Chapter 4.6
Failure of governments to support value-adding enterprises
4.93 Despite the positive contributions governments have made to
value-adding activities in Australia criticisms have been expressed concerning
shortcomings in government assistance. During the inquiry alleged shortcomings in the
existing taxation system were raised. It was argued that reform in the tax system could
benefit value-adding in Australia's agricultural production.
4.94 The National Farmers' Federation (NFF) was blunt in its assessment
of the performance of the Commonwealth Government in relation to value-adding
when Mr Garry Goucher, Director of Policy with the Federation, stated
in evidence “I do not think the government in this country has done
enough to facilitate the growth of value adding in export industries in
this country.” [120]
4.95 The performance of governments in administering programs and policies
designed to attract value-adding investment drew criticism. For example,
the Australian Cotton Foundation stressed that there is a need to “streamline
unwieldy Federal, State and Local regulations and legislation that are
a time consuming and confusing nightmare to many would-be investors.”
[121]
4.96 It was argued that there has been an:
Unfortunate history in Australia of official encouragement of further
processing in regional areas. The businesses have been unable to survive
in the long term due to their underlying economic features or following
changes in economic circumstance. The canning fruit and meat industries
provide numerous examples of unsuccessful decentralisation policies
- often promoted in the name of adding value to agricultural products.
[122]
4.97 Mr Egan of Vegco Limited was very critical of the attitude of
public servants to his requests for assistance. He told the Committee:
Because we were seen to be doing something that was not already known
in the country the barriers that were put in front of us by the Public
Service were unbelievable. The assistance has been pathetic. At ministerial
level there has been good support and the support was genuine, but there
were blockers in the system at all times. [123]
Mr Egan went on to state:
You spent 50 per cent or 60 per cent of your time trying to secure
grants rather than getting on with the job in hand ... It was very difficult
in the early phases to secure any government assistance, either state
or federal. [124]
4.98 It was the view of Mr Egan that there are set criteria for government
assistance and if you did not fit within these set criteria it was too
difficult for public servants to deal with your request. [125]
4.99 Concerns were expressed during the inquiry that small value-adding
companies were not always receiving the Commonwealth Government assistance
that they had a right to. In evidence to the inquiry the West Australian
Government noted that there was a need for a review of Commonwealth assistance
programs to value-adding enterprises to ascertain that the programs “are
adequately meeting the needs of small and medium sized businesses with
potential in export markets.” [126]The WA Government submitted that, “traditionally
we (West Australians) have missed out on a lot of potential assistance
through Commonwealth programs on the basis that they (small companies)
fall through the cracks; they are too small to meet the guidelines and
criteria (of the programs).” [127]
Taxation issues
4.100 Australia's taxation system came in for criticism during the
inquiry. Mr Garry Goucher of the National Farmers' Federation noted during his evidence
that taxation policies have effected growth in value-adding export industries. Mr Goucher
quoted Professor Helen Hughes as having stated in an article:
Australia's inefficient and inequitable taxation system with its very
high compliance costs damps down business activity. The introduction
of value-added taxes and abolition of payroll taxes are essential to
competitiveness in exports. [128]
4.101 The South Australian Government told the Committee that taxation
policies were more than “just a tool for raising revenue”. [129]According to the South Australian Government,
taxation policies were an instrument of government and these policies
“should not be independent of other government polices and objectives
but should be framed to assist the achievement of broader government objectives”
[130]such as value-adding.
4.102 Calls for the Commonwealth Government to change taxation
policies were raised during the inquiry. Such changes were singled out as having the
potential to benefit some value-adding industries.
4.103 The South Australian Government argued that taxation policies are
an important influence on the ability of the wine industry to expand its
exports. [131]The Government explained that:
The wine industry is of critical importance to South Australia. It
is just the sort of industry that Australia should encourage, not discourage
by the imposition of punitive taxes on just when it is starting to deliver
on the high expectations that many have held for it. [132]
4.104 The South Australian Government stressed to the inquiry in May
1995 that it was “totally opposed” to the minority recommendation
of the draft report of the Commonwealth Inquiry into the Wine and Winegrape
Industry which called for an increase in the Wholesale Sales Tax (WST)
on wine to be increased to 32 per cent and the introduction of a “$4
per litre of alcohol specific tax”. [133]The SA Government argued that the “status
quo position for the taxation of wine continue - with the wholesale sales
tax on wine fixed at 26 per cent from 1 July 1995.” [134]
4.105 In its evidence to the inquiry the West Australian Government also
expressed its opposition to changes in the tax system affecting the wine
industry when it stated, “Western Australia shares the national concerns
that changes in taxation arrangements will reduce the industry's capacity
to meet its export targets for the year 2000.” [135]
4.106 In order to support value-adding activities the Australian Cotton
Foundation suggested that the Commonwealth Government could “slant”
exiting taxation incentives away from “non-productive negative gearing
concessions” into export oriented or import replacement long term
investments. The Foundation advised that a five year taxation holiday
for new value-adding enterprises in designated sectors of the economy
could be put in place by the Commonwealth Government along with a waiving
of State Government fees and charges for a similar period. [136]
4.107 Davey Financial Management Pty Limited, which represents more
than 200 individuals who are members of Australian Eucalypt Projects, in evidence to the
Committee in May 1995 argued that the use of income tax incentives was the best means of
encouraging people to participate in hardwood plantations. In the view of Mr Paul
Brazenor, the Executive Chairman of Davey Financial Management Pty Limited, the current
uncertainly concerning the tax treatment of plantation investments meant that private
participation in plantation forestry was insufficient to meet Australia's need for
hardwood. Mr Brazenor stated the best way to overcome Australia's hardwood shortage is:
To immediately clarify the present taxation treatment of plantation
forestry and to introduce a programme of incentives for approved plantation
forestry projects, whereby it is made clear that all initial investment,
(excluding land) is 125 % tax deductible and harvest proceeds are assessable
to the extent of only 50 %. [137]
4.108 The Australian Taxation Office in Adelaide carried out a review
concerning prospectus raising for agricultural projects. As a result of
this review a draft ruling is to be issued for public comment in mid-May
1997. [138] As a result of the review it is hoped
that the Australian Taxation Office will set out clear guidelines for
the taxation treatment of collective participation by investors in plantation
forestry.
4.109 Not everyone agreed that taxation was a significant factor
inhibiting value-adding activities. United Milk Tasmania told the inquiry that although
taxes, both state and Commonwealth, are an inhibitor to value-adding:
I would not say that they are in any way of such a level as to stop
us from doing what we want. Obviously if you have any tax it is an inhibitor,
but none of them I would say are at such a level that stops us from
doing something. [139]
Conclusions and recommendation
4.110 Given the number of programs and bodies that support
value-adding activities, to an extent it is understandable that some individuals and
organisations have been disappointed at times by the way they have been treated when
seeking support for their value-adding activities. It is hoped that the organisation
AusIndustry will help to overcome some of the problems previously faced by these
individuals and bodies.
4.111 Of concern to the Committee was the claim raised by the West
Australian Government that small companies involved in value-adding were not always
receiving the assistance from Commonwealth authorities that they may be entitled to. The
Committee supports the call by the West Australian Government for an inquiry and
accordingly recommends that appropriate Commonwealth authorities review assistance
provided to small and medium sized companies to ascertain whether Commonwealth programs
are meeting the needs of these value-adding enterprises.
4.112 The Committee would like to see economic obstacles to the
establishment and operation of value-adding enterprises moderated or removed. These
restraints include taxation and other structural reforms. The issue of tax in relation to
value-adding activities is complex and well beyond the expertise of the Committee.
Therefore the Committee has chosen not to make a recommendation in relation to the issue
of taxation although it is aware of its economic importance to various sectors involved in
value-adding.
Footnotes
[120] Evidence, NFF, p. 1015.
[121] Submission, Australian
Cotton Foundation Ltd., p. 2
[122] Dr Alistair Watson, Further
Processing of Agricultural Productions in Australia: Some Economic Issues, Research
Paper Number 5, 14 December, 1993, Parliamentary Research Service , Department of the
Parliamentary Library, p. 22-23.
[123] Evidence, Vegco Limited, p.
266.
[124] Evidence, Vegco Limited, p.
266.
[125] Evidence, Vegco Limited, p.
267. For information on the amount of Government support Vegco received see page 267 of
its evidence.
[126] Evidence, West Australian
Government, p. 694.
[127] Evidence, West Australian
Government, p. 694.
[128] Evidence, NFF, p. 1015. A
call was made by the wool industry for a review of the taxation system as it impacts on
that industry, Maximising the Return: Adding Value to Australian Wool: Report of
the Wool Processing Task Force, Department of Primary Industries and Energy, Canberra,
1993, p. xv.
[129] Evidence, South Australian
Government, p. 573.
[130] Evidence, South Australian
Government, pp. 573, 565.
[131] Evidence, South Australian
Government, p. 565.
[132] Evidence, South Australian
Government, p. 571.
[133] Evidence, South Australian
Government, pp. 571-572; see also pp. 566-567.
[134] Evidence, South Australian
Government, p. 572. For a listing and discussion of the ramification for South Australia
if the minority recommendation is implemented see Evidence, South Australian
Government, pp. 568-569, 572.
[135] Evidence, South Australian
Government, p. 692-693.
[136] Submission, Australian
Cotton Foundation Ltd., p. 2.
[137] Evidence, Davey Financial
Management Pty Ltd, p. 394.
[138] See Evidence, Davey
Financial Management Pty Ltd, p. 392. For comments on the effect of taxation regulations
on entrepreneurial companies see Evidence, Australian Natural Ingredients Ltd, p.
739.
[139] Evidence, UMT, p. 855.