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Thursday, 12 April 1973
Page: 1401


Mr PEACOCK - It is generally accepted that there are limited sources of growth capital for proprietary companies in Australia. A private or proprietary company in Australia simply has no access to the money market and the stock exchange and so has only limited areas from which to draw funds for growth. Prior to 1950 it is as well to remember that the trading banks supplied a considerable proportion of the growth capital requirements of proprietary companies. The present policy appears to be based on the concept that it is not for trading banks to supply long term funds to business enterprises but rather to accommodate them for the shorter term fluctuating work capital requirements. In 1945 the Industrial Finance Department of the Commonwealth Bank of Australia was established specifically to provide finance for the establishment and development of industrial undertakings, particularly small undertakings where capital could not be obtained through ordinary commercial channels. In 1957 the Industrial Finance Department and the Mortgage Bank Department of the Commonwealth Bank were merged into the newly created Australian Development Bank but their functions remained substantially unaltered.

Because potential borrowers often have difficulty in demonstrating to the bank that there are reasonable prospects of continuing to be or becoming a profitable undertaking, finance from this source is not alawys readily available. I recall that before taking over a portfolio a few years ago I drew attention to this point in the House in respect of one industry in particular where I felt the Development Bank was not fulfilling its charter. The main source of finance to proprietary companies is usually made in one form or another by proprietors, members of their family and shareholders and consequently they are generally undercapitalised. Necessity obliges them to plough back as much as possible into the company but this does not in many cases meet the problem of financing growth. I know there are other avenues that are used, such as life assurance societies, the facilities of hire purchase companies particularly for plant and equipment, leasing of factories and buildings, factoring of book debts, the borrowing on floating charge over the assets and undertakings of the company and so forth. But the lower rates of primary tax also affect the situation. The lower rates of primary tax applying to the proprietary company, compared with those applying to the public company, are a helpful concession towards accumulating capital but this concession is soon dissipated by the incidence of the undistributed profits tax at the rate of $1 in every $2, if a company fails to make a sufficient distribution of its profits after tax within the prescribed period.

The forced distribution of dividends forces taxable incomes into the hands of shareholders but the taxation legislation does allow the dividend to be declared and to be paid to the shareholders who can pay it back to the company or have it credited to their accounts. It is possible, therefore, for the company to preserve its liquidity by not parting with the funds but personal taxation paid by the company for the shareholders from its loan account depletes the resources accordingly. I have mentioned those points only because I know that the lack of finance is uppermost in the minds of those who are in charge of proprietary companies or small businesses.

So too with this question of management itself, in the field of ownership and management the small firm has very special difficulties. Death duties cause special problems in family firms and even if they can be overcome frequently there are difficulties in ensuring adequate succession of competent ownership and control. Big firms can, as I mentioned earlier, employ specialist managers and a great deal of work can be delegated through the administrative system. In small firms not only are many proprietors completely unwilling to delegate but frequently they do not have anyone to whom they can delegate and the owner of a small firm may well have to be the production manager, sales manager, personnel manager and financial manager all rolled into one.

It is pleasing to see that the report that the Minister tabled goes into this area for there are a number of important economic functions performed by small firms and they make a very special contribution to the wellbeing of the economy. These functions include being an important derivative of innovation in techniques, products and services notwithstanding the comparatively low expenditure on research and development. The small firms can provide competition and a check on would-be monopolies and indeed on the inefficiencies which can breed on monopolistic practices. Thus the economic system as a whole benefits by their existence. They act as specialist suppliers of parts and components to larger companies. They add greatly to the supply of products and services offered to the consumer, and above all they provide a means of entry into business for new commercial and entrepreneuria talent from which companies can grow and stimulate established leaders of industry, and for that reason alone they ought to be supported.

The Minister has mentioned overseas examples and the one that readily comes to mind is in the United States where thousands of small businesses are helped to stay competitive under the United States Government's small business administration scheme. Much can be learnt from that scheme. I urge those honourable members who are interested in this matter to read the United Kingdom Bolton Committee report presented to the House of Commons in November 1971. The Minister has not mentioned it. I am sure his attention will be directed to it. The Leader of the Australian Country Party (Mr Anthony) will follow me in this debate so I will conclude my remarks. I have cautious optimism concerning the future prospects for small businesses in Australia provided that the obstacles which inhibit or restrain small firms are removed. As I said at the outset, the real need is to remove those barriers and allow the competitive processes to operate. As to how these businesses will cope with the environment established by this Government remains to be seen.







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