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Archive: Quarter 1 2012

The following are select media articles from January to March 2012. Return to Archived Media index.

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tax threat risks killing investment, say miners

Sid Maher and Ben Packham, The Australian, 31 March 2012

THE mining and gas industries have warned Wayne Swan that targeting resource company tax concessions in the budget risks turning a massive investment pipeline into a "garden hose".


Minerals Council of Australia chief executive Mitch Hooke said resource companies had already been targeted by massive Labor tax changes and should not be hit by further measures aimed at shoring up the budget. Yesterday The Australian reported that the government's business tax working group had canvassed phasing out accelerated depreciation for mining, oil and gas and aviation as well as cutting research and development tax concessions for big business. The Treasurer has refused to comment on pre-budget speculation but has signalled a tough budget.

Australian Chamber of Commerce and Industry director of economics Greg Evans accused the government of taking an "ad hoc approach to tax design", as exemplified by the minerals resource rent tax. "ACCI has concerns in targeting the mining sector for a revenue grab on the basis it is currently going through a period of stronger demand conditions," he said. "The MRRT was a failed policy approach and it is clear Treasury has been tasked to look for further opportunities to extract revenue from the mining and energy sector."


The Australian Petroleum Production and Exploration Association blasted the prospect of tougher tax treatment.

"It is important to recognise that future investment remains the fundamental building block that will support the growth of the Australian economy," APPEA chief executive David Byers said. "The significant undermining of global investor confidence is clearly no long-term solution to this challenge. "We want to avoid the massive pipeline of resources sector investment, to which the Treasurer yesterday referred, becoming a garden hose." Mr Hooke said it was just over a year since the government's Argus-Ferguson Policy Transition Group resisted efforts to expand fiscal incentives for exploration because the industry already had access to immediate deductibility for income tax purposes. "Exploration leads to the mining developments that pay the taxes of tomorrow. The government should reject any move to introduce a disincentive to explore for new minerals deposits in Australia," he said. Meantime activist group GetUp! launched an internet advertising campaign urging the government to cut concessions to the resources sector.



dollars and sense of nannies

Stephen Lunn, The Australian, 31 March 2012

IF and when the Productivity Commission takes a look at the complex issue of whether parents should be able to claim half the cost of their nannies under the childcare tax rebate system, they will do what has been largely missing in the emotion of the debate this week: examine the economic benefits of the idea as well as the costs.


And they will ignore the confected us-v-them, rich-v-poor political argument that threatens to hijack what is an important public policy discussion about a sector plagued by ad hoc arrangements. Tony Abbott reopened the debate on taxpayer-funded subsidies for nannies last weekend by saying that as prime minister he would call on the commission to model an expanded childcare tax rebate. In the ensuing ruckus, as Bill Shorten described it as "a thought bubble in search of an idea", two questions have been glossed over: one philosophical, one fiscal.


First, why, as a matter of equity, should parents who opt for one form of childcare (such as long daycare in an accredited childcare centre) be given such a large amount of government support - up to $7500 a child a year, not means-tested - when those who choose a different type aren't? If the payment is to encourage women into the labour force, why can't parents decide, on a level playing field, the type of care that best suits their domestic and work lives? And, second, can the country afford it? There are significant political undertones to the first question. While it was the Howard government that brought in the rebate (at 30 per cent and with a $4000 cap) in 2005, it is Labor that takes the view there are generally greater social and educational benefits for a child in the formal care of accredited childcare workers than those available at home. In other words, rebates for this type of care not only have a workplace participation opportunity for the carer parent, but a child development benefit.


Childcare Minister Kate Ellis tells Inquirer that "while, of course, it is up to parents to make the decision about what will work best for their family, we do know that there is a growing body of research that shows the social and educational benefits of high- quality childcare".


For the Coalition, the inclusion of nannies under the rebate was under consideration when it was first legislated in 2005. Indeed a report by Bronwyn Bishop at the time proposed an even more radical policy: full tax deductibility for childcare costs, including nannies. That idea is not without its contemporary proponents, Bank of America economist Saul Eslake being one. "Childcare ought to be seen as legitimate cost of employment. If you can't get childcare, you can't go to work. It is no less a legitimate tax deduction than a carpenter's tools of trade or dry-cleaning a uniform," he says. The Opposition Leader again flirted with the idea of including nannies in the childcare tax rebate as an election policy ahead of the 2010 federal election. But it was cost, rather than philosophy, that brought the idea undone both times. Now Abbott believes it's time that decision is revisited. He says working families in 2012 don't necessarily operate within a nine to five framework (many are shift workers and not in the highly paid categories) and that for bigger families nannies can make financial sense.

"This is not just a women's issue or a family issue; it's an economic issue," he says. "We want as many women as choose, to be able to have challenging and demanding careers rather than having to fit a bit of work in around the edges."


In response, Ellis sparked a class war by suggesting the rich would be the prime beneficiaries of any such policy change. "I think that when we have a look at nannies we see that they're often chauffeurs, they're often chefs ... some of them do ironing, some of them do the washing and the household chores," she says. "The nanny industry is unregulated and there are no quality assurance requirements in place. This new policy is undeveloped and uncosted and will hit hardworking, low-income families who rely on childcare the hardest." Ellis says putting the money in at the bottom of the income spectrum will best deliver the goal of more jobs for women. "Evidence suggests that providing financial assistance to low-income families with their childcare costs has the greatest impact on workforce participation," she tells Inquirer. Yet it was Abbott who found third-party endorsement from some unlikely quarters.


Sex Discrimination Commissioner Elizabeth Broderick says the nanny debate doesn't run across a rich-poor divide. "For many women having a nanny, especially if they have two or three children, is a reasonably cost-effective solution. It also helps those women who are working unusual hours. It can be a better option than long daycare."

Helen Conway, director of the Equal Opportunity for Women in the Workplace Agency, a government statutory body, also backs Abbott's call for a review. "The agency wants a system for funding childcare that supports all women in the workplace fairly and equitably and, given the complexity of the issues involved, supports the whole issue of childcare funding being examined by the Productivity Commission," Conway tells Inquirer.


Even the Greens' early childhood spokeswoman Sarah Hanson-Young is in Abbott's corner. "The commission should examine the effectiveness of funding the childcare rebate and childcare benefit to determine how best to link quality standards with support and affordability for families," she says.


Beyond the issue's philosophical underpinnings, Labor also raises a practical difficulty with including nannies in the childcare rebate system, put thus by Immigration Minister Chris Bowen: "The introduction of a subsidy for nannies on a similar basis as formal childcare would lead to calls for more regulation, if for no other reason than to ensure competitive neutrality. After the home insulation scheme, every government will be reluctant to provide subsidies to an unregulated sector. "Moves to regulate the minimum qualifications and experience of nannies will inevitably lead to further price increases, further putting nannies out of reach of middle-income families and further cementing a subsidy as welfare for the higher paid."


While there is a strong argument for greater regulation of nannies as a precondition of families receiving a rebate to ensure taxpayers' funds are not being wasted, Bowen and Labor are pre-empting the Productivity Commission which, as Abbott has pointed out, has found inventive funding solutions for other social policy issues such as the disability insurance and aged care. The second big unanswered question is whether the budget can afford it.

Abbott says he would introduce a new proposal only if it "fits within the existing budget envelope". The Productivity Commission would no doubt pursue whether an equitable solution might be to pay for the additional coverage by means-testing the childcare tax rebate, an approach favoured by Eslake and others. It may not have to, with growing conjecture that Wayne Swan will use the May budget to introduce a childcare tax rebate means-test similar to the $150,000 a year limit used for the baby bonus, family tax payments and paid parental leave. Affordability is not a new question. In 2006, the Taskforce on Care Costs, a collaboration of more than 40 organisations, commissioned the Melbourne Institute to model the increase of the childcare tax rebate from its then 30 per cent to 50 per cent with a cap of $10,000 a year a child and, importantly, included nannies in the calculations. "Overall (this) would cost government $327 million per annum, representing an immediate return to government of 54 per cent of its investment (taking into account increased expenditure and offset by reduced government outlays and increased income tax contributions through increased workforce participation)," the report concluded. "(But) having regard to the secondary effects of the government's investment (eg increased productivity), the Taskforce on Care Costs argues that the reimbursement would approach revenue neutral for government." There has been a significant lift in female workforce participation since the rebate's introduction, up from 54.3 per cent before the rebate was introduced to 58.7 per cent last month.


The taskforce also found the rebate's introduction "stimulated a 20 per cent increase in the proportion of declared payments made to carers of children". In other words, payments moved out of the black economy. It went on to say that "equal reimbursement of childcare costs for registered care (nannies) as approved care will place both on a level playing field, provide real choice to carers and reduce the black economy in informal care payments."

Eslake agrees there would be "at least partially offsetting benefits" to the funding of a nanny rebate, "as well as broader benefits to society at large". "This is not just more people paying more taxes. It's more people actively engaged in the workforce producing goods and services that people want and earning income that is spent creating opportunities for other people," he says.


Giving the Productivity Commission a brief to look at rebates for nannies is like chicken soup. It can't hurt. And if it comes up with a finding that the measure is affordable and leads to continuing improvements in female workplace participation, why not give the punters what they want?


Japan govt backs plan to double sales tax

Sydney Morning Herald, 31 March 2012

Japanese Prime Minister Yoshihiko Noda's cabinet has approved a bill to double the country's consumption tax by 2015. The move could put Noda's job in jeopardy, given the strong opposition to it among his own party members and the public. The bill would raise the current five-per-cent sales tax in two stages: to eight per cent in April 2014 and to 10 per cent in October 2015.


The hike is an initiative by Noda aimed at whittling away at Japan's public debt - which, at nearly 200 per cent of its gross domestic product, is the largest in the world - and covering social security costs in ageing Japan. He is expected to have a hard time getting it passed in the Diet, or parliament. The bill was also likely to bring him trouble within the ruling coalition.


Critics accuse Noda, a fiscal hawk, and other leaders of the ruling Democratic Party of Japan (DPJ) of ignoring opponents of the legislation within the ruling camp, although the premier had pledged to strengthen solidarity within the DPJ when he took office seven months ago. Four senior vice-ministers and parliamentary secretaries close to former DPJ leader Ichiro Ozawa, including Vice-Education Minister Yuko Mori, resigned in protest at the cabinet vote. Nine MPs, all members of the DPJ policy research council, also decided to leave the intraparty group.

DPJ members who opposed the increase argued that the proposal went back on the party's policy pledges in the 2009 election, in which it won a landslide victory under the slogan, Putting People's Lives First. Its election win ended more than a half-century of almost uninterrupted rule by the Liberal Democratic Party (LDP). They also said the government first had to resolve Japan's problem with deflation, which erodes company profits and contributes to unemployment, after trying to do so for more than a decade. The tax increase proposal prompted Shizuka Kamei, who leads the People's New Party, the DPJ's junior ruling coalition partner, to leave the coalition. His party has eight members in the Diet.


Many Japanese were against the hike, as a recent opinion poll conducted by the Kyodo News agency showed 56 per cent of those surveyed to be against the increase, with 42 per cent in favour. The opposition camp, which controls the upper house, expressed unwillingness to support the rise. The main opposition LDP has urged the premier to dissolve the lower house soon for a snap election. The turmoil could cost Noda the premiership in a country where leadership changes are frequent. Noda is the sixth prime minister in as many years. "I'll make every effort to pass the bills quickly through Diet deliberations," Noda said at a parliamentary session. "I'll discuss the issue, focusing on the big picture rather than the political situation."




business calls for tax re-think

ABC News, 31 March 2012

There are renewed calls for tax reform to address falling confidence in Tasmania's business sector.


The Chamber of Commerce and Industry's latest business expectations survey shows private sector confidence remains low and employers are spending less on wages.  The chamber believes tax restructure would help revive the business community.


Greens Leader Nick McKim agrees, saying there's never been a better time.  "When times are tough you need to make smart and good decisions."  But the Deputy Premier, Bryan Green, says tax changes could see revenues fall further.  "The Tasmanian government has limited opportunity for tax." The government and opposition abandoned a tax review last year.



time to reform fuel tax credits

Charles Berger, Canberra Times, 30 March 2012

Imagine if, in the upcoming federal budget, the government announced it would pay Australian businesses to use more water. Yes, you read correctly — an incentive to use up a precious and scarce resource that you and I have been doing our best to conserve. The payments would come in the form of tax credits granted under new legislation — let’s call it the Profligate Water Waste Bill 2012.


The $5 billion annual price tag would be funded from cuts to health, education, environment and defence budgets.

Any business could qualify, but much of the benefit would go to existing heavy users of water, such as power generation, mining and agriculture. The government would not offer any modelling or cost benefit analysis in support of this new policy.


It would simply point out that the business beneficiaries are ''important to the Australian economy'' and therefore deserve the subsidy. Preposterous, right? Such a policy would be so transparently senseless and unfair that it would immediately be laughed out of the cabinet room, right? Of course, the Profligate Water Waste Bill is a nonsense.

It would be political death for any government silly enough to propose it.


Now replace the word ''water'' with ''fuel'' in the above scenario, and you have a pretty good idea of the current policy environment. Welcome to the world of fossil fuel policy, where ordinary standards of silliness don't apply. Of course, the policy in question isn't a new one, but has been on the books for years.


Under the Profligate Fuel Waste Scheme — oops, I mean the Fuel Tax Credits Scheme — the Australian taxpayer underwrites business fuel use to the tune of $5 billion per year. The mining sector is among the largest beneficiaries of this handout, raking in nearly $2 billion annually. Astonishingly, the Commonwealth now spends more on fuel tax credits than it does on public education No serious cost-benefit analysis has been conducted on this policy, nor has there been any real parliamentary or independent scrutiny in more than a decade. It originally applied only to certain off-road uses of some fuels, but successive governments on both sides have expanded it so that it now applies to nearly all fuel use by big businesses. This policy means that a commuter in western Sydney pays 38c per litre in excise for fuel, but big profitable mining companies such as BHP and Rio Tinto pay nothing at all in excise for their fuel.

The subsidy amounts to a transfer of $174 every year from each Australian taxpayer to the mining industry alone. There is no credible justification for the policy. Recently, Mitch Hooke of the Minerals Council of Australia suggested that any reform would be a ''new tax''. But it's not; reform would simply mean mining companies would pay the same tax as you and I do. And it would be administratively simpler as well. We're always hearing about the need to cut red tape — getting rid of special tax breaks and handouts is a great way to do this. Hooke also claimed that the exemption is justified as part of a general principle that business inputs shouldn't be taxed. That would be more convincing if such a general principle actually existed. But in fact many business inputs are taxed.


The most significant input for most businesses is labour, which is taxed heavily in the form of income, payroll, and fringe benefits taxes. Land is also a major input for some businesses, but there is no tax credit there. Nor is there a credit for excise paid by business on other goods, such as alcohol. So why should fossil fuels be any different? This simple fact is this: the fuel tax credit scheme is an unfair handout with no economic benefit and a considerable fiscal and environmental cost It also helps reinforce our economic dependency on petroleum, a commodity that has shown great price volatility in recent years. Hints that reform is on the cards for this year's budget have already been met with predictable howls of outrage and ''sovereign risk'' from some industry sectors. But we've heard those before — on condensate tax reforms in 2008, on fringe benefits treatment of company cars in 2011, and of course on the carbon tax and mining tax. In each case, market sentiment remains strong and investment continues to flow unimpeded to the affected industries.


Treasurer Wayne Swan has shown considerable leadership for his role in prosecuting each of these previous important reforms in the face of rent-seeking industry opposition. Any move by the government to reform the wasteful fuel tax credits scheme this year would build on this record, and should be warmly welcomed.



time to start a debate on universial family payments in australia

Gerry Redmond and Philip Hayes, The Conversation, 30 March 2012

Most of the reforms proposed by the Henry Tax Review appear to have died a quiet death. In his recent article on inequality in The Monthly, Treasurer Wayne Swan does not mention the Henry Review at all, even though he trumpets the “quiet revolution underway in recent years in our tax and transfer system to ensure relief to those who need it most”, with more progressive reforms in the offing.


One of the key conclusions of the Henry Review is that the tax and transfer system is too complex. The Review proposes reducing the number of income tax rates and thresholds, and the number of means tested payments for families, pensioners, carers and others. However, as the economist Patricia Apps has pointed out, the Review does not propose to alter the basic architecture of the tax and transfer system – especially as it impacts on families with children – but rather to consolidate it.


Is our tax and transfer system really so effective in terms of promoting equity and fairness, while at the same time maintaining incentives for people to work? Apps argues that families with children are faced with a highly inequitable tax-transfer structure in two respects. First, it is not families with the highest incomes who face the highest effective marginal tax rates – the proportion of an extra dollar earned that is lost through taxes on incomes and withdrawal of means-tested Family Tax Benefit (FTB) – but families on average incomes or lower.


Effective marginal tax rates under the Australian system take on an inverted U-shape: low at very low levels of income, rising to their highest point towards the middle of the income distribution, and then falling towards the top. This is arguably inequitable, and acts as a disincentive for families with children to earn more.


The system is also structured so that second earners, typically women, may be faced with high tax barriers in seeking to enter paid employment. In particular, reforms implemented by the Coalition government under John Howard have been seen as encouraging partnered mothers give up paid employment and remain in the home. “Quiet revolutions” notwithstanding, Labor governments since 2007 have not tinkered much with this status quo.


What’s more, while child poverty in Australia is lower than it was in the early 1980s (at least in part because family payments were made more generous), about a tenth of Australian children still live in poverty, and this rate has not has not changed greatly since the turn of the millennium. Do Australians really have the tax and transfer system they deserve, and is there no scope for improving it?


Would a system of universal (as opposed to means-tested) family payments, paid as a right to every parent with respect to the children they care for be fairer and more equitable? Radical changes to tax and transfer systems are difficult to imagine in the current political environment, where every proposal for marginal changes is hotly debated.

However, a few points are worth raising.


Giving all families a universal family payment may appear expensive, but that depends on what it replaces (for example, FTB, which is also expensive). A universal family payment would, by definition, go to better-off as well as poorer families, but this could be partially clawed back by making it taxable at the marginal rate of the highest earner in a couple (FTB is currently not taxed), which could produce positive effects in terms of more progressive effective tax rates, as well as gender equity.


A universal family payment would likely be popular among families with children, because it would confer unconditional recognition of the importance to society of raising children. Furthermore, depending on its size, a universal family payment could reduce the proportion of children living in poverty. A system with universal payments would also be cheaper to administer than the current means-tested system.


The detail of a universal system of family payments needs to be debated. How much should each child get? Should children in lone parent families get more? Should it replace or complement a means-tested system? Would other tax reform be necessary to pay for it? Whatever system were proposed, there would be losers as well as winners from the reform, possibly including poorer families whose incomes would have to be protected. Complexities – such as the interaction between family payments and youth allowance or child support – would need to be considered.


Nonetheless, our early estimates suggest that a reasonably generous universal family payments system may indeed be affordable. A universal payment of $6,000 per year per child, plus $5,000 for each lone parent, would cost about $31 billion (at 2009-10 prices). This compares with a cost of $16 billion for FTB. However, if the payment were made taxable and income tax rates for people with high earnings were adjusted upwards, it could be implemented at little or no net cost to Treasury. In other words, fiscal issues in implementing a universal family payment are not insurmountable. The real challenges are political.


Perhaps it is no bad thing that the Henry Review, which did not propose a radical overhaul to the current system, died a quiet death. Its demise has left a space for debate on deeper reform of income taxes and family payments in Australia than either Ken Henry or Wayne Swan have so far contemplated. That debate needs to begin.




budget deficit to pass $40bn as tax take crumbles

David Uren, The Australian, 29 March 2012


THE government faces a further blow-out in this year's budget deficit - now likely to pass $40 billion -- after Wayne Swan warned the collapse in tax revenue would last for years.

In a speech to be delivered to business economists in Sydney today, the Treasurer says that cuts to existing programs and a toughening of tax laws will be needed to secure the promised return to budget surplus next financial year.


Mr Swan says the budget surpluses achieved before the financial crisis were not sustainable and were based on massive capital gains and a boom in consumption. "Even if we were to witness an enduring global recovery, we should not expect to see a similar recovery in revenues," he says.


A draft of his speech says the government has faced the biggest fall in tax revenue, as a share of the economy, since the 1950s. He says there were big downward revisions of tax revenue in both last year's budget and in the mid-year budget update released in November, and warns there will be further writedowns in the May budget. "Collections, particularly relating to company profits, have been lower than expected," he says.


In the mid-year update, the government was aiming for a deficit this year of $37.1bn before returning to a $1.5bn surplus in 2012-13. This would be the biggest budget turnaround ever. The task now looks even larger, with falling tax revenue increasing the size of this year's deficit.


Although Mr Swan says the deep structural changes in the economy mean that revenue will not rebound, he says there can be no backing away from the return to budget surplus. "Balancing the budget is appropriate for an economy returning towards trend growth, it is Australia's best defence in these times of global economic uncertainty and it is the right strategy for the future," he says.


Mr Swan says the big budget surpluses recorded before the global financial crisis were inflated by capital gains tax receipts. In five years, these tripled from 0.5 per cent of GDP to 1.5 per cent, boosted by surging housing and sharemarkets. Capital gains fell back to 0.5 per cent of GDP last year, a drop of $11bn, and would never again return to pre-crisis peaks. "There has been a structural shift here," Mr Swan says. "The growth in asset prices in the mid-2000s which fuelled the growth in capital gains tax was not sustainable, and not a sensible benchmark for forecasting purposes." Both through capital gains tax and company tax, the crisis left a store of losses, which are now being drawn on as tax deductions. This will reduce government revenue by $8bn over three years. Mr Swan says the biggest change in the economy has been the shift from consumption-led growth to investment.


The economy is being driven by investment in the resources sector, but this comes with big tax deductions as companies claim their investment costs against profits. Reduced household consumption and the high dollar means that the rest of the economy is generating lower company tax revenue. The government seeks to rebuild tax revenue by, for instance, tightening rules on fringe-benefits tax for company cars and the dependent spouse offset. Mr Swan says government is considering strengthening tax laws, to deter tax avoidance, but the return to surplus would require real spending cuts.




housing affordability reaching crisis levels

Michael Janda, ABC News, 29 March 2012

The Australian Council of Social Service (ACOSS) national conference has heard that the lack of affordable housing has reached crisis levels. Housing experts say there is a shortfall of tens of thousands of social housing homes - a number that will grow unless funding increases.


The new Housing Minister Brendan O'Connor told the conference he was there to take suggestions about how to tackle Australia's housing affordability problems. He said the Government needed to explore future options "with an opening and enquiring mind". But his open mind closed quickly when it came to the question of reducing negative gearing and capital gains tax concessions. "The fact is that there are some things that the Government will not, at this point, consider," he said. "The Treasurer made it very clear that he expressly excluded some of those matters to which you refer. I understand that disappoints some people, but our view is that we can focus on a whole range of other issues."

'Perverse benefits'

It is not just former treasury secretary Ken Henry who has recommended the removal of tax breaks on residential housing. One of Australia's pre-eminent housing economists, Associate Professor Judith Yates from the University of Sydney, made many similar suggestions to the conference.


"Benefits that go to owner occupiers are perverse," she said. "The biggest benefits go to the people who are already established and they don't go to younger households at a time when they need it.

"They're inequitable. The biggest benefits go to high-income households, lowest benefits go to lower-income households. "Treasury in 2011 estimated the value of these was around $35 billion."


Professor Yates says the Federal Government could also save money by doing away with negative gearing, which currently allows investors to claim investment property losses against their other income. "It's perverse because what it does is encourage investment in existing housing," she said. They're inequitable. The biggest benefits go to high income households, lowest benefits go to lower income households. "There's no notion of expanding the new supply. It's biased towards existing housing because that tends to be better located and it tends, therefore, to have a greater probability of capital gain." If Treasurer Wayne Swan would like to raise some extra revenue as well, then Professor Yates says he would do well to take another read of the Henry Tax Review, which recommended a national land tax.


"Land tax is sort of like a resource rent tax. People are benefiting from an unearned, incremental increase in the value of their land," she said. "So I think that we really need to push on land tax very hard and very strong to try to reduce some of the excess consumption, effectively, of land." While the idea was popular at the conference, Sarah Toohey from Australians for Affordable Housing says it will be hard to beat the powerful home owner lobby. "I think wresting back a fairer share of the nation's housing wealth might even be a harder prospect than getting some of our mining wealth back off Clive Palmer and Gina Rinehart was," she said.

Urgent need

But the conference speakers were united in saying the need to redistribute housing wealth was urgent. Greg Cash from Western Australia's Department of Housing says one rental property in the Pilbara is now leasing for $4,000 a week, and the mid-range rent there is $1,700. In Perth, even people on good incomes are struggling to afford a mid-priced home.


"The purchased price of a median priced house in Perth is out of reach for somebody on nearly $100,000," he said. I think wresting back a fairer share of the nation's housing wealth might even be a harder prospect than getting some of our mining wealth back off Clive Palmer and Gina Rinehart was. "So that causes significant problems and it has a flow-on effect to the rental market, with people staying in the rental market that would like to be owning a home." Professor Yates says high prices are the main contributor to a dramatic fall in home ownership levels for those under 35 and, in more recent years, even for those in their late 30s and early 40s. "It's home ownership that has protected a lot of households from poverty and disadvantage in old age. So we've got potentially severe problems coming through," she said. "It'll still be another 20 or 30 years and that's part of the problem. It's so far into the future that politicians don't worry too much about it."


Aside from the threat of poverty for future generations of renting retirees, current estimates already put the shortage of social housing at 90,000 homes, which will rise to 150,000 in eight years' time if nothing is done.

Professor Yates says it needs a $7 billion a year investment in public and community housing just to fix that immediate problem.


SWAN tightens business tax noose

David Uren, The Australian, 30 March 2012

THE government is taking aim at big business to help bankroll its return to budget surplus with billions of dollars at stake in a crackdown on complex transactions.


Business groups and tax advisers fear the government's need for revenue will lead it to extreme measures, with Treasury already having flagged that new laws on transfer pricing will be made retrospective to July 2004.

Wayne Swan said yesterday that new tax laws would form part of the budget strategy, adding that recent court losses by the Australian Tax Office had exposed weakness in the system. "We're looking at these to see where we can make the tax system more robust, more sensitive to complex transactions and better at deterring people from tax avoidance," the Treasurer said. Transfer pricing, where a global company manipulates the price of exports or imports to minimise tax, is one target, while strengthening the anti-avoidance provisions of the tax law, known as Part IVA, is the other. Executive director of the Corporate Tax Association Frank Drenth said that following court losses in both areas, tax commissioner Michael D'Ascenzo had gone to the Treasurer to complain that he could no longer guarantee the government all the money it was supposed to collect.

A government desperate for revenue provided a willing audience. "There's a concern that the government will make some ill-considered decisions," he said.


Assistant Treasurer David Bradbury released draft legislation to toughen transfer pricing legislation two weeks ago, while his predecessor, Mark Arbib, foreshadowed a review of the anti-avoidance legislation at the beginning of the month. The transfer pricing changes have raised concern among foreign governments that their companies will be victimised. Ernst & Young transfer pricing specialist Paul Balkus says the Australian Tax Office has several cases coming up, involving financial and industrial companies, that could involve tax adjustments amounting to billions of dollars.


The courts have accepted that if a company is trading goods or services at a market price, then the Australian Tax Office has no case that prices are being manipulated. However the ATO wants to be able to use methods developed by the OECD to show that if a subsidiary company is less profitable than it would be if it were independent, then this could show manipulation. It would open the way for the ATO to attack financing transactions, even though interest rates are set at market rates. Treaties signed between the ATO and other international tax authorities give it greater discretion than the courts have granted based on Australian law. The government is legislating to give the tax treaties the same weight as local law, and is making this retrospective by eight years.


The government is also planning to strengthen the anti-avoidance provisions which were introduced by John Howard as treasurer in 1981 following the tax scandal known as the "bottom-of-the-harbour". PricewaterhouseCoopers tax partner Michael Bersten said the government was over-reaching. He said the law was working well and had been adopted by many countries as a model.



uS democrats unveil business tax break

The BusinessSpectator, 29 March 2012

Senate Democrats this week unveiled a $US26 billion ($A24.75 billion) temporary tax cut for businesses to boost their payrolls and encourage investment in new equipment.  The legislation would award businesses a tax credit of 10 per cent on the salaries of new hires or for pay raises given to existing workers.  Businesses that make major new capital investments in new equipment and machinery would be able to write off those investments immediately rather than over several years. The idea is to both boost hiring and investment as the fragile economic recovery continues to take hold. The tax cuts would be temporary and apply to 2012 wages and investments.


The legislation is jointly backed by top Democratic leaders, including Majority Leader Harry Reid of Nevada and Senator Charles Schumer of New York, who briefed the media on a conference call.  The Democratic proposal comes a few days after House Majority Leader Eric Cantor, Republican Virginia, proposed a $US46 billion, one-year tax cut for smaller businesses.  The GOP (Republican) measure would allow businesses with fewer than 500 employees - or 99.9 per cent of the nation's companies - to deduct 20 per cent of their income from their federal tax bill. 


Democrats said their idea was better because it's focused on creating jobs.  "The House Republican proposal is neither focused on true small businesses, nor does it make the tax cut dependent at all on the company doing any hiring," Mr Schumer said.  In fact, the Congressional Budget Office says that simply cutting business income taxes is an inefficient way to boost jobs. But at the same time, so-called bonus depreciation on business investment isn't especially efficient at boosting the economy, either.  Neither the Republican nor Democratic ideas would be paid for with spending cuts or revenues gleaned elsewhere from the tax code.  Mr Reid and Mr Schumer predicted the measure could pass the Senate in the coming weeks.  "This is the kind of legislation that should not be a fight," Mr Reid said.  The Senate also appears likely to set in motion a debate on legislation to repeal tax breaks for the five biggest oil companies.


tax changes urged to address housing crisis

Michael Janda, The ABC, 29 March 2012

Experts say Australia will have a shortage of about 150,000 houses by 2020 if extra funding is not made available. The ACOSS national conference has heard that the pressure on social housing is being exacerbated by the lack of affordability in the private real estate market for both renters and purchasers. Economists say the problem is partly driven by tax concessions that subsidise existing home owners to the tune of $35 billion a year.




MARK COLVIN: The Australian Council of Social Service national conference has heard that the lack of affordable housing has reached crisis levels. Housing experts say there are 90,000 fewer social housing homes than are currently needed. They say the shortfall will grow to 150,000 in less than a decade, unless funding increases. Business reporter Michael Janda was at the ACOSS conference in Sydney and has this report.


MICHAEL JANDA: The new Housing Minister, Brendan O'Connor told the ACOSS national conference he was there to take suggestions about how to tackle Australia's housing affordability problems.


BRENDAN O'CONNOR: I really do mean we need to look at all options and honestly assess them, to explore future options with an open and enquiring mind.


MICHAEL JANDA: But his open mind closed quickly when it came to the question of reducing negative gearing and capital gains tax concessions.


BRENDAN O'CONNOR: The fact is that there are some things that the Government will not, at this point, consider. The Treasurer made it very clear that he expressly excluded some of those matters to which you refer and I understand that disappoints some people but our view is that we can focus on a whole range of other issues.


MICHAEL JANDA: And it's not just former treasury secretary, Ken Henry recommending the reduction of tax breaks on residential housing. One of Australia's pre-eminent housing economists, Associate Professor Judith Yates from the University of Sydney, made many similar suggestions to the conference.


JUDITH YATES: Benefits that go to owner occupiers are perverse. The biggest benefits to go to the people who are already established and they don't go to younger households at a time when they need it. They're inequitable. The biggest benefits go to high income households, lowest benefits go to lower income households. Treasury in 2011 estimated the value of these was around about $35 billion.


MICHAEL JANDA: She says the Federal Government could also save money by doing away with negative gearing, which currently allows investors to claim investment property losses against their other income.


JUDITH YATES: It's perverse because what it does is encourage investment in existing housing. There's no notion of expanding the new supply. It's biased towards existing housing because that tends to be better located and it tends, therefore, to have a greater probability of capital gain.


MICHAEL JANDA: And if Wayne Swan would like to raise some extra revenue as well, then Judith Yates says he'd do well to take another read of the Henry Tax Review, which recommended a national land tax.


JUDITH YATES: Land tax is sort of like a Resource Rent Tax. People are benefiting from an unearned, incremental increase in the value of their land and so I think that we really need to push on land tax very hard and very strong to try and reduce some of the excess consumption effectively of land.


MICHAEL JANDA: While the idea was popular at the conference, Sarah Toohey from Australians for Affordable Housing says it'll be hard to beat the powerful home owner lobby.


SARAH TOOHEY: I think resting back a fairer share of the nation's housing wealth might even be a harder prospect than getting some of our mining wealth back off Clive Palmer and Gina Rinehart was.


MICHAEL JANDA: But the conference speakers were united in saying the need to redistribute housing wealth was urgent.

Greg Cash from Western Australia's Department of Housing says one rental property in the Pilbara's now leasing for $4,000 a week. And the mid-range rent there is $1700. And, in Perth, even people on good incomes are struggling to afford a mid-priced home.


GREG CASH: The purchased price of a median priced house in Perth is out of reach for somebody on nearly $100,000. So that causes significant problems and it has a flow-on effect to the rental market with people staying in the rental market that would like to be owning a home.


Judith Yates says high prices are the main contributor to a dramatic fall in home ownership levels for those under 35 and, in more recent years, even for those in their late thirties and early forties.


JUDITH YATES: It's home ownership that has protected a lot of households from poverty and disadvantage in old age. So we've got you know potentially severe problems coming through. It'll still be another 20 or 30 years and that's part of the problem. It's so far into the future that politicians don't worry too much about it.


MICHAEL JANDA: Aside from the threat of poverty for future generations of renting retirees, current estimates already put the shortage of social housing at 90,000 homes, which will rise to 150,000 in eight years' time if nothing is done.

And Judith Yates says it needs a $7 billion a year investment in public and community housing just to fix that immediate problem.



SWeden proposes higher tax on private equity profits

Niklas Pollard, The Reuters, 29 March 2012

Sweden moved to tighten tax rules for owners of stakes in private equity funds, part of a push against untaxed profits in the 250 billion crown ($37.5 billion) industry, which is the second biggest in Europe relative to economic output. A Finance Ministry proposal aims to tax income of private equity fund owners, or so called carried interest, primarily at the income tax rate rather than the capital gains rate which is lower. The Finance Ministry said there was a need for greater clarity in the area which would be beneficial for private equity in the longer term. "The uncertainty around how this income should be taxed has led to a situation which in the future could be harmful for this kind of economic activity," the Ministry said on Thursday in a note accompanying its proposal.


While much of Europe has seen restrained private equity activity recently, Sweden and the rest of the Nordic region have been having a bit of a boom as the countries have suffered less from the sovereign-debt crisis. But profits made by private equity firms in Sweden, the home of social democracy, have raised eyebrows. The government, in the hands of the centre-right but sensitive to allegations it favours bankers, has already moved recently to close other private equity tax loopholes after scandals related to private equity in the tax-funded healthcare sector. The latest move against carried interest targets arrangements which typically entitle private equity partners to a share of profits from a fund. In much of Europe, carried interest is treated as capital gains and is subject to lower tax rates than wages.


The issue hit the spotlight in the United States during the Republican presidential primaries, when front-runner Mitt Romney's low-tax private-equity payouts were castigated by opponents. The new Swedish rules include a statute meaning any person who through a broad range of vehicles, including trusts, owned stakes in private-equity firms would be taxed on dividends and profits as if the stake was owned directly by that person. Dividends and profits by private-equity partners would be first taxed as income from employment up to a ceiling, after which the remainder would be taxed as income from capital, at a lower 30 percent tax rate, the ministry said. The regulations, which if passed by parliament would come into force at the turn of the year, cover private equity funds that acquire, manage and divest shares in unlisted companies and where their stake at any point amounted to 50 percent or more.


Late last year local media reported that tax authorities had landed the founder of private equity firm IK Investment Partners with a tax bill of almost 1 billion crowns ($149.7 million). The proposal has been sent out for comment to various government institutions, including the private equity lobby. ($1 = 6.6818 Swedish crowns)


horror budget ahead for eastern states

Malcolm Maiden, The Sydney Morning Herald, 29 March 2012

The sense of foreboding in the south-eastern states will ratchet up after Treasurer Wayne Swan’s speech at the Australian Business Economists’ breakfast in Sydney this morning. Swan repeated Treasury Secretary Martin Parkinson’s analysis from three weeks ago, noting there is a gaping hole in the government’s tax revenue in the wake of the global crisis. He also confirmed that the May budget will contain very little new spending and heavy cuts to existing programs as the Gillard government tries to hold to its promise to balance the budget in the year to June 30, 2013.


The huge risk in this is that the eastern states that are not participating directly in the resources boom will tip into recession, but the political capital invested on both sides of the House in a 2013 surplus means that there will no backing off. Consumers are spending less, the high dollar is squeezing export receipts and sucking in imports and company profits have fallen 6.5 per cent. Companies are paying less tax as a result, and the crisis has also slashed capital gains, and capital gains tax receipts.


The resources boom is continuing, but investments in resources projects are also pulling tax revenue down, because companies are getting tax breaks as they invest in expansion that is not yet producing taxable profits. The upshot, says Swan, is that tax as a proportion of gross domestic product has fallen from a peak of 24.2 per cent ahead of the global crisis that began in the second half of 2007 to 20 per cent. This is the biggest decline in the government’s tax take since the 1950s, and a large part of it has occurred since the middle of last year, when Europe’s sovereign debt crisis flared, and hopes that the world was clear of the global crisis were deflated.


Last November when the government published its mid-year economic statement and fiscal outlook it estimated that its tax take was running at 22.3 per cent of gross domestic product, and that the deficit would be $37.1 billion in the current year to June 30. But if the tax take is 20 per cent, the deficit will be bigger than that. Swan said this morning that revenue in the current financial year would be $21 billion lower than it would have been if the pre-crisis tax share had been maintained.

The tax take was expected to rise to an average of 22.8 per cent over the two years to 2013-2014, he said, but would still leave receipts about $17 billion below pre-crisis levels.


Swan said the pre-boom peak for tax collections would not be attained anytime soon. It was an aberrational amalgam as company profits, capital gains, employment and household wealth and incomes all peaked in a global boom. And he said again that there was a sound economic case for bringing the budget balance back into surplus by  2012-13 as promised. Suggestions that the target was primarily a political one were ‘‘misleading and ill-informed,’’ he said, adding: ‘‘You can’t be a Keynsian on the way down, and not on the way back up.’’


The government had spent up to protect the economy and stimulate growth during the global crisis, he said, and as the economy strengthened it was returning the budget to surplus ‘‘in an economy moving back towards trend growth with relatively low unemployment and a record pipeline of investment.’’ The government’s withdrawal would create room for private sector activity that would otherwise risk being crowded out, and give the Reserve Bank more options, Swan said, a reference to the fact that the central bank has more room to cut rates without boosting inflation if there is less growth impetus coming from the public sector. All good, in a general sense. Sound national finances are one of the keys to Australia’s economic success, and so say all of us.


The problem though, highlighted by the national accounts for the December quarter that came out on March 7, is that the ‘‘trend growth’’ that Swan says allows the government to retreat is actually a combination of two trends: very powerful growth in the resources-rich states, and sub-par growth in Australia’s pressured industrial heartland, Victoria and New South Wales.


State final demand in Western Australia was 18.3 per cent higher in December 2011 quarter compared with the December 2009 quarter, and 12.3 per cent higher than in December 2010. Queensland was up 14 per cent compared with December 2009, and by 10.4 per cent jump in a year. NSW demand in contrast was only 5 per cent higher in the December quarter compared with the December 2009 quarter, and up less than 2 per cent in a year, while Victorian demand was 5 per cent higher over two years, and up 1.6 per cent compared with the December 2010 quarter. The deal between Canberra and the states for the distribution of Commonwealth GST revenue means that the downturn is largely locked into the States’ revenue bases. Swan yesterday also made it clear that there will precious little new spending that might bring them relief.

Spending would be re-allocated to ‘‘where it is needed most,’’ he said, but the reality was that the government would need to ‘‘cut and cancel’’ existing programs and keep new spending to a minimum to stay on track for the surplus in the  2012-13. So it’s going to be a horror budget. Peter Costello’s famous first budget in 1996-97 cut outlays by 0.5 per cent in year one, and by 2.1 per cent in 1997-98. The same budget would save about $10 billion over two years today - about half what is needed to close the tax revenue gap that has apparently opened up.


The key question given that is whether budget settings that theoretically carry the government to its 2013 surplus target can actually do the job. The fear is that settings that aim to close the gap will actually close Victoria and New South Wales down economically, slashing the Commonwealth tax take from both States, and pushing the surplus target out of reach once again. A second-wave tax revenue slide would be confirmed well before the 2013 election.


foreign investors complain at india tax provisions

Rafael Nam, The Reuters, 28 March 2012

Foreign brokerages are complaining at recent Indian provisions to tax indirect investments and combat tax evasion, saying they are couched in ambiguous language and could also be used to target overseas market investors, risking a sell-off in markets.


Industry body Asia Securities Industry and Financial Markets Association (ASIFMA) published a letter to India's Finance Minister Pranab Mukherjee on Wednesday, expressing "deep concern," and asking for the government to clarify its stance.


At the heart of its concerns are two provisions announced this month. The first gives India power to retroactively tax the indirect transfer of assets, which was widely seen as targeting Vodafone's contentious $11 billion purchase of Hutchison Whampoa's Indian assets.


The second targets tax evaders via the General Anti-Avoidance Rule (GAAR), putting the onus on investors registered in countries with special tax exemptions with India to prove they do not intend to explicitly avoid taxes.

Though ASIFMA and other brokerage officials believe neither was meant to specifically target market investors, they say the unclear language still leaves them on the hook to pay taxes. "These two provisions are creating a very nervous situation for foreign investors at a time when India really needs their participation," said Nicholas de Boursac, CEO of ASIFMA, in a phone interview with Reuters. "This is very dangerous. It has the potential of having serious economic consequences, as well as market consequences."


ASIFMA called for Indian finance ministry officials to issue a statement clearly stating that market investors would not be liable to either provision, or at least to clearly specify which investments would be subject to taxation "We are not averse to paying the appropriate level of Indian taxes, as long as the rules are clear so that investors can plan their affairs with a degree of certainty," ASIFMA's letter said.


India's finance minister has not yet directly addressed ASIFMA's concerns. On Tuesday Mukherjee said GAAR was not intended to harass honest taxpayers, just tax evaders.


Overseas market investors must be registered as foreign institutional investors (FII) in India. This category of investors holds more than $200 billion in assets, or 17 percent of the capitalisation of Indian equity markets, according to ASIFMA. Most investors end up buying indirectly into Indian securities via funds or other products such as participatory notes - derivatives mimicking an underlying domestic security - sold by registered foreign financial firms. These end-investors, as well as some FIIs, also tend to invest via countries with tax exemptions with India, such as Mauritius, making them eligible to GAAR.


India's main index has lost more than 1 percent this week to stand at its lowest in two months, with traders citing the uncertainty behind these provisions as a main reason after broker notes were widely disseminated starting on Monday. The uncertainty prompted brokerage CLSA to stop selling participatory notes this week, according to an email seen by Reuters. Still, foreign selling this week has been limited so far, with net sales of about $10 million as of Tuesday, according to the latest available data, though brokerage officials say investors are waiting for more clarity. "Our phones and those of all the foreign institutions are ringing off the hooks. We are getting calls from literally hundreds of different funds asking for clarification on this," said a senior tax specialist at a foreign bank in Hong Kong. "Foreign investors have many billions of dollars of investments that would need to be unwound because it's too much of a risk."



capital gains shortfall to bite

David Uren, The Australian, 27 March 2012

A COLLAPSE in capital gains tax revenue is giving the government a multi-billion-dollar headache as it tries to bring the budget back to surplus.


The government had been counting on a revival in share and property markets to deliver capital gains tax revenue of $11 billion in 2012-13, or double the $5.5bn earned in 2010-11. But both shares and property markets have weakened this year and capital gains revenue may even drop below 2010-11 levels.


Treasury has been forced to downgrade its capital gains tax revenue estimates with every budget and mid-year update since the 2008-9 global financial crisis and analysts believe it will have to do so again in the May budget. "We went through a phase when wealth kept rocketing along and Australians stopped saving because they didn't need to. We're now in a phase of correction and that's a problem for Canberra," Deloitte Access Economics director Chris Richardson said yesterday. "After a long phase where we kept writing up expected capital gains outcomes, we are now writing them down."

The benchmark share index, the S&P/ASX200 has only averaged 4231 points in the first nine months of this financial year, which is 9.3 per cent lower than the 20010-11 average and 30 per cent down from the 2007-8 peak. Yesterday's closing price of 4262.8 points is in line with the year's average.


Apart from the global financial crisis, it is the lowest sharemarket price since 2004-05 and is only 4.7 per cent ahead of the average during the crisis. Housing prices have weakened over the past 18 months. The Australian Bureau of Statistics' measure of house prices is down 5.5 per cent from the peak in June 2010. With soft prices, investors have had an incentive to hold rather than sell their properties. Estimates by property research firm RP Data show the number of house sale transactions over the past year was the lowest since 1996, and about 40 per cent below pre-crisis levels. As well as undermining state government stamp duty revenue, this suggests capital gains revenue from real estate sales will be depressed.


Commercial property has been recovering slowly, but is still about 10 per cent below pre-GFC levels, according to CBRE research director Kevin Stanley, who said prices had risen by about 3 per cent over the past year, supported by foreign investors.


Share sales usually account for 60 per cent of capital gains while real estate yields 20 per cent and small business and other asset sales the rest. In the peak year of 2007-08, capital gains tax revenue generated $18.1bn, entirely accounting for that year's $16.8bn budget surplus.


That tax revenue came from capital profits reaching a record $90bn. But capital profits plunged to just $30bn in 2008-09 following the financial crisis and have not recovered.


Corporate, superannuation fund and individual investors who were forced to sell during the crisis ran up a stock of capital losses reaching $280bn. These can be claimed as deductions against any new capital profits.


Mr Richardson said this year's capital gains tax revenue would be influenced by the movements in prices and the timing of share and other asset sales.


James hardie tax win boosts compo fund

AAP, The Business Spectator, 27 March 2012

James Hardie Industries Ltd will pay $132.3 million into a compensation fund for asbestos victims after a recent legal victory over the Australian Taxation Office (ATO).


The payment by the building products maker comes earlier than its scheduled contribution, and will help the fund repay a $20.9 million loan made in February by the NSW and federal governments. James Hardie's Asbestos Injuries Compensation Fund (AICF), set up in 2006 to compensate sufferers of asbestos-related diseases, relies on annual contributions from the company's free cash flow. A downturn in the Australian and United States property markets has hampered the company's results in recent years, reducing the funds' cash balance.


Earlier in March, James Hardie was awarded $369.8 million after the High Court dismissed an ATO appeal application in its long-running tax dispute. James Hardie on Tuesday said it would pay 35 per cent of that amount and other funds received from the ATO to the AICF on April 2. "James Hardie believes that the early receipt of this contribution will be of considerable benefit to the AICF," the company said.


how big is the federal government?

Donald Marron, Eric Toder, Tax Policy Center, 26 March 2012

The federal government is larger than conventional budget measures suggest. Many tax preferences are effectively spending programs. Adding these preferences to federal outlays and receipts makes the government appear about 4 percent of GDP larger. The 1986 tax reform cut these benefits, but they have since rebounded to a larger share of GDP than before. Using this broader measure of government size, many base-broadening reforms viewed as tax increases would be reclassified as spending cuts. Raising marginal tax rates would be recorded as a tax increase and a spending increase because it would boost the value of many tax preferences.


builders facing benefits tax blitz

Tim Boreham, The Australian, 26 March 2012

THOUSANDS of workers on big-ticket, temporary construction projects face a rude shock on July 1 when proposed new tax laws will force them to substantiate how they spend lucrative living-away from home allowances (LAFHAs), which to date have been tax-free in their hands. These payments, which typically amount to $800 a week, are routinely paid by employers for projects such as Victoria's desalination plant, or the Ararat Prison private-public partnership.


As part of a federal Treasury crackdown aimed at staunching perceived rorting of the current system, recipients can spend $191 a week on food without having to vouch for the outlays. But the remaining accommodation component has to be justified through "actual receipts or other documentation". Any unsubstantiated component is subject to income tax at the worker's highest marginal tax rate and they are also exposed to potential penalties and interest payments if they get it wrong.


Under the current regime, LAFHAs are subject to fringe benefit tax in the employer's hand if they exceed a "reasonable" amount. "We are aware of a number of arrangements which, under greater scrutiny, could result in tax being paid by employees should the proposed reforms become law," said Pitcher Partners tax manager Gary Matthews. "I think it will be a rude awakening for a lot of these temporary workers in the building industry."


The measure was announced in November's mid-year economic and fiscal outlook, which noted reported tax-free LAFHAs had increased from $162 million in 2004-05 to $740m in 2010-11. Publicity since then has centred on an accompanying crackdown on temporary residents, who can now only receive the benefits tax-free if they "maintain" a residence in Australia which they don't rent out. "This tax exemption is being increasingly misused by a narrow group of people, particularly highly paid executives and foreign workers, at the expense of Australian taxpayers," Treasurer Wayne Swan said at the time. The proposal is expected to become draft legislation.


Mr Matthews said while a substantiation regime was more appropriate, both workers and employers did not appreciate the likely knock-on effects such as wages pressure in future enterprise bargaining negotiations. He said the crackdown was less likely to affect remote mining projects, because they usually provided food and accommodation directly to the workers.



o'farrell bid to reduce tax burden for business

Heath Aston, The Sydney Morning Herald, 25 March 2012

TAX cuts would be offered to business under plans being championed by Barry O'Farrell to ignite the sluggish NSW economy. The Premier wants to reduce the payroll tax rate, which at 5.45 per cent, is the highest in Australia.


In an interview with The Sun-Herald marking his government's first year in office, Mr O'Farrell said he wanted to bring NSW into line with, or lower than, other states. Victoria's payroll tax rate is 4.9 per cent and Queensland's is 4.75 per cent. The Treasurer, Mike Baird, said tax relief for business was ''totally on the table'' but no decision had been made, with falling GST revenue flowing from the federal government. Payroll tax rakes in $6.6 billion a year and Mr Baird said there was ''no way'' the rate could be dropped to the Victorian level in one go. The cost to the state coffers would be about $360 million. A reduction of 0.2 per cent would reduce revenue by about $130 million. About 71,000 large and medium-size companies with wage bills above $678,000 pay the tax.

Mr O'Farrell said he wants ''harmonised red tape'' across Australia but supported the concept of ''competitive federalism''.


''For me, it's never been about getting a single rate of payroll tax across the states or down the eastern seaboard, I've always wanted to get differing rates of payroll tax so we can seek to gain a competitive advantage over the other states,'' he said. ''We understand that taxes upon business, taxes upon investment are a barrier to economic growth. We have a higher rate, the challenge for us over this term is trying to ensure we get our tax rates down to make us at least as competitive, if not more competitive than other states.''


Mr O'Farrell said he would seek meetings with a Liberal/National Queensland government to lock in a cross-border economic reform agreement like the one signed with the Victorian Premier, Ted Baillieu, in December. Three conservative governments along the eastern seaboard, combined with the vocal leadership of the Western Australian Liberal Premier, Colin Barnett, represented a ''fundamental shift'' in the states' relationship with Canberra, Mr O'Farrell said.


following the mining tax leader

The Sydney Morning Herald, 24 March 2012

Australia has inspired other countries to put a levy on their riches, write Peter Ker and Clancy Yeates. They're remembered as dark days by most of Australia's mining community, but the months after Kevin Rudd's declaration of a mining tax were pretty good for Mark Calderwood.

As mining company share prices were plummeting around him, Calderwood's company Perseus Mining became a market darling during the winter of 2010. With its modest size and focus on gold mines in faraway nations, Perseus had a three-fold protection from the new tax which - after revision - became focused on the large profits of Australian-based coal and iron ore miners. Helped by some timely approvals for its mine in Ghana, Perseus's share price rose nearly 70 per cent between Rudd's announcement of the tax in May 2010 and Julia Gillard's return to office in late August of that year. But if the Perseus executives thought they had escaped the grim hand of the taxman, they were in for a shock in November last year.

In a surprise move, Ghana announced plans to force mining companies to pay a tax rate of 35 per cent, instead of the existing corporate tax rate of 25 per cent. An additional 10 per cent tax on windfall profits was also announced, with little supporting detail on when and how the changes would be enacted. ''I blame Canberra as [that's] where the disease started,'' Mr Calderwood said. ''They see the [Australian] government getting away with it so it's hard to resist it.''

Ghana is not alone in following Australia's lead: governments in Mongolia, Indonesia, Brazil, South Africa, Venezuela and many more nations have recently sought - with varying degrees of intensity - to take a bigger slice of their resource riches. Some have ruled with a heavy hand, threatening to enforce compulsory divestments and nationalisation upon privately held assets.

As Australia's tax secured passage through Parliament this week, the claims that it would turn mining companies away towards friendlier jurisdictions overseas seemed weaker than ever. ''Given the governments in all these mineral provinces of the world are either talking about [taxes of their own] or implementing them, that basically puts Australia back on a level playing field,'' UBS expert Tom Price said. ''We don't have governments nationalising whole industries here, they still respect the mining industry to some extent and none of the companies foreign to Australia have left the country because of it, so it can't be that bad.''

Far from being a bad place to invest, a recent report by American mining analysts Behre Dolbear suggests Australia is the world's most attractive mining destination.

The Denver-based advisory firm said ''almost every minerals producing nation'' had attempted to raise taxes in recent years, and their 2012 rankings declared Australia to be the most attractive destination ahead of Canada and Chile. Behre Dolbear's rankings assess seven factors, from currency stability through to tax risk, and while Australia earned its lowest mark (five out of ten) in the tax category, only six of the 25 nations surveyed scored better on tax. With statistics showing minerals exploration in Australia continues to boom, there seems to be little evidence supporting claims the mining tax has scared away mining companies.

But while the sovereign risk issue appears settled, the mining tax is likely to cause the Labor government a few sleepless nights yet. Many observers predict the first few years of implementation will be hellish for mining companies, which appear to be underestimating the complexity of the tax. More significantly, many believe the government will not recoup anywhere near the expected windfall.

The mining tax is forecast to raise $7.4 billion in its first two years, with BHP Billiton, Rio Tinto and Xstrata footing 90 per cent of the bill. But these estimates remain clouded by doubts. In its annual report, Rio Tinto was unable to calculate an estimate, and could say only that its payments would be ''significant''.

Analysts are also sceptical, with UBS warning this week that three factors had changed since Canberra calculated its windfall estimates; commodity prices have softened, the Australian dollar has risen and labour costs on mining projects have soared. ''Bulk producers' margins, while historically high, have lowered over the past several months, posing the prospect that the MRRT raises less tax in the 2013 financial year than the $3.7 billion forecast,'' the investment bank said in a research note. Irrespective of how much money the new tax actually raises, it is certain to raise less than Rudd's original tax plan, which aimed to raise $12.5 billion in its first two years. Internal treasury projections suggest the watering down of Rudd's original tax may mean the government misses out on close to $60 billion in revenues over 10 years. So were taxpayers dudded by the shift from the RSPT to the MRRT?

University of Queensland economist John Quiggin says Rudd's tax would have raised about 1 per cent of gross domestic product - an amount Quiggan says would represent a fair share of profits without deterring investment. Quiggan believes the tax is unlikely to be revisited any time soon, yet others think changes are inevitable.

One source within the Australian resources sector said this week that if Labor and Greens share another term in power, the mining tax may soon be expanded to capture gold and other commodities. But the same source noted that an election win for Tony Abbott's conservative coalition would see the mining tax rescinded. ''Either way a change is inevitable,'' he said.



newman flags support for mining tax action

The Australian, 23 March 2012

An LNP government in Queensland will join court action against the mining tax if proceeds aren't generously returned to the state, Campbell Newman says. Mr Newman says a Liberal National Party government, if elected on Saturday, may join a court challenge to the Federal Government's mining tax.

West Australian Premier Colin Barnett says his government would not initiate a High Court challenge, but if mining companies mount their own his government would make its opposition to the tax clear.

Asked today if he would join Mr Barnett in any court action, Mr Newman said he wanted proceeds from the tax returned to Queensland to fund infrastructure. "Our primary objective ... is to see any funds raised on resources dug from the soil of Queensland returned to the people of Queensland," Mr Newman told ABC radio. "If they're prepared to see reason on that, then I don't have a problem with it continuing on. Should that be an issue, then Colin here we come, we'll be alongside you."



forrest blasts swan for mining tax mangle

Rania Spooner, The Sydney Morning Herald, 23 March 2012

Australia's new mining tax is so badly designed that major mining companies will receive more back from an associated tax cut than they would pay in extra taxes, according to iron ore billionaire Andrew 'Twiggy' Forrest.


Mr Forrest used his first public appearance since his company, Fortescue Metals Group, announced plans for a possible High Court challenge to the $10.6 billion mining tax, to attack federal Treasurer Wayne Swan. "If you happen to disagree with the treasurer then you're unAustralian, undemocratic, probably communist," the Fortescue chairman told a Perth business function last night. Mr Forrest claimed the major miners would pay less under the new Minerals Resource Rent Tax (MRRT) than they would receive more back on tax deductions if the company tax is reduced, as promised.

“Oh for a treasurer who can add up and subtract as easily as he can deceive the Australian worker,” Mr Forrest said.


A spokesman for Australia's third-largest iron ore miner announced its plans to engage lawyers to challenge the MRRT after the tax passed through federal parliament on Monday night.

The legislation would impose a 30 per cent tax on windfall profits of iron ore and coal miners but leave levies on other minerals, such as gold and uranium, untouched.

West Australian Premier Colin Barnett backed Fortescue's moves for a High Court challenge to the legislation, but has said the state would not launch its own challenge. Fortescue's director of development Peter Meurs speaking earlier this week said the miner had discussed a possible challenge with other parties, but would not say which groups. Mr Meurs said Fortescue would wait to hear back from its lawyers before proceeding.


Indigenous pact

Last night Mr Forrest also called on the Federal Government to honour the industry-generated Australian Employment covenant, signed by former Prime Minister Kevin Rudd in 2009. “He signed as Prime Minister a commitment that if business was able to find 50,000 opportunities for indigenous people provided they had the basic skills for employment, then they would provide those basic skills,” he said. Mr Forrest said almost 10,000 Aboriginal Australians had moved from long-term welfare to employment under the covenant. “Business people have stepped up, the Indigenous people have stepped up and now I ask the Australian Government step up with job specific employer-directed training,” he said.


tax office looks abroad

Ben Butler, The Sydney Morning Herald, 22 March 2012

SWISS bank accounts, fake loans from dodgy overseas companies and credit cards linked to offshore accounts are under scrutiny as the Tax Office cracks down on undeclared foreign income.


Tax commissioner Michael D'Ascenzo yesterday warned that Australians with foreign investments who do not declare them to the ATO face penalties or jail. Foreign assets have been at the heart of the federal government's Operation Wickenby cross-agency investigation of tax avoidance by rich Australians. Swiss bank accounts were allegedly held by Griffith potato-growers the Rennie family, who the ATO has been pursuing in a $22 million court case that returns to the Federal Court on Monday, while credit cards linked to overseas accounts were used by convicted tax cheat Glenn Wheatley.


Mr D'Ascenzo said the ATO was gathering information on undeclared offshore income from banks, overseas tax authorities and other Australian government bodies including financial intelligence unit AUSTRAC. "There are some taxpayers who deliberately attempt to conceal income but there are others who are genuinely unaware of their taxation obligations," he said. "As an Australian resident, you are taxed on your worldwide income, which means you must declare all income you receive from foreign sources." An alert issued yesterday shows the ATO is also cracking down on income from foreign pensions, investments and wages.


tax reform is wanting

John Freebaim, The Australian Financial Review, 19 March 2012

All political parties in Canberra are more interested in short-term political point-scoring over the proposed changes to the taxation affecting businesses, rather than designing business tax reforms to deliver productivity gains for the benefit of all Australians.


Comprehensive business tax reform would include consideration of a package that broadens the tax base and lowers the rate; replaces current state royalties on mining with an economic rent tax; shifts the tax mix away from taxes on mobile capital to immobile natural resources, land and monopoly rents; symmetrical tax treatment of revenue losses and gains; removes stamp duties on property transfers and insurance. The Commonwealth and state governments are involved.

With taxation being a quasi-constitutional issue affecting long-term decisions, a bipartisan approach is desirable. The Henry review for Australia and the Mirrlees review for the United Kingdom have provided much of the background thinking for these and other tax reforms.

A straightforward tax reform under the control of the Commonwealth is an approximate revenue-neutral package involving a lower tax rate financed by a comprehensive business income tax base, which removes the current special exemptions and deductions described by Treasury as tax expenditures. It would extend the successful reform strategy recommended in 1999 by the Ralph review.


Special exemptions and deductions to be removed include: statutory effective life caps providing accelerated depreciation for some transport equipment, gas pipelines and buildings; the immediate write-off of “medium- size” capital items by small business; concessions for primary producers; and tightening the immediate deductibility of much capital expenditure on exploration and prospecting. The lower rate and comprehensive tax base package brings gains in the aggregate level of investment, the productivity of that investment, simplicity, and reduced incentives for wasteful rent-seeking by lobby groups. The current royalty system for special taxation of mining and energy by the states is the most inefficient tax identified by the Henry review. And it is inequitable across different mines and over the commodity cycle. An economic rent tax, like the petroleum resource rent tax, collects much more from the rich mine, much less from the marginal mine, and close to zero at the bottom of the commodity cycle. The proposed mineral resource tax retains the royalty, it applies only to iron ore and coal, and it has clumsy transition arrangements. Sensible reform would require renegotiation with the states to replace the royalty system with an economic rent tax and consideration of commonwealth-state financial arrangements.


A relatively new idea for taxation reform in the Henry review involves shifting the tax mix from mobile to immobile factors of production. Australia is an open and small country in the global market, and it is a net capital importer. To attract capital for investment, it has to offer a return after tax comparable to the global market rate. A reduction in Australian business tax attracts more overseas investment and a smaller outflow of savings. In time, the increased investment means more capital and technology per worker, higher productivity and wages. Australian workers become the ultimate beneficiaries of the reduction in business income tax. This is the idea of the Henry review’s proposal to increase the tax take on immobile natural resource rents to fund a reduction in corporate income tax.

All parties to the current debate have missed the logic and offered second- or worst-best options. Under current business tax arrangements, gains are taxed but losses do not generate a refund. While losses can be carried forward as a deduction against future gains, because of restrictions on the ability to carry forward losses, many are never used. For those carried forward, only the nominal value is carried forward. This means the effective tax rate varies by business type and investment option and is higher than the statutory tax rate. Risky investments associated with innovation face higher and distorting effective tax rates. Allowing loss carryback and indexing losses carried forward would remove much of the asymmetric tax treatment of losses associated with the arbitrary annual tax accounting year.


Greens held cards on mining tax but chose protest over action

Phillip Coorey, The Sydney Morning Herald, 19 March 2012

Later today, if all goes to plan, the Senate will pass the legislation for the minerals resources rent tax, enabling it to start on July 1.


The Coalition, which in the face of majority public opinion opposes the tax, will cry foul, whereas the Greens will complain that it was watered down too much and does not raise enough revenue. Yet the Greens will vote for it, ultimately unamended. It could be argued the whole mining tax episode has exposed the timidity of the Greens to taking that next step towards mainstream political player. "It could be argued the whole mining tax episode has exposed the timidity of the Greens to taking that next step towards mainstream political player."  Since Labor came to power in 2007, the Greens have generally been the most acquiescent and responsible of the minorities, in either house.

The glaring exception was the party's decision to vote down the original carbon pollution reduction scheme, which, in many ways, was a more comprehensive and enduring scheme than that they renegotiated with Julia Gillard after the 2010 election.


By defeating the first scheme, the Greens inadvertently helped end Kevin Rudd's leadership, reduce Labor to minority government and left Tony Abbott in the box seat to become prime minister and consign a price on carbon to the political stone age. Perhaps this explains their timidity to touch the mining tax.


About a year ago, Bob Brown gave up the Greens' bargaining position by declaring that although the renegotiated mining tax was a stinker, it was better than what the Coalition would do - nothing - and therefore should be passed. That position has never changed, yet it ignored the fact the Greens control the Senate and that Gillard is desperate to pass the tax and would have had no choice but make some concessions, had the Greens put their foot down. Brown's complaints were many. They ranged from the tax being too limited in so far as it covered just iron ore and coal, that its rate was too low and that its proceeds would be used to refund the miners for the state royalties they paid.


The government, which watered down the tax in return for peace from the powerful vested interests it no longer names - BHP Billiton, Rio Tinto and Xstrata - said from the outset it was not going to accept any change. The Greens would never have got all they wanted but they could have pushed for some change, especially the royalty refunds. The original mining tax would refund royalties but capped at the levels they were set on May 2, 2010, the day the tax was announced. This was a sensible arrangement given if royalties kept rising, more and more of the mining tax proceeds would be hived off to refund the miners. The states could essentially keep gouging the mining tax proceeds by raising royalties.


The government never explained why it removed this cap when it renegotiated the tax to ensure all royalties, including future increases, would be refunded. It is a massive flaw in the mining tax, which leaves it open to gouging. Already, Western Australia and NSW have announced royalty increases. The Labor members of the Senate economics committee, which handed down its report last week, criticised the states for this behaviour. As if the states would care. In the same report, the Greens dissented and again demanded royalties not be rebated. This is an entirely reasonable complaint and, if they are prepared to take on the miners, easily fixed. The only area in which they say they will dig in is their refusal to grant the 1 percentage point company tax cut the mining tax will fund to businesses with a turnover of more than $2 million. (Although they are now offering to lift that to $5 million.) The Greens believe the money saved would be better spent on funds for disability, high-speed rail or dental care rather than lining the pockets of ''big banks and big mining companies''. Fair enough, but by imposing a cut-off of $2 million or $5 million, they will create an unworkable, two-tiered corporate tax system open to rorting. A $2 million cut-off will leave about 85,000 businesses with no tax cut, a $5 million threshold will about halve that. Take away the "big banks and the big mining companies'' and that still leaves many thousands of businesses that could use a break. Especially as the principle behind the mining tax is to spread the wealth of the boom to those being left behind. If the Greens wanted the mining tax to raise more money to meet its various aims, they should have done something about it. Either that, or stopped complaining about its inadequacies.


This constant complaining about the mining tax while being in a position of power to exert influence has hung a lantern over where the Greens sit at the moment. They have chosen protest instead of action.


How both sides wrecked the tax base

Ross Gittins, The Sydney Morning Herald, 19 March 2012

Two weeks ago the secretary to the Treasury, Dr Martin Parkinson, dropped a fiscal bombshell that's drawn remarkably little comment, even though - or perhaps because - it blows the budgetary calculations of both sides of politics out of the water.


Parkinson said that since the global financial crisis, federal tax revenue had fallen by the equivalent of 4 percentage points of gross domestic product [about $60 billion a year] and was ''not expected to recover to its pre-crisis level for many years to come''. This had made the task of maintaining medium-term budgetary sustainability harder for both the Commonwealth and the states. ''For both levels of government, surpluses are likely to remain razor-thin without deliberate efforts to significantly increase revenue or reduce expenditure,'' he warned. The most obvious (and least consequential) implication of this news is its threat to Julia Gillard's resolve to return the budget to surplus next financial year without fail. But Gillard's problems pale in comparison to Tony Abbott's, with his oddly ideological and populist commitment to rescind both Labor's carbon tax and its mining tax without rescinding all the tax cuts and spending increases the taxes will pay for.


There seems little doubt Abbott's term in office would either be marked by an orgy of broken promises or be consumed by agonising over what spending to cut, with eternal lobbying both before and after the fact. Probably a fair bit of both. Parkinson is telling us there's now a disconnect in the established relationship between the rate of growth in the economy and the rate of growth in tax collections. The economy can be growing at a reasonable rate without that meaning tax collections are growing strongly. It will be a lot harder in future for politicians of either side to keep the budget in surplus. What was a doddle in the noughties will now require unremitting discipline and political courage. And this says all the demonising of budget deficits and government debt we've heard unceasingly from the Liberals for the past three years - all of it seconded by weak-kneed Labor - will prove extraordinarily hard to live up to over the rest of this decade.


Keeping the budget in ''razor-thin surplus'' will be hard enough; eliminating net debt will be very much harder - especially since the potential-privatisations cupboard is now almost bare. It would be the easiest thing in the world for our pollies on both sides to catch a dose of the North Atlantic disease and let deficits and debts roll on.


Should this happen, it will be because they possess neither the bloody-mindedness to live up to their professed smaller government ideal nor the courage to make and defend explicit tax increases. As in the North Atlantic economies, it will be the path of least resistance. The fascinating question is why this economy/tax revenue disconnect has occurred. Parko says it ''reflects a combination of cyclical and structural factors''. Just so. One part of the explanation is that the 2008-09 recession - which it suits both sides to claim we didn't have - knocked an enormous hole in tax collections. The cumulative write-down in revenue against the forward estimates between 2007-08 and 2011-12 has been about $130 billion.


The global financial crisis put an end to asset price booms in the housing and sharemarkets - with implications for tax collections from capital gains - and in the post-crisis world it's hard to see when those markets will boom again.

The problem for state budgets is structural. Their chief revenue source is the goods and services tax. During the many decades in which households were reducing their rate of saving, their consumption spending (and hence, GST collections) grew faster than their incomes. Now their rate of saving has stabilised, consumption and GST revenue will grow no faster than household income. And household income will be constrained by the stable-to-declining terms of trade and weak productivity improvement.


The first phase of the resources boom was more lucrative for the taxman because the main thing that happened was hugely higher coal and iron ore prices going straight to the mining companies' (taxable) bottom line. In the second phase, the now stable-to-falling prices are accompanied by much higher accelerated depreciation deductions arising from the construction of new mines and gas facilities. But all these things are just elements of a more fundamental explanation for the budget's new growth/tax disconnect: the Howard government's decision to cut the rates of income tax for eight years in a row. This has robbed the income-tax scale of its propensity to bracket creep. It also represented a significant shift in the federal tax mix, greatly reducing reliance on personal income tax and greatly increasing reliance on capital gains tax and, particularly, company tax.


Get the point? This switch was made at a time when, for all the reasons we've discussed, the level of non-income tax revenue was artificially high. Now those temporary factors have evaporated, leaving us with a badly wounded tax base.


Of course, Peter Costello shouldn't get all the blame for this monumental act of fiscal vandalism. When he sprang the last three of those eight annual tax cuts on Labor in the 2007 election campaign, it unhesitatingly matched him. And it insisted on delivering them, even after their structural folly must have become apparent.

This means neither side of politics wants to acknowledge the huge hole they've driven into the budget. When the pollies won't admit it, the econocrats can't either. And all the rest of us sheep take our lead from whatever nonsense the pollies do want to talk about.


Britain's tax rules -- now written for by multinationals 

Felicity Lawrence, The Guardian, 19 March 2012

The budget will usher in tax changes that will lose us £20bn, but it will be a bonanza for one interest group – big business.


We live in austere times, and yet the budget this week will be a bonanza for big business. For all the chancellor's rhetoric about clamping down on tax dodging as a quid pro quo for abandoning the 50p tax rate, some of the biggest handouts will be in tax cuts and tax-avoidance-made-simple for multinationals. But this is no surprise, given that the multinationals themselves have been closely involved in rewriting the tax rules.


The budget will usher in major changes to the way UK-based multinationals are taxed on profits from their overseas subsidiaries, as well as huge cuts in corporation tax. Over the lifetime of this parliament, about £20bn will be lost in tax receipts as a result, according to the Treasury's own estimates.


By the time George Osborne's cuts to corporation tax – from 28% when the coalition took power, to 23% by 2015 – have been phased in, they will have resulted in losses of more than £5bn a year to the revenue. A further cut – to just 20% – was floated this month.


In addition to these losses in revenue, the exchequer will be deprived of close to £1bn a year by 2015 in taxes on foreign subsidiaries. The tax changes involved – to the controlled foreign companies rules – are so complex and arcane, much of the proposed cuts to taxing offshore profits have slipped in under the radar.


The Treasury argues the reforms are necessary to stimulate growth and to make our corporate tax system "more competitive". But this is a race to the bottom. The changes will encourage multinationals to shift more of their business to tax havens. There is no benefit to small- and medium-sized British companies. The reforms represent a triumph of corporate regulatory capture, begun under the last Labour government and accelerated under this one.

The technical bits are as follows: under old controlled foreign companies rules, if a British company (currently liable for a corporate tax rate of 26%) has subsidiaries overseas – in Ghana, say (tax rate 25%) and Switzerland (tax rate 8%) – and it chooses to shift profits out of the territories with the higher tax rates to the lowest tax haven rate, the UK would tax its profits on the difference between what it pays in Switzerland and the UK rate. This avoids companies being taxed twice on their profits, but also acts as a disincentive to shifting to tax havens, since it would end up paying much the same as if it left the profits in Africa.


The budget will bring in new exemptions, so that the CFC rules only apply if the tax haven subsidiary can be shown to have most of its dealings with the UK. So under the new rules, if a company transfers ownership of its brands from Ghana to Switzerland, its profits on those brands won't be subject to UK tax. It now has every incentive to shift its profits to the tax haven. The charity ActionAid estimates this could cost poorer countries £4bn a year in tax. Rubbish, says the Treasury, offering no impact assessment of its own.


The proposals, as former tax inspector and now Private Eye journalist Richard Brooks points out, will make the UK's arrangements more lenient than almost all other jurisdictions, in that only UK-generated income will be taxed in the UK while the costs of funding overseas operations remain allowable against UK profits for UK tax.


So far, so New Labour: these reforms began on its watch. But the new goodie given the go-ahead by Osborne is a further exemption which will reduce multinationals' tax bills dramatically: the exemption on profits of offshore finance company subsidiaries.


If a UK-based multinational sets up a treasury company in Switzerland and puts equity into it from the UK, which is then passed on in loans to its other subsidiaries to run its operations, with interest on the loans flowing back in profits to the tax haven. The tax rates on these profits will be a maximum of just one-quarter of the current UK rate.

These new policies have been written by multinationals. Labour established a series of working groups to consult on the CFC reform made up almost entirely of tax directors from businesses with large numbers of offshore subsidiaries.

The monetary assets working group, for example, consisted of Vodafone, Shell, Diageo, Tesco, G4S, International Power and BHP Billiton. The intellectual property group included Kraft, GlaxoSmithKline, Associated British Foods, Cable & Wireless, and the insurance working group had Aviva, RSA, XL Group, Prudential, Lloyds and AIG. The banking group came from banks including Barclays, which is famous for sophisticated tax avoidance.


Under the new coalition government, a senior manager in international corporate tax from accountants KPMG, Robert Edwards, was seconded to the Treasury for 20 months to see through developing the policy on CFC rules. His speciality at KPMG? Advising multinationals on tax-efficient cross-border financing and restructuring.


With stakeholders like this, it's no surprise that tax justice protesters have taken to direct action and occupation.




The Australian Financial Review, 17 March 2012

Businesses might be able to claim refunds for taxes paid in the past three years, capped at a level to help smaller enterprises grappling with the economy. 


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



Debra Cleveland, The Australian Financial Review, 17 March 2012

The Australian Taxation Office has indicated it will refund or forgive penalty tax for a small number of people who inadvertently breached annual caps on after-tax superannuation contributions made to either do-it-yourself or ordinary superannuation funds.

The Tax Office recently confirmed it had contacted investors involved either to refund the tax or to waive it if an excess contribution tax assessment had been received but not yet paid.

The review related to assessments for 2008-09 and later years in which the so-called “bring-forward” rule was triggered in an earlier year and the caps were exceeded by only a small amount.

The bring-forward rule allows investors to make three years’ worth of contributions in a single sum. The ATO said it had completed itsreview but would “continue to take a practical, risk-based approach where the bring-forward arrangements for non-concessional contributions are triggered by only asmall amount”.



ABC Online, 16 March 2012

The National Retailers Association has released a report predicting the retail sector could lose 118,000 jobs in the next five years.  It blames the situation on a tax loophole, which allows items purchased overseas on the internet, which are valued at less than $1,000 to be exempt from GST, duty or custom fees.

The association says that disadvantages local retailers. It is predicted the Victorian retail sector will lose between 8,000 and 10,000 jobs if the law is not changed.

Premier Ted Baillieu says the loophole should be looked at. "There are winners and losers whatever way you look at this," he told Fairfax Radio. "But I think that this is something that can be brought up through conversations around COAG and the next meeting that's due in April."



The Australian Financial Review, 16 March 2012

Tax reform in Australia has completely broken down, and all sides of politics bear some responsibility for turning the issue into a pawn in their high-stake games. The squabble between Labor, the Coalition and the Greens over the Gillard government’s proposed company tax cut would be laughable were it not for the serious implications it has for the integrity of our taxation system.

The recommendations for a much-needed “root and branch” overhaul of the tax system contained in the Henry review of May 2010 now seem like a distant memory as politicians in Canberra backslide from reform for rank political advantage.

Business leaders were rightly ringing alarm bells this week over the latest farce, which looks set to see the Coalition and the Greens joining forces in the Senate to block a cut in the tax rate for big companies from 30 per cent to 29 per cent that was ­supposed to take effect from July next year.

Labor bears much of the blame for this breakdown in the reform process. Treasurer Wayne Swan has ignored the best of Ken Henry’s recommendations and cherry-picked others deemed to be electorally palatable. So we got the botched mining tax package of June 2010, the rotten entrails of which are now on display with the unworkable compromise plan to lower the tax rate for small businesses earlier than for large companies – a distinction not recommended by the Henry report.

Good tax policy should be based on simplicity, neutrality and efficiency, not politically driven arbitrary distinctions that will distort business decisions and increase uncertainty.

The opposition also no longer seems serious about tax reform, while the Greens are on a planet all of their own. The Coalition is opposing the proposed cut in the company rate because Labor has linked it to the mining tax, which the opposition has pledged to rescind if it wins the next election.

But Opposition Leader Tony Abbott has become increasingly vague about whether the Coalition still stands by its 2010 commitment to cut the corporate tax rate by 1.5 per cent. That’s because Mr Abbott has unwisely locked the Coalition into a “Rolls-Royce” paid parental leave scheme that he plans to fund with a 1.5 per cent levy on big business.

Rather than continue with their tawdry political squabbling, Labor and the Coalition should go back to the Henry review and take note of its recommendations. As part of a complete overhaul of the Australian tax system, the company tax rate should be cut to at least 25 per cent instead of the piddling 1 per cent reduction now being fought over in Canberra.

Australia has fallen behind in cutting corporate tax, with an impost on business higher than in New Zealand and the United Kingdom. The Henry review made lower company tax a priority, recognising it would encourage business investment, including non-mining parts of the economy, thereby boosting the capital stock that workers had to work with, their productivity and then their wages.

Yet instead of this Labor is building its industry super edifice and will spend some of the mining tax to cover super tax breaks behind the increase in compulsory super contributions from 9to 12 per cent, contrary to Henry’s recommendations.

Spending some of that revenue on infrastructure may be a good thing, but the bigger issue is the need to open infrastructure markets to encourage private investment and to expose all government infrastructure spending to disciplined cost benefit studies, which Labor has spectacularly failed to do.

There is an urgent need for serious tax reform to be placed back on the political agenda.



Blair Speedy and Damon Kitney, The Australian, 16 March 2012

MORE than 40,000 retail jobs will be lost within the next three years unless the government removes tax and import duty exemptions on purchases from foreign websites, according to a study commissioned by the National Retail Association. The study, prepared by accountancy firm Ernst & Young, found that up to 108,700 retail jobs would be lost by 2015, of which less than half would be replaced by new positions with domestic internet retailers.

NRA executive director Gary Black said the tax exemption was the biggest threat to traditional retail jobs and domestic online retail growth in Australia."Almost 10 per cent of existing retail jobs will disappear over the next three years unless the government removes the unfair advantage it is currently giving to foreign-based online retailers," Mr Black said. According to the study, the GST and duty exemption on purchases valued at less than $1000 is responsible for a price differential that ranges between 11 per cent on electronics and up to 23 per cent on clothing.

The federal government has declined to remove the exemption after a Productivity Commission inquiry found that the cost of collecting GST and import duty on foreign internet purchases would exceed the revenue it raised. However, Mr Black said the inquiry had not taken into account the economic impact of job losses in the retail sector that would result if the exemption remained in place. "The flow-on effects of such massive potential job losses to the national economy but particularly local communities around the country will further entrench the disparities of the so-called patchwork economy," he said. "It is clear that the economic impact of inaction will have a far more devastating effect than the cost of compliance."

A number of Australian retailers including Harvey Norman, Myer and JB Hi-Fi have launched websites allowing customers to buy directly from offshore distributors in order to make use of the tax exemption. Woolworths chief Grant O'Brien last month said his fellow merchants simply needed to be more price competitive to win back customers from online rivals.

The NRA-commissioned report found online sales made up an estimated 4.9 per cent of all retail sales in 2011, but predicted that this figure would almost double to 9.5 per cent in 2015. Foreign retailers were expected to be the major beneficiaries, growing their share of Australian online spending from 43 per cent to 63 per cent over the next three years.

British retailer Aurora Fashions, the privately owned group behind high street brands Karen Millen and Coast, plans to start e-tailing directly into Australia from May 5 without having any bricks-and-mortar presence here. Group chief executive Mike Shearwood said yesterday that Aurora would introduce its much-vaunted 90-minute guarantee on delivery of online purchases into Australia later in the year. The service, launched last year in Britain, delivers the latest fashions within 90 minutes of orders being placed on its websites. Couriers collect from stores and deliver to customers, rather than products being shipped from a distribution hub.

"If your technology enables you to drive your web transactions into your store inventory, then you can do it," Mr Shearwood said on the sidelines of the Melbourne Fashion Festival business forum in Melbourne. "We will be looking to introduce it here towards the second half of the year. We are still working through the logistics. I would expect it to be based on the history of retail within Australia. There hasn't been the drive from the consumer or the industry to push the benefits of online to the consumer. Because real estate is relatively expensive, they want to keep the traffic through the stores," he said. "But as more international retailers come into the market through the e-commerce route, then they are having to react. They are going on a journey. You have a very sophisticated retail operation and consumer here. They will react and sort it out."

Myer last year relaunched its online store and is steadily increasing the available product range, while a version for mobile devices would be launched this year. The company has also pressed suppliers on "price harmonisation" to ensure it can sell products as cheaply as they can be bought online. "We're embracing the internet, we're going to be flogging online as well . . . who knows, we might be a threat to English or American retailers one day when we start to sell over there," Myer chief executive Bernie Brookes said yesterday. "The Australian move to e-commerce and omni-channel has been slower because we haven't come out of an environment of catalogue shopping like they did in the US and UK, where it has just moved online."

Mr Brookes said the large distances involved in delivering purchases in Australia and the relatively low 70 per cent access to broadband internet were also holding domestic retailers back. He said Myer was selling "quite a few million dollars online, and growing it each week at 300 to 400 per cent". Westfield is trying to help tenants in its shopping centres to better integrate their digital and physical shopping avenues by rolling out a number of products such as WiFi in its centres.

"What we want to do is work with the retailers so they can be represented in the digital space as well as the physical space. Bringing those two together so they have the best opportunity to attract the shopper," said Westfield's director of business development, Michelle Vanzella. "The trend in what we are doing in the centres and the types of investments we are making in the centres is to actually embrace that digital format. So whether it is things like WiFi in the centres or being able to search and find those retailers, their products, their offers, their specials, whether you are outside or on your mobile when inside the centre, or being notified of specials and offers that are relevant to you. We are embracing all of those technologies so the shopper can shop online or offline whenever they like."



The Sydney Morning Herald, 16 March 2012

Australia's challenging fiscal position has made "big bang" tax reform harder, says Treasurer Wayne Swan. In his address to the Tax Institute in Canberra, Mr Swan said the government was still on track to deliver a budget surplus despite uncertain economic times. But he warned major tax reform could be a challenge. "Our surplus will be delivered in spite of the global financial crisis ripping $140 billion from government revenues," he said on Friday. "But Australia's fiscal position, enviable though it is, does limit our ability to buy 'big bang' tax reform. "Gone are the days when tax reform is accompanied by big bribes that get communities or industries on board."

Mr Swan said Australia's economy was sailing through uncharted waters, as it navigated "unprecedented changes and big transitional pressures". "The key to our sound fiscal management has been a combination of prudent spending and sustainable tax policies," he said. This is a lesson that many European economies are learning too late." Meanwhile, Mr Swan said the business tax working group, tasked with finding ways of reforming the taxation system, will deliver its report on the tax treatment of losses in the next two weeks.

Australia lagged many other countries in giving businesses access to tax deductions on losses. In Germany, Ireland and the UK losses can be carried back to the previous year, while the US, Canada and France allow a three-year carry back, he said. "It may make sense for Australia to have a carry back period within this range ... perhaps with a cap, like many of these countries, to protect the integrity of the tax system," Mr Swan said.



Annabel Hepworth and Lisa McNamara, The Australian, 15 March 2012

THE fight over the meagre 1c cut to the company tax rate has reignited business calls for a far more significant overhaul of the tax system.  Greens leader Bob Brown yesterday reaffirmed plans to partner with the opposition to block Labor's proposed across-the-board cut to the 30 per cent company tax rate for big companies using funds raised through the new mining tax.


But as Labor tried to shift the blame for the uncertainty on to the Coalition, business called for more sweeping reform that included slashing the company tax rate to 25 per cent - the rate recommended by the Henry review - so that Australia could compete for investment and jobs with its international rivals. As well as urging the government to provide a simpler tax system, business accused the government of exaggerating the benefits of its tax reforms and attacked Labor's plans to link the company tax cuts to its planned minerals resource rent tax on coal and iron ore profits.


Figures from the Australian Taxation Office show that the tax burden is borne most heavily by big business, with almost two-thirds of company tax collected by government paid by 975 large companies, which between them pay $35.8 billion. But the general manager of policy at the Institute of Chartered Accountants, Yasser El-Ansary, estimated the average rate of company tax paid by corporate Australia was in the range of 23 per cent to 27 per cent, compared with the headline rate of 30 per cent.


Business argues that a simpler tax system would allow funds to be raised from a wider base paying lower headline rates.


Former banker and mining executive John Ralph, who led the Howard government's landmark 1999 business tax report, said Australia's tax system should be as simple as possible. "You can either aim to have something very simple or something that's not unnecessarily complex," Mr Ralph said.


Former Western Mining Corporation boss Hugh Morgan said it was "loopy" that the government wanted to tie company tax cuts to the MRRT as it was based on "the assumption that arises from Treasury that we are entering into a wonderland of long-term resource scarcity that enables the country to enjoy the fruits of abnormal profitability".


And former BHP Billiton chairman Don Argus - who was drafted to advise the government after Julia Gillard's mining tax compromise - said his personal view was that the funds from the MRRT should not be used to fund company tax cuts.


"Do I agree that's where these funds should be going? I don't. I believe we should have had in place some time ago, probably back in 2002, a measure that was capturing the resource boom and some of this money should have been going to investments such as infrastructure and similar necessary activities that this country needs, rather than a tax redistribution, which is what I see the current proposal as," Mr Argus said. He said Australia was "not a low corporate tax country" and that "if you're going to be competitive, that's one of the issues you need to keep an eye on, the corporate tax rate".


National Australia Bank and Woodside Petroleum chairman Michael Chaney said the company tax rate needed to be lower as the review by then Treasury secretary Ken Henry had concluded. "It is essential that Australia maintain a competitive economy and the corporate tax rate is an important element of that," Mr Chaney said.


According to OECD figures, Australia's headline company tax rate of 30 per cent is above the average of developed nations.


The comments by business came as the Prime Minister blamed Tony Abbott for her inability to gain sufficient support in the Senate for the tax cuts for big business. Ms Gillard refused to criticise the Greens, who said it would allow a cut in the corporate tax rate from 30 per cent to 29 per cent for businesses with turnover of less than $2m but would deny the cuts to big companies.


Under the draft legislation detailed yesterday by Wayne Swan, the company tax rate will fall from 30 per cent to 29 per cent for big business from 2013-14, a year after small business gets the same tax break. The tax cut would reduce the total annual corporate tax bill in 2013-14 by only $1.4bn to $80bn, a reduction of 1.8 per cent, while the early cut to small businesses with a turnover of less than $2m would cost the budget $200m.


Undermining the Treasurer's argument that the tax cut would assist businesses across the economy, Grant Thornton's national head of taxation, Mark Azzopardi, said that many companies would not pay the top tax rate as they used planning mechanisms that reduced their taxable incomes.


While companies might have a big accounting profit, after adjustments their taxable profit could have been reduced significantly. "And, of course, the 30 per cent tax rate applies to the taxable profit, not the accounting profit," he said.


The political situation has infuriated the business community, with Mirvac and Pacific Brands chairman James MacKenzie saying that a bigger concern than the Greens' "nonsense position" on the tax cuts was the position of the opposition "to all proposed tax reform". "Achieving meaningful reform requires bipartisan support, and a preparedness to prioritise the national interest above political gamesmanship. We are seeing none of that," he said. "If the opposition were prepared to engage maturely with the challenge of tax reform, we could be well down the path by now to a more meaningful reform package based around the Henry tax review."


Business Council of Australia chief executive Jennifer Westacott declared that the last-minute amendments being pushed by the Greens were a "reckless and economically irresponsible" way to make policy. "We remain opposed to the MRRT as a poor example of how to undertake major tax reform, but if its implementation is inevitable, it is essential for the strength of Australia's economy that the tax cut for businesses, large and small, is passed by the parliament," she said.


While investment in the mining sector was high, investment across the rest of the economy was falling and all businesses - especially those struggling with the high Australian dollar - wanted a more competitive tax system.


Mr Chaney said it made no sense to have a different tax rate for large and small companies. "Apart from the rorts such a system is likely to give rise to, large companies have just as much need to be competitive as smaller ones," he said.


Business leaders also said a one percentage point cut was inadequate. Toll Holdings chairman Ray Horsburgh, a business representative at last year's tax summit, said that a one percentage point cut was "around the perimeter". He said there had appeared to be consensus among government leaders about the need for tax reform at the summit and it's "a shame they are going to get blackmailed" now. "When I grew up, there was an old saying, you never give in to a blackmailer because he doesn't go away," Mr Horsburgh said.


A former BCA president Ian Salmon said that a one-point cut to the company tax was "just palliative" and while "it doesn't help many people, it might help a few - the amount involved is pretty well insignificant".


Tax experts also said that thousands of companies would feel little impact from the government's planned tax cuts.



Business push to speed up tax cut

Phillip Coorey, The Sydney Morning Herald, 15 March 2012

Business groups, including those which oppose the mining tax, are urging the Senate to pass the associated deductions in company tax, saying they are a vital economic reform. They issued their call yesterday as the government ramped up the pressure on the Greens and the Coalition, which will unite against the company tax cuts when the legislation comes before the Senate after the May budget. ''I never thought I would see the day that the Liberal Party would join with the Greens to vote against a tax cut for business,'' the Prime Minister, Julia Gillard, said.


The Opposition Leader, Tony Abbott, dismissed the criticism, saying that, if elected, the Coalition had its own plans to cut company tax but without raising a mining tax to fund it. But Mr Abbott appeared to walk away from his 2010 election pledge to reduce company tax by 1.5 percentage points. He refused repeatedly yesterday to recommit to that figure, saying only that a Coalition government would deliver a ''modest'' reduction.


This raised questions about the Coalition's paid parental leave scheme, which will be funded by a 1.5 percentage point increase in company tax for the nation's 3200 top-earning firms. If this increase goes ahead but the reduction for all businesses is less than 1.5 points, those 3200 firms will face an increased company tax bill.


A year ago, the Greens announced that while they would support the minerals resources rent tax, they were uncomfortable with the tax's proceeds funding a reduction in company tax from 30 per cent to 29 per cent. Consequently, they said they would support the cut for small businesses - those with a turnover of less than $2 million - but oppose it for all others. They said yesterday they would consider increasing this threshold to $5 million. At the time, the Coalition decided that although it opposed the mining tax, it could not be seen to oppose company tax cuts. But the Coalition will now vote against the tax cuts, for big and small businesses, in the Senate.


The small-business tax cuts are due to start on July 1 and those for bigger businesses a year later.


The chief executive of the Australian Industry Group, Heather Ridout, said the idea behind the original mining tax was to spread the benefits of the boom to the businesses that were losing out. The Henry tax review, in which Ms Ridout participated, recommended a company tax cut of 5 points to 25 per cent. Ms Ridout told the Herald the deduction was more than just a tax cut. It was a ''very important and very necessary reform'' and the Senate should ''get on with it''.


The Business Council of Australia opposes the mining tax and its chief executive, Jennifer Westacott, said the stand-off over company tax cuts ''highlights the pitfalls of developing tax policy on the run''. ''We remain opposed to the MRRT as a poor example of how to undertake major tax reform, but if its implementation is inevitable, it is essential for the strength of Australia's economy that the tax cut for businesses, large and small, is passed by the Parliament,'' she said.


Greg Evans, from the Australian Chamber of Commerce and Industry, said linking the tax cuts to the mining tax ensured they became a political football but the chamber wanted them implemented, despite their being smaller than business would like. Ms Ridout said that if the Greens prevailed, up to 100,000 companies would miss out on any tax relief.


The Senate will pass the mining tax legislation by the end of next week but the company tax cuts will be subject to separate budget legislation and are likely to be incorporated with other measures to help businesses cope with the pressures of the mining boom.




The Sydney Morning Herald, 15 March 2012

Prime Minister Julia Gillard has held open the prospect of further reducing company tax with business groups criticising the size of the latest cut. The government will trim the corporate tax rate for business from 30 per cent to 29 per cent using some of the revenue from the minerals resource rent tax (MRRT). Business groups have criticised the size of the cut, given that the Henry tax review recommended the rate come down to 25 per cent to boost investment and create jobs.


Ms Gillard told reporters in Canberra on Thursday the cent-in-the-dollar cut was a starting point. "I understand the case of business to have a lower company tax rate," she said. "But I would make this very simple point - you can't get to 25 cents in the dollar by not starting to bring the company tax rate down. The only way of hitting 25 cents, if that is what businesses want, is to start to be on a journey down in company tax and I want to start taking company tax down." Ms Gillard said the coalition wanted to stop the cut and force companies to pay more tax.



Peter Ker, The Sydney Morning Herald, 15 March 2012

CANBERRA created a ''disease'' when the government launched a new tax on mining profits, and that disease had spread around the world, according to a prominent goldmining executive. Perseus Mining managing director Mark Calderwood's comments follow Indonesia's recent rule change on mine ownership and his own company's battles with rising taxes in Ghana.


While Australia's mining tax, which is due to begin in July, does not affect goldminers, Mr Calderwood said Australia had to take some responsibility for the broader trend. ''This disease that started in Canberra is spreading … so you will see more and more of it around the world,'' he said. ''The new political risk is around taxes and royalties rather than security of tenure.'' Mr Calderwood said many countries had been emboldened by Australia's plan to increase taxes on iron ore and coal exporters that make more than $75 million profit a year. ''They [other nations] see that's where a government is getting away with it so it's hard to resist it,'' he said.


Ghana is reliant on funding from the World Bank and International Monetary Fund, and Mr Calderwood said he could only assume those organisations were sympathetic to bigger taxes on miners. Perseus expects to produce 225,000 ounces this year, with a profit margin of about $US900 an ounce if gold prices hold.


Meanwhile, many Australian companies remain uncertain over the full impact of Indonesia's proposed changes to foreign ownership in its mining industry. Rio Tinto was unable to comment yesterday on whether its Indonesian operations would be exempt from the new rules, while West Wits Mining said many aspects of the rules remained unclear. But BHP Billiton expressed greater confidence last night that its operations would be exempt.



The greens are proving that small is ugly

Rob Burgess, The Business Spectator, 15 March 2012

Progressive thinkers within the Greens Party will be scratching their heads at the nonsensical decision to oppose planned tax cuts for larger companies.


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


trusts 'tax haven for super rich'

David Crowe, The Australian, 14 March 2012

IN the wake of Gina Rinehart's dispute with her three eldest children, concerns have been raised in the Labor caucus about tax rules that benefit family trusts worth billions of dollars. Labor senator Doug Cameron attacked the use of trusts to help the "super rich" as he raised the issue in a federal caucus meeting, seeking assurances from Wayne Swan that the tax regime was robust enough to prevent abuse.


While the Treasurer made no comment on potential changes, the caucus move comes as Treasury officials consider significant changes to the trust rules. Treasury is preparing a policy design paper to be issued in May on tax laws applying to 660,000 trusts, amid anxiety that the changes could wipe out favourable tax treatment. Senator Cameron said the Rinehart affair increased his concern that the very rich were using trusts to avoid tax.


The Left faction co-convener said his Labor colleagues had backed his decision to speak up yesterday and their concerns would be raised with Treasury and the Australian Taxation Office.




small tax creates big government headache

Heather Ewart, ABC Online, 14 March 2012

With the Greens and Coalition opposing it for different reasons, the Federal Government's proposed cut in company taxes is facing difficulties, but why?


Read the transcript or watch the report at the 7.30 website.


Abbott refuses to recommit to tax cut promised at last election

James Massola and Sid Maher, The Australian, 14 March 2012

TONY Abbott has refused to recommit to a 1.5 per cent business tax cut promised at the last election as Julia Gillard attacked the opposition over its refusal to back a 1 per cent cut to the company rate funded by the mining tax.  The stoush came as Greens leader Bob Brown confirmed his party would oppose small business tax cuts unless Labor agreed to lift the definition of small businesses to those with a turnovers under $5 million - up from the current $2 million threshold.


Mr Abbott deflected criticism of the Coalition's decision to oppose Labor's business tax cut, promising a "modest" cut for business and arguing the government cut was a con. "It is the Coalition's commitment, our strong policy to deliver a modest company tax cut at the next election and all our policies will be fully funded," he said. "We took a 1.5 per cent cut to the last election; there will be a modest cut that we are taking forward at the next election. A tax cut paid for a by a tax increase is not a cut, it's a con."


In a fresh pitch to the traditionally Liberal constituency, the Prime Minister today announced a new small business commissioner. She said the "one stop shop" would provide direct support to the nation's 2.7 million small businesses. Ms Gillard said she was "truly surprised" at the opposition's refusal to back company tax cuts. "I never thought I would see the day when the Liberal Party would join with the Greens and oppose a tax cut," she said. "We were entitled to believe Mr Abbott's statements last year, that he was going to back in these company tax cuts." The Prime Minister said the small business commissioner would be appointed in the second half of this year, and would be up and running from January 1 next year. "It can be so much harder for small businesses to have their voices heard," she said.


The Greens are refusing to back Labor's mining tax-linked tax cuts for larger firms. But Senator Brown said the Greens would support tax cuts for small businesses if the definition of a small business was revised up to $5 million. He said small businesses were where the jobs were in Australia, and that they should benefit from the tax cuts. But he said Australia, as a low taxing country, should prioritise areas such as education rather giving the big end of town a tax break.


tax cuts party will end badly

David Uren, The Australian, 14 March 2012

BIG personal income tax cuts are coming on July 1 as the compensation package for the carbon tax package is rolled out.


Tony Abbott is promising he too will deliver personal tax cuts, without first raising a carbon or mining tax, in the Coalition's first term of government, declaring "tax cuts are in our DNA". The present financial year is in fact the first since 2002-03 in which the public has had to go without an annual dose of tax relief, so the entitlement to personal income tax cuts seems to form part of the gene pool of both sides of politics.


At the end of February, President Barack Obama announced a new plan for corporate tax reform. The more you think about it, the more questions arise.


Read the rest of the article via subscription on the Australian website.



Will Hutton, The Observer, 11 March 2012

It's the run-up to budget day and the familiar battle lines are drawn, only with much more urgency, given our national plight. The Tory right aches for shock-and-awe tax cuts; the Lib Dems want to take more low-paid people out of tax altogether, paid for by a mansion tax on properties worth more than £2m.


The argument will rage right up to the moment the chancellor troops off to the House of Commons on 21 March to deliver one of Britain's economic and political setpiece moments. The best guess is that Mr Osborne will find an expedient compromise – tax cuts for the poor and withdrawal of tax concessions for the rich as they build up their pension pots. His party will veto any tax increase on the rich's property. On the day, it will be greeted as clever while keeping the overall strategy on track; then the economic caravan will move on.


But the cumulative impact of the budgets of our postwar chancellors, all as tempted by political expediency as Mr Osborne, has left Britain with one of the most irrational and unfit-for-purpose tax systems in the world. It's a system riddled with exemptions, cliff-edge withdrawals of allowances, wild step-changes in effective tax rates and irrationalities that hold back investment and enterprise.


Equally, the notion that the key tax change to transform our prospects might be found in reducing the top rate of income tax to 40% – symbolically, it is argued, a sign that the government is on the side of "wealth-generators" – is but another indication of the baleful lows to which our national debate about tax has sunk. A real shock-and-awe budget would be from a chancellor who arrived at the dispatch box determined to reform the system from top to bottom – attacking with intent the vested interests behind all the crazinesses.


In fact, the outlines of what such a reforming chancellor might do were recently set out in an extraordinary review of the tax system led by Sir James Mirrlees of Cambridge University for the Institute for Fiscal Studies. Published last autumn after nearly five years' work, it has received far less attention than it deserves since it is the most comprehensive and devastating indictment of the current situation.


Part of the problem is that Mirrlees wants to change so much that one's head spins: substituting congestion charges for petrol duties; taxing gifts over a lifetime rather than just on death; creating a land value tax; removing the myriad exemptions from VAT; protecting normal rates of return for businesses from being taxed; shaking up property taxation from top to bottom. And that is not all.


I don't agree with every proposal. For example, Mirrlees and his team too airily dismiss national insurance as having lost its purpose as a social insurance system, so that it is no more than another tax and should be treated as such. That's partly true, but how about investigating how social insurance could be resuscitated rather than burying an important principle? Social insurance is the best way of legitimising a welfare system; its erosion should be resisted to the last. But for the main part it is hard to disagree with Mirrlees.


If Osborne were minded, there are three ideas he could pursue aggressively that could make a real difference to Britain's recovery prospects. The first is on business taxation. Interest on debt is allowable against tax, one of the reasons, as everyone acknowledges, that debt levels have grown to such enormous levels, precipitating the financial crisis. Borrowing to mobilise resources for investment makes sense; borrowing as financial engineering, favoured by the tax system, is another incentive to financial instability and short-termism. As Mirrlees says, there are two ways forward: either remove the tax relief on debt or, more interestingly, create parallel tax relief on profits. Normal rates of return that companies make on their trading should be free from tax, as should normal rates of return that savers and investors achieve, including investing in companies.


Instead of then having a tax system that favours debt-financed takeovers and asset-stripping, Britain could create a tax system that allows companies to build up their risk capital along with the investment flows to support them. Imagine how amazing it would be to live in a country in which 500 businessmen and women wrote letters to the press urging such a change rather than self-interestedly pleading for a cut in their own personal taxation, as they did last week! I dream…


Next up is taxation of property. The British pay council tax on property values unrevised since 1991 – with New Labour typically never finding the political courage to launch a revaluation and thus higher, unpopular council tax bills. A mansion tax is all very well, but if it is based on 1991 valuations it will hardly bring in any revenue. Instead, Mr Osborne should announce a revaluation of the country's entire housing stock and levy a tax paid in proportion to the new valuations; council tax should be renamed as the housing services tax. To raise sufficient revenue, it would be pitched as an annual 0.6% tax on every property; as a result, homes below £250,000 would pay less tax than now, taking the political sting out of the revaluation.


He should also introduce a land value tax on business and agricultural property; the principle is that as land becomes more valuable because of its business use, so it should attract more taxation. As a partial quid pro quo, suggests Mirrlees, the chancellor should abolish both stamp duty on property transactions and business rates. Business would thus pay tax on the genuine increase in the value of the property and land it is using; home owners on the real value of the housing services they consume – and the Treasury would still be ahead.


Last, he should remove the innumerable exemptions from VAT, especially on financial services; here, a new financial services tax should be introduced. Part of the proceeds should be used to lower the VAT rate and part to increase benefits for the less well-off as compensation for the loss of the exemptions, a highly effective economic stimulus. In later budgets, Mr Osborne or his successor could tackle environmental and petrol taxes.


But in 2012, the priorities are raising business investment, reorganising the entire system of property taxation so the rich pay their proper share and stimulating the economy through lifting consumer demand – and all as part of a root-and-branch reform of the tax system. That is what Mr Osborne could and should say on budget day. Be sure he won't.



Peter Martin, The Sydney Morning Herald, 08 March 2012

Much weaker than expected company tax collections have forced the government to embark on a new round of budget cuts, prompting the Treasurer, Wayne Swan, to declare this year's budget will be "in some ways the hardest of them all". The warning came as the Treasury boss, Martin Parkinson, told a business audience tax collections had fallen 4 percentage points since the global financial crisis and were not expected to recover "for many years to come". "Indeed, for both levels of government surpluses are likely to remain at best razor-thin without deliberate efforts," he told the Australia-Israel Chamber of Commerce in Sydney yesterday.


Mining companies were paying much less tax than expected, providing one-fifth of all company profits but paying just one-tenth of all company tax, primarily because of depreciation deductions flowing from the investment boom. Mr Swan committed himself to announce a budget surplus on budget night no matter how weak the revenue, saying a surplus would send a "very clear message to the world that Australia is in good nick".


Yesterday's national accounts showed company tax revenue up 4.5 per cent over the first six months of the financial year. The May budget had forecast an increase of 29 per cent over the entire year, revised down in November to an increase of 21 per cent. Mr Swan said company tax collections were increasing, but "not consistent with where we expected them to be increasing to". ''They are already down on what we had forecast, of that there is no doubt," he said.


Losses accumulated during the global financial crisis were being used to cut current taxable revenue, "impacting severely on revenues, and more severely than the Treasury had forecast". Asked to quantify the spending cuts or tax increases that would be needed to deliver the promised surplus, Mr Swan said it was too early to say. He had no doubt state budgets were also weak. The national accounts show the economies of Western Australia and Queensland racing ahead while those of NSW and Victoria barely grow and South Australia and Tasmania go backwards.


In WA and Queensland, state final demand, a key measure of economic growth, grew 11 and 10 per cent in the year to December. Demand in NSW and Victoria grew 2 and 1.6 per cent. National economic growth of 0.4 per cent in the December quarter and 2.3 per cent over the year to December is well below the most recent Reserve Bank forecast and well below the long-term trend, which Mr Swan defined yesterday as 3.25 per cent.


"It certainly does reflect patchiness in our economy and pretty rugged global economic conditions at the end of last year," he said. "There's no doubt these numbers will have a detrimental impact on our budget bottom line. "Having said all that, there is nothing in these numbers that deters the government from bringing down a surplus in 2012-13, although obviously this makes that task more difficult. When you consider the very severe turbulence and weak global conditions that marked the final months of last year, the result is pretty solid in the circumstances."


The government's expenditure review committee, unofficially known as the razor gang, has already started looking for cuts. One unknown is the extent of the damage on the economy caused by the floods. Parts of NSW and Victoria are still under water. Mr Parkinson said capital gains tax collections had been "hit hard" following the financial crisis. GST collections were suffering from more cautious household spending, and non-mining tax collections were suffering at the hands of the high dollar. "With muted growth in tax receipts projected for much of the next decade, Australia will need significantly greater expenditure restraint in the decade ahead than was seen in the first half of the 2000s," he said. By 2050 Australia would have only 2.7 people of working age for every person aged 65 or over, down from five people today, making the task of collecting tax and the need for tax much greater.



Jacqueline Maley, The Sydney Morning Herald, 08 March 2012

People who pledge donations to arts organisations in their wills should enjoy tax breaks while they're still alive, according to a government-commissioned review of private arts philanthropy in Australia. Arts companies should also seek donations through ''crowd-sourcing'', where lots of people are asked to make small donations, and the government should set up ''matched funding'' programs where it mirrors every dollar donated from private coffers.


The government should also help with micro-financing small arts groups that cannot get bank loans, recommends the report's author, Harold Mitchell. ''The baby boomer generation are the ones with a bit of wealth, but in their wills, only 7 per cent have allocated a bequest,'' Mr Mitchell said. ''We need government to begin the conversation of 'Give while you live'.''


The Mitchell review was a 2010 election commitment by the Gillard government to identify ways the government could encourage the private sector to donate to the arts. The report states it is ''the government's role to establish the conditions within which private sector support for the arts can flourish''. Private support for the arts has almost doubled in the last decade, according to the report, increasing 98 per cent from $111.6 million in 2001-2002 to $221 million in 2009-2010.


But Australia has a long way to go before it matches the arts philanthropy efforts of the Americans, who are encouraged to give generously by tax breaks and the prestige accorded to major arts donors.


Mr Mitchell recommends giving greater recognition to donors, through letters of thanks from the Prime Minister, and says ministers should attend arts events, to lift the profile of the arts and make it more attractive to donors. ''A visit to the Opera House every now and then is not such a bad thing anyway,'' he said. The review included a social analysis from Hugh Mackay, who wrote about the importance of using digital technology and social media to engage a younger generation of donors.


The Arts Minister, Simon Crean, said the government would consider the recommendations as part of the development of the National Cultural Policy, due around budget time. Mr Crean, who, during the recent leadership spill, was very vocal in his advocacy for Prime Minister Julia Gillard, declined to speak to the Herald about the review's findings.



Rebecca Le May, The Sydney Morning Herald, 08 March 2012

Many Australians are incredulous that a miner as big as Fortescue Metals Group has only just started paying company tax. However, the situation is not that unusual in the mining industry where big profits can be countered by a raft of taxation offsets. Fortescue has a market valuation of more than $17 billion and is Australia's third largest iron ore miner, and came under fire last year when it revealed it had not yet paid company tax. But it's not alone.


Almost 4,200 mostly West Australian and Queensland-based companies identify as being in the mining industry but only 1,200 or 28.5 per cent pay tax, according to the latest available figures from the Australian Taxation Office. The reason is straightforward: if you're not yet making a taxable profit, you don't have to pay company tax. And even if you are making a taxable profit, investment-related depreciation claims can outweigh the profit and remove the need to pay company tax.


Mining companies can deduct from their tax bill any fall in value of their depreciating assets, exploration expenditure, some infrastructure expenses and costs associated with mine-site rehabilitation. And because the mining industry is capital intensive - spending way more on infrastructure and equipment than it ever does on wages for staff - it means it extracts an above-average advantage from such provisions, and the Tax Office recognises that.


Fortescue would also argue that it has spent billions of dollars developing ports and railway in Western Australia's Pilbara region, which has also been to the benefit to the broader economy. The infrastructure that Fortescue has built can be used by rivals but only on commercially attractive terms, of course. Fortescue has until recently not been liable for company tax because it ran at a loss between 2003, when it was established and 2009, which was a year after it commenced exports.


The miner, founded by one of the nation's wealthiest individuals Andrew "Twiggy" Forrest, paid its first company tax bill of $140 million in December last year. It expects to have incurred almost $800 million in company tax by the end of this financial year. Fortescue is still investing in infrastructure to help expand production but its company tax bill is expected to double in 2012/13 as its profits continue rising.


Independent business analyst Peter Strachan said Fortescue's tax situation was not unusual and it was simply being misunderstood. He said the company was not receiving any more generous tax offsets than any other company in the industry, merely deducting what it was entitled to deduct. The Tax Office says its depreciation rules are not specific to the mining industry. "They're not generous - they are just what everyone else gets," Mr Strachan told AAP. Feasibility studies, market research, geological engineering - all of these things are important to get a project up and running and of course are tax deductible."


Mr Strachan conceded that some mining companies never got past the exploration stage and didn't become producers, so the productivity of their activities was sometimes questionable. While the potential rewards were great, mining was, by nature, a risky and costly business, so these companies needed tax concessions, he said. "Western Mining went for 30 years before they found anything," he said. That company went on to be taken over by the world's biggest miner, BHP Billiton, for $9.2 billion.


The mining sector now accounts for 23 per cent of all company tax collected in Australia, up from eight per cent in the decade to 2004/05, which was surprisingly low given the sector's boom was starting then, the Australian Treasury said in a report.



Michael Owens, The Australian, 07 March 2012

WAYNE Swan has come under attack from South Australian Labor Treasurer Jack Snelling over moves to penalise states that raise their mining royalty rates.  Mr Snelling yesterday joined Liberal state treasurers in NSW, Western Australia and Victoria in sending a protest letter to the federal Treasurer about possible changes to the distribution of GST revenue between the states. His letter comes more than three months after Mr Swan first wrote to Mr Snelling about expanded terms of reference for a review of the GST carve-up, and a month after other states set out their concerns in correspondence to Canberra.


In his letter, Mr Snelling said he was concerned that changing the way GST revenue was distributed could "potentially undermine the integrity and objectives" of ensuring that each state had the capacity to deliver a similar standard of services, irrespective of their economic or demographic characteristics.  "I also believe that the introduction of penalties is a direct infringement on the ability of the states to adjust royalty settings to meet budgetary needs or to fund state initiatives," Mr Snelling wrote. I do not believe that the current arrangements do provide disincentives for states to engage in reform of state taxes."


The broadside from state Labor coincides with Mr Swan's attack on the nation's top mining billionaires over their opposition to his minerals resource rent tax. A spokesman for Mr Swan said yesterday former premiers Nick Greiner and John Brumby and former South Australian Economic Development Board chairman Bruce Carter were continuing to review the distribution of GST revenue. "The Treasurer has asked the GST review to examine state taxes and whether the current arrangements provide a disincentive for state tax reform as a whole," the spokesman said. "This includes examining the state-based royalty system -- a system that unfairly hurts smaller miners -- in the context of the minerals resource rent tax. Under any changes that might be considered by the government, we will ensure GST is distributed in a way that is simple, fair and predictable."


Mr Snelling pointed to a study by a modelling firm, Independent Economics, that warned changing the distribution model could leave a $1 billion hole every year in the South Australian budget. He said the modelling showed he would have to raise taxes by 10.9 per cent and the state's population would fall by 3.4 per cent as people moved to less expensive states, while per capita living standards would be lower in all states.



Simon Jenkins, The Guardian, 06 March 2012

George Osborne has the right instinct on tax. Get some sanity into child and housing benefit, relieve taxes at the bottom and, at the top, tax wealth rather than income. If so, there is no time like the present. The chancellor should drop the unloved 50% band of income tax and go for property. Housing is the most inefficient, mal-distributed, under-taxed and therefore overpriced asset in the land. Tax it properly, with something in return.


Britons live more lavishly than any other big nation in Europe. More live in houses not flats, more have private gardens and more are home owners not renters. They also pay the lowest local taxes. What they do pay is a cockeyed, regressive, un-buoyant council tax, based on property valuations that bear little relation to actual or differential price. The top H band of council tax in the richer parts of the south-east embraces almost half of home owners. It is, in effect, a poll tax.


Year after year the last Labour government funked revaluing England's council tax bands, meekly fearing that losers might howl louder than winners. The Welsh were bolder, revaluing in 2005 and now getting the benefit. Council tax on an I-band house in Gwynedd is higher than on a sheikh's palace in Kensington (£2,870 against £2,158).


The Liberal Democrat answer is Vince Cable's £2m mansion tax, an impost with built-in political impossibility. It is swingeing, posited at £20,000 a year per mansion. It has a blatant cliff-edge effect, excusing houses just below the threshold yet savaging those above it. It evokes the "granny tax" protest, lacks regional variation and is merely a top-down fiscal wheeze to avoid the odium of rate revaluation.


Meanwhile council tax remains the fiscal Cinderella, a miserable drudge of a thing, abused, beaten and kept in the localist broom cupboard. It was conjured into being by John Major's government in 1992 to purge the Tories of the stain of poll tax, while somehow pretending it was not a reversion to the rates.


Council tax is unfair. Whereas under rates, the ratio of lowest to highest house valuation was roughly 1:100, the spread of the eight council tax bands is merely 1:3. The highest H band was £320,000 at 1991 prices (up to an average of £950,000 today). The bands have never been adjusted, while a growing sense of unfairness leads all governments to curry electoral favour by "freezing" council tax in favour of stealth taxes. The whole saga epitomises Britain's political cowardice.


Osborne should follow gutsy Wales and introduce new upper bands that reflect the rise in house prices since the 1990s. He could do it now. Only the existing H band would need revaluing, and could be graduated in three stages to whatever value he chooses. The actual tax paid per band would still be determined by local councils. The allocation of properties to the new bands by currently under-employed estate agents would be no big deal. It must anyway be undertaken one day.


Property is the easiest of all assets to tax because it the most visible, most recordable and most unavoidable. The private housing lobby is already hollering about losers, crying that any new top bands will "unfairly target the income-poor and equity-rich". This is like worrying about people who own Rolls-Royces they cannot afford to drive.

The genteel poor may use inherited property inefficiently, but there is no reason for not taxing them for doing so. I cannot plead to be excused taxes because I get little benefit from them. The government is now proposing to "tax" housing benefit to reflect the number of rooms recipients leave unoccupied, and to discourage them from living in expensive properties. Taxing the living space of the rich is hardly unfair.


Another group of much-bewailed losers is foreigners, many of whom pay neither taxes nor stamp duty. They can lump it. On one estimate, some 100,000 UK properties are now parked in offshore tax havens, which must comprise the bulk of the 155,000 houses in England and Wales thought to be worth more than £1m. Why Gordon Brown left in place this massive tax loophole, costing some £1bn a year, is a mystery.


Nor are Britain's property taxes particularly high. New York's are fixed at between 1% and 2% of value. Westchester County's median property tax is $8,474, roughly three times the top rate in London's Kensington. Many New Yorkers pay $20,000 to $30,000. These can be partly offset against other taxes, but taxes they remain.


There is another reason for raising taxes on property across the board. The biggest unexploited – and "greenest" – housing resource in Britain is empty and under-occupied property. There are empty rooms over shops, frozen by planning control. There are empty "offshore" mansions in central London. There are low plot ratios under urban renewal and more vacant commercial sites than ever. Britain is wasteful of residential land. An estimated million vacant homes are said to lie hidden within the urban and suburban landscape of Britain. Osborne is right to regard planning as one inhibitor of bringing them into use. Tax relief on residential lets would also help.


The key here is to use the tax system as an aid to urban growth, properly so called. City sprawl is now a Europe-wide problem, with car-intensive building in the countryside increasing by 20% since 1980 to meet a population rise of just 6%. It may be impossible for a free market to "monetise" the value of open country for leisure and recreation, but it obviously makes sense to direct taxes at ensuring developed land is used more efficiently. We should tax its extravagant use and relieve taxes for public benefit.


There is no denying the political price in progressive property taxes. The rich will pay more. But that price could be balanced by abandoning the 50p income tax band, which history suggests will raise little extra money. The net increase in revenue from council tax could then be diverted to the Liberal Democrat goal of a higher basic tax threshold. Each of these fiscal changes should yield pleasure somewhere on the political spectrum, while also delivering the chancellor a possible rise in overall revenue.


Those who champion fiscal reform get precious few moments on stage. They no sooner start their song than they are deafened by cries of political expediency. This time the politics could just be in their favour. Might someone listen?



Tony Negline, The Australian, 06 March 2012

IT'S time the government did something serious about excess contributions tax. Last week, Financial Services Minister Bill Shorten announced a plan to provide a once-only concession for people with excess contributions below $10,000. It's a start but a long way short of what really needs to be done to fix this mess.


I'm told that some bureaucrats have expressed the view that this tax is only ever paid by the "rich".


On the face of it, this might be a reasonable view given fairly sizeable super contributions have to be made before the tax kicks in. However, it is a bit much coming from people who are specifically exempt from this tax because it doesn't apply to their defined benefit public sector-super schemes. Their benefits are taxed when paid out of the super system. The simple reality is that this penalty tax is paid by people who in no way could be considered wealthy.

There's another reason as to why the ECT and the way it's collected is a mess -- super administrators are spending a fortune administering it. Every super fund member -- including the deserving poor -- gets lower super balances as a result.


Let me give an example as to how unusual the ECT system can be. A super fund member, whom we'll call Mary, contributed $45,000 in concessional contributions which she intended to claim as a tax deduction and $250,000 in non-concessional contributions in the 2008 financial year as she took steps to prepare for retirement. The $250,000 contribution was designed to use the three-year-in-advance rule that can apply for non-concessional contributions if you're under 65 when that contribution is made. The $45,000 was below the $50,000 concessional contribution cap that applied at the time.


Mary is no fool but English isn't her first language. Because she didn't quite understand the terminology used on her retail super fund's paperwork, she told them that she intended to claim the $250,000 contribution as a tax deduction. The super fund should have contacted her to check if she had told them the right information.


As required by law, the super fund passed Mary's contribution information on to the Tax Office which sent Mary a bill for $63,000 for excess contributions tax. This is 31.5 per cent tax on $200,000 -- her supposed contribution above the then concessional contribution cap. The fund had also taken out 15 per cent on the $250,000 contribution, or another $37,500 in tax. She should have paid 15 per cent of $45,000 that is, $6750. Only $93,750 too much!


Mary asked her super fund to change what they had reported to the ATO but the fund refused. She complained to the Superannuation Complaints Tribunal. During a conciliation meeting, the fund claimed it couldn't do anything but suggested Mary should apply to the ATO for a private binding ruling asking the ATO to agree to change its records and reflect what took place. The fund offered to write a letter to support her ruling application.


I was chatting to Mary's financial adviser about other matters when he mentioned her situation. He was disappointed and thought he had exhausted all avenues to fix the situation. I offered to look into it but said I couldn't promise anything. It didn't ring true that incorrect reporting couldn't be reversed even if it happened several years ago. It's a difficult and time-consuming process for the super fund to reconcile its records but it can be done.


After a few phone calls and emails, my contacts within the super fund had sorted Mary's problem out. They accepted that she had completed her initial information incorrectly and agreed to re-report the right data to the ATO. Mary now has the $93,750 in additional tax refunded.



Adele Ferguson, The Sydney Morning Herald, 05 March 2012

The imminent release of a new muscled-up retrospective tax after pulling off legislation by media release to crack down on tax avoidance loopholes smacks of a desperate grab for cash by the federal government as it prepares for an election next year. The Gillard government's obsession with raising money became palpable when powerbroker Mark Arbib, on his last day in political office, issued a media release warning of a change to the law on tax avoidance - effective immediately.


While it has long been known that the government's chief revenue collector, the Australian Tax Office, was concerned about the tax avoidance laws after losing a string of cases over the past couple of years that blew a $1 billion-plus hole in its budget, the rush to get these laws through without proper consultation speaks volumes about its motives.


In the case of the tax avoidance legislation, Arbib released the plan in one of his final acts as assistant treasurer, despite two weeks earlier saying: ''This is a complex issue and the government will consider today's judgment and its implication for the tax system.'' His comments came after the Tax Office lost a $350 million case against James Hardie Industries. In the past two years, it has lost a string of cases that have cost it more than $1 billion. The cases include Foster's, which cost it $390 million; BHP, $550 million; AXA Asia Pacific Holdings, $383 million; Macquarie, $95 million; and most recently, James Hardie.


The upshot is that within the space of a month, the business community will face the spectre of two pieces of tough new tax laws that will raise billions of dollars in revenue for the government. It follows two other retrospective tax law changes, one involving the petroleum resource rent tax, backdated to 1990, and the other relating to tax consolidation laws, backdated to 2002.


In the case of consolidation, the government introduced legislation last June that had the unintended effect of allowing a company that had bought rights to future income, or to other revenue assets, to deduct that part of the purchase price relating to that future income. The legislation has been nuked after an estimate of the cost to revenue by the Board of Taxation in May last year was $30 billion in claims, leading to a $10 billion impact on the budget bottom line.


The changes to transfer pricing and anti avoidance, or Part IV(A), will be wide-reaching. Clayton Utz partner Niv Tadmore said, "The combined impact will be material, whether it is a major restructure, private equity investment, a mergers and acquisitions deal, or cross-border intra-group dealings.'' In the case of retrospective transfer pricing legislation, effective from July 1, and backdated to 2004, it will have the potential to raise billions of dollars in extra tax revenue 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. All of this suggests the government is sending a signal to big business that the days of minimising tax are over.


On a philosophical level, it ties in with the controversial essay by the Treasurer, Wayne Swan, in the most recent edition of The Monthly, which outlines the growing disparity between the rich and poor, and how they use their wealth and power to shape the agenda and get a bigger slice of the economic pie. ''For every Andrew Forrest [founder and major shareholder in iron ore group Fortescue Metals] who wails about high company taxes and then admits to not paying any … the vast bulk of the resources industry is in the cart for more efficient profits-based resource taxation, which serves to strengthen our entire economy." He argues, "I fear Australia's extraordinary success has never been in more jeopardy than right now because of the rising power of vested interests. This poison has infected our politics and is seeping into our economy. Though these vested interests have not yet prevailed, every day their demands get louder."


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 Tax Office 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 didn't pay tax. Of those 40 per cent, one in five 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.


Cranking up the scrutiny on big companies is a vote winner, particularly when it is aimed at companies that pay minimal tax or whinge about the tax they are paying, such as the mining companies.


As the election gets closer and both sides of politics need a weapon to differentiate themselves to try to win over an electorate that has become disenchanted with politicians, using the Tax Office, big business and the 0.01 per cent of the population who own billions of dollars just might evolve into the beginnings of a key plank in what would otherwise be another boring election campaign.




Barry Fitzgerald, The Australian, 05 March 2012

CALLS by Greens leader Bob Brown for the Gillard government's proposed mining tax to be extended from coal and iron ore to gold are based on misleading and incorrect information, according to a leading industry consultant.  Yesterday Surbiton Associates director Sandra Close accused the Greens of being either naive or trying to "inflate the gold industry numbers, so they can justify their claims for what tax it might yield". Melbourne-based Surbiton has been monitoring production by the local industry and its levels of foreign ownership for decades.


Last month, Senator Brown said that gold's exclusion from the mining tax would be a "significant drain on revenues".

He said that the industry was 81 per cent foreign owned and that an "indicative" estimate of mining tax revenues from gold was $840 million over the forward estimate period and $1.8 billion over the next 10 years. Dr Close said it was "clear that the Greens have little understanding of the gold industry and they don't even seem to appreciate that gold is at the other end of the scale to the bulk commodities of coal and iron ore". She said the Greens' estimates of the size of the Australian goldmining industry and its degree of foreign ownership were inflated. "Their figures were a ridiculous basis on which to formulate taxation policies," she said.


Surbiton estimates foreign ownership at 60 per cent.


"The Greens assumption that the size of the local industry is equal to the amount of gold exported is crazy, because Australia imports, refines and re-exports a large amount of gold which has been mined in other countries," Dr Close said. Dr Close was speaking at the release of Surbiton's survey of Australian gold production. Output was fairly steady last year despite prices rising to record levels.


In the December quarter, mine production totalled 65 tonnes (2.1 million ounces), down 1 per cent on the preceding quarter and about 6 per cent lower than in the previous corresponding period. The December quarter output took production for (calendar) 2011 to 264 tonnes (8.5m ounces) of gold, worth about $13.5bn at current spot prices.  The production effort was two tonnes fewer than in calendar 2010 and was enough for Australia to retain its position as the world's second-biggest gold-producing nation behind China (more than 300 tonnes) and ahead of the US (240 tonnes). Industry heavyweight South Africa gave up the No 1 position in 2006. "It was a good year for gold in 2011 with the price rising to record heights by August and September in both Aussie and US dollar terms," Dr Close said. "Although it has see-sawed since, it is still well above the price it was a year ago."


The top five mines last year were the Kalgoorlie Super Pit (796,000 ounces, Newmont/Barrick, Western Australia), Boddington (742,000 ounces, Newmont, WA), Telfer (554,779 ounces, Newcrest Mining, WA), St Ives (464,546 ounces, Gold Fields, WA) and Cadia (344,581 ounces, Newcrest Mining, NSW).



Anna Bernasek, The Australian Financial Review, 03 March 2012

At the end of February, President Barack Obama announced a new plan for corporate tax reform. The more you think about it, the more questions arise.


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



David Crowe, The Australian, 02 March 2012

THE Gillard government moved last night to protect billions of dollars in federal revenue by toughening tax avoidance laws, sparking fears it was rushing to crack down on business without fair consultation.  Mark Arbib released the plan in one of his final acts as Assistant Treasurer, delivering a surprise to tax experts who were expecting greater discussion before the government chose to amend the law. The changes come after a series of courtroom defeats for the Australian Taxation Office in its efforts to clamp down on big corporate deals it described as tax avoidance schemes.


Senator Arbib said the government would introduce amendments this year to toughen Part IVA of the tax law, which was introduced in 1981 to stop corporate schemes where the primary purpose was to generate a tax benefit. "Without Part IVA there would be significant scope for taxpayers to simply plan their way around the intended operation of the tax law, significantly undermining its integrity," he said in a statement.


Tax Institute senior tax counsel Robert Jeremenko said the changes could affect every taxpayer. "In rushing to change the law without proper consultation, there's a danger that the ATO will gain extra powers that they can use against anyone. And that has huge ramifications," he said last night. Consultation would normally be conducted across many months before deciding whether to change the law. "You'd expect consultation that did not have at the outset a statement that they're going to legislate," Mr Jeremenko said. "It sounds like they've already made up their minds, and that's dangerous."


Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, said the government was over-reacting to a problem that did not threaten the budget. "Australia's anti-avoidance regime is already one of the toughest in the world," he said. "It's already robust enough to capture contrived transactions." Mr El-Ansary said it was impossible to estimate the impact of Part IVA on tax revenue because it depended on the nature of future corporate transactions. "I'm less than convinced that there's a fundamental problem here. And I'm not convinced that there's a trend emerging in litigation that represents a fundamental threat to the budget bottom line.




The Australian Financial Review, 27 February 2012

Trustees of two super funds may pull a planned multibillion-dollar merger if they fail to obtain tax relief in the most public sign yet that actions by the Gillard government are impeding consolidation.


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


Western Australia's fury at plunge in GST share

Annabel Hepworth & Paige Taylor, The Australian, 25 February 2012

WESTERN Australia has forecast that its share of the GST could plunge to 27c in the dollar within four years after it was hit with the biggest cut in the history of the carve-up of $51 billion of goods and services tax revenues.  The drop in the resource-rich state's share of GST revenue from 72c to 55c next year sparked accusations that the federal government was holding back the resources sector that underpinned the national economy.


Western Australia's GST grants would be slashed by a record $598 million in 2012-13 after the Commonwealth Grants Commission yesterday recommended its share of the GST pool be slashed because of the boost to its budget from growing mining royalty revenues and payroll taxes as jobs and wages surged. The move prompted Western Australia to claim that because of the cut to 55c, WA Treasury's preliminary modelling suggested that it could get just 27c for every dollar in GST paid by West Australians by 2015-16. It also renewed the acrimonious debate between the states over the GST carve-up.


Premier Colin Barnett said: "I think every West Australian knows we are just being dudded out of Canberra. It's a disgrace what's happening." Mr Barnett said the figure meant "there basically is no commonwealth-state financial relationship". "They (Canberra) become a very minor funder of services in Western Australia," he said.

West Australian Treasurer Christian Porter seized on the figures to demand urgent reform of the GST formula and warned that the cut would "severely constrain the state government's ability to continue investing in the infrastructure and services needed to grow WA's resource sector, which is propping up the national economy".

Wayne Swan's office yesterday defended the system, saying the CGC was an "independent umpire" and that state and territory treasurers could discuss the matter at the Standing Council on Federal Financial Relations meeting later this year.


South Australia Treasurer Jack Snelling said the cut to WA's share of the GST reflected its "enormous" revenue capacity from mining. "We believe it is only fair that everyone receives a benefit from the nation's mineral resources," Mr Snelling said. CGC chairman Alan Henderson said the cuts to WA's share would be allocated to other states and territories, "giving them all the same capacity to deliver services and gain some of the benefits of the mining boom".


Yesterday's proposals would leave NSW, WA and Tasmania with a smaller slice of the GST pool. Queensland will get an extra $1.3bn in GST grants as the CGC suggested the state should get $541.7m to compensate for natural disasters. Victoria and the territories would also get higher shares of the GST pool, but by smaller amounts. Nationwide, GST revenues have already been squeezed by the turmoil gripping the global economy, with federal Treasury estimating in the mid-year budget update that GST payments to the states and territories would be $2.6bn lower over four years.


This is putting pressure on the budget bottom line of the states, intensifying the debate about the GST formula ahead of a review by former premiers Nick Greiner and John Brumby and businessman Bruce Carter. An interim report goes to the federal Treasurer in a few weeks.


Queensland Treasurer Andrew Fraser said: "Any state that complains about that should ask themselves what assistance they'd expect if they were hammered by Mother Nature on the same scale that Queensland has been." Mr Fraser still called for reform of the GST formula. "It is my hope that the GST review ... delivers the change needed to foster the nation's economic growth into the 21st century, where the powerhouse states of Queensland and WA aren't subsidising the handbrake states of NSW and Victoria."


Victorian Treasurer Kim Wells said the GST formula was "flawed and inequitable". Victoria still gets $986m less than if the GST were distributed on a per-capita basis instead of Victoria subsidising poorer states. "The absurdity of the system is highlighted by Victoria making larger contributions to the rest of the country than a resource-rich state like Queensland. Aside from WA, Victoria is the largest contributor to the rest of the country."


NSW Treasurer Mike Baird said the commonwealth should implement a "fairer and more sustainable" system for the GST carve-up. The NSW share of GST was cut because more people in the most populous state are using Medicare, reducing the need for the state to spend on community and health services.


As a result of yesterday's decision, Victoria gets 92c for every $1 of GST grants, Queensland gets 98.5c, and NSW gets 95c.


Ramsay slams private health means test

Teresa Ooi, The Australian, 24 February 2012

THE nation's biggest private hospital operator, Ramsay Health Care, has attacked the federal government's legislation to means-test the private health insurance tax rebate as bad policy.  Managing director Chris Rex said it was "disappointing and does not make sense" as it would lead to more people downgrading their private health cover and a drop in the number of people using private hospitals. "This would mean an ever-growing waiting list for public hospitals," Mr Rex said. "Ramsay is concerned that, in the longer term, people affected by the legislation may choose to downgrade their cover, which would have an adverse effect on the financial viability of the private health insurance industry and, therefore, it has the potential to impact the group in ensuing years."


The criticisms came as Ramsay upgraded its full-year net profit growth guidance to between 13 per cent and 15 per cent, up from 10-12 per cent. This was on the back of its strong first-half result, when the company delivered a 22.3 per cent rise in net profit to $125.6 million. Mr Rex said this was mainly driven by the strong performance of its Australian hospitals and operations in Britain. The company will pay a fully franked dividend of 25.5c a share, up 13.3 per cent from 22.5c a share in the previous corresponding period. "This positive first-half result shows our business is performing strongly at an operational level and that our strategy of investing in capacity expansion at our existing facilities is paying off," Mr Rex said.


"Whilst our business in the UK and France continue to perform well under challenging economic conditions, the pleasing group result is driven mainly by a strong performance across our Australian hospitals and an increased contribution from our brownfield development program. Expanding and improving our facilities remain integral to our growth strategy and will ensure that we have the capacity to meet the future demand for healthcare being driven by an ageing population and an increasing chronic disease burden."


Ramsay has 66 hospitals and treatment facilities in Australia, 38 in Britain, 10 in France and three in Indonesia. The company reported a 5.7 per cent rise in revenue to $1.9 billion. Earnings before interest and tax rose 11.6 per cent to $228m. Its share price fell 22c to $18.52.


FIFO inquiry hears calls for tax shake-uP

Kim Lyell & Melissa Maddison, ABC News Online, 24 February 2012

A federal inquiry into the use of fly-in, fly-out (FIFO) workers in regional Australia will hear submissions in Brisbane today. Those to appear before the House of Representatives Standing Committee today include Queensland Resources Council chief executive Michael Roche. Mr Roche will present the findings of a survey of workers from the Bowen and Surat basins and the north-west minerals province.


Yesterday, the federal Member for Dawson, George Christensen, told the inquiry he was concerned about the lack of social capital in mining towns. Mr Christensen says he wants to see changes made to the tax system, which would encourage people to get involved in their community. "My suggestion has been for the Government to consider making certain volunteer hours for certain volunteer organisations tax deductable," he said. "That gives a financial incentive then for mine workers who are on high taxable incomes to actually get some deductions and at the same time do good work for the community. "I think that incentive will be needed to restore social capital, which has been lost."


Mr Christensen says some Government policies are encouraging workers to fly in and out of mining regions. He says changes to the away-from-home allowance are a disincentive for people to move into resource communities. "Previously it was covered under the fringe benefits tax regime, now it's just treated as taxable income, which basically means for most mine workers, 50 per cent of it just goes straight to the tax office," he said. "There's a cash flow issue there and people will just decide that, 'well it's cheaper for me and more beneficial for me just to go fly-in, fly-out and get paid by the company to do that'."


Fraser wants LNP's payroll tax figures

The Business Spectator, 24 February 2012

Queensland Treasurer Andrew Fraser has demanded that the Liberal National Party provide more evidence for its election claim that it would create 4,000 new jobs by cutting payroll taxes, The Australian Financial Review reports.


The leader of the LNP, Campbell Newman, had previously said that over six years, 20,000 businesses would pay less tax if the threshold was lifted to $100,000 per annum. But the party won't release its modelling before the March 24 poll.


“The LNP suggests such a change would only cost around 3 per cent of the forecast payroll tax revenue over the six-year period, but have refused to release any detail on how they arrived at this figure,” Mr Fraser told the AFR.

“The LNP won’t tell Queenslanders how they’re funding their policies and now there are serious question-marks over how they’re costed.”


Brown to keep up tax fight

Clancy Yeates, The Sydney Morning Herald, 23 February 2012

THE Greens have pledged to continue their push to have the mining tax extended to other minerals, including gold, amid claims the tax will fail to raise enough revenue. Greens leader Bob Brown yesterday said the Greens would ''strongly'' move to have the tax extended to other minerals when it comes before the Senate, where the party holds the balance of power. The current tax covers coal and iron ore, but Senator Brown said he would try to convince Treasurer Wayne Swan to widen the levy to include gold, copper and uranium. However, he said the Greens would not block the tax in its current form if the government refused to budge.


The calls for a wider tax - which have been resisted by the government - come amid continuing debate over whether the tax can raise the $10.6 billion that Treasury is projecting in its first three years. Smaller miners have this week told a Senate committee that the biggest three taxpayers - BHP Billiton, Rio Tinto and Xstrata - are unlikely to pay as much as the government expects, and Senator Brown said he was ''worried'' about how much revenue the tax would raise.



Mining will need tax incentives: Atlas

Colin Brinsden, The Sydney Morning Herald, 22 February 2012

The Australian resources industry will need government tax incentives to remain competitive on the world stage once the African mining sector gets into full swing, a mining boss says. During sometimes heated exchanges at a Senate inquiry into the federal government's proposed mining tax, iron ore miner Atlas Iron Ltd managing director David Flanagan said deposits of iron ore, gold and other resources in African countries were "massive". "Once they get up and running Australia's significance globally as a provider of resources is going to fall," Mr Flanagan said. "So we have an opportunity to remain competitive and ultimately we are going to need tax incentives in Australia to be able to sustain our business against the competition from those countries."


The chair of the Senate's economics legislative committee, Labor senator Mark Bishop, pointed out that many of those African countries also had "governments with guns", meaning there was a high degree of political risk that could create instability. The committee is inquiring into the minerals resource rent tax (MRRT), which will impose a 30 per cent levy on the coal and iron ore profits of big miners as part of a government bid to spread the benefits of the current resources boom in Australia.


Mr Flanagan described the MRRT as a "quick fix tax" that was being pursued for political reasons, saying it would be detriment to the country. "Of all the things that I worry about, I worry about the future because of the way you (Labor) are running this country," Mr Flanagan said in response to a series of questions from Labor senator Doug Cameron. He said that for every dollar taken off his business over and above what's "fair dinkum" slowed it down from being able to invest and create jobs.


But Senator Cameron said Mr Flanagan was not being "fair dinkum" with his company's shareholders and the stockmarket because, even though he claimed the tax would have "dire consequences", it was not mentioned in Atlas' annual report. "You come here running a political agenda but when you are talking to the stockmarket, when you are talking to your shareholders, when you are taking to your AGM (annual general meeting), you don't mention it," Senator Cameron said.  "You are continuing to have massive growth, massive profitability, that's the reality." Mr Flanagan said his shareholders would "need to be living under a rock" not to know that there was uncertainty about the implication of the MRRT, insisting that it was mentioned in the annual report.


Trade unions are supporting the tax, with ACTU secretary Jeff Lawrence telling the inquiry the MRRT should be passed into law as soon as possible. Construction, Forestry, Mining and Energy Union national research director Peter Colley believed it was a "good tax" which would go down in history as a major reform.


That said, the MRRT could have been better and broader given there were plenty of other minerals sectors that were also hugely profitable, such as copper and gold, he said. He did not agree it would stymie investment in Australia, because China and India were "falling over themselves" to invest in the local market, as were a number of US firms. He said there was "plenty of sovereign risk" in Africa. "Most companies that have ever invested in Africa lost their shirt," Mr Colley told the hearing. "That may change, but Africa is still an incredibly difficult place to do business."


Senate committee member Australian Greens Leader Bob Brown also believes the MRRT should be extended to include gold, uranium and other minerals, although he won't oppose it in its current form. The tax, which is expected to raise $11.1 billion in the first three years, has passed the lower house is now awaiting the approval of the Senate.


Treasury man labels mine tax yield erratic

Lauren Wilson & Matt Chambers, The Australian, 22 February 2012

A SENIOR Treasury official has conceded that the revenue stream of the $10.6 billion mining tax is "volatile" and government documents show a shortfall in the tax's revenue projection and linked spending commitments.


The Treasury's revenue group executive director, Rob Heferen, speaking at a Senate inquiry into the minerals resource rent tax, stopped short of declaring a revenue black hole but said the net fiscal impact of the tax had to be assessed in the broader context of the forecast budget surplus. He said the revenue estimates could be analysed side by side with the spending commitments linked to the tax -- as outlined in documents tabled in the Senate this month by Assistant Treasurer Mark Arbib -- and the budget surplus was not threatened. "The revenue anticipated by the MRRT and the cost directives from the various tax cuts and concessions (have) all been taken into account and the budget remains in surplus," Mr Heferen said.


The opposition seized on the documents, declaring they showed a $3.7bn revenue shortfall. BDO's director of corporate tax John Murray voiced serious concerns that Treasury modelling had overestimated the net revenue of the MRRT, predicting that larger miners were likely to pay little to no tax at all. Mr Murray told the hearing that senators should not be forced to vote to pass the tax until more information about the Treasury modelling was released.


His comments came as Greens leader Bob Brown yesterday urged the government to use the mining tax to help find the $5bn to fund the education system as recommended by David Gonski. "We Greens want the mining profits, massive mining profits flowing out of this country, to be adequately taxed so that we can have a decent education system," he said.


As the Senate probed the bill, OneSteel -- which over the next two years plans to become the nation's fourth-biggest iron ore miner after BHP Billiton, Rio Tinto and Fortescue -- said it did not expect the tax to have a "significant or material impact" on its SA iron ore earnings. "I think a lot of people were potentially overstating what sort of impact it would have," chief executive Geoff Plummer said.


The three big miners that struck the tax deal with the Gillard government -- BHP, Rio and Xstrata -- remain reluctant to forecast the impact of the tax on iron ore and coal earnings. They have maintained that likely government receipts will change due to fluctuating production volumes, prices of iron ore and coal, exchange rates and the rate of royalties levied by host state governments.


Additional reporting: Barry Fitzgerald, Joe Kelly


Mining tax 'workable': Minerals Council

Colin Brinsden, The Sydney Morning Herald, 21 February 2012

The national body representing Australia's minerals industry believes the federal government's planned mining tax is workable and should be made law. The controversial minerals resource rent tax (MRRT) was passed by the House of Representatives late last year, but still has to be given the tick of approval by the upper house.


Minerals Council of Australia (MCA) chief Mitch Hooke told a Senate inquiry in Canberra on Tuesday the 30 per cent tax on the profits of big coal and iron producers was "workable". "We have done the best we can with the hand of cards that we were dealt with," he told the Senate economic legislation committee. We still have work to do in mitigating the adverse consequences and the unnecessary complexities to the compliance costs. But this is a much better designed tax, notwithstanding that it was not necessary in the first place." Asked if the tax should be passed into law in its current state, he said: "Yep".


Prime Minister Julia Gillard negotiated a heads of agreement for the MRRT with three major miners - BHP Billiton, Rio Tinto and Xstrata - after the original idea of a resource super profits tax (RSPT) caused a bitter row between the former Kevin Rudd-led government and the mining industry.


Mr Hooke said that heads of agreement would not have been supported by the council and its members had it not been consistent with its policy position.  But he did not believe the MRRT discriminated against smaller miners. He said the consultation process for the RSPT was "abysmal", particularly as it did not include the states and territories in the discussion about royalty reform. "I can't speak on behalf of the state governments, but I know on the public record many of them were pretty miffed how that eventuated," he said. In contrast, he said consultations with the MRRT's policy transition group that was led by former BHP chairman Don Argus and Resources Minister Martin Ferguson were "outstanding", and a pretty good model in setting up the design of a new tax with business.


While the federal opposition argues that the design of the tax that will credit all state royalties into the future leaves the budget exposed to future increases in royalties by the states, Mr Hooke said it would have been a "deal breaker" without that clause. "It goes to the fundamental principle of putting an effective cap on this tax liability, otherwise we just have an escalator all the way through Mount Everest which would put us back in the camp of compromising international competitiveness." He said while the MRRT provided certainty, investors would be watching developments in the legislation to see whether it passed through parliament and whether the tax stayed.


The tax, which is opposed by the resources rich state of Western Australia, is forecast to raise $11.1 billion in its first three years. Revenues from the tax will help fund a cut in corporate tax.



Katie Walsh, The Australian Financial Review, 21 February 2012

Labor will introduce an extraordinary income tax holiday for the local shipping industry as part of a federal government push to reduce the number of cheaper foreign ships operating on the coast. The package imposes conditions on foreign ships that manufacturers complain will increase costs but also introduces a generous tax exemption for Australian flag vessels on all shipping income, earned domestically and internationally. The tax component is contained in draft laws released yesterday.


“It’s probably one of the broadest packages of exemptions that would be available across industries,” Blake Dawson partner Teresa Dyson said.

An associated tax exemption will allow companies to offset losses against other revenue without having to waste them on the exempt income. Shipping companies will depreciate their vessels over 10 years, down from 20 years, to encourage “cleaner, younger” ships and benefit the shipbuilding industry. While other industries benefit from accelerated depreciation – oil, gas and transport companies claim $2 billion worth a year – Ms Dyson said the complete package on offer for the shipping industry was unprecedented.


Transport Minister Anthony Albanese said the package was devised to revitalise the Australian shipping industry and should not extend to other struggling industries. “This is a unique industry which has implications for defence, for agriculture, for the environment,” he told The Australian Financial Review. “It is, by definition, involved in offshore activities either around our coast or trading with other nations. The implications for Australians not having a domestic shipping industry are unique and extraordinary across economic, environmental and security considerations.”


The number of Australian-operated ships has dropped from 55 to 22 in less than two decades. Of those, only four are international ships – all in the liquified natural gas sector. While 99 per cent of our international trade is shipped, only 0.5 per cent is carried by Australian flag ships. Mr Albanese denied the measures were protectionism, saying they were “forward looking” and about making the local shipping industry competitive. “There’s a potential for major expansion of the industry, not just its survival,” he said. Our geographical location, certain legal system and other advantages over neighbours fed that potential, he said.


The measures, announced in September and due to apply one year sooner than originally planned, went beyond earlier proposals criticised by the industry as failing to catch up to our neighbours, particularly Singapore with its zero tonnage tax. The government took the simpler option of exempting companies from tax, rather than introducing a new tax and setting it at a nil rate. Other changes include an exemption from royalty withholding tax for non-resident vessels, forecast to cost $2 million a year, and a tax offset for wages paid to Australian seafarers. Ms Dyson said the government had relied on simple legislative changes for the measures, which complement other efforts to boost the industry, including a new licensing regime.


Submissions on the draft laws are due by March 5. The government will hold talks with the industry in Canberra next Tuesday before introducing the proposals to Parliament.



Peter Martin, The Sydney Morning Herald, 20 February 2012

Roughly half of the $15 billion in tax breaks for superannuation contributions goes to the top 12 per cent of income earners, according to new research to be presented to the Senate this week. The Australian Council of Social Service says the rest goes to the bottom 88 per cent, with those at the very bottom getting nothing, even after proposed reforms. The council will tell the Senate economics committee the proposed government contribution to the super funds of low-earning Australians would merely cut their tax penalty for putting money into super from 15 per cent to zero, leaving untouched the tax benefit for high earners of 32¢ in the dollar.


"We spend more on super tax concessions for high income earners than it would cost to simply give them the pension," the council's tax policy officer, Peter Davidson, said. "It's all the more wasteful because they are likely to save for their retirement anyway. High-income earners are unlikely to need either the pension or tax incentives."


The council will propose a flatter system of support in which all super contributions are taxed at the worker's

marginal tax rate, offset by a rebate paid into their super fund at the end of each year. One option modelled by the council would give a 100 per cent rebate for the first $300 of contributions, followed by a 20 per cent rebate for additional contributions up to $8000 per year. The council says the proposal would be revenue neutral and would make 80 per cent of super fund members better off.


"It would be simple," Mr Davidson said. ''Employers already know their employees' marginal tax rates and already deduct tax. This tax would come out of super fund contributions, not wages. "The proposal has losers, and they will complain. The problem is that the people who best understand the system are the high earners and their advisers who benefit from it the most."


The Superannuation Minister, Bill Shorten, has assembled a group of experts to advise him on ways to ensure the move from 9 per cent to 12 per cent compulsory super will not further disadvantage low-income earners. The council will also ask the government to limit the "rort" that allows workers aged over 55 to churn their income through super funds, making concessionally taxed contributions which they then withdraw as untaxed benefits. "We would limit the concession to contributions that actually increased balances," Mr Davidson said.



Business Spectator, 20 February 2012

The Liberal National Party (LNP) has promised to bring the Queensland budget back to surplus within three years of forming government, but can't say how it will do it. The LNP admits its economic blueprint, detailed on Monday, is based on numbers crunched by a man it calls Australia's worst treasurer. Treasurer Andrew Fraser last month promised Labor would return the state's budget to surplus in 2014/15, a year ahead of what was previously forecast. His plan included forcing mining companies to bid for exploration permits and shedding more public sector jobs.


LNP leader Campbell Newman on Monday committed to disposing of the state's $2.88 billion debt by 2014/15, basing his promise on figures "Mr Fraser already put out there" in the 2011/12 mid-year fiscal review. But he would not say whether the LNP intended to use the same measures as Labor to deliver the promise. "We're relying on him to have given us a true and fair picture of the state's finances and we're saying we'll achieve that," Mr Newman told reporters. "If we can do better, we will do better."


When reminded the LNP had heavily criticised Labor's plan to return the budget to surplus, opposition treasury spokesman Tim Nicholls said a LNP government would be more responsible. "We will do it by controlling the growth of expenses and making sure it is less than the growth of revenue," Mr Nicholls said. The LNP blueprint includes cutting payroll tax for business by raising the exemption threshold from $1 million to $1.6 million. Mr Newman said the payroll tax concessions would cost $580 million over six years, but could not say how the LNP intended to recoup that revenue. "The commitments we make will be totally offset by savings," he said.


Reporters weren't the only ones asking Mr Newman uncomfortable questions on Monday. Mr Newman was heckled outside a coffee shop in Brisbane's Bowen Hills by a woman demanding to know how he could be trusted to run Queensland when he'd never been tested in parliament. The unelected LNP leader later told reporters it wasn't the first time he'd been confronted. "That's what democracy is all about and I'm sure there'll be lots of that in the campaign throughout Queensland," he said.


The would-be premier was also asked why he had flouted the law on Monday morning - three times. Reporters saw Mr Newman crossing the street against a red light three times during his ritual morning run in the must-win electorate of Ashgrove. Mr Newman apologised, saying jaywalking was inappropriate.


Mr Newman leaves Brisbane on Monday night to tour regional Queensland until Friday afternoon. Former Queensland auditor-general Len Scanlan has been asked by the LNP to independently verify their policy costings before the election on March 24.



Heather Steward, The Observer, 19 February 2012

Depending on whom you ask, it's an evil plot by Brussels to eviscerate the City of London; a progressive blow against socially useless casino finance; or a way of ensuring banks repay taxpayers for billions of dollars of bailouts. The financial transaction tax (FTT) is at the heart of a fierce political controversy about the lessons Europe should learn from the crash – and for David Cameron, stopping it from being levied on British banks was a major rationale for wielding his veto at last year's fractious Brussels summit.


Algirdas Semeta – the Lithuanian European commissioner in charge of implementing the proposal, who is in the UK for a hearing at the House of Lords – makes no secret of the fact that he has been shocked by the vitriol poured on the proposal in London.


Former prime minister Sir John Major – not usually a man given to hyperbole – called it a "heat-seeking missile" aimed at the City, while Boris Johnson, London's mayor, in his usual combative style, said: "Non, nein, no! I will not allow jobs, growth and the livelihoods of Londoners to be jeopardised by an unholy alliance of European states who view financial services as an easy target."


By contrast, Semeta's language is measured and precise. "My preferred option is to discuss the substance of the proposal, and not to raise strong political words about it," the former Lithuanian finance minister tells the Observer.

The FTT, or "Tobin tax" as it is also known (after James Tobin, the economist who first came up with the idea), has been seized enthusiastically by British campaigners dressed in Lincoln green in support of a "Robin Hood tax", and championed by a growing number of European states, led by France and Germany. Nicolas Sarkozy has suggested France could even pursue its own, souped-up version.


The commission's current plans – which are expected to be acted upon by nine states – would see a microtax levied at 0.1% on share and bond transactions, and 0.01% on deals involving complex securities such as derivatives. Any investment institution resident in a participating country for tax purposes (including, for example, German or French banks trading in London) would be liable to pay, and the revenues would be shared between the EU's budget and national treasuries.


Campaigners have repeatedly pointed out that the UK's outraged rejection of the proposal looks odd, given that the Treasury already levies a stamp duty on share transactions at a higher rate of 0.5%. But to Cameron, who wants to protect the UK's competitive advantage over New York as a global centre for financial trading, the idea is anathema. Former Tory treasurer Michael Spencer, who runs broker-dealer Icap – which makes its money by charging small commissions on a very high volume of trading – warned recently that it would cause an immediate exodus from London.


But Semeta insists: "I believe financial institutions opt for London not because of fees and structures but because of its efficient trading platforms, smart, talented workers and the quality of life here." He seems surprised that the issue has become such an important one for the coalition – and he is keen to point out that despite Cameron and Osborne's fierce opposition to the proposal, surveys suggest the British public are more enthusiastic. "Of course we know the general position of the UK on many tax issues is rather sceptical, let's say – but I also think it's also important to take into account the attitude of the citizens." Given the billions spent on bailing out the financial sector, he adds: "I think it's a legitimate expectation of many of our citizens that the financial sector hands back at least part of what it was paid during this crisis."


As well as raising valuable revenue – up to €57bn (£48bn) a year, the commission believes – it has been argued that the tax may also tame some of the more pointless transactions that take place on Europe's trading floors, a point that Semeta does not shy away from. "During the crisis we realised that certain activities in the financial sector are becoming somehow detached from the real economy," he says, with careful understatement.


Privately, the commission is livid that many of the numbers being bandied about by Conservative politicians, including George Osborne, have been cribbed from its own risk assessment of a version of the FTT that was later rejected. In total, Brussels believes the impact of the proposal as currently drafted would be a 0.01% reduction in GDP per year – minuscule relative to, for example, the impact of government belt-tightening across the eurozone. "The macro impact is negligible," Semeta says.


Economists who support the idea, including Stephany Griffith-Jones of Columbia University and Avinash Persaud of City firm Intelligence Capital, say it could even increase GDP, once its potential positive effects, such as preventing crises by dampening down speculative trading, are taken into account. Semeta adds that if governments reinvested the proceeds well, that could also support growth: "Once you take into account the possibility of smart use of the proceeds of this tax, the final impact could well be positive."


He is also determined to keep the door open for discussions with Osborne and his colleagues about how the UK could be involved in implementing the tax. "I continue to invite the UK to be constructive," he says – although he doesn't look hopeful.



Jessica Irvine, The Age, 18 February 2012

Here’s something I think we can all agree on (but for different reasons): rich people shouldn't get government assistance. For the bleeding-heart lefties out there, this notion probably appeals in a fairness sense and means more money to splash on the truly needy. For liberals (small-''l'', anyway) and economic rationalists it appeals to their desire to minimise the government's intrusion into the economy. After all, every dollar less spent is a dollar less that has to be raised in taxes.


The economist turned federal MP Andrew Leigh once quipped that a political campaign against middle and upper-class welfare titled ''Australians for helping the poor and lowering taxes'' could attract widespread support. Their political ads could feature someone handing someone five $20 notes, only for that person to burn one and give the other four back.


That is because every tax imposes an efficiency cost on the economy - it reduces economic activity from what it would have been otherwise. Economists call it a ''deadweight loss'' and in Australia it is roughly estimated at about 20¢ in every dollar.


''Middle-class welfare'' has become entrenched in our society. Welfare and social security remains the biggest budget item, accounting for one in every three dollars spent. Some argue it's good for social cohesion to get everyone involved - the sheer universality of some welfare systems breeds widespread support for the system. But in Australia, middle-class welfare seems to have fed a perversive ''what's in it for me?'' attitude. We loudly resist changes to tighten up the means test on payments and tax breaks. But, when asked, Australians also tend to want the government to spend more on services such as health and education. We want our cake and we want to eat it, too. And that's fine so long as you don't mind spiralling budget deficits. But, it seems, we don't want that either. Something's got to give.


A goal of governments is to distribute funds from those who have them to those who need them. That's no communist sentiment, just the reality of the progressive tax system to which every developed world economy adheres, albeit to differing degrees. The aim is for a progressive system that protects the poor without overly taxing everyone else. The more tightly targeted the system of payments, the lower taxes can be. What's in it for you out of tighter means testing? Lower taxes.


Labor, under Rudd and Gillard, has implemented means tests on payments. By introducing a means test on the baby bonus, Rudd earned this rebuke from the then opposition leader that: ''Every mother loves her baby … We should not live in an Australia where Mr Rudd thinks that some babies are more valuable than others.'' Not entirely helpful, especially coming from a professed liberal party. The baby bonus is one of the few items of welfare spending that has shrunk in recent years - from $1.2 billion last financial year to $916 million this financial year.


Labor's means testing of the private health insurance rebate meets the test of prudent budget management and fairness.


Now if only we could do something about those tax breaks on super. Fixed at a set rate for everyone, such super tax breaks defy the progressive nature of the rest of our tax system. Rich people get more of a benefit out of them, mostly because they are the people who have the money to put into super.


Those who profess to want to see lower taxes and the budget put on a more sustainable footing should not be opposed to either tighter means-testing reforms or cracking down on non-progressive tax breaks. No matter what's in it for them.



Peter Carey & Neil Fargher, The Sydney Morning Herald, 16 February 2012

Could Australia end up with little to show for its mining boom - as an echo of what happened to Nauru once its considerable phosphate wealth was exhausted? Close examination of the proposed minerals resource rent tax reveals serious flaws that could leave the federal government well short of the forecast revenue. It is conceivable that some large and highly profitable mining companies could reorganise their affairs to pay little or none of the tax.


The first and most obvious shortcoming of the MRRT, in terms of its revenue potential, is that it applies only to coal and iron ore. All other minerals are exempt. But it is the design of the tax as it applies to coal and iron ore miners that could leave the government facing an unanticipated multibillion-dollar shortfall.


The main problem is that the tax is based not on an objective measure such as tonnes of material mined, but on ''super profit'' (mining profit less allowances). Profit at the best of times is a highly flexible concept that can allow accountants to apply creative techniques to minimise a company's tax obligations. With the MRRT, the incentives and opportunities for creative avoidance appear even greater than those applying to company tax.


The Australian Taxation Office has already released five early-guidance papers on the tax, but the legislation is complex. Its 232 pages will no doubt exercise the minds of the nation's best and brightest managers and tax accountants as they seek to find means of reducing tax.


The minerals tax is not based on audited company profits from statutory accounts, but on a narrow portion of profits from particular mining activities. It requires the taxpayers (that is, the mining companies) to determine the amount of proceeds and costs that relate to these activities.


This reliance on the miners themselves to determine the appropriate proceeds and costs creates a significant incentive to estimate profit from taxable activities in the most tax-efficient manner. For example, the MRRT requires the miners to split revenue between the taxable value earned to the point of producing a stock of coal or iron ore and revenue earned after that point. Transfers within the company also need to be valued. Losses can be offset between operations.


At numerous points, opportunities exist to reduce revenue estimates and increase costs so as to minimise the taxable profit reported. Volatility in commodity prices could also allow strategic timing of the recognition of revenue and expenses. All these factors, combined with any decline in the underlying commodity price from the record levels seen when the tax was first envisaged, could greatly reduce the expected proceeds to government coffers.


So, too, could the generous and sometimes unconventional allowances built into the tax. There are more than 50 pages of allowances that can be used to reduce a firm's tax liability. While most allowances have their foundation in generally accepted accounting principles (e.g. royalties paid to state governments or pre-mining exploration expenditure), other are less conventional.


For example, under division 75, miners can choose between the ''book value'' or ''market value'' of an asset, which will be allocated against revenue over the productive life of a mine in order to calculate MRRT liability. Depreciating assets based on market valuation is not generally accepted accounting practice, yet it is allowed in the legislation. In simple terms, a mining asset that cost $100 million to bring to production might today be worth $350 million if sold on the open market. A miner could use this higher valuation to calculate depreciation, which would reduce the profit subject to the tax.


Business transactions can be complex, and legislation must therefore contain a range of provisions that require subjective interpretation. The mining tax legislation adds a further layer of complexity, which at times defies conventional accounting and can be used to aggressively minimise the amount of tax payable.


A key argument in support of a tax on super profits, rather than on the simpler and more readily verifiable measure of tonnage, is the need to avoid sending unprofitable miners bankrupt. A low-profit offset would ensure, however, that if the total profits of a mining company are low, the miner has no liability for MRRT and unprofitable operations do not go bankrupt because of a tonnage-based tax.


Even at this late stage in the process, key improvements might be made if there were full transparency in the revised revenue estimates, the underlying assumptions and, in particular, the ability of the tax office to monitor and collect the minerals tax. It is not surprising that critics have begun to question Treasury's revenue estimates, which are based on private information supplied by the mining companies that is not on the public record.


Mining companies are entitled to make a profit, but if the nation decides it is also entitled to a return on the exploitation of national resources, then it is important to design a tax that is effective. Once the resources are gone, they are gone for good.


By the time Nauru became independent in 1968, most of its phosphate had been mined and the vast bulk of the profits retained by the British Phosphate Commission. Little was left for the new nation. It would be a pity were a similar story to be played out in Australia.




Stephen Lunn, The Australian, 15 February 2012

RICH or poor, the government contributes much the same to an Australian's retirement funding, a new study finds, putting paid to the Greens' notion that the current system favours the wealthy. The paper, Tax, Super and the Age Pension, by consultants Mercer, shows that over an average lifetime high-income earners receive more in superannuation tax concessions but miss out on an equivalent amount of the age pension.


Its modelling shows a person who works full-time for 40 years and receives the 12 per cent superannuation guarantee (the Gillard government's compulsory superannuation benchmark under its proposed mining tax package) will take about $400,000 from the public purse over their lifetime regardless of whether they are low-, middle- or high-income earners. Only in the top 1 per cent of the income spectrum, where earnings are near $300,000 a year, does government funding from the superannuation tax concessions make a significant difference.


"The level of support the government provides for retirement income is remarkably level across the income spectrum, irrespective of a person's lifetime income," Mercer partner David Knox said. "Our three-pillar system of compulsory super, voluntary contributions to super and the age pension really does provide equitably for all Australians in their retirement," he said. "The rich are not getting a better deal from the government when it comes to retirement funding. It's swings and roundabouts. What low-income earners miss in tax concessions is made up for in age-pension payments."


Last month, the Gillard government announced a superannuation roundtable to examine, among other issues, the current tax concessions. Greens deputy leader Christine Milne said at the time the current system was inequitable and getting worse. "There are $30 billion worth of superannuation tax concessions per year. Almost half those tax breaks go to the wealthiest 12 per cent and almost a fifth go to the wealthiest 2 per cent of Australians," Senator Milne said.


Dr Knox said this view failed to take into account middle- and high-income earners being unable to access the means-tested age pension. The report also finds if life expectancy continues to rise at the rate it has in recent decades, low- and middle-income earners will be the ones putting greater strain on the public purse.



Ben Butler, The Sydney Morning Herald, 11 February 2012

THE number of companies going to the wall surged last year amid a Tax Office crackdown on overdue debts, figures show. Australian Securities and Investments Commission statistics show that after two years of stability following the global financial crisis, the number of companies entering external administration surged by 9.2 per cent to 10,481.


Adrian Brown, ASIC's senior executive leader of insolvency practitioners, said the jump appeared to be driven by increased debt collection, including by the ATO. ''The ATO said publicly in 2010, 'We're in debt-collection mode','' Mr Brown said. ''The anecdotal evidence we're hearing over the past two quarters is that the ATO has been very aggressive.''


Mr Brown said voluntary administrations, in which a company owner retains a chance of recovering something of their business, had fallen away. ''It seems to suggest these are companies without a prospect of rescuing their business,'' he said.


In 2011, the number of liquidations ordered by courts on the application of a creditor rose by 12.2 per cent, while the number of liquidations called by company shareholders who realised their business was insolvent rose by 12.8 per cent. Mr Brown said changes to the law since 2007 made it easier for company directors to put their business directly into liquidation when confronted with a tax or other debt that it could not pay.


The ATO can issue directors penalty notices, which make company directors personally responsible for their company's tax debt. ''If the ATO goes and issues directors penalty notices, one of the directors' options is to put it into liquidation,'' Mr Brown said.


ASIC was committed to ensuring that Australia's 670 liquidators did their job properly, he said. ''When work increases it can stretch them and we're intent on keeping them focused on their responsibilities.''



Brian Toohey, The Australian Financial Review, 11 February 2012

David Morgan got it right when he told the Rudd government’s “ideas summit” the best way to cut tax rates is to broaden the tax base.


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



Nicki Bourlioufas, The Australian, 11 February 2012

THE Self-Managed Super Fund Professionals Association of Australia has rejected calls from Greens leader Bob Brown to tie superannuation tax rates to a person's marginal tax and expects the issue to be shot down by members at its annual conference in Sydney next week.


Brown this week said the federal government should tax superannuation contributions based on an individual's marginal tax rate minus 15 percentage points instead of having contributions and earnings taxed at a flat rate of 15 per cent for most Australians. SPAA chief executive Andrea Slattery says the proposal attacks "the very heart of people saving". "It would introduce an enormous administrative cost without looking at whether it benefits Australians," she says.


The Greens claim super tax concessions favour high-income earners, saying almost half of superannuation tax concessions go to the top 12 per cent of income earners. A person on the top marginal tax rate of 45 per cent gets a tax concession on super of up to 30 percentage points while someone on the lowest tax rate of 15 per cent gets no tax concession.


Slattery rejects the claims. "The Greens' calculations were based on outdated data and related to a financial year during which a once-off $1 million contribution cap applied. Basing the calculations on that year alone obviously results in a biased result which overstates the value of the tax concessions for higher income earners. "There is creditable research which suggests the cost of the tax concessions to the government across the full spectrum of income ranges is relatively neutral when you factor in the cost of the old age pension and other concessions which apply at the lower income ranges."


A main focus at SPAA's annual conference will be concession caps. Retirement savers have been restricted by excessively low contributions caps and excess contributions tax, which could apply at a tax rate as high as 93 per cent, Slattery says. "Rather than focusing on penalising those who are saving through the community pillar of superannuation for an independent life post-working age, the government should turn its attention to the considerable ongoing barriers to all Australians saving adequately for their retirement."


Referring to the government's proposals last year to introduce a maximum fund balance limit of $500,000 in order to access higher contributions caps, Slattery says the proposal adds unnecessary complexity. "The cost of administering that system would be similar to re-introducing a reasonable benefits limits system again, which would be very costly and would benefit very few. "Taking away the $500,000 threshold would give more flexibility for people saving for their retirement."


In its 2012 budget submission to federal government, SPAA reinforces its call for a $35,000 concessional contribution cap for people over 50 and then incremental increases to a minimum $50,000 as soon as is fiscally possible.



Gareth Hutchens, The Sydney Morning Herald, 09 February 2012

A BIGGER mining tax would make life easier for manufacturers and tourism operators struggling with structural adjustment, one of the country's senior economists has claimed. Paul Bloxham, the chief economist of HSBC Australia, told a business lunch in Sydney large swathes of the economy would feel less pressure from a high exchange rate if the federal government's mining tax had not been ''significantly watered down''. The private sector would also have much to do to help Australia take advantage of Chinese and Indian growth in coming decades, with little hint of forthcoming economic reform, he said.


Speaking at the Institute of Company Directors, Mr Bloxham said Australia's ''services'' industries - including education exporters, business and financial services, and tourism operators - would benefit from rapid growth in China and India in the next few decades. But the severe pressure many firms have felt in recent years - a consequence of the high Australian dollar - could have been relieved by a bigger mining tax. ''If the mining tax was larger, I think we would have probably seen less aggressive structural change,'' Mr Bloxham said. ''It wouldn't be happening as quickly. Potentially you would have seen a lower Aussie dollar as a consequence … that would have slowed the pace of structural change.''


He also said Australia had not managed to make the most of the world-wide boom in commodity prices by failing to boost productivity or set up a sovereign wealth fund. ''Australia's progress on both these fronts has been limited,'' he said. ''With the original mining tax plans significantly watered down, little political appetite for discussion about a sovereign wealth fund and productivity growth remaining very weak, with only limited progress on reform to boost in the future. ''Let's not forget then, that in terms of taking advantage of the future opportunities from the Asian century, much of the onus falls on the business community,'' he said.


Mr Bloxham said the resource sector had enjoyed the biggest direct benefits from the ''re-emergence'' of China and India, but ultimate benefits would extend beyond mining. ''The amount of growth that's coming out of Asia is so large that you really only need to be picking up a couple of those purchases of our services … [to enjoy] a healthy boost.''



Algirdas Semeta (European Commissioner for taxation, customs, anti-fraud and audit), The Telegraph, 09 February 2012

Debate should reflect the proposal on the table. Those who disagree with the FTT have every right to make their case.  But I greatly regret that the Commission's own figures have been systematically misrepresented by opponents. It is simply not true that our impact assessment predicts that the FTT will cost 1.76pc of GDP or hundreds of thousands of jobs.  Our proposal itself categorically rejects the option calculated to have that effect. The FTT in the form we are proposing it will not damage European competitiveness. It will not destroy jobs.


Neither will it be a backdoor way of increasing the EU budget. Much of the revenue would go directly to member states. The part for the EU budget would be offset by reductions in national contributions.  What the FTT would do is bring a fairer distribution of the tax burden, greater stability in the financial sector, and considerable revenues.


All taxes, when looked at in isolation, carry an economic cost. But there is an urgent need to raise revenue and the cost of the FTT is small compared to the trillions of euros and pounds of support that the financial sector has received in recent years. Moreover, the positive effects of using revenues from the FTT must be taken into account. If the projected €57bn (£47.7bn) per year is put towards consolidating national budgets, reducing other taxes or investing in public services and infrastructure, the direct economic effect of the FTT should be positive for growth and employment in Europe.


The economic case is even clearer when one factors in the FTT's potential to discourage some forms of socially useless and high-risk trading, and therefore to help prevent future crises. Arguments that ordinary citizens and businesses would bear the brunt of the tax are not borne out by the facts. For a start, day-to-day financial activities are not included. Of the transactions covered, 85pc take place purely between financial institutions. Even if the financial sector passed on some costs to clients, the outcome would not be disproportionate. Anyone buying, say, €10 000 in shares can surely afford a €10 tax on top.


The idea that the FTT would mean the death knell for the City of London has no basis. The financial sector is a vital player in our single market. It is in all our interests as Europeans for the City to be strong and stable. Strong mitigating measures are included in our proposal to prevent financial operators deciding to relocate: the low rate, wide base and, crucially, the "residence principle". If banks and other players want to avoid the FTT, they would have to abandon their European clients altogether – an unlikely response to a small tax of 0.1pc on shares and bonds and 0.01pc on derivatives.


London is the centre for global financial markets because of its excellent infrastructure and economies of scale, among many other things. The FTT would not change that. I have every confidence that the financial sector can adapt its business models to the tax.


Those railing against the FTT should consider the alternatives. There is an urgent need to balance budgets. How could this small tax on the financial sector be worse for growth and competitiveness than further hikes in income taxes, or deeper cuts in public spending?  Clearly the FTT cannot alone solve national budgetary problems. But while ordinary citizens face higher taxes on income, food and fuel, as well as cuts in public services, is it unreasonable to expect the financial sector to pay its share?


We owe a proper debate to all the stakeholders who will potentially be affected. We also owe it to the public who, according to opinion polls – including in the UK – broadly support the measure.



Sue Dunlevy, The Australian, 08 February 2012

THE Greens would blow a $170 million hole in the budget if they voted down an increase in the tax penalty that applies to wealthy people who don't have health insurance, Health Minister Tanya Plibersek has warned. The Greens are negotiating with the opposition to axe an increase in the Medicare levy surcharge that forms part of the government's new means-test on the 30 per cent private health insurance rebate.


The increase in the surcharge is the stick the government wants to use to keep wealthy people in health funds when their premiums rise under the means-test. Without it Ms Plibersek says 110,000 people may dump their health cover. The Greens support the government's planned means test on the 30 per cent private health insurance rebate, which will push up the premiums of wealthy health fund members.


However, Greens Health spokesman Richard Di Natale told The Australian last night that higher-income earners contributed more taxes to fund Medicare, so they were entitled to use the scheme and should not be forced into private insurance. "Are we saying higher-income earners are no longer entitled to access the public health system?" he asked. He questioned whether the same principle would apply to wealthy people using the public education system.


Ms Plibersek told The Australian that if Tony Abbott joins with the Greens to veto the increase in the surcharge, "there is not a Liberal premier or health minister who will thank them". And she questioned the Greens logic on the surcharge. "They've said they are happy to put up the surcharge to pay for dental care but not for high-income earners," she said. The Greens wanted a 50 per cent income tax on high-income earners but wouldn't support an increase in the Medicare Levy Surcharge for the wealthy, she said. The minister said she was perplexed as to why the Greens had voted for the surcharge twice before but now wanted a U-turn.


The $2.4 billion means-test on the 30 per cent private health insurance rebate, which includes the $170 million tax penalty, accounts for half the government's 2012-13 budget surplus and is in jeopardy with three independents indicating their opposition to it. Ms Plibersek yesterday met independents Rob Oakeshott and Andrew Wilkie to try to secure their support.



The Sydney Morning Herald, 06 February 2012

The tax that had billionaires jumping up and down on the back of flatbed trucks has one last hurdle ahead. The federal government's Minerals Resources Rent Tax (MRRT) will be the subject of a Senate economics committee inquiry, which is due to report back by March 14. The government managed to get draft laws paving the way for the tax through the lower house in a marathon effort last year, and it now faces a race against the clock to get it through the Senate.


The MRRT was Prime Minister Julia Gillard's first priority in 2010 after she deposed Kevin Rudd. Ms Gillard struck a deal with the nation's three biggest miners, BHP Billiton, Xstrata and Rio Tinto, to set the tax rate at 30 per cent and confine it to the extraordinary profits of iron ore and coal companies.


Under Mr Rudd's original Resources Super Profits Tax (RSPT), which drew the industry's wrath and sparked truck-bed protests by mining billionaires Gina Rinehart and Andrew Forrest, the rate was to be 40 per cent and the impost was to be payable by all mining groups.


The Australian Greens are pressing for more changes to the tax before it passes the Senate. The coalition is completely against the tax. The Greens also oppose the federal government's plan for a nuclear waste dump at the remote Muckaty Station in the Northern Territory.


Labor has put its National Radioactive Waste Management Bill on the Senate program for Wednesday despite Federal Court proceedings still being in play. Traditional owners of Muckaty Station have protested against the proposed dump, and a Federal Court case is yet to rule on which Aboriginal groups are the rightful custodians of the area.


Greens resources spokesman Scott Ludlam said the outcome of the court case could result in a lot of wasted taxpayers' money. "The practical consequence would be that the Senate and the parliament would have wasted its time, inquiring into a bill and then debating a bill that locks in a particular outcome," Senator Ludlam told AAP on Monday.


The opposition has backed the government on the issue, supporting the need for a nuclear waste dump.



Jonathan Barrett and Luke Forrestal, The Australian Financial Review, 04 February 2012

Prominent Perth businessmen Ron Sayers and Peter Bartlett have been charged with conspiracy to defraud the Commonwealth over the alleged illegal use of offshore tax structures. The criminal charges, laid by the Commonwealth Director of Public Prosecutions, comes 10 years after the pair used a British Virgin Islands company to allegedly save millions of dollars in income tax tied to their interests in mining services company Barminco. The pair have pleaded not guilty and were granted bail on Friday.


Mr Sayers offered to stand down as managing director of sharemarket-listed mining services company Ausdrill but the board, led by chairman Terry O’Connor, advised him that it would be in the best interests of the company for him to carry on as normal. Mr Sayers said he and Mr Bartlett were “devastated” by the prosecutor’s decision to pursue them. He said he knew his reputation would be affected by “the mere fact of these proceedings being commenced”, in a letter he wrote last week to participants in the Muresk West Australian Mineworkers Training Academy.


Mr Sayers and Mr Bartlett were pursued through the Australian Crime Commission-led Project Wickenby tax-evasion probe, which has been the subject of much ongoing debate. It has raised more than $1 billion in tax bills and resulted in numerous prison sentences. The charges, which allegedly relate to up to $57 million in undeclared income, are the biggest to date under the Wickenby investigations.


The Crocodile Dundee star Paul Hogan was among the early, high-profile targets of Wickenby. The Crime Commission has since dropped its case against the actor, although a dispute with the Australian Taxation Office continues. Accountant Deborah Grace has also been charged and sources close to the matter said one of the designers of the strategy allegedly used by the Perth businessmen, tax lawyer Gregory Dunn, is also being pursued by authorities.


It is understood that Mr Dunn, who lives in Thailand, introduced the Perth businessmen to Strachans, the Swiss accounting firm at the heart of the Wickenby investigations. Mr Bartlett is the founder of Perth-based Barminco and was featured on last year’s BRW Rich 200 list with a net wealth of $369 million. His long-term friend, Ausdrill managing director and long-term Barminco backer Ron Sayers, has a net wealth of more than $200 million. The businessmen are scheduled to appear in the Perth Magistrates Court next month in proceedings that are designed to wind up in the Supreme Court later this year.


The men, who had to post $25,000 bail and $25,000 surety yesterday, will be represented by legal firm Clifford Chance. Clifford Chance representatives were unable to comment yesterday. In an announcement yesterday, Ausdrill advised shareholders yesterday that Mr Sayers would continue in his role at the head of the company.




Patricia Karvelas, The Australian, 03 February 2012

A HIGH-POWERED group of mining experts and indigenous leaders will meet Treasury officials next week to push for a radical overhaul of the tax treatment of native title payments and the creation of a tax-exempt indigenous community fund to help pull Aborigines out of poverty.


The Gillard government has reconvened the shelved Native Title Working Group almost two years after it first met. It will include members of the Minerals Council of Australia and indigenous leader Marcia Langton. The expert group will meet officials from the Treasury and the Indigenous Affairs Department to push for reforms to help Aboriginal and Torres Strait Islander people use their native title payments for economic growth.


It will push the Gillard government to support an Indigenous Community Development Corporation as a new model for managing native title and other payments negotiated by traditional owners and indigenous groups. It is proposed that the ICDC will be able to accept and distribute funds on a tax-free basis, to maximise the economic and social benefits for communities and reduce administration.


Native title payments obtained by indigenous people are now treated as charitable trusts. Under tax rules, these trusts can accumulate tax-free for about a decade, after which 80 per cent must be distributed and no more than 20 per cent can be accumulated tax-free. Because most mining agreements run for decades, indigenous leaders and mining companies believe 10 years is not enough to build up a nest egg to provide an income for future generations. They say the money is quickly spent by indigenous communities to avoid the tax burden.

Assistant Treasurer Mark Arbib last night confirmed the government was meeting the group. "This issue is being considered as part of the government's broader not-for-profit reform agenda," he said.


MCA director of community policy Melanie Stutsel, a member of the expert group, said the government had been resistant to change but must act to empower indigenous communities to create wealth. "While the Treasury and ATO have advocated the need for one tax system for all Australians, it is clear the legal system provides for the creation of an ICDC as a special measure under the Racial Discrimination Act," Ms Stutsel said. "While the government continues to be concerned by the potential revenue impacts of the ICDC, it is clear the long-term benefits to the economy through greater employment of indigenous Australians and an expansion of the number of indigenous businesses, both of which will increase the longer-term tax take, more than offset the additional tax deductions that would accrue to monies in an ICDC used for short-term support to catalyse economic development."


Rio Tinto's community agreements adviser Simon Nish said that if Aborigines wanted to put money aside from their mining agreements to invest in Aboriginal businesses, they should be able to use proper tax benefits.




Lynnley Browning, Reuters, 03 February 2012

The United States indicted Wegelin, the oldest Swiss private bank, on charges that it enabled wealthy Americans to evade taxes on at least $1.2 billion hidden in offshore bank accounts, the U.S. Justice Department said on Thursday. The announcement, by federal prosecutors in Manhattan, represents the first time an overseas bank has been indicted by the United States for enabling tax fraud by U.S. taxpayers.


The indictment said the U.S. government had seized more than $16 million from Wegelin's correspondent bank, the Swiss giant UBS AG, in Stamford, Connecticut, via a separate civil forfeiture complaint. Because Wegelin has no branches outside Switzerland, it used correspondent banking services, a standard industry practice, to handle money for U.S.-based clients. UBS could not be reached for immediate comment.


The charges against Wegelin, of fraud and conspiracy, provide a rare glimpse into the world of Swiss private banking in the wake of a crackdown on UBS AG. In 2009, UBS paid $780 million and entered into a deferred prosecution agreement with the Justice Department over charges it engaged in fraud and conspiracy by enabling scores of Americans to evade taxes through its private bank. The bank later turned over the names of more than 4,500 clients, a watershed in Swiss bank secrecy, which protects the confidentiality of clients and their data.


The indictment signals a ramping up of pressure on 10 other Swiss banks under investigation by the Justice Department, including Credit Suisse, Julius Baer and Basler Kantonalbank. Six days ago, Wegelin -- founded in 1741 -- effectively broke itself up by selling the non-U.S. portion of its business. The indictment represents the latest blow to the tradition of Swiss bank secrecy in a long-running U.S. crackdown on tax dodgers.


Switzerland is seeking a global solution for its entire banking industry, not just the 11 banks under criminal scrutiny. On Tuesday, the Swiss finance ministry handed U.S. authorities encrypted data on bank employees who served U.S. clients suspected of dodging taxes, and said it would only provide the key to decipher the data once the row was settled.




The U.S. Justice Department said Wegelin "affirmatively decided to capture for Wegelin the illegal U.S. cross-border banking business lost by UBS and deliberately set out to open new undeclared accounts for US taxpayer-clients leaving UBS," the indictment said. U.S. clients were told that Wegelin presented less risk amid the crackdown because it had no branches outside Switzerland and "had a long tradition of bank secrecy."


The indictment also accused Wegelin of helping two unnamed Swiss banks "repatriate undeclared funds to their own U.S. taxpayer-clients by issuing checks drawn on Wegelin's Stamford correspondent account." The transfers were separated into chunks below the $10,000 threshold at which such transfers are reported to the IRS. Wegelin, the indictment said, "co-mingled" the repatriated funds with other, unrelated funds, to better conceal their origin and nature.


The charges against Wegelin were filed as a superseding indictment of three previously charged Wegelin bankers: Michael Berlinka, Urs Frei and Roger Keller. The three men were charged on January 4 with fraud and conspiracy. The superseding indictment named several unindicted co-conspirators, including one who served as a team leader for the three men at the Zurich branch.


The charges provided new details on how the bank worked to solicit new U.S. clients fleeing UBS. According to the indictment:


* Wegelin, one of the last "pure" private banks, is principally owned by eight managing partners and run by an executive committee that included partners. One unindicted co-conspirator, named as Executive A at the bank, was a member of Wegelin's executive committee and worked in Zurich.


* Wegelin used a special code, "BNQ," on around 70 new U.S. undeclared accounts that were opened over 2008 and 2009. It also sometimes opened accounts for U.S. citizens who held passports from other countries, and opened the accounts through the non-U.S. passports.


* Wegelin recruited U.S. clients through a website, www.SwissPrivateBank.com, that was run by an unidentified third party. The website boasted there that "Swiss bank secrecy is not lifted for tax evasion ... Neither the Swiss government nor any other government can obtain information about your bank account." Unlike the United States, Switzerland generally does not consider tax evasion to be a crime.


* Wegelin gave accounts special names, including "Elvis" and "Limpopo Foundation." The charges detailed the bank's work for nearly three dozen American clients, known only as clients A through JJ.


* Wegelin encouraged clients not to come forward to the U.S. Internal Revenue Service and disclose their names in exchange for reduced penalties. Clients who did so in recent years helped provide the Justice Department with a roadmap to the inner workings of Wegelin - a map that led to the bank's indictment.




Annabel Hepworth, The Australian, 01 February 2012

THE peak union group has vowed to push the government to use its May budget to cut tax breaks on superannuation contributions for high-income earners after Treasury released new figures revealing that the concessions on retirement savings would surge by more than $10 billion by mid-2015. Treasury yesterday revealed that tax breaks on retirement savings were forecast to rise from $32.3bn in 2011-12 to $42.6bn in 2014-15, driven in large part by rises in the tax breaks for employer contributions to super that are set to grow from $14.9bn to $18.8bn over this period and tax breaks on super earnings set to go from $14bn to $19.6bn.


Late yesterday, ACTU secretary Jeff Lawrence said his group would address the issue in more detail in its submission to the 2012-13 budget, which would be released shortly. "But we reiterate that a priority for tax reform must be to reduce inequitable superannuation concessions for high-income earners, which are not only used by the wealthy to avoid paying tax, but are costing Australian taxpayers tens of millions of dollars in revenue forgone."


As a flat tax of 15 per cent usually applies to super contributions, people earning more than $180,000 get the most generous tax break because they would otherwise pay the top marginal rate of 45c in the dollar in income tax and the Medicare levy on those funds. The Treasury figures, a yearly update of all tax concessions, show that the biggest benefit is for owner-occupiers who do not have to pay capital gains tax when they sell the family home. This concession is worth $35.5bn this year alone. Another major tax concession is the exemption from GST on food, which was negotiated in 1999 between the Howard government and the Australian Democrats to secure the passage of the GST. That concession, which is mostly for uncooked and unprepared foods such as fruit and vegetables, is forecast to be worth $5.9bn this year.


The figures in Treasury's statement on the 365 tax breaks -- worth $112bn -- are likely to revive the tax reform debate. The Henry review had proposed tightening negative gearing and capital gains tax concessions, and recommended employer super contributions be taxed at marginal rates with a flat refundable offset. Labor excluded the GST from the Henry review. As a proportion of the national economy, however, tax breaks have fallen; they were worth 8 per cent of GDP in 2010-11, compared with 10.7 per cent in 2007-08. Brotherhood of St Laurence general manager of public affairs Nicola Ballenden said capital gains tax exemptions for residential properties favoured the wealthy and older people.




Adele Ferguson, The Sydney Morning Herald, 31 January 2012

The next phase in the overhaul of the $8 billion tax avoidance industry that spawned operators such as Great Southern Plantations and Timbercorp fell into place yesterday when the corporate regulator issued a set of guidelines designed to improve transparency in one of the riskiest investment products on offer. It has been a long time coming given the Australian Securities and Investments Commission was first alerted to the risks associated with the industry back in 2003 by the consumer advocate Denise Brailey.


Brailey, who has won awards for her services to protecting consumers, said she met senior officers at ASIC almost a decade ago to warn that many of these schemes resembled ponzi schemes that had no protection for investors due to the low levels of capital requirements for responsible entities of these schemes. She warned that some of the riskier ones would eventually blow up and leave small investors bearing the cost. "Why did it take them so long to get to the bottom of what was going on?'' she said. ''Even with Timbercorp and Great Southern, it has taken them nearly four years of surveillance, which is too slow for the magnitude of losses."


Five years after Brailey's warnings, a string of schemes collapsed including Timbercorp and Great Southern. They left investors exposed to billions in losses. As part of a plan to crack down on risky investments aimed at retail investors, including contracts for difference, ASIC has aimed fire at agribusiness schemes by beefing up capital and liquidity requirements and suggesting their product disclosure statements (PDS) outline exactly what investors are investing in, including the associated risks.


From November these schemes will be required to hold more capital and the responsible entities will need to prepare 12-month cash-flow projections, which must be approved at least quarterly by directors. This means tripling the minimum amount of capital responsible entities that oversee managed investment schemes must hold, to $150,000, and requiring larger schemes to set aside as much as $5 million in funds. Given some of them raise more than $100 million, this is still pretty light. A liquidity requirement has also been introduced where a responsible entity must hold at least 50 per cent of its net tangible asset requirements in cash or cash equivalents. This is aimed at protecting the investment schemes from insolvency of the parent.


ASIC has also issued guidelines canvassing three options to improve disclosure. The problem with two of the three is they do little or nothing. The first is to maintain the status quo, which as history has shown, and which ASIC's own surveillance has found, is hardly an option. Option two is ASIC provides clarification on disclosure in PDSs, including benchmarks and disclosure principles that apply and on advertising and educational material for investors. Option three is that current disclosure requirements continue to apply, with increased level of supervision of agribusiness scheme PDSs by ASIC, which again isn't an option because the disclosure system hasn't worked.

ASIC has spent three years scrutinising the standard of the product disclosure statements and found them wanting.


There are 371 agricultural schemes operating, with between 10 and 15 new schemes registered since 2009. Over that period ASIC has deregistered three. While ASIC estimates the amount of money raised in the agribusiness MIS sector is $8 billion it can't estimate how much of that has been torched by schemes that have gone belly up because some are still being wound up. However, the best way to let any investor know about the risks is to demonstrate how much has been raised and how much has been lost. Back-of-the envelope estimates suggest more than half of the money raised has been lost in the past few years.


The agribusiness MIS industry came into being in 1997 when the government formed the initiative Plantations for Australia, the 2020 Vision, which called for more plantations in Australia. Plantations are costly and take years to grow so to stimulate private investment, the government provided investors with large upfront tax deductions to encourage investments. The ATO never liked the schemes because they were specifically set up to avoid tax. Then some clever schemes decided to offer internal finance, which made them more like a round robin ponzi scheme. It is these which suffered an inglorious end.


If the tax deductions were taken away, the schemes would disappear and the government's goal to get the private sector to fund our forestry plantations would fall in a heap. Indeed, when the ATO tried to curtail the benefits in 2007, it spooked investors and put the squeeze on Great Southern and Timbercorp. Australia needs more trees, but it doesn't need investments built on tax rorts. ASIC needs to spell this out to potential investors, along with figures on how much of the $8 billion raised has been lost.




Huw Jones, Reuters, 31 January 2012

Taxing ultra fast trading, as France pledged to do this week, would encourage business to move elsewhere and not make markets stabler, Britain said on Tuesday. UK financial services minister Mark Hoban said the UK would still veto any European Union-wide tax on financial transactions, dubbed a Tobin tax, as it would hit London hardest as the bloc's top trading centre.


"At a time when the European Union needs more growth and more jobs, this would be a very unwise thing to do." Hoban told lawmakers from the UK's upper chamber of parliament. "The only way to have a financial transaction tax that worked would be to introduce it on a global basis," Hoban said.


Hopes for a global deal have long faded in the teeth of opposition from Canada, the United States and elsewhere. The EU proposed a tax on stock, bond and derivatives transactions from 2014 to raise 57 billion euros a year, much of it from Britain. It needs unanimity among the 27 member states but like Britain, the Czech Republic and Sweden are also opposed.


This has prompted the euro zone countries to think about going it alone but Hoban doubted if even this would happen. "I wouldn't assume that a euro zone wide financial transaction tax is inevitable," Hoban said.


Euro zone countries like Ireland and Luxembourg have large fund management centres and would be adversely hit as business moved elsewhere, he said. Sweden tried and failed with a Tobin tax two decades ago. "There are lessons to learn from the Swedish experience of introducing an FTT back in the 1980s, which caused the bottom to fall out of the Swedish financial markets," Sarah Lane, a financial services partner at KPMG said separately on Tuesday.




Apart from making "undertaxed" banks pay for damage done in the financial crisis -- Britain introduced a bank levy -- France and Germany also see a Tobin tax as curbing what they see as risky ultra fast or high-frequency trading (HFT). HFT makes up around half the volume on the London Stock Exchange and bourses in Europe have invested heavily in fast technology to court the sector. "The HFT model would definitely not work," Sony Kapoor, founder of think tank Re-Define told the lawmakers.


Faced with little progress at the global and EU level, France this week said it would tax stock and some other securities transactions from Aug. 1 along with a special tax on HFT but Hoban said there was little evidence that ultra fast trading was damaging or that taxing it would make markets safer. "It's easy to point to big bad speculators when actually the problem is around tackling fiscal issues and competitiveness. I don't see how reducing the volume of transactions will of itself create more stable markets," Hoban added.


Britain has a stamp duty on shares and may become a model for EU states to follow if there is no deal on a Tobin tax. There is talk in diplomatic circles of an alternative framework to coordinate national stamp duties in euro zone countries as a first step to a harmonised transaction tax. Some German politicians say a stamp duty could also help win UK support.


Kapoor said a stamp duty at very low rates on stocks and bonds over time would bring political opponents on board and urged Germany and France to go down this route first.



Philip Dorling, The Sydney Morning Herald, 30 January 2012

THE Australian Taxation Office and federal law enforcement agencies want to intensify their campaign against offshore tax evasion, with increased penalties and greater powers for investigators expected to be considered by the federal government this year.


Documents released under freedom-of-information laws reveal the Tax Office and other agencies participating in the long-running Project Wickenby, an inter-agency task force targeting offshore tax evasion, have been developing a comprehensive range of measures to combat abuse of "secrecy havens" - countries with secretive tax or financial systems and which offer minimal taxes for non-residents.


The ATO is seeking the introduction of measures to stem tax evasion before funding for Project Wickenby expires next year.


Documents released by the Attorney-General's Department show the ATO has convened a series of meetings and workshops to develop tax reform proposals with the Australian Crime Commission, the Australian Federal Police, the Commonwealth Director of Public Prosecutions, the Australian Securities and Investments Commission, the anti-money laundering agency AUSTRAC, the Treasury and the departments of the Attorney-General, and Immigration and Citizenship.


New anti-tax avoidance measures being developed include improved information flows between Australian government agencies such as better sharing of information obtained through the use of coercive powers like those exercised by the Australian Crime Commission; greater use of telecommunications interception powers; expanding the definition of money in anti-money laundering laws; greater information exchanges with foreign governments; strengthened international debt recovery measures and reciprocal recognition of foreign tax debts.


The Project Wickenby agencies have also been considering increased penalties for offshore tax evasion; measures aimed at "addressing delays around legal professional privilege"; amendments to immigration requirements to ''consider failure to comply with tax obligations'', and greater regulation of trusts.


A number of "defensive measures" were canvassed in a submission by Treasury to federal cabinet on May 16 last year. Further reform proposals were forecast for submission to cabinet late last year or early this year, with the Treasury and Attorney-General's Department potentially making a joint submission.


However, the Attorney-General's Department has declined to release the detailed policy proposals, saying: "The finer details of these law reform proposals have not yet been put to ministers; there have been no major public announcements on this subject, and the issues are still at the very preliminary stages of policy development … Full disclosure would … run contrary to the interests of good government."


Since 2006, Project Wickenby has resulted in 62 people being charged with serious tax avoidance, money laundering and fraud. Twenty-one people have been convicted, although the taskforce has had setbacks, including the abortive legal pursuit of the actor Paul Hogan. Nearly $594 million in outstanding tax revenue has been recovered, while $1.18 billion in tax liabilities has been raised. Since 2007-08 there has been a 22 per cent reduction, about $22 billion, in funds flowing from Australia to 13 overseas "secrecy havens". There has been a decline in fund flows of 50 per cent to Vanuatu, 80 per cent to Liechtenstein, and 22 per cent to Switzerland. By 2012-13, Project Wickenby operations will have cost $430.9 million.


The Assistant Treasurer, Mark Arbib, confirmed yesterday that a "multi-agency working group" was working on further measures aimed at cracking down on illegal offshore tax evasion.



The Age, 30 January 2012

French President Nicolas Sarkozy has gone on primetime TV to unveil plans for new taxes he hopes will fix France’s ailing economy and boost his credibility ahead of polls he is tipped to lose to a Socialist. The conservative politician has not confirmed he will stand for re-election, but he gave his strongest hint yet he will be a candidate in the election that opinion polls predict will be won by Francois Hollande. ‘‘I have a rendezvous with the French. I will not shy away from it,’’ Mr Sarkozy told journalists who pressed him on whether he would stand in the election, the first round of which will be held in April.


In an hour-long broadcast carried by six channels, Mr Sarkozy unveiled plans for a hike in sales tax to 21.2 per cent and a 0.1 per cent ‘‘Robin Hood’’ financial transaction tax. He also promised a raft of measures on reducing work time to cut salaries to save jobs, increasing the number of young people taken on as apprentices and creating a new bank to invest in French industry. Mr Sarkozy’s ministers say he believes the reforms will show that, unlike Mr Hollande, he is courageous enough to do the dirty work to save France from economic meltdown. But the president, who staked his reputation on boosting the French economy, faces an uphill task. He is behind in the polls, unemployment stands at nearly three million, a 12-year high, and public debt is at record levels.


Mr Sarkozy’s television appearance came a week after Mr Hollande launched his own campaign with a blistering attack on the faceless’’ world of finance. He later outlined his plans to reverse Mr Sarkozy’s legacy, promising  20 billion euros ($24.8 billion) in new spending by 2017, the creation of 60,000 new teaching jobs and 150,000 state-subsidised new jobs for young workers. An opinion poll this week said Mr Hollande would take 56 per cent of the votes in the second round of the election in May, with Mr Sarkozy scoring 44 per cent.


Mr Sarkozy’s planned sales tax hike of 1.6 percentage points - to 21.2 per cent - aims to shift the burden of paying for social security from employers to consumers, help create jobs and make French firms more competitive. But some economists warn that the reform could hit domestic consumer demand, the main motor of the flat-lining French economy. Members of Mr Sarkozy’s own UMP party also fear it could lose him votes. Mr Sarkozy said the new 0.1 per cent tax on financial transactions would come into effect from August in France. He said it would enable French companies to keep jobs at home instead of out-sourcing them abroad. He said he hoped to ‘‘create a shock’’ with the controversial tax and inspire other European countries to follow his lead, despite vocal opposition from some EU leaders.

Mr Sarkozy used Sunday’s interview to argue that measures taken to end the financial crisis threatening Europe and the rest of world had started taking effect. ‘‘Europe is no longer on the edge of the abyss,’’ he said. ‘‘The elements of a stabilisation of the financial situation in the world and in Europe are in place.’’ His comments came as the sovereign debt crisis continues to dominate political debate in Europe and against a backdrop of frantic negotiations on a write-down deal between Greece and its creditors.


Mr Sarkozy also said that France’s public deficit would be better than predicted for 2011, at 5.3 or 5.4 per cent of gross domestic product instead of the 5.7 per cent forecast. The interview came two weeks after France suffered the humiliation of losing its top triple-A credit rating with Standard and Poor’s. The president got unexpected support on Saturday when centre-right German Chancellor Angela Merkel’s party said she would join Mr Sarkozy at campaign rallies in the coming weeks to boost his re-election chances.


Ms Merkel may be worried that a Socialist victory in France could derail the German-led austerity drive - grudgingly backed by Sarkozy - that aims to resolve the European debt crisis.


Tax experts pooh-pooh law review

The Australian Financial Review, 18 January 2012

The federal government’s review of the 30-year-old tax avoidance provision is unlikely to fix the problems faced by the Australian Taxation Office from a spate of recent court losses, tax experts warn.


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


Inefficient taxes here to stay without incentives to premiers

Judith Sloan, The Australian, 16 January 2012

There was agreement at the Tax Forum held last October that something must be done about the plethora of inefficient state taxes.
The real problem was that no suggestions were made about how the revenue hole would be filled, if the inefficient taxes were abolished.
The truth is that unless the federal government co-operates with the states, the pleas for the abolition of inefficient state taxes will remain just that - pleas.
But any possible progress on this matter was effectively killed off by the late insertion in the terms of reference of the Greiner Review, looking into the distribution of the GST between the states, that "state tax reform will not be financed by the Australian government". Federal Treasurer Wayne Swan had insisted on this addition.
Of course, it is important to define what is meant by inefficient. High compliance costs relative to the revenue collected is one consideration. Inducing unwanted and detrimental behaviour is another. Taxes on taxes would qualify as inefficient. Taxes that produce volatile and unpredictable revenue are also not particularly helpful to state governments.
One of the most common business complaints relates to payroll tax, which raises relatively large sums for the states. There is an irony here in that payroll tax had been a federal tax, but was transferred to the states by prime minister Billy McMahon in the early 1970s. In theory, payroll tax can be an efficient form of taxation, equivalent to a consumption tax.
In the hands of state governments, however, payroll tax has become distorted by the exemptions that have been granted to small businesses, meaning only those businesses with payrolls above a certain amount pay the tax. Land tax can also be an efficient form of tax, but state governments have been reluctant to apply it to owner-occupied dwellings. To be sure, there are some equity issues for those with valuable homes and low incomes, but there are ways to address them.
Stamp duty on the purchase of properties discourages turnover and potentially restricts mobility. The option of moving states to cash in on job opportunities, for instance, can be stymied by the stamp duty on the transfer of properties.
There are a number of smaller state taxes that affect mainly business and are both inefficient and raise relatively small amounts of money. None of the states, however, want to forgo any revenue without some compensation from the federal government.
The figures on levels of state debt point to a marked weakening in their financial positions. And looking forward, debt levels look certain to increase significantly. It is easy to be complacent as Europe flounders. But one of the stories of Europe is just how quickly the public finances of some of these countries deteriorated. It could happen here.
Where once the GST was described as a miracle growth tax, the sluggish growth of consumption since 2009 has meant that the growth of GST receipts has not kept pace with the growth of disposable income. As Reserve Bank governor Glenn Stevens has noted, we have been living in an age of the "cautious consumer".
The Gillard government will be concentrating all its efforts on returning the federal budget to surplus in 2012-13 as promised - no ifs, no buts. This means there will be little sympathy for helping out the states even if, from an economy-wide viewpoint, what really matters is the combined budget positions of all levels of government. Expect no progress on those inefficient state taxes.


oecd convention allows tax office to recover offshore debt

Susannah Moran, The Australian, 16 January 2012

The Australian Taxation Office has joined a group of powerful nations to combat tax fraud and help recover a growing level of offshore tax debt owed to local authorities.
The tax office has faced major problems in the past in pursuing residents of other countries who owe money in Australia.
But it has now joined forces with Belgium, France, Ireland, the Netherlands, Britain and the US.
By signing the Organisation for Economic Co-operation and Development multilateral convention the ATO can ask other countries to chase down debts and return the money to Australia's coffers.
Australian authorities will have the same power to help other member nations.
"We wouldn't do that for small debts; we wouldn't impose an unfair burden on them," commissioner Michael D'Ascenzo said.
"But here is another vehicle where we can follow up if the person has got the debts and got the assets offshore."
As part of the convention, the ATO and other nations can hold simultaneous examinations (quizzing people who reside in different countries but who might be involved together in tax evasion) and then immediately exchange the information with the other country.
In a fresh warning to private equity players, who are set to have an active year, Mr D'Ascenzo said the tax office had not given up on its pursuit of TPG after its $2.3 billion float of the Myer department store.
"It is a collection issue; it is a question of trying to find somebody that takes responsibility for representing TPG and that is where it is," Mr D'Ascenzo said.
"Without going into the case, the area of collection when parties are offshore is a vexed area and one that probably requires more work and exploration in terms of our practices but also the legislative platform."
The profits from the Myer float were sent to a company in Luxembourg and then to the Cayman Islands.
In a court ruling last year, the tax office was blocked from serving the $738 million bill on TPG's representative in Australia.
Neither Luxembourg nor the Cayman Islands have signed up to the OECD convention, although it is open to all nations.
Mr D'Ascenzo said the ATO would not shy away from taking on big cases before the courts where a matter of principle was at stake, but it was increasing its use of mediators to settle taxpayer issues.
"Sometimes one of the reasons why the ATO has to be tenacious in following up principle is to ensure that community confidence in the system is high," he said.
"We are trying to use alternative dispute resolution processes quite significantly. It is one of those situations where if you can take the burden off the courts, that is probably a good thing for the courts to function well and sometimes matters do turn on their facts and their views of the facts and therefore ADR-type process can be very helpful in those areas," Mr D'Ascenzo said.
"There are some areas where there is a principle involved, and it is not really good administration to not progress principles because then you get bad precedents build up."


rich claim $260m in childcare tax aid

Misha Schubert, The Sydney Morning Herald, 15 January 2012

Taxpayers are handing over $260 million each year to subsidise childcare for high-income families, prompting calls for a rethink on the level of generosity.
But women's workforce advocates have warned against making cuts, arguing the subsidy saves money long-term because women who drop out of paid work lose skills and confidence and stop paying taxes.
More than 65,000 families that earn double the average wage - or more - are claiming the childcare tax rebate.
In past years, Labor considered applying a means test but ruled it out amid fears such a move would cut women's workforce participation.
But new data reveals the bill to taxpayers of subsidising childcare for wealthier households.
It cost taxpayers $244 million for the childcare rebate and $14.7 million for the childcare benefit for families earning more than $150,000 last year. That is an average of almost $3700 a year to each higher-income family.
Families earning between $30,000 and $60,000 a year still get the biggest slice of taxpayer funds for childcare ($658 million) followed by those earning less than $30,000 ($593 million).
But $1 in every $6 of taxpayer assistance for childcare goes to households earning more than $120,000 a year, and $1 in every $12 to households on more than $150,000.
Australian Council of Social Service chief executive Cassandra Goldie said it was time for a rethink on who received taxpayer help to pay for childcare.
ACOSS wants the means-tested childcare benefit and the non-means-tested childcare tax rebate to be rolled into a single means-tested payment, to direct the funding to families on the lowest incomes.
''In the economic situation we have before us, we need to ensure our financial expenditure is well targeted to those who are most in need,'' she said.
Dr Goldie also cast doubt on the idea that many women from better-off households would drop out of the workforce if their subsidies were axed.
''The factors that influence decisions on who does paid work in these households are complex - the financial implications are only one part of that,'' she said.
Kathleen Swinbourne of the Sole Parents Union also urged a rethink on subsidies for higher income households, but said she did not want them axed. ''All children deserve quality care, regardless of their parents' income, but the hard question is who should pay for that,'' she said.


west coast mayor wants tax support for remote communities

Sally Dakis, ABC Online, 13 January 2012

Doctors aren't the only ones with objections to the practice of fly-in, fly-out, or drive-in, drive-out workforces.
The mayor of the West Coast, Daryl Gerrity says the practice is increasing in his district and not just in the mining sector, but in all likelihood the same will apply with expected aquaculture development at Strahan.
He put in a submission to the inquiry being held by the House of Representatives Standing Committee on Regional Australia.
Mr Gerrity says the Federal government needs to use the taxation system to support regional and remote parts of the country.
"The mines here are alongside towns or communities and what fly-in, fly-out is doing to the West Coast is it's not only exporting the ore, it's exporting the wages.
"We don't get many of these miners as full time residents of the West Coast.
"As a consequence of that we have difficulty maintaining numbers in clubs, teams, etc because the poeple send their husband here to work and they live somewhere else; they spend their money there, their children go to school there, so we don't get the social and economic benefit of those workers."
Mr Gerrity wants to see a percentage of the mining royalties come back to the West Coast to support the community.
And he says a tax incentive of $57 for people living in remote areas should be increased to $10,000 as a real incentive to get people to make a life in more remote parts of the country.



Adele Horin, The Sydney Morning Herald, 12 January 2012

Tax breaks for older Australians should be scrapped to help fund vital social and economic reforms without derailing the promised budget surplus, a new analysis says.

The Australian Council of Social Service has also called for a major crackdown on government waste and reform of private trusts to stem their use for tax avoidance, a practice it says costs the budget $1 billion a year.

In its submission to the 2012 budget process, released yesterday, the peak welfare lobby group says its proposed measures would help resolve the tension between the government's commitment to restore the budget to surplus from 2012-13 and the urgency of unmet social needs and key reforms.

ACOSS says the senior Australians' tax offset and the mature age worker tax offset should be abolished and the private health insurance rebate removed from ancillary health cover (in addition to the government's proposal to income test the rebate).

''The solution to the tension between resources and need is not to retreat from reform but to pursue it more comprehensively with a sustained attack on wasteful expenditure and tax breaks,'' said the acting chief executive of ACOSS, Tessa Boyd-Caine.

ACOSS said Australia was the eighth-lowest country for taxes among the 30 developed nations in the Organisation for Economic Co-operation and Development. Australians were not overtaxed but taxed unfairly and inefficiently. The main problem was an array of tax shelters and loopholes that enabled well-off people to avoid paying tax at the appropriate marginal rate.

In highlighting areas for reform, ACOSS said individuals could reduce the marginal tax rates on their income by: sheltering income in a private trust; sacrificing salary for superannuation, which allowed taxpayers on the top marginal rate to reduce their tax rate from 46.5 per cent to 15 per cent; taking advantage of the concessional treatment of ''golden handshakes'', which in many cases were taxed at 15 per cent.

Small businesses could reduce tax by taking advantage of capital gains tax concessions not available to other taxpayers and international companies could shift profits from Australia to lower tax jurisdictions, while maximising Australian debt levels.

ACOSS wants the $243.40- a-week Newstart Allowance for singles and the $194-a-week Youth Allowance for those living independently of parents increased by $50 a week. It says the real value of the allowances had not increased since the early 1990s.

It proposes a national oral health program in place of the Medicare chronic disease dental scheme and teen dental program, which it says have not stopped the growing gap in oral health between the advantaged and disadvantaged.

It urges the establishment of an affordable housing growth fund with a down payment of $750 million in the first year to expand affordable housing.

The proposed spending measures would cost an additional $3.6 billion in 2012-13, while the government would save an estimated $4.8 billion through the suggested attack on ''tax waste and tax breaks''.



Adele Horin, The Sydney Morning Herald, 12 January 2012

A crackdown on federal government waste and unfair tax breaks is needed to help fund vital social and economic reforms without derailing the promised budget surplus, a new analysis says.

The Australian Council of Social Service has called for the abolition of some tax breaks for older Australians, which it says are based on age rather than ability to pay and discriminate against younger people. As well, it has called for reform of private trusts to stem their use for tax avoidance, a practice it says costs the budget $1 billion a year.

In its submission to the 2012 budget process released yesterday, the welfare lobby group says its proposed measures would help resolve the tension between the government's commitment to restore the budget to surplus from 2012-13 and the urgency of unmet social needs.

''The solution to the tension between resources and need is not to retreat from reform but to pursue it more comprehensively with a sustained attack on wasteful expenditure and tax breaks,'' says the acting chief executive of ACOSS, Tessa Boyd-Caine.

ACOSS says Australia is the eighth-lowest taxing country among the 30 developed nations in the Organisation for Economic Co-operation and Development. Australians were not overtaxed but taxed unfairly and inefficiently.

The main problem was an array of tax shelters and loopholes that enabled well-off people to avoid paying tax at the appropriate marginal rate.

ACOSS says individuals could reduce the marginal tax rates on their income by:

â– Sheltering income in a private trust.

â– Sacrificing salary for superannuation, which enabled taxpayers on the top marginal rate to reduce their tax rate from 46.5 per cent to 15 per cent.

â– Taking advantage of the concessional treatment of ''golden handshakes'', which in many cases were taxed at 15 per cent.

In addition, small businesses could reduce their tax by taking advantage of capital gains tax concessions not available to other taxpayers, and international companies could shift profits from Australia to lower tax jurisdictions while maximising Australian debt levels.

ACOSS says the Senior Australians Tax Offset and the Mature Age Worker Tax Offset should be abolished. It urges the removal of the private health insurance rebate from ancillary health cover (in addition to the government's proposal to income test the rebate).

Dr Boyd-Caine says the measures would enable the government to give priority to those who were struggling.

ACOSS wants the $241 a week Newstart Allowance for singles and the $194 a week Youth Allowance for people living independently of parents increased by $50 a week. It says the real value of the allowances has not increased since the early 1990s.

It proposes a national oral health program in place of the Medicare Chronic Disease Dental Scheme and Teen Dental Program, which it says have not demonstrated effectiveness or arrested the growing gap in oral health between advantaged and disadvantaged Australians.

It urges the establishment of an ''affordable housing growth fund'' with a down-payment of $750 million in the first year to expand the stock of affordable housing.

The proposed measures would cost $3.6 billion in 2012-13, while the government would save an estimated $4.8 billion through the attack on ''unfair, inefficient tax waste and tax breaks''.



Bloomberg, 10 January 2012

French President Nicolas Sarkozy won the backing of German Chancellor Angela Merkel for a tax on financial transactions, a levy that Britain maintains won't work unless it's applied worldwide.

The French government, long a proponent of the tax, stepped up its campaign last week, going so far as to suggest that France would impose the levy even if others didn't. At a joint press conference in Berlin with Sarkozy today, Merkel threw her weight behind the tax.

"Personally, I'm in favor of thinking about such a tax in the euro zone," Merkel said. "Germany and France both equally view the financial transaction tax as a correct response."

The European Commission in September suggested a tax of 0.1 per cent on equity and bond transactions, and 0.01 per cent on derivatives, which it said could raise 55 billion euros ($US71 billion) a year. European Union finance ministers are due to discuss the levy in March.

French Prime Minister Francois Fillon said today in Paris that France may present a bill on such a tax in February, hoping that other countries follow.

"Someone has to be the first to jump in the water," he said.

Sarkozy, who faces elections in a two-round vote in April and May this year, had pushed for such a tax, as well as greater international regulation of financial industries, when France last year held the presidency of both the G-8 and G-20 group of countries. Instead, the year was dominated by the euro zone's debt crisis.

British Opposition

U.K. Prime Minister David Cameron said yesterday he would block any attempt by the European Union to impose a financial transaction tax in Britain, even if he's not against a worldwide tax. London is Europe's largest financial center.

"The idea of a new European tax, when you are not going to have that tax put in place in other places, I don't think is sensible," he told the BBC. "So I will block it unless the rest of the world all agreed at the same time that we were all going to have some sort of tax."

Ernst & Young, an accounting company, said in a report that while the tax itself may raise as much as 37 billion euros in the EU, its net effect could be negative by between 2 billion and 116 billion by decreasing economic activity and reducing revenue from other taxes.

The US opposes taxes on transactions, preferring bank levies based on the size of their balance sheets.

Political Move

The French financial world has spoken out against the tax, especially if it's only going to be imposed in France.

"A tax that's limited to France would weigh on growth, lead to a loss of competitiveness, and create a heavy handicap for the financing of the French economy," the French Banking Federation said in a statement today.

Paris Europlace, which promotes Paris as a financial center, said in a Jan. 6 statement that the tax would be inefficient because it would make no distinction between investment and speculation.

"The idea of a financial transaction tax in France, without waiting for European partners to implement the same, seems to be a political move by Sarkozy to show that he remains active even as he prepares for the presidential election," said Stephane Ekolo, chief European strategist at Market Securities in London. "It will be very difficult to implement such a tax in a unilateral fashion."



Reuters, 10 January 2012

France wants to target bonds and derivatives, as well as stocks, with a new tax on financial transactions which the conservative government hopes to introduce before an April presidential election, Finance Minister Francois Baroin said on Tuesday.

President Nicolas Sarkozy's government is keen to push ahead with a "Tobin tax" even without its European Union partners, but the daily Le Monde reported on Monday that such a tax could be limited to the purchase of shares.

"We want it to be broad -- stocks, bonds and derivatives," Baroin told France's i<Tele television.

"We want, along with Germany, to put it into place, if possible at European Union level, otherwise in the euro zone, under the swiftest possible timetable, which for France means putting it into place in 2012," he added, a day after Sarkozy discussed the idea with his German counterpart Angela Merkel.

Baroin said a bill should be ready in February and that he would go to Berlin on Thursday to work on the details of the tax and the timeline for putting it in place.

"What I can tell you is that France will be the first country to put this financial transaction tax in place this year," Baroin said later in a question and answer session at parliament.

Michael Meister, a senior lawmaker from Merkel's Christian Democrats said on Tuesday the party will push for a transaction tax in Europe even though her junior coalition partners oppose the levy. "It will happen," Meister said.

The tax measure is one of a flurry of ideas unveiled by the energetic Sarkozy since the New Year started, including plans to improve labor market flexibility and to raise sales taxes to ease the burden on companies of financing the welfare state.

Sarkozy has long been an advocate of the so-called "Tobin tax," pushing for it at Group of 20 level during France's presidency of the economic grouping last year, but had thus far sought to implement it at pan-European level at the least.

"Evidently France should do it along with others. But, my dear compatriots, if France waits for the others to decide to tax finance, finance will never be taxed," Sarkozy said in a New Year's speech in the eastern city of Mulhouse.

"France will not just talk about it, France will do it."

Le Monde had quoted an unnamed government minister as saying the new tax would be limited to reinstating a stock exchange tax that was abolished in 2008. That could indicate that a French Tobin tax might be created in two stages.

Parliament reopens on Tuesday after the end-year break and will run until February 24 as Sarkozy hopes to push through new legislation on labor market flexibility and welfare financing, as well as the financial transaction tax, ahead of the April 22 election.

Sarkozy is expected to confirm in late February or early March that he will run for a second term against Socialist challenger Francois Hollande, who is ahead in opinion polls.

Budget Minister Valerie Pecresse told France 2 television that a planned overhaul of welfare financing, to shift the burden from companies and reduce their competitive disadvantage, would "inevitably" mean a rise in value-added sales taxes.

Sarkozy is set to discuss his various reform plans, including the Tobin tax idea, with trade union leaders at a January 18 meeting, which could lead to some watering down.



ABC Online, 9 January 2012

The Tasmanian Greens are worried the state could be financially penalised by the Commonwealth for having inefficient taxes.

The Treasurer Wayne Swan has issued the threat as part of the federal GST review.

Greens MP Tim Morris says Tasmania has several inefficient taxes, including stamp duties on the insurance levy and conveyance on property sales.

He is urging the Government to resume its review of state taxes, saying the Government can no afford to be penalised.

"I was very disappointed that that process was truncated by Labor and Liberals back in November so yes, I think with the announcement from Treasurer Swan, I think its time that that review got under way again at least in some form."

"The duty on insurance levy, conveyance duty on property sales, they are the two really outstanding ones at the moment that really urgently require looking at but I'm certainly not prepared to sit back and let the Australian Government put the thumbscrews on Tasmania."

The cash-strapped Government dumped the review because it was too expensive.

But a state government spokesman says it will continue to investigate opportunities for tax reform including payroll tax exemption for new employees.

He says there are inefficiencies in the state tax system, but due to limited sources of State-own revenue, structural tax reform can only be achieved in conjunction with the Federal Government. 

The spokesman says the state government is strongly opposed to the GST formula being changed and particularly the notion of attaching incentives or conditions for state tax reform.  

He says those arguing for Tasmania to go it alone at this time, are effectively arguing to increase the tax burden on Tasmanians when they can least afford it.



Ben Butler and Ruth Williams, The Sydney Morning Herald, 5 January 2012

It has been a long, expensive and occasionally brutal war but as Project Wickenby enters its sixth year there are signs the federal government's much-pilloried multi-agency taskforce investigating the abuse of tax havens by rich Australians is beginning to scare people straight.

New figures show that for the first time since the multi-agency taskforce began operations in 2006, money has begun to trickle back from the secretive jurisdictions where it had been hidden away.

In 2010-11, the volume of funds flowing back to Australia from 13 major tax secrecy jurisdictions increased for the first time since 2007-08, the year the Australian Taxation Office uses as a baseline. Over the same period, flows to the havens slumped 22 per cent.

In dollar terms, flows into Australia from the tax havens are up $5 billion while flows out are down $12 billion - a net increase in money kept in Australia of $17 billion.

It is a record that tax commissioner Michael D'Ascenzo is keen to defend against detractors, such as high-profile Wickenby target Paul Hogan, who have lined up to pour scorn on the expensive investigation.

''You will find that Wickenby will be seen, I have no doubt, as a model in relation to how Commonwealth agencies can work together to address a wicked problem,'' he said.

In a wide-ranging interview with BusinessDay, Mr D'Ascenzo also:

  • Warned Hong Kong to co-operate with the ATO by sharing tax information.
  • Revealed that the ATO had so far made 32 information requests under agreements signed with tax havens, in one case uncovering a liability of $30 million.
  • Defended the ATO's conduct in complex transfer pricing cases.
  • Blamed government policy for the growing gap between the ATO's expectations of corporate tax and the amount actually collected.
  • Warned that the ATO would be working more closely with state and federal police to fight organised crime.
  • Acknowledged the need for ''cultural change'' within the ATO in its dealings with big businesses.

Mr D'Ascenzo said Wickenby had deterred Australians from dealing with the havens in the spotlight and that there had not been any rise in flows to other havens.

''There are fewer and fewer places to hide,'' he said. ''Basically most honest Australians are moving away from even thinking that this could be a viable option.''

Figures from financial intelligence agency Austrac show that flows to three countries - Vanuatu, Liechtenstein and Switzerland - under Wickenby's closest scrutiny have slumped dramatically since 2007-08.

The figures show Australians have largely been scared off doing business with our nearest tax haven, Vanuatu. An Austrac analysis of the 2621 Australian entities doing business with Vanuatu in 2004 shows that by 2010-11 only 11 per cent were still involved with the Pacific island nation.

But it is flows to Liechtenstein that have fallen most - by 79 per cent.

''People see where our focus has been and therefore they look perhaps for other areas, more legitimate ways of investing their income,'' Mr D'Ascenzo said.

Taxpayer fear of Liechtenstein partly stems from the ATO's possession of copies of secret account records stolen from LGT Bank, the wealth management arm of Liechtenstein's ruling family.

Australia's is not the only blitz on tax havens, with the threat of sanctions from the OECD helping to persuade the world's most secretive jurisdictions to open their books. Each month, more tax information exchange deals are struck between secrecy jurisdictions and countries chasing access to their tightly guarded records.

Australia has so far signed 32 such agreements, including four last year. Some of them remain untested, Mr D'Ascenzo acknowledged, but he said they were mostly ''working - and working very well''.

''Some of them are not enforced yet and I've always been concerned about the fact that people sign up and, when it comes to the crunch, they might not play the game,'' he said. ''But I think that up until the end of November we had made about 32 requests, we've already got answers in 22 of those cases, and in one case we've got sufficient information from the jurisdiction to raise a liability of $30 million.''

One state that is yet to sign any tax information exchange agreements is Hong Kong, which the ATO lists as one of five jurisdictions ''of concern'' that are not sharing information with Australia. Mr D'Ascenzo said Hong Kong had indicated that it would be signing tax information agreements and said he expected the city state to ''play by OECD rules''.

''As far as I'm concerned, that's what we will need to ensure there's no abuse of Hong Kong in terms of hiding wealth or hiding taxable income,'' he said.

As it continues the offshore hunt for hidden tax revenue, the ATO is also searching for elusive tax revenue close to home. Last year, the agency warned it would be ''stepping up'' its co-operation with law enforcement agencies in the fight against organised crime, as seen already with its joint activities with Victoria's Purana taskforce.

Last July, BusinessDay revealed that the ATO had frozen up to $44 million belonging to a Melbourne financier who allegedly laundered money for convicted drug kingpin Horty Mokbel. The Tax Office is alleging that Fitzroy-based Tom Karas used the name of a distant relative in Greece to avoid tens of millions in income tax, allegations denied by Mr Karas.

''It's part of the much more co-ordinated approach by the Commonwealth and state police forces. We see ourselves doing more and more of that,'' Mr D'Ascenzo said.

Meanwhile, the Tax Office has $8 billion worth of disputes on its hands, including a multibillion-dollar fight with private equity group Texas Pacific Group stemming from the 2009 float of Myer.

It has also been unable to close the gap between the company tax it expects to collect based on accounting profit and the tax actually collected. ''We think most of that gap reflects the policy parameters in the law that allows certain things to be deductible or certain things to be non-assessable,'' Mr D'Ascenzo said.

On the other big issue before the courts, transfer pricing, the ATO had a significant setback when the courts rejected its interpretation of the law.

The ATO had been trying to crack down on the abuse of transfer prices - the prices different parts of a multinational pay each other for goods or services - to avoid Australian tax by transferring profits to low-tax countries.

When its preferred methods of calculating fair prices were rejected by the courts the government stepped in and retrospectively changed the law, outraging industry.

Mr D'Ascenzo said the decision to change the law was one for government.

''Our approach has always been in the past to follow the OECD guidelines, and all the guidance we've provided to Australian and foreign investors in this country has been in accordance with OECD guidelines.''

While he said he would like to have more transfer pricing specialists, Mr D'Ascenzo rejected criticism from industry and tax practitioners that the ATO lacked expertise in the area.

''We are probably ranked as among the best in terms of capabilities for transfer pricing or other complex areas of tax administration.''

Yet even as it plays tough in the courts, the ATO insists it is offering an olive branch to corporate Australia.

Mr D'Ascenzo is keen to plug the ATO's ''four-quadrant risk differentiation framework'', which divides Australia's big businesses into levels of tax risk and whether they are a ''key taxpayer''. In the past year, Mr D'Ascenzo wrote to companies advising them of where they sit in this ''framework''.

Those in the high-risk category were also told what they were doing to make them high risk. ''As a means of encouraging them towards a proposition where there's greater transparency engagement with us up-front,'' Mr D'Ascenzo said.

Instead of big business taking a ''hide and seek'' approach to their tax, Mr D'Ascenzo wants more ''upfront, ongoing disclosure and transparency''. But some complain of a stark gap between the ATO's public rhetoric and the actions of its agents on the ground.

''I'm really quite pleased that people, big businesses are starting to think in these terms, but this is a new concept for some and will require some cultural change within my organisation, but also with the large businesses involved,'' Mr D'Ascenzo said.



Glenda Korporaal, The Australian, 4 January 2012

Union proposals to further cut back incentives for middle and high-income earners to invest in superannuation would be "disastrous", according to Financial Services Council chief executive John Brogden.

"The people in that income bracket are the ones who have the most likelihood of becoming self-funded retirees and not being reliant on the government during their retirement years," he said.

His comments follow reports in The Australian yesterday that unions and welfare groups were going to push the Gillard government to cut incentives for superannuation for middle and higher-income earners.

Mr Brogden said any moves in this direction would only mean more people would become dependent on the aged pension.

The Labor government has already halved the ceiling for concessional contributions to superannuation from $50,000 to $25,000 a year for people under 50 and from $100,000 to $50,000 a year for people over 50.

From July 1 the cap for people over 50 is set to halve again to $25,000 a year, although the government has promised to introduce legislation to retain the $50,000 cap for people with superannuation fund balances of under $500,000.

Julia Gillard yesterday said that the government's policy on superannuation was now "settled", with the latest announcements that the compulsory superannuation levy would be rising from 9 to 12 per cent over time and that workers on incomes up to $37,000 would not be required to pay the 15 per cent tax on their superannuation contributions.

The increase in the compulsory superannuation guarantee levy will be partly funded by the extra revenue from the mining tax. Mr Brogden said yesterday that he was happy with the assurance from the Prime Minister that the policy was "settled", but he said constant pressure on budgets would mean that "there may always be a willingness to attack this issue".

He said the Financial Services Council also wanted the contribution caps to be as high as possible to encourage as many people as possible in Australia to become self-funded retirees.

The chief executive of the Self-Managed Superannuation Professionals Association, Andrea Slattery, yesterday called on the government not to "fiddle" with the superannuation tax concessions. "The tax concessions on superannuation are there to encourage everybody to save for their retirement," she said. "Some incentives are needed to encourage people to put their money away for 20, 30 or 40 years, over and above the minimum."

About $50 billion a year in new funds are invested in superannuation as a result of the compulsory superannuation guarantee levy and a further $35bn a year is invested through extra voluntary contributions to top-up superannuation savings.

Ms Slattery said the $1.3 trillion superannuation industry funds had helped Australian to survive the global financial crash.

"One of the reasons we survived the global financial crisis was because the concessional treatment allowed people to put funds away."

She said the system also needed to encourage people who were self-employed to contribute money for their retirement, adding that the provision for extra voluntary contributions was also necessary for people who might have had broken work patterns, to be able to top up their super.



The Australian, 4 January 2012

Perhaps emboldened by its success in driving Labor's agenda over the past five years, the union movement is overreaching on superannuation reform.

By lobbying for heavier taxation on voluntary super contributions by higher-income earners, it risks dragging Labor back to a pre-Whitlam era when the politics of envy inspired many on the Labor side. It is a view of the world that Paul Keating might ascribe to the pre-Copernican obscurantists. And Julia Gillard has shown commendable leadership by slapping it down. If the Prime Minister is to recapture the aspirational agenda that Bob Hawke and Mr Keating first embraced on behalf of the ALP, this response should be just the beginning.

The ACTU submission provides no benefit for lower-income earners who are taxed at 15 per cent for voluntary contributions. It simply argues against the tax being flat, saying that higher-wage earners should pay a larger share in tax. The folly of this policy proposal is that it would work as a disincentive for wage earners to provide for their own retirement through extra payments, and also reduce the nation's aggregate retirement savings. None of this would deliver any benefit for lower earners, unless they drew perverse pleasure from seeing others surrender more in tax. This proposal has come from a union movement that bankrolled Labor's return to government through the campaign against Work Choices, and has been rewarded with a re-regulation of the labour market, placing unions back at the centre of the sphere. The ACTU is resisting an unwinding of some elements of the Fair Work Act, and instead has sought to entrench arbitration, just when the nation needs greater flexibility and productivity in order to bolster the non-mining sectors of the economy. It has also supported the unrealistic demands of some unions, including in the Qantas dispute, seeking to restrict company's legitimate operational choices. Against this backdrop, Ms Gillard needs to put the unions in their place. As former prime minister Mr Hawke has made clear, the unions have had an "almost suffocating influence" on the ALP. This a telling comment from a former ACTU president who, as prime minister, developed a co-operative approach with unions on economic reform. The current union leadership might see Ms Gillard as a soft touch because of her background as a union advocate, but she has reacted strongly, reaffirming her superannuation policy. The government's super reforms are questionable enough without the threat of additional taxation for higher earners. By increasing compulsory contributions to 12 per cent, Ms Gillard is asking business to shoulder higher costs without trading them against wage increases or productivity gains. Certainly, the promised 1 per cent cut in company tax, paid for by the mining tax, is unlikely to compensate for the extra superannuation burden.

In an exclusive interview with The Australian's editor at large, Paul Kelly, last October, Mr Keating summarised the ALP's economic reform challenge this way: "Labor must be open to the influences of (the) middle class, to people on higher incomes." Now Mr Hawke says union influence must be reduced. There are signs that Ms Gillard is listening to these voices of experience. This is wise.


Lanai Vasek, The Australian, 4 January 2012

Greens leader Bob Brown will pursue a formal review of superannuation tax concessions, backing a union call to make the compulsory savings system more equitable.

Julia Gillard yesterday defended Labor's planned superannuation reforms, saying the ACTU was wrong to assert the changes would benefit only the wealthy.

But the Greens are demanding a "formal review" to examine the super tax concessions before the mining tax legislation hits the Senate.

The Australian revealed yesterday that the ACTU wants the government to overhaul existing tax breaks on superannuation contributions, believing they were unfairly skewed to give the most benefit to people earning more than $180,000.

In a submission to a Senate inquiry into the government's mining tax -- a major policy reform the Prime Minister has struggled to sell -- the ACTU said the current flat rate of 15 per cent tax on superannuation contributions was unfair and should be scaled so high-income earners pay more.

But Ms Gillard said her government's proposals were "out there and a settled policy".

"We've settled our policy. I can of course understand that there are many people arguing for different policy conclusion," she said.

"Our policy, to make sure that we are assisting low-income workers through better co-contributions, a contribution from government to help them along, is out there and is a settled policy," Ms Gillard said.

"We've moved to change the system to better benefit low-income workers.

"I want all Australians to have a decent retirement."

Senator Brown said he would be pressing the government for a "formal review" of the tax arrangements before legislation setting up the mining tax goes to the Senate this year.

"This is something the Greens are pursuing with the government," he said.

The minerals resource rent tax legislation, which passed the lower house in November, is linked to a staggered rise in the superannuation guarantee from 9 per cent to 12 per cent by 2020.

Senator Brown said the arrangements did nothing to narrow the gap between the rich and the poor.

"If you are on the top marginal tax rate of 45 per cent, your tax break on super is up to 30 per cent," he said. "If your earnings are taxed at the lowest marginal tax rate of 15 per cent, then your concession is zero."


Annabel Hepworth, The Australian, 3 January 2012

Unions and welfare groups have vowed to push the Gillard government to overhaul $16 billion in yearly tax breaks on superannuation contributions, declaring they are unfairly skewed to give the most benefit to people earning more than $180,000.

Setting the scene for a Senate battle over the mining tax this year, the ACTU says plans to use some of the proceeds from the mining tax package of 11 bills to increase the superannuation guarantee levy from 9 to 12 per cent and give an automatic co-contribution of up to $500 a year for workers on $37,000 or less do not go far enough to correct imbalances in the system.

The peak union body has told a Senate economics committee inquiring into the minerals resource rent tax which passed the House of Representatives in November that the tax breaks on super contributions must also be made "more equal".

Under the existing system, a flat tax of 15 per cent usually applies to superannuation contributions. The 200,000 people earning more than $180,000 get a bigger tax concession as they otherwise pay the top marginal rate of 45c in the dollar in income tax and the Medicare levy on the money.

The ACTU says the system would be more equitable if the tax on super contributions was instead linked to the higher marginal personal income tax rate.

ACTU secretary Jeff Lawrence said the concession was "one of the inequities in the tax system".

"The government is increasingly strapped for revenue," he told The Australian. "I think the areas of inequity and really tax minimisation that take place throughout the system, and this is one of them, need to be looked at. We will continue to argue for that."

The group has told the Senate committee: "While unions are strong supporters of the proposed increase in the superannuation guarantee and the concessional treatment of superannuation contributions, the ACTU recommends improvements to make the distribution of tax concessions more equitable. Unions will continue to press for further action to make the taxation of contributions more equitable."

The push has the backing of the Australian Council of Social Service, which is urging the Senate to make the laws conditional on a cut in the tax concessions for people in the top two tax brackets and an increased concession for people on low incomes.

"Tax concessions for both compulsory and voluntary saving through superannuation are justified to the extent that they compensate individuals for forced saving through compulsory superannuation and encourage voluntary saving to achieve an adequate income in retirement and reduce reliance on the age pension," ACOSS has told the Senate committee. "This means that they should ideally be targeted towards low- and middle-income earners since they are less likely to save for retirement, and more likely to rely on the age pension, in the absence of compulsion or tax incentives . . . However, despite the extension of superannuation to most workers, its tax treatment harks back to a time when superannuation was a perk for the well-off."

The push is being opposed by superannuation funds, which say the government's proposals in its mining tax package will provide more for low-income earners and that the tax breaks for upper-income earners have been scaled back after annual contribution limits were introduced in mid-2007 by the Howard government and Labor lowered the cap in mid-2009.

While the government has maintained that proceeds of the mining tax will enable increased superannuation for Australian workers, the increase in the super guarantee levy from 9 per cent to 12 per cent by 2019-20 will be paid for by companies, who estimate it will cost up to $20bn a year. The mining tax income will help cover the budget impact of the accompanying rise in tax breaks.

The Association of Superannuation Funds of Australia is finalising research on the "equity impact" of the superannuation tax arrangements and plans to present this to the Senate committee shortly.

Yesterday, the association's chief executive, Pauline Vamos, said the group commissioned the research after the Greens claimed that it was the wealthy who would reap the gains of the superannuation boost tied to the mining-tax package.

Ms Vamos said she was concerned the Greens were swayed by research from ACOSS, which she contends is skewed and does not take sufficient account of the impact of the contributions cap. She met the Greens recently to raise her concerns. "There's a lot of people who will not get access to the pension who we need to encourage to self-fund. What a lot of people don't understand is that with the ageing population, they will tighten up access to the aged pension. Low-income earners will always get access to the full aged pension and a health card. Where it will start to be means-tested more heavily is part pensions.

"Very wealthy people will fund themselves anyway and they hit the contributions cap. It's those middle-income earners that have not been in the system a long time that we have to get as self-funding people. We're in a time where we have an ageing bubble."

The heated debate underscores the potential for the mining tax to face turbulence in the Senate when it is voted on this year.

The office of Superannuation Minister Bill Shorten said yesterday that the government supported the concessional tax treatment and that its contribution for low-earners was a "significant new reform that will improve the fairness of the super system" by ensuring that 3.6 million Australians earning $37,000 effectively pay no tax on their compulsory super contributions by receiving up to $500 a year boost to super.

"The revenue from the MRRT goes towards paying for this new measure," his office said.

But Greens leader Bob Brown has claimed that the increased superannuation guarantee levy "is going to end up in the pockets of high-income earners rather than low-income earners".

The ACTU and ACOSS urged the Henry review to overhaul the tax breaks for super contributions and pushed the issue before the tax summit.

The Henry review found that about 2.5 million people were receiving little or no tax breaks for contributions and recommended employer contributions be taxed at marginal rates with a flat refundable offset available up to a cap. But in its response to the Henry review, the government instead lifted the super guarantee levy, promised the co-contribution of up to $500, and lifted the contributions cap from $25,000 to $50,000 for people over 50 with super assets of less than $500,000 from July 1. These measures are expected to cost the budget about $2.4bn over four years.


Robert Paar, The New York Times, 3 January 2012

Washington: A federal tax credit for ethanol has expired, ending an era in which the federal government provided more than $US20 billion in subsidies for use of the product.

The tax break, created more than 30 years ago, had long seemed untouchable. But in the past year, during which Congress was preoccupied with deficits and debt, it became a symbol of corporate welfare.

Fiscal conservatives joined liberal environmentalists to kill it, with help from a diverse coalition of outside groups.

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The tax credit, which cost the government nearly $US6 billion in 2011, went to refiners that mixed ethanol with petrol.

In the US, most ethanol is produced from corn. The demise of the subsidy is all the more remarkable because it comes at the height of the political season in Iowa, where corn is king.

''We are in a fairly prosperous period for agriculture,'' a former president of the Iowa Corn Growers Association, Dean Taylor, said. ''Agriculture has not been as much of a touchstone for presidential candidates this time around.''

Almost 40 per cent of the corn crop goes to produce ethanol and byproducts, including animal feed.

The Government Accountability Office, an investigative arm of Congress, said: ''The increasing demand for corn for ethanol production has contributed to higher corn prices.''

The higher prices have ''created additional income for corn producers'' but also appear to have increased costs to meat and poultry producers, big food companies, shoppers and federal food programs, the office said.

Michal Rosenoer, a policy analyst with the environmental group Friends of the Earth, said: ''The end of this giant subsidy is a win for taxpayers, the environment and people struggling to put food on the table.''


David Uren, The Sydney Morning Herald, 2 January 2012

Both John Howard in his last year as treasurer and Paul Keating in his first proposed introducing a new tax on services.

 A full 18 years before Mr Howard finally succeeded in implementing a goods and services tax, he tabled a report before cabinet from the Australian Taxation Office on a tax which would initially apply only to entertainment, short-term accommodation and personal care services such as hairdressing.

The cabinet had earlier considered a full goods and services tax applied at the retail level which the ATO estimated would affect 650,000 businesses. and require it to put on an additional 3000 staff.

The ATO was asked to prepare an option for a phased introduction. It declared that separating out taxable and non-taxable goods would be "difficult, if not impossible, to implement and administer", but suggested that services could gradually be added.

In the first year, it would apply to cinemas, sporting fixtures, agricultural shows, museums, art galleries, zoos and circuses.

In the second year, the new tax would apply to discotheques, amusement rides, dances and balls.

Nothing was done, but in July 1983, Keating resuscitated the proposal and recommended a 7.5 per cent services tax be imposed, taking effect from October 1, 1984. It was similarly to be phased in over a couple of years.

Keating anticipated there was bound to be criticism that the tax was regressive, but he countered that high-income households spent more heavily on services such as eating out, and hotel accommodation.

Like Howard before him, Keating was not able to overcome cabinet opposition, however strengthening the tax base was a big issue for the Hawke government in its first year.

It gave in-principle support to the introduction of a resource rent tax, modelled on work done by Hawke's chief economics adviser, Ross Garnaut.

Initially to apply to onshore and offshore petroleum, the government anticipated opposition from state governments, which would be expected to drop their royalties.

"The bulk of the states and the petroleum mining industry can be expected to oppose the proposals," the cabinet submission said, adding "significant public support can be expected for a resource rent tax which seeks to ensure that the community receives an adequate financial return from the exploitation of its mineral resources".

The tax was eventually applied to offshore oilfields only, and excluding the North West Shelf, in 1987.

The Gillard government has legislation before parliament to extend it to all onshore and offshore oil fields.

In its first year, the Hawke government also considered removing the complete exemption from tax enjoyed by the gold mining industry and raising tax rates on tobacco and wine.

Cabinet rejected most of the tax increases, but agreed to index excises on petrol, beer, spirits and tobacco.

The Howard government abolished the indexation of petrol excise when introducing the goods and services tax in 2000, a decision which is now costing the budget in excess of $4 billion a year.


 Debra Jopson, The Sydney Morning Herald, 2 January 2012

It was a family occasion with spring rolls in the morning and high tea by the harbour in the afternoon on a not-so-lazy day for the Prime Minister, Julia Gillard.

The first occasion was straight-forward government business. Ms Gillard announced families can now receive up to $160 extra a fortnight in tax benefits for teens aged 16 to 19 who stay in school or go into vocational training.

The second was meant to be more laid-back but, as members of the Indian and Australian cricket teams licked ice-cream cones, she was thrown a googly from an unexpected quarter.

First stop was the suburban Smithfield home of the Huynh family, where Ms Gillard explained that, until now, families had received a rude shock when a child turned 16.

''Their child is at school, they still need feeding, they still need new clothes, they've still got all of the expenses of having a teenager in the household, but their family benefit can drop by 67 per cent,'' she said as two of her ministers and a local MP joined her for tea and spring rolls with two Vietnamese families.

The change to the family tax benefit will mean an increase of up to $4200 a year for parents whose older teenagers remain in education. The largest rise would go to those already getting the maximum amount of the benefit, which is income-tested, the Family and Community Services Minister, Jenny Macklin, said.

The payment varies depending on the number of children in a household, but the government claims about 630,000 families with a teenager turning 16 in the next five years will benefit, including almost 205,000 in NSW and more than 150,000 in Victoria.

Later in the day, at Kirribilli House, the Prime Minister faced an unexpected dissenter.

Inclining her head towards the great Indian batsman Sachin Tendulkar, who just missed securing his century of centuries in Canberra, she said: ''While Australians are barracking very hard for our cricket team, I think they are looking forward to what may be a very special hundred made in Australia some time during the course of this series.

''I know Manuka Oval mightn't have quite been the place but, hopefully, somewhere in the coming days is the place.''

Invited to the podium, the Australian captain, Michael Clarke, said: ''I think Sachin Tendulkar is an amazing player … but we are hoping he scores his 100th 100 in his next series, not against us.''




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