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Wednesday, 7 March 1984
Page: 520


Senator HAMER(11.43) —The Income Tax Assessment Amendment Bill (No. 5 ) 1983 deals with eight separate and unrelated aspects of our tax system. It provides for the withdrawal of investment allowance where the property is used in tax exempt activities, makes some changes to the arrangements for leverage leasing and similar arrangements, makes special tax concessions for Australian trading ships, provides some tax arrangements for bonuses received in respect of certain short term life assurance policies, changes the arrangements for deductions for investments in qualifying Australian films, provides for the exemption from tax of payments of special benefits to victims of major disasters and deals with tax avoidance practices in relation to employee superannuation funds. Some of these matters have been the subject of considerable debate. I wish to raise two matters that have not yet been debated at all in this chamber.

The first matter I deal with was not debated at all in the House of Representatives. I refer to the changes to the arrangements for deductions for investment in qualifying Australian films. The Australian film industry has been one of the most dramatic internal and international success stories of recent years. It has been a great benefit to all Australians both in our internal appreciation of ourselves and our international reputation. It is important that the tax arrangements should encourage a continuation of the production of quality Australian films. This Bill reduces the income tax deduction allowable from 150 per cent of the amount invested to 133 per cent. That does not mean, by the way, as some people seem to think, that an investor has a bonus given back to him when he invests. The 150 per cent deduction really means that if a person invests money in a film 90 per cent of that investment is tax free. In fact that person is effectively investing only 10 per cent, he is risking only 10 per cent of his investment. The Government is intending to reduce the concession rate from 150 per cent to 133 per cent. The Government will also be reducing the exemption from income tax with regard to the net revenue from a film from 50 per cent to 33 per cent.

What does this do? The saving to revenue is estimated to be $1m in this financial year and about $4m in a full financial year. But this amount saved is more than offset by the $5m which has been given this year-and there is every indication that it will continue-to the Australian Film Commission. The Government's changes have not made any difference to the net cost to revenue. The Government has changed the structure of its support for the production of films and has given very much more direct control to the Australian Film Commission, a point to which I will come in a moment. The other change, one which we should certainly support unequivocally, permits the use of underwriting arrangements. An investor does not have to be a party to the contract for the production of a film but he can still invest in an underwriting arrangement. That is sensible and ordinary business administrative practice.

This legislation represents yet another broken promise by the Hawke Labor Government. Senator Ryan, who was spokesman on affairs concerning the arts before the last election, was quite adamant that not only would the income tax arrangements for film investors remain intact but also they would be increased by a Labor government. I will quote her:

Labor would pass legislation to stabilise the film industry and after passing this legislation would leave it untouched for two years. Among the measures was the provision for a 160%-

that is an increase-

income tax deduction if a film is completed within two years.

Labor honoured the two-year promise which was part of the policy of the former Liberal-National Party Government; we were doing that. But Labor did not-I repeat the word 'not'-honour the 160 per cent tax deduction. Instead of increasing it this Government has decreased it. This is yet another example, I suppose, of Hawkespeak, saying one thing and doing the opposite.

What is the effect of what this Government has done? A broken promise comes as no surprise; we are used to them. But it creates uncertainty. If the Government is going to change its mind in this way it causes uncertainty in investors. It is very doubtful whether the 133 per cent tax deduction is sufficient to create enough incentives for investment in feature films. Investing in films is a very chancy business. About one in six will show a profit. That standard in Australia , by the way, is higher than in a similar situation in America. What is also required by legislation-it has been required for some time-is that film producers have to spend considerable sums on prospectuses and dealers' licences. There are many other areas for speculative investment and unless the offerings are high enough in the film industry we will not get investment in films. One of the other problems in getting investment is that it is very difficult unless one has a distribution guarantee.

As a consequence the number of feature films being produced this year is a little more than half what it was in the previous year. Certainly, an industry of the size of the Australian industry can produce too many films. A number of films have been produced which should never have been produced. I suppose we could say that we could produce 20 or 25 quality films, but it looks as though we will only be producing about 12 this year. A responsible government must look to its policy to see what has caused this drop in production in an area which, as I said at the outset, is of great importance to Australia, far more important than any net returns in overseas trade. Films project an image of Australia both externally and internally which is very much to the advantage of all of us. The Government's policy is not working well. I am not suggesting that we should make rapid changes; that is even more damaging. But the Government's policy is not working effectively in encouraging investment in Australian films.

Worse still, the Government has transferred responsibility and enormous power to the Australian Film Commission. I have been concerned, as I think has everyone else, about giving such substantial concessions from revenue to people who invest in films. How do we ensure, within reasonable limits, that what is produced is culturally successful? One can never guarantee success in this area but we have been producing too many sub-standard films. I do not think the solution to that, though it is loved by the Australian Labor Party theoreticians and practitioners, is giving all power to a single body. The Australian Film Commission, with its $5m investment grant, is in an enormously powerful position in the Australian film industry. I very much doubt whether the effect of what it is doing and what it is likely to do will be to encourage wise investment and innovative, creative, successful new films.

I will give a couple of examples of the problems of trying to obtain investment in films. The film Lonely Hearts produced by Paul Cox, which won the best film award in 1982, had to be financed privately because the producer could not get either the Australian Film Commission or the State film corporation to invest in it. Yet it was a very successful film. The following year the same producer could not get any money for Man of Flowers from the Commission or the State corporation. That film won the best actor award. They are very successful films and have been given international acclaim. The producer of those films could not get any government film corporation investment. Now that Paul Cox is so successful, his new films will be supported by the State film corporation. But that is where the system failed. It has not been able to identify people who are not yet successful.

I will give just one more example although I could multiply these examples many times. Mad Max, one of the most financially successful films we have produced and also critically acclaimed by a section of the film-going public around the world, was privately funded because its producers could not get any investment from the State film corporation or the AFC. Mad Max II was also privately funded . Now that the producers are successful the AFC is investing $500,000 in a new Kennedy-Miller production, Bodyline.

I have heard a lot of criticism by the people in the film industry about that. After the producers' success with Mad Max and Mad Max II they do not need this sort of investment; other film makers need it more. I do not want to second- guess the AFC; I understand its problems. The point I am making is that if we give this tremendous power to a single authority to decide what is and what is not produced in film making in Australia I think we will do great cultural damage to an industry that must survive and grow by originality and diversity. I think the system of allowing investors to invest and make mistakes is better than giving too much power to a government body in an area so sensitive and so difficult as investment in films.

The second matter to which I turn is quite unrelated to films. I wish to deal with the special concessions for Australian trading ships. This Bill also introduces special provisions which will authorise depreciation over five years, in equal instalments, for eligible Australian trading ships. It will also provide for the extension of the investment allowance to those ships when used either outside Australia or on the coastal trade in Australia. Previously the investment allowance applied only to property used in Australia. The investment allowance applies to eligible Australian ships constructed or acquired on or after 29 July 1977. I said it applied to eligible Australian ships. The eligibility rules are that the ships must be engaged exclusively in the coastal or overseas carriage of cargo and passengers, they must be wholly owned or used by residents of Australia, they must be used wholly and exclusively to produce assessable income, they must be registered in Australia, they must be manned by residents of Australia or authorised non-residents and, most important of all-a point I will come back to-they must be manned at a level not exceeding the manning level determined for that ship.

What will be the cost to revenue? It will be $8m this year and next year, rising to $25m-of course, this is an estimate-in 1985-86. So we are embarking on a program of heavy subsidy for the Australian shipping industry. What is the problem-there are problems-with this sort of subsidy for shipping? Other countries do it on a long term basis. Some people argue that because others do it we must do it too. I would caution that the costs will be very high and the consequences may not be what we expect. I am not dealing for the moment-I will come back to this also-with the question of the necessity for shipping for defence purposes. The real purpose of this Bill is to encourage a growth for non -defence purposes.

One can only look at what has happened in the United States of America. Its shipping industry is very heavily subsidised. There has been a subsidy this year of $435m and this is not working. Despite these very heavy subsidies in the United States all its liner operations are in difficulties. There is a very small number of United States flag ships in overseas trade. The Americans have not got, under the American flag, an acceptable maritime industry. The reason is very simple. Its crew costs are too high. That may sound familiar, but the American costs are not as bad as the Australian costs. They are only just better ; they are just under Australian standards. The United States wage bill is nearly as high as ours and the Americans, too, have nearly two crews per ship.

I would like to make it clear that I am fully in agreement with the decision to extend the five-year depreciation period to ships, to provide the investment allowance for overseas ships and to eliminate-this is also provided in this legislation-the 2 per cent import tax on ships, but only provided that the crews are brought down to reasonable levels. I would also like to make it clear that I am all in favour of a revitalised Australian shipping industry but with two vital provisos: It does not increase the cost or the unreliability of our overseas trade. The shippers, the people who will have to pay the first cost-in the long run, the community pays the increased cost of overseas trade-have been consulted very little in this whole business. It looks to me like a very cosy deal between the Government, ship owners and unions. That, of course, is my worry.

Before I deal with that matter I would like to dispose of one other argument- the defence matter. At the moment coastal shipping is an Australian flag monopoly: We have 70 ships of 1.5 million tonnes on the coast with 13 ships of 450,000 tonnes engaged in overseas trade. I am sure that we could get enough ships from these to support even a Falklands scale operation, provided there was proper prior planning. We have not been doing that, but that is another story. The arguments advanced by the report of the Crawford Committee on Revitalisation of Australian Shipping are, in my view, all either wrong or suspect. It is unlikely that increased Australian flag shipping would make a significant net improvement in our balance of payments. It would be most unlikely to lead to increased employment and even more unlikely to provide a useful window on real shipping costs. But even if these advantages were realised they would still have to be balanced against the costs.

At present, the Australian National Line is the darling of the shipping conference with a cost structure which is so high that it raises the average freight rates for all the other members of the conference and we pay the resultant costs. At least $20m a year in extra unnecessary cost because of the ANL's involvement in the conference is created by our east Asian trade alone. That $20m a year is passed on to the Australian community. Why are our costs so high? Australian shipping is costly because excessive crews are demanded by unions. I will give honourable senators an example: Of the three sister ships on the Australia to West Coast of America service, the Swedish ship has a crew of 28, the British ship has a crew of 35 and the Australian ship has a crew of 36. That is typical. I will give honourable senators a couple of other examples of the effects of this overmanning. In 1981 the average cost of operating a 100,000 to 130,000 dead weight tonne ship on the open registry was $1.8m a year. For the British the same ship would cost $2.4m and for Australia-a ship manned by Australians-it would cost $3.8m, double the operating cost per year for the open registry. The Europeans estimate that to run their ships on Australian manning standards would cost them an additional $1m a year.

I will give honourable senators one further example. In 1975 the Labor Government brought the Christmas Island phosphate trade under the coastal shipping arrangements. The cost was $29,000 per job per year. That is now being passed on to the Australian farmer and is ultimately paid by the Australian public. Worse still, not only are the Australian crews the largest and the highest paid with the highest costs, such as workers compensation, but also they have five months leave a year, so we need nearly two crews for each ship, and they do less on-board maintenance than the smaller crews of other nationalities. This, of course, increases costs and reduces operational availability. I will give just one more small example: Stewards on our ships do not do any laundry. On ships of all the other countries they do. The result is laundry has to be done in port. That cost is $150,000 a year, which is passed on to our freight costs and passed on to the Australian community.

One of the main reasons for the excessive Australian crew numbers is that six unions are involved. Surely this is one of the areas in which we should be pressing for a single industry union and for appropriate cross-training. It has been suggested that about 12 ships might be added to the Australian flag in the next three years. The only way these could be economically justified would be if the unions show, by performance, that they are prepared to bring the total manpower cost-not just the crew numbers-of running an Australian flag ship into line with those of other developed countries, such as Sweden or Norway. But here we are in a catch-22 situation. The unions will not make more than token cuts in crewing until they see the new ships and ship owners cannot afford to spend, say , $40m on a new ship unless they know that their total crew costs, total manpower costs, are down to competitive world levels and they have some guarantee that these crew costs will stay down-a guarantee that might be difficult to accept.

The only other way to increase the proportion of our trade carried in Australian flag ships-other than by way of depreciation allowances or investment allowances-would be for the Government to give our flag ships and our ship owners a guaranteed proportion of the trade, regardless of the costs. This is what I think it will ultimately do, but it would be utterly disastrous for all Australians. I am all for bold initiatives that will overcome the high costs and low productivity of our shipping. But industrial peace can be bought at too high a price. I am fearful that we will burden ourselves with high cost ships providing unreliable services, with industrial blackmail being used to force shippers to use them despite their uncompetitive cost. What we may ultimately do is reduce our overseas shipping to the appalling level of our coastal shipping. The very high costs and low efficiency of our coastal shipping have caused grave damage to the whole economy of Australia and, as a result, to all Australians. I hope I am wrong in this fear, but I think I am right.

I would like two assurances from the Minister for Resources and Energy (Senator Walsh). First, that ship owners will not be given tax and depreciation concessions for their ships unless the total manpower costs for their ships have been brought down to reasonable world levels. The Minister in his second reading speech stated that the manning levels must not exceed the manning level determined for that ship. I would like to ensure that when the Government talks about a manning level, it is not just talking about crew numbers at any given moment; that it is talking about the total manpower costs including what the crew does, and how many crews are needed to man a ship throughout the year. That is the basis on which we should be looking at the total manpower costs of an Australian flag ship. It is vital, if we are to have these considerable subventions from government revenue to encourage ships, that we must be sure that their total manpower costs are competitive with those of other developed countries. The second assurance I would like is that under no circumstances will the Minister agree to give Australian ships a guaranteed proportion of our overseas trade. If they are to get that guarantee, they must do so by being competitive on the world shipping market. If they are given a guaranteed proportion, regardless of costs, it would, as I said, reduce our overseas shipping standards to the very low standards we now have on the Australian coast .