The following are select media articles from October to December 2011. Return to Archived Media index.

 

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In this section:  Business chiefs urge GST population link Reforming business tax could improve nation's productivity News outfits need tax breaks: journalist Poor entitled to fairer share Australia's mining resources rent tax could net less than $1.8 billion a year Head-to-head: the Robin Hood tax All states are not that equal Counting the cost of tax havens Tax threat to parents who don't have their children immunised Cash paradise: the state vs tax-havens The fight against tax havens, avoidance and evasion Seven-year retrospective proposal menaces multinationals with tax U.K. won't 'get away' with transaction tax refusal, says Kauder Two-speed tax breaks backed It's boom time for everyone Australia joins fight against tax evasion Activists push Robin Hood tax ideas at G20 Time to topple the idols of high finance Multinationals decry profit-shifting taxes Archbishop backs Robin Hood tax Tax exemption recommended for downsizing retirees One tax that’s easier said than done G-20 Doesn’t Support European Union’s Transaction Tax, U.K.’s Osborne Says Brown backs tax breaks for indie press Tax gathering agency could slash red tape Mining tax step to spread benefits of boom Tax deductions are popular, but penalties may work better Housing stress puts 10% at risk of stress Housing costs make it a struggle to pay the bills Affordable-housing lobby out to nobble investments A roof over everyone's head Meagre dole payment doesn't just hurt the unemployed The true cost of NIMBYism An unaffordable tax beyond all regional doubt Housing affordability: the summit we really need Tax break too complex: banks Looking beyond the tax lobbies Turning talkfests into outcomes Tax warriors fighting an old war Maybe there's a point to all the tax talk An unexpected show of unity Unions and business clash on best economic strategy Tax must reflect unique economy Unions, employers clash at tax forum

 

Business chiefs urge GST population link

Annabel Hepworth, The Australian, 14 December 2011

Big business has proposed that funds from the GST be shared among the states based only on their population numbers, ditching the system of using the $50 billion GST pool to equalise national prosperity.
In a new submission to the review into the GST system, the Business Council of Australia argues that the present system for carving up the GST is making state governments less accountable to their citizens and discouraging states from making reforms.
"These represent material challenges at a time when we should be aiming to improve the efficiency of government spending and increase our lagging national productivity performance," the BCA has told the review.
The council has urged the review to move to a system where the GST funds are distributed on a per-capita basis, with the smaller states getting more of the federal government's general funding to make up the difference.
The system redirected $3.6bn to the poorer jurisdictions of South Australia, Tasmania, the ACT and Northern Territory last year, away from the wealthier states. NSW Treasurer Mike Baird has also said the GST should be distributed on the basis of population size. Victoria has proposed a similar system, while Western Australia has proposed a floor of 75 per cent of GST revenues to be returned on a per-capita basis.
But the BCA says switching to a per-capita basis for doling out the GST funds should be done in the long term because otherwise the budgets of the laggard states would be too unstable.
In the meantime, it says, the GST carve-up should be confined to core services such as health and education, with indigenous disadvantage targeted through funding from the federal government.
The group insists that the reforms to the GST would have to be accompanied by sweeping state tax reform, including potentially giving the states access to a share of the personal income tax.
The review - conducted by former NSW Liberal premier Nick Greiner, former Victorian Labor premier John Brumby and SA businessman Bruce Carter - will deliver an interim report to Wayne Swan by February.

POOR ENTITLED TO FAIRER SHARE

Mike Steketee, The Australian, 10 December 2011

A report this week put figures on a feeling that has been spreading across the world: that societies are becoming less fair.

The OECD says the gap between rich and poor in developed countries reached its highest level for more than 30 years in 2008, with the average income of the top 10 per cent about nine times that of the bottom 10 per cent.

Australia is ahead of this worldwide trend, with our gap widening from eight to one in the mid-1990s to almost 10 to one in 2008. In real money, that meant an average income of $131,300 for the top 10 per cent in Australia, compared with $13,700 at the bottom. At the very top, the income share of our highest 1 per cent rose from 4.8 per cent in 1980 to 8.8 per cent in 2008 and that of the richest 0.1 per cent from 1 per cent to 3 per cent.

You don't have to be a socialist or social democrat to believe that this matters.

Circumstances in individual countries, together with government policies, do make a difference. The 3 per cent rise in real household income for the bottom 10 per cent in Australia in the quarter century to the end of last decade was higher than in all but four of 27 OECD countries. But the growth of 4.5 per cent for the top 10 per cent was the fastest of all.

Australia has a less generous welfare system than Europe but one better targeted at those most in need. The report says taxes and government benefits reduced the gap in income inequality in Australia by just more than half, more than in many other developed countries. Despite that, it is still widening and, when it comes to wealth, recent Australian Bureau of Statistics figures show it is doing so dramatically.

In common with other countries, Australia's income-tax system has become less progressive. Most of the reduction in the top tax rate from 60 per cent to 45 per cent occurred under Paul Keating as treasurer, but this was part of a trade-off that included capital gains and fringe benefit taxes and the abolition of negative gearing: all measures that reduced tax breaks for high-income earners.

But while the large cut in the top tax rate has been retained, most of the tax breaks have been reinstated, in part or whole, while others have been added.

Keating himself brought back negative gearing under pressure from a NSW Labor government that saw its abolition as hurting its re-election chances in 1988.

Economist Saul Eslake from the Grattan Institute says our scheme is the most generous in the world and characterises it as "among the more egregious" examples of how the tax system departs from fairness and simplicity.

He argues that what originally was a vehicle for deferring tax until property or shares were sold has also become a means of reducing tax, thanks to the Howard government's halving the tax on capital gains. In 1998-99, the year before this change, Australia had 1.3 million taxpaying landlords who made a total profit of almost $700 million.

By 2008-09, the number of landlords had risen to 1.7 million but they made a loss of $6.5 billion and reduced their tax liability by about $4.5bn.

"This is a pretty large subsidy from people who are working and saving to people who are borrowing and speculating (on making a net profit through capital gains)," Eslake said in a speech in September. According to research commissioned by the Brotherhood of St Laurence, negatively geared property investors in the top 20 per cent of incomes received an average $4500 in tax benefits in 2009, almost double the maximum subsidy available for low-income renters.

This might be revenue well spent if it kept down rents and house prices. Instead, Eslake says, it does nothing for the supply of housing and drives up prices because 92 per cent of borrowing by residential property investors is for existing dwellings.

Eslake, the Henry tax review and a parade of participants at the October tax forum in Canberra advocated the abolition of negative gearing or paring it back. The government's response? Whenever the issue raises its head, Wayne Swan summarily rules out any change.

Eslake is even more scathing about the generosity of superannuation concessions. He calls the 2006 decision to remove tax entirely from superannuation paid to people aged 60 and older as "one of the worst taxation policy decisions of the past 20 years and there's a fair bit of competition. I can't think of any legitimate public policy objectives (that) justify some people paying less tax than others on the same amount of income purely because of their age." Not to mention handing the tax benefits overwhelmingly to higher income earners.

The government's reaction? Swan forbade the Henry tax review from considering changes to tax-free super.

The budget papers include a projected rise in the cost of superannuation tax concessions from almost $31bn this year to more than $42bn in 2014-15: a 37 per cent increase in three years. In a rational world you might expect a treasurer intent on balancing the budget by next year, come hell, high water or a global recession, to pay this some attention.

The argument for not doing so is that the government has enough tax fish to fry without throwing more sizzle into the fire. Instead, it has adopted incrementalism as a strategy to balance the budget and make room for Labor priorities. It has applied means tests to programs such as the baby bonus and family tax benefits but only on the highest income earners.

It has been trying to do the same with the private health insurance rebate, another measure that has achieved very little in terms of its goals of taking pressure off public hospitals, despite a cost approaching $5bn a year.

The strategy has not produced enough savings to pay for an increase for single people on unemployment benefits living on $35 a day, an amount that everyone from welfare organisations to conservative economists agree is inadequate and inhibits people from finding work. Incrementalism will not produce the $6bn a year for a National Disability Insurance Scheme to which Labor says it is committed and that would help rectify a serious inequity.

Nor will it pay for another professed Labor priority, tackling what for many hundreds of thousands is unaffordable: dental care.

Finding the money for such programs seems daunting, but only for governments that are prepared to tolerate wasting much more on policies that do not achieve their aims and worsen inequality.

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AUSTRALIA'S MINING RESOURCE RENT TAX COULD NET LESS THAN $1.8 BILLION A YEAR

David Pickling, The Wall Street Journal, 9 December 2011

Just how big a bill will Australian miners pay as a result of the government’s new Minerals Resource Rent Tax, or MRRT?

If you listen to the mining sector, the new levy could squeeze them so hard that they’ll look elsewhere for future investments. However, though the parliament’s lower house passed the law last month, the answer to the basic question of tax bills is still up in the air.

Part of the reason for this is that equity analysts are wary of revising their models for companies based on legislation whose fine print and accounting application is still yet to be finalized. But using UBS’s estimates of per-ton tax liabilities, it’s not hard to produce a rough-and-ready estimate of what the miners will pay and what the government will earn.

The key takeaway is that the four miners who’ll pay the vast majority of the tax–BHP Billiton Ltd., Rio Tinto PLC, Xstrata PLC, and Fortescue Metals Group Ltd.–have transferred a parcel of their pricing risk to Australian taxpayers.

When coal and iron ore prices are high, the Treasury looks to do reasonably well and miners will have higher tax bills. Based on their production figures for the past year, an Australian dollar at parity with the greenback, and iron ore, coking coal and thermal coal at their current prices of US$140 a metric ton, US$235/ton, and US$110/ton respectively, the Treasury would have gotten up to $5.78 billion extra last year.

That, however, is the rosiest possible figure for the government. For one thing, big miners will be able to use some accounting tricks around depreciation to minimize their bills. Fortescue reckons it will have no net increase in taxes at all in the early years of the new regime thanks to this wrinkle, despite a notional increase of $535.9 million in last year’s bill under our model.

For another, there are serious doubts about whether current prices are sustainable. Although the next five years are expected to see tight supplies and high commodity prices, beyond 2015 the picture may change substantially. UBS’ long-term estimates for commodity prices put iron ore, coking coal, and thermal coal at US$72/ton, US$130/ton and US$85/ton respectively, and the Australian dollar at US80 cents.

On that basis, the likely upper limit for extra tax revenues would be $1.81 billion–and that’s before accounting for the depreciation shield.

Shave ten dollars off the long-term iron ore price estimate, and the government would in effect incur a $180 million liability, in the form of an allowance that miners can offset against future tax bills. If prices fall to 20-year average levels, that liability would increase to $8.26 billion a year.

Overall, commodity prices need to be at least 70% above historic levels recorded by the Australian government’s Bureau of Resource and Energy Economics for the government to receive a net benefit. With prices of US$170/ton for coking coal, US$105/ton for thermal coal and US$78/ton for iron ore, the net benefit would come to $3.8 million.

There’s some comfort for the government from the calculations, though. With high commodity prices, their much-disputed three-year estimate of $11.1 billion in revenues doesn’t look implausible, although depreciation could reduce the figure sharply.

Furthermore, though the tax take from miners may end up smaller than it would have been under the previous version of the law, it would be hard for it to fall below current levels.

So the tax is hardly the company-killer it’s frequently been portrayed by the industry. But given the blood that’s been shed to get this law on the books—encompassing the fall of Prime Minister Kevin Rudd, and his successor Julia Gillard hanging onto office by just two votes—the government may be wondering if, long-term, it was worth the effort.

A note on our workings:

We’ve used UBS’s calculations of MRRT liabilities, and numbers from the miners’ production reports covering the most recent Australian fiscal year to the end of June. We’ve consolidated the 80% stake in Coal & Allied’s production that Rio Tinto is entitled to now that its takeover of the company with Mitsubishi Corp is complete.

The calculation isn’t rocket science. You basically subtract per-ton production and capex costs from an estimate of prices to produce a per-ton estimate for earnings before interest and tax. Then you apply the 22.5 per cent MRRT tax rate to that figure to produce an MRRT per ton figure.

UBS have provided estimates of royalties that are paid under the current system, and will be rebated under the MRRT. You can subtract that to produce the net figure we’re focusing on: the extra liability for the miners, and extra tax for the government.

We’ve just analysed the tax to be paid by Australia’s four biggest miners by output: BHP, Rio, Xstrata and Fortescue. Other miners are likely to pay little if any MRRT, due to measures designed to protect smaller companies.

There’s a couple of key variables to watch out for. Miners with extensive existing operations–basically, all those likely to be large enough to pay significant amounts of tax–can elect to depreciate their assets based on an estimate of market value on May 1 2010.

Given the high current valuations of mining assets, that has the potential to significantly weaken accounting EBIT, and thus MRRT liability–although it need have no effect on the miners’ cash flows or even capital expenditure requirements. So these estimates are likely to be on the high side.

On the other hand, UBS’s figures are based on long-term price forecasts for the key commodities that are considerably weaker than those we’ve seen recently. The government would have made $5.78 billion based on current prices and exchange rates, but that drops to $1.81 billion based on UBS’s long-term forecasts.

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HEAD-TO-HEAD: THE ROBIN HOOD TAX

Gemma Godfrey and Prof. Avinash Persaud, BBC Online, 9 December 2011

Financial transaction taxes - fans call it a "Robin Hood tax", designed to fight speculation and claw back money from the rich; opponents warn of huge job losses and dire  consequences for our economic well-being.

The tax proposal, put forward by Nobel prize winning US economist James Tobin, would impose a small tax levy on large transactions of currencies, bonds and shares. Given the size of global financial markets, revenues could be huge.

We asked two investment experts to make the case for and against the "Robin Hood tax".

Gemma Godfrey, chairman of the investment committee at Credo Capital will make the case against the tax.

Arguing in favour is Prof Avinash Persaud, chairman of Intelligence Capital and fellow at the London Business School.

THE CASE AGAINST

Gemma Godfrey

Hailed as a way for the financial sector to 'give back', the Tobin tax would charge financial institutions a fee for the transactions they execute, with the aim of bringing greater stability to the markets and using the funds to tackle poverty and related problems. However, this 'Robin Hood tax' is severely flawed.

It would not 'steal from the rich' but poison the poor, not merely failing to achieve its goals but making matters worse.

Strongly supported in Germany, but vigorously opposed by the UK chancellor, there are (at least) three fatal flaws in the plan. Firstly, it will not be the banks but savers and pensioners that foot the bill. Secondly, tax revenues could actually fall not rise as trade moves elsewhere, jobs are lost and the economy shrinks. Finally, instead of promoting stability, it could make markets far more dangerous.

Pensioners, charities and savers will suffer. There is a vast difference between the legal payer of this tax (financial institutions) and where the financial burden in reality finally lies.

Banks will be charged the tax, but they will pass on the cost to the end customer via reduced returns on pensions and higher fees to do business.

A costly tax

Bad for business, the tax could drive trade elsewhere. Applied in Sweden in 1984, 60% of the trading volume of the 11 most actively traded stocks migrated to London.

With a lower base on which to charge capital gains tax, the revenues from the transaction tax were offset.

'Revenues' for the UK are expected to be even worse. With estimates of up to 90% of the trading of certain instruments (derivatives) at risk of moving to the United States or Asia, this could end up costing £25.5bn. Without international adoption, the tax would be costly.

Job losses could amount to almost one million. These would not be isolated to the financial sector but far more widespread.

For every 10 jobs cut in finance, up to 4 jobs could be lost in sectors either supporting the finance industry or merely providing services to its former employees, such as restaurant workers etc.

Already at risk of recession, we do not have the luxury of considering such a potentially damaging proposal.

The National Institute of Economic and Social Research has given the UK a 50/50 chance of falling into recession next year, increasing to 70% if the eurozone crisis is not resolved. European leaders have more pressing issues on which to focus.

Stability undermined

Risk reduction will be hampered. By charging for transactions, the tax is hoped to discourage high amounts of short-term high risk trading, and stabilise markets. However, this could also cause a fall in the number of trades employed to protect people's money. Charging a tax to add positions that could offset potential losses (known as 'hedging') could leave more at risk of greater losses.

Furthermore, lower volumes could increase not reduce market volatility, an Adam Smith Institute report has suggested. Price moves are averaged out over fewer trades, so the wider index could swing more violently and make it tougher for an appropriate price of an asset to be determined. Moreover, slower adjusting markets would not just slowdown market falls but lengthen the time is would take to for them to recover.

With concerns that countries cannot afford to pay their debts, it is not a tax that will bring calm to the markets.

As defined by Einstein, insanity is doing the same thing over and over again and expecting different results. The tax did not work in Sweden, and it will not work now.

THE CASE IN FAVOUR

Prof. Avinash Persaud

Just because something is repeated frequently does not mean it is true. In the past few weeks - as the possibility of a Europe-wide tax on financial transactions has loomed large and campaigners have stepped up demands for what they dub a 'Robin Hood' tax to tackle poverty - opponents from the Prime Minister downwards have been emphatic: financial transaction taxes (FTTs) must be global to work.

Financial markets, they argue, have moved into cyber space, where, with a couple of clicks, trades can be routed to avoid taxes and regulation.

It's an image perpetuated by bankers, but one that does not stand up to scrutiny. The International Monetary Fund, the European Commission and the Gates Foundation have all found that unilateral transaction taxes are feasible.

Ironically, the best evidence for this can be found in the UK, where a Stamp Duty of 0.5% on transactions from anywhere in the world in UK shares raises £3bn per year.

The reason why this tax works, and the oft-quoted example of the Swedish transaction tax did not, is that it is a tax on the legal transfer of ownership. If the transfer has not been "stamped" and taxes paid, the transfer is not legally enforceable and institutional investors do not take risks with legal enforceability. Far from sending taxpayers rushing abroad, this tax gets more foreigners to pay it than any other - they contribute 40% of the revenue.

Financial Armageddon?

Understandably, bankers peddle the story that Armageddon would strike if you dare raise taxes in the financial sector by a smidgen.

In reality a 0.1% tax on transactions involving shares and bonds (or 0.01% on derivatives) doesn't figure highly in the decision-making of long-term investors. Despite introducing new FTTs, Brazil is still struggling to calm overseas investor enthusiasm.

Some of the world's fastest growing financial centres - Hong Kong, Mumbai, Seoul, Johannesburg and Tapei - all have FTTs that collectively raise £12bn a year.

The UK chancellor, aware of the inconsistencies of the UK's position, has shifted ground, arguing that the economic consequences would be too large for the UK to bear.

Vocal losers

He quotes the European Commission's impact assessment to claim it could cut GDP by up to 1.76% over 20 years. The Commission also says it could also be as small as 0.53%.

There is no disputing that right-sizing finance will create vocal losers. The principal ones will be those engaged in very high frequency trading such as hedge fund managers, their investors and brokers.

Traditional pension funds, insurance companies and individual investors - who turn over their portfolios less frequently - will hardly notice. High frequency traders are contrarian during the good times when liquidity is plentiful.

But during times of crisis, they try to run ahead of the trend, draining liquidity just when it is needed most, as we saw with the Flash Crash on Wall Street on 6 May 2010. Removing this relatively new activity will improve systemic resilience.

If the 1.76% cost is compared with the 100% of GDP (£1.8tn) the Bank of England calculates the financial crisis will cost the UK economy, an FTT would be worth it on economic grounds alone if it helps to reduce the prospect or size of the next crash by just a few percentage points.

Finance is VAT exempt, and if an activity is under-taxed it will become over-sized.

Global public goods in which everyone can benefit from without paying - like life-saving vaccines for some that reduce the risk of contagion to all, or alternative energies that reduce global warming - will be under-sized. Lets bring greater balance by raising taxes on an under-taxed sector that has benefited most from globalisation, to fund global public goods that benefit us all.

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ALL STATES ARE NOT THAT EQUAL

Judith Sloan, The Australian, 28 November 2011

Horizontal fiscal equalisation: it's not a term that rolls easily off the tongue, but most Australians would endorse the proposition that every resident of this country should expect to receive a minimum standard of service from governments irrespective of where they live.

So far, so good. But when it comes to putting this principle into effect, there are a number of decisions that need to be made that then determine the distribution of GST revenues to the states and territories for the purpose of HFE.

The outcome of this distribution has been troubling Western Australia of late.

Its position as a recipient state has moved to donor state, with the state receiving just over 70c in the dollar -- the lowest figure of all the states and territories. On current trends, the rate could go as low as 35c. The complaint by the West Australian government, no doubt, produces a few wry smiles on the part of the Victorian and NSW governments, since these states have been consistent donors to the other states and territories.

The decision by the federal government to establish an independent review, chaired by former NSW premier Nick Greiner, earlier this year was a sound one.

The terms of reference were agreed by the states and there was some anticipation that the means by which the GST receipts are distributed could be reformed to ensure efficiency, equity, simplicity and predictability.

By way of background, $48.4 billion of GST receipts will be distributed to the states in 2011-12; of this total, $3.9bn will be distributed according to HFE.

Overall, the commonwealth payments to the states total $95bn, with the other two large programs being National Specific Purpose Payments ($28bn) and National Partnership Payments ($17.5bn).

The main focus of the Greiner review is the nearly $4bn of GST receipts that are redistributed. While Western Australia receives only 72c for every dollar that it would receive on equal per capita basis, Tasmania receives $1.60. (The Northern Territory receives $5.36.) These relativities are calculated on the basis of disability factors that affect the cost of providing government services, as well as the ability to raise revenue.

The Commonwealth Grants Commission Report, which makes recommendations on the redistribution of the GST revenues, runs to three volumes and 1000 pages. It can take 80 pages to establish the case for a redistribution of just over $21 per head (or 2 per cent of the total) based on one factor. At the very least, this exercise is a case of excessive complexity and false precision.

A simpler way must be found.

While the submissions to the Greiner Review have indicated differences of opinion between the states -- three states have argued the case for equal per capita distribution, while Tasmania, in particular, sees merit in the present arrangements -- the value of the review itself had been widely endorsed by all the parties.

Certainly, the federal Treasury's submission was disappointing, representing a lost opportunity to provide valuable input to reforming the system.

Its conclusion that "there does not seem to be an efficiency case for radical reform of the HFE system" sits rather uneasily with some of the content of the document.

The submission effectively dismisses the proposition that HFE acts as a disincentive to good policy making on the part of the states. This is notwithstanding the fact that the benefits from the efficiency gains in government expenditure or reform of taxation by one state are effectively redistributed to the other states.

And the Treasury submission curiously notes that, because a number of state taxes produce variable revenues, there should be no additional problems for the states associated with the adjustments made to the GST distributions that can result in large year-on-year variations.

Even so, there remained some enthusiasm for the Greiner Review until the federal Treasurer's intervention last week, insisting on politically inspired additions to the terms of reference. These include "utilising HFE to provide incentives and disincentives to promote future state policy decisions which improve the efficiency of mineral royalties" and "examining the incentives for states to reduce Minerals Resource Rent Tax or Petroleum Resource Rent Tax revenue through increasing state mineral royalties".

There is also reference to the MRRT and the PRRT being more efficient than royalties. The final term is the point-blank statement that "state tax reform will not be financed by the Australian government". It would be fair to say that the Greiner Review has now descended into farce. The additions to the terms of reference run counter to the real purpose of the review, which was to devise a simpler and more efficient way of sharing the GST revenue while meeting equity objectives.

Adding the reference to the MRRT is simply bizarre -- the implication is that states should be penalised with a lower GST take should they raise royalties that in turn lowers MRRT revenues.

So what is the way forward? A focus on minimum standards of government services, rather than average, would create a more rational way of thinking about HFE. There is a strong case for simplifying the system by moving to an equal per capita distribution. Such a system contains an element of redistribution as states with growing populations receive payments based on an average of previous years.

Because of the dominance of indigeneity as a disability in terms of the cost of providing services, this factor should be dealt with completely separately.

We should also recognise that the existing system not only creates perverse incentives for state governments in terms of policy, it also creates inducements for people to stay and move to states that are subsidised, most notably Tasmania, but also South Australia, to a lesser extent.

By the standards of other federations in the world, the extent of redistribution to achieve HFE is very high in Australia. This is something that needs to be reconsidered.

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COUNTING THE COST OF TAX HAVENS

Ben Butler, The Sydney Morning Herald, 26 November 2011

Tax evasion - which costs Australia $41.4 billion a year - is the cause of the Greek debt crisis that is destabilising Europe, according to the author of research into the problem.

Every year tax evasion costs the world's governments $3.1 trillion, or about 5.1 per cent of world gross domestic product (GDP), activist group the Tax Justice Network says in a report.

''Greece's problems stem from 40 years of tax evasion and not collecting enough tax revenue,'' TJN director John Christensen told BusinessDay.

''There's no other cause. Their public revenues have been in disarray as long as anyone can remember, they've been borrowing on the international financial markets way, way beyond what's acceptable.

''One can say pretty much the same about Italy, where tax evasion is a national sport.

''The result of that is that the whole of the euro zone is under threat.''

On TJN's figures, the $29.4 billion in tax evaded by Greeks every year is equal to 9.65 per cent of the country's GDP, compared with an Australian percentage of 4.31 per cent.

The TJN claims criminals, dictators, the rich and big corporations have hidden trillions of dollars in tax havens such as Jersey, the tiny Channel Island where Mr Christensen was born.

The organisation is pushing for automatic information exchange between tax havens and tax authorities, the full disclosure of who owns companies, and country-by-country income tax reporting for multinational corporations.

Mr Christensen admitted there might be ''very, very restricted'' cases when a company might legitimately use a tax haven to avoid paying tax on the same income twice, in two countries.

''It's not about double taxation, it's about double non-taxation, in the majority of cases,'' he said.

He said he spoke from his experience working in Jersey for Touche Ross, which is now part of accountancy firm Deloitte.

''Most of the multinational clients I was working with were using offshore subsidiaries largely for thin capitalisation, transfer mis-pricing or downright tax evasion,'' he said. ''They're also using them for bribery and corruption at every single level.

''The real service offered to clients, whether it's high net worth individuals or multinational companies is secrecy, supported by judicial non-co-operation, weak information exchange processes and no requirement for any economic substance for the activities they're carrying out.''

Mr Christensen said the extradition to Australia on tax charges of his former schoolmate, accountant Philip de Figueiredo, triggered feelings of ''surprise and resentment'' and ''a great deal of fear'' among Jersey's population of 90,000 people.

An accountant with Channel Islands firm Strachans, de Figueiredo was extradited to Brisbane at Christmas last year and charged with money laundering and conspiracy to defraud the Commonwealth over the tax affairs of two Gold Coast businessmen - charges that have yet to be heard in the Queensland Supreme Court.

It is expected de Figueiredo will eventually face additional charges in Melbourne over the affairs of another Strachans client, music promoter and convicted tax cheat Glenn Wheatley.

''I was in Jersey last month and they're not very happy about this,'' Mr Christensen said.

The criminal charges and pressure over tax rates from the neighbouring European Union (Jersey is not a member) had brought unwelcome attention to a jurisdiction that had marketed itself as a quiet, safe, international financial centre, he said.

''From my experience the regulation there is piss poor, they are deceitful at every level, they are manipulative, and they're in a state of shock at how suddenly things seem to be unravelling.''

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THE FIGHT AGAINST TAX HAVENS, AVOIDANCE AND EVASION

Ticky Fullerton, ABC Online, 23 November 2011

John Christensen is co-founder of the Tax Justice Network, which works to prevent large corporations siphoning billions of dollars due to governments into tax havens instead.

Click here to see the interview with John Christensen on the ABC website.

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SEVEN-YEAR RETROSPECTIVE PROPOSAL MENACES MULTINATIONALS WITH TAX

Adele Ferguson, The Sydney Morning Herald, 21 November 2011

If there was ever any doubt that the federal government plans to bolster the powers of the Australian Tax Office to rake in more revenue, it was put to rest with the stealth bomb Assistant Treasurer Bill Shorten dropped on big business earlier this month in the form of proposed seven-year retrospective legislation to close loopholes in transfer pricing.

The government has given business and lobby groups less than a month to make submissions to the consultation paper, which states that the government is acting to ''ensure multinationals pay the correct amount of tax in Australia on their income and to provide certainty on our transfer-pricing law''.

With such a short time frame to comment on such a significant piece of tax law, business and lobby groups have been out in force in the past few days, travelling to Canberra to lobby Treasury, government officials and the opposition to try to dilute the proposal and drop the retrospective aspect of the legislation.

But it is a piece of law that has the potential to raise billions of dollars in extra tax at a time when the government is struggling to keep a lid on its budget deficit, never mind meet its election promise to be in surplus by 2013.

The federal government sees transfer pricing as a golden goose and to this end gave the ATO extra budget funding to enforce transfer-pricing laws last year, in a four-year campaign targeting companies turning over more than $250 million a year. This, coupled with the proposed new legislation, is designed to send a signal to big business that the days of minimising profit - and therefore tax - in far-flung subsidiaries is over.

Transfer pricing refers to the prices charged when one part of a multinational group buys or sells products or services or makes a loan to an overseas offshoot. The price or interest payment charged by head office affects the level of profit the offshoot makes, and therefore the tax bill. Related-party transactions tally up to almost $300 billion a year. If the changed law makes business change the way it accounts for transfer pricing or the ATO can identify just 1 per cent of overstated pricing or interest payments, it would add $3 billion to its coffers; at 10 per cent it is $30 billion.

In Australia there are more than 1000 businesses with an annual turnover of more than $250 million, which contribute 35 per cent of total tax collections. The problem for the ATO and the government is that tax collections have hardly budged in the past few years and, between 2005 and 2008, more than 40 per cent of all company income tax returns lodged by big business taxpayers paid no tax. Of those, 20 per cent made a profit.

The blitz on big business is part of a global trend by governments to raise tax revenue as the US and euro-zone debt crises wreak havoc on government budgets. The trend hasn't been lost on business, with an annual survey by global accounting giant Ernst & Young finding that tax authorities are becoming more aggressive and companies and governments are having more clashes over tax laws and how they should be enforced.

The survey, based on interviews with 541 senior tax and finance executives, concludes that the world has entered a period of elevated risk for tax controversy.

Because of this trend, 77 per cent of respondents said managing tax risk and controversy would become even more important to them in the next two years, and this figure increases to 88 per cent for large companies. The greater focus on managing tax and controversy is mirrored in tax directors' appetite for risk - 92 per cent say they will either stay the same or become more risk averse in the next two years.

Seventy-eight per cent of the world's largest companies said they were already experiencing greater risk or uncertainty about legislation. Even more enlightening was the response from tax policymakers, which said they foresaw even more change ahead as they sought to protect the tax base and raise revenue from an evolving mix of taxes. Sixty-nine per cent of tax policymakers surveyed expect to generate more revenue from indirect taxes in the future. These policy changes come as revenue agencies are equipped with legislation designed to increase levels of compliance and enforcement.

Other findings were that audits are more frequent and aggressive, making them more costly to defend or litigate. Tax assessments and penalties are now counted in the billions of dollars. Companies face unprecedented scrutiny and reporting of their tax affairs by advocacy groups and the media. For instance, in the past, when it came to asset valuations, the ATO accepted the valuer's assessment; now they ask for the valuation and the communications - including emails - between the company and the valuer.

And tax authorities have become a lot more assertive in examining cross-border activities. The number of tax-information exchange agreements has increased by more than 1000 per cent, while joint and simultaneous tax audits have gone from concept to reality.

Clayton Utz partner Dr Niv Tadmore says transfer pricing will remain for some time a critical tax issue for governments and multinationals. Intra-group transactions represent about 50 per cent of Australia's cross-border trade. ''In principle, transfer pricing is about gaps between economic benefits and tax outcomes. In practice, disputes are about gaps between the economic analysis and the evidence that can be led.''

As the war in the shadows continues, a downside is the negative impact it has on business expansion due to perceived sovereign risk. In the case of transfer pricing, the decision to make it retrospective to the tune of seven years creates uncertainty for business at a time when economies need business to invest.

 

IT'S BOOM TIME FOR EVERYONE

Ross Gittins, The Sydney Morning Herald, 9 November 2011

Forgive my absence at such an anxious time but I've been away on holiday in Western Australia. The wildflowers were unbelievable. And so was the affluence in Perth, where the mining companies' skyscrapers are so tall they can be seen from Rottnest Island, 30 kilometres away.

How'd you like to be living in Perth, in the winner's circle where everything is on the up, not doing it tough in Sydney or Melbourne, on the wrong side of the two-speed economy?

Actually, things in Perth aren't as wonderful as it suits envious easterners to imagine. Know what they complain about in the west? The two-speed economy. Most of them think they're missing out. Some people may be raking it in, but not me. I'm not on some fabulous salary, just paying the exorbitant house prices the well-to-do have brought about.

Now where have I heard that before? What is it about Australians at present - on both sides of the continent - that makes them so convinced they're missing out and battling to get by?

According to polling by Labor, 68 per cent of respondents believe average Australians aren't benefiting from the mining boom. Is that how you feel? If so, you haven't thought about it. As someone said, there are more things in heaven and earth than are dreamt of in your philosophy.

After such a long plane trip, I was half-expecting WA to be like another country. And it's true they have things we don't: magnificent tall trees - jarrah, karri and marri - and strange animals such as quokkas. But step into the bush and it's very much Australia: gum trees everywhere, kangaroos and kookaburras.

It's the same story economically. They may have huge reserves of natural gas and iron ore that we don't, but their economy is really just a corner of the greater Australian economy. As the locals are the first to tell you, a lot of the money they make soon finds its way into the pockets of people Over East.

For a start, there are no customs barriers between the states, so there's a lot of trade between them. Step into a WA supermarket and you see they are selling just the same stuff as ours do. Which means most of what they are selling was manufactured on the east coast.

Their big mining companies have been making huge profits for the best part of a decade. Nothing to do with you? Every east-coaster with superannuation has a fair bit of their savings invested in the shares of those big companies. So you've been getting your cut.

Your super's been looking a bit sick in recent years? That's mainly because of problems in the rest of the world. Whatever you've got, it would be looking a lot sicker without the resources boom.

Those mining companies are subject to the federal government's 30 per cent tax on company profits. And the feds' company tax collections have been massive since the resources boom started in the early noughties.

Do you realise that under Howard and Rudd we had cuts in income tax eight years in a row? Where do you think the money came from to finance those cuts?

In the economy, everything's connected to everything else. So if you're conscious of only the direct connections, you're missing a lot of the story. And no connection is more indirect - or mysterious - than the way the governments of NSW and Victoria have been benefiting from the good fortune of the WA and Queensland governments.

This arises from our longstanding commitment to the principle of ''horizontal fiscal equalisation'', which holds that all Australians, no matter where they live, are entitled to the same quality of government services.

That ain't easy, particularly because most government services - education, hospitals, law and order, roads - are delivered by the states. The cost per person of delivering services varies with how big and decentralised the states are. But another factor is the states' varying capacities to raise revenue. These days, states gaining royalty payments from their big mining industries have considerable ''taxable capacity''.

To bring horizontal fiscal equalisation about, the Commonwealth Grants Commission does many intricate calculations that determine how the $48-billion-a-year proceeds from the feds' goods and services tax are divided between the states. The commission works out the average amount of GST paid per person throughout Australia, then decides whether each state requires more or less than that, per person, to be able to deliver services of equal standard.

This equalisation process was introduced in the early 1930s to mollify the restive West Australians. Until just a few years ago, it meant Victoria and NSW received much less than the national average, while South Australia and Tasmania received a lot more than average and Queensland and WA took a bit more.

In 2004-05, NSW got just 83 per cent of the national average GST paid per person, while Victoria received 84 per cent. WA's share was 104 per cent of the national average and Queensland took 107 per cent, with SA getting 123 per cent and Tasmania 171 per cent.

But the huge increase in the resource states' taxable capacity thanks to booming mining royalties has changed all that. This financial year, NSW's cut has risen to 96 per cent and Victoria's to 90 per cent, whereas Queensland's cut has fallen to 93 per cent and WA's to - get this - 72 per cent.

It works out that, in effect, Queensland's benefit from its mining royalties this year will be reduced by $1.2 billion and WA's by $2.5 billion. Of their combined loss of $3.7 billion, NSW gains $1.3 billion and Victoria $1.8 billion.

Still think you're getting nothing from the boom?

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AUSTRALIA JOINS FIGHT AGAINST TAX EVASION

AAP, 4 November 2011

It's been estimated the deal could net G20 nations an extra $100 billion in tax revenues annually.

Assistant Treasurer Bill Shorten said the signing of the agreement would enhance Australia's capacity to combat offshore tax avoidance and evasion and protect the revenue base.

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters was also signed by Argentina, Brazil, Canada, China, Germany, India, Indonesia, Japan, the Russian Federation, Saudi Arabia, South Africa and Turkey.

Drafted by the Organisation for Economic Cooperation and Development (OECD) and Council of Europe, the agreement will allow the countries to share tax information.

According to conditions outlined in the convention, participating countries will have improved protocols for tax information exchange, simultaneous international tax audits and assistance in cross-border tax recovery efforts.

The OECD's secretary-general, Angel Gurria, said it was a major step in global tax cooperation.

Some of the signatories will need to significantly improve their national tax offices to meet the new requirements.

The OECD will also encourage other non-G20 nations to join.

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ACTIVISTS PUSH ROBIN HOOD TAX IDEAS AT G20

AP, 4 November 2011

ACTIVISTS are pressuring global leaders meeting for the Group of 20 summit to impose higher taxes on financial transactions in order to raise millions of dollars to fight poverty and deprivation around the world.

Groups including Oxfam, the World Wildlife Foundation and others organised events overnight around the chic resort town of Cannes on France's Cote d'Azur to draw attention to the so-called Robin Hood tax on financial transactions.

Multibillionaire Microsoft founder Bill Gates joined the call, travelling to Cannes to urge G20 leaders to consider the tax and other innovative ways to help poor nations. British actor Bill Nighy led an Oxfam news conference promoting the so-called Robin Hood tax on financial transactions on the sidelines of the G20 summit in Cannes.

"I am here specifically to promote on behalf of Oxfam the Robin Hood tax," Nighy said. "A tiny tax, fifty pence, in English terms, on every 1000 pounds generated on the kind of casino-style sterile, nonproductive banking that takes place in cyber space."

Other organisations staged an event at a casino - well away from where the world leaders were meeting at the Palais des Festivals, where Cannes' famous film festival is held. Activists dressed as nurses created an emergency room setting where they administered a phony saline drip, meant to represent the financial transaction tax, to a person painted in full body art to resemble the globe.

In a separate protest, activists from the French health charity Doctors of the World were temporarily removed from the summit's media centre after they tried to hang a banner calling on G20 leaders to give more money to improve health and living conditions in the developing world.

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TIME TO TOPPLE THE IDOLS OF HIGH FINANCE

Rowan Williams, ABC Online, 3 November 2011

The best outcome from the controversies at St Paul's Cathedral will be if issues raised by the Pontifical Council can focus the debate and effect credible change in the financial world.

It has sometimes been said in recent years that the Church of England is still used by British society as a stage on which to conduct by proxy the arguments that society itself does not know how to handle. It certainly helps to explain the obsessional interest in what the Church has to say about issues of sex and gender. It may help to explain just what has been going on around St Paul's Cathedral in the past fortnight. 

The protest at St Paul's was seen by an unexpectedly large number of people as the expression of a widespread and deep exasperation with the financial establishment that shows no sign of diminishing. There is still a powerful sense around - fair or not - of a whole society paying for the errors and irresponsibility of bankers; of impatience with a return to "business as usual" - represented by still-soaring bonuses and little visible change in banking practices.

So it was not surprising that initial reactions to what was happening at St Paul's and to the welcome offered by the Cathedral were sympathetic. Here were people - protesters and clergy too, it seemed - saying on our behalf that "something must be done." A marker had been put down, though, comfortingly, not in a way that made very specific demands. The cataract of unintended consequences that followed has been dramatic.

The cathedral found itself trapped between what must have looked like equally unpleasant courses of action. Two outstandingly gifted clergy have resigned. The Chapter has now decided against legal action. Everyone has been able to be wise after the event and to pour scorn on the Cathedral in particular and the Church of England in general for failing to know how to square the circle of public interest and protest.

There will be plenty of post-mortems, no doubt. But before we indulge in yet more satisfying indignation, we should keep two things in mind. First, the Church of England is a place where the unspoken anxieties of society can often find a voice, for good and ill. If the Church cannot find ways through, that is not an index of its incompetence so much as of the sensitivity of such matters. Second, we are at risk of forgetting the substantive questions that prompted the protest. As I said, the demands of the protesters have been vague. Many people are frustrated beyond measure at what they see as the disastrous effects of global capitalism; but it isn't easy to say what we should do differently. It is time we tried to be more specific.

There is help to be had from a bold statement on our financial situation emerging last week from the Vatican. This document, from the Pontifical Council for Justice and Peace, is entitled "Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority."

It contains, with sharp critical analysis, a rather utopian vision of global regulation. But, more important, it offers recommendations that seek not to change everything at once but to minimise the damage of certain practices and assumptions. One is something we have now heard clearly from many sources - a plea endorsed by the Vickers Commission that routine banking business should be clearly separated from speculative transactions. The rolling-up of individual and small-scale savings into high-risk and high-return adventures in the virtual economy is one of the more obvious danger areas. Early government action in this area is needed.

A second plea is to recapitalise banks with public money. Banks should be obliged in return to help reinvigorate the real economy. The third suggestion is probably the most far-reaching. The Vatican statement strongly backs the proposal of a Financial Transaction Tax - a "Tobin Tax" or, popularly, a "Robin Hood Tax" in the form in which it has been talked about most recently. This means a comparatively small rate of tax (0.05%) being levied on share, bond, and currency transactions and their derivatives, with the resulting funds being designated for investment in the "real" economy, domestically and internationally. The modest rate of taxation conceals the high levels of return that could be expected (some $410 billion globally on one estimate).

This has won the backing of significant experts who cannot be written off as naive anti-capitalists - George Soros, Bill Gates and many others. It is gaining traction among European nations, with a strong statement in support this week from Wolfgang Schauble, the German finance minister.

The objections made by some who claim it would mean a substantial drop in employment and in the economy generally seem to rest on exaggerated and sharply challenged projections - and, more important, ignore the potential of such a tax to stabilise currency markets in a way to boost rather than damage the real economy.

The UK government prefers the model of a direct taxation of bank assets. It looks as though that will be their position at the impending summit of the group of 20 leading economies.

But we need robust public discussion enabling us to assess the advantage of a co-ordinated approach across Europe, and to inquire into how far the government's preferred option will guarantee the domestic and international development goals central to the "Robin Hood" proposals.

These ideas, which have been advanced from other quarters, religious and secular, in recent years, do not amount to a simplistic call for the end of capitalism, but they are far more than a general expression of discontent. If we want to take seriously the moral agenda of the protesters at St Paul's, these are some of the ways in which we should be taking it forward.

The Church of England and the Church Universal have a proper interest in the ethics of the financial world and in the question of whether our financial practices serve those who need to be served - or have simply become idols that themselves demand uncritical service. The best outcome from the unhappy controversies at St Paul's will be if the issues raised by the Pontifical Council can focus a concerted effort to move the debate on and effect credible change in the financial world.

If religious leaders and commentators in the UK and elsewhere could agree on these three proposals, as a common ground on which to start serious discussion, questionings alike of protesters and clergy will not have been wasted.

Rowan Williams is the Archbishop of Canterbury. This article originally appeared in the Financial Times.

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  MULTINATIONALS DECRY PROFIT-SHIFTING TAXES

The Australian Financial Review, 4 November 2011

Plans to squeeze more tax out of multinationals involved in profit shifting could impose high compliance costs and hurt foreign investment.

 

Read the full article on Australian Financial Review via a subscription.

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ARCHBISHOP BACKS ROBIN HOOD TAX

Robert Winnett, The Sydney Morning Herald, 3 November 2011

LONDON: The Archbishop of Canterbury threw his weight behind the St Paul's Cathedral anti-capitalist protesters as he backed calls for a new European tax on banks.

Rowan Williams said the Church of England had a ''proper interest in the ethics of the financial world'' and warned that there had been ''little visible change in banking practices'' following the recession.

He urged the British Prime Minister, David Cameron, and the Chancellor of the Exchequer, George Osborne, to drop their opposition to a Europe-wide tax on financial transactions - a so-called Robin Hood tax - which is expected to be formally proposed by France and Germany at the G20 summit today.

''Many people are frustrated beyond measure at what they see as the disastrous effects of global capitalism; but it isn't easy to say what we should do differently. It is time we tried to be more specific,'' Dr Williams said.

The archbishop's intervention came after the Church and the City of London Corporation agreed to suspend plans to evict protesters who have been camped on the doorstep of St Paul's for more than two weeks. The issue has caused deep divisions within the Church and led to the resignation of two senior members of St Paul's clergy.

''The protest at St Paul's was seen by an unexpectedly large number of people as the expression of a … deep exasperation with the financial establishment that shows no sign of diminishing,'' Dr Williams said.

''There is still a powerful sense around - fair or not - of a whole society paying for the errors and irresponsibility of bankers.''

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TAX EXEMPTION RECOMMENDED FOR DOWNSIZING RETIREES

ABC, 3 November 2011

A housing report has recommended that retirees who downsize from their family home to a smaller residence be exempt from stamp duty.

The Community Development and Justice Standing Committee report on social housing was tabled in State Parliament today.

It made 35 recommendations, including ways to increase the number of affordable houses in Western Australia. 
Committee Chair Tony O'Gorman says reducing stamp duty and offering some exemptions would free up the number of larger family homes on the market.

"It's been adopted in NSW already, there is that opportunity for people that are downsizing," he said.

"It is an opportunity for the government, without getting involved too much in the market, to release some of those larger homes and to actually bring seniors into an area that has higher density."

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ONE TAX THAT’S EASIER SAID THAN DONE

The Australian Financial Review, 3 November 2011

The idea of taxing financial transactions has found its way on to the agenda of the G20 leaders’ meeting.

 

Read the full article on Australian Financial Review via a subscription.

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G-20 DOESN’T SUPPORT EUROPEAN UNION’S TRANSACTION TAX, U.K.’S OSBORNE SAYS

Ben Moshinsky, Bloomberg, 2 November 2011

Global finance ministers don’t support a proposed European Union tax on financial transactions, U.K. Chancellor of the Exchequer George Osborne told banks in a letter addressing their concerns over the levy.

Osborne said it was clear after a meeting of Group of 20 finance ministers in France last month “that the necessary international consensus does not exist” to implement such a tax globally. The U.K. government has argued that any tax can only be viable if applied worldwide.

“I have also noted with concern the significant negative impact on growth and jobs that the commission’s analysis sets out,” Osborne said in the letter dated Oct. 31 obtained by Bloomberg News. “For these reasons, the U.K. government does not support” the European Commission’s proposal, Osborne said.

In September, the EU proposed a financial-transaction tax that would take effect in 2014 and raise about $57 billion euros ($78 billion) a year. Germany and France have led a push for global implementation.

U.S. lawmakers will also propose a transaction tax that resembles the EU’s plan. Senator Tom Harkin, an Iowa Democrat, and Representative Peter DeFazio, an Oregon Democrat, are expected to introduce the bills today in their respective chambers.

The U.S. bills are unlikely to become law because Republicans, who have opposed transaction taxes in the past, have a majority in the House of Representatives. President Barack Obama’s administration has also voiced concerns over the proposal and declined to give a direct endorsement in advance of the G-20 summit that opens Nov. 3.

International Agenda

Osborne’s letter explains why he “has failed to put this issue on the international agenda in the last 18 months and why he won’t be pushing for it at this week’s G-20 summit,” Chris Leslie, Labour’s shadow treasury minister, said in an e-mailed statement.

The Treasury denied it had objections to the tax “in principle.”

“The government will continue to engage with its international partners on the idea of a financial transaction tax,” a U.K. Treasury spokesman said in an e-mailed statement.

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BROWN BACKS TAX BREAKS FOR INDIE PRESS

Ed Logue, The Sydney Morning Herald, 1 November 2011

Australian Greens leader Bob Brown has backed calls for the use of tax breaks to support a broader range of journalism for the Australian community.

In a submission to an independent inquiry into media and media regulation, Senator Brown said giving tax-deductible status to not-for-profit journalistic enterprises would increase media diversity and support quality journalism.

Such a system would help create a platform for investigative and in-depth journalism in particular, he said in the submission to the national inquiry released on Tuesday.

But he said more work was needed on how the idea, proposed by journalism academics, would work.

Senator Brown criticised media concentration in Australia, where Rupert Murdoch's News Limited owns around 70 per cent of print media.

"I urge the inquiry to consider what further legal mechanisms or policies could be implemented to ensure more media diversity and that in the future no media proprietor owns more than 70 per of the print media," he wrote.

Conflicts of interest could arise because a media proprietor's wide business interests might "attract coverage by their media outlets", Senator Brown said.

"This oligarchy headlines opinion on front pages and brazenly campaigns to make or break governments," he said.

"If the elected representatives are not to rein in this debasing of the ideals of the fourth estate, who should or will?"

Senator Brown said self-regulation of the media had failed.

"It is my submission that the profession's ethics are, in important aspects, undermined, that the public esteem for the news media is depressed and that the concentration of ownership, at least of the print media, is corrosive of the fabric of Australian democracy and ought to be remedied," he said.

Senator Brown said print media owners should undergo a fit and proper person test as broadcasters do, and the Press Council needed funding from sources other than the industry, to handle complaints and criticisms.

More regulation of the press would be good for free speech, he said.

"Without some degree of regulation, the right to redress for those who have been misrepresented where the press has made an error cannot be assured, as for most people access to mainstream media to present a counter-argument or response is not guaranteed," he said.

Senator Brown's submission came with a two-page appendix listing 14 examples of criticism of him and the Greens for supporting a media inquiry, 13 of them by News Ltd writers.

The media inquiry is to report by February 2012.

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Tax deductions are popular, but penalties may work better

Reuters, 27 October 2011

When making tax policy, there’s a choice between carrots or sticks: Does the government give taxpayers credits or deductions for doing the right thing (buying their homes, giving money to charity, not emitting greenhouse cases) or penalize them for doing the wrong thing?

Brian Galle, who is on leave as an assistant professor at Boston College Law School and currently a fellow at the Urban Institute in Washington, DC, has been analyzing those choices, and come to a surprising conclusion: Expenditures may be politically expedient, but penalties would often be preferable for fiscal policy.

In his forthcoming paper in the Stanford Law Review, called “The Tragedy of the Carrots,” Galle argues that carrots are overproduced and often misguided, costing the Treasury funds that would be better spent elsewhere in an effort to nudge people towards the behavior it hopes to reward.

“The problem with tax expenditures is not that they are in the tax code, but that they are expenditures,” Galle explains in a recent telephone interview.

As Washington debates tax policy and budget cuts, Galle’s ideas are particularly relevant. Tax expenditures — those credits and deductions that favor some taxpayers over others — have grown dramatically over the years, and their cost to the Treasury is over $1 trillion dollars.

Last year, when the national deficit commission, co-chaired by Alan Simpson and Erskine Bowles, released its bold tax proposals, one of them called for eliminating all the expenditures and lowering marginal tax rates to 8 percent, 14 percent and 23 percent. The commission’s ideas went nowhere, and today the congressional supercommittee is hashing out its plan for budget cuts and tax reform.

Galle’s theory goes one step further in thinking about rewards versus penalties. Economists consider carrots and sticks pretty much indistinguishable. There’s not much difference, as Galle points out, between taxing someone a dollar for each cigarette smoked, versus giving someone a dollar for each cigarette thrown in the trash. Either way, smoking is penalized, and the cost to you (whether explicitly in the tax or implicitly in the foregone reward) is one buck.
There are some differences, though: The reward will cost the government funds, while the penalty will increase its funds. So if the goal is to move Americans toward a desirable behavior (or away from a negative one) and produce revenue rather than spend, why not replace some tax expenditures with well-designed penalties that would get a similar result and save money?

In today’s real world application, only those above a certain level of income benefit from many tax expenditures. For example, those who buy modest homes in inexpensive parts of the country and those who give money to charity but don’t earn enough to itemize on their tax returns see little or no benefit from those deductions. In fact, the biggest benefits of the home mortgage interest deduction go to those with the most income who spend the most on their homes.

Galle argues that, perhaps, those who don’t give to charity or save for retirement could be penalized for failing to do so, rather than giving tax incentives to those who do both of those (desirable) things. (Last week, indeed, a Senate hearing delved into possible changes to the charitable deduction.)

While no one would dispute that Americans need to save more money for retirement, the question is how to get there. “It may be that you could get better results, in the sense of more cost-effective results, if you instead penalized people who did not save for retirement,” he says. Such a penalty would need to be geared only to those who could afford to save, and not harm those who make too little to do so. “That is one of the crazier aspects of the paper,” he admits. “But because retirement savings are such a big cost it is worth at least thinking about whether we are getting our money’s worth. It may turn out that it’s worth it, but we haven’t really thought about it.”

Of course, there’s economics and law — the basis of good tax policy — and political reality. But it’s still worth thinking about.

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Housing stress puts 10% at risk of stress

Chris Zappone, The Sydney Morning Herald, 24 October 2011

Years of soaring house prices and slow construction of homes have left one in 10 Australian households in some type of housing stress, contributing to income inequality, a new report released today shows.

Data from the National Centre for Social and Economic Modelling calculates that more than 850,000 households in Australia, after paying housing costs, are “at risk of financial hardship and poverty.”

The research found that 21 per cent of Melbourne's first-home buyers, in 14,354 homes, were in housing stress, outpacing Sydney where 15 per cent of first home buyers, or 15,134 households, were in the same category. The stress extended also to renters, with Adelaide having the highest percentage of tenants in housing stress, 68 per cent, who received Commonwealth Rent Assistance.

 “It's a problem that reflects the high cost of housing in Australia and the relatively low rates of construction in places like Sydney over a five-year period,” said Macquarie Bank senior economist Brian Redican, commenting on the report.
"That suggests there are an awful lot of households scraping by on, really, a very little bit of money.”

Mr Redican said average house prices had risen modestly since the global financial crisis but it “follows a 15-year period where there have been very large increases in house prices”.

The grim assessment of housing wealth comes after decades of home price increases that have pushed the median dwelling price in Australia to 6.5 times the median household disposable income, more than double the three times that is considered affordable. Concerns about economic inequality in Australia have triggered protests in Sydney and Melbourne last week, which have brought the issue of income inequality back to the public. The average income in Australia is around $55,000 to $60,000 but the median income, the mid-point in the range of incomes, is around $35,000, Mr Redican said.

The data in the NATSEM report was commissioned by Australians for Affordable Housing. NATSEM, an affiliated research centre of the University of Canberra, defined housing stress as households on the lowest 40 per cent of incomes that spend more than 30 per cent on housing costs.

The shortage of affordable housing in Australia, and availability of loans, helped underpin the dramatic rise in prices over the past two decades. Since the beginning of 2011, however, prices have fallen 3.2 per cent on weaker sentiment around the housing market. The national median home price was $450,000 according to home price research group RP Data-Rismark.

The poor affordability, coupled with interest rate uncertainty and an aversion to debt in the aftermath of the global financial crisis, have kept a lid on the sales of new homes, constraining the construction as well as the banking sector.

Housing Industry Association economists estimate there is a shortage of 150,000 homes in Australia, with predictions this increase if no steps are taken to improve affordability.

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Housing costs make it a struggle to pay the bills

Adele Horin, The Sydney Morning Herald, 24 October 2011

MORE than 10 per cent of Australian households - or 850,000 - spend so much on rent or mortgage payments they have little left over to cover other bills, a study shows.

In particular, many households that rent are struggling, with one in four considered to be in ''housing stress''.

The study, by the National Centre for Social and Economic Modelling at the University of Canberra, was commissioned by the group Australians for Affordable Housing. It kicks off a campaign today to encourage all levels of government to tackle the housing crisis.

The group's campaign manager, Sarah Toohey, said people were struggling to build a life after they had paid their housing costs.

''People feel the impact of food and utility price increases so keenly because housing costs take up so much of their income,'' she said.

The study, Housing Costs Through the Roof, focuses on households with the lowest 40 per cent of incomes, taking family size into account, who spend 30 per cent or more of income on rent or mortgage payments. This is a recognised measure of housing stress.

It found almost 300,000 renters and home buyers in New South Wales were in ''housing stress'', at risk of falling into poverty once they had paid for a roof over their heads.

After Hobart, Sydney put the tightest squeeze on renters with 25 per cent, or almost 107,000 households, deemed to be in housing stress, and 180,000 in NSW.

A high proportion of Sydney's 15,134 first home buyers were also at risk of poverty - 15 per cent - but not as high as in Hobart or Melbourne. Overall, almost 74,000 mortgagors in Sydney were struggling, and 112,000 in NSW.
The chief executive of Anglicare Sydney, Grant Millard, joined the call for Australian governments to increase housing affordability.

Mr Millard called for the removal of tax concessions that encouraged property speculation, for increased supply of public and social housing, and for rental assistance to be indexed to the cost of living.

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Affordable-housing lobby out to nobble investments

Terry Ryder, The Australian, 22 October 2011

SOME activists see property investors as the great enemies of first-home buyers.

Their core belief, unsupported by evidence or logic, is that homes are unaffordable because investors drive up prices.
Australians for Affordable Housing appears to think that nobbling investors will strike a telling blow for first-time buyers: remove negative gearing and increase capital gains tax, and homes will be affordable.

This group may think investors are the problem, but it seems first-home buyers do not.

A survey by RAMS Home Loans has found that first-home buyers rate other people like themselves as the main competition (43 per cent of those surveyed).

Next on the list of key rivals for homes are home buyers other than first-home buyers (25 per cent).

The people surveyed are pretty close to getting it right.

The biggest force in the market is home buyers other than first-timers, people who already own their home and decide to upgrade, downgrade or relocate for other reasons.

These people comprise the bulk of buyers in the market. Compared with them, first-home buyers and investors are relatively few in number.

Given that Australians typically move house every eight or nine years (it used to be every seven years on average, but the trend as changed recently, according to researcher RP Data), people buying their second, third or subsequent home are the most active and numerous buyers.

They also have the motivation, financial capacity and confidence to pay a higher price for a home. Often emotion takes over and, in competition with other interested buyers, the price is pushed higher.

This is a quite different scenario to investors who buy on the numbers.

If you can't get the target property at the price you want to pay, you move on to the next option.

The RAMS survey had other interesting findings.

Two-thirds of first-home buyers, it revealed, take less than a year to find a home. And 56 per cent of home seekers believe ownership is realistic while only 7 per cent believe it's "completely unrealistic".

Those who attack Australians who buy rental properties forget the strong national interest in having people invest in this way.

There's heavy pressure on people to plan for a self-funded retirement, given the stress our ageing population is placing on the taxation and welfare systems.

There are limited options. Buy shares or buy real estate. Superannuation alone won't cut it.

Research shows that, overwhelmingly, the assets of Australian households -- the means by which they will fund their retirement without burdening the state -- are tied up in real estate.

Rismark research indicates $3.6 trillion of the assets of Australian families are based in real estate, well ahead of any other investment avenue. Savings in the bank come second ($1.5 trillion), then superannuation and, last, shares.

The anti-property voices in the community not only wish for a big devaluation of our homes but are lobbying government to make it happen.

It's an extraordinarily irresponsible stance: undermine the financial base of 70 per cent of Australians to the detriment of the national interest, to theoretically benefit the small numbers who are potential first-home buyers.

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A roof over everyone's head

Editorial, The Sydney Morning Herald, 21 October 2011

THE dream is well-known. Young people leave home and move into a rented house. As they get established, moving upwards on their career path perhaps or with improving prospects in a trade or business, they buy their first home - probably a unit or house in a less expensive suburb. From there as their circumstances improve further they move to another home, probably larger and in a more expensive suburb. Eventually they pay off the family home, and live happily - or at least securely housed - ever after. That, at any rate, is the dream.

The reality for many, though, as research conducted by the Australian Housing and Urban Research Institute shows, is quite different. As we reported yesterday the pressures of the current housing market are too much for many aspiring home owners, who may buy a house and then find they cannot afford it. They sell and move back into a rented house. The research found only 77 per cent of those aged under 50 were able to hang on to the homes they were buying. There will always be those who aspire to things they cannot realistically afford, but the figure suggests pursuing the dream, as things stand, makes life too precarious for too many.

One reason will be the so-called unaffordability of housing. Here, past government policies have tended, perversely, to push prices up. Programs such as grants or concessions to first-home buyers put more money in the hands of purchasers without increasing the supply of housing. The result, unsurprisingly, is higher prices, and mortgage borrowers who pursue their dream right to the brink of disaster.

The way housing is taxed also plays a part. Governments tax the transfer of ownership of housing through stamp duty, but not the properties themselves through land tax, or their sale through capital gains tax, if owners live in them. As we have argued before, the combined effect benefits long-established home owners and pushes prices beyond the reach of a younger generation who want to enter the market. Stamp duty also discourages the transfer of ownership, so that people stay on in houses which are too large for them once children leave, or are reluctant to move to other areas in search of work.

Home ownership has acquired almost mythical status in Australia since the 1950s as a symbol of the responsible individual's stake in society. Governments rightly encourage it. But when the inducements they offer become skewed, and start to exclude whole age groups from ownership, it is time the system was overhauled. The Henry tax review's call for reform of stamp duty and the negative gearing rules may not solve all the housing market's problems, but those changes would be a good start.

Cities, celestial and otherwise

AS THE most urbanised nation on the planet, Australians ought to know all about cities. The need to know how to manage cities and ensure they develop in healthy and sustainable ways becomes all the greater as the earth's population grows past 7 billion, and a higher-than-ever proportion of that enormous number lives in urban areas. At the Commonwealth Heads of Government Meeting in Perth there is for the first time a push to get specifically urban issues onto the agenda. That makes the federal Department of Infrastructure and Transport's release of the second State of Australian Cities report particularly significant.

The report presents a snapshot of Australian cities now, expressed as a wide range of statistical details covering the factors which shape them. Transport determines the way a city develops. Since World War II Australian cities have tended to sprawl more than most because they rely on private cars. The red roofs and green backyards of Australia's big cities are, though, starting to give way to a denser settlement, and the trend can also be measured in the way people are leaving cars behind and looking for alternatives. Public transport's share of trips in the capital cities rose from 9.3 to 10.6 per cent between 2004 and 2008. Cycling, too, is catching on - but Sydney lags the rest of the country. More bikes are sold every year in Australia than cars, but less than half of Sydney households own one, well behind the next capital (Adelaide, where nearly two-thirds do), let alone Canberra (78 per cent).

The report also points to future threats to cities. In terms of fatalities, heatwaves are now the largest threat to Australian cities from natural disasters, as January 2009 showed in Melbourne and Adelaide. Climate change, with a possible rise in ocean levels, also threatens 700,000 dwellings which are within three kilometres of the coast and less than six metres above the present sea level.

The final measure has to be liveability. At present, Sydney does not score particularly well. A Property Council of Australia survey included in the report assesses residents' views of their city on a range of criteria. Adelaide came first of the eight capitals, Melbourne second and Sydney last.

Like the report, improving the quality of Australian cities will be an agglomeration of factors. Individual, local decisions - many of governments, but others made by businesses and individuals - will determine whether Australia's cities become better places to live. Quality of life is worth more than a passing thought.

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Meagre dole payment doesn't just hurt the unemployed

Toby Hall, The Sydney Morning Herald, 20 October 2011

You know that something is wrong with the dole when even conservative economists come out publicly to say the amount is obscenely low.

At the recent tax forum, there was furious agreement on both sides of the political spectrum, from bone-dry, hard-headed economists to the small "l" liberal left, that unemployed Australians are barely scraping by.
The inadequacy of the Newstart Allowance has a number of ramifications – for individual recipients and for the broader community.
First and foremost, it makes living extremely difficult for the 547,000 Australians who are in receipt of the payment, particularly those living in the major capitals like Sydney.

Professor Peter Whiteford from the Social Policy Research Centre says a single Newstart recipient in Sydney is likely left with about $16.50 a day after paying rent – taking in to account the average cost of rent in the city – to cover everything: food, clothing, transport, etc.

Imagine yourself trying to live on $16.50 a day?

Secondly, it creates an incentive for job seekers to attempt to get around the system, either by working under the table to augment their meagre allowance or by seeking to move across to the Disability Support Pension, which offers a significantly higher payment and where the onus to look for work is less.

That's certainly our experience as one of the biggest providers of employment services in the country.

The ballooning numbers of people on the Disability Support Pension who shouldn't be there – the financial burden of such a development plus the human cost of their disengagement from the workforce – is something we all have to bear.

But addressing the adequacy of the Newstart allowance is just one piece of the complex puzzle that is Australia's income support system.

We can't hope to address it unless we tackle the system as whole, and that includes providing job seekers with the right balance between obligations and incentives to get them into work and keep them there.

One of the chief recommendations of the McClure Report into welfare reform in the late '90s – which is still the template for reform in this area – was the need to simplify Australia's complex income support system.
It recommended a single-income support payment complemented by a participation supplement and a needs-based "add on" payment according to individual or family circumstances – such as a need for child care to attend work or for someone reliant on public transport.

By doing so we'd not only remove the complexity, but given that the Disability Support Pension offers recipients about $130 per week more than those on Newstart, we'd also remove the incentive to avoid work.

A simpler income support structure would be more responsive to individual needs, circumstances and aspirations. It would also allow for a clear and complementary system of targeted payments to encourage and enable participation in the labour force.

Now, it doesn't take a brain surgeon to figure out why the discussion about a single-income support system seems to have dropped off the government's radar in its consideration of welfare reform.

Times are tight. Eleven years ago it was estimated that introducing such measures would cost $500 million. God knows what it would be today? But the longer we leave it, the more expensive it becomes.

Say what you like about their motives but even at a time of economic austerity the British government has found close to $5bn dollars to overhaul its welfare system including the provision of a single-income support payment. So why can't we?

But ultimately the case for broader action is about getting more people into work.

To that end we believe the government also needs to tighten obligations for job seekers to stay in touch with the workforce.

From our experience there are still a significant minority of job seekers who are working harder at avoiding their obligations than they are at looking for a job.

But in response the government and businesses must make greater efforts to assist people into a job.

For a start, having under-invested in this area for years, neither seems to be truly serious about the issue of training.

Their approach to plugging skills gaps has been characterised by the worst sort of short-termism – too reliant on the knee-jerk response of drafting skilled migrants than on committing resources to train the army of unskilled Australian unemployed.

And training for unemployed people must match up with real work opportunities.

People rightfully criticised work for the dole in its original guise because it provided little in the way of training for a job in the real world.

I don't know of too many jobs painting rocks in the 21st century.

A simplified income support system, the removal of disincentives and targeted payments to help people into a job, tighter work obligations and more training – all are big reforms, but it's what we need if we're going to break the back of joblessness in this country and tap the contribution of the hundreds of thousands of Australians languishing on the unemployment scrap heap.

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The true cost of NIMBYism

Jessica Irvine, The Sydney Morning Herald, 19 October 2011

A home is the biggest purchase most Australians will make in their lifetime and yet most of us know very little about the forces that determine what types of homes are available to live in and what we must pay for them.

Most of us think we have a pretty good idea of what our homes should be worth, but home prices, like prices for all private goods and services, are ultimately decided by the forces of supply and demand.

Put simply, the only possible explanation for the steep rise in house prices over the past few decades, both in outright terms and compared to incomes, is that demand has outstripped supply. The real question is why?

Even those troubled souls who think Australian house prices are in a bubble waiting to burst accept that house prices are the result of supply and demand. They just think demand has been artificially boosted (for example through unrealistic expectations of future price growth), or supply artificially constrained (through developer land banking and the like), and that one day one or both of these forces will quickly reverse.

Much of the recent debate about Australia's home affordability crisis has focused on the demand side of the equation. Freer availability of credit and lower interest rates have enabled borrowers to spend more on home purchases.

Population growth and the rise of single-person households have also increased the demand for housing, although both these forces have slowed recently.

The tax treatment of housing also influences demand. For instance, the exemption of the family home from capital gains tax increases demand, forcing prices up. But arguably some tax breaks for investor housing also encourage new home supply.

The less well-understood side of the housing equation is what determines the supply of new homes.

A new paper from a team of researchers in the Reserve Bank's economics group, titled Urban structure and housing prices: some evidence from Australian cities shines new light on why we live in the types of homes we live in and why they cost what they do.

Through a combination of empirical research and new economic modelling, the authors Mariano Kulish, Anthony Richards and Christian Gillitzer highlight some factors that contribute to Australians living in more expensive, smaller and lower density housing than we would if the housing market was not constrained by a number of structural factors, including high transport costs, restrictions on density and costs imposed on new housing supply.

We all suffer as a result, paying higher home prices (if we can afford to buy at all), being unable to live where we prefer and increasingly squashed into smaller homes than we would like.

The urban structure of our cities is obviously a product of history. But what if we could start anew? What would our cities look like if we could build them from scratch to suit our current needs?

To find out, the researchers created a theoretical model of a city with 2 million people, situated on the coastline and with one central business district where most people worked. Of course, real cities are more complex, often with satellite centres such as Parramatta and North Sydney. But some simplification is unavoidable.

The most telling finding from this model is that such a city would be far more densely populated in inner-city areas than all of Australia's five major cities are today. About half the population would live within 10 kilometres of the central business district.

When the model was changed to produce a city for a population of 4 million, interestingly the footprint of the city only expanded a couple of kilometres, from about 35 kilometres to 38 kilometres. Although there were 2 million extra people in the new city, just 1 per cent of them lived outside the borders of the alternative, lower-population city.

Unrestrained, the market's natural response to a higher population would be rising densities in inner-city areas. But in the real world, because we've constrained new supply in various ways, housing costs have risen.

Indeed, the researchers found Australian cities today are much less dense than European cities of comparable size and more on par, in people-per-square-kilometre, with US cities.

Zoning restrictions are one culprit. In Australian cities, local councils make the ultimate decision on what developments to allow. The Reserve Bank researchers note they found it very hard getting good information on land zoning in the major cities, calling for better data in this area. But by modelling the impact of just one imaginary restriction - say, a cap of four storeys permitted per building - the researchers found it changed the urban structure, increasing housing prices, lowering average home size, decreasing density and decreasing the population in inner-city areas, pushing city limits further out. Sound familiar?

Similarly, a lack of investment in public transport and roads was also found to have an impact on urban structure, increasing house prices in the inner city and lowering them in outer areas, where residents must set aside more of their income to pay for transport costs.

Unsurprisingly, the researchers conclude more investment in transport would reduce the average cost of housing in cities.

Lengthy delays and hurdles in the urban planning process, along with upfront developer and infrastructure charges, also add to the upfront costs of new developments, dampening the supply of new housing. Higher costs are passed on to buyers through higher home purchase prices and ultimately people live in smaller houses than they would like.
It is the ultimate deceit of NIMBYism. Policies that enable existing homeowners in well-located areas to protect their own patch of turf come at the expense of others who are forced to live in smaller homes, further out from the city than they would like and to pay more for the displeasure.

Interestingly, the Reserve Bank researchers found evidence that Sydney's population density has increased in recent years. But more needs to be done.

If we want to solve the housing affordability crisis it's clear we'll have to tackle the supply side. And the only way is up.

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An unaffordable tax beyond all regional doubt

Barnaby Joyce, The Punch, 14 October 2011

When I think of regional Australia, I think of long drives, lots of wildlife and lights in the sky not on the ground. There is another thing that now distinguishes regional Australia: an absolute rejection of the carbon tax.

Senator John Williams recently conducted a poll in the seats of New England (based around Tamworth) and Lyne (based around Port Macquarie). After receiving over 9,400 responses, 89 per cent of residents are against the carbon tax.

The reason for this is not that hard to fathom. When it comes to the carbon tax, the greater the distance, the greater the cost.

From 2014, the carbon tax will apply to transport fuels, making the costs of getting things out to regional Australia more expensive.

People in regional Australia already pay more for electricity too. Australians in regional NSW spend 25 per cent more on electricity than those in Sydney and Australians in regional Victoria spend 30 per cent more than those in Melbourne. There are already people out there who can’t afford the price of power as it is.

The carbon tax will make our industries less competitive. That is its whole point. That means some will lose their jobs, even if jobs are created elsewhere.

What sort of solace is that to the coalminer in the Hunter valley who must tell his wife and kids that they have to move to western Queensland to keep a job? They probably would like to stay in the Hunter where their family, friends and home are.

Most of the jobs forecast to be lost as a result of the carbon tax will be in regional Australia because that is where the mining, manufacturing and power generation jobs are.

Economic modelling by the Queensland Labor government found that the carbon tax would see 41,000 fewer Queensland jobs, with the biggest impact in regional areas. The Rockhampton and Gladstone area will see economic activity fall by 8.2 per cent, the Mackay area by 5.7 per cent, double to triple the impact of the carbon tax on the rest of Australia.

NSW Treasury figures show that the carbon tax will lead to 31,000 lost jobs in NSW but over 26,000 of these jobs would be in regional Australia, including 18,500 in the Hunter, 7000 in the Illawarra and 1000 jobs in the central West.

Some of Australia’s most competitive manufacturing companies are in the food processing industry located near Australia’s world-class agriculture. The carbon tax will add $3.3 million per year to the costs of just one of JBS Australia’s abattoirs. JBS employs over 4000 people in regional Australia. After the live cattle fiasco, the last thing our beef industry needs is a carbon tax.

Unemployment in regional Australia is already higher at 6 per cent, compared to 5.1 per cent in the rest of Australia.
Given all this you would think that a government seeking to introduce a carbon tax would carefully analyse its impact on the smaller towns and communities which may not be able to recover if their local abattoir or mill cannot survive the higher costs of a carbon tax.

But, no, the government has not released any economic modelling of the impact of the carbon tax on regional areas. That’s despite the Queensland, New South Wales and Victorian governments doing so, although they haven’t had access to the same economic models that Canberra has used because Wayne Swan refuses to release them.

The Government is treating Australians, particularly regional Australians, with absolute contempt. The people of Rockhampton want to know what the carbon tax means for them, the people of Newcastle want to know what the carbon tax means for them and the people of the La Trobe valley want to know what the carbon tax means for them. The government, though, is refusing to give them any answers.

When the last Coalition government faced heat over National Competition Policy in the 1990s it asked the Productivity Commission to evaluate what its impact had been on regional Australia. It made these results public, including the finding that employment was lower in 33 out of 57 Australian regions because of national competition policies. Not everyone liked NCP but at least the government was up front about its impacts.Another poll released the other day showed that one out of every two Australians think that minority government has been bad for Australia. Is that any wonder when we have a government which goes back on its promises and fails to be up front with the people about its own policies. 

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Let champagne socialists pay more tax voluntarily

Janet Albrechtsen, The Australian, 12 October 2011

Having reached the summit of their careers, using the free market to build businesses and earn mountains of money, employing top-end tax lawyers to ensure they pay not a cent more in tax than required, a form of rich businessman's guilt complex seems to set in with some of them.

Some end up denouncing the free market as evil, only after it has delivered them great wealth. And for some, the tax system is now too generous, only after they have been on the receiving end of this apparent generosity for most of their careers.

The call from Sydney businessman Mark Carnegie for the top 15 per cent of taxpayers to pay 15 per cent more in tax echoed the suggestion from Warren Buffett in the US that he and his "mega-rich friends" should pay more tax.

It's nice of them to offer up themselves and their friends to pay more into federal coffers, but as far as economics go, their kindness is misplaced. Higher taxes tend to lead to lower levels of tax revenue because higher taxes tend to lead to people changing their behaviour so they pay less tax.

It's no coincidence that recent calls to tax the rich more come from the very rich who never have to work another day. The very rich, who employ clever tax lawyers and accountants, won't notice the tax hike as much as those on a taxable income of $90,000 or more, which is all it takes to get to the top 15 per cent of taxpayers.

And there are plenty of other Australians further down the tax scales who may never enjoy Carnegie or Buffett levels of riches but aspire to make it into the top 15 per cent of taxpayers. If Australians were crying out for a higher tax rate for the rich, Treasurer Wayne Swan would be trying it on. And not even he is taking up Carnegie's offer on behalf of his mega-rich friends to pay more tax.

In the US, by contrast, Barack Obama is trying it on. With 45 million Americans making use of food stamps, unemployment above 9 per cent, a $US4 trillion federal budget and a $US1.65 trillion deficit, you can see why it's politically appealing for Obama to float the idea of fixing the country's economic woes by slugging the rich. And the feckless Occupy Wall Street protests will only fuel Obama's emotional demand that rich Americans "pay a little more" in taxes to close the deficit and fund his spending promises.

There's only one problem. It won't work.

As The Wall Street Journal calculated after Obama's budget speech in April, even if the Internal Revenue Service collected 100 per cent of the taxable income of the top 1 per cent of taxpayers (those whose income from salaries, capital gains and dividends exceeds $US380,000) on the last available figures from 2008, it would yield only $US938 billion. That's not nearly enough to fund Obama's ambitious $US4 trillion budget. Even taking tax collection figures from the boom year of 2005 doesn't help Obama in the long run.

"The rich, in short, aren't nearly rich enough to finance Mr Obama's entitlement state ambitions," concluded the WSJ editorial.

Actually there are more important problems with soaking the rich. As Brad Williams, a former economic forecaster for California, told the WSJ, taxing the rich too much leads to an unhealthy reliance on a volatile source of revenue.
Before the recession, California relied on the top 1 per cent of taxpayers (those earning more than $US490,000 a year) for almost half its income taxes. In good times, taxing the rich delivered handsome rewards, but when the economy turned, the earnings of the rich fell by more than twice as much as the rest of California's taxpayers. As Robert Frank at the WSJ wrote: "when they crashed, they took California's finances down with them". And, Frank says, it's no coincidence that those states most dependent on raking in tax revenues from the rich are "now among those with the biggest budget holes".

In California, Williams discovered the state's economic prosperity depended on a "small group of ultra-earners" and forecasting the state's revenues depended on predicting the fortunes of the rich, which meant trying to forecast the performance of shares. And that's a mug's game.

The biggest problem when you hit the rich with higher taxes is behavioural. Here, the please-tax-me-more brigade might wish to take a look at the work of Arthur Laffer, a prominent economist during the Reagan administration. He and Ronald Reagan understood that lowering tax rates, rather than hiking them, led to increases in taxable income revenues. As Laffer has written, the Reagan tax cuts meant "the highest 1 per cent of income earners paid more in taxes as a share of GDP in 1988 at lower tax rates than they had in 1980 at higher tax rates". When you tax people more, their incentive to work more and earn more income drops off. It's "pure commonsense", Laffer says.

The same applies to increasing capital gains tax on the rich. In response to Buffett's call for higher taxes on the mega-rich, Alan Reynolds from the Cato Institute points out that when, in 1977, capital gains tax was 39.9 per cent, realised gains amounted to less than 1.57 per cent of GDP. When the same tax dropped to 28 per cent between 1987 and 1996, revenues from the tax increased to 2.3 per cent. When the capital gains tax dropped further to 15 per cent from 2004-07, revenues rose to 5.2 per cent of GDP. In other words, the lower tax rates raised more tax revenue because the rich, who can afford to choose when to sell assets, will choose not to realise gains until it works in their favour. That's commonsense, too.

None of this commonsense should stop rich businessmen who want to pay more tax from doing so. Let them make a voluntary contribution to soothe their guilt. We could even work out a retrospective tax liability for them on the basis of their preferred higher rate of tax. That's a better solution than shutting down the gates to Everest for everyone else after they have climbed it themselves.

Most people, no doubt, will remember with a nodding smile what Kerry Packer told a Senate Committee in Canberra in 1991:

"I pay what I'm required to pay, not a penny more, not a penny less. I can tell you, you're not spending it that well that we should be donating extra."

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Housing affordability: the summit we really need

Michael Pascoe, The Sydney Morning Herald, 11 October 2011

Various cartoonists and political jokes ran misinformed lines about sundry “elephants in the room” during last week's tax forum but they all missed the biggest one: housing affordability.

That's probably because the peanut gallery wasn't listening anyway. The elephants weren't ignored. They were all addressed at one stage or another, but there wasn't much point wasting time with the pachyderms that simply weren't going anywhere.

Housing affordability was different. The forum kept coming back in different sessions to have another kick at different sides of the great grey mass that's damaging our economy and people.

It was a major issue in the state taxation discussion, it flared as a social welfare issue during the transfers session, the negative gearing aspects were there in personal taxation, there were housing affordability ramifications in the observation that we have a tax system that favours those who borrow and speculate over those who work and save.

And this was just taxation - only part of the housing affordability problem.

Beyond the room were the state and local government failures in zoning, supply and their at-times questionable relationships with developers. While the forum was meeting, the Reserve Bank was issuing a study fingering the zoning failure, as summarised by here by BusinessDay's Clancy Yeates.

And beyond that are migration issues, both the supply of skills to build housing and the numbers of people seeking it, which all leads into the demographics of retiring baby boomers, the type of housing we build and back into taxation questions about the declining ratio of workers to non-workers.

Peripheral noise

The investment spruikers on one hand and the Doomsday forecasters on the other create most of the noise on housing prices, but both are peripheral symptoms of the problem.

The issue is much bigger and more important than the rabble around it.

One of the key problems with addressing the Australian housing challenges is that no-one is in charge - all levels of government carry a share of responsibility and blame, but so do the business community and individual Australians.
Everyone tends to shrug and flick responsibility on to everyone else.

hich is why housing affordability is the summit we really have to have. Yes, another talkfest to kick and prod the elephant and each other until there's enough consensus to move the beast and the excrement it's building up.
Really bad taxes

Last week I watched all nine federal, state and territory treasurers either explicitly or implicitly acknowledge that they're running taxation policies that are bad for the nation because of their impact on housing, perverting the more efficient use of land, worsening affordability, making poverty worse.

If their nine shadow counterparts had been in the room, we would have had 18 politicians equally guilty of taking the politically expedient course rather than attempting politically dangerous change.

They might well call it politically suicidal change.

The Henry taxation review team primarily liked the idea of a broad land tax because it was efficient - land can't up and run away to a tax haven and it's rather hard to disguise - but it also has important positive aspects.

For a start, it would replace bad state transaction taxes that inhibit mobility, that are disincentives on boomers downsizing and workers moving to where the work is.

Secondly, a broad land tax would encourage more efficient use of the resource by discouraging land banking and promoting more investment in it. (It's a tax on the land value, not the improvements.)
Sacred elephant

So who wants to tell the Australian electorate that the family home should be subject to land tax, as well as being part of the means test for pensions? So far, no-one. It's a sacred cow of an elephant.

It helps to explain that the family home already is subject to tax - local government rates and those bad stamp duties. The change would need to be grandfathered - that is, land tax would start to be levied on a property the next time it sold, which for the average Australian property is often enough.

Scrapping stamp duties immediately lowers the purchase price, but the economic modelling indicates land tax also should work to reduce the price of housing over time as the cost is factored into the capital value.

Then there's negative gearing as we presently know it, a subject aired often enough for everyone to have their vested interests confirmed. The economic case against it has been overwhelmingly made by Saul Eslake on these sites previously, a performance he repeated at the tax forum.

High-wire act

Trouble is, there are 1.7 million electors who are into it with their credit ratings pinned back. Many, maybe most, have reason to be worried that the lure of the spruiker isn't delivering the riches promised, but changing the system now would be a political high wire act that would make the resources rent tax look easy.

Again, grandfathering would be required and a small degree of political bipartisanship instead of rampant populism would help. Another part of elephant hide that requires constant kicking.

Transfer aspects raise their head through the amount government pays in rental subsidies. There's an efficiency question to be worked through on whether it makes sense for taxpayers to subsidise demand for privately owned accommodation, or to build more public social housing, given the much cheaper borrowing costs for government.

To work, that would require smarter, braver state and local governments, which is where we approach the two dangerous ends of the elephant.

The problems of zoning and supply aren't just big city issues. Australia's booming resources towns, mostly surrounded by empty land, don't have enough land available for housing. It is absurd. Local councils tend to point fingers at state governments and vice versa, while in some cases there is a dubious stench about development and zoning decisions.
NIMBY rule

In the cities, NIMBYs rule, at least to the extent that the politics of the day decree. In the Sydney context, the safe Liberal seats of the upper north shore copped massive density increases under Labor. We shall see how remaining inner-west Labor seats fare under Liberal. But this matter goes beyond governments down to individuals.
Your columnist is fortunate to have lived for two decades in a Sydney suburb of expensive detached houses close enough to the city to have a good view of the CBD and Harbour Bridge. (The houses obviously weren't as expensive when we bought in.)

Many of my neighbours would tar and feather me if I suggested our privileged suburb should at least permit townhouses for a mild increase in our density.

Mind you, those same neighbours campaigned against a citizen who bought three houses with the intent of knocking them all down to build a large single pile - private property rights are precarious things.

The basis of most local government is to preserve the privilege of the established against the interests of those trying to get established. We don't like change. Status quo rules.

Developer levies make new housing more expensive than it needs to be as the young have to pay immediately for facilities that the old had spread over time through general taxation. The intergenerational aspects of current housing policies are another whole session.

Signs of hope

There are some encouraging signs in the housing market. Developers are responding to the market signals by building a little smaller after long years of the average house size forever expanding.

People are realising they probably don't need more bathrooms than there are occupant. A home theatre is not as essential for the average house as a roof.

The better architects can design a highly desirable residence on a smaller than average footprint.
Yet local governments are not helping.
The small plots so expensively bid for in the inner city remain banned for detached housing in most municipalities. Yes, my backyard could take another dwelling but no, I would not be allowed to build one if I wanted to.

Damaging lives

In the meantime, we're wasting the expensive resources of time and fuel by forcing people to live further away from where they work. We're damaging lives by leaving those on low incomes to fight for limited rental housing. We're tending to force those without work to live in the cheapest housing which tends to be where there's little work.

The elephant is very big. It is very smelly. It will require a lot of work by all levels of government, business and community to move. Due to the extent of vested interests and the ease with which scare campaigns are now run in an age of increasing political populism, there are probably more votes to be lost than won.

Who's game to have a crack?

Maybe we have to talk about it on a non-political basis first.

Disclosure: I was one of the tax forum moderators, but this is not a pitch for another facilitation job. And, yes, I have negatively geared property.

Michael Pascoe is a BusinessDay contributing editor.

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Tax break too complex: banks

Clancy Yeates, The Sydney Morning Herald, 10 October 2011

BANKS are complaining that a tax break for bank deposits is too complex and unlikely to trigger a meaningful change in saving habits.

In July, the government introduced a 50 per cent tax discount on interest earnings of up to $500, a measure it says will benefit up to 5.7 million Australians and support bank funding.

The policy goes part of the way to implementing the Henry review's call for a 40 per cent cut in taxes changed on interest - which is taxed at the top rate paid by a taxpayer.

While banks broadly support the plan, the industry has criticised Treasury's design for the scheme, saying it will require too much paperwork from households that only stand to make a small gain.

Lenders also say the $500 cap - which will rise to $1000 in 2012-13 - is too low to give people a strong incentive to put more of their savings into interest-bearing assets.

Under the scheme, Treasury has suggested the tax break would apply only to net interest income, after any costs from earning the interest have been subtracted.

The Australian Bankers' Association(ABA) said forcing households to calculate net interest income would present them with a ''compliance minefield''.

The majority of people would not incur significant expenses in earning interest, the association said, and forcing them to calculate net interest income ran the risk of causing the policy to fail.

As the discount was aimed squarely at consumers, the association said it would be far simpler to give the tax break to gross interest, rather than net interest.

''The ABA is concerned that the relatively low level of the proposed discount may not have a significant impact either in mitigating tax-induced distortions which affect the allocation of capital, or in increasing the level of national savings,'' it says in a submission to Treasury.

ING Direct also supported the move, but said the tax break would require too much work from households for a relatively small gain.

Someone earning $50,000 could save up to $88.75 on their 2011-12 tax bill under the scheme, ING said, rising to $177.50 in 2012-13.

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Looking beyond the tax lobbies

Editorial, The Sydney Morning Herald, 7 October 2011

The tax summit "took place in Canberra this week with low expectations, and did not disappoint."

THEY came, they discussed. The topic was the vast, complicated engine called the Australian tax system, requiring constant maintenance and inputs of energy just to keep it ticking over, with its operating manuals occupying the shelf space of a library. After much feverish talk of scrapping it in favour of a simpler, new machine, it was all deemed too hard. They went home.

The two-day tax ''summit'' took place in Canberra this week with low expectations, and did not disappoint. The government called it to meet a promise to the independent MP Rob Oakeshott for his support, but came with big changes taken off the agenda. The Treasurer, Wayne Swan, ended it with a vague promise of more tinkering, an untimed lift in the tax threshold to $21,000 from the $19,400 already scheduled for 2015.

Could we expect more? Tax reform is one of the most difficult areas of change, requiring either an unusually secure government, an equally unusual bipartisan consensus, or an economic crisis. We have none of those at the moment. What we have is a simmering unease at growing imbalances in our economic and society, and a sense that skewed incentives in our tax system are making them worse.

One imbalance is the strength of the resources sector, fuelling demand for skills and capital and pushing up the dollar to the disadvantage of many other sectors. As we know, there is also a regional imbalance in this. The tax system provides a potential method of amelioration, by redistributing profits from mining to other sectors through cuts in ordinary company tax and other business imposts and through infrastructure investment.

The Henry review of the tax system suggested just that, a mining super profits tax financing a 5 percentage point cut in corporate tax, a big rise in the income tax threshold to $25,000, tax-free pensions and so on. We all know what happened.

Another imbalance is the intergenerational one of access to affordable housing, from the housing shortages and resulting property-price inflation in our cities. The tax system is in large part to blame for this, through the Australian model of negative gearing, and through the dependence of state governments on transfer taxes such as stamp duty. With 1.7 million landlords among us, all mostly chasing up the price of existing houses, no federal government is yet willing to take on this large constituency; naturally enough, the states ask what will replace revenue from stamp duty.

Through the crossfire of sectional interests pushing their barrows at the summit, a few independent voices argued reforms in the national interest. This week's airing will take us a bit closer to those reforms.

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Turning talkfests into outcomes

The Australian, 7 October 2011

WHAT a difference carefully considered policy insights can make to the calibre and value of political discussion. Fresh from the tax forum that has at least given her government a platform for enacting reform, Julia Gillard sounded like a Prime Minister talking about core policy issues in interviews yesterday.

She played to Labor's traditional strengths rather than to the gallery or the Greens, focusing on job creation and industry policy. Unusually, she chose not to spend time talking about Tony Abbott.

Unlike some previous Labor governments, which came to power promising to tackle the scourge of unemployment, the Gillard government's challenge is to increase workforce participation. It needs to do this while the manufacturing sector faces challenges and is shedding jobs. If yesterday's jobs forum is to prove more than just another talkfest, it must help firm the government's resolve to adopt economically sound strategies to boost productivity.

Just as Ms Gillard and Wayne Swan have resolved to lift the tax-free threshold to $21,000 following the tax forum, the jobs forum should be followed up with a commitment to increase Australia's intake of skilled migrants and to adopt welfare and industrial relations policies aimed at lifting workforce participation.

Predictably, ACTU and Australian Manufacturing Workers Union leaders used the forum to demand that mining companies not buying locally manufactured goods be penalised or "named and shamed". Businesses, however, must remain free to invest in whatever products best suit their needs and which provide the best value. In the long run, any protectionism advocated by trade unions would not encourage the competitive, high-end manufacturing Australia needs.

As Andrew Liveris, the chief executive of Dow Chemical and co-chairman of US President Barack Obama's Advanced Manufacturing Partnership, told the forum, investment in innovation and technology are vital if Australia is to develop an advanced manufacturing base, creating high-value products that use both our natural resources and a skilled workforce. As he said, without picking winners and losers, the government should play a role through the use of tax benefits and targeted research grants to encourage innovation.

Australia urgently needs economic reform rather than talkfests if it is to confront the challenges created by an ageing population, a struggling manufacturing sector, a boom-bust resources economy and an unstable international financial climate. If the tax and jobs forums have shifted political debate from poker machines and cigarette packets to a rational consideration of the reforms needed to increase productivity over the long term, they will have achieved something worthwhile.

Australians would have much to gain from a return to the more mature, bipartisan approach that helped deliver far-reaching financial, tariff and industrial relations reforms during the Hawke-Keating years, paving the way for long-term national prosperity. It has been more than a decade since Australia enacted meaningful tax reform with the advent of the GST under John Howard. With three days of talking over, we can all recognise that independent MP Rob Oakeshott was right, for once, when he told the tax forum that what matters most was outcomes.

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Maybe there's a point to all the tax talk

Don Woolford, The Sydney Morning Herald, 5 October 2011

It's easy to be cynically dismissive of things like the tax forum.

Words like gabfest come to mind and, certainly, there was a lot of talk from a lot of people who, one suspects, rather like the sound of their own voices.

And yet, for anyone interested in tax and its complexities - and of course that's very much a minority taste even if almost everyone is affected by how government is funded - bringing together employer lobbies and unions, industry associations and charities, academics and think-tankers for two days did produce interesting talk.

Ken Henry, the former Treasury secretary and tax review head, appeared to have a Damascene conversion about the forum.

Early on the first day, after hearing some business and industry groups and the ACTU spout entrenched views about corporate tax, Henry declared proceedings predictable, with a script he could have written in advance.
But 24 hours later, while being the warm-up man for a segment on transfer payments, he said the discussions had been very encouraging.

"Clearly this forum already has demonstrated that it is a very, very worthwhile exercise," he said.

What it certainly demonstrated, though the experts would have known this perfectly well, was the bewildering array of vested interests in a system with a bewildering mosaic of intersections.

The Australian Council of Social Services talked about the long-term unemployed, including the gap between disability and unemployment benefits; 80-year-old Everald Compton talked about how hard it was for older people to get jobs; charities lined up to criticise the lack and cost of housing for the poor. Child care got a mention.

John Wicks of St Vincent de Paul said alleviating poverty was a basic function of government. He proposed a target of seven per cent on the number of Australians living in poverty be set. He didn't say how to define poverty.

Bishop Pat Power of Catholic Social Services, after challenging everyone to contemplate living on NewStart's $35 a day, put in a big word for the working poor, which he said was an unseen group of mainly migrant women.

Leah Hobson of the Australian Federation of Disability Organisations said the disability support system was unfair and broken.

Greg Smith, a member of Henry's tax review team, injected some realism by saying that in the next 10 to 15 years the issue won't be stop the boats, but stop the welfare.

So did the Centre for Independent Studies' Robert Carling, raising that Rubik's Cube of a dilemma, the effective marginal tax rate, which sits at the intersection of rising tax rates and reducing means-tested benefits. No-one seems to have an answer to that.

There were similar morasses when the forum turned to personal tax, where much of the attention was on side taxes rather than the rates and thresholds of income tax, though one businessman thought the rich should be slugged more.

Take negative gearing.

Economist Saul Eslake said there'd be no need to raise taxes if the government went after loopholes and arrangements that favoured the rich. He included in this the tax treatment of trusts and superannuation, and negative gearing.

There were plenty of critics. Points included: most negative gearing is simply helping ordinary people save for their retirement, and ending it would crunch the stock of rental accommodation.

However Eslake got some support from the ACTU. Assistant secretary Tim Lyons called the super tax concessions "One more Baby Boomer party".

Independent Rob Oakeshott, who lumbered the government with the forum, wants a preliminary response before Christmas.

So the unfortunate Wayne Swan, who sat through all the talk, will have to make something coherent from it.
 

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An unexpected show of unity

Peter Martin, The Sydney Morning Herald, 5 October 2011

Where's the biffo? Get enough people in a room who care about something, and it seems they'll agree.

Only halfway through the two-day summit it is already groping towards agreement about the way forward, much like Kevin Rudd's 2020 summit in which a small group of enthusiasts including Bernie Fraser and Lachlan Murdoch nutted out the idea for what became the Henry tax review on pieces of butcher's paper.

There's almost universal agreement that we will need more tax and need to close tax loopholes, including among some of the advisers who think of ways to drive trucks through them.

The proposition that we will need to cut company tax at the same time has agreement from almost everyone other than the delegates from the ACTU.

Melbourne University expert John Freebairn explained with a twinkle in his eye that Australia competes with other countries for capital. If it gets the capital, people work with ''better machines, better buildings, better research and development, their productivity goes up, and they actually end up gaining from the drop in the tax on capital - not the capital owners, but labour.''

ACTU secretary Jeff Lawrence said outside the forum there was ''just not the evidence'' to support that proposition. But the Henry review presented pages of it. One study found that a 1 per cent hike in company tax would cut wage rates by 1 per cent. Another that a 10 per cent hike in corporate tax rates would cut wages by 7 per cent.

Former Treasury secretary Ken Henry said he wasn't sure everyone in the room would get it. But most seemed to.
Australian Industry Group chief Heather Ridout - who sat on the Henry review with Dr Henry - described her ''education'' when it became clear to her that payroll tax, which she had always disliked, actually fell on consumers and workers rather than her members.

Payroll tax turns out to be quite popular. It's the exemptions and different systems that cause problems. Land tax was also popular as a partial replacement for state stamp duties.

The principle is the same as for company tax. Things that are footloose, such as capital, should be treated gently, things that are tied down, such as land and labour, should be taxed most harshly.

If Labor had managed such a summit before drawing up its mining tax, it might have got a better reception. When Grattan Institute economist Saul Eslake suggested taxing miners more heavily and other companies less heavily for as long as the mining boom continued, no one objected.

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Unions and business clash on best economic strategy

Clancy Yeates, The Sydney Morning Herald, 5 October 2011

THE ACTU has challenged business groups to justify calls for further company tax cuts, sparking a row over how to manage the resources boom.

The union body was one of a few parties that openly opposed company tax cuts at yesterday's tax forum, after business groups said Australia's 30 per cent company tax rate was high compared with those overseas.

Citing the Henry review recommendation to lower company taxes to 25 per cent, the Business Council of Australia and the Australian Industry Group said such a cut would bolster growth and jobs in weak parts of the economy.

The former Treasury secretary Ken Henry also said workers would be the ultimate winners from corporate tax cuts and called for debate to move on from ''business versus labour''.

However the ACTU secretary, Jeff Lawrence, sparked a fiery response from business groups by saying the business push for tax cuts was ''self serving'' and lacked credibility.

He said business lobby groups did not come to the debate with ''clean hands,'' as many had railed last year against the now axed resources super profits tax, which was designed to redistribute mining wealth. ''This forum can't be allowed to be a vehicle for self-serving business interests that will lobby for a lower corporate tax rate,'' Mr Lawrence said.

The global financial crisis had reversed the trend of cutting company taxes and moves to support industries should be revenue neutral, he said.

''We don't support Australia joining a race to the bottom on company tax,'' he said. ''Countries such as Ireland that slashed their corporate tax rate found that capital soon left.''

The Australian Workers Union and the Australian Manufacturing Workers Union made similar attacks on corporate tax cut proposals, arguing that Australia already had low tax rates.

The Treasurer, Wayne Swan, has promised to use mining tax revenue to fund a 1 percentage point reduction in company taxes to 29 per cent.

The chief executive of the Australian Chamber of Commerce and Industry, Peter Anderson, rejected the union stance as bad for jobs and investment.

''Whether the union movement wants to accept it or not, business tax charges are a constraint on investment and that's an investment in both capital … and labour. The consequence of those constraints is that fewer people are employed and the economy doesn't grow as it should,'' Mr Anderson said.

The clash came as it emerged the budget could be facing a revenue shortfall of up to $10 billion due a tax loophole on corporate mergers and acquisitions.

The government is preparing a policy to claw back the revenue, which is likely to meet a hostile reception among big companies that have already factored in tax benefits.

Other ideas discussed at the forum included a proposal to increase taxes for the most profitable industries, alongside cuts for industries doing it tough.

An economics professor at the University of Melbourne, John Freebairn, suggested the government explore shifting to a model that taxed companies according to their return on equity, rather than profits. This would mean industries making above-average returns, such as banks, would pay tax rates of up to 50 per cent. Companies with a ''normal'' rate of return would receive a tax cut.

Professor Freebairn said it was an ''exciting idea'' that had been tried in some European countries.

The director of the Grattan Institute's productivity growth program, Saul Eslake, suggested a higher tax rate for sectors that were temporarily enjoying boom times.

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Tax must reflect unique economy: Swan

The Sydney Morning Herald, 4 October 2011

Treasurer Wayne Swan has told a tax forum that Australia is a "pretty unique" economy and the tax system needs to reflect that.

"We are relatively isolated from the world in a geographical sense," he told delegates attending the two-day talkfest at Parliament House in Canberra on Tuesday.

Yet few countries adopted imported technology and fashions as readily as Australia.

"Our people are distributed right across the nation, yet we are one of the most urbanised countries in the world."

Other dichotomies in the economy were the concentrated business sector but significant amounts of foreign investment, and the fact Australia was a high-tech, high-skill country but mineral resources accounted for about half of all exports.

Mr Swan said those in charge now owed it to future generations to invest sensibly the returns from the mining boom.

There would be new opportunities, well beyond the boom.

"The middle class in the Asia Pacific is growing by 110 million a year, and this means opportunities for tourism, education and manufacturing," Mr Swan said.

Mr Swan said a fact often obscured was that Australia's taxes were low.

The tax system was "simpler, fairer and stronger than the system we inherited from our predecessors".

But the treasurer admitted the tax system was far from perfect.

"Our task is to envisage what else can be done to create the kind of tax-and-transfer system that best serves Australians."

Mr Swan said the system must deliver a dignified life to Australians and increase workforce participation.
Australia must ensure it had the infrastructure "for a faster fast lane" but also address the challenges of those in "the slow lane".

The Labor government had implemented 32 of 138 recommendations of the Henry tax review in May 2010, Mr Swan said.

Among the sectors subject to reforms were personal tax, business tax, environmental and social taxes, transfer payments and governance.

The government would legislate a minerals resource rent tax, which would pay for a cut in the corporate tax rate.
Other changes included raising the low-income tax offset, amendments to the fringe benefits tax treatment of cars and scrapping the dependent spouse tax offset.

Mr Swan reminded participants that tax reform was a "long, hard slog" and any changes needed to be funded.

"Everyone here would love to click their fingers and change the whole system all at once, but tax reform isn't like that," he said.

What the nation got from the forum was down to the participants.

It was important everyone was willing to listen and compromise during debate, Mr Swan said.

"The lesson from most of the big tax reforms of the past ... is that they are harder to get done when participants insist on getting entirely their own way," he said.

"If we think about what is good for our nation, if we try to understand each other, we can find some common ground over the next two days."

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Unions, employers clash at tax forum

Richard Willingham, The Sydney Morning Herald, 4 October 2011

Unions and employer groups have clashed in the first session of the tax forum with business groups calling for lower company tax rates and unions saying there should not be an overall cut to company taxes.

Australian Industry Group chief executive Heather Ridout said she was disappointed the corporate tax rate had not been reduced to 25 per cent as recommended by the Henry tax review.

"We shouldn't be apologetic about putting on the table a need for the tax system to help grow our national wealth because that creates jobs," she said.

Ms Ridout said the forum would be of most value if the Henry review was used as a foundation rather than starting from scratch.

ACTU secretary Jeff Lawrence urged that the forum not become a podium for "self-serving business interests" lobbying to lower the corporate tax rate.

Mr Lawrence asked unions to prove that lowering company tax would increase jobs.

"We don't support, and this forum shouldn't support, Australia joining a race to the bottom on company tax," Mr Lawrence said.

AWU secretary Paul Howes said he did not think corporate tax was too high but advocated tax breaks in some struggling sectors to help boost local content.

Prime Minister Julia Gillard opened the forum by reiterating that the nation's economy would continue to be shaped by the Asian century.

"Even in difficult days in the global economy, we live in the right part of the world," she said.

The Asian middle class was anticipated to grow to 1.2 billion by 2020, which provided opportunities to Australia, Ms Gillard said.

She also re-committed the government's drive towards delivering a budget surplus.

Treasurer Wayne Swan said tax reform was about "hard yards, not easy victories".

"I want to hear the views from the kitchen table, as well as the boardroom," Mr Swan said.

Before the forum began, Greens Leader Bob Brown criticised Opposition Leader Tony Abbott for not attending, saying he was "missing in action".

"Mr Abbott is absent — that's an indictment of the opposition's credentials as an alternative government," he said.

"A negative opposition is missing ... the opportunity to listen to players from right across the field in Australia, from the unions through to the banks. It's letting the country down by failing to be here."

Mr Abbott, speaking in Sydney, said the opposition had not been invited — but the government said it had invited the Coalition.

"The fact is I wasn't invited and I don't believe in gatecrashing events that I'm not invited to," Mr Abbott said.

"What we know is that this government's not a tax fighter, it's a tax hiker. It looks like just another pointless talkfest from an embarrassingly incompetent government."

The forum, which is being held as part of independent MP Rob Oakeshott's support for the government, continues this afternoon and tomorrow.

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