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Tuesday, 21 March 1972
Page: 724

Senator GUILFOYLE (Victoria) - Mr Deputy President, the restoration of the investment .allowance in relation to expenditure incurred on or after 14th February 1972 has been welcomed by industry. The decision to reintroduce the provisions in the Income Tax Assessment Bill for the investment allowance deduction from assessable income, of .20 per cent of capital on new manufacturing plant has assisted manufacturers to plan for future development with greater confidence. The Prime Minister (Mr McMahon), in his opening statement at the Premiers Conference, said that although the major determinant of investment expenditure must be expected growth of demand relative to existing productive capacity, the. Government was persuaded by the force of the views about the influence the investment allowance would have, .in boosting confidence. The Treasurer (Mr Snedden) has announced that the allowance will be restored in relation to expenditure which was incurred on or after 14th February this year without regard to when the contract under which the expenditure incurred was signed.

The allowance was restored at the same rate of 20 per cent and it applied to the same range of expenditure as it did before its suspension on 3rd February 1971. This supplementary allowance to the normal deductions for depreciation materially assists the cash flow of business in the year of expenditure for new plant. Over the scheduled life of the equipment it results in total deductions from assessable income of 120 per cent of the installed cost of the equipment concerned. To make this point quite clear, I cite the following examples: A public company which is using public company taxation rates of 47i per cent with capital equipment costing $1,000, would receive the initial allowance of 20 per cent and this would result in a taxation benefit of $95. The depreciation of, say, 10 per cent in the first year would amount to $100. In the first year this would give an improvement in cash flow of $195. Over the life of the asset, for example, a 10-year period, the total depreciation of $1,000 at the rate of 471 per cent would result in $475 of taxation benefit. With the initial allowance of $95 in the first year the company would receive a total tax benefit on plant of $1,000 which would amount to $570. This is quite a considerable amount.

The measure of confidence which the restoration will strengthen is referred to in the comments of the President of the Associated Chambers of Manufactures of Australia. He stated that the Government could count on industry taking advantage of the allowance in planning and carrying out new capital expenditure now that uncertainty had been removed. Some months ago I spoke about the reintroduction of the investment allowance. At that time I suggested its reintroduction specifically for those industries which were earning export income if it could not be restored for the same range of industry which it had previously covered. The amendment moved by the Australian Labor Party seeks to have the Bill withdrawn on the grounds that it is unselective in its approach and gives no consideration to balanced economic development. I chal lenge the terms of the amendment. The statement that the provisions are unselective in their approach is not explicit. The allowance relates to a range of manufacturing industry which has a need to be competitive and an urgency to be efficient in terms of real productivity. A company which installs new plant which bears a taxation deductibility of this type should show benefits in price and efficiency.

At a time when government may use measures to encourage confidence and future planning, attack unemployment and encourage production it is fitting to recall the statement which the then Treasurer made in 1962 when introducing this legislation. He said:

The Government aims to encourage greater investment in our manufacturing industries and thus ensure in both the short and long term a greater volume of output and employment.

We are competing with many nations in our export trade which use this form of encouragement to manufacturing industries. So it is important that this assistance be given to our cost structure. The assertion that this is a subsidy to industry which is unselective has little application to the intention. The Bureau of Census and Statistics has provided figures relating to capital expenditure by private business in Australia for the quarter ended December 1971. These figures show that expenditure on manufacturing plant and equipment - other than mineral processing - remained static during 1971 despite rising prices for such capital expenditure. This situation should be stimulated by the incentive of the restored allowance. The President of the Chamber of Manufactures of New South Wales has stated to the Government that the encouragement of the more efficient use of resources by the application of the investment allowance could be identified by several matters. He referred to the purchase of new equipment which will lower the costs of labour or materials which are used. He also referred to equipment which will be partly or wholly used for the production of goods for our export trade; equipment which will be used to improve safety; and equipment required to comply with legislation concerned with environmental pollution. The allowance will also be used for equipment which will improve the quality of products by proper testing and equipment which will be used for research, development and decentralisation programmes.

Such an attitude by industry is to be encouraged. The interests of stimulating confidence and buoyancy in the Australian economy are also factors which are very important. Any measure which will assist in real productivity aims will be a weapon which can be used to combat the inflationary trends which continue to develop. I remind honourable senators of the thoughts of the economist F. A. Hayek with regard to inflation. He stated:

Those who wish to preserve freedom should recognise that inflation is the most important single factor in that vicious circle wherein one kind of government control makes more and more government control necessary. There is nothing more disheartening than the fact that there are still so many intelligent and informed people who in most other respects will defend freedom and yet are induced by the immediate benefits of an expansionist policy to support what, in the long run, must destroy the foundations of a free society.

It is regretted that the Opposition does not support this legislation which will act as an encouragement to industry. It is also of concern that the Opposition has sought to be selective about manufacturing industry by suggesting a vague criterion of efficiency. It is remarkable that this Bill is not recognised as one which will assist in economic development. I support the Bill and reject the amendment.

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