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Tuesday, 19 August 1980
Page: 411


Mr Willis asked the Treasurer, upon notice, on 31 March 1980:

(1)   What (a) was the total private overseas investment in companies in Australia and (b) were the estimated rates of earnings for that investment as calculated for earlier years in Table 23 of Treasury Economic Paper No. 1 (Overseas Investment in Australia), presented to the House on 16 May 1 972, for each year since 1 970-7 1 .

(2)   On what basis are these figures calculated.


Mr Howard -The answer to the honourable member's question is as follows: 1(a) and (b)- The level of total foreign investment in enterprises in Australia and the estimated rate of earnings on that investment, for each year since 1 970-7 1 , were as follows:

Level of foreign investment in enterprises in Australia Estimated at beginning rate of of year earnings

Year (1) (2)

Sm per cent

1970- 71...... 6,613 9.4

1971- 72...... 7,758 8.5

1972- 73...... 8,974 9.5

1973- 74...... 8,804 11.5

Level of foreign investment in enterprises in Australia Estimated at beginning rate of of year earnings

Year (1) (2) $m per cent

1974- 75...... 8,868 10.6

1975- 76...... 9,816 14.1

1976- 77...... 10,520 15.1

1977- 78...... 11,887 14.1

1978- 79...... 12,987 14.2

(2)   The data in column (1) have been taken from Table 43 of the ABS Bulletin Foreign Investment 1977-78 and include direct investment and portfolio investment and institutional loans. The earnings rates shown in column (2) have been derived by comparing the total income payable on foreign investment in enterprises in Australia (as shown in Table 42 of the ABS Bulletin and Table 7 of the ABS Bulletin Foreign Investment 1978-79 (Preliminary) ) for each year with the data in column (1).

It should be noted that the amounts of corporate equities included in the level of total foreign investment in enterprises in Australia are recorded by the ABS at paid-up value only and exclude share premium, reserves, provisions and retained earnings. The recorded corporate equities figures would, therefore, be substantially lower than the actual levels of foreign equity funds over which foreign investors have claims and the extent of under-representation would be exaggerated by the effects of inflation. For this reason, the estimated earnings rates shown above would be higher than the actual earnings rates.

In order to make the estimates more comparable with those for Australian-owned companies, the ABS foreign equity data can be adjusted by the average of the paid-up capital to shareholders' funds ratio for all companies reported on by the Reserve Bank's Statistical Bulletin, Company Supplement. The general effect of this adjustment (which raises the value of equity funds to around three times the value reported by the ABS) on the estimated earnings rates is shown in the table below.

Level of total foreign investment in enterprises Adjusted in Australia estimated at beginning rate of

Year of year (a) earnings

Sm per cent

1970- 71...... 10,145 6.1

1971- 72...... 12,073 5.5

1972- 73...... 13,804 6.2

1973- 74...... 14,198 7.1

1974- 75...... 14,913 6.3

1975- 76...... 16,558 8.4

1976- 77...... 18,661 8.5

1977- 78...... 21,057 7.9

1978- 79...... 23,404 7.9

(a)   The corporate equities components of the data used to produce these figures have been adjusted by the factor described above. (Some notes on the use and limitations of the adjustment factor may be found in

Appendix A to the Treasury Submission to the Campbell Committee, The Role of Foreign Capital and Foreign Investment Policy.)

Further reservations regarding the reliability of these estimated earnings rates as a measure of profitability are mentioned in Overseas Investment in Australia, pages 3 1 -33.

The estimated earning rates shown above differ from those provided in the answer to Question No. 5769. This arises because the earning rates above relate to total foreign investment in enterprises in Australia, whereas those for Question No. 5769 relate to foreign direct investment enterprises (excluding foreign portfolio investment). In addition, in accordance with the methodology adopted in Treasury Economic Paper No., I , interest is included in the above calculations.







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