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Thursday, 1 December 1983
Page: 3146

Mr MOORE(11.06) —The honourable member for Burke (Dr Theophanous) is always an enthusiastic advocate of matters he puts forward here. But he being a dedicated socialist and a leading member of the left wing, I found his treatise on industry policy quite amusing. Not the least part of an industry policy is an understanding of the concept of investment, of which a left wing socialist would have no understanding because it is based simply on risk taking. A socialist would not embrace an understanding of risk taking because risk requires acknowledgment of reward and reward requires a determination to invest. With that investment goes management, and with that goes productivity. We do not hear about productivity from the left wing. That is a no-no, because productivity requires constraint on wages and an ability to get the manufacturing to which the honourable member for Burke was referring out and going.

I quite agree that research and development is an area which Australia has not been right behind. Some companies have done a very commendable job in some areas , but generally we have not done as much as we ought. It is a requirement of taxation policy that we reward those corporations involved in research and development by allowing them to write off such investments by taking current expenditure out of profits. On top of that, there is a tremendous need to recognise the role of depreciation. For far too long we have not granted to corporations in this nation the level of depreciation necessary for capital investment to replace machinery and to maintain a degree of research and development and a level of contemporary technology. It all requires capital. Because of that the taxation policy becomes all important. When the honourable member for Burke attempts to rewrite history the way he was rewriting it previously, those factors must be recognised. They comprise the real world of investment, not the theoretical one of the left wing socialists. I will restrict my comments this morning to the Australian Industry Development Corporation.

Dr Theophanous —Your theories worked very well for seven years, didn't they!

Mr MOORE —They would work a lot better if the left wing forces in the Australian Labor Party would recognise the role of capital in industry. Certainly the Prime Minister (Mr Hawke) acknowledges that even if the honourable member for Burke does not.

Dr Theophanous —I recognise it better than you do.

Mr MOORE —The honourable member does not practise it as well as I do.

The amendments to the Australian Industry Development Corporation Act will bring about an increase in capitalisation, require the Corporation to pay 50 per cent of its operating profit by way of dividend to the Government and increase its gearing. On top of that, certain restrictions to areas of investment have been removed and certain priorities have been written into the Act which will require the Corporation to direct its investment policy towards those priorities .

I do not find these matters to be of any great earth shaking consequence but I will point out the general history of the AIDC. The honourable member for Burke- he is now about to depart-commented that the return on investment of the AIDC has been as good as any private sector company. That does not tally with the facts. Until 1975 the AIDC investment programs were a disaster. The amount of write-offs was huge. I think $25m was written off in one period in exchange losses. I think an amount approaching $10m was written off in business losses in the same period. It is understandable that a socialist would not acknowledge losses in a public corporation. The honourable member for Burke might think that is good but in reality the AIDC's comparison with private sector operators is abysmal. Even its current report indicates that its return on paid-up capital and all the retained earnings-until now it has never paid a dividend to the Government-represents 11 per cent. That would hardly shake the world and only equals the inflation rate. In effect, it has not been a great success.

Mr Chynoweth —It is better than the results some people get through losses on the stock exchange.

Mr MOORE —The honourable member would not know much about the stock exchange.

Mr Chynoweth —I have a few shares, do not worry.

Mr MOORE —I thought the honourable member was a left winger.

Mr Chynoweth —No.

Mr MOORE —The honourable member is not. Dear me, he has a few shares! The interesting reason for the establishment of the AIDC was to encourage Australians to invest in Australia. There was a feeling in the 1970s that inadequate opportunities were there. Because of that the Corporation was set up and because of the shortage of capital in the Australian market it was encouraged to borrow abroad. Large amounts of money were brought in in that way and lent into the industry circuit. However, it was fairly well known in the financial world that if a person was turned down by all the normal banks he could go to Canberra to see the AIDC. Because of that, the Corporation's opportunities in the first five or six years were second pickings rather than the prime objectives with which it set out.

I am bound to say that in the last three years in particular-some credit must be given here to the role of the Chief Executive, Mr Bob Thomas-the Corporation' s results have improved enormously. It has handled its foreign borrowings much better. It has hedged its exchange risks and it has covered large areas of commodity and metal prices in a very commendable and professional manner. Its results have certainly shown a remarkable turn-around. Its concentration on the development of new industry, particularly the way in which it has supported Wormald International Limited's joint venture and some other joint venture operations, is commendable. That is the Corporation's purpose. It has authorised capital of $150m, of which $62.5m is currently paid and another $12.5m is on the way, and it is dealing in substantial sums of money.

I put forward the point of view that the role of the AIDC is bordering on that of a bank in a country which is over-banked. There are more banking institutions in this nation than can possibly be found a role. The advent of commercial merchant banks, particularly in the last 10 years, has added enormously. They have survived in the Australian scene for two reasons. One is prestige. They have a great desire to get commercial bank licences and therefore presence and track records seem desirable. Secondly, they have used their capital funds in the money market. Their profits from dealings in the money market have maintained their corporate position and their corporate advice area has been very much hit and miss. The AIDC has to be rolled in no small measure into that general area. As a matter of philosophy, I would say that the AIDC is competing in a vastly over-catered for capital area. The Opposition has some doubts as to its future role in that area. However, its role in supporting the development of industry, its joint venture capacity, its new start-up industry capacity, is commendable. There is a distinction between those two roles which I think is very important.

I notice the question asked of the Chairman, Sir Gordon Jackson, at a Press conference. He said that nevertheless all the Corporation's decisions would be made on a commercial basis. That in itself is heartening. In view of the vibes thrown around by the honourable member for Burke there is the temptation to think that the public sector will rush in and reconstruct the manufacturing sector and I can see some sort of new great government bureaucracy roaring in to reorganise industry with AIDC capital funds. Fortunately, the Act requires the government of the day, if it deems to be acting in the national interest, to pass through both Houses of Parliament a Bill to support both the action and the money requirement for it. The position is clear. The AIDC therefore cannot be used as some form of back door nationalisation route which I am sure some of the lefties would love. Its role and what we should be doing in that area are quite clear in my mind.

Briefly, I will look at the balance sheet of the AIDC which I have with me. I must commend the Corporation for it. It is clearly presented. It shows, over the last few years in particular, some very substantial growth in its operations and its profitability. In the period ended 30 June 1979 its net profit before foreign exchange charges and tax was $10.4m. The net profit after those charges went down to $2.5m. By the end of June 1983 that amount had gone up to $15.2m. However, I point out that that is against a total investment of $115m. So its overall result is still only of the order of 11 per cent. Nevertheless, that is a vast increase on what it was in previous years. On top of that, as we go through the report we see the many areas in which the Corporation has become involved. It has gone into the infrastructure of coal imports. It is involved with the timber industry, the aluminium industry, the motor vehicle industry and the diamond industry. In other words, its interests are widely scattered. Its most important and potentially profitable area appears to me to be the Australian Biomedical Corporation Ltd in which it is involved in a joint venture with Wormald. I understand from market contacts that it has a sizeable potential . The areas in which it has directly invested are certainly leading in the right direction.

I refer now to the breakdown of the percentage of funds invested in various areas. Eleven per cent went to food and beverages, 10 per cent to building materials, 12 per cent to chemicals, plastics and petroleum and 14 per cent to other manufacturing. The areas to which the honourable member for Burke referred , I think, were heavy industry, light engineering and electrical. In those areas the Corporation invested one per cent, 0.7 per cent and 6.2 per cent respectively. It invested 4.6 per cent in transportation distribution and 10 per cent in industry infrastructure. The pattern of investment tends to have been fairly heavily into some of the industries which are success stories in Australia. Investment in the food and beverages area has assured prospects. The building materials industry is certainly cyclical but at the moment would be the right area in which to invest. The chemicals and plastics area, which requires huge amounts of money, received 12 per cent of investment funds. That shows that the commercial sense of the Corporation is certainly well oriented at present. I do not find fault with that at all.

The AIDC's illustration of its activities shows that it provides finance in loan form, foreign currency, leasing and equity participation. All of those activities are commendable. But they are all completely in line with what happens in regard to any merchant banking operation and any major commercial operation. So we raise the question: What is the purpose of going into the areas for which the Australian market is heavily over-catered? A future Liberal government would certainly review the role of the AIDC, not in the area in which it can make a major contribution, but in the area in which it is just one of the mob. I draw that distinction. I will leave it to other speakers to mention aspects of the Industrial Research and Development Incentives Amendment Bill and the Management and Investment Companies Bill.