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Thursday, 8 December 1927

Senator KINGSMILL (Western Australia) . - I intend to move an amendment to this clause which will have the effect of restoring the measure to practically the condition in which it was introducedin another place. An anomaly is perpetuated which I think is very illogical, even if it is not inequitable. Honorable senator? are aware that there are private activities in all kinds of industry throughout Australia financed to a large extent by money borrowed on debentures from Great Britain. The act, as it will stand, if the bill passes in its present form provides in the first place that income taxation shall be paid by the British lenders on the interest they receive from the Australian borrower. So far so good. Even if the position be defensible I do not think it wise to discourage private individuals from obtaining what are, after all, the necessary sinews of war for our industries for the promotion of which those companies who suffer under this legislation are formed. Furthermore, the provision in theact is futile because it does not achieve its object. It provides that the company working in Australia, which is thereby appointed a collecting agent for the taxation department, must deduct from all moneys payable to the English debenture holders the amount of income tax at which they are assessed. There are two English cases which have laid it down that this action, so far as the English courts are concerned, is

Dot permissible; and as the tax has to be paid, and as it cannot be got from the English debenture holder, the company itselfhas to pay it. That means that if money is borrowed at a certain rate of interest from the English lender he is not touched, although he is the man at whom this legislation is aimed, and the Australian shareholder in the company has to bear what is in effect additional interest on the debentures. This has always been a fairly acute question, but it has probably never been so acute as at the present time when, because of the amount of local money which is absorbed by the internal loans of the Commonwealth and through the Commonwealth, of the States, and by the many loans which are subscribed by the Australian public for municipalities, harbour trusts, and other semi-public activities, there is very little floating capital to put into private investments. Whatever the prospects mayhave been with regard to this floating capital for private use in the past, they will notbe so rosy during the next year or so. People who have had money to put into these investments will not have the same amount of cash at their disposal on account of what threatens to be a somewhat poor season in Australia. It is natural, therefore, that we must lookoutside Australia for money, and as most of the money obtained from outside is used for developmental purposes, and does not go into what honorable senators opposite might be pleased to call "big business," the position is probably more acute to-day than it has ever been. Without racking my memory, I can refer to the MidlandRailway Company, in "Western Australia, and the Emu BayRailway Company in Tasmania that have both done so much good for their respective States, without any profits to themselves. If the provision in the act sought to tax profits, I should not have any great objection to it, but it is a tax on borrowed money at a fixed rate without any element of speculation, and thus becomes quite a different proposition indeed. In consideration of the fact that in the near future Australia is likely to want a greater proportion of this money than it has wanted in the past, I think my proposal to restore the bill to the form in which it was introduced in another place is fairly reasonable, more especially when it is designed to remove from Australian shareholders and companies working out here with English capital, the necessity for paying an additional' tax, not on profits, but on money borrowed by them to carry on their business operations.

Senator Sir HENRY BARWELL (SOUTH AUSTRALIA) - There is, in addition, a tax on their profits.

Senator KINGSMILL - Yes; this tax is in addition to the tax paid by companies on their profits, if any. The amendment is necessary to do away with a situation that is anomalous and futile, and I have not the slightest hesitation in moving -

That the words "by inserting at the end of sub-section 1 the words ' or as rebates based on purchases by shareholders from the company ' ", be left out with a view to insert in lieu thereof the words: - " by inserting at the end of sub-section 1 the words 'or as rebates based on purchases by shareholders from the company ';

(b)   by omitting paragraphb of subsection 2 ; and

(c)   by omitting the first proviso to subsection 2.

Paragraph b, which it is proposed to strike out, is as follows : -

(b)   The interest paid or credited by the company to any person, who is an absentee, on money raised by debentures of the company and used in Australia or on money lodged at interest in Australia with the company; and

The word " absentee " has not the meaning usually attributed to it.It does not mean a man who has left Australia and gone elsewhere to live for the rest of his life. For taxation purposes it means a man who may or may not have lived in Australia. The proviso alluded to is as follows : -

Provided that a company shall be entitled to deduct and retain for the use of the company from the amount payable to any of the persons referred to in paragraph b of this subsection such amount as is necessary to pay the tax which becomes due in respect of that amount :

That would be quite all right if the amount were recoverable from the English lender. But that is not possible.

Senator McLachlan - It must be paid by the Australian shareholders.

Senator KINGSMILL - Absolutely. It falls back on thepersons whom I presume the Government does not desire to penalize; but it does not affect the English lender who is, I apprehend, supposed to make extreme profits out of the Australian borrowers. The act is penalizing our own people, and -in so doing is stopping the development ofthe country for which we must get money from somewhere or other. The proviso is absolutely futile.

Senator McLachlan - It is worse than that; it is an injustice to the Australian shareholders compared with the . foreign shareholders.

Senator KINGSMILL - That is so.

Senator Sir GEORGEPEARCE (Western Australia - Vice-President of the Executive Council [8.28]. - I find myself in a very difficult position, because Senator Kingsmill is attempting to restore the bill to the condition in which it was introduced in another place. Governments, however, like other people, have to recognize when they are faced by anunmovable majority. The Government felt then, and feels now, that the law should be altered as the honorable senator proposes; but, unfortunately, it was not able to convince its own supporters or the Opposition in another place.

Senator Sir Henry Barwell - Nevertheless the Senate must do what it considers to be right.

Senator Sir GEORGE PEARCE - I hope that honorable senators will not support this amendment, because it will not be acceptable in another place. The Prime Minister, the Treasurer, and other Ministers did all they could to try to alter a stubborn majority, but they failed. There was a considerable unmovable majority opposed to their proposal, and I cannot see what good would come of sending the honorable senator's amendment to another place. I can only hope that the stern logic of facts and the arguments that have been used will filter through public opinion, and that the people will begin to realize that, after all, the Government was right in its proposal. But it is of little use to deny the fact that not only in Parliament, but outside, this proposal is misunderstood. It is made to appear and is popularly regarded as an attempt to let off from taxation the wealthy absentee shareholders of Australian companies. I have no doubt that as this debate proceeds we shall hear that view expressed in this Chamber.

However, because we fear that there is not the slightest chance of another place accepting the amendment, and because we realize that it is only a waste of time to send it on only to be rejected, the Government very regretfully feels that it must oppose it.

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