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Wednesday, 14 June 1989
Page: 3974


Senator COLLINS —Is the Minister for Finance and Minister representing the Treasurer aware that Mr Ian McLachlan, a director of Mr John Elliot's Elders-IXL Ltd--


Senator Alston —Is it McLachlan bashing day today?


Senator COLLINS —Do honourable senators opposite not listen to Australian Broadcasting Corporation (ABC) radio in the mornings? I do. Mr McLachlan was reported on ABC radio this morning as calling for greater incentives in Australia's taxation system.

Honourable senators-Hear, hear!


Senator COLLINS —The question really does not deserve this sort of applause but I will continue. What sort of incentives would the abolition of the Government's 1985 capital gains tax reforms produce? Does the Government have any plans to water down the capital gains tax in the ways that have been called for by various directors of Elders-IXL?


Senator WALSH —I heard Mr McLachlan on the wireless this morning. I can think immediately of one type of incentive which the abolition of capital gains tax would provide. Likewise, the watering down of capital gains tax as proposed by the Liberal Party of Australia would provide the same incentive, that is the incentive for directors and senior executives of public companies to provide themselves with what are euphemistically called executive share incentive schemes. In the Elders scheme, for example, the favoured few are granted 1c paid shares in the company. Incidentally, according to Elders's most recent annual report, of September 1988, Mr Ian McLachlan was a holder of 42,000 of those 1c paid shares.

Secondly, the abolition of capital gains tax would strengthen the incentive to make bonus issues of shares to shareholders and to allow holdings of those 1c paid shares to be treated as if they were fully paid for the purpose of such bonus issues. Incidentally, Elders offered or declared a one for five bonus on 28 September last year, including a bonus on those 1c paid shares, 42,000 of which are owned by Mr McLachlan. So he would have received 8,400 bonus shares as a consequence of the 1c paid shares he had previously taken up under what is, as I said before, euphemistically called the executive share incentive scheme. Those 8,400 shares would be worth a bit over $21,000 at yesterday's price. If Mr McLachlan were to sell those shares he would pay-this is only the bonus issue part of it-capital gains tax at the marginal rate of personal tax applicable to him. If, however, the capital gains tax were to be abolished, he would pay nothing. If the Liberal Party's proposal were to be implemented, if he held them for five years he would pay nothing; if he held them for one year, he would pay only 80 per cent of what he would be liable to pay under the existing law.


Senator Panizza —It is a good scheme.


Senator WALSH —Senator Hill thinks that is a good thing, does he?


Senator Hill —I said it was a good tax.


Senator WALSH —Senator Hill said it was a good tax in 1981. I am sorry; I do not wish to defame Senator Hill. That applies only to the bonus shares which were issued as a result of the 42,000 1c shares previously made available to Mr McLachlan. If he sold all the 42,000 shares, the tax that he would evade or avoid would blow out to in excess of $100,000 capital gains tax. The executive incentive share scheme is a mechanism by which those who are in control of companies effectively diddle all other shareholders in companies. If the gains are to be exempt from capital gains taxation on the sale of the shares, that diddles all the other taxpayers as well. I do not think I need say any more.