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Thursday, 24 October 1974
Page: 1934

Senator LAUCKE (SOUTH AUSTRALIA) - Has the attention of the Leader of the Government in the Senate been drawn to a most salutary and arresting article by John Hallows in today's issue of the 'Australian' concerning the serious downturn in the profitability of Australian trading enterprises in real terms because of the effects of inflation? Has the Government considered giving credence in taxation procedures to inflation accounting which would reflect the action of rising prices on a company's true balance sheet position? Is it not a fact that under present conditions of inflation profits are being overstated especially by inadequate depreciation provisions and by treating stock appreciation as profit and that many Australian manufacturers are rapidly heading for a situation where they will be unable to carry on for sheer want of cash, leading to inevitable growth of unemployment?

Senator MURPHY -There is no doubt that inflation produces special problems in accounting and these may make the procedures hitherto adopted by the taxation authorities in the application of the Act quite inconsistent with our notions of fairness. One can see how this could rapidly happen. I think it has been referred to with the capital gains tax. There may be no real gain at all in constant values and it would seem quite an absurdity that after a period when there had been an apparent gain it was really only the measure of the inflation that had taken place and one would be at a disability in the case of a sale. All over the world these problems are being struck and attention will need to be paid to them. It would be helpful if those people who represent the professional bodies in Australia, particularly in the accounting and auditing fields, were to come up with some suggestions. Perhaps they have done so in other countries.

Quite clearly problems are created and commonsense will dictate the need for new approaches to the problems that the whole world is facing. The honourable senator also asked me about the shortage of capital caused to various companies. One thing that seems very clear and agreed upon by almost every economist- certainly outside of government circles and by a great number inside- is that what we are facing in Australia and elsewhere is a grave shortage of capital. That seems to be agreed and I would not dissent from what the honourable senator is putting. Many of those who are in difficulties are in that state because of shortages of capital. The main brunt of what the honourable senator is putting is that some attention ought to be paid by the Government to the special problems being created by inflation and the simple changes of values which give the appearance of profit when in fact there is no real profit. I will bring that to the attention of the Treasurer.

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