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Tuesday, 30 April 1968

Mr UREN (Reid) - The Income Tax (Internationa] Agreements) Bill 1968 deals with what is commonly known as the double taxation agreement with the United

Kingdom. The first double taxation agreement with the United Kingdom was entered into by the Chifley Labor Administration in 1946. The right honourable J. B. Chifley realised in the early postwar years that it was necessary to get as much British know how and investment as possible into this country to establish industry and to maintain full employment. Thus he agreed to a most generous agreement with the United Kingdom. The review of that double taxation agreement is long overdue. Although Mr Chifley's decision can be argued, it was the correct one at the time. At this stage in our history, however, I am totally opposed to any double taxation agreement with any country. Honourable members might ask: Why do you not oppose this Bill?' My reply is that the party to which I belong thinks that this measure represents a step in the right direction; it does not believe in opposing progress. Indeed progress should be supported. I regard this measure as a progressive move and a definite improvement on the old double taxation agreement.

It is as well to mention the differences between the two agreements and the improvements that are being made in the new one. Under the former scheme a branch of a British company that was established in Australia was not required to pay income tax. Dividends declared after profit were distributed to the British parent company and taxation was not payable on them. Even though Australian dividend holders pay up to 66c in the $1 on their investment, the British companies do not pay anything on their dividends. Of course it is pointed out that the British companies pay 42i% or, to use the old formula, 8s 6d in the £1 in company taxation. But we know that the monopolies - the British monopolies as well as other foreign concerns - always include company taxation in their cost structure. Most foreign companies work on a restrictive franchise; they sell only to the Australian community. Therefore company taxation of 42±% is included in their cost structure and consequently the Australian customer pays the tax, not the overseas company. Over the years the old agreement has obviously been a good one for those overseas concerns.

Another point of interest is that lawyers found a way of overcoming a legal difficulty concerning taxation payable in respect of debenture capital. Because a contract had been entered into on foreign soil it was found possible to evade taxation. By this device the overseas companies did not pay taxation on money earned on debenture or interest capital. Another forward move in the legislation now before the House is concerned with taxation payable on royalties. Under this Bill overseas companies will have to pay 10% withholding tax on interest on debentures and on royalties. On 29th July 1966 Maximilian Walsh made this most interesting comment in the 'Australian Financial Review":

Disclosure by the Chairman of the Melbourne Stock Exchange, Mr A. B. Mellor, that an Australian company had missed out on a $60m loan from US sources because of Australia's harsh tax laws suggests that the unnamed company should look again at its tax advice.

He went on to say:

Mr Mellorlias claimed that the 42i% withholding tax chargeable on interest remitted overseas is one of the main barriers to the flow of funds across the Pacific.

While it is true there is a theoretical tax levied on interest paid for funds lent in Australia from overseas sources there is an escape loophole half a mile wide in Australia's taxation laws.

Section 125 of the Income Tax Assessment Act permits the remission of interest payment without any deduction for taxation where a contract is enforceable outside Australia.

There is no doubt that this loophole in our taxation laws has been found by most companies trading with fixed interest capital overseas. The article in the 'Australian Financial Review' continued:

Providing their lawyers include a clause setting out the rate of interest to be charged and include the provision that 'no deduction for taxes is to be made therefrom' the Australian taxation authorities can take no action.

The interesting point is that this situation has been pointed to since as far back as 1934. In that1 year a Royal Commission strongly recommended, without success, that this aspect of the law be tightened. It has taken until 1968 to do it. There is no doubt that this Government moves fast. However, this measure is a step forward and this is one reason why my party is not opposing the legislation.

Why are double taxation agreements entered into? It is argued that it is to encourage the investment of new foreign capital in this country. As a result of indiscriminate foreign investment since the early postwar years more than $5,000m has flowed into this country. On 2nd April 1 963 the Right Honourable John McEwen, speaking in his capacity as Leader of the Australian Country Party, said:

We in this room are mostly established farmers. If we earn enough annual income we live comfortably. If we do not we could still live comfortably by selling a bit of the farm every year, and that is pretty much the Australian situation - we are not earning enough and we are selling a bit of our heritage every year.

That was said by the Leader of the Australian Country Party who is also the Deputy Prime Minister. We know that year after year he has expressed criticisms of the Government's policy of allowing unplanned and uncontrolled foreign investment to flow into this country to take over established companies, industries and our natural resources. It is strange that the Deputy Prime Minister seems only to use words and not actions.

The Government of Australia has to govern. It is its responsibility to govern. It is its responsibility to bring down legislation to control foreign investment. We have every right to control and plan our economy. The Australian Labor Party has never said that we do not need foreign investment. It has said that we must determine our priorities, plan our economy and determine what we need and what we do not need. Unfortunately, this Government during its administration from 1950-51 to 1966-67 ran up a deficit on the balance of current accounts of $6,215m. We have a deficit with the United Kingdom, which is the country we are discussing under this double taxation agreement, and we have a deficit with our great and powerful friend, the United States of America. We have a deficit of $4,900m with the United Kingdom and a deficit of $4,600m with the United States. We have a combined total deficit of $9,500m with those two countries. We have credits with some of' the Asian coun-tries, such as Japan and China. It is respectable to trade with China but it is not respectable to recognise that country. We have trade credits of $3,400m with these Asian countries and some of the European countries and with Common Market countries. There remains a deficit of $6,200m. This position has arisen because of a lack of economic planning and we have had to rely on indiscriminate inflow of foreign investment into Australia. My two colleagues the honourable member for Melbourne Forts (Mr Crean) and the honourable member for Scullin (Mr Peters) have pointed out that there has been no economic planning and no determination of priorities or of the type of foreign investment we need.

These are instances of foreign capital invested in this country earning approximately 600% on the original investment. This is greater than the exploitation that occurred in the old colonial days. Imagine in these days any company earning 600% on its original investment. I remind the House of what John Foster Dulles said in the early 1950s. He said:

There are two ways of conquering a nation. One is to gain control of its people by force of arms. The other h to gain control of its economy by financial means.

That is exactly what is happening in this country. We are losing more and more of our national heritage every day.

This afternoon during question time the Treasurer (Mr McMahon) said that 90% of private investment in this country was Australian investment. I was able to point out that although 90% of private investment in Australia was Australian investment, it has been estimated conservatively that one-third of Australia's manufacturing industries and natural resources is already owned by foreign capital. We have many historical precedents from which we can draw in order to deal with this question of foreign investment in Australia. For example, we could study the difficulties experienced in Canada. Certainly we should do something in regard to the planning of foreign investment in Australia. This Government has been in office since 1949, yet not one piece of legislation has been introduced to control or plan foreign investment. I repeat that, as John Foster Dulles said, there are two ways of conquering a nation. One is by military means and the other is by economic means. I am not dealing with racialism in this question because I do not differentiate between colour and creed. Although we fought against Fascist Japan in the Second World War, I do not discriminate as between Japanese capital and British or United States capital. We fought Fascist Japan which was supported by the Mitsubishis and the Mitsuis These Mitsubishis and Mitsuis are buying Australia today for 5c per ton. They do not need to send armies here. They are buying Australia by paying 5c per ton. We are not exporting processed material. We are sending out raw material. It is about time this Government stopped selling a little bit of our heritage every year. It is about time it took legislative action to stop the takeover of Australia by foreign investment. It is about time it stopped selling Australian real estate in the cities and in the country. It is about time it took action to deal with the food processing companies.

I shall quote some figures for the Treasurer, who spoke this afternoon. I shall quote from a conservative publication, the Melbourne 'Age' of 18th February 1965 - 3 years ago - which contained a report of a paper delivered at a stock exchange symposium - a stock exchange seems to me to be a very respectable and conservative establishment - by Mr J. G. Wilson of Australian Paper Manufacturers Ltd, in which he dealt with the question of foreign ownership in Australia. He listed the position of certain industries as follows:


Just imagine that, in 1968, 50% of Australia's food industry is owned by foreign investment. I remind the Country Party of what its Leader said on 2nd April 1963. He said that we are selling a bit of the farm and a bit of our heritage every year. He said that 5 years ago. How long have we to wait before something is done? Mr Wilson added that between 45% and 50% of Australia's lead, zinc, copper and mineral sands industries was owned by overseas investors. Overseas investment in heavy engineering was 334-%. He said in fact that all manufacturing industries were owned at least to a minimum of 334% by overseas interests.

The Income Tax (International Agreements) Bill 1968 which we are now discussing concerns a double taxation agreement. It is a reciprocal agreement. It gives the British investor in Australia certain taxation concessions. It also gives the Australian investor with financial interests in Great Britain certain taxation concessions. Let me give to the House the relative dividends repatriated by each country to the agreement during the period from 1949 to 1965-66. The dividends sent from Great Britain to Australia were $35m. Australian investors in Great Britain, as I have said, receive certain taxation concessions. The amount of dividends sent from Australia to the United Kingdom in this period was $l,006m. This was under the reciprocal agreement. It seems a little lopsided.

Let me examine further the question of the double taxation agreement. Prior to 1946, when Australia first entered into this agreement, income tax on British companies was 7s in the £1. Apart from those countries with which Australia had double taxation agreements, the taxation was only 6s in the £1. So, for the purposes of my argument, I will work on the figure of 30c in the Si taxation. It is my conservative estimate that this Government would have received $300m from income tax during that period. This is what would have been normally paid by overseas investors if they had paid taxation at the level of 30c in the $1. I refer now to the withholding tax of 15c in the $1.1 am being conservative in this calculation also. I pointed out earlier that some companies which have wholly owned British branches in Australia do not fall within the category that pays this taxation. I have worked my calculations out on the basis that everybody pays this 1 5c withholding tax. It seems to me therefore that United Kingdom investors would have paid $I50m and they have thus made a saving of $150m during the period that this reciprocal agreement has been in operation. Yet, Australia is still to continue with this proposition, except that the branches of United Kingdom companies will now have to pay 15c in the $1 withholding tax.

I turn now to look at the figures in relation to royalties. It has taken many years to introduce the withholding tax of 10% on royalties. In the year 1947-48, Australia paid out S2m in royalties. In return it received no income at all from royalties or, if it did, the amount did not reach the $lm mark. Last year, Australia's payout on royalties was S55m. During the 18-year period Australia paid out $420m. It has taken nearly 18 years to introduce any taxation measure concerning royalties. In fact, in the period of time I have mentioned, $420m has been sent out of this country by way of royalties. I would like to see a worker in Australian industry try to evade income tax of just a few shillings a week. Yet, regarding the taxation of royalties we have seen evidence of the utter stupidity of the Government and the snail's pace at which our national Government has worked. It has taken 18 years to introduce taxation on royalties.

Perhaps I have been -a little harsh in my references to the figure of $420m. That relates to all countries; it does not apply only to the United Kingdom. But during the same period that Australia has paid out $420m in royalties, all we have received from overseas in this regard is $25m. I would say that a big proportion of that amount came from the United Kingdom.

Mr Bosman - The honourable member is only speculating.

Mr- UREN-If the knowledge from which I speak is inadequate, this is because the Government will not make the relevant statistics available to members of this House. I have asked the Treasurer time and time again to tell me the amount of dividends that has been repatriated by wholly owned British companies in Australia. This question was on the notice paper last year. In reply the Treasurer said that he was unable to give me the information that I sought. This is how inadequate the Government is. It cannot give an honourable member the information that he seeks.

The House is discussing a matter concerning income tax. I remind honourable members that up to 1951, following the practice adopted by the Chifley administration which was continued by Sir Arthur Fadden, taxation at the rate of 10c in the $1 was paid on all undistributed profits. It was called the undistributed profits tax. During the period that I have mentioned, there has been approximately $900m in undistributed profits by British companies. If taxation is assessed on that amount at 10c in the $1 we find that approximately $90m should have been paid by way of taxation. I have estimated already - conservatively - that under the double taxation agreement British investors have saved $150m. I estimate that they have saved another $90m in undistributed profits tax. Australia is a gravy train to them. It is an El Dorado. Australia is a land of milk and honey for foreign investors.

I join with the honourable member for Scullin in saying that we need certain types of foreign investment. But we must plan what types of foreign investment we need. We must determine our matters of priority. Until such time as we determine these priorities, more and more of Australia's national heritage will be sold. As John Foster Dulles said, there are two ways of conquering a nation. This should be kept in mind by honourable members opposite who are so concerned about the great threat to Australia from the North. They must be concerned also about the economic threat to this country.

I close on this point: The only reason why I do not oppose this legislation is that it represents a step forward. But I believe, as the honourable member for Scullin said, that it is about time the Australian Government did away with all double taxation agreements. It would be better if Australia did away with not only its double taxation agreement with the United Kingdom but also its double taxation agreements with the United States of America, Canada and New Zealand. Australia has no double taxation agreement with any other country. But the writing is on the wall. Pretty soon Japan will be seeking a double taxation agreement with Australia. The general public may ask: What is the difference between the countries that have double taxation agreements with us and the countries that do not have such agreements? The countries with which we have a double taxation agreement pay a withholding tax of approximately 15c in the $1. The countries with which we do not have an agreement pay the tax of 30c in the $1. It is about time Australia ceased to discriminate between countries. It is about time Australia levied a minimum tax of 30c in the $1 on all overseas interests with investments in Australia. After all, the Australian investor pays taxation up to 66% on his investment. If it is good enough for the Australian to pay 66%, or 66c in the $1, in taxation I do not see why foreign investors protected by double taxation agreements should get off cheaply by paying only 15c in the$1. The majority of foreign investment in Australia is from Britain and the United States. Australia has had a raw deal. We have achieved a deficit with Britain and America totalling over $9, 000m during this Government's administration. It is time the Government took legislative action, that we stopped talking and started to act.

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