The following are select media articles from April to June 2012. Return to Archived Media index.
out of africa: ore competitor on rise
Ayesha de Kretser, The Australian Financial Review, 27 Jun 2012
India's appetite for coking coal is expected to grow despite cost pressures facing its steel mills, with rising African production posing a significant threat to Australia's competitive advantages as an exporter.
Rio Tinto sent its first shipment of coal from its Benga project in Mozambique to an unidentified Indian steelmaker overnight, as analysts continue to point to the African country's potential to export large volumes once crucial infrastructure is built.
"The Moatize Basin is one of the most prospective coking coal regions in the world," said Rio Tinto's chief executive of energy, Doug Ritchie. "We are also continuing to work with the government of Mozambique to secure the development of comprehensive infrastructure for efficient transport of coal from mine to port, which is a priority for the further development of the region."
Mr Ritchie said Rio Tinto was hoping to become a major player in the hard coking coal seaborne market through its Mozambique projects, which it gained through its 3.9 billion Riversdale Mining acquisition last year.
Freight rates from the Benga project through Mozambique's Beira port are understood to be in excess of $US30 a tonne to India, given the use of vessels as small as 35,000 deadweight tonnes.
Coal sent from Australia to India costs $US15 a tonne by comparison and is usually shipped on Panamax-size vessels of up to 70,000 deadweight tonnes.
But freight is expected to fall once Brazil's Vale completes a rail link to a deepwater port at Nacala, which will be able to accommodate much larger vessels. The Brazilian miner is understood to have already sold about one million tonnes of coking coal to the market, including several spot sales to India.
Work is already under way to boost capacity on the existing Mozambican rail to 12 million tonnes a year by the end of 2012.
Rio and Vale have together announced plans to export as much as 40 million tonnes a year of coking coal from Mozambique by 2020.
Miners, including Rio Tinto, have also pointed to comparative advantages in new frontier regions like Mozambique, where they say the cost of doing business is dramatically less.
Rio chief executive Tom Albanese told a conference in Sydney last month that a number of factors meant the company was reassessing plans to add new coal mining capacity in Australia. "The latest labour rates relating to capital cost escalation, the carbon tax. We have higher equipment rates coming in. Everything is coming in one after another thing and it is making that business more and more difficult. It is time for some frank calls about the [coal] sector," Mr Albanese said.
The boss of global mining contractor Sedgman, Nick Jukes, said places such as Mozambique were 10 to 15 per cent cheaper to operate in than Australia, where labour could cost as much as $100 an hour.
Strip ratios are much lower, with Rio Tinto expecting to move four tonnes of dirt for one tonne of coal over the life of its mines compared with the average 10:1 ratios in Queensland's Bowen Basin. This benefit is somewhat offset, however, by higher ash content and a greater proportion of lower margin thermal coal among the mix.
There are also concerns that Australia's minerals resource rent tax will crimp margins at coal mines when it becomes effective from July 1.
India is seen as the natural market for African coking coal because the country lacks its own resources of the material, unlike thermal coal and iron ore.
But many economists are pessimistic about the country's potential to import, given weak industrial production data and the poor performing Indian rupee in recent months, which has made it more expensive to import materials.
India's Salva Report for June said Indian steel production had risen 2.5 per cent this calendar year so far, while consumption was up about 8.5 per cent. "This is a surprising development as no macroeconomic indicators appear to support this figure," the report said. "Market sentiment is down due to gross domestic product growth of just 5.3 per cent coupled with 0.1 per cent year-on-year growth in industrial production in the fourth quarter of financial year 2011-2012."
The report said India's coking coal imports rose from 2.3 million tonnes in April to 3.1 million tonnes in May but were still down 12 per cent year on year, largely because the Steel Authority of India was upgrading two coke ovens rather than because of the currency effect on margins. "The effect of a $US15 a tonne rise in coking coal contract prices combined with the depreciating rupee remains to be seen," the report said. "Salva believes that a need to restock, plus fresh demand from new blast furnaces will cause some improvement in import tonnage. However, overall sentiment will take time to improve."
Even with relatively strong imports of coking coal out of India, Australia is likely to feel the pinch with increasing focus on new supply channels.
India's imports from Australia dropped 28 per cent compared with the same period of 2011 in May to 1.8 million tonnes. Bowen Basin coal mine strikes have damaged volumes out of Queensland and put a drain on royalty revenues for the state. But India's imports from Russia, Canada and Mozambique all increased.
carbon tax fraught with doubt
John Freebaim, The Australian Financial Review, 27 Jun 2012
Emissions should fall but uncertainty about the future price makes investment difficult, writes John Freebairn.
A carbon tax can be a cost-effective way to reduce greenhouse gas emissions, by increasing the relative price of carbon-intensive production methods and products.
As prices change, businesses and households use less carbon-intensive products and production methods. These changes are likely to be only partly offset by the government recycling some of the revenue windfall to households and energy-intensive, trade-exposed industries.
However, a challenge for businesses, and to a lesser extent households, in making decisions about investments lasting many years, and in some cases decades, is uncertainty about the future price of carbon. While there is bipartisan agreement to reduce greenhouse emissions by 2020 to 5 per cent less than 2000, or about a 20 per cent reduction below business as usual, the two main political parties have very different policies.
Under the Labor plan, the real price of the carbon tax will start at $23 a tonne of CO2 equivalent (CO2e) and will increase by 2.5 per cent above inflation for each of the next two years. Then, from 2015, the carbon tax will be replaced with an emissions trading scheme, and with the option to purchase permits to pollute from overseas.
While it is proposed that there be a floor and a ceiling price on the permits, the gap is very wide, ranging from about $15 to more than $30 a tonne of CO2e.
In addition, the world price of permits will vary with the state of international agreements, if any.
On the other hand, if the Coalition wins the next election and delivers on its promise, the carbon tax and the emissions trading scheme will be scrapped. Instead, the Coalition is proposing a system of subsidies for businesses to reduce their emissions. In the absence of details, eligible subsidy activities may be similar to those investments considered by businesses responding to a carbon price. In the first round, the carbon tax is paid by about 350 large business greenhouse gas emitters.
These include fossil-fuel-fired electricity generators, suppliers of domestic gas, petroleum product refiners and importers, some mines and garbage dumps with fugitive emissions, and manufactures of cement and metal products.
The carbon tax internalises the pollution cost and provides these firms with incentives to change their production methods.
Under the government's carbon tax scheme, which starts next Sunday, most of the carbon tax, as an additional cost of production similar to higher wages and material prices, will be passed forward to buyers as higher product prices. The $23 initial carbon tax is estimated, for example, to increase electricity prices by around 11 per cent, gas prices by 9 per cent, and fuel prices for commercial trucks and mining.
The carbon scheme will result in firms that produce non-traded goods and services passing on to households most of their higher energy input costs as higher product prices in much the same way as the goods and services tax.
The more energy intensive the production process, the higher the increase of the relative price. Aluminium smelting will get a large increase in production costs, retailers a smaller cost increase.
The higher relative cost of energy provides incentives and rewards for businesses to conserve energy by changing production methods, investing in more energy efficient technology, and switching to less energy-intensive products. These changes should reduce energy use, and greenhouse gas emissions.
Energy-intensive, trade-exposed industries – aluminium smelters and steel manufacturers – will receive partial compensation for the higher costs of energy. Without a global carbon price, which would raise costs for international competitors, these trade-exposed industries will have difficulty passing on higher energy input costs to customers. Even with compensation, these industries have incentives to change production processes to save on costs.
Households will face higher relative prices for energy, including electricity of about 11 per cent and gas of about 9 per cent, and higher prices for other goods and services that use large energy inputs.
Other goods and services with small energy input costs, such as clothing, will rise little, if at all, inducing some households to switch from relatively more expensive to cheaper products, for example warmer clothes and less heating.
Increases in social security payments and income tax cuts for those earning up to about $50,000 a year will more than offset the rise in the average cost of living of about 0.7 per cent. But with relative prices rising for pollution-intensive products by about 11 per cent, households still face incentives to cut energy consumption.
abbott exposing businesses to carbon fines: alp
The Australian Financial Review, 26 Jun 2012
The competition regulator has dismissed government claims that a flyer being distributed by the Coalition would encourage small businesses to price gouge after the introduction of the carbon tax and expose them to hefty fines.
Opposition Leader Tony Abbott and small business spokesman Bruce Billson wrote to 7000 butchers, bakers, bottle shops, cafes, dry cleaners and other small businesses in marginal Labor electorates warning of the impact of the carbon tax.
The letter urges small business owners to place an accompanying flyer in their windows apologising to customers for carbon tax-related price increases.
Assistant Treasurer David Bradbury accused Mr Abbott of exposing the small business owners to fines of up to $1.1 million.
But a spokesman for the Australian Competition and Consumer Commission confirmed that the Coalition’s flyer did not raise concerns.
However, the ACCC warned shop keepers that “it is important that businesses that use the flyer do so in a manner that won’t mislead consumers by confusing other price increases unrelated to the carbon price”.
The ACCC said its role in relation to carbon pricing was to make sure that claims were truthful and had a reasonable basis.
The row came as Prime Minister Julia Gillard and Mr Abbott prepared to campaign across the country to mark the introduction of the carbon tax on July 1, and Labor MPs received a lengthy caucus briefing from Climate Change Minister Greg Combet on the tax.
The national energy market operator rejected concerns about interruptions to energy supply after July 1 after moves by two power companies to inject more capital into their coal-fired generators.
In a public statement, the Australian Energy Market Operator said it did not foresee any energy supply security impacts during the “immediate transition period following the introduction of the carbon price . . .
“Some changes in generation outputs and in turn, network flows in the market, are expected in the short term as a result of the carbon price introduction, however AEMO does not expect any concerns relating to network security,” AEMO managing director and chief executive Matt Zema said.
Mr Abbott visited the RSPCA yesterday, warning the charity’s electricity costs would rise after July 1. “There’s no tax cuts for them, no credits for them, no compensation for them,” he said.
But Ms Gillard mocked the political campaign and accused Mr Abbott of “trying to scare cats and dogs”. She said small business would feel “some price impact” but the average electricity price rise would be about $5 a week.
The Coalition flyer for butcher shops states: “The federal government estimates that the carbon tax will increase the cost of energy by 10 per cent in its first year of operation. It will also increase the cost of our suppliers. Higher electricity prices mean it will cost us more to keep our meat refrigerated.
“We always strive to keep our prices at reasonable levels but because the carbon tax will make electricity more expensive, our prices will increase. We apologise for these price increases.”
But Mr Bradbury rejected that charge and warned shopkeepers that inflated prices above the level commensurate with the carbon tax risked fines from the ACCC.
Mr Abbott was “trying to give businesses the green light to jack up their prices”.
“If businesses make false carbon price claims, they run the risk of breaching the Competition and Consumer Act and could be exposed to a $1.1 million fine for misleading consumers,’’ he said. “Mr Abbott is potentially exposing butchers and other small businesses to a $1.1 million fine for the sake of his reckless scare campaign.”
But Mr Billson disputed Mr Bradbury’s claim, arguing that business owners would not face fines and that the opposition had worked from the government’s own published modelling. “We have had it [the flyer] checked, we’ve had our own advice mindful that the government is threatening ACCC action,’’ he told The Australian Financial Review.
Law firm Hall and Wilcox partner Sally Scott said the flyers were risky and could lead businesses to break the law. “If businesses implement a price increase that is more than the carbon tax, then they’ve got a problem – because this sign says very specifically that our price increases are because of the carbon tax,” she said.
Council of Small Business Australia chief executive Peter Strong echoed that advice, saying businesses should not link price rises with the tax.
Treasury has estimated that the average price rises on meat and seafood in a standard shopping basket of goods would be no more than about 10¢ a week.
business fears $23 carbon starting price
Peter Roberts, The Australian Financial Review, 19 Jun 2012
A large majority of companies are critical of key design features of the carbon tax although there is still support for action on climate change.
A survey by TheAustralian Financial Review of companies that will pay the tax from July 1 and detailed interviews found businesses divided in their response to the tax, with their strategies running the gamut from virulent opposition to embracing a low carbon future as the basis for company strategy.
The $23 fixed starting price is the biggest bone of contention, with even companies positive about climate action, such as Toyota, pointing to the big gap between Australia’s carbon price and the market price under the European trading system.
“Our preference is to begin with a lower price to be consistent with global carbon pricing and allow us to remain cost competitive,” Toyota said in a statement.
A spokesman for Caltex suggested companies receive free permits until competing countries matched the Australian scheme, while Adelaide Brighton Cement suggested a starting price of $5 to $10 would be more reasonable. “I can’t see this scheme at $23 a tonne surviving for more than a year or two,” said a spokesman for Adelaide Brighton.
But corporate responses to the tax are as varied as business itself, with even companies in the same industry taking apparently opposite positions.
Queensland liquefied natural gas developer BG Group supports emissions trading, but said: “Australia’s carbon tax has the perverse impact of penalising LNG, an energy source that provides a solution to global warming because it is the cleanest of fossil fuels.”
Gas giant Santos described the government’s clean energy package as “an important step towards a lower carbon economy”. “The introduction of a carbon price provides an increased opportunity for natural gas as Australia transitions to a low carbon economy.”
Perverse impacts are also apparent in food production, with one dairy manufacturer paying the tax on one of its sites powered by gas while other, smaller sites fuelled by dirty coal briquettes escaped the tax net.
Tackling carbon pollution has struck a chord with existing company strategy, as all understand the link between cutting energy consumption and hence costs and emissions of greenhouse gases.
Gas giant Woodside is typical, with most of the 1.9 million tonnes of carbon it emitted in 2011 coming from the burning of fossil fuels. “Reducing the amount of energy we use results in multiple benefits, including reduced operating costs, lower environmental emissions and additional products for sale to customers,” the company told the Financial Review. “These intrinsic drivers make reducing our energy use a top priority in our business.”
For some, energy saving will be business as usual, but others, such as US-based food manufacturer Simplot, are accelerating their efforts. The company plans to spend $17 million in the first year and $5 million a year over the following three to cut energy use. “This is not necessarily related to the carbon tax [as] we have been working to reduce energy costs for a number of years,” said Simplot.
European and New Zealand food companies with experience of paying the price on carbon elsewhere have the most highly developed sustainability policies and strategies to cut greenhouse gas emissions.
Global giants such as Nestle and Unilever are cutting emissions across their operations, from city offices to regional factories. Unilever, for example, has cut CO2 emissions across manufacturing by 9.5 per cent per tonne of output by installing energy efficient equipment and fixing leaks.
NZ-based Fonterra dairies has been preparing its Australian businesses for a low carbon economy, according to the Financial Review survey. “We believe reducing our energy usage is the right thing to do and makes good business sense by helping keep us competitive,” a spokesman said. “It is our job to manage this increased cost in the same way we manage all input costs, so we have been working hard to make changes to our business.”
More than 3000 companies have so far applied for federal government assistance, which will be funded by the tax, for further energy-saving initiatives. The first $8 million of cash has already been allocated to wineries, building materials manufacturers and food processors.
While the survey found companies have factored the carbon tax into their business planning, there is widespread concern that open markets and the lack of a tax in competing countries will damage local competitiveness. But there are many businesses that have a low carbon future as a centrepiece of competitiveness strategy.
More than 334 companies including Fujitsu, AGL, Alstom, Kell&Rigby, Unilever and industrial products and finance group GE have formed Businesses for a Clean Economy to support the carbon price.
Ben Waters, the head of Ecomagination business at GE, said Australian business was the most energy inefficient in the world because of a history of low energy prices. This was changing with price increases already flowing through from improvements in electricity distribution networks and would continue with a smaller price effect from the carbon tax. “We are making some long overdue improvements in energy efficiency,” he said. “It is about improving productivity and it is about cost-down. It is no regrets action.”
greece economic woes deepen as tax receipts nosedive
The Guardian, 25 Jun 2012
Greece is struggling to cope with a collapse in corporate tax receipts, according to the latest figures from the Greek finance ministry.
The steep fall in corporation tax income – from €737m (£590m) between January and May 2011 to €448m in the same period this year – is likely to weigh heavily on the new coalition government as it prepares for a European summit later this week.
Without the ability to tax company profits, the government will be forced to step up its demands on households for tax income at a time when most families are already suffering cuts in wages and falling living standards.
The figures will also undermine the message from Greek leaders that the new government is capable of arresting the country's decline and paying the interest on a new tranche of debt funding from Brussels.
Overall, government income declined by €1bn, from last year's €19.9bn to €18.9bn. Receipts from personal income taxes rose slightly, but were unable to offset the collapse in corporate receipts and falls in property taxes and "other direct taxes", which fell to €816m from last year's €1.4bn.
VAT and other indirect tax revenues also fell heavily between the first five months of last year and the first five months of 2012.
Only a massive funding boost from EU funds kept the total state budget revenues from declining after a rise from €673m to €1.5bn.
The German finance minister, Wolfgang Schaüble, who repeated his warning that Greece must live within its means, is unlikely to look kindly at other elements of the Athens budget statement, which shows that agriculture subsidies are up along with social security payments, especially state pension contributions, offsetting cuts in funding for social projects.
Plans to claw back indirect tax arrears appear to be succeeding after payments increased by two thirds to €246m, but arrears payments from corporate and personal taxes declined, showing the government has an uphill struggle to tackle widespread tax evasion and avoidance.
mining tax challenge will fail, government believes
Leonie Lamont, Sydney Morning Herald, 23 Jun 2012
THE federal government believes its mining tax will withstand challenge by Andrew ''Twiggy'' Forrest's company in the High Court, and is confident the tax legislation is constitutional.
Fortescue Metals' challenge was lodged in the High Court yesterday and there is speculation other interested miners may join.
Fortescue's director of strategy, Julian Tapp, said the case wasn't about the level of tax. ''We haven't changed our view that our payments in relations to this tax will be negligible in the early years. We believe all other mining companies are in the same boat,'' he said. "So this is clearly not about trying to reduce our tax liability, this is about attacking a law that we fundamentally believe is against the constitution.''
Fortescue has enlisted arguably the country's pre-eminent constitutional barrister, David Jackson, QC. After seeing details in a writ of summons, constitutional law expert Professor George Williams from the University of NSW said Fortescue had a ''clever argument''. ''It is clear that the challenger does have a solid argument. The High Court in Bath v Alston Holdings in 1988 struck down a state tax by developing a concept of discrimination that applied in not dissimilar circumstances. The analogy is not exact though in the nature of the tax and because the case involved a different section of the Constitution, section 92. It does however give them a line of attack,'' he said. ''My view remains that the legislation is likely to survive challenge, and that this will be a difficult case to win.''
Fortescue argues the mining tax discriminates between the states, and also curtails state sovereignty.
Mr Williams said he ''wouldn't be surprised to see other parties attempt to join'' Fortescue's challenge.
While large miners Rio Tinto and BHP were able to strike a deal with the federal government over the final scope of the tax, smaller miners including Fortescue and Gina Rinehart's Hancock Prospecting have waged a fierce battle against the tax. After 18 months of acrimonious debate, the 30 per cent Minerals Resource Rent Tax was passed earlier this year. The Gillard government expects the tax to reap $9.7 billion over its first three years.
A spokesman for acting Prime Minister and Treasurer Wayne Swan said the challenge came as ''no surprise''. ''[Fortescue chief Andrew Forrest] has made it clear that he is staunchly opposed to the government spreading the benefits of the mining boom to millions of households and small businesses who aren't in the fast lane,'' he said. ''The Gillard government believes Australia's non-renewable natural resources belong to all Australians, not just to a handful of mining billionaires, and is determined to deliver the MRRT to ensure the Australian community shares in the benefits and opportunities of the mining boom."
The government has previously indicated it has considered its constitutional position on the mining tax carefully and is confident the legislation will withstand a challenge.
Assistant shadow treasurer Mathias Cormann said the Fortescue challenge had been ''inevitable''. ''The mining tax is a bad tax negotiated personally by Julia Gillard and Wayne Swan through a highly improper process,'' he said. ''The Gillard government has a very poor track record when it comes to ensuring its policy changes are consistent with relevant legal requirements.''
online scam sidesteps customs as tax-free liquor slips through
Blair Speedy, The Australian, 23 Jun 2012
Online liquor retailers based in Britain are allowing Australian customers to dodge paying import duty by sending out boxes of booze with false paperwork.
Hospitality managers contacted by The Weekend Australian said they had ordered cases of spirits from the websites, which sent them in plain-wrapped boxes that gave no indication of their contents or origin.
One of the sites, the London-based Whisky Exchange, confirmed it sent orders to Australia labelled as "gifts", but warned buyers they may still be charged duties and taxes if the parcels were detected by Customs.
One venue owner who has ordered from the site said paperwork sent with the shipments did not include any prices, company names, return addresses or description of the contents. "It arrived at our door in less than two weeks . . . it's like nobody in Customs even looked at it," said the venue owner, who declined to be identified.
Industry sources said other sites would label alcohol as "antique decanters" or "glass collectibles" so the buyer could avoid being charged tax.
Australian retailers have been campaigning for the past two years for the government to scrap tax and import duty exemptions that apply to purchases from overseas websites valued at less than $1000, saying they provide an unfair advantage to offshore competitors.
However, no such exemption applies to alcohol and tobacco, which can be purchased tax-free only by travellers, who can carry a maximum of 2.25 litres of booze in their hand luggage.
That Australian shoppers can import alcohol tax-free with seeming impunity highlights the inadequacy of the Customs clearing process, which a Productivity Commission inquiry last year declared would be unable to collect tax on all internet shopping without incurring costs in excess of the added revenue.
News of the scam follows revelations in The Australian last month that online retailers were sending goods valued at more than $1000 to Australian shoppers with false invoices that understated their value in order to avoid tax.
Correspondence between Customs and Treasury revealed online shoppers' tax-free claims were accepted at face value, with little effort made to check the real value of goods being sent.
A Customs spokeswoman declined to comment yesterday on tax and duty evasion relating to alcohol imports.
fmg mining tax challenge threatens regional development funding
Babs McHugh, ABC News, 22 Jun 2012
If a High Court challenge against the new mining tax is successful, regional Australia will miss out on hundreds of millions of dollars promised by the Federal Government for infrastructure development.
Western Australian iron ore miner, Fortescue Metals Group, has lodged the challenge, claiming the MRRT is unconstitutional and discriminates between states.
John Murray, of business consultants BDO, has made a number of submissions to the Senate inquiry into the tax. He says the Federal Government believes it is in a strong position, but if the FMG challenge succeeds, regional and rural Australians will be the biggest losers. "I think the money the government was intending to spend in regional Australia from the MRRT obviously just won't be there" he says. "But in the event that the decision, if it's a negative one, is so damning of the basis of the legislation, then the government's back to square one," "And I think regional Australia has a right to be up in arms and say 'hey government, you promised us all this money, what's happening?' "
John Murray is already on the record saying BDO considers it very unlikely the MRRT will raise the amount of money the Federal Government claims it will. "We're concerned that the government believes it's going to get this revenue, and it has already started to earmark this revenue for some of it's projects. "Our Concern is they're writing cheques they may not be able to cash."
Mr Murray says constitutional law is extremely complex. "When you get into constitutional areas, it's quite a difficult area of law, so I think the community should be actually congratulating (sic) that there has been this constitutional challenge lodged so we can get the matter settled once and for all.
tax change will hurt investors
The Australian, 22 Jun 2012
THE government's steep increase in withholding tax for overseas investors could damage Australia's reputation as a global investment hub, important for lifting productivity, supporting jobs and boosting growth. In the budget, the government doubled the withholding tax on distributions to foreign investors from managed investment trusts from 7.5 per cent to 15 per cent, raising $260 million across four years.
In opposition, Labor pledged to reduce the tax to increase competitiveness. A staged reduction from 30 per cent to 7.5 per cent was legislated in 2008. While the rate will still be half of what it was when Labor came to office, the purpose was to ensure Australia had an internationally competitive tax rate to attract investment funds. Australia could now lose that competitive edge while investment in infrastructure, including renewable energy, is placed at risk.
This week, Assistant Treasurer David Bradbury withdrew the tax change from the budget bills and is seeking to legislate it separately after concern from business and the Greens, who were worried about stifling investment in green buildings and clean energy infrastructure. It could also hamper the ability to attract matching private sector funds for the $10 billion Clean Energy Finance Corporation. This should prompt the Greens to listen to investors. Significant property projects, such as hotels and office buildings, are also in danger as MITs are a preferred investment vehicle for offshore commercial property investors. Existing investors will pay higher tax than they did at the time of their initial investment.
Finance Minister Penny Wong has characterised the change as merely a "savings measure". But the intent of lowering the tax was to spur investment to boost growth and jobs. Mr Bradbury has not demonstrated that he understands the importance of the MIT sector or the need for investors to have certainty and confidence in Australia as a place to do business. As reported in The Australian yesterday, the change in the tax rate came as a surprise as there was no consultation with industry before the budget. The decision leaves Australia with a less competitive tax regime than other global financial centres that also source investment funds, such as Germany, Singapore and the US. This is a short-sighted decision that undermines Australia's need to secure its competitive advantages in the rapidly growing Asia-Pacific region.
Government forced to amend departure tax hike
ABC News, 20 Jun 2012
The Federal Government has been forced to compromise on a tax collection measure it used to help bolster the budget surplus.
In the May budget the Government announced plans to increase the departure tax paid by passengers when they leave the country by $8 in July and index it to inflation from the following year.
The Government has now ditched the indexation plan after some crossbenchers raised concerns and the Opposition announced it would block the change to the Passenger Movement Charge in Parliament.
Tourism industry representatives say they lobbied the Opposition and the Greens to oppose the tax's link to inflation.
Treasurer Wayne Swan played down the significance of the compromise and denied it was a backflip. "We're not going to proceed with indexation, but we will substantially receive an amount of revenue that we had anticipated," Mr Swan said. "It will be a little less because we don't have indexation. The budget is in good shape and the budget legislation is passing the Parliament. That's something we're pretty proud of."
The Federation of Travel Agents' chief executive Jayson Westbury says making people pay more as they leave Australia is just a tax grab. "It just seemed very disingenuous in the way it was presented to us," he said. Mr Westbury says he will keep fighting to stop any further increase. "We don't think its reasonable that the tourism industry has become a target and an easy place to go and put a grab for money in the way they have," he said.
The ABC has been told the Government's compromise will preserve the bulk of revenue.
The bill is listed for debate in the Lower House this week.
No till farmers say tax concessions on equipment are too restrictive
Laurissa Smith, ABC News, 19 Jun 2012
A new tax scheme, which rewards grain growers for taking up conservation farming practices, has been criticised for being too restrictive.
From July, farmers can get a 15 per cent tax offset when they buy a new farm equipment like a no-till seeder.
To be eligible for the Federal Government scheme, they also have to buy a new air cart which distributes seed and fertiliser.
Neville Gould, from the Conservation Agriculture and No Till Farming Association, says this extra requirement is unnecessary. "People have acted on this months ago, put orders in for machines and now found themselves under the newly released guidelines that they've got to buy the air cart as well," he said. "So they're pulling orders. Manufacturers are getting left high and dry, farmers are wondering what they're going to do. "It's a sad state of affairs." Mr Gould says the association hopes it can work with the Department of Climate change to make some minor changes to the legislation.
In a statement, the Department of Agriculture says the tax offset scheme is primarily trying to assist those farmers that haven't been able to upgrade their sowing equipment for quite some time. It expects these farmers would be looking to purchase a new seeder bar in conjunction with a new air cart to maximise the benefits that come with new technology. The Department says there have been significant advancements in air-seeders in terms of their ability to sow through stubble and minimise soil disturbance.
Act tax fix a change for federal action
Robert Jeremenko, The Australian Financial Review, 19 Jun 2012
The states and territories impose some of the least efficient and worst-designed taxes in Australia. Stamp duty is a standout.
Why is there a disincentive for people to move homes and locations for work purposes, for example, with huge sums being payable as stamp duty on property conveyances?
Insurance duties also create a perverse situation where people who are doing the right thing and insuring against risk are penalised with a tax on their insurance contracts.
Canberra, the nation’s capital city, usually only features in national political debate when used as a synonym to describe the federal government. But this may be about to change with respect to reforming inefficient taxes.
The ACT government recently handed down its budget for 2012-13. It included a five-year reform plan towards a fairer, simpler and more efficient tax system. That’s right, a territory (let alone a state) government proposing to reform its own inefficient tax base and, what’s more, without any caveats involving financial assistance from the federal government. The Henry tax review of a couple of years ago found that tax revenue collections in Australia are now greatly dependent on taxes that have an adverse effect on investment and workforce participation.
The review’s vision was to concentrate on four robust and efficient broad-based taxes: personal income; business income; economic rents from natural resources and land; and private consumption.
Other revenue sources (mainly state/territory taxes) should be abolished, with more reliance on taxes on rents and consumption, rather than business income.
The ACT government took this to heart and commissioned its own tax review, which reported last year. It will come as no surprise that the review concluded that the ACT’s tax system – like the state tax systems – was inefficient and unsustainable.
About 90 per cent of Australia’s tax revenue is generated by only 10 taxes. There are 115 other taxes that stand in the way of a simpler tax system. The ACT government has begun a long-term plan of reform that includes the eventual phasing out of conveyance duties.
The revenue to afford this will come from general rates, which the ACT is in a unique position of also levying due to its combined state and local government functions. Reforms also include abolishing duty on insurance policies over the next five years. Acknowledging that this is a long-term process, the government has recognised that reform needs to be phased in.
If the ACT can do it, why can’t its colleagues in the states? The federal government should bring the states on board and seize the opportunity to set a national vision for tax reform that includes the repeal of inefficient state taxes.
company tax needs slow reform, not quick fix - Smith
Peter Martin Taxation, Sydney Morning Herald, 19 Jun 2012
A KEY member of the Henry tax review has rounded on business lobbyists for calling for a cut in the company tax rate and says the government was right not to cut it and that it is wrong to say the review wanted it to.
''I advocated a cut in the company tax rate when I signed the Henry report,'' the former Treasury deputy secretary, Greg Smith, told a Committee for Economic Development of Australia function yesterday. ''But that was, from our point of view, a 10- or a 20-year reform. We certainly didn't see it as an immediate thing. And I certainly also imagined it would only occur in the context of a significant increase in rent taxes.
''We're not going to get that. With tax reform you've got to look at the whole, and once you fail on one front, what's desirable and the timing of what you do on another front has to change. I think the government is right to go slow on company tax.''
Mr Smith was particularly scathing of calls by the Business Council and others for even more investment in Australia. ''We already have the highest investment rate in the developed world. The idea that we can increase it in the next five years is ridiculous, completely absurd.
''We can try to restructure it and we should. We do infrastructure in the wrong places; we do the wrong things. But we are not going to get a higher share of GDP [gross domestic product] higher than 29 to 30 per cent without enormous trouble. ''If you tried to go to 35 to 40 per cent, all that would happen is that you would see interest rates and other adjustments creating further problems in order to offset the inflationary and other macroeconomic problems that such an investment level would bring.''
Australia's biggest problem was its changing demography, not a lack of investment. Life expectancy was advancing by a year every decade and yet the superannuation system encouraged retirement at 60.
''I've been personally associated with creating the superannuation industry in this country,'' Mr Smith said, referring to his role as an adviser to the then treasurer, Paul Keating, in the 1980s. ''I don't feel very proud about that. I think it's an achievement, yes, but it's not the answer.
''We cannot have retirement going for 25, 30 years. That's why the Henry Review wanted to get the preservation age of super up from 60. ''Super is basically an early retirement system. It is not dealing with the very high costs of aged care and health in late retirement.''
The planned increase in compulsory superannuation contributions was set to cost more in tax concessions than it would save by taking retirees off the pension.
Carbon tax 'game changer' coming, says swan
Judith ireland, Sydney Morning Herald, 19 Jun 2012
Treasurer Wayne Swan says Opposition Leader Tony Abbott will be left in a ‘‘policy cul-de-sac’’ when the carbon tax is introduced. Photo: Andrew Meares Treasurer Wayne Swan has told his Labor colleagues that July 1 will be a ''game changer'' for the carbon tax.
Today Mr Swan - who is also acting Prime Minister while Julia Gillard is at the G20 meeting in Mexico - said that Opposition Leader Tony Abbott would be left in a ''policy cul-de-sac'' when the carbon tax is introduced and his argument that the sky will ''fall in'' is exposed.
Mr Abbott has argued that the carbon tax will ''hurt'' Australians from day one, even though the economic damage may take some time. Mr Abbott told his Coalition colleagues today that the government was "worried and confused", and repeated his comment that the carbon tax was a "bad tax based on a lie". He said he would travel around Australia in the first fortnight of July to campaign against the carbon tax.
Nationals leader Warren Truss said every Australian industry would be less competitive from July 1 and predicted it would be a "turning point" in the Labor Party's decline.
Today, Mr Swan pointed to the compensation that had already been rolled out to millions of Australian pensioners and families, and advised caucus not to fall for simplistic arguments when explaining electricity price rises to their constituents. Mr Swan said it wasn't just a result of the carbon tax, telling Labor MPs to look at the recent profits of electricity generators.
This comes as Families Minister Jenny Macklin called on state governments to protect carbon tax compensation to pensioners.
Earlier this month, the NSW government announced that public housing rents would increase.
Today, Ms Macklin said she was extremely concerned about the O'Farrell government's decision, arguing it was taking money from pensioners who live in public housing. ''We want this money to go to pensioners, we don't want it gobbled up by state governments,'' she told reporters in Canberra.
Compensation worth more than $700 million will be paid to pensioners before the carbon price starts on July 1.
During Labor's caucus meeting this morning, Ms Macklin put her Victorian and NSW colleagues on notice to watch out for public housing rent increases. The Schoolkids Bonus - announced in the May budget - will also be rolled out to 1.3 million families from tomorrow.
ouch! how power prices will hit home
Emma Connors, The Australian Financial Review, 16 Jun 2012
Electricity bills, airfares and many council rates will go up on July 1, thanks to the new price on carbon. It will take months, though, for the full impact on households to bubble through supply chains.
Only 500 organisations will be directly billed for their carbon emissions when the hotly debated carbon tax comes into play, but we will all be paying more for everyday purchases.
Government modelling suggests the average household’s cost of living will rise $9.90 a week, including $3.30 on electricity, $1.50 on gas and 80¢ on food. The carbon price is a regressive tax in that it will be felt more keenly by those on lower incomes. To cushion the blow, the government has begun doling out cash to pensioners, those on income support, and those who hold a Seniors Health Card or receive a Family Tax Benefit.
From next year, there will also be a $300 single-income family supplement for families with one primary earner whose income falls between $68,000 and $150,000.
This $300 payment will begin in July 2013. To qualify, families need at least one dependent child.
If there is a secondary earner, they cannot earn more than $18,000. Low-income households can also apply for an annual grant of $300 but only if their annual tax liability is $300 or less. And there is another, $140 payment available for people who need medical equipment with higher than average energy consumption.
On July 1, the tax-free threshold will be increased from $6000 to $18,200. This won’t bring much joy to those on more than $80,000, where the positive effect is cancelled out by increased marginal tax rates.
The bottom line is that those on lower incomes will be fully compensated, at least for the first few years. Middle-income earners will get a boost of about $300 a year thanks to tax changes. And high-income earners will get zero.
Increased power bills, however, will hit one and all.
In NSW, for example, electricity prices are slated to increase by 18 per cent on July 1. Half is attributed to the price on carbon. It is also pushing up gas prices that will jump by 9 to 15 per cent.
Electricity wholesalers are among the biggest polluters, thanks to coal-powered generators, so they will be hit hard by the new tax.
The sheer amount of money involved ensures electricity customers will feel the heat. It’s also a relatively straightforward supply chain, from wholesaler to retailer to you.
It’s a similar story for airlines. They are big emitters, they sell directly to consumers and they have sophisticated modelling capabilities that have given them a fair idea of how hard the new pricing regime will hit.
So from July 1, Qantas passengers will pay a carbon surcharge of $1.82 to $6.86, depending on distance flown, Jetstar is charging a flat rate of $10 for fuel and carbon costs, while Virgin passengers will pay up to $6 extra for domestic travel, depending on distance travelled.
Where the uncertainty comes is when there are many contributors to the final price of a product. Some of these will be in the direct line of fire from the new tax, others face additional input costs from their suppliers. Many expect both direct and indirect costs will increase but until they know what they are dealing with, they are not sure what their response will be.
When you buy butter from your local supermarket, the chances are you are not thinking about the cost of keeping that butter cold. But the cost of re-gassing older-style refrigeration units is about to jump big-time.
The industry has warned that the price impact of the carbon levy on imported refrigerant gas will range from 300 per cent to 500 per cent. The big retailers have quietly prepared for this, installing technology that uses different gases, which won’t be taxed so high, in all their new supermarkets. But the chances are pretty good that your local corner shop will be taken by surprise.
The Australian Institute of Refrigeration Air Conditioning and Heating is doing its best to raise the alarm. Chief executive Phil Wilkinson says the impact on many small businesses will be “dramatic and unexpected”.
So the big question is, what will these convenience store owners do? Will they raise the price of butter when the cost of keeping it cold goes up?
They would be perfectly entitled to do so, according to the Australian Competition and Consumer Commission. The ACCC has received a four-year, $12.8 billion funding boost to monitor prices in the wake of the new tax. Price rises are fine, price gouging is not. “Businesses are perfectly at liberty to move prices up and down,” ACCC deputy chairman Michael Schaper says. “What we are concerned with is the rationale they give if asked. If the business owner cannot justify the price rise, then they risk running foul of the rules regarding misleading and deceptive conduct,” he says, adding that the impact is hard to predict. “The introduction of the GST was a mathematical exercise that involved the taking out of wholesale sales tax and adding in the GST,” he says. “This is a very different situation. We are dealing with a new pricing mechanism, a new market signal . . . we know there will be flow-on effects throughout the economy but it is hard for us to gauge the impact on an individual business.”
Meanwhile, landfill is the hot topic for councils around the country. The amount of rubbish a council dumps has suddenly become crucial. If it’s more than 25,000 tonnes a year, the council will be taxed on the emissions from that landfill.
A delayed introduction means affected councils won’t have to pay the carbon price until 2014, even though the calculations for the new regime begin next month. The impact differs widely. In Queensland, for instance, the Toowoomba Regional Council expects the new tax will cost it $1.2 million a year and warns it may have to increase rates. In NSW, the pricing regulator has given councils the green light to increase rates by 3.6 per cent in 2012-13. Of this, 0.4 per cent is due to the carbon tax. Will that be enough?
Not for all councils, it won’t be, says Keith Rhoades, president of the NSW Local Government Association. “The approved price increase falls way short of figures we are getting. Some councils have estimated their landfill will cost them $750,000 a year and that is without electricity increases,” he says.
In Wollongong, the local council is hoping for a bit of behaviour modification. From July it’s going to give ratepayers the choice of paying more for a big bin, or producing less garbage. This is, of course, the stated aim of the new tax – not to raise revenue per se but to change behaviour so that consumers and businesses choose products and services that are less polluting.
To do that, the price increases are going to have to sting.
tax hikes on table amid qld debt crisis
The Australian, 15 Jun 2012
THE Queensland Government has ruled out selling public assets before putting it to voters, but tax hikes are being considered to tackle the state's debt crisis.
Former federal treasurer Peter Costello today described his audit of the state's books, and recommendations to repair the economy, as a "menu" of options the Government could consider.
Treasurer Tim Nicholls immediately ruled one of them out.
Queensland landholders won't be slugged with a $100 levy per property, a measure that would have raised $200 million annually.
The impost was not in line with the Government's commitment to lower cost of living, he said.
But other tax hikes are on the table ahead of the September budget. They include the prospect of raising mining royalties and gambling taxes.
"We will certainly look very closely at the impact of the royalties and the gaming," Mr Nicholls said.
"There are a suite of menus, I want to emphasise we haven't made any decision yet on that."
Mr Nicholls said the Government would seek an election mandate before pursuing any asset sales. "It is something that's in the mix for consideration," he said. "I emphasise our commitment was that we would not engage in asset sales without seeking a mandate from the people. That commitment remains in place. "That's why I think this is a two-stage process. "Our ... immediate action is to stop the rot. That's what we'll be doing first and that does not involve asset sales."
Mr Costello said the second stage of economic repair, with it's recommended asset sales, was important for restoring Queensland's credit rating. "Queensland won't get AAA without a major debt reduction," he said. "That's a second stage to be done after you've arrested the decline."
He described his two-phase recovery in medical terms. "The patient's in critical condition. We need to stop this patient's vital signs from disappearing before we go into the radical surgery," he said.
The report also recommends retaining a three per cent cap on public service wage growth.
Mr Nicholls said the Government would legislate on this if needed. "We will consider the options necessary if we can't achieve it through the normal processes that are in place," he said.
The Treasurer again refused to rule out cutting permanent public service jobs, and acknowledged the uncertainly that would create in the months before the next budget. "Our desire is to work as hard as we can to protect as many jobs as we possibly can. That's our going in position," he said.
Mr Costello said the options to curb public sector expenses were limited. "There are two variables here - there is the amount of the wage increase and the amount of people that get them," he said. "It's pretty obvious once you think about it that we want to protect numbers you've got to keep wage claims down."
Gst CHANGE WOULD BE A GREAT BIG RISK
Brian Toohey, the Australian Financial Review, 15 Jun 2012
The Grattan Institute's report on improving Australia's tax mix is not bold enough to recommend the option it says would give the biggest boost to gross domestic product: increasing land taxes and cutting income taxes.
Its preferred change – funding income tax cuts by extending the GST to everything – is still difficult, especially as it doesn't appear to compensate low-income earners other than welfare recipients.
It would be hard to get political leaders up to the starting gate for a GST change which the report, released last week, estimates would add 4 per cent to prices, unless it comes with generous compensation.
An equivalent package to the one for the carbon tax would cost almost $27 billion and leave little for tax cuts out of the $31 billion that the report says a broader GST would raise.
The report says a 1 per cent switch from personal and corporate income taxes to land taxes would boost GDP by 2.47 per cent compared to only 0.74 per cent for a 1 per cent switch to the GST. It does not explain why it rejects the superior option of higher land taxes. Nevertheless, the GST route would have a much bigger impact on prices than the carbon tax, which Opposition Leader Tony Abbott rejects as "a great big tax on everything".
The report says the existing GST excludes 40 per cent of consumption and recommends broadening it to cover all consumption. It says this would collect $31 billion extra each year, but the switch from income taxes would increase GDP by $20 billion. The report says that $3 billion a year should be enough to cover its estimated rise in prices. But the $3 billion is only for those who rely on welfare payments.
The Gillard government is increasing transfer payments by over $2.3 billion to compensate for the 0.7 per cent rise in prices due to the July introduction of the carbon tax. Although this amount includes some over-compensation, it is unclear how $3 billion could offset a 4 per cent price rise from a broader GST.
The government is also giving tax cuts focused on low-income earners at a net cost of a further $2.3 billion and a gross annual cost of $23 billion. The net cost is only achieved by an otherwise unhelpful increase in the 15 per cent marginal rate to 19 per cent and the 30 per cent rate to 32.5 per cent – and a large cut to the low income tax offset.
The Grattan report recommends cutting the corporate rate from 30 per cent to 23 per cent at a cost of $14 billion, plus an unspecified cut to personal tax costing another $14 billion from the $31 billion in extra GST revenue. It says one option would be a higher tax-free threshold than the $18,200 that starts on July 1.
But narrowing the tax base like this makes it much harder to cut marginal rates.
Cutting the 32.5 per cent rate to 27 per cent, the 37 per cent rate to 32 per cent, and the top rate of 45 per cent to 40 per cent would cost about $13 billion, but only leave $1 billion to compensate for a "great big GST on everything".
Company tax cut all talk, no action
Opnion from the AFR writers, The Australian Financial Review, 15 Jun 2012
The Gillard government’s latest attempt to deflect criticism from the business community as discussed in “That’s not a tax cut, that’s a con: Abbott” (afr.com, June 14) is little more than the usual smokescreen to distract from its abhorrence of any pro-business measures.
While Prime Minister Julia Gillard is only too happy to feign interest in lowering the corporate tax rate, she doesn’t want to be involved in determining how this is done except to say that business has to pay more taxes somewhere else to get a small cut in company tax.
While the Greens agreed to a less onerous mining tax than they would have liked, it is telling that Labor didn’t try to link the company tax cut to the mining tax to pressure them into another compromise. It seems reasonable to conclude Labor was not committed to company tax cuts.
There may be two motives behind a company tax cut. Either the government has already lined up a set of tax measures it wants its working group to take the flak for; and/or it wants to redirect displeasure with this government into infighting within the business community over who should bear the burden of company tax cuts.
Given that sowing discord among your enemies is one of the oldest political tricks, the business tax working group would do well to ensure they are more than political cover for the next big Labor tax.
It is also worth considering how quickly Labor abandoned linking the mining tax to company tax cuts. Further tax increases or new taxes may well suffer the same fate
Kris Kempson, North Rocks, NSW
Unions don’t run super
Your newspaper’s long-standing and ongoing references to “union-controlled” industry super funds, regurgitated again in your editorial “Union leaders ensure their slice of the pie” (AFR, June 14) is more about fuelling anti-union sentiment than making a useful contribution to any debate about superannuation.
And it remains in contradiction to the facts.
Industry funds are not, and never have been, “union-controlled”.
By law, industry super funds must have equal numbers of employer and employee directors on their boards.
Furthermore, all decisions require a two-thirds majority of the board, so all decisions require a high level of consensus.
Superannuation is too important – both to the nation and to the retirement outcomes of millions of Australian workers – to be a punching bag for unions and a dislike of organised labour.
Any serious debate about industry funds should focus on facts rather than fantasy and editorial fiction. Your readers, regardless of where their super is invested, deserve nothing less.
Fiona Reynolds, chief executive, Australian Institute of Superannuation Trustees Melbourne, Vic
Get HR on board
While it’s heartening to see that corporate boards are finally coming to grips with the risks posed by poor workforce planning (“Boards focus on resources labour crunch”, AFR, June 14), this hasn’t translated to the elevation of human resources to a key board skill.
We are constantly surprised when all or majority male boards in the mining industry tell us there “aren’t many female board candidates”, without considering applicants from this female-dominated function.
Amanda Wilson, managing director, Regnan, Sydney, NSW
Misuse of funds is a national ailment
The sight of former Health Services Union national secretary Kathy Jackson addressing the H R Nicholls Society (“Kathy Jackson still has questions to answer”, AFR, June 14) was nothing more than an attempt to emasculate the union movement.
Why is it that the HR Nicholls Society conveniently forgets HIH, Storm Financial, Ansett, Opes Prime, Allco, Strathfield, Lehman Brothers, Enron and many others when the issue of misuse of funds and poor governance is raised?
The idea that financial waste, mismanagement and misappropriation are only found in a union is absurd – take a look at any Australian corporation and you will find the same ills.
As for Jackson: no representative of the worker should share the stage with an organisation that has the sole aim of making employees work longer for less with a total disregard for conditions and social wellbeing.
Serge Knezevic, South Hurstville, NSW
IR reform can work
In his address to the HR Nicholls Society, Mark Textor made two key suggestions regarding workplace reform (“Pollster Textor warns the right it’s wrong”, AFR, June 14).
Focus reform on “a fundamental case based on compelling evidence”. Then, have regard to the basic aspirations of the average voter as wanting an ability to do better.
These are consistent with the Society’s call start afresh by drawing on analyses indicating that a minimal regulatory system will provide advancement opportunities for the vast majority of workers and their employers.
This could include a replication of the UK’s voluntary Advisory, Conciliation and Arbitration Service. With its labour market expertise, in 2010, numerous disputes were settled without the confrontationist approach inherent in Australia’s arrangements.
Des Moore, South Yarra, Vic
Winds of change
In “Wind power a jobs generator: PwC” (AFR, June 12), Marcus Priest cites the report for Spanish wind farm company Acciona, which claims that the Waubra wind farm near Ballarat, Victoria, “created nearly 1700 new jobs for the area”.
Given that the wind farms are built in China and assembly and installation work is temporary, the only permanent new jobs would seem to be in maintenance – probably only a handful of people are needed.
Where are these 1700 jobs, and are they directly dependent on the wind farms as opposed to any other source of energy?
Ewan McLean, Castle Hill, NSW
Population problem
More houses and urban sprawl are not a solution for Australia’s infrastructure shortfall (“Booster shot for house building”, AFR, June 13). The solution is simple: stabilise population growth and catch up.
Instead of spreading people across agricultural land and pricing them off roads, new sewerage and roads would not be needed if population growth were steady.
Audit recommends tax hikes to solve qld debt woes
ABC News, 15 Jun 2012
A commission of audit has recommended increases in a number of State Government taxes and charges to return the Queensland budget to surplus. The report, released this morning, says the previous government embarked on an unsustainable level of spending which has jeopardized the state's financial position. The audit - headed by former federal treasurer Peter Costello - says growth in expenses outstripped growth in revenue in recent years. The Government will consider the recommendations which include increases on property transfer duty, gambling tax and mining royalties.
Other measures suggested include caps on wages growth in the public service and means-testing of some State Government services.
The state's debt is forecast to blow out to more than $90 billion in four years. It shows debt will equate to 10 per cent of the state's revenue in that period if the government does not implement cuts.
Treasurer Tim Nicholls says interest payments on the state's debt are growing at a faster rate than other expenses.
Mr Nicholls says the state's interest bill is increasing to $5 billion. "The speed at which the interest bill is going to increase is much higher than the speed at which we're increasing payments for things like health and education - those frontline services," he said.
'Don't blame us'
The Opposition's Treasury spokesman Curtis Pitt says Labor left Queensland in a sound economic state. He says the Government should not use today's interim report to attack Labor and talk down the economy. "Certainly over the last few years we created nearly 100,000 jobs," Mr Pitt said. "We left the economy with a very good unemployment rate. "Certainly this is an economic base that should be acknowledged by the Government in Queensland - not just when they're spruiking the economy to investors overseas."
He says the Government cannot blame Labor if the audit finds the state's debt position is worse than the $85 billion foreshadowed in the mid-year review. "The only people who can be held accountable to that is the LNP because that's the tracking that the Treasury advice was given to the previous Government and that's where we were going," he said. "Any change to that and it's essentially not taking that sound advice from Treasury or they're making it up."
Tough decisions
Premier Campbell Newman said yesterday he could not guarantee the jobs of permanent public servants until he sees the report on the state's finances.
The LNP went to the election promising no forced redundancies but has stopped renewing some temporary contracts.
Positions in a number of agencies including the scrapped Office of Climate Change have already been made redundant.
Mr Nicholls says the current level of government spending is unsustainable. "I won't gild the lily - there's going to need to be some tough decisions made," he said. "We don't relish having to make them but we will make them."
Rural concerns
Meanwhile, a group of remote councils is urging the State Government to consider the impact of cutting jobs and services in small rural communities.
The Remote Area Planning and Development Board represents seven western Queensland councils, covering almost a quarter of the state.
Chairman Rob Chandler says many remote areas are already under-serviced. "You can't really cut too much out of these remote areas because we haven't got a lot to cut," Mr Chandler said. "We don't have a lot of government personnel - but by gee there are a lot of government personnel in George Street and in the major cities. "I'd love to see some of those resources - human resources - divested out to some of the smaller communities."
foreign firms targeted to fund tax cut
Katie Walsh, The Australian Financial Review, 15 Jun 2012
The business tax working group, which is determining how to fund the cut proposed by Prime Minister Julia Gillard this week, is focusing on changes to the thin capitalisation rules that are designed to make it harder for companies to shift profits to countries with lower taxes.
Other options on the table are lower deductions for mining exploration and cutting research tax breaks.
The chairman of the business tax working group and a KPMG partner, Chris Jordan, urged the business community to accept that some breaks will have to go if they are to get a corporate tax rate below 30 per cent. "What do they want in the longer term: a broader base with a lower rate or some concessionary treatments in certain sectors or circumstances?" he said.
Property developers, tax and business groups are already defending tax concessions targeted by Mr Jordan's committee, which could raise large amounts of revenue by reducing interest deductions for multinationals and local companies with big foreign debts.
The thin capitalisation rules limit the amount of debt in companies to $3 for every $1 of equity. The debt-to-equity ratio could be reduced to 1.5:1, a change Treasury estimates would save $300 million a year. The revenue estimate is widely considered too conservative.
Ms Gillard didn't say how big a cut she wants to the corporate rate. But she said it must be funded by equivalent cuts in business tax concessions.
Opposition Leader Tony Abbott said he backed a tax cut if funded from savings in government spending or economic growth. He said Ms Gillard's proposal was a "con".
Business groups would prefer tax cuts funded by lower spending or increases in the goods and services tax, which is paid by consumers.
Corporate Tax Association executive director Frank Drenth said that unlike other options, toughening the thin capitalisation rule could have a big impact on many industries. "In some individual company cases it would cost them some hundreds of millions of dollars over four years," he said. "It's not trivial."
The Property Council of Australia, which represents developers, said the thin capitalisation rule shouldn't be changed. "Large organisations and small joint venture businesses alike rely on the current thin capitalisation rules and any changes will deeply impact the cost of property projects," the lobby group's executive director of international and capital markets, Andrew Mihno, said. He said that the Property Council supported government initiatives to reduce tax.
The government has already tried to cut the corporate rate. A plan to reduce the rate to 29 per cent was abandoned this year when the Coalition said it would oppose the cut because it would be funded by the minerals resource rent tax, which the Coalition has promised to scrap.
Australian Industry Group chief executive Innes Willox, who attended Ms Gillard's economic summit in Brisbane this week where she announced the tax-cut goal, said changes to the thin-cap rule could affect corporate investment. "We need to be careful about what we do to achieve this; we've got to look at ways where there can be overall economic gains," he said.
The broader exercise of finding savings within the business tax system that Mr Jordan's group must undertake was "robbing Peter to pay Paul", he said. "If we're starting to make cuts in other areas, that's going to impact on our competitiveness and ability to create jobs," Mr Willox said. "Maybe it shouldn't be the business community that funds this wholly." He noted the government has said it won't expand the GST, which isn't applied to fresh food or healthcare. He said he supported discussions about a cut in the corporate rate to improve productivity. Despite the push-back, Mr Jordan expressed hope for an "open-minded and considered debate". "Business will have to do a hard-nosed pragmatic analysis of where it's better off: a lower rate, [or] maintaining some concessionary treatments," he said. "Certainly the world is moving towards lower rates and broader bases. Economists say it is more efficient and less distortionary."
Other options to raise tax revenue include cutting mining exploration deductions, accelerated depreciation benefits for oil and gas companies, and research concessions.
All were identified by Treasury in the group's interim report on solutions to help small business. None were adopted by the government, which saved $4.8 billion by abandoning the one percentage point corporate tax cut in the May budget.
It used the savings in part to allow small, unprofitable companies to claim tax refunds.
Mr Jordan said the previously discussed options were still the main items under consideration but the group is open for business to propose alternatives. Experts say that won't be easy. "There's not a lot of fat sitting in the business tax system now," Mr Jordan said. "A lot of it was taken out by the Ralph review to reduce the rate to 30 per cent."
The Henry review of the taxation system recommended cutting the corporate rate to 25 per cent.
Greens leader Christine Milne said her party would oppose any attempt to cut the rate. The Greens hold the balance of power in the Senate.
Mr Jordan's group, created by the government's tax forum last October and comprising business leaders and tax experts, must now double-down on its efforts to find a way to fund a tax cut, after Ms Gillard directed it to prioritise the task over other work.
cut power bills to save on carbon tax, farmers told
Peter Roberts, The Australian Financial Review, 15 Jun 2012
"Dairy farmers are under extreme pressure from consumer prices, which are going down as input costs are going up," a spokesman for the Queensland Dairyfarmers' Organisation said. "Something like a carbon tax on top of that situation is the last thing we need."
Various estimates suggest dairy farmers face a rise in electricity costs of $2000 to $5000 a farm from the carbon tax.
But a pilot study by dairy giant Fonterra has found that much can be recouped by simple management measures on farms. A pilot survey of 32 dairy farms found simple changes in farmers' behaviour and regular equipment servicing could save the average farm $2000 a year, or the equivalent of 10 tonnes of carbon dioxide emissions.
"What our program shows is that it is possible for our farmers to minimise the impact of the carbon tax without making huge financial investments," Fonterra's general manager of sustainability, Francois Joubert, said. "Also, the range of tariffs our farmers are paying for electricity is surprisingly large, so we are encouraging our farmers to shop around for electricity," he said.
He said electricity savings could come from monitoring process temperatures, checking fans and tank insulation. "Some farmers are doing these things really well, but there are still savings available for about 90 per cent of farmers."
The study also identified capital investments that would save further energy.
Last month, Dairy Australia received $1 million from the federal government to carry out 900 dairy farm energy assessments.
QDO president Brian Tessmann called on the federal government to apply a mandatory code of conduct to the dairy supply chain to ensure fairness. "The northern industry is in need of decisive pricing stimulus as well as continuing good seasons if we are to see any lasting restoration of production levels and much-needed investment in our industry," Mr Tessmann said.
gillard puts company tax rate top of agenda
ABC News, 14 Jun 2012
Prime Minister Julia Gillard says her economic forum has identified cuts to the company tax rate as a priority.
The Government announced in the May budget that it was breaking its promise to reduce the rate by 1 percentage point because it could not get enough support from the Greens or the Coalition.
But business groups at the Prime Minister's Economic Forum in Brisbane have lobbied for the rate to be lowered as a way of boosting competitiveness.
Ms Gillard says cutting the company tax rate has to be affordable but she says she wants it to happen. "To the business representatives in the room we've heard you loud and clear on the company tax rate and we see it as a priority for the next steps in tax reform, building on the Government's substantial record of tax reform," she said.
Ms Gillard says bringing the rate down will be a top priority. "From today I want to see achieving this company tax rate reduction as the absolute top priority of the business tax working group," she said. "I want it to be the focus and I want it to be the outcome. I want it dealt with before the other business tax issues in the working group's in tray are dealt with."
Innes Willox from the Industry Group has welcomed Ms Gillard's promise and says they want to see the rate at 25 per cent.
Opposition leader Tony Abbott has dismissed the forum. "This is a Prime Minister looking for a photo opportunity as she flounders," he said. He alleges the media was excluded from key sessions to avoid critical questioning.
doubling of witholding tax threatens flow of Chinese cash
Lisa Allen, The Australian, 14 Jun 2012
THE federal government's decision to double withholding tax for foreign investors in managed investment trusts, in tandem with the high Australian dollar, could curtail burgeoning Chinese investment in Australian real estate.
Jones Lang LaSalle Shanghai-based regional director for Asia-Pacific capital markets, Greg Hyland, said a top priority for Chinese was to invest in the Australian, British, North American and Canadian property markets.
Recent Chinese government policy to slow down the housing market is making it difficult for mainland Chinese investors to acquire multiple properties in China. Under the government's home purchase restriction policy, if a household owns more than two apartments it cannot acquire more in mainland China.
Mr Hyland said investing offshore gave flexibility to Chinese investors. "The wealthy Chinese are definitely becoming prodigious travellers ... In terms of buying property, the returns (from offshore investment) are a lot more interesting," he said.
But the Australian government's decision to double the withholding tax to 15 per cent on dividends distributed to overseas investors could become an issue. The move, announced in last month's federal budget, is scheduled to take effect on July 1. "People like investing in Australia because it has certainty, and when that environment changes people sit back and reassess the situation," Mr Hyland said. "Obviously, when you double taxes, it's not attractive for investors. It undermines Australia as a safe haven to invest."
Stuart Crow, Jones Lang LaSalle's head of capital markets in Asia, said Australia's high currency was already an issue for offshore investors, and with the doubling of the withholding tax, investors were concerned the environment was changing.
Tony Ryan, principal of Sydney-based Ryan's Lawyers, agreed that Chinese developers who had been educated in Australia were showing interest in the Australian real estate market. Mr Ryan said Singapore had invested in Australian hotels for 20 years, and although mainland Chinese had not had the same exposure "there's no denying the level of interest from investors". Mr Ryan was in Shanghai with 12 Australian investors seeking money to develop resorts in Australia. The delegation was led by Austrade and Tourism Australia.
But Cushman & Wakefield's chief executive for Asia-Pacific, Sanjay Verma - speaking before the government decision to double the withholding tax - said there continued to be a high level of interest from international investors in Australian real estate. "This includes Chinese investors ranging from high-net-worth individuals to corporations (and) real estate investment institutions," Mr Verma said.
According to Real Capital Analytics, since 2008 Chinese domiciled investors had acquired almost $600 million worth of property assets, he said. "The composition of recent investment has included sovereign funds investing in the privatisation of an Australian listed industrial real estate investment trust; an owner-occupier purchasing an office building in Sydney's CBD; and a large corporate making their initial investment in Australia through the acquisition of a CBD office tower. "Now that regulations allow Chinese insurance companies to invest directly in real estate we anticipate strong demand from this growing sector. Life insurance in China has a shallow penetration and is one of the strongest growth industries."
Mr Verma said Chinese investors focused on core CBD office buildings in Sydney or Melbourne, but the largest portfolio acquisition had been of an industrial portfolio with national scale. "However, as portfolios grow and diversification becomes a greater focus, we would expect investment to broaden to incorporate core-plus markets that are expected to show higher growth, such as Perth and Brisbane."
Mr Verma said he was aware of a number of Chinese developers who had looked at undertaking development projects, primarily residential, particularly in conjunction with Chinese nationals living in Australia.
But he said issues that had made these investors hesitate to increase their activity in Australia had included the duration of approval processes, pre-funding requirements of Australian banks and the cost of construction. "Generally speaking, we have seen that Chinese investors prefer to own 100 per cent of an asset on a freehold basis," he said. "This provides them absolute control and keeps ownership in its simplest form."
Gillard offers business tax lure
Phillip Coorey, Sydney Morning Herald, 14 Jun 2012
THE Gillard government has reinstated its promise to cut company tax but says business must work out how to fund it so there is no effect on the budget bottom line.
And job agencies will be rewarded for finding jobs for people interstate to help combat labour shortages in areas of high demand, such as the mining sector.
Wrapping up the one-day economic forum in Brisbane yesterday, the Prime Minister, Julia Gillard, said the government's Business Tax Working Group, an expert body established last year, must come up with a funded company tax cut as an ''absolute top priority''.
It has until the end of the year to report, raising the prospect of a company tax cut in next year's pre-election budget.
In this year's May budget, the government abolished the promised 1 percentage point company tax cut that was worth $4.7 billion over four years and was to be funded by the mining tax.
The Greens and the Coalition would not pass the legislation so the government redirected the money towards cost-of-living help for low- and middle-income families.
The business community was angry and Ms Gillard sought to to bury the hatchet yesterday. ''We heard you loud and clear on the company tax rate and we see it as a priority in the next steps on tax reform,'' she said.
Ms Gillard did not specify the size of the cut but said it was up to the working group to nominate a cut that could be funded.
The Prime Minister said it must be funded by reforming other business taxes and not, as business groups have demanded, an increase to the GST or a broadening of its base.
Seeking to address the problem of labour mobility, Ms Gillard said her government would also offer incentives to job agencies which find positions interstate. Currently, the job network rewards agencies for finding people jobs in their local area. The commitment will appease unions angry at the resort to imported labour to help build large mining projects.
Business was surprised by the tax-cut commitment given tax reform was not even listed as an item for discussion. The chief executive of the Business Council of Australia, Jennifer Westacott, told the forum the company tax commitment was welcome. ''But it will stand for little if it is not part of broader tax reform that delivers a net benefit to business right across the economy,'' she said.
The need to lift productivity created a frisson between unions and business groups before the latter agreed cutting wages and conditions was not a solution. The governor of the Reserve Bank, Glenn Stevens, told the forum that lifting productivity was the nation's ''biggest challenge'' and the recent slowdown could not be blamed on the mining sector's huge investments, as has been cited by the government.
Mr Stevens said there had been a material slowing in productivity over the past six to eight years and ''if you take mining out you still get this story''. He said the Productivity Commission had a long list of ideas, many of which were controversial and politically fraught, but he said that list should be considered.
One idea floated by the commission was eradicating industry assistance but the Treasurer, Wayne Swan, would have none of it, saying investments in infrastructure, skills and education, and regulatory reform were preferred options.
Mr Stevens said lifting productivity would help combat the deleterious effects of the high dollar on business. But he also spruiked the benefits of a high dollar and said people should be careful about wishing it to fall because every time someone put petrol in the car, bought an imported good, or travelled overseas, the high dollar was benefiting them.
The mining boom has contributed to the high dollar and Mr Stevens said this was a spinoff of the boom for consumers.
reduce spending to fund tax cut: acci
Sydney Morning Herald, 14 Jun 2012
Business wants a possible company tax cut funded by reduced government spending and not by shifting the corporate tax burden.
Prime Minister Julia Gillard told her economic forum on Wednesday that achieving a company tax cut was the "absolute top priority" of the government's business tax working group.
However, the Australian Chamber of Commerce and Industry is not impressed. "We don't believe the function of working out how to fund that should be sub-contracted to a community," the chamber's director of economics and industry policy, Greg Evans, told ABC Radio on Thursday.
Nor does the chamber back the government's plan to fund any tax cut with other changes in the business tax system. "We think that should be through funding savings," Mr Evans said.
The chamber believes the tax system needs reforms that improve the international competitiveness of Australian companies.
Ms Gillard wants the opposition to do "the right thing" and back any tax cuts legislation the government brings to parliament.
The coalition refused to support a previous government attempt to lower the company tax rate from 30 per cent to 29 per cent because it would have been funded by the minerals resource rent tax.
The Australian Greens were prepared to support a cut for small business only.
"There's a question for others in the parliament, particularly the opposition, about what attitude they'd take," Ms Gillard told ABC Radio.
Yasser El-Ansary, from the Institute of Chartered Accountants, says an interim report from the business tax working group contained several recommendations on how to pay for a cut in the corporate tax rate. They included axing deductions for depreciation, especially for the mining and resources sectors. "Taking away their access to those tax deductions would save the government a few billion dollars, which would certainly go a big way towards funding a modest corporate income tax cut," Mr El-Ansary told ABC Radio.
There also was a need to have a debate about reforming the goods and services tax (GST). "Both the base - what is liable to the GST - and the rate itself needs to be a part of the consideration," Mr El-Ansary said.
Many education-related and most health care, childcare and fresh food expenditures and residential rents are exempt from the 10 per cent tax.
business leaders reject gillard company tax plan
Tim Colebatch, Sydney Morning Herald, 14 June 2012
BUSINESS leaders have rejected a new plan put by Prime Minister Julia Gillard to the government's economic forum to restore the government's proposed cut in company tax rates - but this time pay for it by raising other taxes on business.
At the forum's closing session, Ms Gillard said the government will direct its business tax working group to give priority to working out how a cut in company tax rates could be paid for by cutting corporate tax breaks or finding other ways to raise revenue from business.
The decision comes just a month after the Government scrapped its plan to cut company tax from 30 per cent to 29 per cent, after the opposition refused to support it and the Greens insisted the tax be cut only for small business.
''We've heard you loud and clear on the company tax rate,'' she said. ''We see it as the priority for the next step in tax reform. ''We're in the cart for a lower company tax rate but it has to be affordable. And that means it has to be funded by other changes in the business tax system.''
But business leaders ruled out any such trade-off. Business Council chief executive Jennifer Westacott said a reduction in company tax should be financed by spending cuts, and be part of wide-ranging tax reform, which lowered overall business taxes. Australian Chamber of Commerce and Industry policy director Greg Evans also insisted that the tax cut be paid for by spending cuts.
Australian Industry Group chief executive Innes Willox, who told the forum the government should set a medium-term goal to cut company tax to 25 per cent, dismissed as ''ludicrous'' a government proposal to finance the cut by slashing tax incentives for research and development. But he welcomed the referral to the business tax working group, calling it ''a discussion we have to have''.
Opposition Leader Tony Abbott said that once again the PM was taking Australians for mugs. ''What Julia Gillard has announced is that there will never be a company tax cut unless it is funded by a tax increase. That is not a tax cut, that's a tax con - and the Australian people and business community will see right through it,'' Mr Abbott said.
But the business leaders agreed that the forum had been valuable in opening up dialogue between business, government and unions. They particularly welcomed the forum's focus on lifting productivity, which was the main theme of a keynote speech by Reserve Bank governor Glenn Stevens.
Ms Gillard also flagged minor reforms to encourage job seekers to move interstate to find work, to give them more incentive to enter training courses and make it easier for small business employees to undertake training. She also pledged wide-ranging initiatives to encourage Australian firms to become part of global supply chains.
The forum divided, however, on the crucial issue of reducing construction costs. Ms Gillard ruled out a proposal by Premier Ted Baillieu to hold a Productivity Commission inquiry on construction costs, instead endorsing a proposal by union leaders for tripartite working groups of business, unions and government to examine the issue.
The business response was guarded. Master Builders Australia CEO Wilhelm Harnisch welcomed ''the recognition that tackling construction costs has to be an important part of the productivity equation''.
But Mr Baillieu said an independent inquiry by the commission was the way to get action. The only Liberal politician at the forum, Mr Baillieu said he was pleased he had gone and particularly pleased that the forum acknowledged that priority must be given to fiscal consolidation, lifting productivity, and developing new markets in Asia.
Interview with Wayne Swan on abc 24
The Treasury, 13 June 2012
SUBJECTS: Prime Minister's Economic Forum; productivity; federal-state relations; confidence in Australia's strong economic fundamentals
Transcript for the interview:
CURTIS:
Wayne Swan joins us now. Mr Swan, welcome to ABC News 24.
TREASURER:
Good to be with you. Good to be in Brisbane.
CURTIS:
Glenn Stevens said he wouldn't give (inaudible) on how to lift productivity, he says the Productivity Commission has a list and to go and get that. Have you got that list?
TREASURER:
Well the Government's been working on productivity from day one because when you're talking about lifting productivity growth in the economy, it's not something that you can flick a switch overnight. The fact is a productivity agenda needs investment, skills, education and infrastructure. Many of those things take time.
It's true there's been a structural decline in our productivity over the last decade but we shouldn't lose sight of the fact that in Australia our overall productivity level is high. We're in the top dozen countries in the world, we should set ourselves the objective of being in the top ten, and that's what I said last night.
CURTIS:
Glenn Stevens also said there are things on the Productivity Commission list which are not popular, which are politically hard to do, which are very difficult. Are you prepared to do more, whether it's difficult or not to increase productivity?
TREASURER:
We've had a constructive discussion about lifting productivity growth this morning. I think it was a pretty good discussion involving unions and business and the community sector.
I think everybody agreed what we need to do is to be quite focused on the areas where we will, if you like, get the biggest bang for our buck. I think what was pretty clear coming out of the discussion today is that one of those areas most certainly is in the area of skills and education more broadly, which is an area where the government is also very active at the moment.
But I don't want to pre-judge the outcome of the discussions as we go through the day. It's a pretty frank discussion. I'm really pleased at the spirit in the room, because I think everybody in the room agrees that what we do need to emphasise is the underlying strength of our economy. The Governor said that this morning and I think it is true that people feel that glass is certainly more than half full when it comes to our economy.
CURTIS:
But you also have people in the room from big business who think one of the answers to the productivity challenge is to have more flexibility in workplace laws. You also have unions who say that flexibility already exists. How do you get them on the same page?
TREASURER:
We are actually having a very interesting discussion between the business community on the one hand and the union movement on the other. They all agree that we must be committed to lift productivity growth. There are differences of emphasis in that, but I think there is a lot more common ground there than many people would assume, and I think that might be one of the things that comes out of today.
CURTIS:
Glenn Stevens also said another thing you can look at tackling is federal-state relations. He said it's very very hard to do. The Prime Minister last night talked about the impossibility of dealing with state taxes on property transactions. There would have to be a bit of give and take if you were going to ask the states to take away one of their sources of revenue.
TREASURER:
Well that's in the tax area, but the productivity agenda [goes]across federal-state relations, across a whole host of regulatory areas and indeed just earlier this year we had a whole COAG centred around that and there are important reforms coming from that. The thing about productivity is that there's no rabbit you can just pull out of a hat; it does really rely on long-term reform across a range of areas, which is also a point that the Governor made this morning.
CURTIS:
If we could go to that issue of taxes, if the Prime Minister wants the issue of state taxes on property transactions dealt with in order to help people move interstate if they want jobs, there'd have to be a trade-off, wouldn't there, to replace that source of revenue?
TREASURER:
We are already working with the states in terms of property tax reform. There's a process already in train for that. It's one which I will be working with the state treasurers on over the months ahead.
CURTIS:
As you mentioned the Prime Minister last night urged business and other people at big forums to help become champions of the economic growth of the strong economy. But business also made the point that the danger signs from overseas are a real danger and are impacting on confidence. Is there any way to lift confidence while Europe hasn't sorted its problems out and the United States economy is still relatively weak?
TREASURER:
Yes there is, and that is to go back to the basic facts. The basic facts are we have come through the global financial crisis and the global recession in better shape than any other developed economy. We are now living with the after-shock s of all of that and we're seeing that in Europe.
People need to have confidence in the underlying strength of our economy, but also, and I think everybody in the room agrees on this, we need to understand that not everyone is in the fast lane of the mining boom and therefore we do need to find the means of spreading the opportunities of the mining boom more broadly around our community and that's what the last budget was about, that's what the SchoolKids Bonus is all about.
CURTIS:
Thank you very much for your time.
TREASURER:
Thank you.
too high a price for growth
Joshua Funder, The Age, 13 June 2012
Asking people to sacrifice a good life by working longer and harder for the sake of economic growth is morally unacceptable.
MORE women should join the workforce, we should all work till we are at least 70 and we should pay GST on everything, including healthcare, education and food. These three policies are the simple recipe for economic growth, according to a recent report by the Grattan Institute. But the underlying assumption that growth can be divorced from its social costs is misleading. The wilderness awaits those who follow an economic prophet without a moral compass.
The question we need to ask is a different one: "How will we benefit from growth?" It is all too easy for more people to work longer to boost workforce participation at the cost of destroying our way of life. As The Age front page detailed last week, we could lift productivity by asking everyone to wear a barcoded armband and only pay them when they pass under a scanner in the act of making widgets. It's a warning of what happens when economics, morality and democracy are divided into separate spheres of thought. Setting priorities for growth and productivity without common values is economic folly and political futility.
Let's take each measure in turn. The report suggests that by levying GST on health, education and food our tax system would be more efficient but unfairer. The authors acknowledge the GST is a regressive tax and hope welfare transfers would make up the difference. Expanding the GST is simply the unfinished business of the sole substantive reform of the 11 years of the Howard government, during which time productivity flatlined while income inequality soared. The main thing going for this suggestion may be that it has forged agreement between Julia Gillard and Tony Abbott to reject it.
The next big quick fix is raising the retirement age to 70. That way we would all be forced to work longer in order to expand the economy. It's true we will all have to fund the longer lives we lead. Greece has taught us we can't retire early and borrow our way to the future. There are a complex range of issues about how together we should face the challenges and opportunities of longevity to build high-quality lives. Simply working longer and enjoying retirement less in order to expand the economy should not be the objective.
Finally, the think tank's report suggests more women should participate in the workforce so we can boost the economy. Indeed this would potentially be a progressive outcome: our current policies on female workforce participation and childcare are unfair. But the main reason to help women participate in the workforce is not economic growth for its own sake. The real reason is to enable them to share equal opportunity and equal reward. Already the childcare tax deductions proposed by the Grattan Institute have been criticised by Treasury as only helping the rich - an unfair solution for an unfair situation.
The Grattan approach to reform has two key shortcomings. First, the report suggests these policies should be our priorities because they are purely economic, politically doable and would enhance growth. This is no way to contest the future of Australia. The authors' solutions would be unfair and reduce the quality of our lives. Instead, reform must be both economically sound and morally grounded. Growth is not a moral conviction. Political doability is not a value. Reform is never purely economic.
Second, the report puts all major efforts to improve productivity in the "too hard" or "too far away" baskets. This sells Australia short and makes our lifestyle and our economy vulnerable. Noted economist Paul Krugman states it clearly: "Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker."
Just as more people working longer is a fallacy of growth, working longer hours for less pay is a fallacy of productivity. Genuine productivity involves the complex task of producing better products and services, improved economic systems and new technologies. More productive Australians will be better able to support their families and retirement as well as afford the time to have families and retire. We will be richer in not just time and money; our jobs will be more competitive, more profitable and more secure.
There is a grab bag of current policies that should enhance participation, boost growth and address longevity: raising the minimum tax rate, introducing paid parental leave, applying progressive taxation to superannuation, levying the carbon tax and mining tax. There are a number of recent policies that should enhance productivity, such as the national broadband network, R&D tax credit, increased education funding, healthcare reforms, improved dental care, a national disability insurance scheme and national infrastructure projects. These policies are not enough to secure our future. The current state of political debate and media coverage of these issues have been a national disgrace, so contributions from all think tanks are a welcome addition to the mix.
Let me end by asking a simple question. Think about all the things you would fight and die for: your partner, your children, your mother, your country … higher gross national product? This is the problem of economic reports like the Grattan's - if you turn the important issues of economic growth and productivity into a sterile debate that comes at the price of a good life we have already lost the fight. We have to talk about economics in a way that makes it human and sounds human. Quick fixes for economic growth are not the answer.
closing remarks at the prime minister's economic forum, brisbane
Julia Gillard, The Prime Minister's Website, 13 June 2012
Last night, I said that we would be discussing the strength of our economy - and that’s been acknowledged by participants in the room from many different perspectives today.
I also spoke about the very difficult circumstances affecting the world economy and new ideas to address uneven growth at home.
I said that in today’s discussions we would not shying away from hard questions because we are committed to keeping our economy strong: creating jobs, driving growth and improving productivity – they’re all critical to securing our economic future.
And we have not shied away from those hard questions.
Together we have spent the day framing new grounds for confidence and new ideas for reform.
So allow me to try and summarise what’s been a big day of discussion.
We’ve certainly heard about the need to bolster confidence - to appreciate our strengths and to forge together to build confidence, and to recognise that our glass is more than half full.
We’ve heard about the structural shifts underway in our economy.
The high terms of trade and high dollar - and the benefits and challenges presented by those.
The normalised levels of wealth accumulation and consumption, after a period of unusual growth in both of these areas and the ageing of our population, and what the means for employment of the future.
We’ve heard a lot about the need to focus on productivity and lifting productivity growth.
And we’ve heard about the importance of investment in developing human capital, in developing our people.
The importance of the education system, the importance of maths and science of skills development or research and development.
You would have seen Governor Stevens this morning, in what I thought was a very description of the circumstances of our economy, talk about the need to address and then somewhat modestly suggest he wasn’t the expert and people searching for ideas should go to the Productivity Commission.
It’s not necessarily fashionable in life today to suggest someone might know better than you but he did point to the Productivity Commission.
And I would remind on this question of human capital that the Productivity Commission has found that VET reform is crucial to lifting productivity and delivering the COAG reform goals that we’ve set ourselves would raise GDP by 2 per cent.
So skills work is underway and vital to our productivity.
On infrastructure, we discussed new financing opportunities, risk management, how we use new infrastructure and maximising investment opportunities.
We had a discussion about construction costs particularly for multi-dwelling residential projects and I think it was good that we saw in the room in that discussion, the preparedness of stakeholders within this room to collaborate on this question of construction costs.
We also heard more broadly about the importance of collaboration right across our economy, the creation of such relationships within workplaces through management practices as a way of increasing productivity.
I was especially pleased to see the acknowledge of the effective and ongoing dialogue that there is on these questions maximising collaboration within firms and maximising our use of R&D, employee engagement and minimising conflicts at work.
A clear thread running through today’s discussions has been the acknowledgement that technology, is changing the way we live and work and will change the productivity of our economy.
That it’s driving innovation in sectors like manufacturing and agriculture.
It’s changing the way we do things and it’s certainly changing the way government does things too – our ability to deliver services in a different and smarter way.
We heard in this last session a recommitment to the deregulation and competition agenda first outlined at the Business Advisory Forum which met with COAG in April, and I do thank people for the kind words about that initiative, bringing business leaders together for the first time with the Prime Minister and Premiers meeting in COAG to talk directly about deregulation.
It’s imperative that we bring the reforms that we outlined through that process home this year and next year.
And coming back, once again to the Reserve Bank Governor pointing to the Productivity Commission and its analysis.
The Productivity Commission recently examined 17 deregulation priorities and estimated that these reforms could increase GDP by over $6 billion in the longer term - so working through that forum, an important productivity initiative.
So in thinking about these issues in advance of our Forum and thinking about the in the course of discussions today, I do now want to outline some priorities for attention.
On the key issue of competitiveness, we have had discussions in the sessions and through the proceedings, and I want to say this.
To the business representatives in the room, we’ve heard you loud and clear on the company tax rate and we see it as a priority for the next steps in tax reform, building on the Government’s substantial record of tax reform.
Now I've lost count of the amount of times that Wayne, Penny or I have said we're in the cart for a lower company tax rate.
But it has to be affordable and that means that it has to be funded by other changes in the business tax system.
So today though, let’s be very clear.
From today I want to see achieving this company tax rate reduction as the absolute top priority of the Business Tax Working Group.
I want it to be the focus, and I want it to be the outcome.
I want it dealt with before the other business tax issues in the Working Group’s in-tray are dealt with.
And if we do that, if we have the Business Tax Working Group addressing the questions of the right offset, you will get your company tax cut as a down-payment to help you be more competitive in this the Asian Century.
That's what we're on about, what you're on about, and ultimately it’s why we're here.
To help our businesses be competitive, to ensure our economy remains strong and becomes stronger.
Another theme to emerge from the discussions today is this question of labour mobility.
There are thousands of jobs being created in our strong economy, but there are also some areas where industries are struggling and jobs are being shed.
And it’s our collective task, for everyone in this room - as a matter of good economic management and good social policy - that we do our absolute best to match the demand for labour with those who are seeking employment.
The Government’s going to continue to provide leadership, and work with other governments, other levels of Government and business and unions to promote a more mobile labour force - including through measures like ensuring skilled trades people can move seamlessly from one part of the country to another without having to get a new license.
And it might seem puzzling to some that we are still in the modern age working on these questions like recognition of occupational licenses but we are – a simple measure, a very important measure and we’re very determined to get it done.
But there is always more we can do.
The Government invests over $6 billion every four years on jobs services.
That’s the services that go to assist people to find work.
These are the services right around the country, who reach out and help people who are out of work including those who have just lost jobs.
Our current arrangements for our employment services make it easier and more convenient and financially rewarding for a provider to place someone in a job in their local area, and less convenient and rewarding if a jobseeker moves out of the region or interstate.
To help us improve labour mobility, as a result of today I commit the Government to providing stronger incentives for our employment services to grasp interstate opportunities available in the jobs market.
We need to provide better incentives for employment service providers to put people into jobs wherever they are in the country, including the growing resources sector but let’s not forgot to the growth we’re seeing in the services economy including particularly the health and caring sectors.
Of course looking out on this room of many business leaders I would say this, employers also have a responsibility to train-up and employment people who are prepared to move.
We’ve got to help get the match between the people and the places that are available.
In a similar vein, I took a lot of notice of worthwhile comments made during the course of the day about training and income support and making sure that we have a better package of the two.
I’m keen to pursue the ACTU idea to better marry up income support and training.
Job services bring these things together already. But as an outcome from today's discussion, I want to explore further options to combine Government efforts to support individuals who need income support, many of whom also require further training to be successful in the labour market.
I also noted the suggestion made by small business here, by Peter of better integrating the training needs of small business into our training system and that is both employees and owners.
I think he made a powerful point about the need for our training system to work for owners as well.
And making sure that people in small businesses have the opportunity to up-skill even as they operate their business so we will be looking at that.
The new HECS for TAFE arrangements will help workers undertake further training to get those skills without forgoing income, that is without paying up front fees.
Of course, last night we heard from business and unions alike a desire to better capture the opportunities of this Asian century – our desire to make sure that Australia is a winner in this period of growth.
We articulated that last night as a search for greater people to people links and stronger economic integration.
It is my view that Australia has been slow to participate in global value chains, by one measure ranking third-lowest among OECD countries.
As Minister Emerson, the Minister for Trade and others mentioned, if Australian businesses participate in global value chains they can be producing for the vast and rapidly growing markets of Asia instead of relying on our relatively small domestic market.
This economic transformation would be a big boost to both Australian manufacturing and to all the service industries that can participate in value chains.
My Government is willing to support this transformation, integrating our manufacturing and services industries more fully into the opportunities in the economies in our region.
The Government will deploy the expertise and resources of Austrade and the Export Finance Investment Corporation in encouraging the participation of Australian manufacturing and service businesses in global value chains.
We will also ensure the Export Market Development Grants Scheme is helping to capture these new opportunities for Australian export businesses.
With my Ministerial colleagues and I intend to deal with many of the other very important points that have been raised today in the period ahead.
We are going to take what you have said forward and feed it into the ongoing policy processes we have underway.
By that I mean the business tax working group, with a renewed focus on company tax cuts.
The manufacturing taskforce, with an even further impetus for policies which drive innovation and high performance workplaces.
Through the high-powered Business Advisory Forum, which is working at great speed to deliver the deregulation agenda and of course in the vital work that is being undertaken to prepare the Asian Century White Paper.
Working through these processes will allow people in this room to continue to collaborate on solving some of the big economic challenges before us.
These processes, together with today's Forum, are helping to re-enliven important reform important conversations in the context of an economy that is once again undergoing structural change.
To make sure, at the end of the day, that we deliver the very best policy outcomes on the key questions that will govern our future, our economic security and our prosperity as a society.
I’ve certainly heard in the room a real hunger to continue these kind of collaborative processes and we will.
It’s the best way of making sure that our policy outcomes are informed by a broad cross-section of views. It’s the best way of making sure that we are taking those views and using them to secure our aim of more prosperity in our society and more fairness.
Finally, there have been a number of observations during the course of the day about the nature of the international economy and about how fortunate we are to live and work in an economy as strong as ours.
Many reflections both formal and informal about how there is no place in the world you would want to live or work than Australia.
Next week, I will be sitting at the table of the G20 and in view with that spirit about the Australian example I will be calling on my European counterparts to take the decisive action we all want them to take.
That means greater banking integration, greater fiscal integration and a strong focus on growth and jobs.
And that last point is particularly important.
As our own experience shows, and this is the power of the Australian example, growth and fiscal consolidation are not mutually exclusive.
But growth is a necessary precondition for strong public finances.
The Australian model has worked well for us and we’ve been remarking on it today just what we have achieved together and I will be commending it to my colleagues at the G20.
For the sake of the global economy, and for the sake of our own economy within that global economy.
Prime minister julia gillard pitches tax cuts, worker mobility at forum
The Australian, 12 June 2012
PRIME Minister Julia Gillard has urged business and union leaders to find ways to fund a corporate tax cut and make it cheaper and easier to shift workers interstate.
Ms Gillard also told more than 100 representatives of government, business, unions and academia the Labor government had got the macroeconomic policy settings right, but more needed to be done to spread growth and lift productivity.
The prime minister used her opening speech at a dinner to mark the start of a federal government sponsored economic forum in Brisbane to encourage all players to "speak up" for the economy. "We know it's in the interest of business that confidence grows, we know it's in the interests of working people that confidence grows, too," Ms Gillard told the gathering today. "We all need investment to flow, we all need jobs to grow, we all need consumers to spend."
Ms Gillard said areas of "greatest interest" for the forum were corporate tax and labour mobility. "I've got no doubt the company tax rate should be lower - and no doubt the revenue base has to be maintained as well," she added. "And we understand that the benefits of a lower corporate rate would flow to workers and the wider community in more jobs and better pay over time."
With the nation's mining regions crying out for workers as unemployment rises in other areas, Ms Gillard called for solutions to address the costs and constraints of moving interstate. "We've worked on national licensing of professions and trades and on incentives for welfare to work and now we're turning attention to more improvements to jobs services and to issues like state transaction taxes on property as well," she said.
Less than a week away from the Group of 20 world leaders' summit in Mexico, the prime minister said she would tell her counterparts "austerity alone is not the right path". "Here, we have put growth and jobs first - growth which in turn is the solid foundation for fiscal discipline in the long term," Ms Gillard said.
Ms Gillard also said Australia could not rely on "luck" to build the national economy. "We have to make it," she said.
The government had got the economic fundamentals right and now it was up to business, unions and other to continue that work. "Australians should be confident," she said.
childcare tax breaks only help the rich: treasury
Stephanie Peatling, Sydney Morning Herald, 10 June 2012
TAX deductible childcare would benefit only high income families and leave low and middle income parents thousands of dollars a year worse off, Treasury modelling has found.
Some industry and business groups have called for tax deductible care costs as an incentive to increase women's workforce participation.
But modelling conducted by Treasury and released to The Sunday Age shows this would only benefit high-earning parents.
The Minister for Childcare, Kate Ellis, said that making childcare tax deductible instead of the ''current, more generous system'' would be a ''regressive move'' that took away critical financial assistance from families who relied on it most.
All parents receive the non-means tested childcare rebate, which covers 50 per cent of out-of-pocket costs and is capped at $7500 per child, per year. Low and middle income families also receive the means tested childcare benefit.
A family that spends $500 a week on childcare and has an annual income of $75,000 currently receives $13,564, or 54 per cent, of their care costs in government payments.
However, according to the modelling, if the same family were able to deduct childcare costs from their taxable income the amount they would receive back would be 31 per cent of their out-of-pocket expenses, or a tax reduction of $7625.
A family earning $235,000 a year now receives $7500, or 30 per cent, of their out-of-pocket costs in government assistance.
Under a system that provided tax deductibility for care costs, that family would have 42 per cent of their care costs covered, or a tax saving of $10,515. Once a family's income reaches about $150,000 they no longer receive the means-tested childcare benefit.
The modelling showed tax deductibility favoured people on incomes over $150,000 because they spent more on childcare so were able to claim more back.
The Grattan Institute last week called for a more generous taxation treatment for women returning to the workforce and suggested tax deductibility for care costs should be examined.
A coalition of executive women has been pushing for tax deductibility for care costs as a way of encouraging women to seek promotions.
''Tax deductibility for childcare, even means tested, would assist the economics of childcare providers and users and ultimately contribute favourably to Australia's economic growth and productivity,'' Jillian Broadbent, a Reserve Bank board member, said last year.
Ms Ellis said she was not attracted to the idea of revamping the childcare assistance scheme in favour of high income families. ''Under the tax deductibility model, families would have to wait until the end of financial year to make a claim for thousands of dollars of childcare fees,'' she said.
Both major parties say making childcare a tax deductible expense would have been a more attractive option for a greater number of families when the rebate covered 30 per cent of a family's out-of-pocket care costs.
The government is looking at changes to its childcare policy as fees rise, including the option of requiring childcare centres to apply for fee increases, as private health insurers do.
The opposition wants the government to wind back its new quality standards for centres that require higher ratios of staff to children. It says this contributed to higher care costs.
The Sunday Age revealed this year that the opposition had promised it would ask the Productivity Commission to look at extending the rebate to nannies if it wins the next election.
Gillard and abbott agree on gst status quo
Sydney Morning Herald, 8 Jun 2012
Julia Gillard and Tony Abbott are on rare common ground with both leaders ruling out any extension of the GST. But on raising the retirement age there is less consensus between the prime minister and opposition leader.
Both ideas are contained in a report, to be released on Friday by think tank the Grattan Institute, which says reforming the tax mix to shift more towards consumption tax and increasing the number of women and older people in the workforce would be the biggest boons to the economy.
It advocates removing the GST exemption on education, health and fresh food - a measure that would raise $20 billion of revenue a year. That revenue could fund a cut in the company tax from 30 per cent to 23 per cent, reduced income taxes and higher welfare payments.
Both Ms Gillard and Mr Abbott ruled out any changes to the GST, giving identical answers on Friday: "No I don't."
Ms Gillard went further saying: "I don't support lifting the rate of the GST (from 10 per cent)." The report also says increasing the pension age to 70, from the current 65 for men and 64 for women, and raising the age at which people can access superannuation would lift the workforce participation rate by 1.3 per cent. Ms Gillard said the government already had made the decision to lift the retirement age to 67 by 2023. "We are not revisiting those decisions," she told reporters in Melbourne.
Mr Abbott was more open to the suggestion. "I'm not saying it's wrong," he told the Nine Network. "But I don't think there should be any further lifting of the retirement age without a full community debate and I'm certainly not proposing that."
obama stands firm against extending tax cuts for rich
The Reuters, 7 Jun 2012
President Barack Obama's Democrats traded shots with Republicans on Wednesday about how best to avoid a year-end "fiscal cliff," as the administration insisted on the need to let tax cuts for wealthier Americans expire as scheduled on Jan. 1.
The prospect of higher taxes and automatic spending cuts that kick in next year have spurred calls for Obama to temporarily extend all of the Bush-era tax breaks to coax Republicans into a sweeping debt deal, but the White House stood firm. "President Obama has been clear about his position and it has not changed," White House press secretary Jay Carney told reporters traveling with Obama to California. "We should not extend and he will not extend the ... Bush-era tax cuts for the wealthiest two percent of the American people."
A top Obama aide separately said the administration was open to a sweeping deal to tackle the debt, if it was "balanced" to include tax revenues as well as spending cuts. "There is no reason that we as a country should not be able to come together on a balanced grand compromise," White House National Economic Council director Gene Sperling said in prepared remarks to the Economic Club of New York.
Leading Democrats in Congress chimed in to back Obama. "We agree with the administration that Republicans should not risk a tax hike on the middle class on Jan. 1 by insisting that millionaires and billionaires get a tax break too," said Brian Fallon, a Senate Democratic leadership spokesman.
But Republicans, vying to oust Obama from the White House in the Nov. 6 election, stepped up their calls for a quick extension of across-the-board income tax cuts first enacted under former President George W. Bush, a Republican.
Fanning the debate, former Democratic President Bill Clinton told CNBC on Tuesday that "I don't have any problem with extending all of it now," although he argued making the cuts permanent for the rich would be an error. His spokesman, Matt McKenna, subsequently said that Clinton did not support extending tax cuts for rich Americans.
Republicans in the House of Representatives plan to hold a vote on extending the Bush tax cuts this summer, possibly before Congress heads out for a month-long recess in August.
House Ways and Means Committee Chairman David Camp told Reuters that Republicans plan to link the vote to the broader issue of a major overhaul of U.S. tax laws and include a mechanism that would force Congress to act quickly next year.
Tepid U.S. job creation in May and a festering European debt crisis have fanned concern about the strength of the U.S. recovery ahead of a so-called "fiscal cliff" on Jan. 1, which some economists say will sharply reduce economic growth.
LOOMING DEADLINES
Income tax cuts signed into law by Bush expire at the end of this year. And in January, deep automatic government spending cuts start kicking in, unless Congress either agrees to a sweeping deal to curb the U.S. deficit before that deadline or passes legislation specifically stopping the scheduled spending cuts.
Analysts and some politicians argue that threat should spur action by lawmakers, but there has been little sign of a willingness for a deal before the Nov. 6 elections.
Obama has consistently argued that taxes on households making over $250,000 a year should be allowed to rise to the pre-Bush level of 39.6 percent, from 35 percent at the moment.
House Democratic leader Nancy Pelosi, however, has opened the door to increasing taxes starting at the $1 million annual income level.
Obama says he will not agree to further spending cuts without steps to increase tax revenues, which Republicans oppose.
Larry Summers, a former U.S. treasury secretary under Clinton and former top economic aide to Obama, said on MSNBC on Wednesday that "we've got to make sure we don't take the gasoline out of the economy at the end of this year." Summers did not say the tax cuts for the richest Americans should be extended, but Republicans, as they pushed to preserve lower tax rates for everyone, seized on his remark as evidence of a split between Obama and the two Democratic heavyweights.
"It's pretty obvious that the economy needs the certainty of the extension of the current tax rates for at least a year," said Mitch McConnell, the top Republican in the U.S. Senate. "That would also give us the time to begin to grapple with something we all agree we need to do on a bipartisan basis, which is to reform the whole tax code," McConnell said.
shock! canberra delivers genuine tax reform
Michael Pascoe, Sydney Morning Herald, 7 Jun 2012
It's been a busy week for headlines.
With threats of European Armageddon, the demise of capitalism, an RBA rate cut and surprise economic growth when much of the population preferred to believe we were one step above Greece, it's been easy to miss that there was some genuinely good news out of Canberra. Real taxation reform, bravely challenging the status quo and doing the right thing for the future of the economy and citizenry, and never mind the inevitable opposition carping.
Such reform lays down a challenge to mendicant state governments with their mediocre leadership and, at best, matching performance. The Treasurer summarises it thus:
“The Government is starting a long-term reform of the taxation system, to make taxes fairer, simpler and more efficient. The first five-year plan abolishes and reforms a number of inefficient taxes in favour of more efficient, simpler and more progressive taxes. The plan includes targeted assistance measures to support households. “The taxation reform plan is broadly revenue neutral – it's not about raising the overall amount of tax the Government receives.”
Yes, that “five-year plan” line sounds a little Politburo-ish, but maybe there is a need for brave planning in government rather than political adhockery. While everyone was looking elsewhere, this is what the Treasurer has ruled:
“Transaction taxes will be phased out over a period of 5 to 20 years. A number of nuisance taxes are removed. General Rates are adopted as a broad and efficient revenue replacement base, with improved progressivity.”
No, I'm not dreaming, he's really done it. “General rates” sounds more acceptable than something scary like “broad-based land tax”, so I'll happily play along with the euphemism for the greater good. (You wouldn't want people to think you were taking the Henry taxation review seriously – apparently that's political suicide.) And 20 years is a very, very long time, but you can't expect too much in the present climate.
It's early days in the reform process, but the government tries to explain it in bullet points thus:
A Fairer System
Transaction taxes such as duty on conveyance are unfair
- A small number of households contribute disproportionately to the funding of services
- Around 9 per cent of the people raise 25 per cent of taxation revenue as a result of conveyance duty
A Simpler System
Businesses currently pay commercial land tax and general rates separately meaning
- higher administration costs and time lost
Commercial land tax and general rates both
- apply to the same property
- reflect land used for commercial purposes
A More Efficient System
Inefficient taxes distort behaviour. For example, households and businesses pay a tax on insurance premiums this may
- increase insurance costs
- result in under insurance
- create a disincentive to insure
The budget implications are explained further on page 17 of this document and there's a neat graph that's worth a thousand words showing the appalling total compliance, administration and economic cost per dollar of revenue raised for some key taxes. The cost of the aforementioned for general rates is stuff-all, land tax is just a little more than that, but payroll tax allegedly chews up more than a third of each dollar raised, conveyance duty is nearly 40 cents in the dollar and general insurance is more. There have been revolutions over less inequity.
Given the realities of politics and the need to neither disrupt or frighten the horses, the reform is indeed being phased in. It's taking five years to scrap the egregious duty on insurance, which is pathetic – something that bad needs to have been scrapped yesterday. The conveyancing duty takes much longer again as the land tax, oops, I mean “general rates” are increased.
It's not perfect, but it's a real start so well done Treasurer Andrew Barr.
Who? Andrew Barr MLA, ACT Treasurer.
Yes, it's that Canberra, not the other one. The smallest Australian government has become the only one to tackle the evils of real estate transfer stamp duty while the states are too busy whining and dreaming of the federal government solving their revenue problems for them. Dream on.
It is a little easier for the ACT government, being a glorified local government that already levies rates and therefore not having to worry about another level of government. However, the principles required for the change are the same: a willingness to do what is best in the long term rather than what is politically easiest in the short-term.
I had the pleasure of chairing the state taxes session of last year's taxation summit, of having all the nation's treasurers in the room at once, in front of an intelligent audience of tax professionals and community and business leaders, and belting them ever so gently over the head with their failings. They all knew they were imposing genuinely bad taxes, they all knew the thrust of Henry was right, they all knew they were failing their state/territory/nation. But they all sheepishly begged to be forgiven as captives of our divisive politics and short-termism.
The states all wanted the feds to take the political heat of tax reform for them: you raise it and we'll spend it, thanks very much. And the feds of course have enough problems of their own. Dream on and on.
I didn't suspect that in the room was one government with some ticker for reform, some lead in the pencil, fire in the belly and concern for the greater, long-term good.
Take a bow, ACT administration. Andrew Barr for Treasurer of the Year.
cheaper loans 'hit by delayed tax cuts'
Annabel Hepworth, The Australian, 6 Jun 2012
LABOR faces new warnings that greater competition - which would allow consumers to access cheaper loans - is being undermined by delays to cuts to the withholding tax for foreign banks.
The Australian arm of Dutch giant Rabobank says the delay in the bank tax cut -- a result of the deal Labor did with the Greens in November to secure the passage of the mining tax -- is limiting the ability of foreign banks to tap cheap funds.
The bank said securing cheap funds would benefit consumers and encourage competition, which had been reduced as some foreign banks quit Australia. "The current local withholding tax impediments continue to limit the extent foreign banks can effectively compete against the larger domestic banks in terms of offering lower lending rates to its Australian clients," Rabobank chief financial officer George Yau writes in a submission to the Senate inquiry into the banking sector.
The tax is levied at 5 per cent on foreign banks when they borrow funds from their offshore parents.
Wayne Swan had promised in the 2010 budget to cut the tax from 5 per cent to 2.5 per cent, then to zero. The Treasurer said this would create more competition among the banks.
The withholding tax that Australian banks pay to tap overseas funds or international retail deposits was to fall from 10 per cent to 5 per cent over the same time. But the cuts were deferred by one year in a deal with the Greens last year.
A spokesman for Assistant Treasurer David Bradbury said the government balanced "being an attractive place for foreign investment with Australia getting a fair return on investment". "It was a Labor government that dramatically slashed the rate of withholding tax after the Howard government stubbornly refused to reduce its 30 per cent rate," the spokesman said.
The warning to the Senate inquiry, which is due to report on October 31, is likely to renew the debate about the impact of the government's banking competition reforms.
The Mortgage and Finance Association of Australia has slammed the reforms for failing to deal with the "elephant in the room", which is that lenders are struggling to access competitively priced funds. "The banking sector has become less competitive," the association says in its submission. "The problem is that the hard issues have not been attacked. Any initiatives have been peripheral."
The association says banks are more powerful in the market than they were before the GFC, which the Treasurer's office disputes. "Since the government's banking reforms were announced in December 2010, smaller banks have captured an estimated $16.5 billion in home lending business from the big banks," Mr Swan's spokesman said. "In the year to April 2012, non-major banks grew their home lending at over twice the rate of the major banks."
Australian Bankers Association chief executive Steven Munchenberg said the major banks had provided loans when some non-bank lenders ran into strife during the GFC. "If they hadn't, we would have had a credit squeeze," Mr Munchenberg said.
high taxes blamed for drop in tourists
ABC News, 6 Jun 2012
The Tourism Council says high taxes are deterring international tourists from coming to Western Australia.
New figures show there was a five per cent drop in the number of such tourists coming to WA in the 12 months from March last year. That amounts to a loss of 17,000 visitors.
The council's CEO Evan Hall says overseas tourists are being slugged with high visa fees, passenger movement charges and hidden fees which are levied on airports and airlines. "Tourists don't vote and they're very vulnerable to being taxed by the Government because nobody complains," he said. "The real losers are the mum and dad tourism operations, the tours, the bed and breakfasts in regional towns who are getting less visitors because people take one look at Australia and say look, it's just too expensive to come."
Mr Hall says increasing tourist taxes in last month's federal budget is compounding the problem. "We have the passenger movement charge which is $55 per person so we're now talking about well over $200 for a family of four," he said. "We've got visa fees which range from $20 through to $80 depending on where you come from and then there's a whole range of secret charges that are levied on airports and airlines."
Mr Hall says the fees will cost the WA tourism industry $5.5 million a year and he wants a stop put on any further federal tax increases. "They slugged the industry again in the last federal budget, we'd like to see that stop, stop the cash grab," he said. "And, don't increase the cost of coming to Australia at this time when the industry is so incredibly vulnerable due to the high exchange rate."
The overall number of international visitors to WA has risen by 3.5 per cent because of an increase in business activity.
ACT BUDGET ADDRESSES STAMP DUTY, TAX INSURANCE, PAYROLL TAX
Milanda Rout, The Australian, 5 Jun 2012
THE ACT government has unveiled a major tax reform package which will phase out stamp duty over the next 20 years, abolish taxes on insurance and reduce payroll tax.
In his first budget, ACT Treasurer Andrew Barr today refused to engage in the "folly of austerity" shown by other jurisdictions to get back into the black, saying the government would spend rather than cut.
The budget papers show the ACT government will record a deficit of $318.3 million in 2012-2013, with a surplus not forecast until 2015-2016.
Declining GST revenue, cuts to the federal public service and predictions of higher unemployment in the nation's capital have all taken their toll on the territory's budget.
The government will spend $429.5 million on infrastructure over the next four years to create jobs across Canberra.
However, it will also make $180 million in savings from cutting back on administrative and employee costs. "We believe a return to surplus is not an end in itself," Mr Barr told the ACT Assembly. "Some governments have shown the folly of austerity - the pursuit of fiscal Darwinism at the expense of growth, and, crucially, at the expense of community and jobs."
Mr Barr used the budget to launch major reforms of the territory's tax system to eliminate "inefficient taxes", as recommended by the Henry Review.
Residential and commercial stamp duties will be phased out over 20 years, with the tax burden shifted onto rate payers.
Mr Barr said Canberra's growth was expected to drop from 2.5 per cent this financial year to 2 per cent in 2012-2013 due to federal government belt-tightening. "Unemployment is likely to rise, but remain low compared to the national average," he said. "The ACT is bearing the brunt of the federal government's contradiction in spending and employment."
Mr Barr said the benefits of the current mining boom were not being felt in Canberra as they did not contribute to the GST revenue pool, which is already suffering from lower nationwide consumer spending. "In response to these deteriorating conditions, the target for the return to surplus has now been moved back to the original target of 2015-2016," he said. "It is the right decision for this city and this community because it will let us absorb some of the impact of these external factors without risking unnecessary damage to local confidence, local business and local jobs."
Mr Barr said the timing of the Federal Government payments to the territory will mean this year's deficit will be less than expected, at $125 million, but next financial year's will be $318.3 million. "We will not go down the path of slash and burn budgeting," he said.
Mr Barr said the government would spend $63.2 million in 2012-2013 on new initiatives to help stimulate the economy, focused on health, education and community services.
swan hails threshold as tax-free trendsetter
The Australia Financial Review, 4 Jun 2012
Treasurer Wayne Swan believes the tripling of the tax-free threshold from $6000 to nearly $20,000 will put Australia “well above” other advanced economies.
Read the full article via subscription on the Australian Financial Review website.
airport tax rise 'at odds' with labor trade policy
Annabel Hepworth, The Australian, 4 Jun 2012
LABOR is being warned that its plans to slug passengers with a higher departure tax will make it harder for Australia to reap the full benefits of the Asian century.
The International Air Transport Association, which represents 240 airlines, is urging the Senate to defeat the plan to increase the passenger movement charge by $8 to $55 from July 1 and index the charge to inflation from mid-next year, declaring it to be at odds with the Gillard government's trade policy.
"The proposed increase is likely to impact Australia's competitiveness and make it even more difficult to position itself as an exporter of services to the greater Asia-Pacific region," the IATA warns in a new submission to a Senate inquiry into the tax. "The increase makes it more costly for Australia to integrate with the fast-growing Asia-Pacific region."
Airlines say the higher charge, announced in the budget, will cost an additional $610 million over four years. The sector is already struggling because of the high Australian dollar, the fallout from the tsunami in Japan and rising fuel prices.
Qantas warns that as the charge is levied at a flat rate, it will have a disproportionate impact on cheaper shorthaul routes, specifically those to Asia and New Zealand.
"Increasing this fee from $47 per passenger to $55 per passenger will undoubtedly have an impact on both the demand for international aviation to Australia and undermine the competitiveness of Australia as a destination," Qantas has told the committee.
The passenger movement charge replaced the departure tax in 1995.
But while the charge is supposed to cover the costs of immigration, industry claims it has become a revenue grab by Treasury. The Tourism & Transport Forum has also urged the Senate to dump the $8 increase.
"At a time when the rise of Asia's middle classes is being recognised as a key growth driver for the Australian economy in the coming decades, it is imperative that policy settings across government are calibrated to maximise industry competitiveness," TTF chief executive John Lee wrote in a submission to the Senate committee last Thursday.
Cairns Airport, which is trying to encourage travellers from China and Singapore, has also warned that the move will be detrimental.
The government has said the increase in the charge will provide Tourism Australia with an initial $61m over four years for an Asian Marketing Fund to help capture the growth out of this market.
Work commissioned by Tourism Research Australia last year found that an increase in the charge would increase gross national income by $48.8m a year because of the increase in taxes paid by foreigners and because of a switch from international to domestic travel.
plan to remove 'granny flat' council tax
BBC News, 2 Jun 2012
The government says up to 300,000 families in England could benefit from plans to scrap council tax for so-called granny flats. Some exemptions already exist for over 65s living in annexes but Communities Secretary Eric Pickles wants to broaden those out to cover any family member. He said the move could ease the pressure on the supply of homes.
But Labour said the move appeared to be a government attempt to "deflect attention from their housing crisis".
Currently, annexes are usually treated as distinct dwellings - and charged council tax - if they have a separate kitchen, bathroom and place to sleep. They do not need to have their own front door.
Local authorities typically charge more than £1,000 a year for full rates of council tax.
But under changes introduced in 1997, an annexe is exempt if the occupier is over 65, "mentally impaired", or "substantially and permanently disabled".
'Fundamentally unfair'
Mr Pickles told the Daily Telegraph: "We are keen to remove tax and other regulatory obstacles to families having a live-in annexe for immediate relations.
"It seems fundamentally unfair that hardworking families who want to extend their homes to allow their relatives to live in are hit twice by the taxman."
Ministers are also considering changing planning laws to make it easier to convert garages and other outbuildings into living spaces for relatives. Officials are concerned that at present too many conversions are refused planning approval by local councils. The changes are likely to require legislation, but government sources were unable to say how quickly they could be brought in.
BBC political correspondent Gary O'Donoghue said the "substantial loss" in revenue for local authorities was a "thorny issue" and Whitehall sources would not commit central government to making up the difference. But he added: "This is likely to be a popular idea, aimed at demonstrating the government's claim that it's on the side of hard-working families."
Self-build
For Labour, shadow communities secretary Hilary Benn said it was unclear who would benefit from the moves. "This seems to be nothing more than an attempt to deflect attention from their housing crisis. "What we need is to get building and get the economy moving again. That's why Labour is proposing to build 25,000 new affordable homes and a temporary cut to the rate of VAT. "
Earlier this month, MPs said it should be easier for people to build their own homes in England to help the housing crisis. A Commons communities select committee report suggested local authorities must get a greater say on housing projects, while pension funds and other investment funds should be encouraged to invest in building new homes. The report said 230,000 households were forming each year, but in 2011 only 110,000 new homes were built.
Token super tax rules won't fix injustice
Max Newnham, The Sydney Morning Herald, 1Jun 2012
In March the Gillard government introduced legislation into Federal Parliament to make superannuation ''simpler and fairer''. This was to be achieved by allowing individuals to have an excess concessional contribution of up to $10,000 without being taxed at 46.5 per cent. The legislation is at best a token measure that will not fix an injustice in the tax system.
One of the reasons why the new legislation is not simpler or fairer is because the $10,000 limit applies once only. This means a person can have an excess contribution of $10 in one year, perhaps due to a mistake by their employer, and they will never be eligible for relief from the excess contributions tax again.
The excess concessional contributions problem will also become worse as a result of compulsory employer contributions increasing to 12 per cent, and because the Gillard government is not allowing the concessional contributions cap to increase. Even before the increase in the Superannuation Guarantee Charge there are many examples where taxpayers have paid the excess super contributions tax on compulsory super contributions because of circumstances beyond their control.
In one case a person had three employers in the same financial year. At all times during the year he had at least two employers. Because one of his employers paid a 2009 contribution in the 2010 year, and because of compulsory super contributions made by each of the employers during 2010 year, he ended up paying excess contributions tax.
In another case a small business owner mailed a $90,000 super contribution cheque to his superannuation fund on June 26, 2007, with the appropriately signed and dated application forms. The super fund did not receive the contribution until July 4, 2008, and classed it as a 2008 contribution.
Unaware this had happened the small business owner made a contribution for the 2008 year of $100,000. As a result the small business owner paid $41,950 in excess super contributions tax on the $90,000 contribution.
At the heart of the excess super contribution problem is the inflexible attitude taken by the ATO.
The commissioner of taxation has always had the ability to not charge the excess contributions tax. Instead of using his discretion, the commissioner has chosen to maximise tax revenue collection at the expense of fairness and equity.
An example is a woman whose husband was terminally ill with only months to live. In addition to looking after her ill husband she had to attend to their financial affairs. Unfortunately she made a mistake and transferred too much money to their super fund as a non-concessional contribution that resulted in excess contributions being made that year.
Despite the fact she was able to produce supporting documentation from doctors that showed her husband at the time was terminally ill, and she did not have full control of her faculties, the commissioner refused to exercise his discretion and not charge the excess contributions tax.
Adding insult to injury, the ATO in a letter confirming the tax would be payable stated they did not accept she would have had her mind off her financial affairs.
The relevant section of the legislation that provides the commissioner of taxation with the discretion not to impose the excess contributions tax, is broad enough to have allowed him to exercise his discretion in all of the examples above.
Until the ATO and both sides of government realise the taxation system must operate fairly, taxpayers can be forgiven for finding ways to minimise their tax.
tax rise sums not done: treasury
The Australian Financial Review, 31 May 2012
Treasury did not quantify the impact of the government’s budget plan to double the withholding tax on investments trusts, a committee has heard.
Read the full article via subscription on the Australian Financial Review website.
Liberals kyboshes company tax cut
Bill Shorten, The Australian Financial Review, 30 May 2012
The federal opposition this year opposed the company tax rate reduction from 30 per cent to 29 per cent. This is why I was surprised by Liberal MP Kelly O’Dwyer’s contribution on this page yesterday that argued for decreasing company taxes.
On the one hand, the Liberals write in The Australian Financial Review in favour of corporate tax cuts, yet only weeks ago they campaigned against lower taxes. The ALP needed the Liberals because the Greens were against our good idea. When Joe Hockey was asked on Tuesday, March 13, by a journalist, “Are you signalling that when this comes to the House that you would support a cut in company tax?”, Hockey’s answer was: “No, no, no, no, no – we have said no.”
The following day when Tony Abbott was interviewed on Sydney radio about the minerals resource rent tax and how it funded the corporate tax reduction he replied: “We are not going to support the mining tax and we’re not going to support the other measures associated with it.”
After successfully stopping the company tax cut, the Liberals still retain their plan to lift the corporate tax rate up to 31.5 per cent to pay for their Rolls-Royce paid parental leave scheme. It is time for a reality check in the corporate tax reform debate. The absence of a company tax cut in this year’s budget is the federal opposition’s fault.
If you cannot get 76 votes in the House of Representatives (out of 150 votes) the good ideas fail. We on the Labor side still believe 760,000 businesses deserve the cash benefits of reducing the company rate to 29 per cent. But those businesses that are disappointed they didn’t get what they wanted should take the matter up with the conservative side of politics and the Greens.
As the Minister for Employment, I believe corporate tax reform is very important. I believe the Coalition squandered an opportunity to spread the benefits of the mining boom to all sectors. It was the Hawke and Keating governments that reduced the rate from 49 per cent to 33 per cent. One of the central reasons we have a strong record on tax reform is because Labor believes in the creation of national income and, as national wealth grows, then there is fair distribution of national income. We are all about jobs and good wages for employees. Reducing the corporate tax rate helps with both.
As former Treasury secretary Ken Henry pointed out at the Tax Forum last year, cutting company taxes helps the labour market. A lower corporate tax rate will stimulate investment and improve real incomes and productivity across the economy.
In a world where there is increasing competition for capital, a more competitive corporate tax rate is particularly important in attracting highly mobile foreign capital. This higher level of investment will be particularly important for the non-resources sectors, which are pressured by a high dollar and a rapidly changing economy. The small entrepreneurial companies that drive much of the innovation and employment growth in the Australian economy benefit. Larger businesses that often rely on access to substantial capital injections for major new projects also gain. Corporate tax cuts promote productivity. Higher investment levels by companies deliver a more productive labour force and also higher real wages.
We should be aiming for an economy in which there is strong investment in all sectors, not just the resources sector. This will ensure that jobs growth and wages growth are spread more evenly. We need to stop seeing this issue through a labour versus capital prism. Labor’s policy of reducing the corporate tax rate was about increasing the size of the pie – not simply focusing on who gets what.
The opposition likes to talk about the importance of lifting productivity, and policies that promote growth. Cutting the corporate rate as we proposed would have fit the bill. The Gillard government is still in the cart for business tax reform. I am confident the tax working group can collaborate to find a new way to fund it.
carbon tax could push up mid north coast rates
ABC News, 30 May 2012
The region's council are starting to understand some of the likely impacts of the Federal carbon tax. Research from the Independent Pricing and Regulatory Tribunal (IPART) show local government costs will go up by a total of $14 million.
The Port Macquarie-Hastings Council faces $152,000 hike, while Taree Council costs will increase by $94,000. Port Macquarie MP Leslie Williams said the costs will be passed on as rate increases. "Really there has been no consultation with local government," she said. "There's lots of uncertainty in the sector. "It's only in the last two weeks that the clean energy regulator has actually written to our councils to say to them that you're going to have an impost because of the carbon tax and IPART has determined what that cost will be." " I suggest that it's probably a minimum cost and that there will probably be other impacts because of the carbon tax."
Mrs Williams said the increases will be passed onto ratepayers. "It will be up to the council to decide how they're going to collect that extra money," she said. "I mean we can only assume that they would have to collect it in extra rates. " If they don't collect it in extra rates obviously there's going to have to be some impact on the services that they provide to us as ratepayers."
But the federal government said compensation payments will more than cover any possible rate rises.
It said based on the IPART figures average households could see rate increases of about $3 a year.
A government spokesman said the IPART figures confirm that the carbon tax package and compensation has been carefully thought out. He said most households will get compensation and tax cuts of around $600.
uk eats humble pie over pasty tax
From correspondents in London, The Australian, 29 May 2012
THE British government is ditching plans to introduce a tax on Cornish pasties and other hot snacks after critics accused it of targeting working families.
The government has been embroiled in the row since it announced in March plans to close a loophole which allows bakeries in Britain to serve hot takeaway food without incurring 20 per cent value-added tax (VAT). The items include pies, sausage rolls and pasties - a traditional delicacy reputedly invented by miners in the southwestern English county of Cornwall - which consists of meat and vegetables in a pastry crust. But the government has now amended the definition of what constitutes a "hot" pasty, allowing it to perform the U-turn, the BBC reported today.
Under the revised plans, food which is cooling down rather than being kept warm in a heated display cabinet will not be liable for VAT. Treasury minister David Gauke has told the BBC that "after extensive engagement", the department had "improved the policy, addressing practical concerns, ensuring that the new regime could be as simple as possible to apply".
The issue has been an embarrassing sideshow for Prime Minister David Cameron, who has fended off suggestions that the tax highlights his lack of "common touch".
He earlier said it was unfair that takeaway restaurants such as fish and chip shops had to charge VAT on hot food, when bakeries and supermarkets did not. "I am a pasty-eater myself. I go to Cornwall on holiday, I love a hot pasty," said Mr Cameron, who was educated at the elite Eton College and then at Oxford University.
Government should cede minerals tax to states
Jonathan Pincus, The Australian, 29 May 2012
MINING royalties provide more than 14 per cent of state revenues, and rising. Presently, the states have some flexibility and incentive to increase royalty rates in response to rises in the prices of minerals on the world market. Sometimes such increases are provided for in the royalty agreements with the miners; sometimes not.
In the Henry tax review (Australia's Future Tax System), two criticisms were made of royalties: they were inefficient and unresponsive. Inefficient, because for every dollar of royalties collected by the states, Australians lose another 50c in economic wellbeing, making royalties the second most inefficient tax in Australia. I strongly believe that 50c is a vast exaggeration.
The second criticism of royalties in the AFTS is that they were too low, and did not rise sufficiently when minerals prices rose, and so miners were earning excessive profits.
The Rudd government proposed the resource super profits tax on miners; the Gillard government substituted the minerals resource rent tax. The main motivation for the MRRT is to gain revenue, some of which would otherwise have gone to the states collectively.
Horizontal fiscal equalisation has long imposed disincentives for the states to adapt royalty rates to market conditions.
This is because HFE is the system of social welfare or social insurance for state governments. All state revenues, all GST revenues, most commonwealth grants to individual states (but not health grants and some others) are pooled and then distributed to the states according to their relative fiscal strengths and weaknesses. Revenue-rich states such as Western Australia subsidise revenue-poor states such as Tasmania; states with relatively low costs of service to citizens, like Victoria, subsidise those such as the Northern Territory with a heavy and costly expenditure load, due to demographic and other factors.
In fact, most of the money is distributed on an equal per capita basis; the bitter struggle is over the small portion redistributed on fiscal needs and capacities.
Under HFE, all royalties are in effect paid into a single fund, and then distributed on an almost equal per capita basis among the states. Thus, the royalty revenue collected by a state is "taxed" at a very high rate, about 92 per cent for South Australia; about 89 per cent for WA, equal to the percentage of Australians living outside the state. This system encourages mining states to obtain recompense in forms other than royalties (for example, by requiring the miners to spend on infrastructure or services that miners would not otherwise fund). However, the mining states retain some, if low, incentive to increase royalty rates on existing mines when, in particular, mineral prices rise significantly.
Moreover, states gain much more than royalty payments if a new mine opens, or an established mine is extended in extent or time: more employment, more economic activity generally. But of course there are downsides, including disputes with or among native title holders, the social effects of fly-in, fly-out workers and environmental damage.
Now the commonwealth is trying to make royalties even less flexible, through the MRRT.
The Gillard government has asked the three wise men of the GST Distribution Review -- John Brumby, Nick Greiner and Bruce Carter -- to "examine the incentives for states to reduce the MRRT or petroleum resource rent tax revenue through increasing state mineral royalties".
Here is what the reviewers should advise the commonwealth to do: cede the MRRT revenues to the states; reduce by an equal amount the quantum of tied grants to the states (which are funded from commonwealth non-GST revenues); pool the MRRT revenues with the GST; distribute the resultant pool of funds among the states according to whatever new rules are made for HFE.
If the states received the revenues of the MRRT, they would have no incentives to "reduce the minerals resource rent tax or petroleum resource rent tax revenue through increasing state mineral royalties".
This is true for each state separately and, due to HFE, is true for the states collectively.
Given that the revenue from the MRRT is highly uncertain, it may seem that the commonwealth would be giving the states a headache. But under the proposal, what the states gain on the swings -- the MRRT revenue -- they lose on the roundabouts, offsetting falls in other commonwealth grants.
My proposal would boost the revenues that the commonwealth has available for its own copious spending, by exactly what it would have gained from MRRT. Wayne Swan should be content and would have the wherewithal to bribe the states to cut the worst of their taxes, if he wished. The commonwealth, relieved of some of its grant obligations to the states, can cut the worst of its own taxes, thereby further improving the tax efficiency of the nation.
What would the states do, were my modest proposal implemented? If the Henry review is correct in claiming that royalties are a very costly way to get revenue, and that MRRT is very efficient, then the states would have all the incentives they need to cut royalties and boost the rate of MRRT: strong incentives would be put firmly in place, for a more efficient Australian tax system. But on the contrary, as long as the commonwealth holds on to the MRRT revenue, then two levels of government would be fishing from a common pond and both would fish for tax revenue competitively, not efficiently.
tax minefield needs fixing once and for all
Annette Sampson, The Sydney Morning Herald, 26 May 2012
It's that time of the year when investors' minds turn to tax, and particularly to superannuation contributions. But unwittingly or not, successive governments have turned a simple decision to save for retirement into a minefield. And they're showing little inclination to fix the problems.
As this column has written before, so-called excess benefits tax is proving a nice little earner for the government. Last year it collected penalty taxes of more than $130 million from some 45,000 taxpayers who inadvertently put too much into super. And that number is likely to have grown as further assessments were issued.
Excess contributions arise when your deductible or ''concessional'' contributions to super exceed the mandated caps. These are $25,000 for under 50s and $50,000 for those aged 50 or older, though they will revert to $25,000 for everyone next year for at least two years.
Once you exceed the cap, your excess contributions are taxed at the top marginal rate and counted towards the non-concessional contributions cap of $150,000 a year. That's penalty enough, but those tax penalties can balloon if you're also trying to maximise your non-concessional contributions. The effective tax rate on excess contributions if you breach both caps is 93 per cent, and thanks to the complex workings of a rule that allows you to ''bring forward'' non-concessional contributions, there have been instances where an excess contribution of a few hundred dollars has resulted in a tax bill worth tens of thousands. Staying within the caps sounds simple enough, but in practice people have found themselves caught by things outside their control.
Their employer, for example, might be late in making a payment one financial year resulting in an extra ''contribution'' the following year. They might forget their employer subsidises some of the fund's costs and that this is counted as an employer contribution. Or they might get their sums wrong.
Despite limited measures to allow a one-off refund of excess contributions up to $10,000, excess contributions are causing problems for many people trying to maximise their retirement savings. This is only likely to get worse next year when the cap for over-50s is halved.
One of the absurdities of the super system is that we are not all treated the same way when it comes to contributing to super. If you're self-employed, you're allowed to make tax-deductible contributions personally - which is why you see all those shop-keepers running off to see their accountants at this time of the year. They need to work out how much income they're likely to earn and whether they can afford to contribute to super.
But if you're an employee, you're not allowed to make tax-deductible super contributions. You have to ask your employer to do it through a salary sacrifice arrangement where you forgo some of your pay in lieu of higher super contributions. Salary sacrifice agreements must be prospective, which means you can only sacrifice salary you haven't earned yet. So the ability of employees to ramp up their retirement savings and save tax in June is more limited.
But spare a thought for the army of people in the new work environment who don't fall into either neat category. They might earn part of their income from an employment arrangement and part from self-employment. Visiting medical officers are an oft-cited example.
Under the rules, you can only make personal deductible super contributions if less than 10 per cent of your income is from employment. This includes reportable fringe benefits. For those on the margins, June can be a ''Will I or won't I'' exercise of trying to work out whether they are eligible to make personal contributions and facing extra tax if they get it wrong.
Then there are contractors who fall into that grey area between being self-employed and employees. The Australian Tax Office takes a narrow view of who qualifies to be treated as a contractor and has ''sham'' contractor arrangements on its compliance hit list. But employers are increasingly demanding contractor arrangements for the added flexibility they provide - and also because it means they don't have to pay costs such as compulsory super.
In the worst case, these people can find themselves denied the ability to make personal deductible contributions by the ATO which regards them as employees, but told by their employer they are not eligible for compulsory super because they are independent contractors.
Yes, they can ask the ATO to pursue their ''unpaid'' employer contributions. And part of the ATO's crackdown is aimed at forcing employers to make these payments where the arrangement is a sham.
Then there's the issue of employers and salary sacrifice. While it has become more widely available, there is still no obligation for employers to offer salary sacrifice to all their employees. So some people are shut out of making deductible contributions altogether.
While thankfully becoming rarer, employers are also still allowed to use salary sacrifice contributions by employees to reduce their own compulsory super obligations. While most employers will pay compulsory super on your gross salary, there's nothing to stop them deciding that because you're sacrificing 10 per cent of your salary into super, 9 per cent of that can count as their compulsory super payment.
In effect, the employee is meeting their obligations for them. Another sneaky trick is for employers to calculate the 9 per cent compulsory super on your salary after your sacrificed contributions have been deducted - again reducing the amount the employer contributes.
Despite promises to crack down on such practices in its 2007 election campaign, the government neglected to include this in any of its extensive super reforms. It is becoming less common, but should not be allowed at all.
fears over tax perk
Clancy Yeates, The Sydney Morning Herald, 26 May 2012
RESOURCES companies say a plan to cut tax perks for foreign workers will further inflate the cost of doing business in Australia, putting projects at risk.
From July, tax breaks for people living away from home will be cut, in response to highly paid foreign executives exploiting the scheme. But submissions released this week by Treasury say temporary migrant workers needed to complete the huge number of resources projects will also be hit.
Leighton Holdings said the proposal - which will not affect fly-in, fly-out workers - discriminated against foreign workers. ''The reform pulls the welcome mat from under prospective temporary skilled workers at a time of fierce global competition for their expertise and an acute skills shortage in Australia,'' Leighton said.
The Minerals Council of Australia said the rules also threatened to delay or add costs to projects. Its submission, drafted in February but released this week, said some foreign workers were already thinking of quitting rather than having to renegotiate their pay.
Under the proposed changes, the living away from home allowance will be payable only to people maintaining a second home in Australia.
short shrift for profit-shifters: conroy
Katie Walsh, The Australian Financial Review, 25 May 2012
Communications Minister Stephen Conroy insisted yesterday that legislation tabled earlier in Parliament would tackle the issue of tax lost due to profit-shifting by multinationals, against some expert advice on technology companies.
Tax experts questioned the ability of the planned laws – which relate to transfer-pricing, which deals with profit-shifting – to raise much more revenue from companies such as Google than was already the case.
But the minister stood by his prediction the reforms would address concerns about multinationals. “We’re putting forward legislation to deal with the practices,” he told a Senate estimates hearing yesterday.”
Earlier this week it was reported that US-based web search company Google paid just $74,176 in tax in Australia in 2010-11 on estimated revenue of about $1.1 billion.
Senator Conroy said at the time that all multinationals should pay their fair share of tax.
Opposition communications spokesman Malcolm Turnbull has said such practices erode the tax base, later clarifying on his blog that he is not calling for a new tax.
In an exchange during yesterday’s hearing, which led Senator Conroy to break down in laughter at times, he said the legislation showed that “unlike Mr Turnbull”, the government was not “pretending” to be concerned about the issue.
Pressed by Liberal senator Simon Birmingham to explain how the new laws would deal with the issue, and precisely what that issue was, Senator Conroy said only that the government was introducing them.
Avoiding details, he said he did not want to pre-empt an announcement by Assistant Treasurer David Bradbury – an announcement which had been made almost two hours earlier.
Hitting back at the minister’s comments on his shadow Mr Turnbull –“he was the one who decided to big-note himself and then backtrack – Senator Birmingham noted: “But you’re the one that, hero-like, suggested the government had a solution coming down the pipeline.”
Asked whether he had seen the legislation, Senator Conroy said it had “been through cabinet” or had “at least been canvassed and discussed”.
The secretary of the Department of Broadband, Communications and the Digital Economy, Peter Harris, said his department had not had a chance to advise on the legislation. “We wouldn’t be given an opportunity to comment on tax legislation. It wouldn’t fall within a million miles of the department’s responsibilities,” Mr Harris said.
Introducing the transfer-pricing legislation in Parliament, Mr Bradbury said it was “critical to the integrity of the system”. Cross-border trade in Australia between related parties was more than $270 billion in 2009 – half of global trades.
“Multinational companies seeking to shift profits within the group to avoid paying tax can pose a serious threat to Australia’s revenue,” Mr Bradbury said.
Deloitte partner Geoff Gill said the tabled legislation was fairly similar to the draft released in March. He said local customers dealing directly with foreign entities – as happened with the vast majority of Google’s Australian revenue, which was funnelled to its Irish entity – was not a transfer-pricing issue.
The government also said yesterday it had commissioned a Board of Taxation review of rules on permanent establishments, or places of business, in Australia for tax purposes. Mr Gill said any changes would probably not affect technology companies, unless they had branches; but they would affect banks, which would probably welcome such change.
The government also introduced tax-law changes based on budgetary measures, including slashing concessions for “golden handshakes” received by senior executives.
Travellers face extra tax slug to leave country
The Sydney Morning Herald, 24 May 2012
Travellers will be slugged an extra $8 to leave the country under a bill introduced into the lower house on Wednesday.
The federal government wants to increase the passenger movement charge from $47 to $55 from July 1, and index the payment annually in line with CPI.
The departure charge is levied by airlines and shipping companies at the time the ticket is sold to the passenger.
The budget measure is expected to deliver an extra $610 million to government coffers over four years, which will be spent promoting Australia as a holiday and business destination to Asian markets.
Debate on the Passenger Movement Charge Amendment Bill 2012 was adjourned.
intellectual property taxes experts
Geoff Gill, The Australian Financial Review, 24 May 2012
Recent debate about how much tax technology companies pay in Australia has refocused attention on Australia’s transfer-pricing laws and their implications for multinational corporations.
The Australian government announced last November that it would reform Australia’s transfer-pricing laws to bring them into line with international norms.
These changes have been prompted by the Australian Taxation Office’s loss of transfer pricing cases in the courts, resulting in concerns about the impact on tax revenue collection.
The aim of Australia’s transfer-pricing laws is to ensure that multinationals operating in Australia price dealings with other parties of the multinational group as if they were unrelated (that is, at “arm’s length”).
The pricing of these dealings, and hence the ultimate profit outcome for Australian affiliates, depends critically on the amount and value of activity of an entity, in the context of the global group.
For many multinationals, the most valuable assets of the group are intangible. A group’s intellectual property, including its brand name, software systems, know-how, relationships and contracts, are typically the differentiator for the business, and ultimately the key to its success and profitability.
Most companies have some intellectual property. For some, it is their main asset (for example e-commerce, pharmaceutical or software companies), and therefore a substantial share of the profits of the group is attributed to these intangibles.
It is no surprise then that the issue of intellectual property is globally the most controversial area in transfer pricing. It is the source of many disputes between taxpayers and tax authorities, and between the tax authorities themselves as they seek to maximise the share of the profit pie that can be taxed in their jurisdiction.
In the context of transfer pricing, the issue of intellectual property raises many issues, including how to identify it, who owns it and who uses it within a multinational group, and what value (or profit) is attributable to it.
Determining the appropriate transfer pricing outcome requires a deep understanding of the facts of the arrangements, as well as the mix and value of onshore and offshore activity.
The ATO is very active in enforcing Australia’s transfer-pricing rules, and the requirement for a deep understanding of the facts unfortunately means that for many companies, transfer-pricing audits are prolonged and painful.
However, the potential tax dollars at stake mean this issue will stay high on the agenda for both multinationals and the ATO.
local tax from global profits
David Pratley, The Australian Financial Review, 23 May 2012
Recent comments by opposition communications spokesman Malcolm Turnbull have focused on the taxation of global technology behemoths such as Google and Apple. In particular whether the tax paid in Australia is disproportionately low relative to the revenue said to be earned here.
A related point is whether local tax laws are keeping pace with this rapidly evolving sector or whether they will be left behind, leading to long-term erosion of the tax base.
These are certainly valid issues, but also complex ones. A proper response requires more rigour than a simple comparison of purported revenues to tax paid.
The issue of whether multi-national groups are paying an appropriate amount of tax in Australia is not new. Further, it is not unique to Australia.
Governments around the world seek to ensure they can tax their “fair share” of global profits. The manner in which the global tax pie is carved up is determined by a matrix of tax laws within individual jurisdictions overlaid by tax treaties between many (but not all) of these countries. Thrown into the mix are various forms of guidance by revenue authorities such as the Australian Taxation Office, the US Internal Revenue Service, and the Organisation for Economic Co-operation and Development.
The final ingredient is the interpretation by courts in various jurisdictions.
A vital common element across many jurisdictions are the so-called “transfer pricing” rules.
For example, the Australian transfer-pricing rules deal with the tax treatment of cross-border transactions between Australian entities and their international related parties. Broadly, the rules require that transactions are priced on an “arm’s length” basis.
The policy basis for such rules is generally to prevent multinational groups from over- and undercharging between group companies and thereby shifting tax profits from one jurisdiction to another (to a lower-taxed one, say).
Proposed new legislation is designed to improve transfer-pricing rules.
The current rules were enacted in 1981 and until recently had barely been tested in the courts, resulting in groups relying on ATO rulings and guidance as well as OECD guidelines.
What resulted was competing requirements of viewing an arm’s length transaction on either a profit allocation basis (OECD guidelines and in turn ATO guidance) or an individual transactions basis.
The proposed changes in the new legislation are broadly intended to clarify the meaning of the arm’s length principle and apply the relevant OECD guidelines. These new rules, however, are not directed specifically at global technology groups and it is not clear whether they will necessarily change materially the tax profile of such organisations in Australia.
Separately, the question of when foreign entities (for example, an Irish company), that provide goods or services directly to Australian end users (such as search engine marketing services) are subject to Australian income tax.
Under current law, this largely depends on whether the foreign entity has a “permanent establishment” in Australia.
Historically, this has turned on physical presence in Australia (employees, office, equipment). In the case of technology companies, the location of servers has been a factor.
If a foreign entity has no permanent establishment in Australia, then the outcome can be no Australian income tax on sales to Australian end users regardless of the scale of such sales.
It is not uncommon and perfectly understandable that multinational groups centralise global functions in single locations around the world for sound commercial reasons.
For example, Asia, and in particular China, have long been the jurisdiction of choice for manufacturing due to its strong capability and low cost.
In the case of technology groups, similar drivers (unrelated to tax) can underpin decisions to centralise certain functions such as hosting servers or research and development in locations that are best suited to the function.
Australia should give due weight to these valid reasons for global structures used by multinational technology groups, while addressing the unique challenges for global taxation of this sector.
Colombia and mexico sign international tax, human rights and clean business standards
OECD Media Release, 23 May 2012
Colombia and Mexico are a step closer to beneffiting from cross border tax co-operation and information sharing. Colombia has signed, and Mexico has deposited its instrument of ratification for the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
The Convention, developed jointly by the OECD and the Council of Europe, is the most comprehensive multilateral instrument available for tax co-operation and exchange of information. It helps counter cross-border tax evasion and ensures compliance with national tax laws, while respecting the rights of taxpayers.
At the signing ceremony, which took place in the margins of the annual OECD Ministerial meeting, Secretary-General Angel Gurría congratulated ministers of Finance from Colombia and Mexico. “You are taking important steps to further strengthen global co-operation and we look forward to working together to maximise the benefits which will accrue to you and to the wider international community,”he said (Read the full speech).
Colombia also joined three key OECD legal instruments. By adhering to the OECD Recommendation on Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, Colombia is helping to ensure that companies respect human rights, support peace and development, and encourage co-operation between large-scale operations and local communities.
Colombia also signalled its political commitment to improve the conduct of corporate businesses and ensure a good business climate – competition, corporate governance, investment, tax co-operation and anticorruption – by adhering to the OECD’s Declaration on Propriety, Integrity, Transparency in the Conduct of International Business and Finance. And by adhering to the OECD Declaration on Green Growth, Colombia is committing to encourage green investment and sustainable management of natural resources – acknowledging that ‘green’ and ‘growth’ can go hand in hand.
the bottom line on redundancy
John Kavanagh, The Sydney Morning Herald, 23 May 2012
The payout is not a windfall, the experts warn, and the rules are changing on how it will be taxed.
Anyone likely to receive a redundancy payment in the next few weeks has some planning to do around a significant June 30 timing issue. The tax treatment of one part of redundancy payouts will change from July 1 and people may find that they have missed out on significant tax concessions created by contributing to superannuation.
A rule that allows people to put their payout into super, as a concessionally taxed contribution, ends on June 30.
The government flagged further changes to the tax treatment of payouts in the budget.
An employment termination payment (ETP) is made up of money owed for unused rostered days off, money paid in lieu of notice and any gratuity or golden handshake (for example, so many weeks' pay for each year of service).
For most people aged under 55, ETP payments of up to $165,000 will be taxed at a maximum rate of 31.5 per cent (for payments received in the year ending June 30). ETPs of more than $165,000 are taxed at a maximum rate of 46.5 per cent. For people aged 55 and over, the first $165,000 is taxed at 16.5 per cent and the remainder at 46.5 per cent. That threshold amount is indexed and will go up to $175,000 in the 2012-13 financial year.
THE CHANGES
Under rules put in place in 2006, ETPs can be directly contributed to a super fund if they meet certain conditions. They must be classified as transitional ETPs, which means that the person receiving the money has been working under the same employment contract or workplace agreement since May 2006.
Gemma Dale, the head of technical services at MLC, says anyone covered by this transitional rule and who is likely to receive a redundancy payment should make sure the payment is made before June 30.
''Getting the money into super is a big win,'' Dale says. ''It is the difference between paying 46.5 per cent tax and 15 per cent tax on the money.” ''If you are over 55 and retired, you can take it back out of the super fund any time you want. If you are over 60 you can take it out tax-free.''
Dale says employers can tell their staff how they stand in relation to these transitional rules. The transitional rule ends on June 30, and from July 1, ETP money can no longer go directly into super.
Dale says that if your employment contract has changed since May 2006, you are not covered by the transitional rule and you cannot contribute any ETP directly into super.
People in that situation should look at delaying their redundancy until after July 1, when the low-tax threshold will be higher and the flood levy will have ended. In this month's budget, the government announced that it will add ''certain types'' of employment termination payments to assessable income and apply the highest marginal tax rate of 46.5 per cent to those payments if they take income above $180,000 for the year. This new rule is scheduled to start on July 1.
Dale says it is not clear from the government's announcement exactly what parts of an ETP it intends to capture. However, it is another incentive for people looking at a redundancy to have it done before June 30.
BEST USE OF PAYOUT
Paul Bilson, a certified financial planner with Woodward Nhill Financial Planning, says redundancies are unfamiliar territory for most people and the risk they run in handling them is that they tend to see the payout as a windfall rather than a funding base for the maintenance of their lifestyle.
''People's first impulse is to do something dramatic, like pay off debt or put a large amount into their superannuation,'' Bilson says. ''Both are good strategies but before people do that, they have to think about how long it will take them to find a new job or qualify for Centrelink benefits.” ''Their biggest problem comes if they have put the money somewhere where they no longer have access to it and then don't have any income.''
Because many people want to put at least part of their redundancy payout into their super fund, the super contribution rules have a big effect on achieving a tax-effective outcome.
Bilson says people should talk to their employer and a planner to make sure they understand how tax and contributions rules apply to their payout. He says that when he sits down with a client to work out what to do with a payout, he encourages people to pay off debt but to do it in a way that allows them to take some of the money back if they need it.
In the case of a home loan, the account should have offset and redraw facilities. If there is money left after dealing with debt, the next step depends to some extent on the person's age.
People over 55 can put money into super and use the transition-to-retirement arrangements to draw income from the fund.
Bilson says one of the big traps is that people assume they can apply to Centrelink for a Newstart allowance and start receiving benefits almost immediately. It doesn't work that way.
Centrelink applies a couple of tests and, depending on the outcome, recipients might have to wait more than three months before benefits start to flow.
Control your spending as it may take longer to find another job
Andrew Hedge had worked at a media services company for six years, the last three of them as an account manager, when in November last year the company announced a restructure and made some positions redundant. One of those positions was Hedge's.
Rather than apply for another job in the company, the 30-year-old from Kyneton, in Victoria, took a redundancy package and set about looking for a new career.
Hedge was looking for something different and he found it, working in sales for two small environmental services companies. But it took longer than expected. "It took me 3½ months to find a new job,'' he says. ''It was difficult. I did not expect it to be as challenging as it was."
Hedge is married with two children. When he received his payout he paid off his credit card debt and put the rest into his mortgage account.
His wife took on some extra part-time work, while he stayed at home to look after the kids. As the months went by, bits of the redundancy payment were allocated to a couple of household jobs, Christmas spending and a family holiday. "The holiday was not in the plans initially but when we found out my wife was pregnant, we thought we should have a break before the new baby arrived," he says.
Hedge visited his financial planner when he lost his job. "The things he stressed were to make sure my life insurance policies were paid up, use the money to pay off some debt and have a plan for how the rest of the money would be used. "When we first got the money, it was such a large amount sitting in our account. We tended to spend a bit more than we planned just because there was so much there.” ''It started to run down a bit faster than we wanted and when my job search went on for longer than I expected, we had to … tighten up the budget. You would always like to have more of the money left."
Hedge says he has about half his payout left. It is sitting in his mortgage account.
"I consider myself to be a risk-averse person and my natural inclination would have been to try and stay at my old company,'' he says. "It was quite a risk for me to move on and start a new career. But … it was a good change. "The thing we learnt … is how quickly you can spend it and how much control you need to exercise over your spending."
challenge of collecting taxes from it companies
Brian Corrigan and Paul Smith, Australian Financial Review, 22 May 2012
Attempts to close loopholes that allow multinational technology companies to minimise local tax bills will become more difficult as a growing number of services move online, experts have warned.
The government has already kicked off attempts to reform transfer pricing laws so that taxes paid more accurately reflect the level of business conducted locally.
The contentious issue flared again after opposition communications spokesman Malcolm Turnbull told The Australian Financial Review that global technology companies should pay more tax in Australia.
The local division of internet search giant Google released accounts this month showing it paid less than $75,000 in tax last year despite racking up estimated revenue of $1.1 billion.
Intelligent Business Research Services adviser Jorn Bettin said the issue was only likely to become more sensitive as citizens consumed more online services because this would make it more difficult to pinpoint their origin.” “Over the past we have seen how music has been dematerialised into web services,” he said. “More and more transactions will take place between consumers and entities that can’t readily be attributed to a particular geography.” “From a taxation and legal perspective this is an extremely complex issue that can’t easily be taken apart and it will only become even more difficult to govern.”
Other multinational technology companies including Apple, Microsoft, Hewlett-Packard, Dell, Oracle and SAP had nothing to say when contacted by The Australian Financial Review yesterday.
Suzanne Campbell, chief executive of the Australian Information Industry Association, which represents these companies locally, said it was aware of the government’s transfer pricing review but had decided against making a submission. She refused to provide further details.
Guy Cranswick, an adviser with IBRS, noted that transfer pricing was not a new issue but said it was in the spotlight because governments were struggling with declines in corporate and income taxes.
At the same time, major technology companies like Apple and Microsoft were building huge stockpiles of cash. “When you look at the level of tax they’re paying, within the code of the law, from the revenues that exist, a lot of people would shake their head at those arrangements and think that something isn’t quite right,” Mr Cranswick said.
Another senior industry figure has warned that Australia risks losing technology business if it attempts to tackle transfer pricing on its own.
Kevin Noonan, a research director with analyst company Ovum, said the practice happened across many industries and was a problem for all countries because companies used it to minimise tax bills. “This is something Australia needs to work on at an international level because it’s not easily solved,” he said. “IT work moves around the world and if Australia takes itself out of that loop then all we do is shoot ourselves in the foot.”
Senior accounting lecturer at the University of Wollongong Ciorstan Smark said there were plenty of questions to be asked about the tax procedures of global IT companies. “Revenue generated in Australia by global technology companies is a massive transfer pricing issue and the ATO runs the risk of severely eroding its tax base if it does not address this issue head on,” Mr Smark said. “The risk is also that Australian-based technology companies will be at a severe disadvantage when attempting to compete with global technology companies who currently pay little tax.”
malcolm turnbull treads carefully on tax for multinationals
Andrew Colley, The Australian, 22 May 2012
OPPOSITION communications spokesman Malcolm Turnbull has moved to play down suggestions a Coalition government would seek to make technology multinationals pay more tax on revenue generated in Australia.
In response to queries from The Australian, late yesterday Mr Turnbull posted a blog distancing the Coalition from suggestions that it would impose additional taxes on business.
"I am not proposing any specific change to the existing tax laws or flagging a shift in Coalition policy," Mr Turnbull wrote. "Nor am I suggesting that the global tax arrangements entered into by global digital businesses, such as Google, are anything but legal. The question is not whether the laws are being complied with (I assume they are) but whether they are adequate in a new, converging digital world."
Mr Turnbull was reported to have said that accounting practices of multinationals threatened to erode Australia's tax revenue base. That followed reports that some major technology companies' tax bills were tiny in comparison with hundreds of millions in revenue they extracted from the local market.
The most frequently cited example is Google Australia, which paid income tax of $74,176 on search and directory advertising revenue estimated to be about $1 billion.
Google's situation is extreme but by no means an outlier. Australian Securities & Investment Commission filings indicate that Alcatel-Lucent Australia secured a tax credit of about $1m on revenue of $752m in the year to December 2009.
The balance tipped back in the tax office's favour the following year, with Alcatel-Lucent paying $29m in income tax on $518m in revenue.
In the 12 months to September, Apple paid $91m income tax on local revenue of almost $4.8bn.
Enterprise software giant SAP Australia paid income tax of $23m on revenue of nearly $600m in the year to December 2010.
For the 12 months to June 30 last year, Microsoft's Australian subsidiary paid $18m income tax on revenue of $468m.
Mr Turnbull is reported to have said that over time the impact on Australia's tax base would "become material". Mr Turnbull's blog alluded to the federal treasury's review of so-called transfer pricing rules for multinational companies.
Announced by Financial Services Minister Bill Shorten in November, the review focuses on pricing practices of multinationals making transactions with their associated enterprises across international borders.
The federal government said the rules required multinational firms to apply internal prices in such a way as to "properly reflect the economic contribution of their Australian operations". The pricing rules directly affect profits that companies and their subsidiaries record for tax purposes.
The federal government believes Australia's laws are out of step with OECD's "arm's length" approach, which aims to make profits reported by a multinational's associated entities more akin to those of independent enterprises. For instance, in Google's case, while it reported $201m revenue it is estimated to have an 88 per cent share of the $1.4bn online directory and advertising market or around $1bn. It is believed most of that is billed out of Google Ireland. Google Australia recorded a loss of $3.9m.
For its $4.8bn in revenue, Apple reported a cost of goods sold of $4.4bn. Similarly, Alcatel-Lucent reported a cost of sales around $402m on $518m income, and SAP Australia reported cost of sales (substantially software licences purchased from its German parent) of about $396m for its $600m revenue.
Australian Information Industry Association chief executive Suzanne Campbell declined to comment on individual companies. "My expectation is that our members are acting in a way which is entirely compliant with the law of the land," she said.
If the results of the government's review of transfer pricing are adopted, it is accepted it would be applied retrospectively to July 1, 2004, giving it a potential windfall in the billions. That has prompted some parts of the business community to make accusations of playing politics with tax laws.
In a podcast briefing on the review, PricewaterhouseCoopers Australia said: "This retrospective amendment has been poorly received by corporate Australia and tax advisers generally. "In our view, retrospective law change is bad tax policy, and this amendment owes more to the government's planned budget surplus in 2013 than any technical legal merit."
Google and Microsoft did not respond in time for publication to requests for comment.
miners' taxes pay for pm's follies
Henry Ergas, The Australian, 21 May 2012
LAST Tuesday, Martin Parkinson, the Treasury Secretary, used the annual post-budget address to examine the uncertainties in the economic outlook. While his speech was wide-ranging, one component stuck out: the suggestion that the rapid growth of mining was "dampening tax receipts as a share of the economy", with "the accelerated write-offs provided for many mining assets" being "of particular importance".
Coming after repeated claims that mining fails to pay its fair share of tax, the implication seemed to be that mining taxes should be increased again so as to fund ever-rising public spending. Proposals canvassed by the government's Business Tax Working Group to pare back those accelerated write-offs made that inference all the stronger.
The next day, Jac Nasser, chairman of BHP Billiton, hit back. Australia, he warned, is "at the upper end of overall taxation levels", which "means we are not competitive". Stressing that mining investment involves the long term, where "that can be 50 years and longer", "what matters at this point in time is stability".
"I cannot overstate how the level of uncertainty about Australia's tax system is generating negative investor reaction," Nasser said. "People don't know where it's going". Without that predictability, investments that could have been made here were likely to go overseas.
Nasser's concerns are understandable, for the government and the Greens are engaged in a concerted campaign to portray mining as a free rider. At the heart of that campaign are misleading claims about mining's share of company tax payments compared with its share of gross operating surplus.
GOS is essentially a measure of cashflow -- that is, of the difference between companies' cash receipts from operations and their cash payments. Since the resources boom began, the advocates of higher taxes complain, mining's share of GOS has exceeded its share of company tax.
But that comparison is meaningless. To begin with, if a graph of resource prices looks like Everest's North face, it is because there was a prolonged period from the early 1980s to 2004 when prices were at rock bottom (so to speak).
With investments lasting a half century or more, one needs to look at taxes relative to profits not just in the boom but in the lean years as well.
Moreover, as even the Treasury Roundup admitted in 2007, GOS is hardly the right measure of profits for that comparison. Since it merely reflects cash in from operations versus cash out, it takes no account of the need to remunerate investors for risk and for the opportunity cost of capital. And because some industries require much more capital for each unit of sales than others, and hence have higher capital costs, a dollar of GOS in a capital-intensive industry translates into far lower profits than the same dollar would elsewhere.
To make like-for-like comparisons, GOS must therefore be adjusted to take account of capital charges. To see how important that is, consider the construction industry. Viewed over the long term, it is far more profitable than mining: unpublished ABS data shows that $1 invested in construction in 1999 would have increased in value to $14 by June 2010, while the same $1 invested in mining would only have appreciated to $3.50.
And construction uses just one dollar of capital for each dollar of sales, while mining uses four. A larger share of mining's cash revenues consequently goes to remunerate investors for the opportunity cost of capital, making its properly measured profit rate much lower than the sheer scale of its GOS would suggest.
When those adjustments are made, mining pays a far higher share of its income in company tax than the all-industries average. Again, the comparison with construction is telling: since 2000-01, construction has paid some 8 per cent of its income net of capital charges in company tax; mining has paid more than 40 per cent. On top of that, mining pays state royalties, which account for 6 to 7 per cent of sales and hence for a much higher proportion than that of profits.
As for the claims that mining receives unusually generous accelerated depreciation provisions, they too are difficult to take seriously. The most important tax allowances for mining relate to the capital used in exploration. That capital can be written off more quickly than other mining investments, reducing immediate tax payments, albeit at the expense of higher payments down the road.
But those allowances are, if anything, less generous than the tax treatment of capital used in manufacturing R&D, which qualifies not only for accelerated depreciation but for a supplementary tax credit. It seems bizarre to argue mining exploration, whose wider benefits for Australia have been far greater than those from manufacturing R&D, should be treated less favourably.
What seems to especially irk the higher taxes chorus is that the cost of exploration permits can be included in the accelerated depreciation. But that too is no more favourable than the tax treatment of purchased patents in manufacturing R&D.
Moreover, exploration permits are sold by state governments, so some part of the value of the tax concession will be reflected in the price they receive. To that extent, removing the concession would simply shift income away from the states, who own the resource, back to the commonwealth. And if the concession were eliminated for permits that had already been acquired, as seems intended, the effect would be to retroactively remove a benefit miners had already paid for, increasing sovereign risk.
Ultimately, the claims of the anti-mining campaigners just don't stack up. In fact, far from not paying its way, the Henry Tax Review's modelling shows mining already bears the greatest costs of the company income tax, with the tax causing its output to shrink by 10 per cent below efficient levels.
Further increases in effective company taxes on mining would only cause those distortions to mount ever more rapidly.
But someone has to pay for follies such as the National Broadband Network and the Clean Energy Finance Corporation. Taxes on companies are especially attractive in that respect, as they are so much less transparent than those on people. And mining companies can hardly pack up their billions in sunk assets and move them elsewhere.
Little wonder expropriating resources companies has long been the profligate's drug of choice. How else could Gabon have paid for its Trans-Railway, Libya for the Gaddafi Great Man-Made River, or Turkmenistan for its Golden Statue of Saparmurat Niyazov, "leader of all the Turkmen"?
And with those examples to follow, how could Julia and Wayne go wrong?
Cut corporate tax rate, says Murray
Madeleine Heffernan, The Sydney Morning Herald, 21May 2012
THE former chairman of the Future Fund, David Murray, says Australia has nothing to show for its record terms of trade, due to a tax structure that is too steep for companies and individuals, and not deep enough for consumption.
Continuing his calls for a reduction in the corporate tax rate to 20 per cent, Mr Murray said a better-designed tax system - with lower personal tax rates, a higher GST and a lower corporate tax rate - would have helped Australia better cope with the negative consequences of the mining boom.
Arguing that the last major review into the tax system, the Henry review, was incomplete because the government did not include the goods and services tax within in its remit, Mr Murray said the tax system should ''have a more broad-based tax at the state level, and elimination of some state taxes like stamp duty and payroll tax''.
''It would give rise to a lot more investment through a lower corporate tax, and that sort of tax system would have offset the problems with the higher dollar.”
''And it would have been possible to hold the effective tax rate of the mining industry more or less where it was, but reduce the effective tax rate of the rest of industry, without having a specific mining tax.”
''That was the policy solution to the mining boom, and it wasn't done. And instead costs have gone up substantially in Australia, industries have been hurt by the high dollar, and the spike in government spending from the stimulus hasn't really been washed out of the budget. So we've got nothing to show for the terms of trade boom.''
Furthermore, that tax system would likely be more progressive than the present system, Mr Murray said, by an increased tax on consumption and through the imposition of a broad-based land tax.
Speaking after BHP Billiton stepped back from its mooted five-year $80 billion investment pipeline, Mr Murray said there plenty of anecdotal evidence that mining investment would taper off - but it would remain strong for some time.
''I think the toughest question is how much will it be contributing to economic growth; that is, by how much is investment growing each year? It can remain at a higher level, but will it grow? If the mining sector doesn't produce strong growth of investment in the coming year, then without a breakout of consumption, which looks unlikely, and with the government limiting its expenditure, then the 3.25 per cent growth rate in the budget will be very hard to meet, with further consequences for debt and the budget surplus.''
Mr Murray was tightlipped on changes at the Future Fund, announced last week that give the managing director, Mark Burgess, a higher public profile. But he said: ''I really enjoyed working with Mark Burgess and it's good to see that [chairman] David Gonski … is going to give him more to do in the public representation of the Future Fund. ''I think that's a very good thing.''
government promises equal treatment for all on super
David Crowe, The Australian, 21 May 2012
POLITICIANS will not be spared higher taxes on their retirement savings under budget measures aimed at high-income earners, the government declared yesterday as it promised equal treatment for all taxpayers.
The change could leave Julia Gillard with a $70,000 bill on top of her income tax, experts have estimated, but the final tally will depend on how Canberra implements the change.
Financial Services Minister Bill Shorten yesterday vowed to apply the $950 million measure to cabinet ministers as well as wealthy workers in the private sector, amid doubts over how the change can be put into practice.
"The government's made it very clear it's our intention to treat members of parliament, members of cabinet, equally with all others in the community," Mr Shorten told ABC TV.
Labor is planning to reach its budget surplus with the help of the measure, which will require people earning more than $300,000 a year to pay 30 per cent tax on their super contributions, compared with 15 per cent for others.
But experts have questioned how the measure can be applied to politicians, judges and public servants who are in defined benefit funds that do not receive contributions in the same way as ordinary funds.
Federal politicians elected before 2004 are in defined benefit funds that guarantee a pension at a set rate of their salary, without any need to make contributions into their funds each pay cycle.
taxing issue of super mergers
Andrew Main, The Australian, 19 May 2012
SUPERANNUATION Minister Bill Shorten moved yesterday to formalise capital gains tax rollover relief on mergers between funds in the industry, moving on from the temporary fix announced last month.
His office put out a proposals paper, which will seek submissions by June 8 on whether the temporary arrangement should be made permanent. The temporary deal was brought in on December 24, 2008, and ran through to September 30 last year, since when it was extended and then extended again.
What's happened is a good example of sensible policy intentions crashing into tax law. The policy intention, as articulated in the Stronger Super legislation that's still going through parliament, is to cut the costs of superannuation for ordinary members wherever possible, and one of the juiciest pieces of low-hanging fruit is eliminating the duplication of back offices of small funds.
That's no one's fault: all super funds started out small, whether industry funds or master trusts, and Stronger Super wants back offices to adopt a common SuperStream operating system that will provide much more accurate information for members, funds and the government than exists now. Small offices will find the burden heavy.
Industry sources say that super fund back offices are still remarkably paper-based and anyone who has tried to move out of a fund, for instance, can testify quite how laborious and time-consuming such a simple exercise can be.
The reason for the formal tax move is that a merger changes the legal ownership of super assets, which in turn means the transferring fund should be liable for capital gains tax on the value of the assets. I say "should" because funds are meant to produce those capital gains. But it gets worse. If a fund has a capital loss it wants to carry forward to reduce the future tax burden, it is also extinguished when the merger takes place. In simple terms, member value is lost when the tax law is applied, no matter what.
There are about 20 members of the 80-strong Australian Institute of Superannuation Trustees looking to merge. For instance, the people putting together the planned $6 billion merger of Care Super and Asset Super said that if the tax law were applied it would knock 7 per cent off the super balances of both sets of members.
In that case it's a deferred tax asset (see tax losses above) of between $37 million and $40m.
Super fund AEGST recently reported that it would not be able to merge with industry giant Australian Super if the Income Tax Assessment Act were applied to its $45m of tax losses.
Two big Victorian super funds, Vision Super and Equipsuper, are hoping to merge in a $10bn deal before July 1 but there have been reports of last-minute hitches. It's more than tax, apparently, since local government workers (Vision) and electricity workers don't always have the same interests but the tax issue can't help.
One of the most interesting statistics to emerge was that it could cost members more than $300,000 a month in higher operational expenses if that merger doesn't go ahead.
Shorten's announcement yesterday said the new proposal had two objectives: one, to make sure income tax considerations did not prevent the mergers of superannuation funds and, two, to make sure there were neutral tax consequences for super funds that did not wish to offer MySuper products when they transferred assets across to funds that did do so.
That's clearly political since the minister is keen to see as many funds as possible offering no-frills MySuper products, but you won't hear many screams of protest from the industry over what he's proposing. The only loser looks to be the ATO.
Wayne swan ignores warning on class war
Matthew Franklin, The Australian, 18 May 2012
WAYNE Swan is openly defying business-sector warnings about Labor's escalating use of class-based political rhetoric, accusing "the rich" of attempting to "buy and sell" political parties and the media of pursuing their exclusive economic interests.
The Treasurer has also accused opposition counterpart Joe Hockey of wanting to undermine the fabric of society by advocating a "survival-of-the-fittest ideology" that would smash Australia's "culture of justice" and entrench disadvantage.
Log in on the Australian website to read the full article.
The Truth behind delay in issuing tax refunds
Max Newnham, The Sydney Morning Herald, 18 May 2012
WHEN a company cannot pay its debts as and when they fall due it is insolvent. When individuals cannot pay their debts they are bankrupt. When a government is trying to produce a surplus, or decrease a deficit, it looks for ways to bring income forward and put off paying costs as long as possible.
An annual cost and drain on the federal government's cash flow are tax refunds paid to individuals and businesses. A federal government in financial difficulty due to large deficits could ease cash flow problems by finding a way to delay paying tax refunds.
It may be a coincidence, but for the 2011 tax year accountants have been complaining about a huge increase in large tax refunds being held up by the ATO. In some cases tax returns lodged in early August 2011, in which a tax refund was expected, had not been issued even as late as last week.
In response to these complaints, the ATO issued an email on May 3 advising that, as part of its responsibility to the government to ensure everyone paid the correct amount of tax, it had significantly increased its audit activity of supposedly "high risk" refund claims.
For the 2010 financial year, the ATO checked about 29,000 returns that led to a delay in refunds being issued. For the 2011 financial year, 106,000 tax returns, with tax refunds totalling $447 million, have been selected for audit activity.
The Tax Office on its website states that under normal circumstances a person can expect to receive their refund within 14 days of a tax return being lodged electronically and within 42 days of a paper income tax return being lodged.
In addition, the ATO has published that its operational service standard for finalising audits and reviews is seven days. Its stated benchmark for the 2011 tax year was to achieve this standard 99 per cent of the time. According to the Tax Office's website, it has met or exceeded the standard 100 per cent of the time for the 2011-12 year.
There would appear to be a conflict between the recent email to tax agents and the ATO's stated performance standard achieved this year.
The so-called increased audit activity has been done in the name of protecting Australia from individuals trying to defraud the Commonwealth of tax revenue. In practice the Tax Office appears to be in some cases ignoring facts and not applying previously accepted methods for claiming tax deductions.
When you combine the extremely long time it is taking for taxpayers to receive responses from the Tax Office, and what would appear to be an almost cavalier approach to disallowing claims, there are only two possible conclusions.
The first is that the ATO is understaffed and inexperienced staff are conducting the audits, or the actions taken by the ATO are a deliberate attempt to delay issuing tax refunds.
One announcement in this year's budget would give the conspiracy theorists ammunition, with the government saying it will restore the ATO's ability to retain refunds while conducting verification checks. If the government is behind the delay in refunds, this would mean that it is not only financially bankrupt but morally bankrupt as well.
tourism industries slam departure tax hike
Dominique Schwartz, ABC News, 17 May 2012
New Zealand's prime minister John Key will meet Julia Gillard over the planned rise in Australia's departure tax. From July 1, the departure tax on passengers leaving Australia will rise by 17 per cent to $55. The move has been described by tourism operators from both sides of the Tasman as a money grab that goes against the Anzac spirit.
New Zealand's tourism industry says a planned increase in Australia's departure tax flies in the face of moves to bring the trans-Tasman economies closer together.
Australian and New Zealand tourism leaders have joined forces in Auckland to call on the Government to reconsider the increase. They say it will damage trans-Tasman tourism and potentially cost both economies millions of dollars in lost revenue and jobs.
Norm Thompson from the New Zealand Tourism Industry Association says the tax will make plane fares more expensive. "In New Zealand, tourism is our second-largest market and any potential impact on that is significant to the economy," he said.
The head of Australia's Tourism and Transport Forum, John Lee, says so-called sunshine destinations in Australia are likely to suffer first. "This has the potential to damage these destinations overnight," he said.
The industry groups say the Australian Government collects about $300 million more each year than it spends on processing passengers.
Each year, more than one million people cross the Tasman in each direction.
Household carbon tax compo flows
The Australian Financial Review, 16 May 2012
Household compensation to cushion the impact of the carbon price will start flowing to Australian families on Wednesday. An estimated 1.6 million families receiving Family Tax Benefit Part A or B will have extra pocket money delivered to their bank accounts in the next fortnight.
Households receiving Part A of the allowance will receive up to $110 for each child and those receiving Part B up to $69.
Families Minister Jenny Macklin said the money will help families make ends meet.
From July 1, the government will make 500 of Australia's biggest polluters pay an initial $23 for every tonne of carbon they put into the atmosphere. This will be followed by a market-based emissions trading scheme in 2015.
The aim is to cut 160 million tonnes of carbon dioxide from the atmosphere by 2020.
Nine out of 10 households will receive tax cuts or compensation payments to counteract possible price increases for expenses such as electricity bills.
This week the Gillard government launched its $36 million advertising campaign on the household assistance package, which did not mention the carbon tax.
'Proper' company tax cut needed
ABC News, 16 May 2012
Liberal Senator Arthur Sinodinos joins The Business to discuss the Government's proposed company tax cut, economic credentials and a second airport for Sydney.
Click here to watch the link.
Transcript:
TICKY FULLERTON, PRESENTER: I'm joined in the studio now by Liberal senator Arthur Sinodinos. He's a former investment banker with Goldman Sachs JBWere, and a former economic adviser and then chief of staff to John Howard, and he's now also president of the Liberal Party in NSW. Senator, welcome.
ARTHUR SINODINOS, LIBERAL SENATOR: Thanks, Ticky, great to be with you.
TICKY FULLERTON: Now, the best hope for a business tax cut is under a Labor government? Is that right? Will business have to wait a long time under a Coalition government?
ARTHUR SINODINOS: If the election were tomorrow, there'd be a Coalition government, and then before the election we would have laid out our plans around tax. I think what's happening here is that Wayne Swan is having a bit of a lend of the business community, particularly the small business community. The tax cut he was talking about of 1 per cent would not have been extended to all small business, only those who are incorporated, and it's only a small proportion that are. So, in terms of the engine room of the economy, small business, they actually weren't getting very much out of this particular tax cut - and for consistency's sake, the Coalition have made it clear, because we oppose the mining tax in the form that the Government had implemented, we opposed also a number of the measures that were associated with it. I think we need a proper tax cut. What Tony Abbott, Joe Hockey, Andrew Robb are talking about is a tax cut funded by lower spending.
TICKY FULLERTON: The question remains though, of course, how are you going to fund a tax cut like that? Indeed, how are you going to fund a lot of things?
ARTHUR SINODINOS: Well, that's a good question, and what Joe Hockey and Tony Abbott are saying is that we'll lay out a full economic program before the election so people have an opportunity to compare our plan of action for the economy with the Government's, and that will also include laying out spending cuts to pay for our promises. Can I also say that I think it's important to get away from this idea that cutting government spending is somehow a bad thing: sometimes people say, "You shouldn't review government spending from time to time." I cheer every time government spending is reviewed - not just because we want to cut it for its own sake, but every so often we have to go back and look at the efficiency of government spending, and one of our initiatives is that commission we've ordered after the election is to take a look at government spending. My fear about the Government is that because of the desperation to get a surplus next year, they've hacked in a way which is potentially counterproductive to investment and our long-term future, including our security future on defence. I think we need a proper look at all...
TICKY FULLERTON: Defence was a passion of yours, I know, but the latest Newspoll suggests a bounce from the budget for Labor - and no doubt partly due to the cash splash. You left John Howard just before his major cash splash, and that was also in order to hang on to government, was it not?
ARTHUR SINODINOS: Look, I don't know that there was a major cash splash. There were tax cuts in the 2007 election based on what was the prospect of a very large surplus, and when Howard left government he and Costello left the Government with a pretty big surplus and a future fund. So I think you can cut tax, you can have...
TICKY FULLERTON: So a surplus justifies that sort of cash handout? That's the difference.
ARTHUR SINODINOS: With cash handouts... you know, the connotation is somehow you're just throwing money around. It depends on if they're targeted or not. We try to have targeted family payments to give people choice about whether one partner stays at home or goes into the work force. There's nothing wrong with spending money in a targeted way, but it's got to be according to some plan or criteria.
TICKY FULLERTON: But this is the big debate. It's a debate about fiscal responsibility, and I guess it's OK to have very few policies 18 months out - at one level one can understand that. But the big battle now is for the economic mantle, and in the days of Howard and Costello, when you were there as chief of staff, it was unquestionable that the economic mantle rested with the Coalition. Now, that's not the case at all. I mean that must make you, you know, in great pain really?
ARTHUR SINODINOS: Well, I'm actually travelling pretty well because the latest survey suggests the Coalition's economic credentials are pretty well intact. I think what's happened since 2007 is, we went into opposition with pretty good economic credentials. We bequeath the Government a pretty good economy and a pretty good budget position.
TICKY FULLERTON: I'm looking at Wayne Swan being Euromoney's Treasurer of the Year. On your side, you've got your last great treasurer accusing Tony Abbott of being financially illiterate - you're recovering from a $70 billion mistake in costings. The polls today: "Who can run the economy best?" 34 per cent Wayne Swan, 33 per cent Joe Hockey. I mean, in terms of the public, this is a major issue now. Who has the economic credibility?
ARTHUR SINODINOS: I believe if you ask the public who has handled the economy well and has the capacity to do so again, I think the Coalition overwhelmingly has those credentials. One of the reasons the Government is in the shape it's in, is because there is a perception in the community that they went too far during the global financial crisis, they spent too much, there are too many stories of government waste in the building education revolution, the pink batts and the rest of it, which overwhelmed any impact of the stimulus on the economy. So, I think Wayne Swan has had to battle this perception for a long time, and I think he's still battling it.
TICKY FULLERTON: There are some heavy hitters on the Coalition side - most particularly yourself and Malcolm Turnbull. I think business are feeling, when are you two going to be taking up the economic heavy lifting, if you like?
ARTHUR SINODINOS: In my own case, I've only just joined the Parliament. I'm a member of Joe's razor gang and working as Chairman of the Deregulation Task Force so I've got plenty to do. Malcolm is a shadow minister, and he also, as a former leader has a prerogative and a capacity to talk on broader matters. I think we're all doing heavy lifting where we can, but as part of a team and we're trying to be as united as we can in the face of a government which has been pretty disunited.
TICKY FULLERTON: Senator, can I ask you one specifically on the Sydney airport. You are pro-growth - that must mean you're for a second airport somewhere in Sydney. There's been an $8 million report which recommends Badgerys Creek for a tonne of good reasons as the best place to go. Where do you sit on this?
ARTHUR SINODINOS: Let me preface that by saying, the fate of Sydney Airport, having another airport in the Sydney basin, is a national infrastructure issue, and it's appropriate the Federal Government take action on that subject.
TICKY FULLERTON: You support that?
ARTHUR SINODINOS: I support a second Sydney Airport. The question of where you put that and all the rest of it - we have a report, as you said, it talks about Wilton. I think that needs further examination. I think there has to be a deal between the Federal Government and the State Government, because the State Government is strapped for cash. Wilton, as I understand it, is owned by...
TICKY FULLERTON: And you think the State Government might come to the party if there was cash from the Federal Government's part of the deal?
ARTHUR SINODINOS: Whatever Barry O'Farrell may say about promises made during the last election, the fact of the matter is that he hasn't been offered anything like an attractive deal by the Federal Government to come to the table and even discuss the matter, and Barry has a number of infrastructure priorities in NSW where he could really use the money.
TICKY FULLERTON: Senator Sinodinos, thank you for joining us tonight.
ARTHUR SINODINOS: Thanks, Ticky.
treasury blasts budget attacks
Jacob Greber, Australian Financial Review, 16 May 2012
Treasury secretary Martin Parkinson has launched a staunch defence of his department’s economic forecasting and “completely and utterly” rejected charges that last week’s budget was compromised by shuffling spending and savings to conjure a surplus.
In a wide-ranging speech in Sydney, Mr Parkinson said greater uncertainty about revenue and structural changes within the economy made generating accurate forecasts more difficult.
He attacked claims that the forecast swing from deficit to surplus means fiscal and monetary policy are in conflict, saying the Reserve Bank of Australia had scope to lower interest rates if the economy weakened. “The idea that somehow there is a tablet that says how one constructs your budget – and that somehow . . . the Treasury have done something inappropriate this year – let me just reject that completely and utterly,” Mr Parkinson told a gathering of economists.
The practice of shifting items between accounting years happened in every budget and reflected changed circumstances such as the early completion of an upgrade of the Ipswich motorway that allowed the Treasury to move spending originally slated for 2012-13 into 2011-12, he said.
There has been criticism of Treasury for overestimating economic growth in the current financial year and for making assumptions about a likely rebound in government revenue for next financial year. The forecasts have been described by at least one market economist as the most optimistic in half a century.
Sydney University economics professor and former Reserve Bank board member Adrian Pagan last week accused the Treasury of allowing its budget forecasts to be manipulated in 2009, likening them to Greece’s public accounts, a charge the department vehemently rejected. “Given the significant structural change in the economy, and the changing relationship between the nominal economy and tax collections, this is a particularly challenging time for revenue forecasting,” Mr Parkinson said in his speech.
Uncertainty caused by a series of shocks to the economy, including the global financial crisis and the resources investment boom, had made the task more difficult and that small errors could have a material effect on the accuracy of overall forecasts, he said.
In last year’s budget, the government pencilled in import growth of 10.5 per cent for 2011-12, less than the 12.5 per cent now thought likely. It anticipated export growth of 6.5 per cent. Treasury now expects a 4 per cent gain.
Those mis-steps meant that net exports detracted more from gross domestic product growth than had been expected in the 2011 budget. Driving this error was an underestimation of the effect of surging business investment growth on imports.
“As you know, resources investment is very import intensive, and the shift towards investment for LNG projects makes it even more so,’’ Mr Parkinson said. “Again, this is not much of a miss, given the size of the growth rates. But with imports also equivalent to around 20 per cent of GDP, it still has a material effect on the accuracy of the forecasts.’’
Mr Parkinson signalled further misses given that the mining boom had caused things to move “around much more than usual’’.
Treasury expects business investment to grow by well over a fifth this year, alongside a 12 per cent gain in imports and a 10 per cent drop in the terms of trade. “Such large movements are difficult to calibrate tightly, but small errors in those components can make a big difference to the accuracy of the forecasts,’’ the Treasury secretary said.
Mr Parkinson used his speech to launch a fresh defence of Australia’s macro-economic framework, saying he found it “disheartening” to hear criticism from parts of the business community about a system that had served Australia well. “Unfortunately, it is sometimes forgotten that this framework is in no small part responsible for the relative stability of Australian economic growth,’’ even through three of the biggest shocks since World War II to have hit the nation in the past decade.
Those shocks included the surge in demand for mineral resources between 2004 and 2009, the global financial crisis, and the renewed resources boom since then.
Now that the economy is forecast to return to its average growth rate, and unemployment is expected to be near its lowest sustainable rate, it was appropriate for the budget to return to surplus, he said. “So, rather than working at cross-purposes, the current directions of monetary and fiscal policy simply reflect a return to their normal roles following an extreme event.”
In last week’s budget, Treasury forecast a return to average growth rates, driven by the resources boom, as well as higher domestic demand triggered by cuts in interest rates.
Mr Parkinson said that while the swing from deficit to surplus implied a fiscal consolidation of 3.1 per cent of GDP, the macroeconomic impact was “probably under’’ 1 per cent of GDP.
Welfare groups respond to budget
ABC News, 9 May 2012
Australian Council of Social Services CEO Dr Cassandra Goldie and other welfare sector organisations hold a joint press conference to respond to the budget.
Click here to watch the joint press conference.
the missing budget paper (the punch)
Simon O'Connor, Australian Conservation Foundation, 15 May 2012
During the lead-up to last week’s federal budget and the reporting that followed, the overwhelming focus was on whether Labor could deliver on the surplus promise it had pledged.
The focus Australia has on keeping its books balanced is commendable, but there is another deficit we face. One that gets worse every year, and one that could create havoc in the economic budget if not attended to.
The environmental deficit. Last year’s State of the Environment report made the same point that it has made since its initial publication in 1996 — things are OK, but getting progressively worse.
At some point, Australian governments are going to need to act on major environmental issues, and the longer they wait, the more damage the national hip-pocket will take.
Well may we have a budget surplus, but each year, Australia is delivering an environmental deficit, and our environmental net debt continues to grow. This environmental deficit tends to be ignored, scattered across the budget statements. It tends to be, in fact, the Missing Budget Paper.
So what would the headline figures be within this mythical document?
First on the agenda is transport. Australia should aim to reduce pollution and congestion, making life more pleasant for the 80 per cent of Australians dwelling in our ever-expanding cities who deal with dirtier air and longer drives to and from work every day.
This should not be hard. Simply, money should be spent on public transport rather than endlessly building new roads that just get clogged up with new cars. No one WANTS to be stuck in traffic; taxpayers’ money should go to buses, trams and trains, creating a transport system that people would flock to. The government could create a world where we breathe cleaner air while getting to work faster and without the trauma of gridlock on the M1.
But no, this year’s missing environmental budget paper shows the opposite. In fact, for every new dollar spent on rail, $14 is spent on roads. Fail.
What about pollution? Well, here’s an area the missing budget paper is looking in surplus this year. With the budget’s full funding of the Clean Energy Future package of commitments, including the Biodiversity Fund, and Clean Energy Finance Corporation, the pollution forward estimates look promising. Pass.
How about programs that protect our wildlife and the stunning Australian landscape that we are so rightly proud of? Well, the pillar that protects our natural environment, the Environment Protection and Biodiversity Protection Act, gained some funding to implement much-needed reforms.
But given that it appears that all powers around this act will soon be handballed to the states (who appear all-too eager to scrap any and all environmental protections), it raises the question why they’re bothering at all.
With the State of the Environment report showing us we are not doing enough to stem the decline of our environment, biodiversity and ecosystems, it’s admirable that programs such as Caring For Our Country have retained funding despite the tight budget.
Unfortunately, though, no steps have been taken to stem our slide to an environmental deficit in the forward estimates. A narrow pass.
The overwhelming majority of our environmental deficit comes in the form of the deeply entrenched incentives big polluters receive to continue consuming fossil fuels like cheap oil is still a reality. The missing budget paper shows how starkly our budget supports this old economy at the cost of a clean future.
These handouts to big miners to use tax-free fuel will continue to grow over the forward estimates to a staggering $9.4 billion — a whopping $4,480 per minute that taxpayers are handing over to mining companies so they can drive trucks cheaper.
This is in stark contrast to the savage cuts to one of the only programs giving a similar incentive to green up our economy. The tax breaks for green buildings were axed before they even got out of the starting blocks — going back on a $400 million commitment that was a pale shadow of the miner’s own tax loophole. Epic fail.
A strong economy needs a healthy environment. As long as our financial surplus is built atop an environmental deficit, the long term economic outlook for Australia looks decidedly shaky.
Simon O’Connor is the Australian Conservation Foundation’s economic adviser.
This article was originally published on The Punch.
keep taxes stable or lose boom: martin ferguson
David Crowe, The Australian, 15 May 2012
RESOURCES Minister Martin Ferguson has warned against tax changes that could jeopardise the next wave of gas projects as companies sharpen their attacks on Treasury proposals to remove their concessions.
As company executives demand a stable tax regime, Mr Ferguson said yesterday he understood the importance of stability, a signal cabinet should be wary of further change after the acrimonious resource super-profits tax debate of the past two years.
"Capital is footloose and we've got to be able to send a very sound message that the fiscal regime is settled," he said at the Australian Petroleum Production and Exploration Association's annual conference in Adelaide.
Wayne Swan has talked up the prospects for business tax reform after last week's budget move to drop the proposed company tax cut, but iron ore and gas companies are frustrated at being left out of the business tax working group that is negotiating the changes during the course of the year.
The industry estimates that its investment pipeline could grow from $170 billion to $330bn as companies add to the liquefied natural gas projects already under way.
Mr Ferguson said the "second pipeline" would bring huge benefits if the government could set the right policies, as it did with the first stage of the boom.
"I think we've got to make sure we secure it because that is going to be a tremendous opportunity for Australia: ongoing employment and high-skilled jobs," he told reporters.
"Across the board the knock-on benefits for the Australian community are beyond belief."
Woodside chief executive Peter Coleman said the discussion about tax changes undermined his company's ability to plan its next investments.
"Discussions around changes in depreciation rates, tax schedules and so forth are very concerning to us," he said, "because we are spending hundreds of millions of dollars in getting ourselves to final investment decisions and it's based on a certain set of assumptions.
"So to be changing the rules, or to be even talking about changing the rules midstream, after we have entered into a government-sanctioned process, by the way, is really just off the table."
Santos chief executive David Knox warned against tax changes that would upset plans for exploration.
"We need a stable fiscal climate and regulations," he said. "We need support for exploration, as well. Exploration is, in fact, the lifeblood. In order to do that, we need a stable fiscal environment."
While members of the business tax working group have signed non-disclosure agreements, The Australian has been told that Treasury continues to make the case for scaling back concessions that benefit big resource projects.
One concession governs the way companies depreciate assets while another shapes the tax treatment of exploration activities.
Several industry executives spoke of their frustration over the process, which is meant to produce a final report at the end of this year, leading to potential changes in the budget next May.
Total chairman and chief executive Christophe de Margerie said that major changes to tax rules could make projects uneconomic but Australia's plans were not yet at that level.
In a change from some of the rhetoric about taxation in recent years, the head of one of the world's biggest oil companies dismissed the idea that tax-policy change in Australia amounted to a sovereign risk.
tax reform still on the cards: swan
Colin Brinsden, The Sydney Morning Herald, 15 May 2012
Treasurer Wayne Swan will reassure business the federal government is still on the case to reform the tax system, despite ditching a promised cut in the corporate tax rate in last week's federal budget.
In a speech he will make on Tuesday, Mr Swan again blames the federal opposition and the Greens for rejecting a move to cut the corporate tax rate to 29 per cent from 30 per cent, a reduction that was to be funded by the minerals resource rent tax.
"I want to make it really clear that the Gillard Labor government is still in the cart for genuine business tax reform," he says in his address to the NSW Business Chamber of Commerce in Sydney.
The government will keep working with the business community to deliver more relief by seeking a new consensus later this year on tax changes proposed by the Business Tax Working Group that was formed after last year's tax forum. He wants affordable tax reform that would be funded from savings in the business tax system.
However, he says he is not prepared to stand by and allow "parliamentary gridlock" to deny struggling business the benefits of the mining boom, and why the tax cut funding was redirected to initiatives such as loss carry-back.
"It's also important to remember that the Benefits of the Boom package in this budget will put more money in the pockets of low and middle income households, which will in turn support business activity, particularly in retail," Mr Swan says.
The package includes a $1.8-billion boost to family tax benefits, as well as a $714 million loss carry-back for business that allows firms to offset previously paid taxes should they suffer a loss in profits.
Mr Swan says about 90 per cent of the companies expected to benefit from the new loss carry-back are small businesses. This builds on the $6500 instant write-off for small business and $5000 immediate deduction on a new or used motor vehicle.
what the budget means for small business
Max Newnham, The Sydney Morning Herald, 15 May 2012
This year's federal budget has again shown that the small business sector is largely ignored by politicians and bureaucrats in Canberra. One of the budget measures will only help those businesses that can afford to purchase assets, while the other will tend to only help large and medium-sized businesses.
The main small business tax initiative in the budget was in fact not a new measure but an old one updated. From July 1, 2012 small business entities, those with a turnover of less than $2 million, can claim an immediate tax deduction for assets purchased costing less than $6500. When this measure was originally announced the limit was $5000.
Where an asset costs $6500 or more it can be depreciated in a single group or pool. Currently assets with a useful life of less than 25 years are depreciated at 30% per annum and half that rate in the year of purchase. Assets with a useful life of 25 years or longer are depreciated at 5% per annum. Under the new system all assets, except for buildings, will go into a pool and be depreciated at 30% per annum.
One measure, that would have restored equity to the income tax system for small businesses, would have been to increase the income threshold that determines if a business is a small business entity. Since the small business entity system was introduced on July 1, 2007 the income threshold should have increased to $2.25 million to reflect increases in CPI.
Another previously announced measure given prominence in the budget was the ability for small businesses to claim an immediate tax deduction for the first $5000 of the cost of a motor vehicle. Any excess cost over $5000 can be included in the depreciation pool and written off at 30% per annum.
In practical terms the two measures when combined will mean if a motor vehicle costs less than $6500 in immediate tax deduction will be claimed. If it costs $6500 or more the immediate tax deduction will be $5000 with the balance depreciated at 30%.
An example of how this works is a business that buys a delivery van costing $20,000 in November 2012. The business will receive an immediate tax deduction of $5000, and a depreciation deduction of $2250, in the 2013 financial year. In the 2014 year the depreciation deduction will be $3825.
The problem with the assets and vehicle purchase measures for businesses in financial difficulty, as result of the two speed economy, is that they will only get a benefit if they can afford to purchase assets and will be paying tax.
The only new measure announced in the budget is the ability for companies to receive a tax refund when they make a loss in a financial year, and company tax was paid on a profit made up to two years ago. As the majority of small business entities do not use a company structure this measure will be of no benefit to them.
most feel they will be worse off with wayne swan's budget
Dennis Shanahan, The Australian, 15 May 2012
MORE people believe they will be personally worse off than better off by a ratio of more than two to one after Wayne Swan's budget.
After last Tuesday's budget, 41 per cent of people believe they will be worse off financially, the same percentage as after last year's budget, while 18 per cent believe they will be better off, a jump of seven percentage points from the figure last year.
Log in to read the full article on the Australian.
time for a 'millionaires' tax' to ensure the wealthiest australians pay their fair share
ACTU Media Release, 12 May 2012
Reforms to make the wealthiest Australians pay their fair share of tax must be stepped up, including the introduction of a new “millionaires’ tax”.At next week’s ACTU Congress, unions will discuss proposals to shift the tax burden off the shoulders of low and middle income Australians, as part of an agenda to shape a fairer and stronger economic system.
ACTU Assistant Secretary Tim Lyons said tax reforms announced in this week’s Federal Budget had made the system more progressive, but there was much more that could be done to ensure Australia’s wealthy pay their fair share.
The union movement’s economic policy agenda for the next three years will include a proposal for a millionaire’s tax, similar to the “Buffett Rule” advocated by the Obama administration in the United States. This will be debated on the second day of next week’s ACTU Congress, beginning on 15 May.
Mr Lyons said the Budget had made strides towards a fairer tax system with a tripling of the tax-free threshold, reduction of super tax concessions for high income earners, and the tightening of loopholes like the tax concessions for golden handshakes and executives’ Living Away from Home Allowance. But she said more was needed to undo the damage of the Howard years, which had favoured tax cuts for high income earners.
“Next week, about 1000 delegates will be focused on our vision to create a better, fairer and more secure life for all Australian workers,” Mr Lyons said. “Part of will include a plan to transform the way Australians are taxed, which at the moment places more weight on the shoulders of working Australians and their families.
“The Minerals Rent Resource Tax and the tax loss ‘carry back’ are good policy, but further change are needed to the business tax system to support jobs and growth, while ensuring business pays its fair share.
“The income tax system is absurdly inequitable when it comes to taxing the mega-rich. Because most of their income comes from investments, billionaires like Gina Rinehart, Clive Palmer and Andrew Forrest pay a much lower proportional tax rate than the average Australian family. They are laughing all the way to the bank, while ordinary Australians struggle to find secure jobs and meet their costs of living.
“The adoption of a Down Under version of the ‘Buffet Rule’ would ensure that millionaires who principally derive their income from capital gains pay at least as much in tax as a proportion of their incomes as ordinary working Australians.”
is our carbon tax really the biggest?
Sarah Lumley, New Matilda, 9 May 2012
One of Tony Abbott's favourite stock phrases is that we've got the world's biggest carbon tax. Is he blowing hot air? Environmental economist Sarah Lumley looks at the figures to find out
If you turn on the news any night of the week, chances are you’ll hear Tony Abbott refer to Australia as home of the "the world’s biggest carbon tax".
The Opposition leader hasn’t provided any evidence for this claim, but that hasn’t stopped the media from reporting it. The ABC, Yahoo, Fairfax and News Ltd have all run Abbott’s refrain without verification.
But is it actually true?
Answering that question isn’t easy. Different countries use different measures to price carbon so we need to look at the source of the carbon, the use of the carbon source, and whether the tax or price is applied to carbon as an input or to carbon as an output. For example, Costa Rica applies its carbon tax of 3.5 per cent directly to the price of fossil fuels while other countries apply the tax to CO2 emissions.
Matters are further complicated by the differential application of taxes to energy output units according to the energy source, such as those cited for the UK, where taxes in $/kWh or $/kg vary between electricity, liquefied petroleum gas or solid fuel.
Incentive payments, compensatory subsidies and tax returns like those Australia will soon employ also complicate attempts to calculate the relative magnitude of carbon taxes from one country to the next, as do exchange rates and the relative wealth of any given nation. For example, according to World Bank statistics Australia is one of the world’s wealthiest nations with a gross national income per capita (GNI) of US$43,740, while China’s is US$4620 and India’s only US$1340.
To compare their carbon taxes with Australia’s in absolute terms, as did another report decrying our carbon tax as the world’s highest, is misleading. The International Business Times, having stated "the fact remains that Australia’s carbon tax is the most expensive in the world" expressed outrage that "Australia’s carbon tax price is far higher than prices imposed in Europe…" According to the report, our "…carbon tax is 23 times bigger than India’s".
To nit-pick: if India’s is $1.07 per tonne, Australia’s is 21.495 times bigger. However, Australia’s GNI is 32.64 times higher than India’s so on a per capita GNI basis India’s carbon tax is actually significantly higher than Australia’s.
A surprising number of countries have been operating carbon taxes in one form or another since the 1990s. These countries include Sweden, Norway, the Netherlands, Denmark and Costa Rica. Finland, which was the first, introduced a carbon tax in 1990. Other nations with some form of carbon tax pending or in place include South Africa, China, Ireland, Switzerland and India.
This report lists the countries around the world that already have a carbon tax or intend to introduce one soon.
Although they have no national program as yet, some states in the US and Canada also employ carbon taxes. For example Canada’s British Columbia levies a carbon tax of CAD$25/tonne rising to $30 this year. Last year The Economist, reporting on British Columbia’s carbon tax, said that it "has not weakened the province’s economy" but rather: "despite the levy,the economy is doing well". Tony Abbott might like to note that British Columbia’s main export commodity is now coal, and that The Economist thinks its carbon tax is a bit low.
So is our carbon tax the biggest? The short answer is no. In absolute terms that honour appears to belong to Sweden with reported rates of up to US$150 per tonne.
According to a 2009 US Department of Energy report, Sweden applied a "standard" rate of US$104.83 per tonne of CO2 and an "industry" rate of US$23.04 per tonne of CO2, Norway’s tax ranged from US$15.93 to US$61.76 while Finland applied a rate of US$30 per tonne. Earlier this year the Climate Institute released its Global Climate Leadership Review 2012 where Sweden’s carbon price was given as US$130/tonne CO2 — while other sources estimate it as $150/tonne.
Sweden, Holland, Finland and Norway have all had carbon taxes since the early 1990s and they remain among the world’s wealthiest nations despite relatively high carbon taxes, welfare entitlements, and the impact of the global financial crisis in Europe.
If the wealthier nations are doing well enough despite having carbon taxes, how have the less wealthy fared? Costa Rica, with a reported GNI of US$6580, while not as poor as China or India, is significantly poorer than Australia. Its population is less than a third the size of Australia’s so it too could argue, as some in Australia have, that its global carbon footprint is minimal — but it doesn’t.
In 1997 Costa Rica introduced a carbon tax of 3.5 per cent levied on the market price of fossil fuels and it aims to be carbon neutral by 2021. In the recently released Yale University environmental performance index Costa Rica was placed fifth behind Switzerland, Latvia, Norway and Luxembourg while Australia was 48th. Despite its developing nation status and its environmental credentials, Costa Ricans appear to be neither impoverished nor wretched, scoring highly with life satisfaction in the World Happiness Report recently launched at the United Nations.
On balance, the alarm being spread about the carbon tax in Australia, which has contributed to its low level of public support, seems unwarranted. China and India are the most populous nations on earth and as such have the potential to exacerbate human induced climate change. However, they also have a significant number of people living in poverty who, unlike the poor of Australia, Sweden, Holland, Finland and Norway, are moving towards reducing carbon emissions without access to the same safety net of welfare entitlements.
Australia needs to have the carbon debate, but let’s try to keep it honest — repetition does not make a statement true, and misinformation does not advance a debate. If Tony Abbott does really believe that Australia has "the world’s biggest carbon tax", he should have to prove it.
class warfare debate a bit rich
Katie Walsh, Australian Financial Review, 9 May 2012
The class warfare debate sparked by the budget overlooks the fact that it contains welfare cuts and that spending for the less well-off is relatively small, particularly when compared with past budgets.
The measures touted as spreading the benefits of the mining boom amount to less than 1 per cent of total spending in the area.
These measures include boosting family tax benefits, income support and education handouts, and improvements to dental health, aged care and disability .
“I don’t think it’s a massively redistributive budget by any stretch of the imagination,” said University of NSW professor Peter Whiteford, who is also director of the Social Policy Research Centre.
The key cuts to wealthier groups came via superannuation, the deferral of higher contribution caps and slashing of super concessions for those on $300,000 or more, bringing in nearly $2.5 billion.
But the less well-off also face cuts. Single unemployed parents will lose parental payments once their youngest child turns eight; families with children aged 18 or older will not receive tax benefits for them; and welfare recipients and pensioners who are overseas for more than six weeks and 26 weeks respectively may lose entitlements while travelling. These measrure are expected to save more than $1.1 billion.
Professor Whiteford said that, combined, the measures – “within certain limits” – were close to the “battler’s budget” touted by Treasurer Wayne Swan. But they paled in comparison with previous efforts.
In the 2009-10 budget, aged pensions rose by up to $65 a fortnight – the biggest in their history. At the same time, a gradual increase in the qualifying age for the pension, from 65 to 67, was announced, highlighting Professor Whiteford’s point that over time, most of the changes targeting payments have come from Labor.
The Coalition had a stronger record of cutting spending, but that was by abolishing Labor programs such as working initiatives and child care or failing to index payments. It also had a history of using tax cuts for welfare, rather than payments.
“One of the things I think is clear is actually the Labor party has a much stronger record of cutting welfare than the coalition,” he said.
The Hawke government introduced income tests on age pensions, the Keating government increased the pension age for women. The Rudd and Gillard governments had continued this to a “minor extent”, said Mr Whiteford; contributing to our standing as having one of the most means-tested social security systems globally. “The government can say it’s tried to do things in a way that’s progressive, but you can hardly claim it’s a massive assault on the rich and giving to the poor, ” Professor Whiteford said.
Treasury does some digging to offer a mine of useful myth-busting
Jessica Irvine, Sydney Morning Herald, 11 May 2012
This week's budget contains some important myth-busting about Australia's mining boom, the biggest since the gold rush days. It contains some extraordinary numbers.
Did you know, for example, that the resource sector has an investment pipeline of $450 billion in the coming years? That's about a third of the total value of Australia's entire annual economic output.
And while mining accounts for just 9 per cent of economic output, Treasury puts the combined output of mining and mining-related sectors at between 15 and 20 per cent. And get this: this resource and resource-related part of the economy is forecast to grow an average of nearly 9 per cent a year over the next two years. To put that in context, that is faster than Treasury's growth forecast for the booming Chinese economy, which is 8 per cent.
By contrast, the rest of the economy is expected to grow at a below-trend rate of just 2 per cent. Not a recession, mind you, but on par with growth forecasts for the US economy. One foot in the furnace and one foot in an ice-bucket, as economists have observed.
The Gillard government has sold this budget as ''spreading the benefits of the boom'', but it's fair to say most Australians' understanding of the boom is pretty shaky.
For starters, most of us, about 85 per cent of the population, live in coastal cities far away from mining pits. The mining boom, to us, is largely invisible.
Meanwhile, the public slanging match between miners and the government has led to a proliferation of misunderstanding about the contribution of mining to the economy.
On the one hand, miners complain they already pay a disproportionate amount of tax. On the other, critics worry that the benefits of the boom are not enough to outweigh the negative impact of the higher Australian dollar on other sectors of the economy, like manufacturing and tourism.
Whom to believe? Neither, according to Treasury. Let's start with the miners first.
Myth No. 1: Mining companies pay too much tax.
Last month, the mining industry printed ads complaining it pays 500 per cent more taxes and royalties than 10 years ago. But Treasury counters by noting that over the past decade, the mining sector still paid less company tax, as a proportion of its profits, than other sectors of the economy.
While miners paid about 16 per cent of their profits (''gross operating surplus'' in economist lingo) in company tax, the finance sector stumped up tax of about 40 per cent of profits. The average of all sectors was close to 20 per cent.
Over the past decade, the mining sector has come to generate a higher proportion of total profits. The mining sector's share of profits has risen from 16 per cent in 2002-03 to 29 per cent in 2011-12.
This has been accompanied by a massive investment boom in machines, equipment and buildings. This has meant that mining companies have been able to reduce their taxable income by claiming tax deductions for the depreciating value of that equipment. This has reduced the amount of tax they pay.
Budget papers show that while miners now generate about 30 per cent of company profits, they contribute only 15 per cent of the company tax take. The mining tax will add about $3 billion a year to the budget bottom line. This helps, but miners will still be paying slightly less than their share.
Australians are, however, benefiting in other ways from the boom, which brings us to …
Myth No. 2: The benefits of the boom are confined to the mining sector, while the rest of the economy is harmed by a higher dollar.
First, it is true that the mining sector directly employs only 2 per cent of the workforce. But a range of other industries also benefit.
For instance, mining activity leads to jobs in the construction of mines, plants, roads and rail infrastructure. The mining industry accounted for 60 per cent of investment in new buildings and other structures over the past year, up from 29 per cent at the start of the mining boom in about 2003.
Parts of manufacturing benefit too - particularly the manufacture of mining machinery and equipment. Jobs in research and development and exploration have also been created, as have jobs in transport, the finance and insurance services sectors, and the professional, scientific and technical sector.
Indirectly, the mining boom has helped to support retail jobs in some parts of the economy. Retail sales in Western Australia have grown 6.4 per cent a year since the start of the boom, compared with 4 per cent in Australia.
The rise of ''fly-in, fly-out'' work, which now accounts for half of WA's mineral and energy sector workforce, has also helped to directly spread income from the boom to many other parts of the country.
Indirectly, the higher dollar has made imports cheaper for consumers. According to Treasury, the price of goods, including manufactured goods and food, have grown just 0.6 per cent a year since the start of the boom, while household incomes have, on average, grown by about 7.2 per cent a year. Much of this spare income has been spent on services, boosting service sector jobs.
As yesterday's jobs figures show, Australia's unemployment rate remains at near historic lows.
This boom is not all gloom. And miners can afford to share a little more of the sunshine.
Amid Abbott's criticisms, unanswered questions fester
Lenore Taylor, Sydney Morning Herald, 11 May 2012
TONY ABBOTT has a vision for a growing economy and sweeping cuts to government spending. But he feels under no pressure at all to tell us how he'll get there.
And why would he invite scrutiny if he can sweep aside Labor's budget by appealing to voters' seething disinclination to believe anything Julia Gillard has to say?
You could almost see people in their lounge rooms nodding last night when the Coalition leader said ''budget week hasn't just been about the budget … it's been about the Prime Minister's integrity and judgment''.
Some of his criticisms of the budget are well justified. In different political circumstances some of the $5 billion doled out to 1.5 million families and pensioners on Tuesday would have been used to boost surpluses, or pay down debt or improve the productive capacity of the economy.
But he didn't explain how those complaints, or his own lofty goals, fitted in with the Coalition's decision to wave almost every one of Labor's budget measures through Parliament.
He hasn't told us how his promise of bigger surpluses will be served by his decision to support family and pensioner payments that add around $1 billion to annual outlays while he also vows to repeal the mining tax which is supposed to pay for them.
The main plank of his plan for economic growth, he says, is abolishing the carbon tax, but he hasn't explained how he will find ''at least $50 billion worth of savings'' and fund personal income tax cuts at the same time.
Oppositions have the right to release their policies at a time of their choosing and Tony Abbott last night chose to unveil just the beginnings of one, an aspiration to ''work with the states'' so that 40 per cent of year 12 students will learn a language other than English.
Other than that he ramped up the same ''class warfare'' rhetoric he used last year (before he also waved those budget measures through).
But his attack was not so much based on the content of the budget (the biggest savings measure only hits people earning more than $300,000 and the handouts went to families earning up to $170,000 a year) but rather on the ''billionaire versus battler'' rhetoric the government has been laying on with a trowel.
The government was ''deliberately, coldly and calculatedly'' playing the ''class war card'', he said, which would ''offend the intelligence of the Australian people''. And well it may.
But the broken-down state of Australian politics means both Labor's budget and the Coalition's reply are, more than ever before, determined by short term political tactics rather than the real long term vision that could inspire the national mind.
Changes to hurt single parents
Australian Financial Review, 10 May 2012
Unemployed single parents will be able to collect $31,900 a year in government benefits following budget measures but will lose up to $3120 a year once their youngest child reaches the age of eight.
Read the full article via subscription on the Australian Financial Review website.
World's poorest will die for our surplus: charities
Australian Financial Review, 10 May 2012
Charities have warned the Gillard government decision to pare back foreign aid spending will cost lives, harm Australia’s reputation and cruel the country’s chances of securing a UN Security Council seat.
Read the full article via subscription on the Australian Financial Review website.
Welfare groups respond to budget
ABC News, 9 May 2012
Australian Council of Social Services CEO Dr Cassandra Goldie and other welfare sector organisations hold a joint press conference to respond to the budget.
Click here to watch the joint press conference.
missing tax cut doesn't spell doom for small business
Max Mason, Sydney Morning Herald, 9 May 2012
Wayne Swan’s surprise decision to drop Labor’s previously promised one per cent cut in the company tax rate will still have benefits for small business, economists say.
The Henry Tax Review had recommended a cut in the company tax rate from 30 to 25 per cent over time.
Having already chosen to reduce the cut to one per cent the loss of a cut all together is disappointing, but not as dramatic as many business leaders say, according to Commonwealth Bank economist James McIntyre.
The money – which is to be taken from the minerals and resources rent tax – will instead be filtered down to low and middle income earners, which, in time, will benefit small business says McIntyre.
In addition, the Prime Minister, Julia Gillard, flagged that a tax cut for business may come in the future.
“I am very determined to deliver a company tax cut,’’ she told ABC Radio today. ‘‘We have used that money instead to spread the benefits of the mining boom to Australian families who we know are struggling to make ends meet in many cases.’’
Despite the fact that small business will not be getting a tax cut, this time around, the redirecting of funds will still benefit them. The additional assistance for households will, according to McIntyre, help boost household confidence making consumers more likely to go out and spend the money on goods and services.
“Whilst business confidence might have been a little dented from not getting the tax cut, if they had to choose, they’d choose to have happier spending households than a tax cut probably every day of the week,” says McIntyre.
The government also announced the loss carry-back scheme, which will allow loss-making small businesses to receive a refund from taxes paid in the previous year.
Budgeted to cost $714 million over the next four years, the government hopes the scheme will allow businesses to keep their heads above water, to invest in innovation, boost the numbers of those entering into small business rise.
“To an extent, it will lower the perceived risk in entering into business, knowing that you can get some of those previous gains back,” says McIntyre. “It gives you the chance to adapt and get it right. Anything that keeps businesses alive a little longer in a downturn is probably useful,” he says. McIntyre says that the move could help ease the high dollar and give the Reserve Bank more room to further lower interest rates, two of the major factors behind struggles for many small businesses.
Interest rate futures are forecasting that the RBA will cut interest rates by at least 75 basis points by the end of the year.
McIntyre was quick to point out that a surplus could also have the opposite effect, with Australia being i
n a rare group, a AAA-credit rating, and that’s something that could attract investors to the Australian dollar.
If consumer confidence was to grow as a result of increased spending from those receiving government assistance the RBA may consider not cutting the cash rate again but McIntyre believes another cut was always likely, even before the budget. “We think there is enough sluggishness in the economy to justify one more rate cut, but we think August is more likely than a June move,” he says.
Tax cost 'will add burden to all super funds'
David Crowe, The Australian, 10 May 2012
ALL workers could pay the price for the government's tax increase on wealthier Australians as experts warn that it will erode retirement savings.
The $946.5 million tax hike on superannuation contributions is aimed at workers earning more than $300,000 a year but appears set to make retirement funds more expensive for others as well.
The warning came as the government faced criticism over a separate decision to defer incentives aimed at encouraging older workers from putting more of their salaries into super accounts.
Labor defended the super policy moves as ways to make the system fairer and help deliver a budget surplus, as it rejected claims last night that senior public servants would be spared the higher tax on contributions.
While all employees pay a 15 per cent contributions tax on their payments in super funds, this will be increased to 30 per cent for the wealthier workers.
The head of superannuation at the Institute of Chartered Accountants, Liz Westover, said the tax on wealthier workers would be difficult to implement and costly for all super funds.
Ms Westover said it had sometimes taken years for assessments to be issued on super contributions when the Australian Taxation Office had overseen the system, highlighting the difficulty of implementing the changes.
"Clearly there's an administrative burden in time, and cost, to the super fund," Ms Westover said yesterday. "Now that's not just going to be funnelled to the high-income earners. That's going to be spread across the broader membership. "And that's where those costs hit everybody."
Employees earning more than $300,000 and putting the maximum of $25,000 into their super fund each year would pay an additional $3750 in contributions tax, Thomson Reuters said yesterday, citing estimates from Colonial First State.
Consultations with industry are being planned to resolve how to implement the changes.
The government moved last night to correct a report that top public servants over the income threshold would be spared the new impost because they were in defined benefits schemes.
Every worker earning more than $300,000 would be subject to the higher contributions tax, the government said.
Parts of the super industry focused their concerns on the deferral of the incentives for older workers, amid longstanding fears that many people did not have enough in their funds to provide for their retirement.
Labor said in May 2010 that workers older than 50 would be allowed to contribute more super as long as they had less than $500,000 in their funds.
Workers incur a penalty tax if they contribute more than $25,000 to their funds each year but this was to be raised to $50,000 for those older than 50, encouraging them to save more as they neared retirement.
The government deferred the change from this year to 2014 in the budget and this prompted warnings yesterday that the policy would never be implemented.
The Financial Services Council argued for an increase in the $25,000 cap to boost savings.
"The reduction in the superannuation caps for all Australians is unsustainable," said FSC policy director Martin Codina. "The industry will now re-engage with the parliament to ensure that as many Australians as possible are able to become self-funded retirees."
Breaking promises proves a money saving exercise
Annette Sampson, The Sydney Morning Herald, 9 May 2012
GONE before you even knew they were there. Two of the bigger savings in the budget were achieved by shelving benefits that had been promised but not delivered.
The government will save almost $3 billion over the next five years by not going ahead with the introduction of a tax break on interest income and a standard tax deduction for individuals.
It will also save about $1.2 billion by tightening the rules on the living-away-from-home allowance and golden handshakes.
The government had promised to introduce the savings tax break and standard refund in response to the Henry review into the tax system in 2010. But the measures had already been deferred and it has now abandoned them altogether.
The standard deduction was hailed as a godsend to average taxpayers who would be liberated from the burden of keeping receipts for all their work-related expenses. Instead, they would be able to claim a standard deduction of $500 in the first year, later rising to $1000, without the need for documentation.
The tax break on savings was to apply to interest-earning investments such as bank accounts, bonds, debentures and annuities. It would have allowed individuals a 50 per cent discount on the first $1000 of interest income earned each year, so instead of paying tax on the full $1000, you would only pay tax on $500.
However, the government said its public consultation process had found the discount would be difficult to implement and may not have had a big impact on encouraging savings.
Ditching the standard deduction will save more than $2 billion over the next four years and is one of the more significant cuts. The government said up to 1 million people would be freed from having to lodge a tax return by the tripling of the tax-free threshold to $18,000 this year, which eased the need for the measure.
Another big ticket personal tax measure was a crackdown on living-away-from-home allowances. The government said a narrow group of people, particularly highly-paid executives and foreign workers, were exploiting the concession at the expense of taxpayers.
New arrangements will now only attract the concession if the employee is legitimately maintaining a second home in Australia for their own use because of work for a maximum period of one year.
The government said it would stop the tax break being used by employees who were not maintaining a second home or who were maintaining two homes indefinitely. It will not affect fly-in-fly-out arrangements or travel and meal allowances provided to employees who have to travel for short periods.
High earners are also targeted by a tightening of the rules on eligible employment termination payments to limit the tax breaks on so-called golden handshakes paid to executives leaving a company. From July 1, only that part of the payment that takes a person's total taxable income to $180,000 will receive the ETP tax offset. Amounts above this will be taxed at marginal rates.
However, the existing arrangements will be maintained for genuine redundancy payments, invalidity, and compensation for an employment-related dispute or death.
The current eight dependency offsets will also be streamlined into a single non-refundable offset that is only available to taxpayers with a dependent who is genuinely unable to work due to carer obligation or disability from July 1.
token annual supplements fall short of demands from welfare groups
Adele Horin, The Sydney Morning Herald, 9 May 2012
CALLS for a $50 a week increase to the Newstart Allowance for single unemployed people, now living below the poverty line, have gone unheeded but the budget delivers a token supplement to them and others on low welfare payments.
The new payment will provide an annual supplement of $210 for eligible single people and $175 for each member of a couple on a range of benefits. While this falls far short of the significant increase welfare groups have sought, the measure was described as ''a sign of faith'' by a government adviser.
Those to benefit from the new income support supplement, apart from the unemployed on the Newstart Allowance, include those on Sickness Allowance, Youth Allowance, Austudy and Abstudy, and the Parenting Payment single and partnered.
The measure, which is part of the government's ''spreading the boom'' strategy, will cost $1.1 billion over four years, and benefit more than 1 million people. It will be paid in two instalments in March and September with the first payment next March 20.
The Minister for Employment and Workplace Relations, Bill Shorten, said: ''Some recipients of allowances can find it hard to manage unexpected costs such as urgent repairs on the family car or appliances, bills that are higher than expected, or unforseeable medical or dental costs.''
An estimated 100,000 sole parents will be shifted from the Parenting Payment to the much lower Newstart Allowance when their youngest child turns eight; and for partnered parents when their youngest turns six. The group was ''grandfathered'' when the measure was introduced in 2006 and the move has been strongly criticised by welfare groups for subjecting sole parents to a loss of $60 a week when they were already required to look for work - and one-third of them have jobs. The measure, to take effect from January 1 next year, will save $685.8 million over four years.
The parents moved to Newstart will be eligible for the income test taper, enabling them to earn more before losing some of the benefit. The more generous test reduces the Newstart payment by 40¢ rather than 50¢ for every dollar earned above $62 a fortnight.
Welfare groups will be pleased with a government initiative that will enable newly unemployed people to keep more of their savings while looking for a new job. They will be able to have double the amount in liquid assets before being subject to a 13-week waiting period for the Newstart Allowance, Sickness Allowance, Youth Allowance or Austudy.
The threshold is $5000 for a single person and $10,000 for a person with a partner or dependent child. About 21,000 people will receive a payment up to five weeks earlier.
benefits boost for 1.5 million middle-income families
Adele Horin, The Sydney Morning Herald, 9 May 2012
IN A budget designed to address fears of rising living costs, more than 1.5 million families will receive a boost to family tax benefits from July 1 next year with nearly half of them receiving an extra $600 a year.
The unanticipated measure to increase Family Tax Benefit Part A will cost $1.8 billion over four years and will be well targeted to families in Labor's heartland.
''We couldn't get the company tax cut through Parliament, and we wanted to make sure the benefits of the boom were spread around the country,'' said Families and Community Services Minister Jenny Macklin, ''and the best way to do that is to give money to low- and middle-income families.''
Under the change, a family with two children under 12 will receive a $600 boost up to an income of $78,000 and a $200 boost if their income is between $78,000 and $112,000. A family with one child under 12 and one over 12 will receive a $600 boost up to an income of about $85,000 and a $200 boost on an income between $85,000 and $112,000. A family with two teenage children will get an increase of $600 up to an income of $90,000 and $200 extra on an income of between $90,000 and $115,000. And a family with one teenage child will get a $300 boost up to an income of about $70,000 and a $100 boost with an income of between $70,000 and $101,000.
But 47,000 families will lose Family Tax Benefit A from January 1 next year due to a decision to confine the payment to families with children under 18 - or 19 if they are still completing high school.
Currently the maximum age of eligibility is 21 years. Under the Howard government it was 25 years. The initiative to confine family benefit payments to families with school-age children is in line with the recommendations of the Henry Tax Review but is likely to hurt many battler families with children still living at home, studying or training.
A minority of young people whose parents lose the family tax benefit will be able to shift to the Youth Allowance, providing they are in education, training or looking for work.
The measure, to save $360.9 million over four years, will affect 53,000 young people but only 5500 of them are expected to be eligible for Youth Allowance, according to departmental advisers. For 28,000 students, their parents' income will now be considered too high to allow them to claim a government payment, with Youth Allowance cutting out at a parental income of $80,805. Others will be too old for the youth allowance and others will be ineligible because they will not be ''earning or learning''.
However, families with young children and low incomes will gain substantial boosts from the changes to family tax benefits in combination with other measures, including a new education bonus, tax cuts and the carbon tax compensation that is expected to over-compensate some people.
The new Schoolkids Bonus will provide 2.2 million families with $410 for each child in primary school and $820 for each child in high school to help with expenses such as uniforms, books and school excursions. The scheme will start next January and will cost an extra $2.1 billion over five years.
The payment will replace the Education Tax refund, an under-utilised scheme reliant on parents' keeping receipts for educational expenses, which 1 million eligible families failed to do.
Cameos of typical families provided by the government show how some stand to benefit from the combined measures. For example, ''Janet'' and ''Craig'' with three primary school-aged children and a household income of $109,000, will be $1539 better off from July 1 next year from the extra family tax benefit, the Schoolkids Bonus, and the clean energy supplement. (It might be debated whether this is an extra payment or carbon tax compensation.) A single mother earning $95,000 with two primary school-aged children will gain just over $1000 through the family tax benefit increase, the Schoolkids Bonus and the carbon tax compensation.
The significant increases to family tax payments will deliver maximum benefit to families on incomes of $70,000 to $80,000. Depending on their income, families qualify for a maximum or part maximum rate of family benefits, or else a base rate. About 1.1 million families receive the maximum or part of the maximum payment rate and will qualify for the extra $600 a year for two or more children or an extra $300 if they have one. Another 460,000 families receive the base payment rate and will receive an extra $200 a year if they have two or more children or $100 if they have one.
higher earners face contributions tax slug
Sally Patten, Australian Financial Review, 9 May 2012
Older taxpayers will be limited to injecting $25,000 annually into superannuation for at least two years and high income earners face a doubling of their contributions tax in a move that will curtail people’s ability to save for their retirement.
The measures, introduced as the government raises the level of compulsory contributions from 9 per cent to 12 per cent over the next eight years, are part of a $3.3 billion slug on savers revealed in the budget.
Treasurer Wayne Swan also said he would scrap a planned tax break on bank deposits.
Meanwhile, super funds will be forced to pay $467.1 million to the Australian Prudential Regulation Authority over the next seven years to implement a set of reforms, including improvements to back office operations and the introduction of low-cost default funds.
The super proposals are the latest signal that the government is intent on dismantling reforms introduced by former treasurer Peter Costello, which were designed to help middle- and high-income earners become fully self-funded retirees but which were criticised heavily for failing to bolster the retirement savings of those at the low end of the pay scale.
Mr Costello allowed savers to inject up to $1 million tax free into their retirement accounts in 2005-06 and introduced generous annual contributions limits. The $25,000 flat annual contributions cap is a far cry from the $100,000 limit originally imposed by Mr Costello for savers in their 50s.
As a result of the changes, it is estimated that between 140,000 and 150,000 taxpayers in their 50s who are currently injecting $50,000 into super annually will be only be allowed to contribute $25,000 next year.
The Swan proposals to rein in the super tax breaks will anger executives in the financial services industry who have been urging the government to stop tinkering with the $1.3 trillion sector and to allow taxpayers to top up their super balances just before they retire.
Although the raising of the contributions tax for high-income earners will affect just 1.2 per cent of the population, many people in the industry fear savers are losing faith in super because the rules are constantly changing.
“Every time they tamper with the rules, it undermines confidence,” Andrew Hamilton, the chairman of SMSF Professionals’ Association of Australia, which represents accountants, auditors and financial planners, said on Friday.
Maintaining the contributions limit at $25,000 for all savers will curb the ability for many Australians to become self-funded retirees and is likely to trigger a rise in the number of fund members who are penalised because they have exceeded their annual contributions limits.
Late last week, SPAA policy director Peter Burgess said a flat $25,000 contributions cap for everyone would “not be enough”.
Mr Swan said the government would defer by two years a measure that would allow super fund members over the age of 50 with balances of less than $500,000 to inject up to $50,000 annually into their retirement pots.
Delaying the introduction of the higher contributions cap, which was to have started on July 1, until 2014-15 will save the government $1.45 billion over the next four years. The decision to double the contributions tax to 30 per cent for individuals earning more than $300,000 a year will save the government another $950 million over the next four years, even though Mr Swan has predicted it will affect only 128,000 people.
Announced with great fanfare two years ago following the Henry tax review, the $500,000 threshold recognised the need for taxpayers in their 50s to be able to turbocharge their retirement accounts, particularly women and other workers who had suffered career breaks.
Rumours that Treasury may scrap or delay the measure had begun to circulate in the past week because the government had not released any details about how it would operate. Treasury predicts that by 2014-15, the annual contributions limits will have risen to $30,000 for younger savers and to $55,000 for savers over 50 with small account balances, thanks to indexation.
The contributions tax for individuals earning more than $300,000 a year will be doubled to 30 per cent.
The government has already unveiled policies to help low-income earners, including a rebate of up to $500 a year to compensate them for the 15 per cent contributions tax.
The additional APRA levy was unexpected and is likely to accelerate consolidation in the industry because many funds will not be able to afford the fee, in addition to the cost of implementing the reforms, which were recommended by the recent Cooper review of super.
mistrust undermines super funds merger
Sally Patten, Australian Financial Review, 9 May 2012
A proposed $10 billion merger between two industry superannuation funds three years in the making could yet collapse because of last-minute concerns about corporate governance and risk levels.
Read the full article via subscription on the Australian Financial Review website.
States prepare for gst slide
David Crowe, The Australian, 4 May 2012
State governments are bracing for a steep fall in GST payments in next week's federal budget after receiving a warning from Canberra about the fiscal damage from weak consumer spending.
Federal officials have told their state counterparts that GST collections will slump almost $3 billion from the previous financial year to $45.6bn, barring a lift in spending this month and next.
The reversal would see the tax receipts fall in absolute terms over the year, deepening the shortfall revealed in the Gillard government's budget update last November.
Economists issued an alert yesterday over the grim outlook for the consumption tax, predicting the hit to revenue could put pressure on the states from ratings agencies unless they found new spending cuts.
The states are working on confidential advice from Canberra ahead of Tuesday's federal budget after a series of downgrades to the GST outlook, separate from a row over how to divide the cash.
Officials told The Australian that the budget estimate for GST entitlements in 2011-12 would be about $45.6bn, down from $47.5bn in the November update, which in turn was down from a $48.4bn estimate in the budget last May. "People have put their wallets away," said one source aware of the federal government advice. "The GST pool itself is contracting."
Victorian Treasurer Kim Wells revealed a $6.1bn hit to the states' GST revenue over the four years in Tuesday's state budget while NSW Treasurer Mike Baird expects a $5.4bn revenue fall over the same timeframe.
A similar impact appears certain in the West Australian and Tasmanian budgets on May 17, the South Australian budget on May 31 and the Queensland budget on September 11.
While various parts of the federal budget papers use different measures for the total GST pool, several sources said total revenue would shrink in 2011-12.
GST revenue in 2012-13 is expected to be $3bn below the $51.05bn forecast on page 70 of the mid-year economic and fiscal outlook five months ago.
UBS strategist Matthew Johnson warned yesterday that the tougher revenue outlook would force states to cut spending. "The new path of financial liabilities to revenue signals that some states may come under rating agencies pressure, unless offsetting expenditure reductions are found," Mr Johnson wrote in a research note. "NSW would require (about) $1bn of new savings to avoid a potential review, and South Australia would require (about) $2.5bn."
The ANZ's Cherelle Murphy calculated that national GST revenue would be about $2.8bn lower in 2012-13 compared with the November forecast, based on Victoria's warning this week.
A deeper downturn in consumer spending could spell danger for the Gillard government's budget assumptions, although economists appear comfortable with the 3.25 per cent forecast for GDP growth this year.
The commonwealth review of the GST has warned of falling revenue as consumers spend more online at overseas stores, enjoying an exemption from the tax on purchases below $1000.
NSW expects its share of the tax to fall by $900m this year and then $1.5bn in each of the subsequent three years compared with the state budget last September. "This spells further spending cuts for the states and this will have a significant negative impact on the NSW budget position," Mr Baird said.
Mr Wells said on Tuesday the state had lost $6.1bn in GST over four years compared with forecasts in 2010. "Much of this is due to slower consumption growth, but some is due to the reduction in Victoria's share of the GST."
push to price tobacco out of reach
Sue Dunlevy, The Australian, 4 May 2012
Health Department chief Jane Halton has vowed to keep putting up the price of tobacco so it becomes "very unaffordable" and has declared she is on a "global crusade"against the "appalling behaviour of big tobacco".
Four days before the 2012-13 budget, the secretary of the Department of Health and Ageing appeared to be hinting a tobacco tax rise could be on the way as the government tries to bring the budget back to surplus.
"I'm going to keep putting the price up so it becomes very unaffordable, it is a deliberate part of the weaponry," she said in a lecture to the University of Canberra's Centre for Research and Action in Public Health.
Later a spokeswoman for Ms Halton said she was merely stating her department's desire to use price hikes as one of a suite of measures to control tobacco use. "There is no suggestion this is part of the budget," the spokeswoman said. Ms Halton also told the seminar that persuading former prime minister Kevin Rudd to adopt plain tobacco packaging was one of the easiest policy decisions she'd ever achieved.
Mr Rudd had agreed to encase cigarette packs in drab green packets and remove company logos as soon as the concept was explained to him.
Ms Halton said she had "felt like turning cartwheels around the orange sofas in his office, but decided it wouldn't be dignified".
The government is facing a High Court challenge over the plain packaging policy and is fighting other challenges to it through world trade bodies.
Ukraine has taken issue with Australia's policy through the World Trade Organisation and Ms Halton joked that it was a "well-known trading partner" of Australia, which traded with us "about $37 million worth of, I suspect, vodka made out of potato and tractor parts, but probably not tobacco".
Accusing tobacco companies of targeting children in developing countries, she lamented the upswing in smoking rates in countries such as India and China.
Attorney-General Nicola Roxon had been accused of taking a nanny state approach to health policy in alcohol and tobacco control and Ms Halton revealed the former health minister felt herself that she was "Nanny Nicola out there delivering a wowser message" when she was promoting her tax on alcopops.
Ms Halton said she told the minister to keep battling because it was a good message.
gallagher commits to slicing payroll tax
Noel Towell & Jacqueline Williams, The Sydney Morning Herald, 3 May 2012
Another 115 Canberra businesses will be exempt from payroll tax from July 1 as the ACT government takes its first steps to major tax reform, according to Chief Minister Katy Gallagher.
Next month's territory budget will contain the cut with the threshold for the tax being raised from payrolls of $1.5 million to $1.75 million. Treasury analysts calculate the move could generate up to 575 new private sector jobs.
Ms Gallagher told a meeting of the ACT Chamber of Commerce last night the higher threshold - where firms will not pay any payroll tax on the first $1.75 million of their wages bills - will lead to 1865 businesses getting reductions in their payroll tax in 2012-2013.
The Chief Minister told several hundred business leaders gathered at the National Convention Centre last night the strategy was aimed at making the ACT Australia's most competitive payroll tax regime for small and medium-sized outfits. ''This will give the ACT the highest payroll tax threshold in the country,'' Ms Gallagher said. ''It will also make the ACT the lowest taxing jurisdiction for businesses with payrolls of up to $4.7 million.''
The business community in Canberra has been calling for payroll tax reform for some time.
ACT Chamber of Commerce chief executive Chris Peters said the tax reform meant ACT's business sector would be more competitive. He also said it would encourage local businesses to keep growing. ''Businesses can now plan that as of July 1 the payroll tax regime will change in their favour,'' Mr Peters said. ''It will also mean that we've got a great opportunity to attract other businesses to Canberra. ''We'll move from being middle of the field to being the most small-business friendly payroll tax regime in Australia.''
According to the Chief Minister's office, the move will take the total payroll tax from about $330 million in 2011-2012 to about $323 million in 2012-2013 but she did not say where savings would be found to pay for the $7 million tax break. ''Under the new strategy, about 115 Canberra businesses that currently pay payroll tax will no longer do so,'' Ms Gallagher said. ''The new strategy will allow those businesses to employ up to an extra five workers before paying payroll tax, creating the conditions that will allow 575 people to be employed by the private sector.” ''Additionally, 1865 businesses will get a tax cut.''
A ''root and branch'' review of the territory's taxation regime by former treasurer Ted Quinlan is to be published on Monday. Ms Gallagher said the government would continue to try to provide an atmosphere that allowed the small and medium sector to grow.
andrew forrest labels mining tax projections an illusion
Ben Packham, The Australian, 2 May 2012
Mining magnate Andrew "Twiggy" Forrest has branded Julia Gillard a liar and her mining tax revenue projections a "charade".
The Fortescue Metals Group boss today ridiculed the government's revenue projections for its minerals resource rent tax, which the government will rely upon to pay for a host of measures in next week's budget.
He said FMG's mining tax bill would be only up to $50 million over the next five years, depending on iron ore prices. Other big miners would also pay very little, he said. “Will it raise the $10 billion? No, that's an illusion,” Mr Forrest told the National Press Club. “It was a political charade that was sold to the Australian worker as the mining tax.”
He said MRRT and Kevin Rudd's resources super profits tax that preceded it had damaged Australia's standing in the global financial community.
He said political uncertainty over Labor's future - the result of minority government and “various lies” - was having an adverse impact on Australia's economy. “We have a Prime Minister who has lied and who no one is listening to anymore,” he said. “That is dangerous for an economy and it should be resolved as soon as possible.”
In a highly personal attack on Wayne Swan - who has been waging a war of word with mining billionaires - Mr Forrest accused the Treasurer of dramatically weakening the tax in order to halt a damaging mining industry advertising campaign and unseat former prime minister Rudd.
He said a compromise mining tax deal could have been struck that would have been acceptable across the industry. “Instead the Treasurer held secret negotiations with the three multinationals just designed to stop the advertising to give him a reason to go to Julia Gillard and say `I think we can roll the prime minister with this. I've got here a promise to stop the advertising'.”
The claim follows accusations by Mr Rudd that Mr Swan had bungled the RSPT by unveiling hard budget numbers before it had properly been discussed with the industry.
Mr Swan has promised updated projections on the $10.6bn mining tax in the budget.
The government has already allocated $11.4 billion from the tax to pay for business tax cuts, infrastructure projects and foregone tax on superannuation contributions.
a super hit to the well-off
John Collett, The Sydney Morning Herald, 2 May 2012
There has been much speculation on who would be hit by a higher tax on their superannuation contributions after the government said it would announce measures in the budget on Tuesday. Now we know it will be those earning more than $300,000 a year who will pay 30 per cent tax on their salary sacrifice and on their compulsory contributions instead of the 15 per cent that will continue to apply to everybody else.
The impost on the very well off has produced a strong reaction from lobby groups representing the superannuation industry. It revives memories of Peter Costello's surcharge on super that was started in 1996. It was an extra 15 per cent in contributions tax for those earning more than $85,000 a year, though it started kicking in at incomes of $70,000. The former treasurer has conceded that it was a mistake because of the difficulty of its administration. The surcharge was dropped in 2005.
We will have to see if the experience of the Howard government has not been lost on the Gillard government and the Tax Office will be better prepared to administer the surcharge this time.
On incomes of $300,000 a year, this tax impost starts at a much higher income than the old surcharge and affects only the top 1.2 per cent of taxpayers, about 128,000 people.
The truth is that many of the senior executives, senior professionals and successful small business people are well able to afford a very comfortable retirement without any tax incentives at all. The better off, naturally, make much more use of the super tax concessions than other taxpayers.
The Rudd government brought in caps on how much can be salary sacrificed into super, which already goes a long way to addressing the equity problem - where taxpayers subsidise the retirements on the very well off.
The cap currently on salary sacrifice into super is $25,000 for the under-50s and $50,000 for those 50-plus and that includes the 9 per cent compulsory super. But the $50,000 cap will drop to $25,000 from July 1 this year for the older group, except for those with less than $500,000 in super, pending the measures being passed by Parliament.
The government could have more to say on the caps in its budget.
eyes on Wilkie over company tax cuts
Phillip Coorey, The Sydney Morning Herald, 2 May 2012
The government's plan to cut the company tax rate is looming as the first test of Andrew Wilkie's threat to sell his vote dearly.
The reduction of the rate from 30 per cent to 29 per cent, which will be paid for from the proceeds of the mining tax, will be included in Tuesday's federal budget and the legislation introduced soon afterwards.
The opposition will oppose the tax cut, leaving the government to rely on the independents and Greens in both houses of Parliament.
The Greens support extending the tax break only to businesses with a turnover of $2 million or less, which is worth just $200 million to the budget.
Extending the tax cuts to larger companies will cost $1.45 billion and the Greens say this would be better spent on public services such as dental care.
The tax cut is due to start on July 1 for small businesses and a year later for bigger businesses. The government wants the legislation passed all at once and is not prepared to split the bill because this would enshrine in legislation a two-tiered company tax system.
With the Greens MP Adam Bandt to vote against the bill in the lower house, the government will need the support of Mr Wilkie. He warned last week, in the wake of the Slipper affair, that should the government need his vote again, he will drive a hard bargain on poker-machine reform and give the government 14 days to comply.
Mr Wilkie supported the mining tax legislation but his spokeswoman said yesterday that he had not made up his mind about the associated company tax cuts.
It is unlikely the government will cut a deal. The Prime Minister, Julia Gillard, whose leadership is under threat, is under pressure to start taking on the independents and lose the odd vote rather than kowtow to their demands.
Even if Mr Wilkie does pass the tax cuts, the government still faces a fight in the Senate, with the Greens and the Coalition to join forces to block the legislation there.
One senior source said the government wanted both tax cuts passed. It was possible the bill could be split to allow the cuts for small business to begin on July 1. The government could then try again in the new financial year to pass the cuts for big business in time for July 1, 2013.
But if it failed, a two-tiered tax system would encourage larger businesses to split up to reduce their tax and discourage smaller businesses from expanding.
A failure to pass the company tax cuts would help the budget bottom line in 2013-14.
The Treasurer, Wayne Swan, reaffirmed yesterday that the budget would return to surplus for 2012-13. One of the few measures to surrender revenue will be the promise to abolish the flood levy, which began on July 1, 2011.
The levy increased the income tax rate of those earning between $50,000 and $ $100,000 by 0.5 percentage points and by 1 percentage point for those with a taxable income above $100,000. The levy was designed to contribute to the cost of flood reparations in Queensland.
concessions in firing line as tax take shrinks
Clancy Yeates, The Sydney Morning Herald, 1 May 2012
New figures reveal the mining industry's corporate tax bill almost halved in 2009-10, the year it launched an aggressive campaign against Labor's failed resources super profits tax.
The taxman collected $6.78 billion in company tax from miners in 2009-10, compared with $13.38 billion a year earlier, accompanied by a slump in the industry's taxable profits, figures published yesterday by the Tax Office show.
Amid speculation miners could be targeted in next week's budget, the figures also showed miners' growing use of tax breaks that are rumoured to be on the chopping block.
In response to Kevin Rudd's super profits tax in May 2010, the industry unleashed a sweeping campaign saying the levy risked killing the goose that was laying the golden egg. The proposal was called off after Julia Gillard became prime minister and began talks over a softer tax.
The new figures published yesterday show that as the battle was being fought, the industry's tax bill was falling as its use of tax breaks rose.
Despite paying less tax, mining remained the second biggest source of company tax revenue after the financial services industry, which paid the Tax Office $23 billion. The main reason for the lower tax receipts was a $49.6 billion fall in mining company income, as weak global conditions hit profits.
A spokesman for the Minerals Council of Australia said the slump was caused by falling commodity prices and overseas demand, and was consistent with earlier estimates. ''It is obvious that taxation receipts declined in 2009-10 due to the global financial crisis,'' the spokesman said.
The council continues to run a campaign against further taxes on the industry, amid reports next week's budget could cut the fuel tax credit scheme, which subsidies mining companies' use of diesel fuel. Miners' claims against the scheme rose 7.4 per cent to $2 billion, about 40 per cent of the scheme's value.
Research and development tax breaks, which have also been suggested as a potential saving, were worth $42 million to the mining industry in 2009-10, almost double the $24 million in 2008-09.
Mining also had the highest share of companies that pay no tax, with 73 per cent of all miners paying no net tax in 2009-10.
The general manager of policy at the Institute of Chartered Accountants, Yasser El-Ansary, said there may be a case for reducing concessions to mining, but the government should be aware of the potential impacts on investment. ''I would not at all be surprised if the government decided to take an axe to some of the tax concessions that allow miners to claim accelerated depreciation,'' he said.
The former Reserve Bank governor Bernie Fraser last night described the mining tax as a ''pretty poor substitute for a decent tax on the super profits''.
treasurer reacts to rates cut and fraser critique
ABC News, 1 May 2012
With the Reserve Bank cutting the official interest rate and the Federal Budget coming up, as well as former RBA Governor Bernie Fraser critiquing economic policies, Treasurer Wayne Swan joins us from Canberra to respond.
Chris Uhlmann
Watch the video here on ABC News.
rba slashes interest rates to 3.75 per cent
Chris Zappone, The Sydney Morning Herald, 1 May 2012
The central bank today cut its official cash rate by 50 basis points - twice the amount expected by economists - to 3.75 per cent.
Today’s surprise reduction, the first by the RBA this year, is the biggest since February 2009 and reflects the bank’s concern that the economy needs an extra shot in the arm.
Attention will now shift to the commercial banks as borrowers - and depositors - wait to see how much the lenders cut interest rates, and how soon. ANZ customers, though, will probably have to wait until Friday before they learn of the change.
The RBA indicated that the size of today's cut is needed in part because the central bank anticipates commercial lenders won't pass along the full reduction. "A reduction of 50 basis points in the cash rate was, in this instance,...judged to be necessary in order to deliver the appropriate level of borrowing rates," RBA governor Glenn Stevens said in the statement accompanying today's move.
'Panic' move
Currency strategist Derek Mumford said the 50 basis point cut "smacks a little bit of panic", particularly one week from the federal budget. "It smacks of a knee-jerk reaction to one round of inflation data," said Mr Mumford, of Rochford Capital.
The RBA’s surprise move will come as a mixed blessing for Treasurer Wayne Swan as he puts the final touches to next week’s federal budget. While Mr Swan will welcome the cut and the potential for easing the financial squeeze for households with mortgages, the size of the reduction implies the economy is weaker than the central bank had predicted - which in turn means a smaller tax take for the government.
If passed on in full by the banks, a 50 basis-point cut will save about $96 a month for mortgage holders on a typical 25-year, $300,000 home loan.
The dollar immediately shed half a US cent to drop to about $US1.035 on the decision as the lower Australian interest rates cut its lure for investors. It fell even further in recent trading, to sink towards the $US1.03 mark.
"Our view is that they will deliver a rate cut in August," said Commonwealth Bank Chief Currency Strategist Richard Grace. He tips the Australian dollar will slip below parity with the US dollar over the next few weeks.
Two among many
Leading up to today's decision, only two economists Market Economics Stephen Koukoulas and Citi's Josh Williamson predicted the 50 basis-point cut. "For the very pragmatic RBA, the growth numbers in March and inflation number in April were a genuine surprise to them," said Mr Koukoulas.
The economy expanded only 0.4 per cent in the December quarter - well below expectations.
"The RBA said: Let's play catch up and do the 25 basis-point cut we could have arguably done in March and give 50 basis points in cuts knowing the banks probably won't pass it all along," said Mr Koukoulas.
He believes there won't be another rate cut in June but there could be another 25 basis point later in the year, depending on the economy's strength and overseas sentiment.
Citi's Mr Williamson, though, reckons the RBA will stay put for a while. "I think the RBA is now done for this cycle," Mr Williamson said. "The statement was very squarely neutral and by providing a 50 basis point-cut, they are actually playing catch up."
Investors, meanwhile, are rating the likelihood of a further RBA rate cut in June as a two-in-three chance. Yields on Australian government five- and 10-years bonds fell to record lows.
Swan claims credit
The series of RBA rate cuts was made possible by the government's fiscal displine, Mr Swan told a media briefing. ‘‘Today’s interest rate cut and the two before have been made possible by disciplined fiscal policy delivered by this government,’’ the Treasurer said. ‘‘A responsible approach to the budget and disciplined fiscal policy is very important given the economic circumstances in which Australia finds itself and given global uncertainty.’’
Returning the budget to surplus "ensures that the government is not generating price pressures in the economy," Mr Swan Swan said. ‘‘It does give the Reserve Bank of Australia the maximum flexibility to cut interest rates if they think that is appropriate.’’
Mr Swan reiterated recent calls made by politicans from both sides for the banks to match the RBA. ‘‘Their customers will be very, very angry with them if they do not pass through this rate cut,’’ the treasurer said. “If Australians are unhappy with the approach of their bank in these circumstances, they should walk down the road and get a better deal.”
Dollar damage
Bank of America Merrill Lynch Australia chief economist Saul Eslake said the RBA noted the damaging impact of the strong dollar on the local economy and the need for lower official rates to make room for lower commercial lending rates. ‘‘In making the decision, the RBA has explicity acknowledged the dampening impact on growth by the strong dollar,’’ said Mr Eslake.
The RBA governor Glenn Stevens said in accompanying statement said: ‘‘Output growth was affected in part by temporary factors, but also by the persistently high exchange rate.’’
Based on the rate cut today, Mr Eslake said it was difficult to see more rate cuts in the months ahead.
HSBC Bank Australia economist Paul Bloxham said the RBA had a free hand with inflation under control for now. "The statement notes that the ‘accretion of evidence over recent months’ had motivated the step down, suggesting they may have felt a bit behind the curve." "The 50 basis-point cut also accounts for the fact that the RBA clearly does not expect it all to be passed through to lending rates," he said.
Weak economy
Today’s cut leaves the RBA’s cash rate at its lowest since December 2009 when the economy was recovering from the initial impact of the GFC. The RBA raised rates seven times from October 2009 before changing course last November with the first of two cuts to round out 2011.
The central bank last month signalled that it was poised to cut interest rates at its May meeting provided first quarter inflation figures were benign. In fact, by the RBA’s own core inflation measure, prices in the March quarter rose 2.15 per cent, the slowest annual pace since the final three months of 2000.
“Low first-quarter inflation cemented the decision to cut rates again in May, while weak conditions outside of mining led the RBA to deliver a bigger-than-expected 50 basis points,” said Moody’s Economy.com analyst Katrina Ell.
The RBA received the latest proof of a slowing economy today, with manufacturing slumping to its weakest in seven months while two surveys of home prices pointed to a broadbased retreat in most capital city markets.
Still, Australia's economy remains one of the strongest among rich nations - as reflected in the country's relatively high interest rates even after today's cut.
The 3.75 per cent rate compares with the official New Zealand central bank rate of 2.5 per cent, while the US fed funds rate is just a tenth of that, at 0.25 per cent. The European Central Bank rate is 1 per cent, the Bank of England's rate is 0.5 per cent and Canada's is 1 per cent.
tax fiddle risks entire pension system
John Piggott, The Australian Financial Review, 30 April 2012
Australia is lauded for its retirement income structure. We are in an enviable position compared with the implicit pension debt being racked up among our counterparts in the Organisation for Economic Co-operation and Development. As a paradigm, it has everything going for it – income protection for the less well off, cost containment and minimal levels of mandatory self-provision for those who can afford it.
But successive governments put the whole structure at risk by tinkering with superannuation taxes. No country has borne more capricious changes to the taxation of its private pensions than Australia.
It’s worth taking a step back from the current controversy to reflect on three questions. First, what should a pension tax system look like? Second, why should our pension tax system be subject to so many more changes than its counterparts elsewhere? And, finally, why does it matter if Canberra fiddles?
Almost all countries offer tax concessions for pension saving. The implicit deal is, preserve your savings until you retire, and get a tax break. The most common break is exempting the investment earnings of the pension fund. Then either contributions are deductible under the personal income tax or benefits are tax-free.
On the whole, taxing benefits is the better way to go. This avoids complexities around employer deductions for pension contributions, and bad investment outcomes are cushioned through lower taxes while investment outcomes above the norm pay some extra tax. The government shares the risk. The timing of tax collections is better too – tax revenues will increase when an expanding older population cohort is driving up public expenditure.
But whether contributions or benefits are taxed, as long as investment earnings are exempted, economic efficiency is well served. You have a system that closely aligns the tax treatment of superannuation with the tax treatment meted out to the other major life-cycle asset – owner-occupied housing. This is a critically important aspect of the policy design. In their roles as retirement saving vehicles, these two assets should be treated similarly under the tax system. And by exempting earnings, the price distortion between consumption during working life and during retirement is largely eliminated.
Australia’s superannuation tax departs from both these standard paradigms. Instead, it separates superannuation taxes from personal income tax altogether. Contributions are income tax exempt, but taxable at a flat rate in the pension fund; earnings on those contributions are also taxed. Benefits used to be taxed as well, until the 2007 Better Super reforms exempted benefits paid to those over 60.
The result is that there is no link with the progressivity inherent in the personal income tax.
Separating superannuation taxes from personal income tax makes tinkering with pension tax tempting for governments. Changes can be made without their showing up in a pay packet the next week.
This has happened several times since the superannuation guarantee was introduced, and it looks like it’s about to happen again. What is proposed may be a small step in the direction taken by the Henry review, which accepted contributions taxes were here to stay, but recommended the rebate be linked to the personal rate schedule. It also recommended a reduced earnings tax to help the power of compound interest generate more accumulations
.
If that’s the direction of change, then it would be better to take the proposal in its entirety, rather than just apply it to the top 1 per cent, as news reports suggest is likely. And this should be well thought out, with discussion and consultation, not a last-minute cash grab.
Why does the tinkering matter? Two important reasons. First, this is a whole-of-life issue, and long-term planning is part of it. Although some rules are bound to change with time, surprises are bad. Arbitrary policy surprises destroy credibility in the system. The top 1 per cent today, the top 5 per cent tomorrow, who knows the day after?
People are likely to reduce their non-mandatory contributions, saving will fall, eventual reliance on the age pension will be higher than it would otherwise have been.
Second, change increases administrative costs and charges. More records have to be kept, checked and transferred when the worker changes funds.
Australia’s pension costs are already on the high side. Through a full career, lifting charges by just half a percentage point can cut the eventual accumulation by more than 10 per cent. That affects everyone’s super, not just the top 1 per cent.
twin budget hits for top earners
Katie Walsh, The Australian Financial Review, 30 April 2012
Nearly 60 per cent of all personal tax is paid by little more than 17 per cent of Australian taxpayers, but the federal government is preparing to slug the very top earners with more imposts via higher superannuation tax rates in next week’s budget.
The latest Australian Taxation Office statistics triggered a renewed call for an overhaul of the tax system to curb the increasing burden on individuals as tax rates and brackets fail to keep up with wage rises and inflation.
Independent MP Rob Oakeshott said he hoped the statistics would “wave some red flags as to the urgency of competitive tax reform”. The vocal tax reform advocate had earlier raised such reform as a demand for the budget, along with $3.5 billion to fix the Pacific Highway – something the government, heavily reliant on Mr Oakeshott’s vote, looks set to deliver.
The statistics showed the 2.3 per cent of people in the top tax bracket earning more than $180,000 and charged the top marginal rate of 45 per cent paid nearly $29 billion in tax in 2009-10 – just under a quarter of the $120 billion total.
Next week the government will reveal how much revenue it will raise from the wealthy in its pursuit of a surplus in the 2012-13 budget. Those earning more than $300,000 are expected to have an extra 15 per cent tax deducted from their super contributions.
Mr Oakeshott said the government should implement reforms recommended by the Henry review of the tax system and released two years ago.
The Henry report recommended flattening the five tax brackets to just three. That would include introducing a tax-free threshold of $25,000, up from $6000, bringing in a second bracket set at 35 per cent for the 97 per cent of people earning up to $180,000, and retaining the 45 per cent rate for those individuals on top incomes.
The government has promised to lift the threshold to $21,000, freeing 1.2 million taxpayers from having to fill in tax returns and in effect give a tax cut to those earning up to $80,000 despite introducing higher marginal rates, but it is quiet on executing the full Henry change.
“I haven’t heard a good argument as to why not,” said Mr Oakeshott.
Large companies are due to receive a 1 percentage point tax cut next year. Small companies will receive it earlier, from July 1 this year.
Treasurer Wayne Swan’s business tax working group is consulting on further cuts, but its mandate is restricted to business. “They [the government] just don’t grab Henry by the throat,” said group member and leading economist John Freebairn, from the University of Melbourne. He said the problem of people paying more tax went beyond “bracket creep”, where wage rises push people up to higher rates. “That’s a part of the little catch-up that’s built into Swan’s dream.”
He said the income brackets for tax rates should rise in line with increases in average weekly earnings, which is a measure beyond the Henry review proposals. It would ensure that tax rates stop creeping up.
The number of people in the top two tax brackets increased by 162,651, or 11.5 per cent, from 2009 to 2010. They pay 57.5 per cent of all personal tax, up from 54.7 per cent.
Despite agreeing that the super rate should rise, Professor Freebairn said that the introduction of an increase should come with cuts to individual tax rates as a “carrot”. “They trumpet they’re giving all these wonderful tax cuts, and they’ve got their hand in your left pocket.”
Tax Institute senior tax counsel Robert Jeremenko said that the expected super rate increase, which was expected to boost revenue by $1 billion, could fund tax cuts. Bracket creep, he said, was “the secret revenue generator for the government, and yet we see a series of proposed tax increases being leaked out”. “But there’s no talk of tax cuts in the current situation,” he said.
tools to help cut carbon tax
Andrew Maher, The Sydney Morning Herald, 28 April 2012
The federal government's carbon-pricing mechanism (aka the carbon tax) will come into effect on July 1 and, although it has been widely covered in the media, it is not yet clear what the impact on individual sectors will be.
In a nutshell, the tax will require Australia's top-500 carbon emitters to pay $23 a tonne on carbon emissions. This fixed price will increase incrementally, by 2.5 per cent in real terms each year, until June 30, 2015, when Australia will move to an emissions trading scheme (ETS).
The government has said ''some business transport'' and ''industrial processes'' will be affected by the carbon tax, which means those in the industrial sector should start considering the possible impact on operating costs.
But how can industrial tenants prepare for or offset the potential rise in costs?
The Property Council of Australia has developed tools to help those in the retail and office sectors prepare. They include a carbon price impact calculator, which helps building owners determine the tax's effect on their properties' operating or construction costs.
For the industrial sector, the task is somewhat more complex. It's not just about estimating the increasing costs of maintaining a property, it's about how rising costs could influence the business strategy and property decisions of industrial tenants.
There are some strategies that industrial tenants can look to implement now. To start with, they should regularly review their supply chain to identify inefficiency or opportunities for improvements to network, sourcing and transport.
According to AMR research in Chicago: ''Average companies model their network every 2½ years. Best-in-class companies model their network every quarter.'' With network and sourcing optimisation, tenants can review the location of their facilities, model seasonality and analyse the frequency of inbound shipments to best manage inventory levels.
Transport optimisation is another key area. Tenants should consider analysing their routing, back-haul costs, mode selection and fleet size to minimise their ''on-road'' costs and subsequent carbon emissions.
In undertaking network and transportation modelling, industrial tenants may be led to consider having multiple smaller distribution centres.
Alternatively (and for leading retail groups), the ''hub-and-spoke'' methodology may be implemented to reduce transport costs, particularly in a city as expansive as Sydney.
Through these strategies, industrial tenants have the opportunity to explore supply chain cost savings of about 5 per cent to 15 per cent while also achieving a 10 to 30 per cent reduction in transportation costs.
These are compelling figures and are now even more significant with the carbon tax just a couple of months away.
poll: 77% say scrap fuel tax break for mining companies
The Australian Conservation Foundation, 27 April 2012
New polling shows nine in ten Australians (91 per cent) believe the $2 billion given to the mining industry every year in fuel tax credits would be better spent on health and education.
More than three quarters (77 per cent) say the fuel tax credits scheme should be scrapped for mining companies.
“If the government is looking for savings in the budget, the first things that should go are senseless tax breaks that promote pollution,” said ACF CEO Don Henry. “The fuel tax credit scheme handout to the mining industry costs Australian taxpayers $2 billion a year.
In other words, every Australian taxpayer is contributing $174 a year so companies like BHP Billiton and Rio Tinto can pay little or no tax for their fuel
“While the rest of us pay 38c a litre in taxes at the bowser, these companies are mining the public purse and in the process they are making climate change worse. “The fuel tax credits scheme costs households a lot more than a price on pollution will.” “The $2 billion that mining companies get every year in fuel tax credits handouts is more than double the federal budget allocation for environmental protection and more than six times the funding for national parks.” “We need to stop putting taxpayers’ money into pollution promotion and start investing in clean energy, like wind and solar, in cleaner fuels and cleaner transport, and in shoring up our natural environment against the threats it faces.”
The study was conducted online with 1,008 Australians aged 18 years and over between 19 and 23 April by Lonergan Research.
States prepare for gst slide
David Crowe, The Australian, 4 May 2012
State governments are bracing for a steep fall in GST payments in next week's federal budget after receiving a warning from Canberra about the fiscal damage from weak consumer spending.
Federal officials have told their state counterparts that GST collections will slump almost $3 billion from the previous financial year to $45.6bn, barring a lift in spending this month and next.
The reversal would see the tax receipts fall in absolute terms over the year, deepening the shortfall revealed in the Gillard government's budget update last November.
Economists issued an alert yesterday over the grim outlook for the consumption tax, predicting the hit to revenue could put pressure on the states from ratings agencies unless they found new spending cuts.
The states are working on confidential advice from Canberra ahead of Tuesday's federal budget after a series of downgrades to the GST outlook, separate from a row over how to divide the cash.
Officials told The Australian that the budget estimate for GST entitlements in 2011-12 would be about $45.6bn, down from $47.5bn in the November update, which in turn was down from a $48.4bn estimate in the budget last May. "People have put their wallets away," said one source aware of the federal government advice. "The GST pool itself is contracting."
Victorian Treasurer Kim Wells revealed a $6.1bn hit to the states' GST revenue over the four years in Tuesday's state budget while NSW Treasurer Mike Baird expects a $5.4bn revenue fall over the same timeframe.
A similar impact appears certain in the West Australian and Tasmanian budgets on May 17, the South Australian budget on May 31 and the Queensland budget on September 11.
While various parts of the federal budget papers use different measures for the total GST pool, several sources said total revenue would shrink in 2011-12.
GST revenue in 2012-13 is expected to be $3bn below the $51.05bn forecast on page 70 of the mid-year economic and fiscal outlook five months ago.
UBS strategist Matthew Johnson warned yesterday that the tougher revenue outlook would force states to cut spending. "The new path of financial liabilities to revenue signals that some states may come under rating agencies pressure, unless offsetting expenditure reductions are found," Mr Johnson wrote in a research note. "NSW would require (about) $1bn of new savings to avoid a potential review, and South Australia would require (about) $2.5bn."
The ANZ's Cherelle Murphy calculated that national GST revenue would be about $2.8bn lower in 2012-13 compared with the November forecast, based on Victoria's warning this week.
A deeper downturn in consumer spending could spell danger for the Gillard government's budget assumptions, although economists appear comfortable with the 3.25 per cent forecast for GDP growth this year.
The commonwealth review of the GST has warned of falling revenue as consumers spend more online at overseas stores, enjoying an exemption from the tax on purchases below $1000.
NSW expects its share of the tax to fall by $900m this year and then $1.5bn in each of the subsequent three years compared with the state budget last September. "This spells further spending cuts for the states and this will have a significant negative impact on the NSW budget position," Mr Baird said.
Mr Wells said on Tuesday the state had lost $6.1bn in GST over four years compared with forecasts in 2010. "Much of this is due to slower consumption growth, but some is due to the reduction in Victoria's share of the GST."
push to price tobacco out of reach
Sue Dunlevy, The Australian, 4 May 2012
Health Department chief Jane Halton has vowed to keep putting up the price of tobacco so it becomes "very unaffordable" and has declared she is on a "global crusade"against the "appalling behaviour of big tobacco".
Four days before the 2012-13 budget, the secretary of the Department of Health and Ageing appeared to be hinting a tobacco tax rise could be on the way as the government tries to bring the budget back to surplus.
"I'm going to keep putting the price up so it becomes very unaffordable, it is a deliberate part of the weaponry," she said in a lecture to the University of Canberra's Centre for Research and Action in Public Health.
Later a spokeswoman for Ms Halton said she was merely stating her department's desire to use price hikes as one of a suite of measures to control tobacco use. "There is no suggestion this is part of the budget," the spokeswoman said. Ms Halton also told the seminar that persuading former prime minister Kevin Rudd to adopt plain tobacco packaging was one of the easiest policy decisions she'd ever achieved.
Mr Rudd had agreed to encase cigarette packs in drab green packets and remove company logos as soon as the concept was explained to him.
Ms Halton said she had "felt like turning cartwheels around the orange sofas in his office, but decided it wouldn't be dignified".
The government is facing a High Court challenge over the plain packaging policy and is fighting other challenges to it through world trade bodies.
Ukraine has taken issue with Australia's policy through the World Trade Organisation and Ms Halton joked that it was a "well-known trading partner" of Australia, which traded with us "about $37 million worth of, I suspect, vodka made out of potato and tractor parts, but probably not tobacco".
Accusing tobacco companies of targeting children in developing countries, she lamented the upswing in smoking rates in countries such as India and China.
Attorney-General Nicola Roxon had been accused of taking a nanny state approach to health policy in alcohol and tobacco control and Ms Halton revealed the former health minister felt herself that she was "Nanny Nicola out there delivering a wowser message" when she was promoting her tax on alcopops.
Ms Halton said she told the minister to keep battling because it was a good message.
gallagher commits to slicing payroll tax
Noel Towell & Jacqueline Williams, The Sydney Morning Herald, 3 May 2012
Another 115 Canberra businesses will be exempt from payroll tax from July 1 as the ACT government takes its first steps to major tax reform, according to Chief Minister Katy Gallagher.
Next month's territory budget will contain the cut with the threshold for the tax being raised from payrolls of $1.5 million to $1.75 million. Treasury analysts calculate the move could generate up to 575 new private sector jobs.
Ms Gallagher told a meeting of the ACT Chamber of Commerce last night the higher threshold - where firms will not pay any payroll tax on the first $1.75 million of their wages bills - will lead to 1865 businesses getting reductions in their payroll tax in 2012-2013.
The Chief Minister told several hundred business leaders gathered at the National Convention Centre last night the strategy was aimed at making the ACT Australia's most competitive payroll tax regime for small and medium-sized outfits. ''This will give the ACT the highest payroll tax threshold in the country,'' Ms Gallagher said. ''It will also make the ACT the lowest taxing jurisdiction for businesses with payrolls of up to $4.7 million.''
The business community in Canberra has been calling for payroll tax reform for some time.
ACT Chamber of Commerce chief executive Chris Peters said the tax reform meant ACT's business sector would be more competitive. He also said it would encourage local businesses to keep growing. ''Businesses can now plan that as of July 1 the payroll tax regime will change in their favour,'' Mr Peters said. ''It will also mean that we've got a great opportunity to attract other businesses to Canberra. ''We'll move from being middle of the field to being the most small-business friendly payroll tax regime in Australia.''
According to the Chief Minister's office, the move will take the total payroll tax from about $330 million in 2011-2012 to about $323 million in 2012-2013 but she did not say where savings would be found to pay for the $7 million tax break. ''Under the new strategy, about 115 Canberra businesses that currently pay payroll tax will no longer do so,'' Ms Gallagher said. ''The new strategy will allow those businesses to employ up to an extra five workers before paying payroll tax, creating the conditions that will allow 575 people to be employed by the private sector.” ''Additionally, 1865 businesses will get a tax cut.''
A ''root and branch'' review of the territory's taxation regime by former treasurer Ted Quinlan is to be published on Monday. Ms Gallagher said the government would continue to try to provide an atmosphere that allowed the small and medium sector to grow.
andrew forrest labels mining tax projections an illusion
Ben Packham, The Australian, 2 May 2012
Mining magnate Andrew "Twiggy" Forrest has branded Julia Gillard a liar and her mining tax revenue projections a "charade".
The Fortescue Metals Group boss today ridiculed the government's revenue projections for its minerals resource rent tax, which the government will rely upon to pay for a host of measures in next week's budget.
He said FMG's mining tax bill would be only up to $50 million over the next five years, depending on iron ore prices. Other big miners would also pay very little, he said. “Will it raise the $10 billion? No, that's an illusion,” Mr Forrest told the National Press Club. “It was a political charade that was sold to the Australian worker as the mining tax.”
He said MRRT and Kevin Rudd's resources super profits tax that preceded it had damaged Australia's standing in the global financial community.
He said political uncertainty over Labor's future - the result of minority government and “various lies” - was having an adverse impact on Australia's economy. “We have a Prime Minister who has lied and who no one is listening to anymore,” he said. “That is dangerous for an economy and it should be resolved as soon as possible.”
In a highly personal attack on Wayne Swan - who has been waging a war of word with mining billionaires - Mr Forrest accused the Treasurer of dramatically weakening the tax in order to halt a damaging mining industry advertising campaign and unseat former prime minister Rudd.
He said a compromise mining tax deal could have been struck that would have been acceptable across the industry. “Instead the Treasurer held secret negotiations with the three multinationals just designed to stop the advertising to give him a reason to go to Julia Gillard and say `I think we can roll the prime minister with this. I've got here a promise to stop the advertising'.”
The claim follows accusations by Mr Rudd that Mr Swan had bungled the RSPT by unveiling hard budget numbers before it had properly been discussed with the industry.
Mr Swan has promised updated projections on the $10.6bn mining tax in the budget.
The government has already allocated $11.4 billion from the tax to pay for business tax cuts, infrastructure projects and foregone tax on superannuation contributions.
a super hit to the well-off
John Collett, The Sydney Morning Herald, 2 May 2012
There has been much speculation on who would be hit by a higher tax on their superannuation contributions after the government said it would announce measures in the budget on Tuesday. Now we know it will be those earning more than $300,000 a year who will pay 30 per cent tax on their salary sacrifice and on their compulsory contributions instead of the 15 per cent that will continue to apply to everybody else.
The impost on the very well off has produced a strong reaction from lobby groups representing the superannuation industry. It revives memories of Peter Costello's surcharge on super that was started in 1996. It was an extra 15 per cent in contributions tax for those earning more than $85,000 a year, though it started kicking in at incomes of $70,000. The former treasurer has conceded that it was a mistake because of the difficulty of its administration. The surcharge was dropped in 2005.
We will have to see if the experience of the Howard government has not been lost on the Gillard government and the Tax Office will be better prepared to administer the surcharge this time.
On incomes of $300,000 a year, this tax impost starts at a much higher income than the old surcharge and affects only the top 1.2 per cent of taxpayers, about 128,000 people.
The truth is that many of the senior executives, senior professionals and successful small business people are well able to afford a very comfortable retirement without any tax incentives at all. The better off, naturally, make much more use of the super tax concessions than other taxpayers.
The Rudd government brought in caps on how much can be salary sacrificed into super, which already goes a long way to addressing the equity problem - where taxpayers subsidise the retirements on the very well off.
The cap currently on salary sacrifice into super is $25,000 for the under-50s and $50,000 for those 50-plus and that includes the 9 per cent compulsory super. But the $50,000 cap will drop to $25,000 from July 1 this year for the older group, except for those with less than $500,000 in super, pending the measures being passed by Parliament.
The government could have more to say on the caps in its budget.
eyes on Wilkie over company tax cuts
Phillip Coorey, The Sydney Morning Herald, 2 May 2012
The government's plan to cut the company tax rate is looming as the first test of Andrew Wilkie's threat to sell his vote dearly.
The reduction of the rate from 30 per cent to 29 per cent, which will be paid for from the proceeds of the mining tax, will be included in Tuesday's federal budget and the legislation introduced soon afterwards.
The opposition will oppose the tax cut, leaving the government to rely on the independents and Greens in both houses of Parliament.
The Greens support extending the tax break only to businesses with a turnover of $2 million or less, which is worth just $200 million to the budget.
Extending the tax cuts to larger companies will cost $1.45 billion and the Greens say this would be better spent on public services such as dental care.
The tax cut is due to start on July 1 for small businesses and a year later for bigger businesses. The government wants the legislation passed all at once and is not prepared to split the bill because this would enshrine in legislation a two-tiered company tax system.
With the Greens MP Adam Bandt to vote against the bill in the lower house, the government will need the support of Mr Wilkie. He warned last week, in the wake of the Slipper affair, that should the government need his vote again, he will drive a hard bargain on poker-machine reform and give the government 14 days to comply.
Mr Wilkie supported the mining tax legislation but his spokeswoman said yesterday that he had not made up his mind about the associated company tax cuts.
It is unlikely the government will cut a deal. The Prime Minister, Julia Gillard, whose leadership is under threat, is under pressure to start taking on the independents and lose the odd vote rather than kowtow to their demands.
Even if Mr Wilkie does pass the tax cuts, the government still faces a fight in the Senate, with the Greens and the Coalition to join forces to block the legislation there.
One senior source said the government wanted both tax cuts passed. It was possible the bill could be split to allow the cuts for small business to begin on July 1. The government could then try again in the new financial year to pass the cuts for big business in time for July 1, 2013.
But if it failed, a two-tiered tax system would encourage larger businesses to split up to reduce their tax and discourage smaller businesses from expanding.
A failure to pass the company tax cuts would help the budget bottom line in 2013-14.
The Treasurer, Wayne Swan, reaffirmed yesterday that the budget would return to surplus for 2012-13. One of the few measures to surrender revenue will be the promise to abolish the flood levy, which began on July 1, 2011.
The levy increased the income tax rate of those earning between $50,000 and $ $100,000 by 0.5 percentage points and by 1 percentage point for those with a taxable income above $100,000. The levy was designed to contribute to the cost of flood reparations in Queensland.
concessions in firing line as tax take shrinks
Clancy Yeates, The Sydney Morning Herald, 1 May 2012
New figures reveal the mining industry's corporate tax bill almost halved in 2009-10, the year it launched an aggressive campaign against Labor's failed resources super profits tax.
The taxman collected $6.78 billion in company tax from miners in 2009-10, compared with $13.38 billion a year earlier, accompanied by a slump in the industry's taxable profits, figures published yesterday by the Tax Office show.
Amid speculation miners could be targeted in next week's budget, the figures also showed miners' growing use of tax breaks that are rumoured to be on the chopping block.
In response to Kevin Rudd's super profits tax in May 2010, the industry unleashed a sweeping campaign saying the levy risked killing the goose that was laying the golden egg. The proposal was called off after Julia Gillard became prime minister and began talks over a softer tax.
The new figures published yesterday show that as the battle was being fought, the industry's tax bill was falling as its use of tax breaks rose.
Despite paying less tax, mining remained the second biggest source of company tax revenue after the financial services industry, which paid the Tax Office $23 billion. The main reason for the lower tax receipts was a $49.6 billion fall in mining company income, as weak global conditions hit profits.
A spokesman for the Minerals Council of Australia said the slump was caused by falling commodity prices and overseas demand, and was consistent with earlier estimates. ''It is obvious that taxation receipts declined in 2009-10 due to the global financial crisis,'' the spokesman said.
The council continues to run a campaign against further taxes on the industry, amid reports next week's budget could cut the fuel tax credit scheme, which subsidies mining companies' use of diesel fuel. Miners' claims against the scheme rose 7.4 per cent to $2 billion, about 40 per cent of the scheme's value.
Research and development tax breaks, which have also been suggested as a potential saving, were worth $42 million to the mining industry in 2009-10, almost double the $24 million in 2008-09.
Mining also had the highest share of companies that pay no tax, with 73 per cent of all miners paying no net tax in 2009-10.
The general manager of policy at the Institute of Chartered Accountants, Yasser El-Ansary, said there may be a case for reducing concessions to mining, but the government should be aware of the potential impacts on investment. ''I would not at all be surprised if the government decided to take an axe to some of the tax concessions that allow miners to claim accelerated depreciation,'' he said.
The former Reserve Bank governor Bernie Fraser last night described the mining tax as a ''pretty poor substitute for a decent tax on the super profits''.
treasurer reacts to rates cut and fraser critique
ABC News, 1 May 2012
With the Reserve Bank cutting the official interest rate and the Federal Budget coming up, as well as former RBA Governor Bernie Fraser critiquing economic policies, Treasurer Wayne Swan joins us from Canberra to respond.
Chris Uhlmann
Watch the video here on ABC News.
rba slashes interest rates to 3.75 per cent
Chris Zappone, The Sydney Morning Herald, 1 May 2012
The central bank today cut its official cash rate by 50 basis points - twice the amount expected by economists - to 3.75 per cent.
Today’s surprise reduction, the first by the RBA this year, is the biggest since February 2009 and reflects the bank’s concern that the economy needs an extra shot in the arm.
Attention will now shift to the commercial banks as borrowers - and depositors - wait to see how much the lenders cut interest rates, and how soon. ANZ customers, though, will probably have to wait until Friday before they learn of the change.
The RBA indicated that the size of today's cut is needed in part because the central bank anticipates commercial lenders won't pass along the full reduction. "A reduction of 50 basis points in the cash rate was, in this instance,...judged to be necessary in order to deliver the appropriate level of borrowing rates," RBA governor Glenn Stevens said in the statement accompanying today's move.
'Panic' move
Currency strategist Derek Mumford said the 50 basis point cut "smacks a little bit of panic", particularly one week from the federal budget. "It smacks of a knee-jerk reaction to one round of inflation data," said Mr Mumford, of Rochford Capital.
The RBA’s surprise move will come as a mixed blessing for Treasurer Wayne Swan as he puts the final touches to next week’s federal budget. While Mr Swan will welcome the cut and the potential for easing the financial squeeze for households with mortgages, the size of the reduction implies the economy is weaker than the central bank had predicted - which in turn means a smaller tax take for the government.
If passed on in full by the banks, a 50 basis-point cut will save about $96 a month for mortgage holders on a typical 25-year, $300,000 home loan.
The dollar immediately shed half a US cent to drop to about $US1.035 on the decision as the lower Australian interest rates cut its lure for investors. It fell even further in recent trading, to sink towards the $US1.03 mark.
"Our view is that they will deliver a rate cut in August," said Commonwealth Bank Chief Currency Strategist Richard Grace. He tips the Australian dollar will slip below parity with the US dollar over the next few weeks.
Two among many
Leading up to today's decision, only two economists Market Economics Stephen Koukoulas and Citi's Josh Williamson predicted the 50 basis-point cut. "For the very pragmatic RBA, the growth numbers in March and inflation number in April were a genuine surprise to them," said Mr Koukoulas.
The economy expanded only 0.4 per cent in the December quarter - well below expectations.
"The RBA said: Let's play catch up and do the 25 basis-point cut we could have arguably done in March and give 50 basis points in cuts knowing the banks probably won't pass it all along," said Mr Koukoulas.
He believes there won't be another rate cut in June but there could be another 25 basis point later in the year, depending on the economy's strength and overseas sentiment.
Citi's Mr Williamson, though, reckons the RBA will stay put for a while. "I think the RBA is now done for this cycle," Mr Williamson said. "The statement was very squarely neutral and by providing a 50 basis point-cut, they are actually playing catch up."
Investors, meanwhile, are rating the likelihood of a further RBA rate cut in June as a two-in-three chance. Yields on Australian government five- and 10-years bonds fell to record lows.
Swan claims credit
The series of RBA rate cuts was made possible by the government's fiscal displine, Mr Swan told a media briefing. ‘‘Today’s interest rate cut and the two before have been made possible by disciplined fiscal policy delivered by this government,’’ the Treasurer said. ‘‘A responsible approach to the budget and disciplined fiscal policy is very important given the economic circumstances in which Australia finds itself and given global uncertainty.’’
Returning the budget to surplus "ensures that the government is not generating price pressures in the economy," Mr Swan Swan said. ‘‘It does give the Reserve Bank of Australia the maximum flexibility to cut interest rates if they think that is appropriate.’’
Mr Swan reiterated recent calls made by politicans from both sides for the banks to match the RBA. ‘‘Their customers will be very, very angry with them if they do not pass through this rate cut,’’ the treasurer said. “If Australians are unhappy with the approach of their bank in these circumstances, they should walk down the road and get a better deal.”
Dollar damage
Bank of America Merrill Lynch Australia chief economist Saul Eslake said the RBA noted the damaging impact of the strong dollar on the local economy and the need for lower official rates to make room for lower commercial lending rates. ‘‘In making the decision, the RBA has explicity acknowledged the dampening impact on growth by the strong dollar,’’ said Mr Eslake.
The RBA governor Glenn Stevens said in accompanying statement said: ‘‘Output growth was affected in part by temporary factors, but also by the persistently high exchange rate.’’
Based on the rate cut today, Mr Eslake said it was difficult to see more rate cuts in the months ahead.
HSBC Bank Australia economist Paul Bloxham said the RBA had a free hand with inflation under control for now. "The statement notes that the ‘accretion of evidence over recent months’ had motivated the step down, suggesting they may have felt a bit behind the curve." "The 50 basis-point cut also accounts for the fact that the RBA clearly does not expect it all to be passed through to lending rates," he said.
Weak economy
Today’s cut leaves the RBA’s cash rate at its lowest since December 2009 when the economy was recovering from the initial impact of the GFC. The RBA raised rates seven times from October 2009 before changing course last November with the first of two cuts to round out 2011.
The central bank last month signalled that it was poised to cut interest rates at its May meeting provided first quarter inflation figures were benign. In fact, by the RBA’s own core inflation measure, prices in the March quarter rose 2.15 per cent, the slowest annual pace since the final three months of 2000.
“Low first-quarter inflation cemented the decision to cut rates again in May, while weak conditions outside of mining led the RBA to deliver a bigger-than-expected 50 basis points,” said Moody’s Economy.com analyst Katrina Ell.
The RBA received the latest proof of a slowing economy today, with manufacturing slumping to its weakest in seven months while two surveys of home prices pointed to a broadbased retreat in most capital city markets.
Still, Australia's economy remains one of the strongest among rich nations - as reflected in the country's relatively high interest rates even after today's cut.
The 3.75 per cent rate compares with the official New Zealand central bank rate of 2.5 per cent, while the US fed funds rate is just a tenth of that, at 0.25 per cent. The European Central Bank rate is 1 per cent, the Bank of England's rate is 0.5 per cent and Canada's is 1 per cent.
tax fiddle risks entire pension system
John Piggott, The Australian Financial Review, 30 April 2012
Australia is lauded for its retirement income structure. We are in an enviable position compared with the implicit pension debt being racked up among our counterparts in the Organisation for Economic Co-operation and Development. As a paradigm, it has everything going for it – income protection for the less well off, cost containment and minimal levels of mandatory self-provision for those who can afford it.
But successive governments put the whole structure at risk by tinkering with superannuation taxes. No country has borne more capricious changes to the taxation of its private pensions than Australia.
It’s worth taking a step back from the current controversy to reflect on three questions. First, what should a pension tax system look like? Second, why should our pension tax system be subject to so many more changes than its counterparts elsewhere? And, finally, why does it matter if Canberra fiddles?
Almost all countries offer tax concessions for pension saving. The implicit deal is, preserve your savings until you retire, and get a tax break. The most common break is exempting the investment earnings of the pension fund. Then either contributions are deductible under the personal income tax or benefits are tax-free.
On the whole, taxing benefits is the better way to go. This avoids complexities around employer deductions for pension contributions, and bad investment outcomes are cushioned through lower taxes while investment outcomes above the norm pay some extra tax. The government shares the risk. The timing of tax collections is better too – tax revenues will increase when an expanding older population cohort is driving up public expenditure.
But whether contributions or benefits are taxed, as long as investment earnings are exempted, economic efficiency is well served. You have a system that closely aligns the tax treatment of superannuation with the tax treatment meted out to the other major life-cycle asset – owner-occupied housing. This is a critically important aspect of the policy design. In their roles as retirement saving vehicles, these two assets should be treated similarly under the tax system. And by exempting earnings, the price distortion between consumption during working life and during retirement is largely eliminated.
Australia’s superannuation tax departs from both these standard paradigms. Instead, it separates superannuation taxes from personal income tax altogether. Contributions are income tax exempt, but taxable at a flat rate in the pension fund; earnings on those contributions are also taxed. Benefits used to be taxed as well, until the 2007 Better Super reforms exempted benefits paid to those over 60.
The result is that there is no link with the progressivity inherent in the personal income tax.
Separating superannuation taxes from personal income tax makes tinkering with pension tax tempting for governments. Changes can be made without their showing up in a pay packet the next week.
This has happened several times since the superannuation guarantee was introduced, and it looks like it’s about to happen again. What is proposed may be a small step in the direction taken by the Henry review, which accepted contributions taxes were here to stay, but recommended the rebate be linked to the personal rate schedule. It also recommended a reduced earnings tax to help the power of compound interest generate more accumulations
.
If that’s the direction of change, then it would be better to take the proposal in its entirety, rather than just apply it to the top 1 per cent, as news reports suggest is likely. And this should be well thought out, with discussion and consultation, not a last-minute cash grab.
Why does the tinkering matter? Two important reasons. First, this is a whole-of-life issue, and long-term planning is part of it. Although some rules are bound to change with time, surprises are bad. Arbitrary policy surprises destroy credibility in the system. The top 1 per cent today, the top 5 per cent tomorrow, who knows the day after?
People are likely to reduce their non-mandatory contributions, saving will fall, eventual reliance on the age pension will be higher than it would otherwise have been.
Second, change increases administrative costs and charges. More records have to be kept, checked and transferred when the worker changes funds.
Australia’s pension costs are already on the high side. Through a full career, lifting charges by just half a percentage point can cut the eventual accumulation by more than 10 per cent. That affects everyone’s super, not just the top 1 per cent.
twin budget hits for top earners
Katie Walsh, The Australian Financial Review, 30 April 2012
Nearly 60 per cent of all personal tax is paid by little more than 17 per cent of Australian taxpayers, but the federal government is preparing to slug the very top earners with more imposts via higher superannuation tax rates in next week’s budget.
The latest Australian Taxation Office statistics triggered a renewed call for an overhaul of the tax system to curb the increasing burden on individuals as tax rates and brackets fail to keep up with wage rises and inflation.
Independent MP Rob Oakeshott said he hoped the statistics would “wave some red flags as to the urgency of competitive tax reform”. The vocal tax reform advocate had earlier raised such reform as a demand for the budget, along with $3.5 billion to fix the Pacific Highway – something the government, heavily reliant on Mr Oakeshott’s vote, looks set to deliver.
The statistics showed the 2.3 per cent of people in the top tax bracket earning more than $180,000 and charged the top marginal rate of 45 per cent paid nearly $29 billion in tax in 2009-10 – just under a quarter of the $120 billion total.
Next week the government will reveal how much revenue it will raise from the wealthy in its pursuit of a surplus in the 2012-13 budget. Those earning more than $300,000 are expected to have an extra 15 per cent tax deducted from their super contributions.
Mr Oakeshott said the government should implement reforms recommended by the Henry review of the tax system and released two years ago.
The Henry report recommended flattening the five tax brackets to just three. That would include introducing a tax-free threshold of $25,000, up from $6000, bringing in a second bracket set at 35 per cent for the 97 per cent of people earning up to $180,000, and retaining the 45 per cent rate for those individuals on top incomes.
The government has promised to lift the threshold to $21,000, freeing 1.2 million taxpayers from having to fill in tax returns and in effect give a tax cut to those earning up to $80,000 despite introducing higher marginal rates, but it is quiet on executing the full Henry change.
“I haven’t heard a good argument as to why not,” said Mr Oakeshott.
Large companies are due to receive a 1 percentage point tax cut next year. Small companies will receive it earlier, from July 1 this year.
Treasurer Wayne Swan’s business tax working group is consulting on further cuts, but its mandate is restricted to business. “They [the government] just don’t grab Henry by the throat,” said group member and leading economist John Freebairn, from the University of Melbourne. He said the problem of people paying more tax went beyond “bracket creep”, where wage rises push people up to higher rates. “That’s a part of the little catch-up that’s built into Swan’s dream.”
He said the income brackets for tax rates should rise in line with increases in average weekly earnings, which is a measure beyond the Henry review proposals. It would ensure that tax rates stop creeping up.
The number of people in the top two tax brackets increased by 162,651, or 11.5 per cent, from 2009 to 2010. They pay 57.5 per cent of all personal tax, up from 54.7 per cent.
Despite agreeing that the super rate should rise, Professor Freebairn said that the introduction of an increase should come with cuts to individual tax rates as a “carrot”. “They trumpet they’re giving all these wonderful tax cuts, and they’ve got their hand in your left pocket.”
Tax Institute senior tax counsel Robert Jeremenko said that the expected super rate increase, which was expected to boost revenue by $1 billion, could fund tax cuts. Bracket creep, he said, was “the secret revenue generator for the government, and yet we see a series of proposed tax increases being leaked out”. “But there’s no talk of tax cuts in the current situation,” he said.
tools to help cut carbon tax
Andrew Maher, The Sydney Morning Herald, 28 April 2012
The federal government's carbon-pricing mechanism (aka the carbon tax) will come into effect on July 1 and, although it has been widely covered in the media, it is not yet clear what the impact on individual sectors will be.
In a nutshell, the tax will require Australia's top-500 carbon emitters to pay $23 a tonne on carbon emissions. This fixed price will increase incrementally, by 2.5 per cent in real terms each year, until June 30, 2015, when Australia will move to an emissions trading scheme (ETS).
The government has said ''some business transport'' and ''industrial processes'' will be affected by the carbon tax, which means those in the industrial sector should start considering the possible impact on operating costs.
But how can industrial tenants prepare for or offset the potential rise in costs?
The Property Council of Australia has developed tools to help those in the retail and office sectors prepare. They include a carbon price impact calculator, which helps building owners determine the tax's effect on their properties' operating or construction costs.
For the industrial sector, the task is somewhat more complex. It's not just about estimating the increasing costs of maintaining a property, it's about how rising costs could influence the business strategy and property decisions of industrial tenants.
There are some strategies that industrial tenants can look to implement now. To start with, they should regularly review their supply chain to identify inefficiency or opportunities for improvements to network, sourcing and transport.
According to AMR research in Chicago: ''Average companies model their network every 2½ years. Best-in-class companies model their network every quarter.'' With network and sourcing optimisation, tenants can review the location of their facilities, model seasonality and analyse the frequency of inbound shipments to best manage inventory levels.
Transport optimisation is another key area. Tenants should consider analysing their routing, back-haul costs, mode selection and fleet size to minimise their ''on-road'' costs and subsequent carbon emissions.
In undertaking network and transportation modelling, industrial tenants may be led to consider having multiple smaller distribution centres.
Alternatively (and for leading retail groups), the ''hub-and-spoke'' methodology may be implemented to reduce transport costs, particularly in a city as expansive as Sydney.
Through these strategies, industrial tenants have the opportunity to explore supply chain cost savings of about 5 per cent to 15 per cent while also achieving a 10 to 30 per cent reduction in transportation costs.
These are compelling figures and are now even more significant with the carbon tax just a couple of months away.
poll: 77% say scrap fuel tax break for mining companies
The Australian Conservation Foundation, 27 April 2012
New polling shows nine in ten Australians (91 per cent) believe the $2 billion given to the mining industry every year in fuel tax credits would be better spent on health and education.
More than three quarters (77 per cent) say the fuel tax credits scheme should be scrapped for mining companies.
“If the government is looking for savings in the budget, the first things that should go are senseless tax breaks that promote pollution,” said ACF CEO Don Henry. “The fuel tax credit scheme handout to the mining industry costs Australian taxpayers $2 billion a year.
In other words, every Australian taxpayer is contributing $174 a year so companies like BHP Billiton and Rio Tinto can pay little or no tax for their fuel
“While the rest of us pay 38c a litre in taxes at the bowser, these companies are mining the public purse and in the process they are making climate change worse. “The fuel tax credits scheme costs households a lot more than a price on pollution will.” “The $2 billion that mining companies get every year in fuel tax credits handouts is more than double the federal budget allocation for environmental protection and more than six times the funding for national parks.” “We need to stop putting taxpayers’ money into pollution promotion and start investing in clean energy, like wind and solar, in cleaner fuels and cleaner transport, and in shoring up our natural environment against the threats it faces.”
The study was conducted online with 1,008 Australians aged 18 years and over between 19 and 23 April by Lonergan Research.
tax losses mean swan will have to cut deeper for surplus
Peter Martin The Sydney Morning Herald, 27 April 2012
FAR from delivering the promised budget surplus of $1.5 billion, the Treasurer, Wayne Swan, is on track to deliver a deficit of $8 billion unless he cuts far harder than he had been planning, according to a private sector analysis traditionally delivered a week before the budget.
Macroeconomics, a consultancy run by the former Treasury modeller Stephen Anthony, finds the 2012-13 budget position $10 billion worse than forecast in the government's November midyear update. Most of the collapse is due to a $6 billion shortfall in company tax revenue compared with what was expected at the time of the update. "It's losses throughout the tax base," Mr Anthony told BusinessDay. "The Tax Office reckon they've reached 24 per cent of GDP. Usually they are 6 to 8 per cent of GDP. These are losses spread among individuals, super funds, trusts and companies, and they include capital losses in place of capital gains. Along with declining terms of trade, a weaker than expected economy and mining industry depreciation expenses in place of taxable profits, it has put a spanner in the works."
The Macroeconomics model projects structural budget deficits for the next decade and continued growth in government debt unless very big cuts are made in the budget and spending growth is kept tight for the rest of the forward estimates. "The Treasurer needs to cut $10 billion to deliver a surplus and $15 billion to deliver a structural surplus," Mr Anthony said. "Otherwise there will be no sustainable return to surplus this decade."
Mr Anthony said many of the government's commitments were making Mr Swan's job harder. "Lifting the superannuation guarantee to 12 per cent will see the cost of the concession rise as the value of superannuation assets climbs. Yet the supposed funding comes from the mining tax, which will diminish in GDP terms when the boom ends. The gap between the two could reach $5 to $7 billion by 2019-20."
A list of suggested budget cuts included in the report is headed by "middle and upper class welfare". "We suggest spreading the pain of adjustment as thinly as possible and imposing the largest burden on those likely to benefit from an upswing in the business cycle," the report says. "The idea is not to abolish programs but to target them to individuals on the basis of hardship rather than electoral success. "Large savings can also be achieved through the widespread adoption of competitive tendering processes, and incorporating economic efficiency principles into contract design especially for the purchase of large capital items, public works and defence weapons platforms," the report says.
Macroeconomics predicts a boost in economic growth to a "respectable" 3.1 per cent in 2012-13.
huge tax shake-up advised as climate changes
David Wroe, The Sydney Morning Herald, 27 April 2012
ADAPTING to inevitable global warming will need changes across the Australian economy including ditching property taxes that discourage people from moving out of areas prone to extreme weather events, the government's independent research arm says.
In a draft report released overnight, the Productivity Commission also calls for a close examination of federal disaster relief, which in a changing climate could create ''moral hazard'', giving people less incentive to insure themselves and allowing state governments to neglect infrastructure.
Accepting that some degree of climate change is now inevitable, the commission says that Australia will need to adapt. This means removing obstacles in the areas of taxation, local government, disaster relief, planning and building rules, and emergency management, according the report, Barriers to Effective Climate Change Adaptation.
Conveyancing duty, which makes it expensive to move house and creates a ''lock-in effect'', should be ditched in favour of more broad-based land taxes, the report says. ''Homeowners who desire to move out of areas at greater risk from extreme weather events may be discouraged from doing so due to conveyancing duty,'' it says. The lock-in effect could also inhibit people from changing jobs and business locations, which ''could constitute a barrier to effective climate change adaptation''.
While forecasting that Australia is generally well-placed to adapt to global warming, the commission has some tough love for farmers in particular, saying that marginal agriculture will need to be wound up.
Land-tax exemptions on agricultural land could encourage farmers to keep working on marginal land even as climate change makes it unworkable. Scrapping these exemptions could ''remove a potential impediment to structural change in the agricultural sector'' - giving farmers a stronger incentive to get out. It adds: ''In its current form, government support during drought reduces incentives for agricultural businesses to be self-reliant and impedes economic and social adjustment to changing circumstances.''
Some local governments have already started managing climate risk, such as the Redland City Council in Queensland, which has a strategy for ''planned retreat'' in the event of extreme events. But the commission's report says the local councils' rights and responsibilities in coping with climate change needs to be clarified by state governments. Some councils, for example, were reluctant to release information on climate change for fear of driving down property prices, exposing them to legal action.
Planning regulations meanwhile need to be more flexible - for instance, having councils use ''time-bound'' or ''trigger-bound'' development approvals, whereby land could be approved for use only for a certain time or until some trigger such as a flood occurs.
The commission also calls on the Council of Australian Governments to develop a national approach to deciding ''how or when governments should 'protect' cities or towns, or relocate communities from high-hazard risk areas''.
Controversially, the report calls for an independent review of the Natural Disaster Relief and Recovery Arrangements, to see whether these discourage state and territory governments from investing in infrastructure. ''Care must be taken to avoid measures that diminish the incentive to manage risk,'' it states. State and territory taxes and levies on general insurance also stand as a barrier to climate change adaptation and should be scrapped, the report says.
tax office rookies 'risking revenue'
Susannah Moran, The Australian, 26 April 2012
A LACK of resourcing and inadequate staff training at the Australian Taxation Office has led to complex cases involving businesses and wealthy Australians being given to inexperienced staff, raising concerns a large number of long-running investigations may be compromised. The federal government may also be missing out on revenue because of the internal problems at the tax office, a report by the Inspector General of Taxation, Ali Noroozi, reveals.
The report focused on the tax office's compliance approaches to small and medium enterprises (SMEs) with annual turnovers of between $100 million and $25m, as well as high-wealth individuals (HWI) with more than $30m in assets. A raft of problems has been exposed in the report, including staff capabilities resulting in poor- quality audits, heavy workloads leading to inexperienced staff being given complex cases and concerns over whether taxpayers were being sent tax bills that did not withstand close scrutiny.
Figures reveal that 52 per cent of business owners hit with revised tax bills who took on the ATO ended up winning and did not have to pay any extra tax. Wealthy Australians were hit with $1.5 billion worth of tax bills between the 2006 and 2010 financial years, but more than half of that remains uncollected.
The report revealed that 85 per cent of people who received a revised tax bill disputed the ATO's assessment, and 60 per cent of these people ended up having their revised tax bill reversed either in full or in part.
The Inspector-General's report refers to "poor-quality audits" being "a common complaint" from tax office staff themselves. High workloads were blamed by tax office team leaders, who said "they often had little choice but to allocate complex cases to relatively inexperienced staff".
Another internal report notes that "office skills and knowledge are sometimes poor, with the impact that some staff are missing significant risks to revenue". Mr Noroozi said he had made 41 recommendations, most of which had been agreed to by the tax office, following a number of submissions he received. "The specific concerns related to the ATO's wide scope of information requests, delays, staff conduct in audit and their lack of commercial and technical knowledge," Mr Noroozi writes in his executive summary. "Stakeholders commented that the ATO's recent compliance focus on the larger SME and HWI market segments was understandable. "However, they considered the increased focus entailed a significant execution risk because the ATO had a general capability shortfall in this sector. "They considered that the additional ATO compliance focus would significantly increase unnecessary costs and workloads for both taxpayers and the ATO, unless some improvements were realised."
Tax office insiders have long complained about onerous work demands and inadequate staffing levels. Perhaps unsurprisingly, annual staff turnover is 20 per cent. The ATO spent $3.1bn last financial year and employed 22,667 people. A decade ago it employed 20,328 staff.
more tax pain expected for miners: fortescue
The Business Spectator, 26 April 2012
Mining companies are set to pay significantly less under the MRRT than the federal government expects, leading to the possibility of future modifications to boost the tax's revenue, Fortescue Metals Group chief executive Neville Power says. The comments follow Fortescue's decision to challenge the tax – which it says is unconstitutional and unfairly penalises smaller miners with high compliance costs – in the High Court.
"Our concern though is that it won’t raise the funds that the government expects it to raise and therefore it will be changed and modified on the run, and we’ll end up with an even worse result which impacts the industry and affects mining investment long term," Power said in an interview with Business Spectator. "The whole problem here is that there is far too much preoccupation with looking at ways to tax the parts of the economy that are performing well and nowhere near enough attention and policy being put to how growth in the economy is being stimulated." The federal government's proposal to abolish the diesel fuel rebate for miners would also have "significant" impact on Fortescue were it to be implemented, he said.
Meanwhile, finalisation of company's funding package to fuel rapid production expansion is ongoing, with the group looking at export credit agency funding from Europe and lease facilities for mining equipment.
Last month, Fortescue's bond subscription was five times oversubscribed, raising $2 billion instead of the mooted $1 billion. "We're very happy with where we sit at the moment in terms of our funding," Power said. China's GDP growth target of 7.5 per cent – compared to 8.1 per cent in the March quarter – was not a concern for the company, but "a fantastic growth number", Power added. "Look, 7.5 to 8.5 per cent will probably translate to a 4 or 5 per cent growth in steel and on the base number that we’re talking about for steel production that will be a very significant increase and translate to strong iron ore demand."
generation why us: tax break could change lives
Jessica Irvine, The Sydney Morning Herald, 25 April 2012
I like old people. Some of my favourite people in the world are, on any independent measure, old. Society benefits little from the so-called ''generational wars'' that artificially pit young against old. Young people are invariably portrayed as selfish and greedy. Old people as hard-working contributors to society and pillars of the community.
But Australia's tax system is hopelessly skewed against the young in favour of the old.
Young people really do get a bad rap. Is there any more maligned group of people than Generation X and Y? (I'm on the cusp.) We're flighty. We change jobs too often. We move house. We rent. We won't settle down. We won't get married and provide those longed-for grandchildren. We are only interested in ourselves. We play computer games all day.
But consider, just for a moment, the view from the other side of the fence. Young people have watched helplessly as the generations before them have been showered with one-off senior's payments, family payments, baby bonuses, tax-exemptions on family homes and superannuation tax breaks. We've also watched as house prices skyrocketed, meaning we can't afford to buy homes - or if we can, only under the weight of crippling mortgages. We started our working lives burdened by HECS debts that add between 4 and 8 percentage points to our marginal tax rates.
The trade-off for younger generations was always the assumption that we'd earn our government entitlements when we had children, bought a house and sprouted grey hairs. The bonuses, the tax breaks and exemptions would be ours, too.
But with wafer-thin budget surpluses and an ageing population, it is increasingly clear the largesse of the past few decades cannot be sustained. The jig is up and young people will have to make do without the government help afforded to previous generations. By compulsion, they'll have more super when they retire but they'll be less likely to own their homes outright. They will be called upon to pay the income taxes needed to fund the needs of an ageing population and there will be fewer of them to do it.
Just so we're clear, it's not old people's fault. Politicians just happened to do the numbers and decide the children of the Great Depression and their baby boomer offspring were significant voting constituencies.
Older Australians have no doubt worked hard and made sacrifices to build a good portion of the wealth now stored in their family home. But, it should be recognised, they have also made a killing thanks to house price inflation. And now it appears the government wants them to live in those half-empty three-bedroom houses for the rest of their lives.
Last Friday's aged care announcement - the most sweeping reforms to aged care in 30 years - means more older Australians will be paying more out of their pocket for care. But one sacred cow remains - the family home.
According to the Minister for Ageing, Mark Butler, the ''primary objective is to support older Australians staying in their own home for as long as possible and, if at all possible, for the whole of their lives''. Retirees won't be forced into a fire sale of the family home to fund care. The government has rejected a Productivity Commission proposal for a public home equity withdrawal scheme, so that elderly people won't be encouraged to tap into the wealth in their home to fund their care. And, of course, the family home will remain exempt from the means test for their pension.
From the perspective of the young, who in increasing numbers will never own the home of their dreams outright, the idea of older Australians being entitled to live out their days in their family home carries a special sting.
If the aim is to keep people out of institutionalised care and in private accommodation for as long as possible, great. But encouraging older Australians to rattle around in three or four-bedroom houses no longer suited to their needs helps no one.
A study by the Australian Housing and Urban Research Institute released in May 2010, How well do older Australians utilise their homes?, found 84 per cent of homes occupied by people aged 55 or older are under-used (having one or more spare bedrooms).
While older people view such spare rooms as necessary, for hobbies and when grandchildren come to stay, arguably a more efficient allocation of housing would help relieve upward pressure on house prices.
Policymakers should continue to look at ways to remove the barriers to older Australians downsizing.
Providing a mix of housing in communities, freestanding homes and higher-density developments, means that old and young people can move in and out of age-appropriate housing without leaving their communities.
Stamp duty concessions for older people downsizing would also remove a barrier to downsizing. A land tax, applied on a square-metre basis, would penalise old and young for under-using space.
The phenomenon of children resisting the sale of the family home to unlock funds for a parent's retirement, so that the children can inherit the wealth tax-free - otherwise known as the ''nailing granny to the floor'' phenomenon - must also be addressed, possibly through an inheritance tax on housing.
It is true that many young people stand to inherit great wealth in the form of housing. But they'll do so not because of their labours, or their ability to reinvest it productively, but pure dumb luck as to who their parents are.
Using the family home as a tax shelter only increases intra-generational inequality. It's time for a serious look at how we house not just older Australians but younger ones, throughout the life cycle. The decisions we make today about the shape of our tax system, particularly as it applies to housing, will influence life for generations to come. So far, we're making a hash of it and younger generations will pay.
super funds get capital gains tax relief: report
Business Spectator, 24 April 2012
The federal government has conceded capital gains tax relief in the May budget to superannuation funds planning mergers, following warnings that government policy could have scuttled a number of proposed multi-billion dollar moves to consolidate in the sector, according to the Australian Financial Review.
Super funds have argued that if mergers are to go ahead as the government hopes, they have to be allowed to carry the forward tax losses rather than be forced to crystallise them.
The cost to the budget is considered to be relatively small at around $20 million over four years.
The newspaper said the government's desire for increased consolidation in the super industry was directly linked to its push for a budget surplus by every means possible, with the tax concession better than the embarrassment of having funds back out of mergers.
big states fall short in bid to 'fix' gst
David Crowe, The Australian, 24 April 2012
THREE big states have lost the first round in their brawl with Canberra over the $51 billion GST after an independent review dismissed their central demand for more revenue and backed the claims of smaller states.
A radical new division of the GST appears increasingly unlikely, with the review rejecting a per capita split of the tax proceeds being urged by Victoria, NSW and Western Australia.The findings inflame the row over the mining tax as Western Australia and Queensland claim they are losing a fair share of the resources boom through drastic cuts to their GST payments.
The Gillard government sees the interim report, led by former Victorian premier John Brumby and former NSW premier Nick Greiner, as a vindication of its controversial minerals resource rent tax as a way to spread the wealth of the boom.
While the findings support some calls for change to the current tax carve-up, they reject the more sweeping reforms sought by an alliance of Coalition premiers. Sharing one state's bounty with weaker neighbours had served Australia well and needed to continue to ensure equivalent standards of living across the country, the report found. "States that are fiscally weaker at any given time must continue to have the capacity to provide substantially similar levels of services and infrastructure to their citizens," it said.
Tasmanian Premier Lara Giddings welcomed the findings and hit out at the "self-interest and hypocrisy" of the larger states, while NSW Treasurer Mike Baird and his Victorian counterpart Kim Wells expressed disappointment at the outcome.
Queensland Treasurer Tim Nicholls warned that his state was losing revenue from the mining boom when it needed more funds to build railways and ports. "Queensland is losing out on its mineral royalties," Mr Nicholls told The Australian. While the Queensland Treasurer acknowledged the need to "look after the smaller states", he said the current arrangements gave up too much state revenue. "At the moment, it's pretty savage for Queensland when we have to spend a lot of money for ports, rail, bigger and better roads - so we think that is something that needs further work."
West Australian Treasurer Christian Porter welcomed the findings as the first step in the reform of the GST, saying they acknowledged the way his state was losing revenue.
West Australian Premier Colin Barnett took aim at Tasmania and the Northern Territory at the meeting of state and federal leaders earlier this month, claiming his state was getting only 55c out of every dollar back from GST paid to Canberra.
Yesterday's interim report concluded that Western Australia's share could cascade to levels far worse than the state government's prediction of 27c four years from now. "Depending on the strength of the mining boom, it is conceivable that their relativity could reach zero in the medium to long term," it said. The fairness of the outcome "would entirely depend on one's perspective" and could lead to a situation where one state performed so well that others needed more GST payments to keep up.
Western Australia has backed calls from Victoria and NSW for a new split of the GST based on each state's population.
If adopted in this year's GST allocations, NSW would collect $16.4bn rather than $15.6bn, Victoria would get $12.7bn instead of $11.7bn and Queensland would get $10.4bn and not $10.3bn. The biggest beneficiary would be Western Australia, which would collect $5.3bn rather than $2.9bn, but South Australia would lose $1bn, Tasmania would lose about $700m and the Northern Territory would have to turn to Canberra to fill a $2.4bn funding hole.
The report gave no support to the per-capita proposal. Endorsing that approach would put an extra load on Canberra, said Mr Brumby and Mr Greiner with their colleague Bruce Carter, a tax expert at Ferrier Hodgson in Adelaide. "While the panel acknowledges that moving the GST distribution to an equal-per-capita basis would simplify the distribution of the GST significantly, it is practically not achievable in the absence of a further funding source," the report said.
Mr Wells said it was disappointing the panel had not accepted Victoria's push for equal per-capita funding.
The Business Council of Australia, which has noted the advantages of a per-capita distribution, said last night the report was encouraging but that the panel had to acknowledge the pressure on some states. "The review needs to recognise and acknowledge the disproportionate burden that is falling to a couple of key states to support growth in the economy," said BCA chief executive Jennifer Westacott.
The GST carve-up is at the heart of a fight over the mining tax as a result of Wayne Swan's move last year to ask the review panel to examine the incentives to increase mining royalties because the impost on companies would be reimbursed from the MRRT, cutting Canberra's revenue.
While the panel will not address that question until a second interim report mid-year, its findings yesterday gave little support to the resource states. The panel rejected a proposal from Queensland to put mining outside GST arrangements, an idea that would prevent some of the proceeds of the boom being shared with other states. "While the panel recognises the superficial appeal of taking mining outside the current system, such an approach would merely transfer concerns to another process," said the report. Gillard government sources noted the panel's finding that only some of the proceeds of the boom were redistributed away from each state. "On a budget impact basis, around 30 per cent of total state mining revenue collected within that particular year is redistributed," it said.
Victoria expressed "grave concerns" late yesteday at the panel's suggestion that GST allocations could be linked to a state's actions on policy objectives set in Canberra.
Mr Baird said NSW could get $100 more for each citizen if the panel had embraced the idea of a per-capita split of the GST. "The NSW government firmly believes that a per capita distribution of GST remains the best way of correcting the current GST imbalance so the states receive a fairer share of revenue in relation to their spending needs," he said in a statement.
porter says gst report recognises inequality
ABC News, 23 April 2012
The WA Treasurer Christian Porter says a proposal to exclude some mining revenue when deciding how to allocate GST recognises the imbalances in the system.
The proposal is in an interim report on the carve up of the Goods and Services Tax which says parts of the system need to be fixed. The report says the existing arrangements do not appear to recognise mining-related infrastructure and it has suggested one solution would be to exclude some mining revenue as a form of compensation. It has also flagged the prospect of staggering the payments for large one-off infrastructure projects over a number of years.
WA's Treasurer Christian Porter, has welcomed the report's findings. "What this report absolutely puts beyond issue now is that the present GST distribution system is terminal," he said. "This report puts formally the first nail in the coffin of the existing GST distribution system."
Western Australia currently receives 72 cents in the dollar of the GST pool but the panel is recommending that drop to 55 cents. With its recent growth in mining revenues, it is projected the return to WA will decline to about 33 cents in 2014/15. The independent panel has pointed to WA's $600-million drop in GST revenue next financial year, and says the state's share could fall to zero in the medium to long term if the mining boom continues. The review has rejected the State Government's push for a 75 cents in the dollar floor.
But, Mr Porter has welcomed some of the suggested alternatives, such as the possibility of excluding mining revenue, as positive ideas. The panel says the Commonwealth Grants Commission and the Federal Government could present the outcomes of GST distribution more transparently.
It is now calling for public contributions.
call for alcohol tax overhaul in budget
The Australian, 23 April 2012
ALCOHOLIC drinks should be taxed according to alcohol strength, not price, to clamp down on irresponsible drinking of cheap booze, health groups say. The Alcohol Policy Coalition (APC) is calling on the Federal Government to overhaul alcohol taxes in the May Budget to make drinks such as cask wine and cider more expensive.
The group, comprising VicHealth, the Cancer Council and drug and alcohol bodies, also wants a minimum floor price on alcoholic beverages to stop heavy discounting and increase the cost of high strength, high volume drinks.
The volumetric tax would calculate excise according to alcohol content, effectively scrapping the wine equalisation tax, which is levied at 29 per cent of the wholesale wine price.
The APC says the tax would have an impact similar to the alcopops levy on pre-mixed drinks, and encourage drinkers to buy lower strength drinks. "In a climate where we are seeing a sharp increase in consumption of cider and cheap wine, particularly by high-risk drinkers, we need to ensure that the price of alcohol is related to alcohol content," APC legal policy adviser Sondra Davoren said.
Traditional ciders are taxed in the same way as wine at about 23 cents per standard glass, compared with 30 cents per standard drink for full-strength draught beer, which has a similar alcohol content of about 5 per cent.
Alcopops are taxed at a higher rate of about 95 cents per standard drink.
Since the alcopops tax was introduced in April 2008, consumption has dropped by an estimated seven million drinks a week, the APC says. "Yet because of the anomaly in the tax system that allows traditional ciders to be taxed like wine, these products are increasingly filling the gap left by alcopops," Ms Davoren said. "Cider consumption increased 18 per cent in the year following the introduction of the alcopops tax and continues to rise."
The APC is also calling on the government to follow the UK example and introduce a minimum floor price for alcohol to raise the cost of high-strength, high-volume drinks that are associated with alcohol-related harm.
tax break plan 'stuns' superannuation industry
Lanai Vasek, The Australian, 20 April 2012
THE Coalition says taxing superannuation contributions at a higher rate for the wealthy would be a "breach of faith" for working Australians, as Labor prepares to use the measure to bring the budget back to surplus.
Opposition finance spokesman Andrew Robb said Labor was backtracking on its promise to bring stabilisation to the superannuation sector and questioned how the government would define the “rich”. “Again we are seeing the potential for endless changes when they (Labor) said they would bring stability to superannuation,” Mr Robb told ABC Radio. “Taxing super contributions at a higher rate would be a breach of faith of working Australians and would amount to billions of dollars of further redistribution of income from working people to fund Labor's reckless spending.”
The Australian revealed today the federal government is set to scale back mammoth tax concessions in the budget next month after a key committee ruled that retirement savings could not be quarantined from wider cuts. The targets include high-income earners who pay only 15 per cent tax on their super contributions, far below the 45 per cent rate they would pay on the income if they chose not to pour thousands of dollars into their super.
The superannuation community today said it was “stunned” by the expected move, which it believed would hurt middle-class Australian families more than higher income earners. Pauline Vamos, chief executive of the Association of Superannuation Funds of Australia, said wealthier Australians were already disadvantaged by the government's superannuation regulations because “the low contribution caps mean that the wealthy cannot put in that much”. “Indeed for many higher income earners they will not be able to even take advantage of the increase in the super guarantee to 12 per cent because they hit the caps,” Ms Vamos said. She said Treasury had previously confirmed that the current superannuation system was equitable, so her organisation was “stunned” by the flagged move on tax concessions. “I'm not sure who they call rich,” Ms Vamos said. “This will hit middle income earners and working families, not the so-called rich.”
The government's move to put the knife to superannuation tax concessions puts at least $30 billion in tax breaks under scrutiny and will lead to cuts to some benefits and the deferral of others. Increasing the contributions tax for the wealthiest Australians could add billions of dollars to the budget balance while keeping incentives for those on lower incomes to save for their retirement.
But senior government figures are concerned that any tax hike on super could backfire at a time when Labor's retirement savings policy is seen as a major political advantage for the party's heartland as well as swinging voters. Greens leader Christine Milne said her party would offer the government its “full cooperation” to reform superannuation tax concessions. “Over half of the concessions on superannuation contributions go to the wealthiest 20 per cent of income earners. To address this inequity the Greens have previously proposed taxing contributions at a person's marginal rate minus 15 per cent,” Senator Milne said in a statement. “I am writing to the Treasurer today to offer the Greens' full cooperation to work with the government to deliver reform on superannuation that restores fairness and frees up revenue for the benefit of the whole community.”
Treasurer Wayne Swan will hand down his fifth budget on May 8 with a projected $1.5 billion surplus in 2012/13.
Comment was being sought from the government.
Government 'eyeing' $30 billion in super tax breaks
Jessica Wright, The Sydney Morning Herald, 20 April 2012
More than $30 billion in superannuation tax breaks are reportedly at risk as the federal government searches for savings to haul the May 8 budget into surplus. Labor is considering increasing the tax on superannuation contributions for the nation's highest earners, according to News Ltd.
It is understood the expenditure review committee – currently in the final stages of budget decision-making – is looking closely at different methods to scale back benefits, long considered by governments as a politically fraught move. Labor will primarily set its sights on high-income earners who pay only 15 per cent on their super contributions - far below the top income tax bracket of 45 per cent - with workers pouring thousands of dollars into retirement funds in order to take advantage of the generous tax break. The nation's low-income earners are not expected to be affected by the changes.
The risk to billions in super tax breaks comes in the wake of the biggest change to the scheme since Labor introduced the super guarantee levy in 1992. Employers are to increase their super contributions from 9 per cent to 12 per cent of employee salaries over the next eight years.
The government legislated this year to have employer super contributions raised from 9 per cent to 12 per cent by 2020, with Financial Services Minister Bill Shorten weathering a political storm over whether the levy would come out of employee wages or company profits.
Mr Shorten said the increase in super is considered as "deferred wage increases" to be worked out between employers and employees during wage negotiations, a move that angered the unions, which are demanding that employers meet the full cost of the extra contribution. "The truth is that superannuation is part of an employee's total remuneration," Mr Shorten said. "So an increase in super means an increase in remuneration – or wages, by another name."
The Greens are lobbying for super contributions to be taxed at an individual's income tax rate less 15 per cent, thereby guaranteeing low-income earners' contributions as tax free. The Greens leader, Christine Milne, said in a statement today that she fully supported any move to ''reform superannuation tax concessions ... as a matter of equity and as a revenue measure''. "I am writing to the Treasurer today to offer the Greens' full co-operation to work with the government to deliver reform on superannuation that restores fairness and frees up revenue for the benefit of the whole community," Senator Milne said.
Meanwhile, the Coalition has closed ranks over a perceived split in its welfare policies yesterday with the Opposition Leader, Tony Abbott, confirming he had no plans to axe specific programs. Mr Abbott again defended comments made by his treasury spokesman, Joe Hockey, who warned Australia must remain vigilant on its levels of spending on welfare payments. Asked on ABC's Lateline program whether the Coalition would look "closely ... at the whole range of entitlements", Mr Hockey replied: "Yes." But Mr Abbott said this morning that Mr Hockey was just making the obvious point that governments should "live within their means". "What Joe said in London was the bleeding obvious," he said. Asked if the Coalition was planning to axe or cut back a raft of programs, Mr Abbott replied: "We're not planning to do any of that. "What we want to cut back is wasteful and unnecessary government programs."
Land tax rises tipped as stamp duty takes a hit
Simon Johanson, The Sydney Morning Herald, 20 April 2012
REVENUE from property-related taxes rose 4.6 per cent last financial year to $33 billion despite a slump in the residential housing market. But as property taxes reached record levels, the growth in the tax taken slowed markedly, dampened by falling house prices and stamp duty revenues.
In 2010-11, state governments made $12.3 billion from stamp duty charges. That figure was up slightly from the previous year but well down from $14.2 billion peak in 2007-08, before the global financial crisis. The biggest addition to government coffers came from municipal rates, which grew nearly 7 per cent in 2010-11, providing $12.4 billion or nearly 40 per cent of the property tax pie, a ''property pulse'' report from property analysts RP Data said.
The rate revenue boost was also helped by rising land taxes. Victoria and NSW were the only states in which stamp duty revenues rose. Revenue slumped in the rest following a 17 per cent fall in the value of property transactions from the previous year. ''We would expect that in order to grow tax revenue, state and local governments may be looking to again increase land tax and municipal rates as there is likely to be limited [if any] growth in stamp duty,'' said an RP Data researcher, Cameron Kusher.
Municipal rates, stamp duty on conveyances and land tax accounted for 93 per cent of property tax revenue last financial year. That in turn made up nearly half of all local and state government income, the report said. But the ability of government to increase its tax take may be hampered this year.
In a separate report, the Housing Industry Association said land sales across Australia hit a fresh low at the end of last year, while at the same time median land values rose further.
The volume of residential land sales fell by 27 per cent over the year to the December quarter.
By the end of the year medium land prices had risen to just below $195,000.
are state taxpayers funding federal re-election ads
Tory Maguire, The Punch, 20 April 2012
The WorkCover Authority just provided a statement to The Punch saying the Be Aware Take Care campaign will cost NSW taxpayers $2.3 million.
“The aim of the information program is to ensure people know about the many hazards on or around a construction site that could pose a serious safety risk,” the statement said.
If you were watching the Masterchef premier in NSW last night, and it’s safe to say more than a couple of you were, you would have seen an advertisement featuring the Federal Government’s Building the Education Revolution.
The ad is filled with neat little kids in public school uniforms standing in front of beautiful new under-construction school halls. The voice over says: “Right now you might notice changes at your local schools. To build a better future for our children the Commonwealth and State governments are investing more than $6 billion into NSW government and non-government schools. Around 15,000 workers are undertaking building and construction on more than 3000 schools across the state.”
An election ad paid for by the ALP right? No, a “safety awareness” campaign from the NSW WorkCover Authority. You can see the ad here, at the Be Aware, Take Care website, which helpfully fills you in on all the fabulous construction programs underway.
And just in case you missed the message, there’s a section on the website called: “The future of our schools looks amazing”, which links straight through to a Building the Education Revolution site for NSW.
The TV advertisement is “Authorised by the NSW Government, Sydney.”
When I saw first saw the ad on TV, which last night would have set NSW taxpayers back between $12,000 and $15,000 for the single 30-second spot, I expected two things to happen: first for Julia Gillard to pop up in a hard hat and fluro vest; and second for the authorisation to be from the ALP’s Federal HQ.
I’ve put a call into the WorkCover media unit, who confirmed the website launched on Sunday. They’re going to get back to me with details of how much the campaign cost and the purpose of it.
Have a look for yourself. Does it look like an election ad to you?
Tax take defies property slump
Simon Johanson, The Sydney Morning Herald, 20 April 2012
REVENUE from property-related taxes rose 4.6 per cent last financial year to $33 billion despite a slump in the housing market. But as property taxes hit record levels, the growth in the tax taken slowed markedly, dampened by falling house prices and stamp duty revenue.
In 2010-11, state governments collected $12.3 billion from stamp duty charges. That figure was up slightly from the previous year but well down from $14.2 billion peak in 2007-08. A ''property pulse'' report from property analysts RP Data said the biggest addition to government coffers came from municipal rates, which grew by nearly 7 per cent in 2010-11, providing $12.4 billion or nearly 40 per cent of the property tax pie.
Victoria and New South Wales were the only states where stamp duty rose. Revenue slumped in all the rest after a 17 per cent fall in the value of property transactions from the previous year. ''We would expect that in order to grow tax revenue, state and local governments may be looking to again increase land tax and municipal rates as there is likely to be limited, if any, growth in stamp duty,'' RP Data researcher Cameron Kusher said.
Municipal rates, stamp duty on conveyances and land tax accounted for 93 per cent of property tax revenue last financial year. That in turn made up nearly half of all local and state government income, the report said. But the ability of government to increase its tax take may be hampered this year.
In a separate report, the Housing Industry Association said land sales across Australia hit a low at the end of last year, while median land values rose further. The volume of residential land sales fell by 27 per cent over the year. HIA chief economist Harley Dale said: ''This situation points to there being no discernible recovery on the horizon for new home building.''
lags blamed for treasury error
David Uren, The Australian, 19 April 2012
Assistant Treasurer David Bradbury has blamed his department for the inaccuracy of revenue forecasts, saying it had difficulty estimating them with any precision.
Mr Bradbury said it was hard to correctly forecast the lags between revenue being earned and tax being paid. "During the Howard period, often Treasury got revenue forecasts badly wrong, and generally that was in favour of the government because the figure came in stronger than had been estimated. We're facing the opposite prospect," he told ABC radio.
Responding to yesterday's report in The Australian that Treasury was investigating why revenue was being overestimated, Mr Bradbury said one of the problems was that many companies were still carrying forward losses -- which are deductible from current-year profits, on which tax is paid -- from the global financial crisis. "That means a longer period of lag before they start to pay tax into the future," he said.
Another influence was the impact of the global financial crisis on the growth in asset prices and capital gains tax collections. Yet another was the weight of investment by the mining sector, which was tax-deductible. "That doesn't mean that the tax won't be paid in the future, but it does mean short-term challenges in terms of the flow of corporate tax revenue, and it is in that context that we're framing the budget."
A pivotal problem appears to be the estimation of losses left by the global financial crisis. The Australian Taxation Office's review of the 2008-09 year showed accumulated losses of about $260 billion. Stephen Anthony, director of consulting firm Macroeconomics, said yesterday that many of those losses had been incurred by trusts, which by definition did not have taxable income. "The way those losses flow through to different business structures is not well understood and can only be approximated and hypothesised," Mr Anthony said.
The ATO was due to release full statistics for the 2009-10 tax year last Wednesday, updating the level of accumulated losses caused by the financial crisis, but has been forced to delay publication until late next week.
Mr Anthony said recalculation of tax losses, which is essential for the budget, could be behind the delay. He said Treasury's assumption of a 30 per cent jump in company tax revenue in the current tax year had reflected a belief that most of the tax losses would have been used in 2010-11.
Treasury had anticipated that there would be a lag in the recovery of tax revenue following the financial crisis. In the 2010 budget, it said recouping losses was likely to be protracted, as it had been after the 1990s recession, although it expected the size of the losses to be small. Wayne Swan recently said past losses would subtract $8bn from company tax revenue over the next three years.
Apart from his concerns about company tax, Mr Bradbury fears Treasury's difficulty in estimating revenue is likely to be seen in the actual revenue generated by the minerals resource rent tax.
This was expected to yield $10.6bn over the next three years but will be similarly vulnerable to downgrades from high levels of investment deductions.
no way to run a proper tax policy
The Australian Financial Review, 18 April 2012
It remains to be seen whether Australia suffers elements of the “Dutch disease” as it negotiates the resources boom, but it has certainly already suffered from banana republic policymaking in the sorry story of the mining tax. The revelation today that former prime minister Kevin Rudd was trying to negotiate a way out of the mess with a form of hypothecated infrastructure funding only adds to the impression that the government never really knew what it was doing.
The original dubious resource super profits tax was cherry-picked from the Henry tax report and sprung on mining companies. Then we had the now fully revealed horse trading between the embattled Mr Rudd and mining entrepreneur Andrew Forrest to rewrite infrastructure tax rules as the tax was embroiled in Labor’s leadership assassination.
Then it was rebadged as a minerals resource rent tax after the closed-door negotiations between the new Prime Minister, Julia Gillard, and another set of big miners. The result is a tax on part of an industry; a tax that has already been overspent on handouts. What is worse is that the revenue estimates may not be achieved as commodities prices ease in line with the concerns being raised by the International Monetary Fund today.
Offsetting the tax burden by letting mining companies build infrastructure was potentially a clever escape route. But this is no way to run a proper tax policy where simplicity, neutrality and low rates are the best ways to reduce administrative costs and tax evasion.
This latest twist is further evidence that the government should have embarked on a proper public consultation process over the tax before embarking on such a a big change.
SWAN: surplus still important despite lower imf oz growth forecast
Sabra Lane, ABC News from the AM Program on ABC Radio, 18 April 2012
Listen to MP3 of this story ( minutes)
Radio Transcript:
ELEANOR HALL: In contrast to the global picture, the IMF (International Monetary Fund) report revised down Australia's growth forecasts for this year to 3 per cent, which could make it more difficult for the Federal Government to deliver on its goal of a budget surplus.
The Treasurer and Deputy Prime Minister Wayne Swan flies to Washington today for IMF and World Bank meetings and for a one-on-one chat with the chairman of the US Federal Reserve, Ben Bernanke.
Mr Swan says it's an important opportunity for him to glean first-hand knowledge of the state of the world's economy, as he prepares to deliver his fifth budget next month.
Mr Swan spoke a short time ago to chief political correspondent, Sabra Lane.
SABRA LANE: Deputy Prime Minister, welcome to AM.
WAYNE SWAN: It's good to be with you Sabra.
SABRA LANE: You're off to Washington today for G20 and World Bank meetings. The IMF's latest economic snapshot says the economic recovery is still very fragile. It shaved Australia's growth rate down to 3 per cent. You're still aiming for a surplus next month, why, given that fragile outlook?
WAYNE SWAN: Well the IMF's forecasts are consistent with our forecasts that were in the mid-year budget update. But I'd like to make this point about the IMF forecasts: the IMF forecasts show that the Australian economy will outperform every other major advanced economy this year and next.
SABRA LANE: But it still points to the fact that things are fragile around the world. It even points to the banks in our region saying that they're reliant on wholesale funding and they're very vulnerable to further tightening in access to credit.
WAYNE SWAN: Well going to the IMF meeting and having the G20 meeting is an ideal opportunity to take the temperature in the global economy, to meet with people like Christine Lagarde, Ben Bernanke.
But what we do know is that the global economy has, if you like, strengthened slightly in the first quarter of this year. But the outlook is still uncertain. As they say in the IMF jargon, the risk is on the downside.
SABRA LANE: The former Commonwealth Bank boss and a respected businessman, Ralph Norris, says your pursuit of a surplus is mindless.
WAYNE SWAN: Look, I think a surplus in the conditions that Australia finds itself is the responsible thing to do. You see we have an economy which is growing around trend, we have unemployment at 5.2 per cent and we have a huge investment pipeline. This is the best defence for Australia at a time of global uncertainty, but it also provides the maximum opportunity for the Reserve Bank to reduce interest rates if they desire.
SABRA LANE: You've already flagged that tax receipts will be downgraded again in this budget. The estimates were revised down in the mid-year update late last year. There's a report this morning that suggests that Treasury is investigating itself for getting, overestimating its forecasts. Is that right and why can't it get its sums right?
WAYNE SWAN: Well first of all the reason we've got revenue write-down, some $140 billion since 08-09, is because of the global uncertainty that we've been talking about before. That is a consequence of a weak global economy and it's also a consequence of impacts on financial markets, particularly which flow from Europe. So we have had to write-down our revenues by $140 billion and we will write them down again in this budget.
But we still have an economy which is growing around trend. We still have unemployment at 5.2 per cent. And we still have a strong investment pipeline. Now in those circumstances, given the global uncertainty, a surplus is more important than ever and that's what I think some people don't understand. The Greens don't understand that and people like Mr Norris don't understand that, but international financial markets certainly understand that, and the IMF absolutely understands that.
SABRA LANE: You say the Greens don't understand that, but they're your partners virtually in government, you formed a deal with them to form this government. What will you be saying to Christine Milne in the lead up to the budget?
WAYNE SWAN: Well putting in place a surplus is a responsible thing to do, it's a buffer against the global uncertainty, it's the best opportunity if the Reserve Bank wishes to reduce interest rates. For all of those reasons, and because we've got an economy growing around trend, because we've got contained inflation, and because we've got a strong investment pipeline, this is best opportunity to reinforce our fundamentals.
You see, Australia didn't go into recession because of the actions this government took during the global financial crisis. We have an economy which is now 7 per cent larger prior to the global financial crisis. When I sit around the table at the G20 meetings and the IMF, I will be looking at countries whose economies have not got back to where they were prior to the global financial crisis. We are stronger now because of the actions this Government took to support jobs and small business. And we've got to reinforce that strength by bringing the budget back to surplus.
SABRA LANE: You're announcing incentives today for employers to hire older workers, $1,000 for those over 50. Why do you need to offer these sweeteners?
WAYNE SWAN: Because we've got a very important report on the economic potential of older Australians. And what it shows is that too many senior Australians have been locked out of the workforce by discrimination, by stereotypes and so on. We think it's very important to make sure that we unlock that economic potential of so many people who do wish to work.
So we've accepted their advice, and what we are going to do is to work with the business community to encourage them to hire more mature aged Australians. You see the labour force participation rate of mature aged Australians is lower here than it is elsewhere in the OECD (Organisation for Economic Co-operation and Development). We need to lift that up, and we need to unlock that enormous potential. And that's what the report recommended to us and that's what we're doing. And that's what we're announcing today.
SABRA LANE: Mining magnate Andrew Forrest says Kevin Rudd was just days away, just days before he was dumped as prime minister, agreed with him to dump the Super Profits Tax in favour of miners contributing an estimated $200 billion into an infrastructure fund for Australia. That sounds like a far better deal than the tax that starts from July the 1st.
WAYNE SWAN: Well Mr Forrest has opposed the Mining Resource Rent Tax. He's opposing that tax which will give a tax cut to something like 2.7 million small businesses and which will boost the…
SABRA LANE: But regarding the substance there of the claim?
WAYNE SWAN: Well there's all sorts of claim and counter claim; it just gets weirder. You see you've had Mr Palmer out there with all of his conspiracy theories, now you've got Mr Forrest making all sorts of claims. What happened here is that Julia Gillard and I got this done. We've got an MRRT in place, a Resource Rent Tax, which provides the opportunity to give significant tax cuts to Australian small businesses and also to boost the superannuation savings of our workforce.
We got it done. There'll be all sorts of claims and counter claims. I mean Mr Forrest's company admitted last year that it hadn't paid any company tax.
SABRA LANE: Mr Forrest says that you personally assured him that the Mineral Resource Rent Tax would be benign. Does this now explain the animosity between you and him?
WAYNE SWAN: Well Mr Forrest just could never support a Resource Rent Tax. He didn't want to pay a Resource Rent Tax. He is out there all the time making all sorts of extraordinary claims. I don't intend to respond to them.
SABRA LANE: So this deal is just a claim is it?
WAYNE SWAN: I don't intend to respond to them one by one. Mr Forrest and Mr Palmer are out there all of them time because they oppose a Resource Rent Tax which is being used to cut tax for small business. To cut the company tax overall. The only people who agree with them is Mr Abbott who is also opposed to a Resource Rent Tax, and opposed to a tax cut for small businesses right across Australia.
SABRA LANE: Garry Weaven, a former union official who now oversees $120 billion in super funds for the industry, says it's time for the Government to sit down with the Reserve Bank and examine its charter to broaden out its responsibility beyond just keeping inflation in the 2 to 3 per cent target band. He says the bank should also have a role in trying to drive down the value of the dollar. What do you think?
WAYNE SWAN: Well I think the Reserve Bank follows its charter. I think its charter is more than adequate for…
SABRA LANE: But he's saying it's time to look at the charter again.
WAYNE SWAN: Well I don't agree with Mr Weaven. What I do do is that I support, I support the Reserve Bank implementing its current charter. It takes its decisions independently of the Government and that is as it should be.
SABRA LANE: And it shouldn't be tweaked?
WAYNE SWAN: No I don't believe it should be tweaked, no.
SABRA LANE: The Reserve Bank minutes yesterday seemed to expose the commercial banks. It says that their costs have come down. But at the same time the minutes also point out that they're paying a lot more for deposits. In part does that back what the ANZ Bank's been saying about the need to put up its variable home loan interest rates?
WAYNE SWAN: No I don't believe it does. I think what the Reserve Bank says yesterday repudiates the claims that have been made by the ANZ about funding costs. They said very clearly yesterday that funding costs have come down substantially in the first part of this year.
The fact is that the ANZ and other banks have decided that they are going to keep their existing margins no matter what. Keep their existing levels of profitability no matter what. And that is why, that is why I am so absolutely clear in my view that what they have done is something that will make the Australian people very angry and they should, therefore, take the opportunity to look around and get a better deal; to walk down the road, because there are better deals available at any number of financial institutions.
SABRA LANE: Mr Swan thanks for your time this morning.
WAYNE SWAN: Thank you.
ELEANOR HALL: That's the Federal Treasurer, Wayne Swan, speaking to our chief political correspondent Sabra Lane.
Listen to MP3 of this story ( minutes)
fear retro tax rules will hit honest joes
David Crowe, The Australian, 18 April 2012
TAX experts have raised the alarm over new imposts in the federal budget as they warn against retrospective legislation that puts law-abiding taxpayers on the wrong side of the law.
The Tax Institute issued the warning in a budget submission aimed at preventing surprise measures next month that mirror the way four recent changes were backdated to take effect years before. Some budget options are off the agenda after the government's business tax working group concluded last week that it needed more time to examine ways to fund changes that would allow small companies that lose money to claim back some of their earlier tax payments. But the Tax Institute, which represents 13,000 tax practitioners, said it remained concerned at the prospect of surprise budget measures that are rushed through without sufficient consultation.
The institute's budget submission, obtained by The Australian, lists four tax changes made recently that made retrospective changes to the rules. "There has been an extremely concerning trend in recent months of the government announcing retrospective changes to the tax law," the institute wrote in the submission. "Taxpayers enter into transactions on the basis of the law as it is, not the law as it is rewritten after transactions have occurred. "Retrospective changes in tax law are likely to interfere with bargains struck between taxpayers who have made every effort to comply with the prevailing law at the time of their agreement."
The institute noted that amendments to the Petroleum Resource Rent Tax had been backdated to 1990 and that recent changes to transfer pricing were to take effect from 2004.
Changes to the tax-avoidance regime to increase the powers of the Australian Tax Office are yet to be introduced, but are to take effect from last month, when the government issued a press release declaring its intention to legislate. Taxpayers could only deal with a certain amount of change in a short period of time, the institute said, calling for a slower pace of change in tax law.
The institute's senior tax counsel, Robert Jeremenko, said recent experience including the mining tax debate and the Business Tax Working Group showed that more time was needed to consult on changes. "One of the big lessons for the government is that you can't rush tax reform," he said. "It's about having widespread and transparent consultation before tax measures are announced."
The institute suggested the government form a tax commission led by a business executive to conduct modelling and consider how to implement tax changes.
A spokesman for Wayne Swan cautioned against budget speculation, saying there would be plenty of reports before the budget, and many would be wrong.
labour leader calls on bigger states to make do with less gst
David Crowe, The Australian, 17 April 2012
WEST Australian Labor leader Mark McGowan has broken ranks with his political peers by urging other states to accept a smaller share of the $51 billion GST, while also taking aim at the federal government's mining tax.
The state Opposition Leader attacked the "extreme" inequity of the GST regime and warned that national growth would suffer if WA was starved of funds needed to exploit the resources boom. Mr McGowan backed the Barnett government's call for radical reform to the GST regime as he put a bipartisan argument yesterday to the expert panel reviewing the way the revenue is carved up between the states. And he rejected federal Labor's mining tax policy by insisting that if he became premier he reserved the right to raise mining royalties, regardless of the warnings from Wayne Swan against doing so.
Mr McGowan's argument builds support for a new division of the GST at a time when WA Treasury officials estimate the state's proper share of the revenue will decline from about 72 per cent this year to as little as 33 per cent within three years.
WA is due to receive about $2.9bn in GST payments from the federal government next year, under a formula that considers each state's spending needs and ability to raise its own revenue. But Western Australia would get about $5.3bn if the GST cash were allocated according to the population.
Mr McGowan presented a submission yesterday to the federal government's review of GST distribution, which is led by former Victorian premier John Brumby and former NSW premier Nick Greiner. Mr McGowan warned there was a national cost if WA did not get the funding it needed to grow during the resources boom. "If Western Australia isn't successful in exporting more of our product, the entire national economy suffers," he told The Australian after the GST meeting.
Mr McGowan said state leaders, including Labor colleagues across the country, needed to recognise the unfairness of the regime. "They do need to recognise that -- there needs to be a bit of understanding. "And I'm in the group that's acknowledging that smaller states need to be helped. I'm not hostile to that. And I accept that Western Australia was helped for 60 years, and so we do have an obligation. "But it can't be so extreme that it cuts our return to half of what we put in," he said. "I just don't think that's politically or economically palatable."
The Treasurer angered WA late last year when he modified the terms of reference for the review to raise the idea of penalising states that raise royalties or do not remove inefficient taxes.
Mr McGowan's submission to the review insists WA has the "sole constitutional right" to levy royalties on its minerals. "The WA Labor Party, when in government, reserves its right to alter the rates upon which royalties will be set. Ultimately, it is the people of Western Australia who are the owners of the minerals," he says.
Mr McGowan adds in the submission that the federal government should justify its claim that the Minerals Resource Rent Tax is better than royalties. "It is clear the royalty regime in Western Australia has not impeded the strong growth of the mining sector in Western Australia," he writes.
republicans shoot down tax on rich
The Sydney Morning Herald, 17 April 2012
Senate Republicans have defied President Barack Obama on one of his top election-year issues, derailing a Democratic bill forcing the top US earners to pay at least 30 per cent of their income in taxes.
The vote came the day before Americans' annual taxes are due. The 51-45 count along party lines was designed more to win over voters and embarrass senators in close races this election year than to push legislation into law. Obama denounced the vote, saying, "It's just plain wrong that millions of middle-class Americans pay a higher share of their income in taxes than some millionaires and billionaires."
Republicans called the measure a divisive Democratic distraction from the nation's real problems. "This legislation will do nothing with regard to job creation, with regard to gas prices, with regard to economic recovery," said Senator Jon Kyl, the No. 2 senate Republican leader.
Monday's vote was the first time a so-called "Buffett rule" proposal has come to a senate vote this election year. Citing complaints from billionaire Warren Buffett that he pays a lower tax rate than his secretary, Obama has said everyone earning at least $US1 million a year or more should pay at least 30 per cent of their income in taxes.
With presidential and congressional elections approaching in November, the vote was a glimpse of the broader battle the two parties are waging over an economy that's still having a tough time creating enough new jobs.
The senate vote was on a measure that would impose a minimum 30 per cent income tax on people making over $US2 million yearly and phase in higher taxes for those earning at least $US1 million. The fight has been politically irresistible for both sides.
It allows Democrats to take shots at Mitt Romney, the wealthy, all-but-certain Republican presidential nominee. He has released data showing he paid an effective tax rate of only around 14 per cent in 2010 and about 15 per cent last year, earning around $US21 million both years.
For Republicans, it's a chance to accuse the measure's Democratic backers of pressing for tax increases that will divert money employers could otherwise use to expand and hire more workers.
Romney ridiculed the Buffett rule on Monday, telling a campaign audience the revenue it would produce would fund the government for only about 11 hours. The senate measure would raise $US47 billion over the coming decade, barely enough to notice against the roughly $US7 trillion in budget deficits expected over that period. Administration officials have conceded that by itself it would do little to trim those shortfalls, instead emphasising its fairness.
Obama's tax return shows he earned nearly $US790,000 last year and paid an effective tax rate of almost 21 per cent.
On average, the wealthy already pay higher income tax rates than those who make less.
People making $US1 million or more annually paid an average effective rate of 25 per cent last year in federal income and payroll taxes that finance the safety-net programs Social Security and Medicare, according to the nonpartisan Tax Policy Centre, a Washington group that studies taxes. Those earning $US50,000 to $US75,000 paid an average effective rate of 12 per cent, the group said.
The White House says that even so, some millionaires pay lower rates than many of those earning less. That is largely because many wealthy people earn income from dividends that are taxed at just 15 per cent, instead of the top 35 per cent rate on salaries.
Get ready for a taxing, not axing, budget
Peter Reith, ABC News, 17 April 2012
This year's budget will be more about politics than economics. That is not my prediction. It is what the PM's office has been privately saying for weeks. On the day that Julia Gillard defeated Kevin Rudd for the leadership on February 27, 2012 her advisers told the press that they were working on a "post trauma" recovery plan.
Geoff Kitney, writing on the front page of the Australian Financial Review on the same day, stated:
"Sources said that the May federal budget would be a critical part of the Government's revival strategy, with the return to a budget surplus in 2012/13 as the centerpiece of a political strategy aimed at rebuilding Labor's credibility and regaining its standing as the party best able to manage the economy."
Government should have political strategies, but not at the expense of good economic management. I suspect that the best thing in this budget will be a surplus. Treasurer Wayne Swan has said so many times that he is aiming for a budget surplus that I can't believe he will not fulfil his own commitment. If he fails to produce a surplus he should resign.
To reach a surplus Swan will need to cut spending and increase revenue. Labor has not produced a surplus since before Wyatt Roy MP was born. I don't know how Swan will pull this rabbit out of the hat. He has already tried to put some of next year's spending into the current year. He might also shift some of next year's into the year after.
But tricky accounting dodges will not be enough this year. I expect he will cut some spending; he has no choice otherwise his budget will have no credibility. The public will say if the government is not cutting its spending then clearly taxpayers are going to be paying more. Labor has such a record as a big and wasteful spender on everything from school halls, pink batts, TV set top boxes and Rudd's pursuit of a seat on the Security Council, Swan needs to be seen as tackling the issue.
But despite my expectation that there will be some cuts in programs like foreign aid, my prediction is that a key part of the budget will be increased taxes. Business will be slugged. Top of that list will be the miners. Julia Gillard negotiated with the big miners to slash the mining tax. Contrary to the claims of her sycophantic supporters, she is a hopeless negotiator and gave away a lot more revenue than she intended. Now Swan is going to get it back.
But it will not be just business. Anyone that Swan can call 'rich' will be in their sights. Labor loves to play the envy card and it will be on the table in this budget. Watch out Gina, Twiggy and Clive and anyone on $90,000 p.a. or more.
The emphasis on raising more tax will mean that the budget will not be an axing budget: it will be a taxing budget.
Labor should have slashed last year, in the first budget after the 2010 election, but instead has been on a spending spree. Their hope is that the economy will give them a lift in the next 12 months so they can resume spending in the May 2013 budget and then head for an election in July or August 2013. It would also help if the 2013 election is held before anyone knows that the projections for 2012/2013 were not met. But a budget should not just be about balancing the federal books. It should start with a realistic assessment of the state of Australia's economy and then provide an outline of the government's economic strategies. The strategies should include cutting debt, improving productivity, improving business competitiveness, protecting jobs, and reform of the labour market.
None of these strategies involve a radical departure from sensible, mainstream economic policy. The question confronting Australian politicians is not what to do but who is prepared to make the reform happen.
Australia must improve its productivity performance and thus ensure continued improvements in living standards. A realistic assessment would note that living standards are under threat for many Australians. And a government that is concerned about its political prospects would appreciate that cost of living concerns have had a major impact in the recent Victorian, New South Wales and Queensland election results . To really protect jobs in a meaningful way, governments could do a lot more to reduce the costs of doing business. Phoney exercises about cutting red and green tape and other similar gimmicks in recent weeks will not make any real difference. A fair dinkum strategy should not only give some objective assessments of what is happening in manufacturing but also what will happen when the resources sector finds that demand for its products starts to plateau. I appreciate that this suggestion will not be embraced any time soon because the budget is likely to increase costs on business, not reduce costs, but it is still the approach that needs to be taken. And Labor will certainly not include a strategy to improve the operation of the labour market. This is a glaringly obvious problem but clearly beyond Gillard's leadership capability. She can't even distance herself from Craig Thomson, even though the ACTU abandoned the HSU because of the stench of corruption. Labor has no one on its frontbench that could muster the political will to confront the ACTU and the unions on labour market reform because of the "corrosive impact of Labor factional politics," as Mark Latham wrote in the AFR on April 11, 2012.
It is hard to understand why a government that is floundering in the polls should think that what it needs now is a political strategy. The one thing that Julia Gillard is not good at is politics. If the PM and her Treasurer could only focus on better economic management then maybe, only just maybe, the Labor Party might do better politically than they are doing now.
The Honourable Peter Reith was a senior cabinet minister in the Australian Liberal government from 1996 to 2001 and then a director of the European Bank for Reconstruction and Development from 2003 to 2009. View his full profile here.
Greens will not budge on tax cuts: Milne
Sabra Lane and staff, ABC News, 16 April 2012
New Greens leader Christine Milne has put the Federal Government on notice that her party will not support corporate tax cuts for big business. The Government has promised a 1 per cent tax cut linked to the Minerals Resource Rent Tax, but Senator Milne maintains that the Greens will only allow a cut for small business, and the party will not yield on this point under her leadership.
Senator Milne says the Government cannot give out the tax breaks and return the budget to surplus at the same time. "The only circumstances in which that would change is if the Government comes up with other ways of finding the money to support those services," she said. The minority government needs support from the Greens to get the tax cuts through Parliament. "We've made it clear that this has to be balanced with 'where are we going to get the revenue to be able to proceed with Denticare going into Medicare?', things like increasing Newstart, as we think is appropriate for people trying to live on $35 a day," Senator Milne said. "We're trying to make sure we get a decent start on national disability insurance. So $16 billion over 10 years is what we're talking about, and we think it is better to keep that money for the community rather than see it go largely to the banks and the big resource-based sectors." While Senator Milne supports the principle of bringing the budget into surplus, she says it should not happen this year. "I think it's time for flexibility and to stop just trying to stick to an economic rationale to underpin what is a political promise - everyone sees it as that," she said.
She will hold talks with Prime Minister Julia Gillard this week.
tax office wants its share of black economy
Maris Beck, The Sydney Morning Herald, 16 April 2012
Wilting tax receipts are hampering Treasurer Wayne Swan's efforts to bring the federal budget into surplus but the answer may lie in scrutiny of ''black business'' - illegitimate, illegal and informal transactions that slip through the tax net. According to researchers presenting at RMIT today, Australia's black economy could be worth up 30 per cent of gross domestic product (GDP).
While that figure encompasses everything from illicit cartels and drug trafficking to internet piracy, the researchers say one of the biggest components is from tax evasion by multinational companies. The researchers highlighted ''transfer pricing'' - moving payments and invoices between Australian companies and related companies in tax havens to minimise tax - as a major drain on government revenue. Associate Professor Sharif As-Saber, RMIT deputy head of the school of management, said such practices were ''almost beyond control'' due to poor global governance. He said multinational corporations were prone to black business practices, and in Australia mining companies ''are given too much freedom and power because of their money''. Such large companies ''are undermining the capacity of the state, they are challenging the authority of the [federal] government''.
Under pressure to deliver on its promise to balance the budget, the Gillard government this year released draft laws to strengthen protection against transfer pricing. It has also said it will undertake a review of anti-tax avoidance laws.
Tax Commissioner Michael D'Ascenzo has been warning of a shortfall in corporate tax receipts since early last year, saying there was ''fragility'' in the system and singling out pricing as a key problem. The Tax Office is seeking to use Organisation for Economic Co-operation and Development methods to crack down on transfer pricing by determining whether an Australian subsidiary of a multinational company is less profitable than it should be. The government's proposed laws would increase the discretion of the ATO by giving tax treaties the same authority as domestic laws. Professor As-Saber said such laws were sorely needed. ''I think that all governments around the world are lagging behind and Australia definitely is not an exception,'' Professor As-Saber said. ''They are not capable of acting faster because it is a democratic process, legislation is a process. Business will do business as usual. They will not worry whether it is ethical.''
Professor As-Saber, who is currently compiling an estimate of the black economy in Australia and New Zealand, said previous estimates had valued a segment of Australian black business at 15 per cent of GDP, but he believed that globalisation and rapidly advancing technology had increased the value and volume of the unregulated economy since that estimate was made.
The Australian Institute of Criminology released three papers on the black economy in February, which highlighted that trade payments were increasingly used to conceal money-laundering.
Australia was one of only two countries of nine studied that did not subject the international movements of ''bearer negotiable instruments'' - promissory notes, travellers cheques, money orders and postal orders - to the same reporting requirements as cash.
cider tipplers may face 'alcopop' tax slug
Adam Creighton, The Australian, 16 April 2012
The proliferation of cider taps at pubs and bars around Australia might soon cease if the Gillard government takes up an industry proposal to increase tax on plain apple and pear cider.
The Distilled Spirits Industry Council of Australia argues that traditional cider drinks, such as popular brands Strongbow and 5 Seeds, should be taxed at the higher rate of flavoured ciders, other "alcopops" and spirits.
The council's pre-budget submission says the current "tax treatment gives traditional cider products a significant price advantage over other alcoholic beverages with similar alcohol content which compete in the same alcohol market".
Consumption of alcopops slumped by more than 30 per cent when the government taxed them 70 per cent more in 2008. But consumption of cider, most of which is taxed at the lower rate of wine, grew 18 per cent in the year after. Last financial year Australians consumed 4.2 million nine-litre cases of traditional cider and the value of the cider market surged 35 per cent in the 12 months to last year.
A higher alcopops tax was meant to curb binge drinking but "the fall in consumption was totally offset by the increase in consumption of other alcohol beverages", the submission argues. The federal government collects $6 billion a year from explicit duties on alcoholic beverages. It stands to gain almost $500 million over four years from taxing traditional cider drinks according to their alcohol content at the same rate -- $74 per pure litre -- that alcopops face, according to modelling undertaken for the council by KPMG.
Gordon Broderick, head of the council, told The Australian such a tax change "seemed to be pretty low-hanging fruit" for a government scrounging to find revenue to fulfil its promise of a budget surplus next year, given the unfairness of the existing arrangements. Informed sources suggest the government has considered the proposal seriously. Des Crowe, head of the Australian Hotels Association, nevertheless told The Australian that "applying the spirit rate of tax to traditional ciders would increase the price of draught cider by about 50 per cent, as the tax paid on cider kegs would go up by 140 per cent from $52 to $174". He also suggested the change might have deleterious health effects, because cider was considered a low-alcohol option by hotel patrons who don't want to drink beer. A spokesman for Fosters, Australia's biggest cider supplier, downplayed the impact of the tax discrepancy by pointing out that annual growth in the flavoured cider market, which nears 3000 per cent, had vastly outstripped growth in the traditional, far larger, cider market dominated by plain apple and pear ciders.
The prospect of higher tax also worries Australia's fledgling cider brewers, who enjoy additional tax exemptions if their annual sales fall short of $1.7m.
Rich Coombes, a director at Batlow Brewing, a boutique producer of cider based in NSW, told The Australian "any significant increase in cider tax would have a pretty detrimental impact on the smaller players". Mr Coombes points out that the number of new cider brands has doubled in the past few years to more than 90.
The council's proposal would improve the consistency of Australia's tax framework. The Henry tax review, published in May 2010, argued that all alcoholic drinks should be taxed according to their alcohol content. Australia's byzantine tax arrangements mean standard drinks attract vastly different taxes depending on their form: spirits and alcopops face the steepest tax at 95c, beer and cider about 23c, while a standard drink of cask wine incurs only 8c tax.
A spokesman for Wayne Swan said: "There'll be lots of speculative stories between now and budget night; many will be wrong, and the government doesn't intend on commenting on them except to say the budget will underpin the government's record of strong economic management".
better tax deal for West aussies: mcGowan
The Sydney Morning Herald, 15 April 2012
WA opposition leader Mark McGowan says he has not given up on getting the state a better share of the GST distribution. He and shadow treasurer Ben Wyatt will fly to Canberra today to put forward the state's case to the GST Review Panel.
Mr McGowan said the federal government should consider the benefits of a per capita share of the GST for each state, or whether some federal reimbursement or help could be distributed to less successful states. ''There is also concern in Western Australia that states that receive very significant income from poker machines do not have that income taken into consideration in the same way as WA's mining income is,'' he said. ''Western Australia does not, and will not, have poker machines.'' Mr McGowan said the intergovernmental agreement signed in 1999 was meant to ensure all states were provided with a long-term growth tax and allow states to reduce their reliance on federal grants.But the ''flawed deal'' meant it had not happened, he said.
The Opposition's submission to the panel will urge the panel to consider placing a floor on WA's GST return, making it impossible to drop below 80 per cent of the state's GST contribution. WA Labor also wants to discount mining revenue assessments.
Another approach would be for each state to be reimbursed its contributions on a per capita basis, while the commonwealth provided additional support to states such as Tasmania, he said.
how state taxes fell into the too-hard basket
Matt Wade, The Sydney Morning Herald, 14 April 2012
Politicians talk so much about economic reform it often lapses into a monotonous and meaningless mantra. For all the prattle, there are urgent reforms needed that get surprisingly little attention and even less action. One is state taxation.
The raft of inefficient taxes levied by state governments has long been a scourge on the economy. Some of the worst state taxes were replaced by the GST more than a decade ago but there are plenty left. The 2010 review of taxation by former the federal Treasury boss, Ken Henry, said many state taxes are "inherently of poor quality while other state taxes need to be reformed". He suggested ways that bad state taxes could be replaced by better ones, including a proposal for the states to get a share of federal government's personal income tax base.
Sadly, Henry's recommendations remain in the too-hard basket.
The former NSW Treasury secretary Michael Lambert has made a fresh case for state tax reform. He estimates that for every dollar raised by the NSW tax system there is an average economic cost of 26 per cent and for some taxes, such as stamp duty, the figure is more than double that. Lambert says switching from inefficient taxes to efficient ones (while raising the same amount of revenue) would benefit NSW households by more than $4 billion a year and boost gross state product by nearly 2 per cent. Every state stands to gain by that order of magnitude if the reforms were implemented across the board.
Lambert's findings are part of an extensive audit of the state's finances he conducted after Barry O'Farrell became Premier last year. But Lambert's report has received much less attention than it should have because, having asked for the audit, the NSW government has drawn little attention to it. The report was finished in June last year but the government sat on it for about eight months and released it on the NSW Treasury website the same day as another major report on the management of the public sector by economist Kerry Schott. Lambert's vast report was referred to only in a few sentences at the end of a press release about the Schott review.
Lambert's audit was promised while the Coalition was in opposition and announced with great fanfare soon after O'Farrell took office. So why has the government drawn so little attention to the financial audit?
It's likely it was hoping for a political tool to attack its opponents. Instead, it got a sweeping program for economic reform in NSW, especially its tax system.
Lambert starts with a blunt warning: the state tax system "does not provide a sustainable and efficient basis for funding increasing levels of service delivery''. He proposes a dramatic overhaul. Lambert says stamp duty on property purchases is the worst state tax. But well-designed taxes on land values - another tax option available to the states - are very efficient.
Therefore, the centrepiece of Lambert's reform agenda is a ''stamp duty replacement tax'', levied on the value of all land, regardless of how it is used or who owns it. He calculates the welfare gain of axing stamp duty and replacing it with the broad-based land tax would be $2.3 billion a year and would increase NSW's GSP by 1.2 per cent.
Lambert also called for the threshold at which businesses are levied payroll tax to be dropped so that inefficient insurance duties could be removed. This would yield a welfare gain of $400 million in NSW. He recommended that vehicle taxes be replaced with a Sydney-wide traffic congestion pricing system; a measure that could benefit the community by $720 million. Lambert also says tax concessions for clubs should be removed so they are treated in the same way as hotels.
Each one of these proposals would be controversial, especially Lambert's push to levy land tax on every property, including principal places of residence. But the O'Farrell government's apparent reluctance to draw attention to Lambert's audit underscores its timid approach.
There has been little debate about bad state tax during the Coalition's year in office and it shows no intention of unilateral tax reforms. Instead, the government has chosen to pursue tax reform at the national level in the hope that all states and the Commonwealth can agree on changes. Nationwide state tax reforms would promote the most efficient outcome but it also offers greater political protection than going it alone.
The NSW Treasurer, Mike Baird, is pushing for the Commonwealth to quarantine a proportion of income or excise tax for the states and is working on a formal proposal with the South Australian Treasurer, Jack Snelling. Baird hopes this will be discussed by the Council of Australian Governments before the end of this year. "I think that's a huge step forward from where we were," he says.
But as past COAG reform processes show, the co-operative approach moves at a slow pace and is usually fraught with difficulties. At yesterday's COAG meeting in Canberra fundamental state tax reform was overshadowed by a catalogue of other issues. Some states are more focused on the distribution of an existing tax - the GST - rather than getting rid of bad ones.
Even if the Baird-Snelling proposal is presented before Christmas, there is no guarantee it will win the approval of other states or the Commonwealth. Baird himself admits that winning co-operation for state tax reform "is a slow-moving process that is going to be resisted and pushed back at every turn". Lambert agrees co-ordinated reform in which all states replace bad taxes with more efficient ones would yield the greatest benefit. He estimates it could lift Australia's gross domestic product by 1.8 per cent.
Even if NSW decided to go it alone with the measures Lambert suggests, the state's consumers would benefit by almost $3 billion a year and GSP would increase by 1.4 per cent.
But the muted response to Lambert's report suggests the O'Farrell government has no intention of going it alone.
Like the Henry review before it, Lambert's blueprint for tax reform is set to gather dust. And those bad state taxes will be with us for sometime yet.
barack obama paid 20.85% tax in 2011 - white house
BBC News, 14 April 2012
US President Barack Obama has released his tax return for 2011, as he seeks to make taxation a key election issue with his Republican foes. The return says Mr Obama paid an effective tax rate of 20.5% on total income of nearly $790,000 (£498,000). The president has recently advocated making wealthy Americans pay more tax.
Analysts say Mr Obama is attempting to characterise Mitt Romney, his wealthy Republican rival, as remote from ordinary economic concerns.
On the same day that Mr Obama released his tax information the Romney campaign said that their candidate had filed for an extension on his 2011 tax return. Mr Romney, a wealthy businessman, is likely to pay 15.4% in tax on an income of $20.9m in 2011, according to an estimate he has released. Correspondents say Mr Romney pays a lower rate because the US tax system treats income from investments more favourably than wage earnings.
Half of Mr Obama's $789,674 income in 2011 came from his presidential salary, with the remainder from sales of his books, according to the return published by the White House. Mr Obama and fellow Democrats have renewed calls for the rich to pay a "fair share", ahead of a vote in the US Senate on the so-called "Buffett Rule".
Under the proposal before the Senate, named after billionaire investor Warren Buffett, there would be a minimum 30% tax on earnings over $1m.
Mr Buffet has often pointed out that he pays a lower effective tax rate than his secretary. The White House confirmed that Mr Obama also paid a lower tax rate than his secretary, adding that the anomaly demonstrated why the US tax code was in need of reform.
the day the money stopped
David Uren, The Australian, 14 April 2012
In his last 18 months as treasurer (from May 2006 to the 2007 mid-year economic forecast), Peter Costello announced new policy measures with a three-year cost to the budget bottom line of a little less than $150 billion.
There were three rounds of tax cuts, handouts for childcare and private tuition, new breaks for superannuation, money for roads, water and medical research, new funding for defence and much, much more. The Howard government's final fling cost more than double the budget cost of Wayne Swan's stimulus measures, yet Costello was still able to report the last in his long line of budget surpluses.
As Swan struggles to bring together a budget that will deliver his first surplus, a profound change in the Australian economy has been laid bare. A bubble has burst. It is not the mining boom. Commodity prices and investment by the resource companies are much higher than they were before the global financial crisis. What has stopped is the frenzy of borrowing and spending that was fuelled by soaring house and share prices.
Business in the non-mining economy has awoken after the spending party with a hangover. Swan and his Treasury department are trying to close the gap between a government long hooked on spending and a shortfall in the company tax revenue that once made it look so easy. It is not a recession. There is no wave of high-profile corporate collapses and the number of unemployed has remained remarkably steady at about 620,000 for the past two years.
Households are not buckling under the weight of crippling mortgages. Little more than one in 200 is falling behind on their payments. But the fizz has gone and with it the fabulous growth in the government's tax revenue that once made so much possible. In Costello's final 2007-08 budget, capital gains tax alone delivered about $1.3 billion more than the entire budget surplus of $16.8bn. Investment properties, shares and small businesses were changing hands at a furious rate. Individuals, companies and superannuation funds were making great profits, with shares rising as much as 40 per cent in a year. House prices rose in waves across the country, first in Sydney, then Brisbane and Perth, followed by Melbourne. Deloitte Access Economics director Chris Richardson says it was common for a person to get up in the morning, work hard all day and come home to find that just by sitting on a plot of land, their house had made more money through value appreciation than they had.
Not only were people getting richer but banks were happy to lend. Growth in lending for investment property and margin loans to invest in the sharemarket soared by as much as 30 per cent a year.
The dull business of home loans reached annual growth rates of more than 20 per cent and averaged more than 13 per cent during a 15-year period. Nobody was saving; with their personal wealth growing so rapidly, there was no point. Instead, homeowners were topping up their income by withdrawing equity from their homes. In some years, the average top-up across the nation reached 4 per cent.
The Reserve Bank helped the party. Although two rate rises in late 2003 slowed the property boom in Sydney, the bank left rates lower for longer than it now believes it should have. Mortgage rates averaged only 6.9 per cent between 1997 and late 2006, when the Reserve Bank realised the economy had built an unsustainable head of steam.
The Howard government was able to boast at the 2004 election that interest rates would always be lower under a Coalition government than under Labor and the people believed it.
It was great for business. Retail sales soared by an average 6.6 per cent a year throughout the 2000s until the financial crisis brought the circus to a stop. Profits soared and so did company tax payments. Companies had never provided more than about 15 per cent of the government's total tax revenue. But during the 2000s their share climbed to a high in Costello's last budget of 26 per cent.
Nobody did better than the banks. Their profits and taxes doubled in the five years to 2007-08, with their share of the corporate tax take rising from one-third to 40 per cent. A Reserve Bank study notes the rise in tax revenue provided by the finance sector occurred in other advanced countries as well. Banking has a higher average tax rate than mining or manufacturing, where companies claim much higher tax deductions for investment.
The resource boom was helping. Mining companies' share of company tax revenue rose from 12 per cent to 14 per cent, but it was not the miners that were bank-rolling the budget handouts. The mining boom did bring benefits to consumers. As the dollar rose from its traditional level of about US75c to close to parity ahead of the financial crisis, the cost of imported goods fell.
Clothes, televisions, furniture and other consumer goods became cheaper, contributing to consumer wellbeing and fuelling the spending.
For governments across the country, tax revenue poured in. The states were helped by the consumer spending lifting GST and by the property sales stamp duty. The commonwealth creamed the company tax. Every time Treasury re-did its sums, there was more money than it dreamed possible only months beforehand. In the Howard government's last 18 months in office, Treasury upgraded its estimates of the revenue flowing into its coffers during the next three years by $170bn. And then the music stopped. The change started ahead of the collapse of Lehman Brothers in September 2008 as the Reserve Bank lifted interest rates and the pace of borrowing started to slow. But as Swan approaches his fifth budget, the mood of the economy has been transformed. The flow of capital gains tax revenue has slowed to a trickle. When Treasury last reviewed the budget numbers in November last year, it had been hoping a revival in property and sharemarkets would lift the flow of capital gains tax receipts to $11bn in 2012-13, or double the $5.5bn earned in 2010-11. But shares and property prices have weakened. Shares this financial year have averaged more than 9 per cent less this year than last and, apart from during the GFC, are at their lowest level since 2004-05. Capital gains on the sharemarket since the GFC have been less than 5 per cent.
Property prices also have weakened. It is a slow decline, down little more than 5 per cent in the past 18 months, but it has been more at the upper end of the market, where the big profits from the turnover in investment properties are normally made. Companies, superannuation funds and individual investors who were forced to sell during the crisis ran up capital losses reaching $280bn. These can be claimed as deductions against any new capital profits. Households and businesses have both reined in their borrowing. Growth in household debt is at its lowest level in the 35 years of records while company debts compared with equity are at a level not seen since the 1980s.
Consumers have pulled more than $50bn out of the sharemarket and are putting their savings away safely in bank deposits.
In the midst of the GFC, as the government opened the spending spigots, with total government spending soaring 16 per cent in a year, Swan promised to return the budget to surplus by 2015-16. This would be achieved by keeping a lid on spending while letting revenue recover.
But by 2010-11 Treasury was confident the worst of the crisis was over. It believed it had overestimated the severity of the downturn when assembling the 2009-10 budget, when it still thought Australia faced an inevitable recession. Treasury told Swan it believed revenue during the following three years would be $80bn stronger than previously thought.
With an election ahead, Swan brought the promised surplus forward to 2012-13. But the revenue revival has disappointed. The 2010-11 deficit was $7.5bn worse than forecast and this year's looks like being at least $22bn worse, with Swan warning further writedowns are in prospect. It is not possible to close the $40bn gap left by this year's deficit with spending cuts. The best the government can aspire to is holding spending flat, but that would be more than any other government has achieved since World War II. Too many government outlays are bound to population growth and inflation and push spending relentlessly higher.
The budget inevitably will project a surplus. It will be based on the assumption that growth will recover to at least 3.25 per cent and commodity prices will remain high. But the finance sector is struggling to maintain its profitability in the face of weak credit growth. Many other big corporate taxpayers are facing subdued profits, and the world of capital gains that drove the surpluses in the later Howard years is but a distant memory.
swan releases tax proposal for struggling business
Business Spectator, 13 April 2012
Federal Treasurer Wayne Swan has released a proposal for how business losses should be treated for tax purposes which he says will help struggling firms cope with the patchwork economy.
Mr Swan said the Business Tax Working Group's recommendation that "loss carry back" - where a company applies operating losses to a preceding year's income to reduce tax liabilities - would be a worthy reform. "Such a proposal would help struggling businesses adjust to the challenges and opportunities of the patchwork economy by improving their cashflows when they invest," Mr Swan said in a statement.
The report considers that loss carry back should initially be provided to companies only, as there would be significant complexity associated with extending this to trusts. "Sole traders are currently less constrained in their use of tax losses than companies and trusts," the report says.
The working group came out of last year's Tax Forum and was chaired by Chris Jordan, who is also chair of the Board of Taxation and KPMG NSW.
As part of its brief, any proposals had to be offset by savings.
Mr Swan said while the group has identified a number of options, it says they need further examination and consultation.
The working group will issue a further report at the end of the year on longer-term business tax reforms.
do the petrol companies need our charity? i don't think so.
Simon O'Connor, The Punch, 12 April 2012
Since word got out that the government was considering cutting back on the $2 billion handout to resource companies known as the Fuel Tax Credit scheme, there has been the normal outburst of complaint from the industry’s lobbyists.
In last week’s Financial Review, it was Australian Petroleum Production & Exploration Association’s turn to insist that any cutbacks to this boondoggle would result in risk to “billions of dollars in investment in oil and gas development”.
If this sounds familiar, it’s because you’ve definitely heard it before.
When faced with the original mining tax, the Minerals Council claimed it would drive miners to other countries to dig up minerals, creating the now-mythical “sovereign risk”. Similarly, groups like the Business Council claim a price on pollution will eviscerate the economy, driving businesses broke and “exposed” industries offshore.
The same, tired, argument was wheeled out last week when some of the country’s most profitable companies were asked to contribute a little bit to the global effort to cut down our use of fossil fuels.
It was inevitable that at some point Australians would stop listening, and it appears that that time is now. What is the difference this time?
While the mining tax and the price on pollution were changes for business to adjust to, this is the government considering spending taxpayer dollars in a better way. The bleating of vested interests resonates with the public less when they consider where their money is being spent.
The Fuel Tax Credits scheme is an annual gift of taxpayer dollars of which $2 billion - $173 for every man, woman and child - finds its way into mining companies’ coffers. Originally intended to help Australian exports, it is now a nifty tax write-off for hyper-profitable companies that delivers no discernible economic benefit.
It’s not overcoming a market failure, rather it’s creating one by distorting investment towards higher fuel using technologies at the cost of more efficient alternatives.
It is simply a donation of public money to an industry that is in no need of charity.
Let’s be clear about what the fuel tax credits really mean. It means if you are a hard-working commuter in Sydney’s western suburbs or Melbourne’s south-eastern growth corridor, with little or no access to reliable public transport, you pay 38 cents per litre in tax on the petrol you need to get to work.
But if you are the world’s wealthiest mining company you pay virtually no tax for the diesel you use in your operations to dig up, refine and export Australia’s non-renewable mineral resources.
With $450 billion in resource project investments in the pipeline across Australia, it is disingenuous for industry lobbyists to claim that unwinding this annual handout would be the tipping point that sends resources companies packing their bags.
Considering that this is supposedly the third policy decision that will send the entire resources industry fleeing to Buenos Aires, it is understandable that Australians have begun to take their predictions of mass exodus with a hefty helping of salt.
It also may be because the lobbyists are getting lazy.
APPEA offers no demonstration of “growing domestic and international concern”.
It simply asserts it. Trust us. You have before. You will again.
At the same time as claiming the scrapping of the Fuel Tax Credit handout would risk billions of dollars of investment the peak body has the gall to say the sector is “critical and growing”. Again, curious readers could be forgiven for wondering why these members of such a vital and robust industry were considering emigrating.
The fuel tax break isn’t the only handout these companies enjoy. ACF estimates that accelerated depreciation for oil and gas is on its way to becoming a $2 billion annual imposition on taxpayers due to the explosion in investment.
One of the core pillars of good tax policy is equity, and these, among other tax breaks for the resources sector, fly in the face of this notion.
This is not simply the position of an environmentalist, dismissing handouts to Australia’s biggest polluters out of hand. These are bad policies, pure and simple.
The Australian public has given miners, resources companies and their representative bodies a fair hearing. But when the same failed argument raises its head for the third time, and it involves a direct infusion of wasted taxpayer money? That’s where the line is drawn.
Taxpayers who can’t see the sense in continuing to help pay for fuel for multinational mining giants are smarter than that.
Centerlink enlists spies, debt collectors to recover taxpayer funds
Natasha Bita, The Australian, 12 April 2012
Centrelink is using debt collectors to try to recoup $2.8 billion in overpayments. Family tax benefits and parenting payments account for more than half the nation's social security debt - and are equivalent to the federal government's promised $1.5bn budget surplus next year.
New data released through the Senate estimates process reveals that Centrelink is chasing $2.8bn in debts, and has referred nearly $500 million in debts to the private collection agencies Dun & Bradstreet and Recoveries Corp. The two agencies recovered $123m in debts between July 2010 and December last year. The new data shows that the Department of Human Services spent nearly $1m spying on 637 clients using "optical surveillance" during the 18 months to the end of last year, but almost one in three cases "warranted no further action".
Centrelink received 158,378 tip-offs about social security fraud to its "dob-in" hotline over 18 months. But only 2444 tips - or 1.5 per cent of the total - were investigated with a view to prosecuting, while 1446 - less than 1 per cent - led to payments being cancelled.
Another 2996 tip-offs resulted in payments being decreased - although 365 people were given higher payments as a result of an allegation of fraud. The departmental data shows that Centrelink recovered $1.8bn in debts during the 18 months to last December, on top of what it is still trying to reclaim. And 323,737 debts totalling $1.2bn are owed by Australians who no longer receive Centrelink payments - forcing the government to garnishee tax refunds or resort to debt collectors to retrieve the funds. Half those debts, totalling $349m, "were not under recovery arrangement as at 31 January, 2012", the department has told the Senate estimates committee.
Department of Human Services general manager Hank Jongen said yesterday the debt had not been written off.
Of the debts incurred during 2010-11, half were due to what Centrelink described as "automatic overpayments". And $1bn is owed by families who were paid too much Family Tax Benefit, after underestimating their annual income when applying for fortnightly payments. Mr Jongen said Centrelink cross-checked families' estimates against their actual tax returns.
In addition to the $2.8bn in welfare debt, the department has identified an additional $262m in "potential overpayments". National Welfare Rights Network president Maree O'Halloran said yesterday overpayments were at "endemic proportions". "Mistakes and errors - by both Centrelink clients and staff - happen far too frequently," she said. Ms O'Halloran said simple misunderstandings, such as confusing gross and net income, sometimes led to overpayments. And casual workers who relied on Centrelink payments to supplement low wages, were caught out if they worked extra shifts or wrongly guessed their annual earnings.
opinion divided over states' carbon tax challenge
The Australian Financial Review, 12 April 2012
The Queensland and Western Australian governments have revealed they are considering a High Court challenge to the federal government’s carbon tax, but constitutional lawyers are divided about its chances of success.
Read the full article via subscription on the Australian Financial Review website.
tax bill could kill super fund merger
The Australian Financial Review, 12 April 2012
The $4.6 billion AGEST super fund has issued an ultimatum to the federal government that it may be forced to defer a planned merger with AustralianSuper, a move that would cost its members millions.
Read the full article via subscription on the Australian Financial Review website.
'duplicate' carbon tax hurts nsw: govt
The Australian Financial Review, 12 April 2012
The federal government needs to drop an existing emissions scheme when it introduces the carbon tax in July so that NSW residents aren't hit by a double whammy, the state government says. In a submission to the Draft Energy White Paper, it says the federal government should abandon its Renewable Energy Target (RET) scheme. The RET, which requires electricity suppliers to source 20 per cent of their electricity from renewable sources, is in place until 2030.
NSW Energy Minister Chris Hartcher says if the scheme remains in place after July, the federal government should compensate households. He says the federal government's carbon tax will put added pressure on NSW households. He said the NSW government is calling for the scrapping of any schemes that duplicate the carbon tax. "The combined impact of the carbon tax and the RET are expected to add very significantly to NSW household and business electricity bills in the coming year," he said in a statement. "NSW consumers just can't afford to be hit with a double whammy. "It is unreasonable for federal Labor to expect NSW households to bear the costs of unsustainable and costly green schemes." Mr Hartcher said the Independent Pricing and Regulatory Tribunal had calculated that the RET was the cause of one third of 2011/12 electricity price increases. "That equates to $75 per customer, for just one year, for just one policy," Mr Hartcher said. "Removing duplicative programs will reduce electricity costs for NSW consumers. "At the very least, federal Labor should be taking action to assist with alleviating electricity price rise pressures."
house prices up to 44pc tax: hia report
Ben Hurley, The Australian Financial Review, 12 April 2012
The home building industry is taxed more than almost any other industry in the country, according to new research, with the bulk paid by home owners and only a fraction by land bankers, developers or builders.
Tax by various levels of government make up more than 40 per cent of the purchase price of a typical new home in Sydney, or $268,000 of a price tag of $639,533, according to a report by the Centre for International Economics commissioned by the Housing Industry Association. For Melbourne the figure was 38 per cent, and for Brisbane 36 per cent.
HIA chief economist Harley Dale said the report was the most comprehensive analysis of housing taxation in decades. “Not only are we taxing the provision of shelter in Australia in an excessive manner, we’re also taxing it in a very inefficient manner. “In percentage terms you’re talking between 36 per cent and 44 per cent of a final new home price that a buyer actually pays. So it’s a deterrent towards building new homes.”
The CIE found tax levied on housing by all levels of government contributed almost $40 billion to local, state and commonwealth government revenue, or about 11.3 per cent of the total. Housing was the second-largest contributor of tax to Australian governments, behind the retail and wholesale sectors combined. The average tax burden on the new housing sector was estimated at 31 per cent of the value of its output, compared to an economy-wide average of 24.4 per cent. The tax burden on existing houses was much closer to the average at 24.9 per cent. CIE simulations showed most of the burden ultimately fell on home buyers and owners. Only 2 to 6 per cent fell on the land bankers, developers or builders.
The taxes included stamp duties at various points in the housing supply chain, levies and compulsory fees. It looked at “hidden taxes” that increase costs or reduce the scale of development for a site, such as zoning restrictions, building standards and development controls. It also analysed “ambiguous taxes”–charges levied to address a certain cost to government, but that were disproportionate to that cost. These were combined with taxes paid by all sectors including income, fuel and payroll taxes, import duties, and GST.
For a young couple in Sydney aged 25 to 34 considering buying a $612,000 home with a 10 per cent deposit, repaying the tax component of the price would take up roughly 33 per cent of their after tax incomes, or half of their mortgage repayments. Saul Eslake, a member of the federal government’s Housing Supply Council, said taxes increased the holding cost burden on the property industry disproportionately to other industries. Developers paid land tax and stamp duty at various stages of the development process. “A manufacturer, for example, doesn’t pay tax, apart from GST, when he buys materials that he is going to add value to and lead to a finished product,” Mr Eslake said. However, developers paid charges to councils for infrastructure they didn’t own, Mr Eslake said. But they should price that into their margins, and they had the market power to do that due to the under-supply of housing in some states.
GST, which was levied on new but not existing houses, reduced the competitiveness of new housing.
The best way to address this would be to abolish the federal government’s First Home Buyers Grant for purchasers of existing homes.
tax plans fuel farm fears
ABC News, 11 April 2012
The $4.6 billion AGEST super fund has issued an ultimatum to the federal government that it may be forced to defer a planned merger with AustralianSuper, a move that would cost its members millions.
Read the full article via subscription on the Australian Financial Review website.
charities to receive carbon tax help: wong
The Australian Financial Review, 11 April 2012
Federal Finance Minister Penny Wong has assured charities that government assistance will be available to help them deal with the impact of a carbon tax.
The Salvation Army says it is bracing for an avalanche of useless household goods, dumped by people unwilling to pay higher rubbish tip fees as a result of the carbon tax. The Salvation Army claims the tax will add $3.5 million to annual landfill costs for charitable groups.
Senator Wong says charities will not be left out in the cold when the carbon tax operates from July 1. "We have put in place a fund for charities to help them with the transition to the carbon price," she told ABC Radio on Wednesday.
Opposition climate change spokesman Greg Hunt said it was absurd that programs such as support for victims of domestic violence and the homeless could be at risk. "This hit on charities shows the stupidity of this carbon tax and exposes it as a policy failure," he said in a statement.
The Salvation Army warns the new tax will encourage struggling families to use the charity shops as a dumping ground for their unsaleable furniture and clothing rather than pay the cost of rubbish tips. The Salvos say this could impact on the services they provide to about 300,000 people a year, including emergency accommodation and drug and alcohol counselling.
The charity estimates it will pay an extra $687,000 to $1.25 million in landfill fees.
pay for aged care or face tax hikes, industry warns
Sue Dunlevy, The Australian, 11 April 2012
TAXES will have to rise unless the family home is taken into account when assessing the ability of ageing Australians to pay for nursing home care, one of the sector's biggest players says.
Catholic Health Australia chief Martin Laverty told the National Press Club that Australians should see aged care as a forms of accommodation that had to be paid for. “We need (people) to recognise that just as they've had to fund their accommodation at every other point in their lives, in their aged care it might be the same because the alternative is higher taxes or no care,'' he said.
Aged care providers fronted the National Press Club today to increase pressure on the government to deliver an aged care reform package in the upcoming federal budget. Council of the Ageing chief Ian Yates said if the government shirked reform in the budget, aged care waiting lists would grow, more elderly people would clog hospital wards and pensioners would be forced to pay commercial rates for in-home care.
The Productivity Commission delivered a report into aged care last August calling for a major overhaul that would see the people forced to contribute more towards the cost of their care. It wants the family home to be taken into account when assessing a person's ability to pay for aged care. The commission called for the system of rationing access to aged care beds and in-home care to be ended, and for access to age care to become an entitlement. The government is under pressure to respond to the Productivity Commission report in the budget. At the same time it is considering cuts to the age care budget to plug a $1.9 billion blowout in aged care costs caused by a new funding tool.
beef up mining tax: awu
Phillip Coorey, Sydney Morning Herald, 11April 2012
THE Australian Workers Union wants the government to expand its minerals resources rent tax to slow the mining boom, lower the value of the dollar and alleviate the worsening crisis gripping the steel and manufacturing sectors.
The proposal to embrace the original and more comprehensive resources super profits tax is among several controversial ideas, including pegging the dollar to another currency, aimed at depreciating the dollar contained in a report by the AWU national secretary, Paul Howes. It will be presented at a crisis conference in Melbourne today of 80 steelworker union delegates. The conference will be addressed by the Industry Minister, Greg Combet, and will coincide with the next meeting of the Prime Minister's manufacturing taskforce, a regular gathering comprising Julia Gillard, relevant ministers and union and industry representatives aimed at trying to help the manufacturing sector.
The AWU paper argues that the high dollar, coupled with high input costs, is the most significant factor behind the manufacturing crisis. ''Should Australia allow industries and jobs to be destroyed in the short-term as this acute crisis ravages manufacturing and is it smart to double down on our bet in mining?'' the paper asks. The proposed ''potential policy options'' to lower the value of the dollar also include pressuring the Reserve Bank to cut interest rates by between 0.25 and 0.5 percentage points. This, the AWU argues, would not be large enough to cause an inflation outbreak but would bring the cash rate closer to those of other nations and help depreciate the dollar.
The AWU also argues that by pegging the dollar to another currency, it would ''move up and down relative to the performance of other currencies''. The proposal to boost the mining tax by reverting to the original resources super profits tax ''would slow down the mining boom, take pressure off the terms of trade and boost government revenue which could be placed in a sovereign wealth fund''.
The government watered down the original tax following a fierce campaign by the minerals giants BHP Billiton, Rio Tinto and Xstrata. The minerals resources rent tax, which will take effect on July 1, will raise less revenue.
The government has thus far resisted all other calls to boost the minerals resources rent tax, including those from the Greens who also believe the original tax should have been reinstated and a sovereign wealth fund created.
However, it does have the mining industry in its sights before next month's federal budget with plans to reduce further the $2 billion diesel tax rebate miners enjoy, as well as paring back other tax perks such as accelerated depreciation.
Mitigating all this, the paper notes that a slowdown in the Chinese economy, as is now occurring, would take significant pressure off the dollar. This would affect Australia's two most lucrative exports, coking coal and iron ore, which in turn would reduce input prices for the steel industry.
Mr Howes told the Herald: ''After 12 months of being absolutely hammered, it's important to bring together all of our key delegates from the steel industry to map out a way to save what remains of our steel industry.
''A country that doesn't manufacture steel has no hope of manufacturing anything else, and that's why our union will put all the resources necessary behind a campaign to save the sector.''
Abbott eyes tax subsidies for nannies
The Business Spectator, 10 April 2012
Opposition Leader Tony Abbott says tax subsidies for nannies will allow more Australian women to be economic assets as well as social assets to the country. The federal government has dismissed the idea as welfare for the rich. But Mr Abbott is keen to pursue the issue, saying it could have "an enormous impact on the productivity of the mothers of Australia".He wants a Productivity Commission inquiry into whether taxpayer-funded subsidies should be extended to nannies.
"The mothers of Australia should be economic assets as well as social assets," he told reporters during a visit to a childcare centre in western Sydney. Joe de Bruyn, the head of Australia's biggest union, has lent his support to Mr Abbott's idea. Mr de Bruyn, boss of the powerful Shop Distributive and Allied Employees Association and a member of Labor's national executive, says the current system discriminates against families who wish to have their children cared for at home. "People who make their own arrangements through families, friends, neighbours do not get any benefit whatsoever," he told The Australian on Tuesday.
Institute slams swan's secret tax reform talks
David Crowe, The Australian, 10 April 2012
WAYNE Swan is facing a new outcry over his tax reform agenda as a peak expert group warns against a rush to impose new rules in next month's budget to pay for benefits that he is promising small business. The Tax Institute has slammed the Treasurer's closed talks on business taxation and called for an open debate on any changes amid growing business fears of a series of tax hikes next month. The limited and confidential discussions "fall far short" of the consultation needed to ensure a fair reform, the institute warned in a letter obtained by The Australian.
The criticism escalates the row over tax reform as oil and gas giants, miners and the tourism industry attack the changes being considered by Mr Swan's business tax working group.
The six executives on the working group have had to sign non-disclosure agreements that restrict their ability to canvass any changes with the wider business community, provoking an angry response from resource industry leaders shut out of the process. "There is a complete lack of transparency in relation to the deliberations," said Tax Institute counsel Deepti Paton. "It's not open, it's not consultative, it's not really taking into account the views of all the taxpayers who would be affected." Tax Institute president Ken Schurgott wrote to working group chairman Chris Jordan, who is also the chairman of KPMG NSW, to seek the release of more information to ensure fair consultation and an independent check of the Treasury's costings.
While Mr Swan has promised a tax break for small businesses in the budget, this must be paid by "offsetting measures" that could include cuts to rebates on business fuel excise and as well as to depreciation on major capital investments. Mr Swan stood by the consultation process last night, with a spokesman saying the business tax working group was independent. "It was established with a terms of reference providing for wide consultation," the spokesman said.
The institute, which represents 13,000 tax experts, warned the public focus on the small-business tax break meant there was an inadequate study of the wider reforms. "Limited, confidential consultation in relation to specific aspects of the offsetting measures being considered by the working group falls far short of the necessary extent of consultation," Mr Schurgott wrote. The Institute of Chartered Accountants blasted the consultation process in a letter to Mr Swan last month while the Australian Petroleum Production and Exploration Association wrote to Resources Minister Martin Ferguson warning the working group's plans would endanger investments worth billions of dollars.
Tax office faces accusations of abuse of power
Peta Carlyon, ABC News, 09 April 2012
VICTORIA has lashed out at Canberra over concerns the GST could be used to force state tax reform ahead of talks today between state and federal treasurers.
A federal review was initially told to consider the fairness and simplicity of the Commonwealth Grants Commission method of carving up the GST. But in additional terms of reference added towards the end of last year, the Gillard government asked the panel to also consider how the GST system could be used to ''promote future state policy decisions which improve the efficiency of state taxes''. It told the review panel - made up of former Victorian premier John Brumby, former NSW premier Nick Greiner and South Australian businessman Bruce Carter - to be mindful that ''state tax reform will not be financed by the Australian government''.
Responding to the new focus of the review before today's meeting in Canberra, Premier Ted Baillieu and State Treasurer Kim Wells accused the federal government of politicising the review and being unwilling to engage in co-operative discussing on tax reform by ruling out offsetting any lost revenue. ''The supplementary terms of reference introduce the prospect of the Commonwealth unduly influencing state revenue policy through the threat of withholding GST payments,'' Mr Baillieu and Mr Wells say in a letter to the review.
Despite the growing testiness, federal Treasurer Wayne Swan is expected to try to steer today's talks away from a confrontation over the GST carve-up and over the review. Mr Swan wants to open talks on a new round of national competition reform - and push back against a pitch by the states to pocket additional funding they secured under partnership agreements. Mr Swan will also brief his state counterparts on the economic and fiscal outlook, and lobby Queensland and Western Australia to sign up to the national injury and insurance scheme.
The election of Liberal governments in Victoria, New South Wales and Queensland has made for testier relations between the Gillard Labor government and the states. Mr Swan will ask his state colleagues for co-operation - even though his clear message to them will be there are fewer funds for their projects given falling tax receipts, and the requirement to return the federal budget to surplus. ''We need to ensure we are working together effectively to keep our economy ahead of the curve as part of global instability,'' Mr Swan said yesterday.
Of the looming GST stoush, a spokesman for Mr Swan said last night the issue was under independent review.
But Victoria argues the GST should be shared out in line with the state's 25 per cent share of the population. Under the current funding formula, which has been criticised for being complex, inefficient and unfair, Victoria gets a smaller share to compensate other states for a range of ''impediments'' such as remoteness and relatively large numbers of indigenous people. Victoria has claimed that the system is failing.
Watch the video on the ABC News website.
call for junk food tax
Sarina Locke, ABC News, 09 April 2012
A health group is urging the Government to put a tax on junk food. Public Health Australia says the money raised could go to subsidising healthy food, so that it's cheaper and more attractive to shoppers.
Chief executive of Public Health Australia, Michael Moore, says a sugar tax would be no different from taxing tobacco. "In the end, whilst the industry is making big profits out of junk food, it's actually the taxpayer that's paying for the results," he said. "And you only have to look at the health costs, and the skyrocketing health costs, relating to obesity and other dietary related diseases to realise it's just a transfer of money from the taxpayer to big industry."
Recently the health ministers unanimously rejected so called traffic light labels on food - to indicate red for bad and green for good healthy food. But Michael Moore is optimistic about alternative labelling.
farmers warn against fuel-tax shift
Lauren Wilson, The Australian, 09 April 2012
FARMERS have warned the federal government against making any changes to fuel-tax arrangements as it looks to return the budget to surplus. In its response to the energy white paper, the National Farmers Federation says it "adamantly opposes" any move to cut back fuel tax-credit arrangements, saying it would unfairly burden those living and working in regional Australia.
"The NFF has been deeply concerned at recent suggestions that the fuel tax-credit scheme may be scaled back in the interests of raising revenue," the NFF head of policy Charles McElhone said. The NFF is concerned the scheme that allows farmers to claim credit in their tax returns for the excise or customs duties included in the price of fuel used in their business activities could be in the budget firing line.
The Weekend Australian reported last month that the government was understood to be examining further cuts to the diesel fuel-rebate scheme for miners as it looked to deliver a budget surplus for 2012-13. In its submission, the peak farming group has warned that changes to fuel-tax arrangements would result in a drop in output from the agriculture sector. They claimed it would also undermine Australia's ability to compete on the international market.
The NFF's wide-ranging submission further calls on the government to increase investment in research and development for genetically modified crops. It claims GM crops could offer farmers a fuel saving because they would be less reliant on fuel-based fertilisers.
The paper is critical also of the lack of regulation around the expansion of emerging energy sources such as coal-seam gas.
Blowtorch applied to land tax valuations
Sean Nicholls, Sydney Morning Herald, 09 April 2012
A ''FORENSIC review'' of land valuation contracts awarded over more than a decade will be conducted by the NSW Auditor-General amid increasing concern about the accuracy of a system that determines land tax bills and council rates. The review follows questions about the integrity of the process that have emerged from a parliamentary committee inquiring into the office of the NSW Valuer-General, which issues about 2.4 million valuations a year.
In recent weeks it has been revealed that wealthy landowners are having their private and commercial property values reduced by billions of dollars for tax purposes after objecting to official decisions or taking legal action.
Concerns about the lack of accuracy in valuing land has led to scrutiny about whether land tax bills and council rates have been assessed correctly. Questions have also been raised about the relationship between the Valuer-General, Philip Western, and a company he helped establish, Quotable Value Australia, which has been paid millions of dollars for valuation work during his tenure.
A parliamentary committee has asked the Auditor-General, Peter Achterstraat, to report back on every payment made by the government to private land valuation firms since 2000. Mr Achterstraat will calculate how much has been paid to each of 20 valuation firms and check the figures with contract data. The Herald revealed that official figures provided by Mr Western to the committee indicated that in the past five years Quotable Value Australia had received 60 per cent of payments to private contractors for valuation work for rating and taxing purposes. Mr Western says the figures are incorrect. The director-general of the Department of Finance and Services, Michael Coutts-Trotter, has been asked to investigate.
The chairman of the parliamentary committee, the Hornsby MP Matt Kean, said Mr Achterstraat would conduct ''an independent and transparent inquiry so the committee is able to form an opinion based on the facts''. He is expected to report back within a month. ''As an accountant and an auditor, I believed the issues that have been identified are serious,'' Mr Kean said.
Mr Western was questioned during a hearing of the committee last week about his relationship with Quotable Value Australia. He told the committee he was general manager of rating and taxing at Quotable Value New Zealand, the company's parent, owned by the New Zealand government, from 1999 until June 2003. He held the same position at the Australian arm after it was established in 2000 but has ''no business or personal interest'' in the company.
Mr Western said he was a ''close friend'' of one of the New Zealand company's senior managers and had given a job to a woman who has become its chief operating officer and who he believes is also in charge of Australian operations. When Mr Western was appointed Valuer-General in September 2003, the company held only one contract with the government - for land valuation work within the City of Sydney. Mr Western said a tender evaluation committee decided he should not chair that year's process due to his recent work at Quotable Value, which was a tenderer. But he said the next year the panel decided he should chair the panel to oversee contracts to be awarded in 2004 because ''any perceived conflict would have disappeared at that stage''. This was particularly due to the presence of a probity officer overseeing the process. Mr Western chaired the panel until 2007, after which responsibility was transferred to the land and property information division of the Lands Department. He said he had demanded answers from the division about the figures provided to the committee.
conflict over us taxes and debt could roil markets at the end of 2012
David Reilly, The Wall Street Journal, 09 April 2012
DECEMBER isn't as far away as it seems. Although markets have started the year on an upbeat note, a huge potential conflict looms in the US over taxes and the debt load. This could roil markets and once again create the kind of uncertainty that causes investors to head for the sidelines and businesses to grow more cautious. Yet, for the most part, markets are focused on the here and now. Stocks are well up since the start of the year. Recent economic data, aside from last Friday's disappointing jobs report, show the recovery firming. Even the price of credit default swaps (CDS) on sovereign US debt has fallen to its lowest level since November 2009.
Last week the cost of these swaps fell to €30,000 ($38,162) annually to insure $US10 million of US government debt, according to Markit. That is less than half the level of late July 2011 when a standoff over the deficit and the downgrade of the US by Standard & Poor's spooked markets.
The conflict that may ensue toward the end of 2012, though, holds the potential to pack a similar punch to that seen last summer. Following the November presidential election, Congress will face a stark choice. It can either allow a host of tax cuts and other measures to expire, creating a huge fiscal drag on a still fragile economy. Or it can retain them and almost guarantee the already worrisome US debt will swell further.
Serious consequences could follow. Should the lame-duck Congress decide against extending Bush-era tax cuts and similar measures while also allowing planned spending cuts to kick in, it would result in a fiscal hit equal to between 3.5 per cent to 5 per cent of gross domestic product (GDP). "Until Congress acts, the economy will still technically be on a collision course with the largest fiscal hit in modern times" wrote Neil Soss, chief economist at Credit Suisse, in a recent report.
The expectation is that Congress won't let that happen. Yet even in that case the expiration of other stimulus programs would likely result in a drag in 2013 equal to nearly 1 per cent of GDP, Mr Soss added. Spending cuts at state and local levels could deliver an additional 0.5 percentage-point hit.
Meanwhile, the Federal Reserve, with rates near zero already and facing growing resistance to extraordinary easing measures, may find its ability to cushion any blow "quite limited", David Greenlaw, chief US fixed-income economist at Morgan Stanley, noted in a report last week. Passing the buck to future generations - to insure the recovery doesn't falter in 2013 - isn't without hazard, though.
This would likely result in US federal debt held by the public climbing to more than 90 per cent of GDP by 2022, compared with about 73 per cent this year. That could spark a host of other political problems, including fresh fights over the debt ceiling, trigger for last summer's turmoil. And it could also require even more stringent austerity measures later on.
It is one thing for stocks to discount those as investors focus on growth and continuing fiscal stimulus. The fact that CDS prices are also so calm suggests even this corner of the market believes economic growth can cover a multitude of fiscal sins in Washington.
Greens, treasury clash on fuel tax rebate
The Business Spectator, 09 April 2012
A push by the Australian Greens to cut the $2 billion diesel tax rebate for mining groups has met with opposition from the Federal Treasury, who claim the scheme is needed to avoid a sharp rise in business costs, according to The Australian.
Internal Treasury briefings obtained by the newspaper defend the fuel tax credits scheme on the grounds that they are not a subsidy. One brief argues that "fuel tax credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by businesses off-road or in heavy on-road vehicles". The Greens want the scheme phased out, the government is thought to be considering its options on the plan as it looks to return the budget to surplus.
The news will bolster miners who are concerned the rebate will be sacrificed in the upcoming federal budget.
obama puts taxes at center of campaign fight
Samuel P. Jacobs, The Reuters, 09 April 2012
With his Republican opponent now almost certain to be Mitt Romney, a multi-millionaire, President Barack Obama is trying to put fairer taxes at the center of his re-election campaign, but a new poll suggests the message may fall flat in swing states.
Obama will talk about taxes in Florida on Tuesday when he delivers a speech in support of the "Buffett Rule," a measure to insure a 30 percent tax on income over $1 million earned by wealthy Americans. Vice President Joe Biden will travel to the battleground state of New Hampshire on Thursday also to discuss taxes. The Obama campaign sees the issue as a weak point for Romney, a former private equity executive and ex-governor of Massachusetts. "Middle class families are taking it on the chin right now and they don't see others doing their fair share," Wisconsin Democratic congresswoman Tammy Baldwin said in a conference call set up by the Obama campaign. But Obama's push on tax fairness may be falling on deaf ears in the swing states where the Nov. 6 election will likely be decided.
In 12 battleground states, 80 percent of independent voters lacking strong views on either Obama or Romney said they prefer a candidate who focuses on creating economic opportunity rather than reducing income inequality, according to a poll by the moderate Democratic group Third Way released on Monday. All the same, Obama leads probable Republican presidential candidate Romney by 35 percent to 29 percent among the same group of "swing independents" in the poll. Obama's renewed focus on tax rates comes as the White House stares down foreboding economic news elsewhere.
High gasoline prices hovering near $4 a gallon are set to remain a hurdle to re-election for Obama and hiring slowed in March, though the unemployment rate dipped to 8.2 percent from 8.3 percent. "President Obama and his team are desperate to avoid talking about last Friday's incredibly weak jobs report, which is why they create sideshows to distract people from what really matters," said Andrea Saul, a spokeswoman for Romney. "Apparently, the only job the White House is interested in saving belongs to Obama. Everyone else will have to continue to suffer. Mitt Romney is running for president to put America back to work," she added.
"BUFFETT RULE" IN CONGRESS
Democrats in Congress are working with the White House to call attention to low tax rates paid by wealthy Americans.
On April 16, the Senate will take up the "Buffett Rule" although it is unlikely to be approved as Democrats lack the 60 votes needed to bring the issue to a full vote. The proposal is named after billionaire investor and Obama supporter Warren Buffett who has said it is unfair that he pays a lower effective tax rate than many ordinary Americans, including his secretary.
So central is Buffett's case to the White House's tax message that his secretary Debbie Bosanek sat alongside first lady Michelle Obama during the State of the Union speech in January to make the point that secretaries can pay a higher tax rate than their rich bosses, who often earn most of their money from investments rather than a paycheck.
Obama's proposed change in tax policy would raise $47 billion in revenue over the next decade, according to the Joint Committee on Taxation, a congressional score keeper. As well as increasing revenue and possibly appealing to middle-class voters, the Obama campaign's focus on taxes has the added benefit of taking direct aim at Romney
In January, Romney came under criticism, even from within the Republican Party, for paying a low tax rate. He later released his tax returns from 2010 and 2011, showing that he paid an effective tax rate of 14.5 percent during the two-year period. Romney earns most of his income from investment profits, dividends and interest.
The Romney campaign team says it is happy to discuss taxes and their candidate's plans to lower rates across the board. Republicans accuse Obama of trying to start class warfare by targeting the rich. "This is kind of like spring training," said one Republican operative familiar with the Romney campaign. "The Democrats are trying out different lines on taxes. If they want to argue over whether we want to lower taxes or not, that is fine with the Romney folks."
The Obama campaign has called for Romney to release the last 23 years of his tax returns - the number Obama's team says Romney provided to former presidential candidate John McCain in 2008 when he was being considered as a running mate.
Last week, Romney adviser Eric Fehrnstrom told MSNBC that Romney's financial disclosures were "sufficient." During the 2008 campaign, then-Senator Obama released his own tax returns dating back to 2000.
Germany set to tax young
Sydney Morning Herald, 06 April 2012
GERMANY is proposing to levy extra taxes on the young to pay for the costs of the country's growing numbers of old people, under government plans for a ''demographic reserve'' levy.
Angela Merkel's Christian Democrats have drafted proposals that, if law, would require all those over 25 to pay a proportion of their income to cushion Germany against a looming population crisis.
The German Chancellor's ruling party is seeking extra sources of revenue to pay for soaring pensions and bills for social care costs as Germany's ''baby boomer'' generation ages amid a decline in the birth rate.
The proposals, to be adopted by Dr Merkel's party cabinet after the Easter break, have not yet set a figure on the age tax but officials are considering a special levy of about 1 per cent of income. Because of a slump in Germany's population, as more ageing Germans retire there are fewer young workers to replace them as taxpayers to fund generous welfare and pension arrangements. Estimates from Germany's federal employment agency predict that the workforce will be reduced by 7 million people by 2025. ''We have to consider the time after 2030 when the baby boomers of the '50s and '60s are retired and costing us more in health and care costs,'' said Gunter Krings, who drafted the Christian Democrat position paper.
Carbon tax adds risk to investment
The Australian Financial Review, 05 April 2012
The carbon tax has done untold damage already to Julia Gillard and her minority government, but it is looming as an even bigger political and economic risk in coming months as the tax package takes effect on July 1. When federal Labor MPs in both the Gillard and Rudd camps look for reasons why the government’s primary vote has fallen to 27 per cent, as revealed in The Australian Financial Review’s Nielsen poll on Monday, the carbon tax weighs heavily.
This past week, former attorney-general Robert McClelland, who backed Kevin Rudd in the last leadership ballot, declared that the Prime Minister needed to explain why she reversed her commitment not to implement the tax. Behind the scenes, other MPs have deep reservations. The carbon tax remains a toxic issue, and not just on the political level, where voters see it as an election promise that the Prime Minister broke in order to appease her Green allies and hold onto government.
On a more practical level, the tax is connected, in the minds of householders, with the massive increases in the price of electricity both in the past and to come. This connection is largely flawed because while the higher cost of renewable electricity is adding to bills, the main culprits are the extra costs of investment to build network capacity and the failure to introduce market pricing to curb peak demand. There is anecdotal evidence that those increases are having an impact throughout the electorate but may be hitting marginal electorates with lower income levels hardest. Despite the government’s $14.9 billion promise to overcompensate households for the likely flow-on effect of higher energy prices, voters are restive about the tax, and state governments are taking the opportunity to pass the blame to Canberra.
Still, this political albatross should be no surprise to Labor. After the Copenhagen climate summit in late 2009 had failed to reach a binding global deal to cut emissions, the Rudd government dumped its original emissions trading scheme in 2010 because it was deeply unpopular with voters who were already struggling with electricity bills. But the risk attached to the tax will only increase as it starts to be implemented. From July 1, many Australian businesses – aluminium smelters, steel makers, power generators, car manufacturers, large chemical makers and others – become liable for the tax if they emit more than 25,000 tonnes of carbon dioxide equivalent a year. Exporters and trade-exposed industries such as aluminium smelters will be issued with free permits. Companies that don’t get the free permits and which emit more than 25,000 tonnes of carbon dioxide must calculate an interim emissions level on June 15 (of next year) and pay the tax, based at a price of $23 a tonne, rising to $24.15 in 2012-13 and $25.40 in 2014-15.
In the first three years of the new regime an emitter will not be able to buy permits overseas. They will simply have to pay the tax. The most compelling of businesses arguments against the set price of $23 is that it is out of whack with international equivalents. The European price on carbon, the only quasi-global price, continues to fall. This past week the already depressed price of carbon had fallen to €6.15, or $7.58 – less than one-third of the Australian carbon price.
Business is quite rightly asking why it should face such a government-imposed cost disadvantage, which can only damage competitiveness. The more prudent approach would have been to start with a low carbon tax, perhaps at $10 a tonne as the Business Council has proposed, and link further increases to the global price.
The complex new tax, with its associated monitoring requirements, is a heavy burden on energy-intensive Australian businesses, even given the $9.2 billion compensation scheme. In 2015 the carbon emissions reduction scheme will transform into an emissions trading scheme. Then businesses will be able to satisfy up to half of their CO2 liability by buying foreign credits. But if our scheme mimics Europe’s experience, the price of our carbon emission permits could slide too. European carbon permit prices have collapsed because of falling economic activity and because the scheme has been oversupplied with free permits for six of the past seven years, and is described as at risk of imminent malfunctioning, with over-allocation likely to dampen the price until 2020. So while liable Australian businesses will face big carbon tax imposts for the next few years, after 2015 this could decline substantially – creating volatility, not certainty.
Mining and energy companies are not only worried about their new carbon and mining tax liabilities. They are also worried that the government will pare back the exploration and depreciation tax breaks, lower or remove the diesel fuel rebate and rein in research and development concessions to fill budget holes. At a time when commodity export prices are softening , the terms of trade has turned down, and the federal government is bungling business transactions such as the Australia Network contract, more and more political risk is building around Australia’s vast, multibillion-dollar investment pipeline.
lift GST TO FUND OTHER TAX CUTS, BUSINESS CHIEF SAYS
Leonie Lamont, Sydney Morning Herald, 04 April 2012
Personal and company income tax rates should be cut with the cost picked up by a higher Goods and Services Tax as part of a plan for prosperity outlined by the new head of the Business Council of Australia, Tony Shepherd.
In a wide-ranging speech in which he outlined a plan to "lock in Australia's prosperity", Mr Shepherd said the country also needed to embrace increased migration, and greater engagement and integration with Asia. Australia needed to make dramatic productivity improvements, and tap into our $1.2 trillion pool of superannuation funds to invest in infrastructure which would drive improvements in the nation's standard of living, the incoming head of the corporate lobby group said. Addressing the Australian Israel Chamber of Commerce, Mr Shepherd urged the Federal Government to draw up a plan for prosperity by removing unnecessary barriers to competition, and encouraging and rewarding investment and growth. The tax system should be shifted from direct taxes to an "increased reliance on indirect taxes like the GST." "We should be realistic that reconfiguring our tax system in this way can be done in a way that raises enough revenue, promotes growth and provides a fair go for people who are less well off," he said. "Any changes in the GST should of course be accompanied by a suitable compensation package for people on lower incomes. We've done this in the past and we should be able to do it in the future."
No mining 'fairy tale'
Mr Shepherd said most Australians did not believe the "fairy tale" that the resources boom would "carry us through". But he said fundamentals which had driven Australia's prosperity in the past had been lost from the public vision. "First and foremost was an understanding that economic growth is vital and is the unifying force for the Australian people. All parties agreed on the building blocks of immigration, resource development, infrastructure, industrialisation, defence and education. "We progressively opened up our economy and developed a better understanding of our place in the world. "We had strong independent, integrity-based institutions in the public and private sectors with a respected and highly professional public service. "And we had a strong sense of the need to share wealth and tackle inequality and these two pursuits - growing wealth and sharing it - were not seen to be in conflict," he said. Mr Shepherd said it's not clear the looming opportunities would be grasped. "We have an unprecedented opportunity to lock in prosperity and high living standards for future generations. We are at one of the great tipping points of global history. "But we can't see where we are heading," he said. "Our leaders, federal and state, and from all sides of politics, don't seem to have a vision for Australia."
battle over gst split on horizon
Josh Gordon and Katherine Murphy, Sydney Morning Herald, 04 April 2012
VICTORIA has lashed out at Canberra over concerns the GST could be used to force state tax reform ahead of talks today between state and federal treasurers.
A federal review was initially told to consider the fairness and simplicity of the Commonwealth Grants Commission method of carving up the GST. But in additional terms of reference added towards the end of last year, the Gillard government asked the panel to also consider how the GST system could be used to ''promote future state policy decisions which improve the efficiency of state taxes''. It told the review panel - made up of former Victorian premier John Brumby, former NSW premier Nick Greiner and South Australian businessman Bruce Carter - to be mindful that ''state tax reform will not be financed by the Australian government''.
Responding to the new focus of the review before today's meeting in Canberra, Premier Ted Baillieu and State Treasurer Kim Wells accused the federal government of politicising the review and being unwilling to engage in co-operative discussing on tax reform by ruling out offsetting any lost revenue. ''The supplementary terms of reference introduce the prospect of the Commonwealth unduly influencing state revenue policy through the threat of withholding GST payments,'' Mr Baillieu and Mr Wells say in a letter to the review. Despite the growing testiness, federal Treasurer Wayne Swan is expected to try to steer today's talks away from a confrontation over the GST carve-up and over the review. Mr Swan wants to open talks on a new round of national competition reform - and push back against a pitch by the states to pocket additional funding they secured under partnership agreements.
Mr Swan will also brief his state counterparts on the economic and fiscal outlook, and lobby Queensland and Western Australia to sign up to the national injury and insurance scheme. The election of Liberal governments in Victoria, New South Wales and Queensland has made for testier relations between the Gillard Labor government and the states. Mr Swan will ask his state colleagues for co-operation - even though his clear message to them will be there are fewer funds for their projects given falling tax receipts, and the requirement to return the federal budget to surplus. ''We need to ensure we are working together effectively to keep our economy ahead of the curve as part of global instability,'' Mr Swan said yesterday.
Of the looming GST stoush, a spokesman for Mr Swan said last night the issue was under independent review. But Victoria argues the GST should be shared out in line with the state's 25 per cent share of the population. Under the current funding formula, which has been criticised for being complex, inefficient and unfair, Victoria gets a smaller share to compensate other states for a range of ''impediments'' such as remoteness and relatively large numbers of indigenous people. Victoria has claimed that the system is failing.
hands off tax breaks, resources chief warns swan
The Australian Financial Review, 04 April 2012
Billions of dollars in investment in oil and gas development would be put at risk if the government changed the tax rules in the May budget, the resources industry warned.
Read the full article via subscription on the Australian Financial Review website.
Truth bears the cost of budget-speak
Scott Ryan, The Australian Financial Review, 03 April 2012
April is the annual pre-budget season, when the newspapers are filled with purported “leaks” about proposed cuts and spending for the coming years. It is politics before the budget harvest, as speculation and rumours run rife without any consideration of the bigger picture of what the government is doing and the costs of doing it. Governments run ideas up the flagpole to test public reaction while constantly attempting to lower expectations. They hope that any budget-night surprise is good news, rather than disappointing to voters and interest groups (sorry, “stakeholders” is apparently the correct terminology these days).
For the uninitiated, language involving the budget can be bewildering. A cut in taxes collected is referred to as a “cost”, the same term used when the government actually spends money. A tax increase is described as a “saving”.
Wide claims are made about new programs, from the number of new jobs being created to the number of medical treatments to be provided over years into the future. Claims are made for years hence with little regard for the fact that estimating revenue and expenditure four years out is far from precise. There is often little public retrospective assessment of the precision of these claims. Through offering the illusion of being able to precisely cost and predict spending and revenue and various economic indicators, as well as holding out the hope of patronage or a new program for a particular constituency, the pre-budget season further builds expectation that government decisions are the source of economic wealth.
One of the recurring irritations of what can be described as “budget-speak” is that tax cuts cost the government money. This particular phrase represents an important insight into the thinking of many of the political class. That tax cuts are described in this way highlights the perspective that the opportunity cost to government of taxes not collected is particularly critical, especially as alternatives are proposed by interest groups that wish the government would not reduce its tax collections.
However, there is little consideration of the opportunity cost to citizens of tax that is collected. When taxes are increased or introduced, governments want the focus to be on the beneficiary of the new largesse, not those bearing the cost. Tax cuts certainly represent a reduction in revenue collected by government, but is this a cost in the sense that a private citizen or company might understand it? After all, if a worker fails to receive a pay rise in a given year, is that a cost to the worker, or simply a pay rise that has not occurred? Tax not collected is not a cost to the government; it is revenue it does not compulsorily acquire in the first place. But assigning the term “cost” to it implies that there is somehow an opportunity forgone for politicians and bureaucrats to improve our lives.
Even when a tax cut is implemented and said to cost a particular amount to government, surely there should be some consideration of the gain to the person or company now paying less tax. While it represents a lower revenue level to government, it also represents more of a gain from private activity that is actually kept by the person who earned it. Yet budget-speak attempts to draw an equivalence between new programs leading to new spending and the government not collecting revenue in the first place. Compounding this further is the attitude that somehow the government not collecting taxes in future years is also a cost. Surely lowering tax rates this year means that it cannot be a cost in future years, as it will never be collected.
After all, the bank won’t let you borrow for your home on the basis of what you predict your earnings will be in four years; it asks what you have earned in the past and what you are earning now. Every dollar collected by government has a direct opportunity cost to a taxpayer, money that an individual may have spent more efficiently and, probably, to a greater level of personal satisfaction. To those who say tax cuts cost the government money, remind them it was never earned by the government in the first place.
counting the costs of higher taxes
Sinclair Davidson, The Conversation, 02 April 2012
Oliver Wendell Holmes, jnr famously said that he liked paying income tax: it was the price of civilisation. Sure, he bought his civilisation at about seven cents in the dollar, but the general point remains true today. Absent anarchy, there will always be government and always taxation.
So let’s explore that price idea a bit more. If tax rates are prices, then we quickly encounter some challenges. When I go shopping, I look at prices and compare them to my subjective value. If prices are too high, I don’t but the product and, if everyone thinks prices are too high, the shopkeeper earns less money than he expected.
Keeping things simple, the government faces much the same problem. If tax rates are too high, it doesn’t raise as much money as expected. The UK Coalition government has just realised that, and cut the 50p tax rate for high-income earners.
The 50p rate was introduced by the Brown government in 2010. The increased tax rate was expected to raise two to three billion pounds but failed to reach those expectations. In fact, the UK-based Institute for Fiscal Studies told the UK Daily Telegraph that the 50p tax rate might reduce revenue to Treasury. This would be due to both tax avoidance and tax evasion.
At first glance, many people find this sort of argument unconvincing. After all, there is a huge difference between buying regular goods and services and buying civilisation via the tax system. The former is voluntary, while the latter is coercive. Now, I’m not going to make the simplistic argument that anyone who can afford an accountant pays no tax. But let me say this: there are limits to coercion.
High tax rates have behavioural consequences. People stop working. Early retirement is a form of tax avoidance that the government can’t do much about. As James Buchanan – the 1986 economics Laureate – argued in the late 1960s, entrepreneurs who choose to sit at home due to high tax rates are not creating better goods and services, or providing employment opportunities. By providing incentives for people to retire young, the tax imposes costs on everyone.
Early retirement is only one form of tax avoidance. Long holidays is another. It turns out that Americans work more than Europeans. Of course, we could always argue that Americans are simply workaholics, while the Europeans have learned to enjoy the finer things in live. There must be some truth in that, yet the tax system plays its part too.
Edward C Prescott – the 2004 economics Laureate – argues that “virtually all the differences between US labour supply and those of Germany and France are due to differences in tax systems”. Alberto Alesina and Francesco Giavazzi also point to labour market rigidities as an explanation.
Over time, European economic growth has become sluggish. Alesina and Giavazzi ask the question: “What will become of Europeans who choose to work less and less, to retire early, to eschew work, thereby raising taxes that pay for an expensive welfare state, and opt for policies that discourage innovation and impede productivity?” Well, over time, they’ll get poorer. As Adam Smith said, there is a lot of ruin in a nation. Yet we are witness to events in Europe, where government has simply run out of money to prop up inefficient welfare states.
So far, I’ve just spoken about early retirement and long holidays. But then there are location choices. High-income earners start moving away from high-tax countries. Social activist Bono – lead singer of Irish rock group U2 – understands the principle. In response to changes in Irish tax law, the band moved their business to Holland and a lower tax regime.
The bottom line is that there are no free lunches – even in tax policy. There are costs associated with raising tax revenue and taxpayer dollars are expensive. That means they should be used wisely. It might seem that high tax rates are a win-win proposition. Politicians get to implement populist policy, but they don’t actually raise much revenue so the very rich aren’t paying too much. But it is the side effects that cause all the damage. A tax that doesn’t raise much revenue is distorting economic activity away from productive value-add towards unproductive activity. I’ve just talked about increased demand for leisure and location choice, but other forms of avoidance (and evasion) can have much higher costs. These costs are disproportionately borne by those individuals who are sensitive to economic conditions: the poor and the young. By choosing high taxes, society chooses that some people (the rich) will work less through early retirement while others work less through unemployment.
In short, we shouldn't be looking to the tax system to do anything more than raise revenue. Other social or political objectives should be dealt with - if at all - through different government programs and tools.
Airlines urge review as air passenger duty rises by 8%
BBC News, 01 April 2012
Air passenger duty (APD) has risen by 8%, as announced by the government in the Autumn Statement last year.
For short-haul flights, the tax has increased from £12 to £13. For long-haul flights of more than 4,000 miles, it has gone up from £85 to £92. In light of the increase, airlines called on the Treasury to review the impact on "hard working families". A Treasury minister said the majority of passengers will only pay an extra £1 as a result of the rise. Also as of 1 April, corporation tax in the UK falls by 1% to 24%. The changes in APD will also see it extended to private business jets for the first time.
In a joint statement the bosses of Easyjet, British Airways owner IAG, Ryanair and Virgin Atlantic said the increase would "hit millions of hard-working families and damage the wider economy". "We urge [Chancellor] George Osborne to make APD the first tax to be examined under the Treasury's new review of the wider impacts of taxation on the economy," they said. They added that further planned rises in the tax before 2016 would mean a family of four paying £500 in tax to fly economy class to Australia. In 2005, they said, the same family would have paid £80. Sir Richard Branson, who owns Virgin Atlantic, told the BBC increasing the tax might put some people off visiting the UK. "Tax is all very well when it's not actually costing the country money and I think it's getting to a stage where it's actually going to cost the country money," he said. The business group the CBI has also called for a lower rise in APD.
The government defended the rise by saying it had frozen APD last year. "Most passengers pay only a pound more on their flights as a result of the rise," said Economic Secretary to the Treasury Chloe Smith. "We have made aviation tax fairer by bringing private business jets in for the first time. "We were able to take action to freeze APD last year and we have been able to be clear about what will then happen to it this year - I think that does represent a fair deal for passengers and I think it does also represent a fair deal for businesses, who are today enjoying a historically low rate of corporation tax," she said.
There are four bands of APD. Tax on short-haul flights has gone up from £12 to £13. Longer flights up to 4,000 miles have seen an increase from £60 to £65, while tax on flights between 4,000 and 6,000 miles has risen from £75 to £81. APD on flights above 6,000 miles has increased from £85 to £92. All these figures refer to economy class flights; business class passengers pay more.
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