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Wednesday, 7 March 1984
Page: 524


Senator MARTIN(12.08) —The Senate is debating the Income Tax Assessment Amendment Bill (No. 5) which covers a range of subjects which have been debated at increasing length in the Senate. I will speak to just one aspect of the Bill; that is, the part which addresses itself to the changed government policy in relation to the film industry. Senator Hamer early in his speech referred to this aspect. I want to pick up a number of the points that he raised and to make some others.

I believe that the Government's policy in relation to films is equal to any of the hypocrisies that have been listed against the Hawke Government on its broken promises. Just one year ago this Government was elected to office with a number of promises. As quickly as it could-within days-it ditched its promises on what are now shown to be spurious grounds. It ditched them on the grounds of an estimated forecast deficit. Only in the last few days the Prime Minister (Mr Hawke) and the now discredited Treasurer, Mr Keating, have had cause to say that these figures mean nothing, because now that they are in government they are faced with releasing the same set of figures as was released at the time of the 1983 election. They have both said that it is not worth releasing the figures because they are meaningless. Twelve months ago those figures were the reason for the Australian Labor Party and Mr Hawke tearing up policy speeches and promises.

The arts area-the film industry, in particular-is one area which has been noteworthy in this respect. In some areas of the arts promises have not yet been kept. In other areas they have been broken. But the extreme hypocrisy of the Government in the matter of the film industry is that it cannot even use the spurious Budget deficit figures as its excuse for breaking its promises, because there is no financial gain to the Government, if its own statements and projections are correct. The Treasurer, in his second reading speech on this Bill, stated in relation to changes in taxation concessions:

These measures are estimated to save revenue of $1m for 1983-84 and $4m in a full year but this is more than offset by additional direct government assistance to the film industry through the Australian Film Commission.

I am curious about the fact that the Treasurer, having given the estimates of savings in revenue, did not then nominate this more-than-offsetting figure. When the announcement was made that the tax deductions for films were to be reduced, the Minister for Home Affairs and Environment, Mr Cohen, said that it would be offset by a $5m grant to the Australian Film Commission. When I went to school one plus four equalled five, which would mean that $1m this year and $4m in a full year would equal the $5m given to the Australian Film Commission. I do not know what is meant by the Treasurer's statement that the measures would be 'more than offset by additional direct government assistance'. It can mean one of two things. It can mean that more money is being given to the Australian Film Commission that has not been announced and I doubt that. It could mean that the Treasurer, to put it in the kindest way that I can think of, is gilding the lily . Perhaps he is including the AFC's annual budget in the amount of money given to the AFC. But it is still only $5m. Therefore revenue savings by the taxation changes are offset by an additional grant to the Australian Film Commission. So the grounds of the Budget deficit, which were always spurious, cannot be given.

So what has happened? A number of promises were given and Senator Hamer has detailed them. I will detail those promises again and contrast them with the reality. The Labor Party in opposition promised to extend the eligibility for a previous tax deductibility to two years from completion of a film, as against the one year that applied earlier. The former Treasurer, Mr Howard, had announced at the beginning of the year that the Fraser Government has agreed to this extension, an extension which was being pressed on the Government for some little time before that announcement. I will return to that matter. So the promise of the extension of eligibility was kept. It was kept through legislation that passed this Senate with bipartisan support in May of last year. The promise-a bipartisan one-and the keeping of it so far remains intact.

Another promise was to allow marketing expenses of films to be tax deductible. One of the reasons for at least one element in the tax concessions that have been given to the film industry is that marketing expenses, for example, are not deductible. The only expenses that are eligible in the deduction area are those actually incurred in making the film. That can account for 80 per cent to 90 per cent of the total project cost to the point of revenue being earned. That reduces the apparent attractiveness of the tax concession. The Labor Party promised to allow those expenses to be deductions in addition to the taxation concessions that existed. That promise has not been kept, and will not be kept.

The Labor Party also promised that when it made its reforms to the film industry, which included an extension of eligibility to two years, an increase in the taxation rebate from 150 per cent to 160 per cent, and deductibility for marketing expenses, those changes would remain in place for two years. What has happened? I have mentioned the extension of eligibility to two years which was brought in in May. It was the policy of the Fraser Government and of the Labor Party during the 1983 election campaign. It passed through both houses with bipartisan support in May 1983. However, on Budget night in August 1983, less than three months after the change, the Treasurer announced that the tax concessions for film investment would be reduced.

I will briefly clear up a misconception about these concessions held by a number of people, both in this Parliament and certainly outside the Parliament, who do not invest in films. In the case of investment, there was previously a 150 per cent deduction. I think there are people who have the idea, when a 150 per cent tax deduction for films is mentioned, that if $100 is invested in a film the Government drops $150 into the investor's pocket and that therefore this concession is some great rort and the investor cannot lose. Of course, that is not so, as various Ministers for Home Affairs and Environment have been at pains to point out from time to time. The 150 per cent refers to a tax rebate, it does not refer to 150 per cent of investment. The tax rebate has now been reduced by the Government to 133 per cent. Again, that contrasts with the promise it made to increase the tax rebate to 160 per cent. The associated tax benefit was the exemption from income tax of 50 per cent of the net revenue. That has now been reduced to 33 per cent-another broken promise.

Putting it in the simplest terms possible the net effect is that the break-even point for a film has been increased by at least 20 per cent. That 20 per cent is the conservative calculation after taking all the factors into account, such as those items that are not deductible. I am informed by spokespeople for the film industry that in the case of some films these taxation changes by the Hawke Government have raised the break-even point by 36 per cent. It has already been stated in the Senate today that the film industry is a notoriously unreliable one in terms of return on investment. It is an extremely high risk industry for investors. A small percentage of films make a profit. Even so, in Australia our record has been pretty good compared with that of other countries. Nonetheless, the percentage of profit-making films is small; certainly it is less than half. The effect of raising the break-even point by at least 20 per cent-and possibly up to 40 per cent-must mean that the chances of a film returning a profit are reduced and the percentage of profitable films could thus be expected to reduce. The disincentive to investing in films because of the industry's high risk nature has always been there. The Government has compounded that disincentive.

In the last few days the 1982-83 report of the Australian Film Commission was tabled in Parliament. As it covers the period from 1 July 1982 to 30 June 1983 comments made in the report are therefore relevant to government action in that period. I will quote relevant parts of the Chief Executive's report. The report states in relation to 1982-83:

It was a turbulent year but some very solid gains were achieved.

In particular, substantial progress was made in resolving questions of industry regulation. The long-awaited adjustment to the completion requirement under the tax incentives legislation was introduced . . .

. . . .

The industry has traditionally enjoyed bi-partisan political support and this support was reaffirmed when, after the change of Government in March 1983, promised legislation to amend 10BA was in due course effected.

. . . .

The industry's greatest need now--

that is, as at 30 June 1983-

is for stability in its regulatory environment and the Commission draws comfort from recent undertakings by the Federal Government that the present incentives will stand for at least two years.

The incentives stood for two months-not two years-after the Chief Executive of the Australian Film Commission wrote that report. The need for stability in the industry, the need to know with certainty whether laws will be changed, is essential. It is essential for those with film projects so they can make their plans; it is essential for those who would seek to sell investment in the industry so they can know what the devil it is they are selling to investors. It is also essential to the thousands of people who work in the industry. It is not always realised that the film industry is very labour intensive. We see the actors, the up-front people, and we hear about the producers and directors, the people who get the awards and credit for artistic creation, but there are many other people, such as technicians and those in associated trades who are employed by the film industry. Thousands of Australians are employed in the Australian film industry. It is necessary for them to have stability so that they can continue to commit themselves to working in the industry and not leave with their experience, expertise and talents to seek more stability and security elsewhere.

This Government in breaking its promise stands condemned, and I reiterate that it is for no financial gain. In a debate in the Senate last year on a statement on such changes by the Minister for Home Affairs and Environment I pointed out that there were problems for the film industry in these changes. I addressed myself to the second aspect, which Senator Hamer has already addressed today. I am concerned that there has been a very real shift of power, through a shift of financial power, to the Australian Film Commission. The Australian Film Commission now has $5m to invest in Australian films. With the declining attractiveness of private investment that has to give the Film Commission a very powerful position in the market-place. One of the reasons the Minister gave for this was the quality of films being produced. I really do not think any politician should care whether people want to spend their money on seeing such movies as Mad Max or Alvin Purple or whether they want to spend it on films such as Man of Flowers. I do not think it is any of our business. The public will vote with its feet. The record shows that those films that have been commercially successful are about 50 per cent of the light-hearted variety and about 50 per cent of what we would roughly call the quality variety.


Senator Button —There is nothing lighthearted about Mad Max. It is a very serious film.


Senator MARTIN —It is interesting that Senator Button raises that point because last year the matter was raised in an Estimates committee with Mr Skrzynski, the Chief Executive of the Australian Film Commission. When questions were being addressed to Mr Skrzynski as to how the Australian Film Commission intended to approach the disbursement of this money and what its self-imposed guidelines and standards would be, he was asked whether, if Mad Max or Puberty Blues scripts had been presented to the Australian Film Commission, under the guidelines that it had determined, it was likely that they would have been funded. His answer was no.


Senator Crichton-Browne —Why?


Senator MARTIN —I was not interested in pursuing that. They are two very successful films. Mad Max is an extremely successful film financially-a film I have not seen because I do not like films of violence but apparently a lot of people do because they spend their money on it. Puberty Blues was a low budget, very sensitive film and would fall into that category that we call 'quality'. But those films would not have been so regarded by the Australian Film Commission. While Mr Skrzynski admitted it would have been a mistake not to finance them they would not have fallen into those guidelines. This illustrates that people vary in their standards of judgment. I reiterate: It is not the business of government what the quality of a film is, at least not in the sense the Minister for Home Affairs and Environment has used that word. I do not think it is the business of a statutory corporation either but the Government has now made it the business of the Australian Film Commission. We should all be a little nervous when government and government agencies have such power over the content of films. I am not suggesting that the choices that have been made by the Film Commission so far are in any way sinister but I do not think it is a healthy trend in attitudes of government towards the content of artistic endeavour.

In recent days there has been some controversy about the net effect that the changes in the taxation concessions will have on the Australian feature film industry. Some have predicted that it will be such a blow to the Australian feature film industry that very few-maybe only three or four-feature films will be financed this financial year. Some have said that it is the death blow to the feature film industry--


Senator Tate —What do you think?


Senator MARTIN —I will give an indication later-and that in future investors will be interested in investing only in television series because there is an advance sale to a television channel before the series is made. The Australian Film Commission has entered this controversy and talked up the market a little. There may be good reasons for doing that but even so, without deciding on this date, because I think it is one for the future, I find the claim by Mr Skrzynski a little confusing. Mr Skrzynski, the Chief Executive of the Australian Film Commission, is quoted in the Australian Financial Review of 24 February in an article headed 'No tax ''disaster''-commission head' as follows:

He-

that is, Mr Skrzynski-

named 12 films and two television mini-series which were already under way . . . and then produced a list of another 12 films and four mini-series which were expected to go into production.

Of these, he said the Film Commission had been informed that at least five films were definite starters, three of which were being funded under the new tax regime, along with the four mini-series . . .

In one sentence it is stated that 12 films are under way and 12 other films are expected to go into production. One would be excused for thinking that the Chief Executive of the Film Commission was indicating that maybe 24 feature films would be funded this year. However, he goes on to say that at least five are definite starters. I am not sure which five of which 12; whether it is five of the 12 that are already under way-in which case one wonders why he says 12 are definite starters-or five out of the 12 which are expected to go into production --


Senator Tate —Three out of one and two out of the other.


Senator MARTIN —I repeat for Senator Tate, who has not been listening all the time, that Mr Skrzynski produced a list of 12 films under way and another list of 12 films which were expected to go into production. He said that he had been informed that at least five films were definite starters. I do not know what the difference is between 'expected to go into production' and 'definite starters'. Perhaps Senator Tate knows and can explain it to the Senate. I thought they meant the same thing.


Senator Tate —In relation to films?


Senator MARTIN —Yes. I am not attempting to predict whether 24 films, five or none will be financed this year. The proof of the pudding will be on 30 June this year when we will know the number of films that have actually started under the new tax regime. Investment in the film industry has traditionally been rather bunched towards the end of the financial year and it will be the figures that emerge at the end of the financial year which will give us the answer. I do not want to talk down investment in the industry but I do not think it is very helpful to talk it up. I have been concerned ever since the changes were announced as is everyone I know who is involved in the film industry, apart from the Minister and the Australian Film Commission.

I reiterate what I said at the beginning. This was all so unnecessary. If the Government had only maintained its promise to extend the previous tax concession to two years the film industry would be on the sound basis it believed it was on after May 1983 when it looked forward to a period of stability. Maybe there are people in the film industry who have a fairly healthy scepticism who did not expect the Government actually to increase the tax concession from 150 per cent to 160 per cent as promised, and who did not really expect the Government to allow marketing costs as a tax deduction as promised. However, I know of no one who anticipated the reductions in taxation incentives. I know of no one who expected the Government within three months of changing the rules, flying in the face of a two-year stability promise, to change them yet again and for no good reason.

Promises have been broken without even the excuse of saving money, of having to buy one's way out of something. Therefore one must ask the question: Why were the promises broken? There are a number of possible answers. The Minister has given none. I will suggest a couple. One is to take the sinister view which was referred to also by Senator Hamer that this Government is interested in control of the content of Australian films. However, Mr Skrzynski himself has admitted that one cannot objectively measure the viability of a film and that the Australian Film Commission would have made a mistake about two outstandingly successful films. Alternatively, perhaps the Government really is not interested in the film industry. I know the Minister is interested in the film industry. It seems to give a great charge to his adrenalin to go to Los Angeles and make speeches on the film industry. He has done it and good luck to him. I agree with the pride in the Australian film industry that he expressed in his speeches. But the adrenalin of investors in the Australian film industry is not flowing so fast. It may well be that there will not be many future occasions on which the Minister can make such speeches. As I said, the Minister is undoubtedly interested in the film industry; the Government clearly is not. It would have cost very little, if anything, for the Government to keep its promises. Whatever the results for Australian films prove to be, including the effect on thousands of jobs in the industry, the Government will bear the consequences in due course .