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Monday, 26 November 1973
Page: 3812

Mr ANTHONY (Richmond) (Leader of the Australian Country Party4.13) - I support the amendment moved by the Deputy Leader of the Opposition (Mr Lynch) opposing the measures presented by these taxation Bills. At a public meeting earlier this year, along with other people, we discussed the broad issues of taxation concessions to rural industries. At that meeting I foreshadowed that the Australian Labor Party would use the emotional reaction to the Pitt Street farmers in an attempt to divide the rural community and to justify the elimination of concessions. The Income Tax Assessment Bill (No. 5) is in effect the legislative machinery for dismantling the whole range of taxation concessions to primary industry. Clause 11 of the Bill provides that the accelerated depreciation rate of 20 per cent a year will be discontinued with respect to expenditure on plant and structural improvements incurred after 21 August this year. Clause 1 3 makes a similar provision for expenditure incurred in the Northern Territory. It is important to note that the depreciation allowance applied to fishing and various operations as well as to farming and grazing. That in itself is not necessarily to be criticised if reasons for it are sufficiently compelling. The reasons for discontinuing many concessions to rural industries are anything but compelling.

To me it is a Bolshevik-like attitude to use Pitt Street fanners as the reason for eliminating the tax concessions.

These people are being used as scapegoats with great venom. The Pitt Street farmers - that is, people not fully engaged in farming - are not necessarily wealthy businessmen. They also consist of thousands of people and ordinary families whose members are wage and salary earners. They are people who have had a lifelong desire to acquire a farm which will support them in order to give their children a new area of opportunity. They comprise thousands of wage and salary earners and business people, large and small, who have been encouraged to look towards a rural way of life by the taxation measures that have applied. Many thousands of these people actually have changed their occupation and have helped towards the development of rural industries.

These people have brought with them new ideas and new approaches. Their skills in many cases have improved farm techniques and management. Many of these new farmers have been the pace setters for certain types of land development and new farming activities. In some districts they have played a major role in reviving and reinvigorating farming activity and have brought new prosperity and greater population to their communities. To use the emotive issue of the Pitt Street farmer ignores the important contribution they have made to Australian agricultural and pastoral development and in so eliminating the concessions, punishes thousands of bona fide primary producers who have found the taxation concessions valuable.

Let us look at the effect of some of the actions taken by the Government in eliminat ing concessions. If a machine previously cost a farmer $1,000, he could have claimed as a deduction from gross income $200 for each of 5 years. This concession will now be discontinued. According to a study published by an officer of the Bureau of Agricultural Economics in 1968, the effect of the 20 per cent depreciation allowance and the 20 per cent investment allowance was to make more profitable to a very considerable extent investment in many items pf farm equipment. For example, without these special tax measures, the post tax rate of return for tractors, earthmoving plant and bulldozers would have been 4.5 per cent at the 60 per cent rate on income. After the deductions are taken into account it would have been 1 1 per cent at the same tax rate.

There are also significant effects on investment on which depreciation is allowed over 5 years, but on which no investment allowance is deductible. Such items of investment include most structural improvements. For example, the effect of the accelerated depreciation allowance was to increase the post tax return on investment in woolsheds from 6i per cent to 9 per cent. I would like honourable members to note the concluding comments of the BAE study. I wish them to note in the light of a world food shortage and higher food prices the conclusion which states:

The accelerated amortisation measures almost certainly raise the total level of investment in agriculture.

Clause 13 of the Bill effectively brings to an end a special deduction for investment in plant used in primary production. The brochure put out by the Commonwealth Taxation Office and the Department of Primary Industry in 1970 stated:

The purpose of this allowance is to stimulate the use of new and up to date plant in Australian primary production.

Presumably one of the purposes of this Bill is to discourage such investment. The discontinuance of this allowance will also reduce the use of new and modern plant in the fishing industry, the same industry which the Minister for Primary Industry (Senator Wriedt) claims is in need of special Government assistance to up-date equipment and increase efficiency. The following items, among others, have received this allowance: Tractors, bulldozers, water boring plant, pumps, windmills, tanks, engines, shearing machines, fishing vessels, engines for these vessels, radar and echo sounders.

But this allowance is being removed by this Government which claims that inflation is caused, to the extent of 60 per cent of the increase in the consumer price index, by increased rural commodity prices. These prices have risen because the increase in demand has exceeded the growth in supply.

Are these measures the Government's answer to this problem?. Is this how it proposes to increase agricultural production? Is this how is proposes to increase meat production? Is this how it proposes to encourage the development of the forestry industry? Is this how it proposes to assist the fishing industry? Is this how it proposes to hasten development of northern Australia,

The investment allowance applicable to manufacturing industry also is to be discontinued. This allowance is of tremendous importance to manufacturing industry. Its significance can be gauged by the fact that it is estimated to be worth $60m in a full year to the industry. The investment allowances encouraged increased replacement of obsolete plant and the development of an increased level of efficiency to match overseas competition, which is made more vigorous by revaluations of the Australian dollar and the 25 per cent tariff reduction.

Clause 17 of the Bill amends section 75 of the principal Act. Once again, expenditure incurred after 21 August 1973 shall not receive existing benefits under this provision unless the contract was made before that date. The effect of this clause is that a whole range of capital expenditure on land used for primary production is no longer allowable as a full deduction in the income year in which expenditure is incurred. If this Bill is passed, this expenditure will be deductible either at the ordinary depreciation rate or over 10 years. Some expenditures such as water draining, weed destruction and combat of soil erosion will be allowed to be written off over 10 years.

However, the following items of expenditure, instead of being written off in the income year in which the expenditure is incurred, will only be allowed to be subject to depreciation under general depreciation provisions and for some items it could be as long as 50 years. Items that this will affect will include the erection of fences, dam construction, underground tanks, concrete tanks, irrigation channels, levy banks, water pipes and fodder storage. This is the Government that talks of the need to protect the nation against drought. What this Bill seeks to do is to discourage drastically preparation against drought or against adverse conditions. It does not encourage good land management and the preservation of our most important heritage; that is, our soil.

Moreover, under clause 19 of this Bill, expenditure on fencing to prevent animal pests entering a property or to fence off areas affected by mineral salts shall no longer be allowed as a full deduction in the year of expenditure. Presumably the Government does not want to encourage pest control. Presumably it is not concerned to combat the rabbit menace. Under previous arrangements, a primary producer could have bought 1,000 acres of virgin land for, say, $10 an acre and spent $50 an acre on clearing and erection of a rabbit-proof fence. If he paid tax at the rate of 60 per cent of income, he would have saved $30,000 under the previous tax arrangements out of a total expenditure of $60,000. He will not save that much any more - nothing like it. So his incentive to invest in this way will be seriously reduced.

I only have time to canvass the major items of concern to rural producers and fishing interests in the Income Tax Assessment Bill (No. 5). I would be failing in my duty if I did not point out the very great and adverse impact this Bill will have on the primary sector of the nation. This may best be expressed by a specific example. Let us assume that a typical farmer operates at a profit and, over the years, pays up to 25 per cent tax. He purchases $2,000 worth of farm machinery a year and farms up to 800 acres. Since he purchases $2,000 of farm machinery a year, he will pay an additional $180 due to the elimination of the investment allowance and the increase depreciation period for farm machinery assets. If he spends $600 a year on capital improvements he pays an additional $170 due to the increase in the write-off period of capital improvement items. Last year the purchase of a $10,000 tractor would have created $12,000 of tax-deductible expenses in the first 5 years. Now he is $875 worse off just on the one purchase of that tractor.

This Government has sold the primary sector down the river. What has happened to those Labor members in rural electorates who are supposed to represent their constituents? Let us remember that in the December 1972 election the Australian Labor Party gained additional support in 29 rural electorates and lost support in 21. Was it because the honourable member for Riverina (Mr Grassby), who is now the Minister for Immigration, waxed so eloquent on the subject of the wine excise? Was it because he said in the House of Representatives on 25 May last year: by taking the revenue of $4m to $5m - That is from the wine industry - homes, towns and communities will be placed in difficulties unnecessarily.

He was talking about the wine excise. The Minister for Immigration should tell his constituents that the 1973-74 Budget will take $20m in a full year out of that industry. He should tell them that clause 8 of this Bill, which drastically revalues the trading stock of wine makers, may force many small family wineries out of business due to the lack of the necessary liquidity in those operations. He should tell his constituents that he is voting for this Bill. I would like an assurance from the Minister that the valuation of trading stock will be such as to bring in only the $15m anticipated over the period, and not the $30m which the industry estimates will be the actual amount. I note that the Premier of South Australia, Mr Dunstan, has certainly had no inhibitions in vigorously attacking his Federal Labor colleagues for a gross betrayal of preelection promises to the wine and grape growing industries. A brochure distributed by the Labor Party before the December election stated:

A Labor Government will provide incentives to expand meat production where needed to supply new markets.

I ask those honourable members opposite who represent country electorates to tell those on this side of the House how the Income Tax Assessment Bill (No. 5) honours that promise. I state unequivocally that those in country electorates who voted Labor were sold down the river and no doubt now realise it. They certainly showed in the New South Wales election, that they realise where their friends are. I do not advocate unnecessary featherbedding of primary industry. However, I do advocate in the present circumstances that every effort should be made to encourage the rural sector and the fishing and forestry industries to respond fully to the present and prospective shortages of rural commodities. I recognise quite openly that some taxation concessions may not be the optimum means of achieving this purpose and that there may be anomalies and inconsistencies in some of those measures. A thorough examination is certainly necessary to ensure that the concessions achieve the purposes intended.

However, this Government is not prepared to undertake such an analysis but is simply dismantling the whole range of measures and leaving in their place a vacuum. The effect on the aggregate position will be to discourage investment and consequently rural productivity and output. Individuallly, farmers will be hit very hard on an income basis. At the last Bureau of Agricultural Economics survey, the income for sheep properties averaged between $2,000 and $5,000. The average income of a dairy farmer was $5,000, but nothing like that figure in New South Wales and Queensland. The average net farm income for apple and pear producers was $4,000. Statistics show that on a long-term basis the average income of a rural producer has risen at a much lower rate than that of non-rural wage earner. It can hardly be claimed that the rural sector represents an area of relatively great prosperity or that it has been the recipient in the past of huge government handouts to such an extent that other sections of the community were being penalised. In 1971-72 the year of the highest government payments to the rural sector, total government assistance to the rural sector on a direct and indirect basis, including taxation revenue forgone, amounted to 5 per cent of government expenditure. Yet rural production amounted to 10 per cent of the gross national product and one-half of the nation's export income. It was a small amount in comparison with the value to secondary industry in tariff protection.

Mr Deputy Speaker,the Country Party opposes this Bill as a classic example of distorted thinking. At a time when rising rural commodity prices are exerting profound influences on inflation as expressed in the consumer price index, the Government introduces measures which will aggravate those strains in the long term by reducing the incentive to increase production. For the information of honourable members, particularly those Labor members in country electorates, I seek leave to table a paper prepared by Mr Edwards of the Bureau of Agricultural Economics in 1968 which sets out the effect on investment profitability of the depreciation allowance and investment allowance which this Bill seeks to remove.

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