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Tuesday, 21 March 1972
Page: 737

The PRESIDENT - Order! I wish honourable senators would address their remarks to the Chair and not to each other.

Senator DEVITT - At the present time there are a number of forms of taxation at which we ought to be looking but which we choose to ignore. One form which comes to my mind is the payroll tax which was formerly handled by the Commonwealth but which has now been handed over to the States. In a recent examination of the implications of payroll tax in the States as against what happened federally, one finds that the hands of the States are largely tied because of the peculiar nature of the financial relationships which exist between the Commonwealth and the States. For instance, I suggest that there is not a freedom for the States to use the payroll tax which is a growth tax and which will enhance their Treasuries to the extent of the growth of the States. One would expect that having been given the right to levy payroll tax there would have been a large measure of independence available to the States in the application of this tax. One could imagine that in a State such as Tasmania which has very serious economic disabilities because of transport difficulties it may have been competent for the State to apply the tax in such a way that it would relieve some of the difficulties inherent in its particular situation.

To take that to its conclusion one would be inclined to believe that it would be competent for a State to say that while it has agreed, in common with the other States, to the application of a payroll tax in all the States on the basis of a certain level of taxation, it would be competent for the State to make an independent judgment - if, in fact, it is permitted to make an independent judgment - and say that it would not apply that tax in the light of the particular disabilities suffered by that State. I imagine that if a State, even observing the spirit of a particular arrangement, were to make a judgment that because of the disabilities existing it would not levy the tax at all, then that judgment would be made by that State having regard to all the issues involved. In a situation like that because of the way in which the financial arrangements between the Commonwealth and States work there would be a serious disadvantage to the States because of the way in which the Commonwealth Grants Commission would look at the matter. So it is not possible for a State to make a judgment of that kind. In a sense these issues may seem remote from the central theme of the debate which is before the Senate at the present time but they are related to the overall tax situation.

One of the earlier speakers - I fancy it was Senator Webster- raised the matter of the current interest rate on loans available to various sectors of industry in Australia. I am not totally aware of the situation which applies to secondary industry in relation to the rates of interest applicable to money borrowed by secondary industry but I am aware of a serious disability which exists so far as the Australian primary industries are concerned.

The PRESIDENT - Order! I wish the honourable senator would get back to the subject matter of the Bill.

Senator DEVITT - 1 am talking about the application and the implications of taxation in the broad sense. I am merely following the comments made by earlier speakers.

The PRESIDENT - The Senate is dealing with a specific Bill. Honourable senators have a habit of rambling along on the concept that they are dealing with money Bills and that they can talk about anything under the sun. This is a specific Bill. 1 would be grateful if honourable senators would address themselves to the subject matter of the Bill.

Senator DEVITT - With respect, I thought I pointed out in my earlier comments that the Bill takes its origin from Section 51 (ii.) of the Constitution which deals with the general taxation power of the Commonwealth.

The PRESIDENT - If the honourable senator wishes to pin his argument on Section 51 I ask him to address himself to it.

Senator DEVITT - That is what, in fact, I thought I was doing.

The PRESIDENT - Not very successfully. I do not want to interrupt the flow and tenor of the honourable senator's debate but I would be grateful if he would get back to the Bill.

Senator DEVITT - That is exactly what has happened.

Senator Wright - We are talking about an investment allowance under income tax.

Senator DEVITT - I do not need any assistance from Senator Wright. I am quite competent and capable of .conducting the debate in the way I want to.

The PRESIDENT - I hope the honourable senator will accept suggestions from the Chair, though.

Senator DEVITT - In relation to the performance of secondary industries to which this measure relates I am suggesting that there is a fairly substantial measure of assistance because not only does this area of industry receive a 20 per cent depreciation allowance year by year but at the outset, ' with the installation of new plant, a further 20 per cent allowance is provided. There is a great disparity between the performance of secondary industry and the equally important performance of primary industry in this country. On the one hand interest rates which apply to the installation of plant are applied .at a certain level through the legitimate banking institutions whereas on the other- hand the primary industries are forced by the present exigencies and difficulties in rural areas to obtain loans at whatever interest rate they can. Of course this rate frequently amounts to 13 per- cent because 8 per cent, is paid on money advanced to primary industry through the stock companies . and the auctioneering firms and the primary industries are- obliged to pay an additional 5 per cent interest on the sale of stock back through the company. Primary industry is in a very serious position, when compared with the position of secondary industry where the Government is providing this quite handsome measure of assistance.

Of course there are very serious difficulties in the working of rural reconstruction schemes. Here, again, the interest rates which are being charged and the difficulties which are being experienced by primary industries as against their fellows in secondary industries are very evident. I have recently been approached by people in the sort of difficulties to which I have just referred. They have asked what can be done by the Commonwealth and State governments in concert to make rural reconstruction schemes work better. Many people in this area of endeavour are in very serious difficulties indeed. In justification of my earlier comments I say that it is my view - I may be wrong in this - that as Senator Willesee in his amendment spoke about an examination of taxation on a broad basis, any observation in relation to the broad position of taxation would relate to the measure before the chamber. It was on that basis that I widened the range of my contribution in this debate, as did speakers before me.

I think, Mr President, having regard to what was said earlier, that I have covered the points that I wanted to bring forward. It will be recalled by honourable senators that earlier in the day I received a reply in response to a series of questions I had asked about measures which the Government could take in an endeavour to get some idea of the possible onset of economic difficulties in sections of the community so that some government institution could be set up to deal with it. I refer to practices which have been very successful abroad and which might very well be implemented here. Various assessments are made of trends within the community so as to provide some forewarning of the onset of economic difficulties of the type that this country has been through in fairly recent times. It is not terribly reassuring to receive an answer referring to the provision of funds by the Commonwealth to the States for employment creating activities. My proposition was that the Government should do what is done in England. In that country an assessment was made of a number of factors which were indicators of a particular developing trend. This assessment could be made long before we are confronted with economic problems of the kind we are experiencing at the present time and which very seriously affect the people. The answer I received to my question was that in fact funds are provided by the Commonwealth. But these funds are provided only after the particular difficult}' arises. The Treasurer (Mr Snedden) went on to say in the answer given to me:

A further example of this kind of action-

That is, assistance for depressed areas - has been the measures implemented through the rural reconstruction scheme.

It is very difficult when speaking on the subject of taxation to get away from questions of taxation in the very broadest sense. It is difficult to confine oneself merely to observations about a particular and very limited Bill of the nature of the one before us to the exclusion of the other factors which one must take into account in assessing the need to provide the 20 per cent inducement for the installation of plant, which is the purpose of this Bill. The factors I refer to go very much broader than this.

I suggest that this Bill merely reinstates the situation that existed 12 months ago. It does not offer any improvement to the economic situation in Australia. The Treasurer went on in his answer to my question and said:

At the same time, it needs to be recognised that there are constitutional limitations on the extent to which the Commonwealth is empowered to adopt policies which could be construed as discriminating in favour of particular States or parts of States.

This raises the question of other allowances to assist other sections of the Australian community. I refer to zone allowances. I have done some research on this matter in recent times in an endeavour to establish whether it is constitutionally valid to create tax zones throughout Australia. I have been assured from my inquiries of people whom one would expect to provide the right answers - I accept them as being so - that the measures introduced by the Chifley Government in 1945 are constitutionally sound. It seems to me that there can be no argument against the provision of these taxation zones, against expanding their area or against enlarging the number of graduations of tax assistance which can be given. Here again I turn to the broad situation in Tasmania. It has been my belief that some measure of assistance in this direction could help substantially to right the disabilities of Tasmania, where the transport problem is so great. The smallness of the State and the relative size of its manufacturing industries put it at a very serious disadvantage as against other States of the Commonwealth. So there are many areas of taxation which ought to be looked into.

The Commonwealth Government should be looking at the whole question of tax and not confining itself merely to the relatively minor matter dealt with in this Bill. This Bill merely patches up something which came unstuck about 12 months ago because of very bad fiscal policies and bad planning on the part of the Government

We should be looking at the whole question Qf taxation and all its implications and ramifications throughout Australia. If the Government is to assist the whole Australian community rather than a relatively small and particular section of industry and activity throughout Australia it ought to be looking at taxation in a much broader context than is dealt with in this Bill before us. I suggest that this is the purport and intention of the amendment moved by Senator Willesee and I strongly suggest that the Senate should adopt his proposal.

Senator DameNANCY BUTTFIELD (South Australia) (8.20) - I have listened with great interest to many of the points raised in this debate but I have been amazed at the to and fro arguments that Senator Devitt has put forward. At one time I thought he was -trying to make a case following on what happened in England where such an allowance was needed to stimulate the economy. He then switched and said that that seemed to be a reason why we should not be doing anything. I did not understand his arguments. I cannot support the amendment put forward by Senator Willesee which suggests that the Bill should be withdrawn and that we should do nothing to stimulate the economy in this sense. It seems very evident to me that we should be doing something. The economy was running into serious inflationary troubles and it seemd to me quite logical that the Government should endeavour to dampen them down. Now, having stopped the economy from continuing on the crash course which it was following the Government is trying to reaccelerate the economy. The Government has to find ways of stimulating the economy.

Senator Devittsaid that the Government should be looking at all forms of taxation together. This seems to me to be another way of saying: 'Do not do anything at present; just wait and do nothing to stimulate the economy.' In my opinion this is a good Bill as far as it goes but it does not go far enough.

Senator Devitt - If it is that good why did the Government repeal the provision 12 months ago?

Senator Dame NANCY BUTTFIELD - I was going on to say that the reason why the Bill does not go far enough is that it specifically exludes once again the building and. construction industry. That industry was excluded when the legislation originally was introduced in 1962. For many years leaders of the building and construction industry have been endeavouring very hard to persuade the Government that the industry needs to be included among the manufacturers of this country. That industry is manufacturing increasingly as time goes by. As the industry modernises it needs to manufacture more things on site. It needs to do more of the processes close to construction sites and in this way it does manufacture. The anomaly of the situation is that if building companies buy certain products such as ready mixed concrete or concrete blocks for a building from someone else that person gets the investment allowance. But if the building company manufactures and uses the plant itself as part of its activities in the construction industry it does not get the allowance. The construction industry has tried very hard to persuade the Government to have a look at this situation and to bring the whole of the industry up to date and to include it among those which are eligible for the allowance.

There seems to be one way in which probably the industry could get around, its exclusion from this Bill; it could set up subsidiary companies which could do the manufacturing. The construction companies could then buy from their subsidiary company. This is a ruse which would get round the legislation. However, at no stage has the Commissioner of Taxation really come out clearly and ° said whether he would allow this. I think it is time this was done. I ask the Minister for Civil Aviation (Senator Cotton) to get this assurance from the Commissioner of Taxation. I ask him to find out exactly what attitude the Commissioner would take in respect of any construction company which set up a subsidiary company in order to get around the anomaly in this Bill. It seems to me that it is worth mentioning in this case that the construction industry buys equipment to the value of $350m a year. If it were included in this allowance, it would be saved $20m a year. By buying modern equipment, it could reduce its costs by that amount and the Government would gain considerably because a great deal of the construction which is being done is for Government departments. They would be gaining very much from any reduction in costs.

When the Bill was introduced in 1962 the Government gave as its reason for introducing it the need to help the balance of payments problem and to increase exports. The situation has changed today and although the Government is now saying that it is simply re-introducing a Bill which was introduced in 1962, in my opinion it is not taking into consideration the changed situation. Today there is a need not only to boost the economy but also to increase productivity and efficiency and to be able to compete with overseas industries, heavily subsidised in many cases by their own governments. There is a need to compete with them both overseas and in Australia. Many companies are coming in from overseas and setting up here. Our construction industry, which is not receiving the assistance which other countries give to their industries, is prejudiced. It is also making it very difficult for it to compete, for instance, in South East Asian countries where we need to improve Australia's image. We need to be able to have our construction industry go in there to prove its efficiency. But it needs this assistance which other countries are giving their industries. It is of interest that recently the United States of America reintroduced a similar allowance for all manufacturers, including manufacturers in the building industry. That country has reinstated it and included its building industry. But we continue to exclude the building industry in Australia.

I think we need to remember - I plead with the Government to do so - that the turnover of the construction industry represents 10 per cent of our gross national product. It turns over $3, 000m a year, an amount which calls for consideration. I know it is said that the building industry is buoyant and that it does not need this sort of assistance. But I have already given examples of how it does need to be able to increase its efficiency and therefore reduce its costs and increase productivity. It could do this if it were included as a manufacturing industry. For instance, when a con struction firm builds a concrete making plant alongside where it is building, as we see here in Canberra, because the construction firm is itself mixing its concrete it does not receive the allowance. If the concrete were transported in, involving another company, the construction firm would receive the allowance. It is interesting to note that on 8th December 1970 the then Prime Minister, Mr Gorton, suggested to the building industry that it put its case once again to him. He said: . . the Department of Works has suggested that a study be undertaken jointly by the Federation, the Department and the Building Research Division of the CSIRO designed to show present levels of plant use and possible increases in efficiency by the use of additional plant. Such a study could be relevant to future consideration of extension of the allowance to the building and construction industry.

That was on 8th December 1970. That committee has been set up and is in the process of presenting a report. It did press ahead quite rapidly but. when the allowance was suspended in 1971, it probably went a little slower, the result being that when suddenly this allowance was reintroduced, it was not ready to present arguments to the Treasurer as to why that industry should be included. However, in the last few weeks it has held many meetings and has agreed on several points which are very relevant to this discussion. I would like to read the points on which it has agreed. It has asked that the Treasurer consider these points very soon so that they can be brought in as rapidly as possible for the industry to receive this allowance. The Committee has agreed:

1.   There is undoubted potential in the building and construction industry to improve its performance;

2.   This performance can best be achieved by the extension of the use, application and selection of plant and equipment available for building and construction;

It has also estimated - it is only an estimate - that approximately $20m per annum would be gained in taxation concessions and that the potential saving in building costs could match this allowance. That is its third point. The points continue:

4.   That the provision of an incentive would remove apparent reluctance on the part of contractors' to invest in modern plant and equipment; and

5.   That the concession would be a valuable aid to contractors endeavouring to participate in construction projects in developing countries in the South East Asian area in competition -with similarly assisted contractors from other countries.

It is very significant that this committee, which was suggested and approved by the former Prime Minister, has reached these conclusions. I bring this point to the attention of the Minister most emphatically. If these points are put to him he should consider within the next few days allowing this allowance to be given to the building and construction industry in the next Budget. It is significant that in answering a letter to the Master Builders' Federation of Australia the Treasurer said that the reason for re-instating this allowance was to assist in boosting confidence. He said further:

But as I told you in our discussion on 24th February, 1 will be prepared to examine and consider the report of the committee on which the Federation is represented and which is looking into building costs.

That is not a correct assessment. That committee is doing far more than looking into building costs, as I illustrated when I read the 5 points on which it has agreed. It is for this reason that I make a very strong plea that the Treasurer give consideration to the. fact that this committee has made dts judgment. I hope that the Minister will tell us whether building construction companies which set up subsidiary companies will be allowed to claim the allowance. I think, too, that we should take note of the fact that the reintroduction of the allowance will boost our export earnings if we can encourage the industry to compete on a more just basis than at present. I oppose the amendment and I support the Bill.

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