub-section (1 1 . ) (a) and (b) gone a long way to meet the position, and the overwhelming majority of instances where hardship would be caused by the fact that people had committed themselves to contracts which would have come into operation after this legislation was brought down will be met. The position of contracts for borrowing money seems to be met quite effectively. But there are other instances in which companies have entered into contracts binding them to do certain things which deper.d upon their ability to borrow money in the remaining portion of this year. It is these cases to which the amendment is addressed. Companies may have made plans over a period and undertaken contracts, and now, because of this legislation, the source of money on which they would have been able to rely to carry out the contracts is closed to them. This would not matter so much if alternative sources of finance were available.

Mr Clyde Cameron (HINDMARSH, SOUTH AUSTRALIA) - What companies are concerned?

Mr BURY - We are dealing with a general matter. One of the difficulties that these companies face is that bank accommodation will be very tight. If they could obtain overdrafts, on appropriate security, the position would be met. But naturally a guarantee that they would be able to do so cannot be given. The alternative is to borrow on very short term, perhaps paying interest for a short time at high rates. But in those circumstances they have to run the risk of not being able to renew their notes, in perhaps a changed situation, next year. If they could not renew their notes, of course they could be very badly caught.

One has to recognize that there is a danger that such a provision as this would open up the legislation too far and would let in too many cases where people may try to produce evidence of agreements of this kind. This could nullify the legislation, which is certainly quite legitimate in its aims and objectives. The Commissioner of Taxation must be satisfied and if a firm agreement existed he would be satisfied. I would hope there would not be too many cases in which this would be so. My amendment is designed to meet the position of companies which otherwise would be or could be in a very difficult position. Of course, this affects not only the financial interests involved but also the development of schemes, their timing and much of the employment depending upon them. I hope that the Treasurer will be able to extend this legislation so that in addition to those who were committed to borrowing contracts, those who were committed to other contracts which depend upon borrowing for their completion will be exempted.

This legislation is intended to last only for this year. It may be said, therefore, that people who had to borrow and then pay tax on the interest would not be unduly affected if they could rely on the tax on their borrowing being lifted at the end of the financial year. But this would impel them to pause and go easily on their new commitments and that is the objective of the legislation. It could be said that they could borrow and bear the tax for a short period. But although this legislation may last only for the rest of the year, there is the possibility that at the end of the financial year something of the kind may be continued. They could well face for a period of months the prospect of borrowing at 8 per cent. - and the effective cost of borrowing at 8 per cent, now is around 13 per cent. But it may be very difficult to face the prospect of paying the much higher rate if in fact this legislation were continued next year. I hope that the Treasurer will see his way clear to accept this amendment in order to relieve a situation which could be quite serious for a number of firms.

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