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Industry assistance: Howard's secret corporate welfare. Address to the Tasmanian Fabian Society, North Hobart.



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FOR MEDIA

CRAIG EMERSON Member for Rankin

SHADOW MINISTER FOR INNOVATION, INDUSTRY AND TRADE

8 May 2003

Address to the Tasmanian Fabian Society, North Hobart

“Industry Assistance: Howard’s Secret Corporate Welfare”

Embargoed until 6pm, Thursday 8 May

It is impossible to tell which of the Howard Government’s spending and tax concessions to corporations are sound investments and which are corporate welfare.

And that’s just the way the Howard Government wants it.

It’s the Liberal way.

Through its closed-door approach to doling out taxpayers’ funds to business, the Government is able to defend any and all corporate spending on the basis that it creates jobs and adds value to our natural resources.

Last year the Federal, State and Territory governments provided $14 billion in assistance to businesses in Australia. That’s more than the Defence budget and well over double the sum expended on unemployment benefits for Australians.

Yet the Howard Government’s attitude to so-called welfare for the unemployed - or ‘job snobs’ as Tony Abbott calls them - is far different to its attitude to handing out welfare to corporations.

In the eyes of Howard Government Ministers corporate welfare is good, social welfare is bad.

It’s just another case of the Coalition governing for the privileged few against the many.

Contact: Craig Emerson 0418 781 386 or Brendan Shaw 0413 013 501

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The Howard Government’s corporate welfare extends to exempting from tax the foreign-sourced income of foreign company executives.

This is to give everyday Australians an “opportunity to contribute”1 to the bloated salaries of foreign company executives like the one who came to Australia, brought Australia’s AMP to its knees, and received a $13 million payout for his efforts.

Australians have to pay income tax on their wages and salaries, but the Government is intent on giving a free ride to foreign company executives, at a cost to ordinary Australian taxpayers of $40-50 million a year!

Australian company executives on huge remuneration packages complain about the top marginal income tax rate of 48½ cents in the dollar. And the Howard Government continues to express its sympathy for their plight.

But it sheds only crocodile tears for welfare recipients who face punitive effective marginal tax rates of up to 111½ per cent as they try to move from welfare to work.

Right in the groove of governing for the privileged few at the expense of the many, the Howard Government has indicated its support for making executive share options tax deductible.

Share options are the preferred device for bloating executive remuneration, since their true value is easy to hide from shareholders and the general public.

Share options are more valuable to the executive the higher the company’s share price goes.

A big package of options therefore gives executives a strong incentive to maximise the company’s share price in the short term.

In banks, this incentive has led to branch closures, staff redundancies, the withdrawal of services and higher fees and charges.

In other cases share options have encouraged dubious accounting practices and the covering up of corporate failings, leading to corporate collapses like Enron, OneTel and HIH.

Treasurer Costello has declared that if these packages of share options are to be brought out into the open, they ought to be deductible for company income tax purposes.

1 A phrase used by the Howard Government to legitimise its various special levies, fees and charges that have helped make it the highest-taxing government in Australia’s history. Speaking in Parliament on 16 September 2002 about the sugar levy, Agriculture Minister Warren Truss said: “The package will be funded substantially by a levy, and that particular levy will give Australian consumers the opportunity to contribute towards ensuring we have a viable industry into the future”.

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Tax deductibility of corporate executive share options would give ordinary taxpayers an “opportunity to contribute” to the bloated salaries and destructive behaviour of a favoured few.

There are numerous other examples of governing for the few - such as the Government’s legislation to double the superannuation tax concession for millionaire couples - but these testaments to corporate welfare amply illustrate the point.

The Howard Government seeks to justify its spending on corporations on the basis of creating jobs and adding value. But whether the favoured companies create net new jobs and net value added, or just divert jobs and value added from other activities is

the true test.

That’s a test this Government doesn’t want to sit.

We have no idea whether these projects are in Australia’s national interest.

Labor believes the public has a right to know how its taxes are being spent.

A few months ago I asked the Prime Minister a series of questions about the Government’s secretive Strategic Investment Coordinator process that he personally oversees.

This is a process of giving taxpayers’ funds to large corporations.

It is not a program as such - there is no Budget appropriation for it.

Instead, the funds are harvested out of the contingency reserve in the Budget..

This is in direct contravention of the recommendations of the 1997 Mortimer Report on industry assistance, Going for Growth, that originally recommended the creation of the scheme. Mortimer recommended that $1 billion be allocated to a special purpose fund to be spent over a five year period.

The Prime Minister explicitly rejected this recommendation of openness and transparency.

Suspicious? You should be.

We know the Howard Government has distributed more than $650 million to companies under the Strategic Investment Coordinator process.

This does not include payments of $35 million to Mitsubishi Motors and $150 million in respect of the Australian Magnesium Corporation.

But in responding to my question on notice the Prime Minister held back important information that was provided to him for his answer.

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The Prime Minister did not want the Australian public to know the names of the 35 companies whose applications to the Strategic Investment Coordinator are on hold, are under assessment or have been declined or withdrawn.

That information has now come to light through another source. I am distributing it with this speech, in the interests of public disclosure.

Other information has also come to light. The Strategic Investment Coordinator, Mr Fergus Ryan, left the post last year and has not been replaced. But the process remains. Now the middleman is gone, corporations are free to lobby the PM and his Ministers directly for taxpayer contributions to their favoured projects.

The Government is fond of invoking the Productivity Commission in defending its economic policies and behaviour.

The Productivity Commission has been critical of the Strategic Investment Coordinator process, pointing out that:

“Unless applications for selective assistance are carefully vetted, a proportion of assistance provided under programs such as the SIIP could entail net costs to the community. Indeed, the Commission considered that it is better to fund specific improvements of Australian endowments (such as roads, skills and R&D) critical to foreign investments than to provide subsidies to shareholders, including foreigners” (PC Trade and Assistance Review 1998-99, p. 93).

The only information the Government releases on Strategic Investment incentives comes from Ministerial press releases and a few lines in the Industry Department’s annual report and portfolio budget statement.

Again, Mortimer recommended a more comprehensive reporting process with an annual report to Parliament on the incentives, their progress and outcomes.

Handing out taxpayers’ dollars may lead to donations to the Liberal Party through contrivances such as the Greenfields Foundation, the Cormack Foundation and the Free Enterprise Foundation - thereby avoiding the public disclosure laws for political donations.

We will never know. We are not meant to know. That’s the point.

And that’s the problem with company-specific government payments.

The Industry Minister’s categorical defence of the Howard Government’s handouts to business tells the story:

“Well I don’t see it as business welfare, I see it as business investment” (ABC Radio National ‘Background Briefing’, 30 June 2002).

Labor is concerned that the Howard Government uses industry policy to gain or maintain support from corporate mates at the big end of town.

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The Productivity Commission supports this concern:

“And in the community mind, there may be suspicions that side deals have been done and so on. That in turn can corrupt more generally the community’s view about industry policies, so the biggest dangers occur, I think, where you’ve got selective firm-specific assistance, because then there’s the plausible argument about commercial-in-confidence conflicting

with the very important public interest argument about transparency” Productivity Commission Chairman Gary Banks, ABC Radio National ‘Background Briefing’, 30 June 2002).

What I really want to see released to the public is the cost-benefit analysis of the projects supported by the Strategic Investment Coordinator.

Industry Minister Ian Macfarlane asserts that proper cost-benefit analyses are done as a basis for deciding whether the Howard Government will give money to a company.

But when asked why they won’t release the analysis he predictably responded:

“Because they’re commercial-in-confidence” (ABC Radio National ‘Background Briefing’, 30 June 2002).

He went on to say that if the analysis were released:

“…no one in business would be prepared to receive any form of assistance…” (ABC Radio National ‘Background Briefing’, 30 June 2002).

So here’s the Industry Minister warning that companies would refuse government handouts if the true worth to the nation of these publicly-subsidised projects were to be revealed!

Labor believes the public has a right to know how its taxes are being spent.

As set out in my Policy Discussion Paper, Thriving Industries in an Innovative Australia, Labor prefers to enhance the capacity of businesses to compete globally by ensuring the availability of a skilled workforce and critical infrastructure.

This is consistent with Labor’s vision of Australia as a true trading nation, a globally competitive producer and exporter of high-value manufactured goods and services providing high quality work to all who seek it.

It takes Australia along the high road to high skills and high wages.

This approach avoids the perceptions of offering taxpayers’ funds to solicit political donations.

Yet the Howard Government in contrast spends on corporations - many of them foreign owned - almost two and a half times the amount it spends on schools.

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If the Howard Government’s spending on corporations is an investment in the nation’s future, why isn’t spending on the education of young people an investment in Australia’s future and their future as Australians?

Labor will abolish the Howard Government’s secretive Strategic Investment Coordinator process.

Should a strong case be made for Commonwealth support for a particular major project, a Crean Labor Government would commission an independent cost-benefit analysis to assess the prospective net benefits of any such project to Australia.

Only where it is clearly - and publicly - demonstrated that financial support for a major project could be expected to be in Australia’s national interest would a Crean Labor Government contemplate supporting it.

And under a Crean Labor Government, Treasury and/or the National Audit Office would independently audit the results of any such cost-benefit analysis.

Further, the results of the cost-benefit analyses will be open and transparent. They will be tabled in Parliament for debate on the relevant Appropriations Bill.

The public will know the nature and conditions of Commonwealth support for a project and what the Commonwealth expects in return for the investment of taxpayers’ dollars.

It’s time the Howard Government started acting in Australia’s national interest.

Not in the interests of foreign shareholders.

Not in the interests of foreign company executives.

Not in the interests of the privileged few against the many.

But it won’t change - old Tory habits die hard.

A Crean Labor Government will reclaim government for all Australians, not just the privileged few.

A Crean Labor Government will govern in Australia’s national interest.

A Crean Labor Government will implement a true nation-building agenda.

A nation-building agenda for the many that gives expression to and reward for the talents of all Australians - not just the few who can buy power and influence from a government that has power and influence for sale, funded by the ordinary taxpayers of Australia.