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Wednesday, 4 December 1985
Page: 2960


Senator PUPLICK(9.50) —I wish to address a few remarks to clauses 22 and 41 of the Taxation Laws Amendment Bill (No. 3) 1985. These clauses deal with the change in the exemptions being made for taxation relative to the Australian film industry. Clause 22 deals with the exemption of certain film income and clause 41 deals with deductions from certain withdrawals from film accounts. Honourable senators will recall that the deduction arrangements for the Australian film industry were introduced some years ago by the Fraser Government. That Government provided concessions on what was known as the 150:50 rule. This was later changed to 133:33 and it is now being changed again to 120:20. That is to say that there will be a deduction of 120 per cent for investment in the film industry and that the first 20 per cent of the profits of the film concerned-once it has been produced, granted a provisional certificate and then a final certificate, has been released and has started to make money-will be exempt from taxation.

Over a number of years the Government has been progressively reducing the financial support given by way of taxation concessions to the film industry. I believe that this is the correct step to take. This industry has greatly profited from having the original 150 per cent concession introduced. That concession helped to restore the viability of the Australian film industry at a particularly critical time in its history. Since then it has had the opportunity to stand on its own feet and, rather than the whole of the taxation concession being withdrawn in one go, it has been progressively phased down from the 150:50 level to the 120:20 level proposed in this legislation.

Nevertheless one should not think that the change in the arrangement will not have some impact on the film industry. In simple terms the effect of these changes will be to increase the investor's margin of risk after tax from 20 per cent to 28 per cent, assuming a 60 per cent marginal tax rate and 100 per cent eligibility. In practice the level of pre-tax return required to bridge the after-tax margin of risk will be greater because a proportion of the bridging return will now be taxable. The prima facie effect of the reduction is to put upward pressure on pre-sales requirements. This will lead to a downturn in the level of fund raising to the extent that such pre-sale requirements will be unable to be met, and ultimately to a downturn in production activity. While production activity as a whole will be affected by this change, perhaps more seriously, from the point of view of the film industry, there will be a further regrettable decline in the provision of money for experimental film makers. This Bill has the effect of increasing pressure on film makers to make purely commercial films. That may or may not be a good thing. I think that a commercial discipline needs to be applied to the Australian film industry, but I believe that the pressure that will be put on young and experimental film makers will not be in the best long term interests of the film industry as a whole.

Under the new concession a pre-sale guarantee of up to a figure of around 68 per cent may be needed and it is extremely difficult to get such pre-sale guarantees, particularly in the film industry in Australia at the moment, as it is running out of steam somewhat and, indeed, running out of a degree of creativity which was previously around. Pat Lovell, the producer of such films as Picnic at Hanging Rock and Gallipoli, has recently lamented the fact that money will be harder to find for high quality film production. I think there is a real danger that the effect of this will be to depress further the quality of the film industry and, in particular, to increase the pressure on film makers to make films for television showing rather than theatrical distribution. I think that is a great shame because television films do not have the same long term investment in the Australian film industry that theatrical release films do. It is true however-the Government is to be congratulated for this-that Division 10BA will still remain virtually the only tax shelter in the Income Tax Assessment Act available to individual taxpayers. Certainly, it also ought to be conceded that the concession given under Division 10BA is probably the most generous film tax concession given anywhere in the world.

I regret to say that we will continue to see the end of year financial rush. I noted in the Australian Financial Review of 25 June this year that it was anticipated that as much as $75m might be raised for investment in the film industry in the course of the last few weeks rush because the money has to be invested before the end of the financial year in order to fit in with the legislation. It turns out, when we look at the report which was given in the 26 September to 9 October issue of the authoritative film magazine Encore, that somewhere between $100m and $130m may well have been committed to the production of films in order to obtain the most generous level of taxation concessions.

I think it is important to understand that some steam has been going out of the Australian film industry. Last year Australia released only 15 major feature films not one of which, it is my understanding, actually made any money, and I think that is regrettable. While the Division 10BA tax concessions were set up by the Government to give power back to individual film makers, the irony of the whole thing is that it has put a lot of the decisions into the hands of accountants and into the hands of those in the boardrooms. I must say-I have no doubt that the Minister for Finance (Senator Walsh) would agree with me-that there are still a large number of people in the film industry who are less than entirely reputable investors and operators and I think it is a pity that they continue to prosper in the way that they are. The way in which they prosper and take money out of the industry is harming the long term viability of the industry.

There are only a couple of other very quick points that I want to make. One is that I think it is to be regretted that the Australian Broadcasting Corporation has not played a more constructive role in the production of Australian feature films. Secondly, I very much welcome the announcement made quite recently by the Australian Film Commission that it has established a co-productions program to permit up to seven international co-productions per annum for a trial two-year period beginning 1 January 1986. Provided the co-productions have a majority of Australian participation and financial equity of not less than 40 per cent from Australian sources that will be a step in the right direction. The final point is that I think the film industry needs seriously to address the question of continued investment in the script side of the industry. Australian films still suffer, to a very large extent, from a failure to produce enough creative writers to produce scripts which are of sufficient quality. One very much regrets-although it must be a subjective judgment-that a film which was as technically and artistically satisfying and pleasing as Burke and Wills was nevertheless marred by a very second-rate script.

Finally, I drew attention to the fact that in the recently released report of the National Film and Sound Archive Advisory Committee-a most excellent report which was brought into the Senate last week-a number of recommendations are made regarding deposit arrangements in Australian film archives. The Advisory Committee, after discussing legislation which is in place in other countries dealing with the mandatory deposit of published moving images and sound recordings in a designated public archive, has ended up recording that instead of a mandatory system the Archive should continue to utilise, codify and extend comprehensive voluntary mechanisms for the deposit by donation of the national production in the Archive collection and that their effectiveness be kept under periodic review by the Collections Policy Advisory Panel.

I hope that all Australian film makers will be depositing in the National Film and Sound Archive at least two copies-one a negative copy and one a release copy-of any film that is produced and that they will also be depositing in the Archive a final script and a finalised cast list. However, I think that the Government has the right and should have taken the opportunity to require the mandatory deposit of films in the National Archive. After all, I think that the makers of those films which are made using public moneys by way of taxation concessions do, in fact, have an obligation to assist in the building up of the national collection. I would very much have supported a move by this Government at this stage to include as one of the terms and conditions of the continuation of this very generous film tax concession the requirement for mandatory deposit of the various parts of the final production with the National Film and Sound Archive.

On behalf of the Opposition, I say that we welcome the continuing investment which is going on in the film industry. We are grateful that the Government has not withdrawn the support entirely. Changes will occur as a result of the amendment to the legislation, including the introduction of what amounts to an incentive for the 120-20 investors to defer film income until the beginning of 1987-88, when the new 49 per cent marginal tax rate becomes applicable, or at least until September 1986, when the 55 per cent rate becomes applicable. This change will have some quite profound impact on the future shape and direction of the Australian film industry, but I believe it correct and proper that the concession should be wound down over a period. I hope that serious investors in the Australian film industry will continue to make use of this extremely generous concession.