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Monday, 6 December 1976

Mr DEPUTY SPEAKER (Dr Jenkins (SCULLIN, VICTORIA) -Is leave granted? There being no objection, leave is granted.

The table read as follows-


Mr KEATING - One can see that the 20 per cent diminishing value basis, say in year 3 of the investment, leaves 84.7 per cent of the earnings retained by the company, but the 10 per cent diminishing value basis leaves 74.5 per cent of the earnings retained. The difference is not dramatic, but over 7 years it is a difference. The difference is that enough of the income is returned to the companies to meet their financial difficulties or problems. One also has to consider this measure in the light of the Government's devaluation. This will mean that more Australian dollars will accrue to the companies. While many companies have debts in terms of other currencies, a lot will have equity and capital arranged in Australian dollars, in which case increased earnings from devaluation will advantage them. Some people in the extractive industry say that on a 20 per cent rate of deductibility it takes 10 years to write off 90 per cent of the debt. On the 10 per cent deductibility, it takes 22 years to write off 90 per cent of the debt. This is true. I do not dispute that. But this is not what is at issue. If the basis of depreciation is changedthat is, from the life of the mine- to facilitate the servicing of loans over that 7 year period, the criteria must be what rate of deductibility satisfies that problem and not how long it takes to write off 90 per cent.

I will now deal with the other matters I mentioned earlier, that is, the other provisions of the legislation. I do not disagree with the 10 year option for write-off of transportation facilities. It is 20 years or 10 years at the taxpayer's option. If one accepts that transportation is a part of the productive process, I think this is a reasonable proposition and it is in line with the recommendations of the Industries Assistance Commission. I am in agreement with the provision to allow capital expenditure on the development of a petroleum field to be deductible from income from any source. It is in line with the IAC recommendations. There is, however, some debate in the Press about this particular issue where some companies want to claim the deduction against income where they have to transcend a corporate boundary.

I believe the Government intended, though it has not been specific, that this deduction should be available to companies which operate as petroleum explorers and developers as distinct from their normal area of business. To give an example, the Colonial Sugar Refining Co. Ltd could, within the boundaries of one of its sugar companies, operate a petroleum company and deduct capital expenditure against earnings from sugar. If, however, the 2 distinct areas of business each had its own company structure, the deduction would not be available. I think this is a reasonable proposition and, if companies want to take advantage of the deduction, they would need to re-arrange the articles of association and the nature of the company so as to maximise the benefit of the available deductions. The Opposition would not support this provision being extended beyond corporate boundaries because obviously one would not know where such a course of action would lead. There would be no end to it.

In respect of petroleum exploration expenditure, under the Government's provisions this will now be immediately deductible against income from any source instead of as previously, petroleum income only. Again the Opposition supports this concept. There is a pressing need in Australia to step up the level of activity in oil exploration. In the last couple of years we have witnessed a dramatic downturn in oil exploration activity and Australia is in the unfortunate position that, unless another major field is discovered quickly- another Bass Strait, if I could put it that way- our indigenous supply will diminish rapidly after 1980. In present day dollar, this would mean the absence of a new Bass Strait, or part thereof and would mean an addition of about $2,200m to the national import bill. Those sceptics who believe mining is pushing the value of the Australian currency to a level that is incongruous with the best interests of other sectors of the economy might just ponder the magnitude of the import slug which will come unless new oil is discovered in Australia. It will not be a matter of revaluation but constant deductions of the currency.

To this end I mention that the Opposition agrees with and will stand by another provision announced in the Budget which is not the subject of this legislation, and that is the lifting of the $2 a barrel excise on new discoveries of petroleum. This will not be re-imposed by an incoming Labor Government. The last item which I want to comment upon is the alteration of the retention allowance in respect of private companies. The Government has altered the provisions in relation to retention of earnings from 50 per cent to 60 per cent for companies applying, I think, from this year. I find no disagreement with that. I have always believed private companies have been discriminated against when one compares the laws applicable to public companies. The argument is that there is a shareholder pressure on public companies to distribute dividends. I think this is a gross over-simplification. Shareholders are never that organised. Directors generally agree to a distribution which satisfies the bulk of shareholders and keeps faith with the public. But the rate of distribution is exclusively a matter for their judgment. While I agree that one cannot lift the level of retention to 100 per cent because of the sharp characters who would be accruing money into companies and then selling companies off as a capital gain, nevertheless, I think that for a lot of genuine private enterprise in Australia this change would be welcomed. I support it.

All in all the Opposition, I think, has taken a reasonably pragmatic attitude to the measures introduced in the Budget. The 20 per cent diminishing value basis cannot be defended in my opinion. It is extravagant, particularly in the light of devaluation. But as far as the other measures are concerned, I think they are reasonable and I think that the IAC would share that view. The only disturbing aspect of the events of late, particularly devaluation, is that the Government is determined not to allow any natural structural adjustment between the major sectors of Australian industry. It is constantly making policies to advantage some sectors of industry to the detriment of others. While there had to be some changes in the tax laws to make the sums fit together for a Norwich Park, Nebo, Area C or a Marandoo, the totality of Government policy should be aimed at establishing equal opportunity for growth in the major sectors of Australian industry and should not be made for the advantage of some.

In conclusion, I point out that the Opposition will not oppose the legislation because that could mean the defeat of some measures which are worth while, but I stress that we oppose the acceptance of a 20 per cent diminishing value basis for allowable capital expenditure for petroleum and mining generally. The Opposition in government would change that figure swiftly to 10 per cent. I think it would also be time then to have a look at the general tax laws which apply to corporate Australia.

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