CHAIR - I welcome officers from Treasury—Mr Comley and Mr Love. I understand that Mr Brown has been delayed and that he will address specific revenue issues. Mr Comley and Mr Love, do you wish to make an opening statement?

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Mr Comley—No, we do not.

Senator JOYCE—Yesterday it seemed that regulations were a bit like Goldilocks’s porridge—not too much, not too little but just about right all day. I want to know how we deal with the transparency of you managing the situation on behalf of the nation given that you do not have access to the public reporting standards once a company becomes private.

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Mr Love—For companies that become private and go off the market, the key distinction is that they are no longer subject to the continuous disclosure rules of the ASX or whatever part of the market they are listed on. The continuous disclosure rules are all aimed at ensuring that there is market transparency where there is trading. Once a company becomes private it is still subject to annual reporting and other disclosure rules under the Corporations Act. There is no effective change just because a company has gone private in relation to the overall level of their reporting about their financial position. It is in regard to continuous disclosure, but continuous disclosure on the market is aimed at working out pricing signals on a day-to-day basis.

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Senator JOYCE—But if you do not have access to the information you are at a disadvantage. For example, let us talk about a proposed buyout of Coles. Currently you have access to all the public quarterly reporting figures. Obviously, if it goes private you will not have that; you will have an annual figure. So you must obviously have less information.

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Mr Love—We are talking about information that is principally for the shareholders of the company or the analysts or people advising shareholders or others who might want to purchase shares in those companies. The thing about investment in private equity is that you have focused shareholders who, through the strength of their position, have a strong ability to obtain information that they need to understand the position of the company. Whether or not you are trading the company publicly, that is the distinction.

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Senator JOYCE—I understand that. You do not have access to that though, do you? You have access to less information.

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Mr Love—Overall, the community as a whole has less access to information, yes.

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Senator JOYCE—Yesterday we heard a statement that we have private equity firms borrowing money to finance buyouts and we have the companies that think they might be under the microscope of a private equity firms leveraging themselves up to protect themselves against it. We also heard that this will sort itself out because ultimately, whether driven by the US mortgage rate or not, interest rates will rise and make it unfeasible. Do you concur with the RBA’s proposition that the advent of private equity firms increases the pressure on interest rates?

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Mr Comley—We do not make any comments on interest rates. That is a matter for the Reserve Bank. Without looking at the transcript, Mr Love and I are not going to make a comment on what the Reserve Bank may or may not have said on interest rates.

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Senator JOYCE—I did say that you would have to read it. Are you going to comment on national interest issues?

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Mr Comley—Can you expand on what you mean by national interests?

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Senator JOYCE—Do you believe that the advent of private equity firms in certain key aspects of the market, such as air transport—because you do not have access to the information that you would if the company were public—should inspire a greater stringency on the national interests test?

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Mr Comley—If I go back to what Mr Love said about the access to information, I suppose the issue is what we would be doing with the information that would not be available now under private equity. We certainly do not, for example, monitor quarterly performance of individual companies to see how they are tracking, because that is not our role as shareholders. Where there are national interest considerations of the type I think you are alluding to, obviously the government typically has ways of collecting information other than through the continuous disclosure provisions of the current regime.

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Senator JOYCE—Regarding the capital gains tax exemptions that the company holds—and you knew I was going to ask this question, so I am sure you have your notes there ready with the answer—do you stand by your figures of the costing of the capital gains tax exemptions for non-real property assets?

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Mr Comley—We are traversing slightly into the area of the revenue issues, but I am happy to take it, given that Mr Brown is not here at the moment. He was, as I understand it, on a 6.45 flight out of Canberra, so in the normal course of events he would have been here at 9 o’clock and was intending to be so.

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Senator JOYCE—Have a crack at it. See how you go.

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Mr Comley—I think—

Senator JOYCE—I refer to pie chart No. 8 in the booklet that the RBA gave us yesterday. From their figures, it looks like two-thirds of the financing of private equity is debt. That makes sense out of your thin cap rules. That would have to suggest that, because we have excess negative gearing to what the company already was, there must be a revenue loss to Treasury. Would that be a fair enough statement?

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Mr Comley—No, that would not be a fair enough statement. In very broad terms, the issue with the revenue forecasting is that focusing on one aspect of the total transaction can be a misleading picture of the total revenue implications. Indeed, focusing even on all the aspects of one transaction does not necessarily give a full picture of the revenue implications. For example, if I have a new private equity deal—

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Senator JOYCE—Talking about private equity, let us take one—

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CHAIR—Senator Joyce, just let Mr Comley finish.

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Senator JOYCE—I am trying to assist so that we can get a point of clarity. Take one issue in situ and show me what the wider ramifications of that deal are.

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Mr Comley—That is what I was trying to go towards. If, for example, I have a new private equity arrangement in a takeover situation, the first thing is that, almost by definition, to take something over, some people have to sell it. So the first question is: what are the capital gains tax implications—or, in fact, it could be the ordinary assessable income tax consequences—of that sale? The specifics of that would depend on the facts and circumstances of the people selling. So it could be either a capital gain or ordinary income.

The next question is: for those people who have just sold those interests in the takeover arrangement, what do they do with the money? It is not as though people who are going to receive money from a private equity transaction do nothing with it. They could do a range of things. They could decide that they are not going to reinvest and they could spend it, or they could reinvest and there could be a range of tax consequences of that.

Secondly, on the other side of the equation you have the sou