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Thursday, 5 December 1974
Page: 4631

Mr MACPHEE (Balaclava) - I support entirely and wholeheartedly the views expressed by the Leader of the Australian Country Party (Mr Anthony). The export incentive schemes of the Liberal-Country Party Government were essentially aimed at encouraging Australian manufacturers, firstly, to develop new markets and, secondly, to increase their sales in existing markets. This Bill now before the House is aimed at developing new markets but it certainly and deliberately refuses to supply any incentive to increase the volume of sales in existing markets. It is quite inadequate for the needs of Australian exporters. It is certainly better than nothing, as the Leader of the Australian Country Party has said, but it does not go far enough. It does not contain anything which will encourage people to increase what now may be marginally profitable exports to markets which they have worked hard to open up. The Bill contains a clause which is aimed at eliminating so-called abuses of the previous scheme. One would have thought that it would have been possible to have inserted this clause into the existing scheme rather than to abandon part of the existing scheme and no longer provide incentives to persons who are increasing or who are capable of increasing their volume of sales in particular markets. In other words, we should eliminate the abuses rather than eliminate the incentives.

With the serious decline in investment in Australia, to which Opposition spokesmen have often referred in this House, it is important that we have even more than we had before export incentives, even as a temporary means of stimulating investment, of producing economies of scale, of increasing output and, consequently, of increasing employment opportunities. A very serious deficiency in the Bill is that it fails to provide an incentive to export on an increasing scale to established markets. The reasoning of the Government seems to be that if one has already proved that one can export in certain areas then one has all the incentive one needs, because if one is making any kind of sale one can continue to make a sale. This is highly specious reasoning because it ignores many practical considerations. It ignores the cost of servicing the market and of maintaining people there, and it ignores the part that there are others from other countries who are competing in those markets for what is, of course, a defined and limited area. That, together with the internal pressures in Australia, has really led a lot of people to consider whether they should withdraw from the export markets in which they hold a somewhat tenuous toe-hold but could hold a greater one if incentives were given to them to stay there and to continue to expand.

The Government's view may well have been forfeited by the statistics for the first half of this year which show the export of manufactured goods to be in a healthy state. But this is partly because of the shortage of goods on a worldwide basis. With the enormous cost pressures which Australian manufacturers are now experiencing their ability to compete overseas has declined very sharply. Therefore they need an incentive to expand existing markets as a means, as I have said, of stimulating investment and of creating employment opportunities in Australia. There is a contraction of manufacturing industry in Australia. Therefore there are fewer goods to export than previously. The profits to Australia from exports are therefore much lower than they used to be and we desperately need incentives to restore the level of export earnings.

Not all companies will be in a position to avail themselves of the grants which this Bill proposes. Of course some companies will take advantage of these incentives in order to find new markets. But there are many which, because of the nature of their operation, will wish to expand existing markets in which they gained a toe-hold in more propitious circumstances than those which now prevail. Such companies will find it increasingly difficult to move into other markets in which they may have an equally tenuous position. Australia's high rate of inflation makes it very difficult for Australian manufacturers to compete with competitors from low labour cost countries and with countries which have more generous export incentives than Australia has ever had. They also have to compete with countries which have large populations which already produce through an economy of scale which makes the goods easier and less costly to produce.

The Government has been praised by the Opposition for its recent export bank legislation. It is a great shame that much of the reasoning behind the Government's move in that area has not been translated into the area of export incentives. I have no doubt that the manufacturing, industrial and craft unions will share the view which has been expressed by the Opposition today. In fact, the Government should be promoting exports on a major basis at this time as a means of maintaining a viable and vital private sector in the economy. The Government should recognise that not only is there the need for increased investment and higher employment opportunities but also there is a need to retain technical expertise and continued productivity improvement. It is this productivity improvement rather than massive Government handouts which will make the greatest contribution to an increase in the standard of living of all Australians. Export incentives and increased earnings from exports will go a long way towards achieving that.

These are very general observations. I shall now make some rather more specific points on the Bill. The Deputy Prime Minister (Dr J. F. Cairns) in his second reading speech said that the Bill aims at developing new markets rather than at perpetuating payments on exports. The Minister also said that he has discussed this scheme with exporters. Yet I would be amazed if any of those exporters who have spoken to the Deputy Prime Minister would have asked the Government to perpetuate payments on exports. Rather they would have asked for something akin to the Liberal-Country Party scheme which gave them an incentive on an increased volume of exports, which is hardly a matter of perpetuating payments on exports. This grant on the increased volume of exports would take into account the sales position at the end of a given 12 months and compensate or make a grant as an incentive for the improvement in sales in that area in the following 12 months. This would in fact assist those who have spent a lot of money on sales promotion in a particular area, who have to continue to spend money to service existing clients and who, under this Bill, will not be compensated for that continued follow up work

One would think that the extension of a market by many companies or many industries would, in many cases, be more economic to the company and more beneficial to Australia in terms of a return on investment and higher employment levels than in finding new markets. One can spread some of one's goods too thinly. Industries vary. It must be a matter for each company to decide whether it will expand the existing market or whether it will seek a new market. But this Bill denies the right of a company to make that kind of choice. Now companies will decide either to contract and close markets which are only marginally beneficial without further incentives or they will be forced to move into new areas. We could face a problem here with some of our largest export earners, such as in the expensive capital equipment area where the problem can be solved only with a very heavy outlay and with years of promotion by a company.

Under clause 7 of the Bill a company may fail to qualify for a grant. Under clause 7 a firm which has spent less than $5,000 over 3 years is eligible for reimbursement in respect of further market promotion expenditure in the market, up to the sum of $100,000 per annum over each of 3 years. Yet a firm which has done a market survey which convinces that firm that it has to spend more than the Bill now allows- that is, it may require 6 years and a larger capital outlay than $5,000 in a total of 3 years- becomes ineligible for the premium payments on further market development. This is inequitable. As the Leader of the Country Party said, it is aimed at larger companies. It is another example of what one can only describe as a very foolish foible by the Government in respect of larger companies.

It is commendable that the Government is making it possible for small companies to find new markets. But it is utterly stupid to deprive some of our largest companies of this benefit and, therefore, deprive Australia of the benefits which would come from genuine incentives given to larger companies to export.

The operation of this Bill will also cause an injustice to other active Australian exporters. I have mentioned those who export capital equipment. We could also find the situation that there are 2 domestic competitors in Australia, one of whom has established a market overseas and now finds that the other, working on the basis of the pioneering work which he has done, now says: 'If he can sell his goods in that market I can sell mine. I will go there and I will compete with him.' What a foolish situation that is, because under the Bill it is a new market to the second company but it is no longer a new market to the first company and the first company gets no benefits from extending its activities and from its efforts to try to increase its volume of sales in the market which it has pioneered at considerable expense to itself and under the previous incentive program of the Liberal-Country Party Government. Under the Bill it is a new market to the new company, which goes there and seeks to take away from his Australian competitor what his Australian competitor had been developing and for which he is no longer compensated. This is an extreme disadvantage and injustice under the Bill. It is an absurd waste of Australia's resources if we have 2 companies competing with each other in this fashion in a market.

Referring again to the obsession with big companies, one must say that it is inevitable that a great deal of our exporting will be done by big companies. Many of them are geared to this type of operation, and we as a country benefit by the earnings which they make. We benefit by the extended employment which they offer because of the fact that they are exporting more and producing more goods, and we benefit from the economies of scale, which produce generally lower prices in the home market. It is an inspiration to go to an export awards presentation and to learn of the small companies which are exporting in some of the most difficult markets, and therefore it is pleasing to see that in respect of at least new markets they will be compensated. Many of them will find it a major barrier not to be given an incentive to continue to work in and expand the market which they have so recently pioneered.

In other words, all export is good for Australia, and it is detrimental to our economy for there to be provisions in this Bill which discriminate against large companies. Certain provisionsclauses 10, 15 and 16- do precisely this. By clause 10 and clause 16 the maximum benefit of $100,000 per annum is limited to a group of related firms. Abuses could have been coped with by clause 38, a clause which I commend. The result of the inter-action of clause 10 and clause 16 is that there is placed upon large companies or upon diverse companies a penalty. As we all know, one of the modern economic phenomena is the diverse corporate body, the group of companies which need not have very much in common with each other in terms of their production methods, in terms of the goods they make or in terms of their marketing techniques or areas. Yet though each division of the company might be relatively small and each division may have a healthy export market, it is to be penalised by the fact that it has the same group company ownership or some other relationship denned by the Bill.

I repeat that if there have been groups of companies which have been guilty of abuses in respect of export incentives in the past, they should be exposed as such and they should be dealt with. I believe that the provisions which the Minister has inserted in this Bill can cope with that point, but to me it seems tragic that, at a time when some of our diverse companies have been diversifying in order to insulate themselves against the impacts of inflation and are endeavouring to export certain of their product lines, they are now to be penalised because of a provision which was probably aimed at multinationals on the theory that another wing of the multi-national corporation overseas could probably fulfil the commitment, or that the multinational would be able to find funds to finance its own exports. These are the kinds of problems which still cause Australia great concern. If a multi-national corporation overseas considers that without export incentives in Australia it can export from country A to country B rather than from Australia to country B, it will do so, and that is Australia's loss. We have gained nothing from the so-called penalty on the multi-national corporation. It is a loss of export earnings, employment opportunities, etc. in Australia. That is why I believe that the maximum benefit of $100,000 was set by the Government with multinational companies in mind. It will still disadvantage some multi-national companies, but it will certainly disadvantage many other companies in Australia. Many of the multi-nationals that it will disadvantage have operated with great credit in Australia, and they have earned this country a great deal of export income. Likewise, in foolishly discriminating against big business in general and multi-nationals in particular, the Government will harm many of those Australian companies which are entirely dependent upon their Australian operations to promote their overseas exports. I am not talking just of Australian multi-nationals; there are lots of Australian companies wholly operating within these shores which are wholly dependent upon the economies of scale they can get from exports, but still find that exports as such are marginally profitable enough for them not to operate without incentives. Many of those businesses may in fact close down. Many Australian companies are being damaged very severely at the moment. They have been damaged more severely than the multi-nationals. They need export opportunities.

Clause 15 provides for a differential rate for expenditure incurred in exports in relation to government sponsored promotions and nongovernment sponsored new market development. Although one must praise government sponsorship, one must recognise that the best people to decide where the markets lie and how they should be developed, are certainly those in private enterprise- the people who put up the risk capital and the people who must exercise the initiative. To have differential rates according to whether it has a government blessing or not is indeed most unjust and impracticable in commercial terms. For example, at a government trade display, a large manufacturer of heavy equipment cannot necessarily be expected to incur the expense of participating in the trade display. He may participate by using photographs or by having a representative on the spot. If in fact he seeks to have his own promotions elsewhere in his own way, he is rewarded at a lower rate than others who attended the Commonwealth Government sponsored display. The existence of such a differential may even encourage a new type of abuse under the scheme.

I deal next with the question of markets. In many large and economically complex industrial countries such as the United States of America, it is no longer realistic to define a market merely by reference to geographic boundaries. I understand full well the problem which any one would have in defining a market, but I would ask that when the Government reviews the operation of this scheme, as it has said it will, it will examine whether it is feasible to look at a country like the United States and call it a market. Merely because one has penetrated the West Coast, it does not mean that one will penetrate the South or the Mid West, let alone the East Coast. That could be seen as a separate market.

Finally, on the question of costs, I would go one step beyond the criticism which the Leader of the Australian Country Party made of this scheme. While the previous scheme was reported to have cost $100m, $78m of this amount was in the form of tax rebates. The present scheme costing $27. 5m is all taxable. At a company tax rate of 47.5 per cent, the net cost to the Government of this scheme is only $ 14.5m. If it is assessed at the rate of 45 per cent company tax, the net cost to the Government is $15m. The cost of this scheme is therefore greatly reduced as compared with the previous scheme in terms of benefits to exporters and benefits to Australia. It is even more greatly reduced than the Minister said in his second reading speech. This, I believe, will reflect adversely on the Australian economy.

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