This section provides a selection of media items from September 2012.

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On this page: Business slugged in GST crackdown Unions cheer reduced living away tax break Company tax likely to stay put Expert wary of business tax cut trade-off Romneys finally reveal tax return After a decade it's official: the GST is no bettre than its forebears Spoilt for choice to Europe Overall look at tax is vital Let's talk tax - and make the future fairer Swan quizzed on spending promises Reform_is_essential__say_business_groups Oakeshott_wants_congestion_tax_in_cities Congestion_charge_just_more_regulation Federal_parties_rule_out_GST_rate_increase Abbott_dismisses_any_GST_change Financial_storms_on_the_horizon Tax_office_puts_heat_on_struggling_firms GST_action_against_states_still_on_table Queensland__Commonwealth_brawl_over_mining_taxes Democratising tax evasion Tax_refund_injection_to_help_keep_start-ups_alive Tax_Office_leads surplus_cash_drive States_cool_on_plan_to_create_more_childcare_centres_ Labor_goes_after_super_tax_breaks Online_tax_no_silver_bullet__say_retailers Retailers_want_swift_action_on_online_GST NSW_eyes_online_shopping_for_GST_boost No_tax_hikes_for_Gonski_reform:_PM Sydney_of_future_faces_tax_on_traffic_ Rinehart's  zone push_worth exploring: Hockey Tourism_drops_after_introduction_of_new_tax_ Gillard_says_no_tax_hike_for_school_plan Dental_scheme:_safety_net_or_spider_s_web Streamlined_Aussie-NZ_tax_systems__would_save__4bn_ Federal_ministers_urged_to_act_on_housing A_dental_sweetener_with_a_bite NSW_govt_rules_out_congestion_tax Complex_laws_encourage_avoidance New_fire_levy_added_to_rates Can_we_afford_national_disability_insurance US_tax_laws_to_hit_banks

 

Business slugged in gst crackdown

Fleur Anderson, Australian Financial Review, 27 September 2012

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Company tax likely to stay put

Peter Martin, Sydney Morning Herald, 24 September 2012

Australia's company tax rate looks increasingly likely to stay at 30 per cent. The Tax Institute has joined the Chamber of Commerce and Industry in telling the government's business tax working group that while it supports the idea of a cut, it can't support funding it by axing business tax breaks.

 

The terms of reference for the group require it fund any recommended cut in the headline rate by removing business tax concessions.

 

The Tax Institute's submission obtained by BusinessDay says ''little further base broadening is possible in order to further lower the company tax rate''.

 

''Many of the remaining concessions within the business tax system have been intentionally bestowed in order to encourage specific business activity, some quite recently,'' the organisation representing tax professionals says.

Its submission points instead to other means of funding a tax cut that it acknowledges are outside the working group's terms of reference. They include boosting the rate and scope of the goods and services tax.

 

''By drawing such narrow terms of reference for the working group, the government has missed an opportunity to consider and implement a broader tax reform agenda that would have yielded greater benefits for business and the Australian economy,'' the submission says.

 

It echoes the submission of the Australian Chamber of Commerce and Industry which said offering to give up concessions would ''be giving up important tax arrangements which are beneficial across many sectors when the prospect and level of a company tax reduction is highly uncertain''.

 

Three concessions up for review include a cut to depreciation allowances worth up to $2 billion over four years, exploration incentives, worth up to $3 billion, and ''thin capitalisation'' rules on interest expenses worth about $1 billion.

 

Business organisations are fearful Treasurer Wayne Swan will latch on to any savings suggestions without delivering a cut in the tax rate. The business tax working group is due to report by the end of the year.

 

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expert wary of business tax cut trade-off

The Australian, 24 September 2012

Cutting business tax concessions to allow for a broad-based reduction in the company tax rate would have a negative impact on economic growth, a tax expert warns.

 

The federal government's Business Tax Working Group has been asked to find ways to fund a cut in the 30 per cent company tax rate through existing tax measures.

 

In its submission to the group, the Institute of Chartered Accountants in Australia argues that proposed options would not improve economic efficiency and growth. Instead, it would have the opposite effect.

 

The institute's tax counsel, Paul Stacey, said Australia's economy has been operating at, or near, full employment, putting a constraint on productivity and economic growth.

 

He said subject to a radical change to Australia's immigration policies or reproductive rates, the only meaningful way to boost productivity growth is to implement policies which encourage investment in capital inventory.

 

"If the government were to cut the 200 per cent depreciation rate to 150 per cent that would shave $1.18 billion off Australia's GDP based on 2011/12 figures," Mr Stacey said in a statement on Monday.

 

"Similarly, cutting the 'first use' exploration deduction would hurt Australia's real GDP to the tune of 0.08 per cent per annum."

 

He said the working group needs to account for the administrative burdens that may be brought on by any changes.

"There is concern that the proposed reforms could result in additional complexity and compliance costs for business," he said.

 

"With this in mind, it is important that none of the base-broadening measures should commence at a time before any corporate tax reduction applies.

 

"That would be a breach of the 'good faith' basis on which consultation occurs."

 

Any changes should contain transitional arrangements and allow sufficient implementation time for business, he said.

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Romneys finally reveal tax return

Richard Rubin Washington, The Age, 23 September 2012

Republican presidential candidate Mitt Romney paid a 14.1 per cent federal tax rate on $US13.7 million of income in 2011, according to tax returns he has released after months of pressure.

 

Mr Romney and his wife, Ann, make most of their income from investing an estimated $US250 million fortune, and much of that income is taxed at a top rate of 15 per cent, rather than the top rate of 35 per cent that applies to wages.

 

In 2011, Mr Romney reported no income from wages, $6.8 million from capital gains and $3 million from taxable interest. Their tax bill totalled $US1.9 million. The Romneys donated more than 29 per cent of their income to charity, including more than $US1.1 million in cash to the Church of Jesus Christ of Latter-day Saints.

 

The investment tax breaks could have kept Mr Romney's tax rate below 13 per cent, which last month he said was at least what he had paid over the past decade.

 

To stay above that level for 2011, Mr Romney did not claim all of the deductions for charitable contributions that he could, according to Brad Malt, a partner at Ropes & Gray LLP in Boston, which manages Mr Romney's investments.

''He has been clear that no American need pay more than he or she owes under the law,'' said a campaign spokeswoman. ''At the same time, he was in the unique position of having made a commitment to the public that his tax rate would be above 13 per cent. He directed his preparers to ensure that he is consistent with that statement.''

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after a decade it's official: the gst is no better than its forebears

George Megalogenis, The Australian, 22 September 2012

If left to its present maddening trajectory, the goods and services tax will move from half-baked reform to systems buster before this decade is over.

 

One part of the problem is the GST's loss of earnings power. The other is the formula for redistributing it. The two are combining to test the federation and yet neither side of politics, or tiers of government, seems to care enough to at least acknowledge the true nature of the challenge.

 

Former treasurer Peter Costello might appreciate the irony. The GST was meant to give the states more, not less, budget certainty. When the GST package was launched in 1998 he explained how Queensland would be better off. "And what it does for the states is not only does it fix their base, it gives them access to a growth revenue," he said.

"Over the period to 2010, based on our estimates, the additional revenue, that is, the revenue that will be received by state government over and above the present financial formula, which is the real per capita formula, will be approximately $25 billion ...

 

"If Queensland were to stay out of this system it would be penalising Queenslanders billions of dollars a year."

Famous first words. In his audit of Queensland's finances - the pretext for Campbell Newman's macho spending cuts - Costello effectively bagged his own government's legacy. The dirty secret of the GST is summarised in a table on page 32 of Costello's interim report.

 

It shows that in the decade before the GST was introduced, Queensland's revenues grew by 6 per cent per year on average. Then everything seemed fine. There was a step up in revenue growth to 10 per cent per year between 2001-2 and 2007-8. This wasn't due entirely to the GST, of course. The property and mining booms gave the Queensland budget a lift. But Costello the treasurer loved to remind states at the time that they were better off because of his GST.

 

Costello the auditor knows better now. The final part of that table shows that Queensland's revenue will grow by 5.8 per cent a year between 2008-9 and 2015-16. That is, 0.2 percentage points less a year than the pre-GST world.

No slicing and dicing of the English language can conceal the structural issue here. The GST is officially no better than the wholesale sales tax it replaced. You can draw a red line from the GST's decline to the Newman government's double-barrel assault on economic logic - mass sackings in the public service, despite Queensland's need for more effort in health and education, and the royalty gouge on the mining companies, despite the clear evidence that the boom has peaked and investment plans are already being wound back.

 

On the conservative side of politics there seems to be a disregard for what the shortfall in the GST means. Forget the black mark against John Howard's record. What has happened to the GST will affect the ability of future federal and state Coalition governments to function.

 

This week, NSW Premier Barry O'Farrell stated the obvious that "we'd be mugs" if the GST wasn't looked at again.

It was a heavily qualified statement, easily walked back if no one followed him. Julia Gillard and Tony Abbott were predictably united in their hostility to O'Farrell. But their joint ticket won't close the hole in federal and state budgets.

Here's a quick reminder of the tax side of the budget that Howard and Costello inherited in 1996, which they thought was so damaging to the national interest that it compelled them to promise a GST at the next election.

Personal tax collections were 11.7 per cent of gross domestic product. The wholesales tax was worth 2.4 per cent of GDP, and customs and excise another 3 per cent for a total of 5.4 per cent. To simplify the tax mix, that was $2.17 in income tax for every $1 in indirect tax. There are other taxes, but this is the sharp end of the budget for voters when they work, save and shop.

 

The new tax system was bedded down five years later, in 2001-2, with personal taxes at 11.2 per cent of GDP, the GST at 3.6 per cent of GDP and customs and excise another 3.3 per cent for a total of 6.7 per cent. The tax mix was now $1.67 in income tax for every $1 in indirect tax, with the budget balanced.

 

Now reconsider the last financial year, when the budget was in deficit. Income tax is 1.2 percentage points lower at 10 per cent of GDP than it was a decade ago. The GST is down 0.4 points to 3.2 per cent and customs and excise is down 1 point to 2.2 per cent for a total of 5.4 per cent. This is the heart of the national revenue crisis. While direct and indirect taxes have weakened together, the tax mix has still shifted the wrong way, away from consumption toward work and saving with $1.85 in income tax for every $1 in indirect tax.

 

It is easily forgotten, but one of the keys to the GST deal from the electorate's perspective in 1998 was the return of bracket creep. The budget was in surplus before the GST was introduced because personal tax collections had reached a near-record 12.6 per cent of GDP by 1999-2000. The tax cut worth almost $20bn in today's dollars was no more, in reality, than the handing back of the excess as inflation pushed workers up the tax scales. But this trick allowed the GST to do its reform job of replacing the less efficient WST and a handful of toxic state taxes.

 

Now focus again on the income tax figure from the last budget - at 10 per cent of GDP it is lower than at any point between 1977 and 2007. The budget papers say it will reach 11 per cent by 2015-16.

 

By returning more than bracket creep during the first phase of the mining boom, Howard and Costello have paradoxically reduced the power of future federal governments - Coalition and Labor - to bargain with the states. No serious federal-state financial reform that restores the GST's revenue-raising ability is possible without a separate bucket of money to offer tax cuts to voters.

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Spoilt for choice to europe

Clive Dorman, The Age, 22 September 2012

Airlines offer discounted fares, but if you want to avoid taxes, be careful where you land, writes Clive Dorman.

 

Unless the European economy really starts tanking, the prospect of incredibly cheap air fares to Europe from Australia is remote. There are no takers to fill the void created after Malaysia's long-haul low-cost carrier AirAsia X axed its services to London and Paris from Kuala Lumpur in January.

 

In April, Britain's air passenger duty rose to about £92 ... Germany and Austria also have large new taxes. 

Using the tried-and-true formula of putting cost-price fares, or less, into the market to stimulate demand, topped up by ancillary fees for optional extras, AirAsiaX created a s

ensation in 2009 when it began offering Australia-Europe return fares for less than $1000 return.

Even in the post-GFC downturn when full-service Asian carriers were deeply discounting tickets to Europe - something they are mostly loathe to do - AirAsia's discounts were $500 or more cheaper than the competition.

Now, Asia's biggest airline, China Southern, the fifth-biggest in the world, stands alone as the region's major discounter as it builds market share to Australia.

 

While competitors such as Cathay Pacific and Singapore Airlines are happy with incremental growth and make their pitch to customers prepared to pay for quality service, China Southern has aggressive ambitions. It has six Australasian flights a day between Perth, Melbourne, Sydney, Brisbane and Auckland and its headquarters in Guangzhou (Canton), near Hong Kong, and plans to increase that to as many as 16 flights a day by the end of 2015.

 

China Southern is the first Chinese airline to fly the Airbus A380 and plans to use the super-jumbo on the Sydney-Guangzhou route. According to its chief executive, Tan Wan'geng, nearly half the passengers on the new CS service from Guangzhou to London are from Australia and New Zealand. Guangzhou is the ideal transit stop for what he calls the new "kangaroo route".

 

China Southern posted fares of about $1600 return from Australia to promote the new London service, which next month will become a daily service. However, as the October-November low season approaches, other full-service long-haul carriers are offering cheap fares to attract bargain hunters before Christmas.

 

For travel in November, for instance, Virgin Atlantic, which flies daily from Sydney to London via Hong Kong, had fares as low as $1560 return listed on Orbitz.com last week.

 

However, governments are ramping up taxes, making it harder for passengers to fly cheaply. In April, Britain's air passenger duty - the most expensive travel tax in the world - rose 8 per cent to about £92 for every long-haul traveller entering and leaving the country from destinations including Australia. For a family of four, that's an extra $568. Germany (€45/$55 a head) and Austria (€35/$43) also have large new taxes for long-haul travellers.

The Australian Tourism and Transport Forum says travellers can save money by avoiding high-taxing European countries.

 

A spokesman, Justin Wastnage, suggests Australian passengers use the new Qantas-Emirates joint-venture routes and fly to European countries with no air passenger duty. "Taxes do change people's behaviour," Wastnage says. "This is definitely a win for passengers. The only loser is the UK treasury."

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Overall look at tax reform is vital

Roger Beale, Australian Financial Review, 20 September 2012

We are in the middle of what many in the business community see as the wrong tax debate. Business is being asked to relinquish important depreciation and research and development tax concessions and face harsher thin capitalisation rules to fund a small reduction in overall business tax rates. Many see this as a zero sum game and the gains for the community through growth are likely small.

 

Australia has enjoyed strong real per capita income growth over the past 20 years but that level of growth is at risk in the decade ahead. Australia holds an enviable position as one of the few OECD nations with a strong government credit rating and low debt across all levels of government. That too is at risk. To understand these risks we need to look at some big changes that have happened in the past 20 years, and those that will happen ahead.

In the 1990s our income growth reflected large productivity gains as the fruits of economic reforms over the years from 1983 were reaped.

 

In the 2000s we have done as well but off the back of a boom in the terms of trade – the ratio of the price of our exports to our imports. Beneath the glossy skin of our increasing income lies a tumour. Our productivity growth has dropped back to pre-reform levels. This leaves us enormously exposed to any decline in the terms of trade.

A decline seems more likely than a further strong appreciation. China’s growth is becoming more sustainable, and India’s hasn’t taken off as expected. Alternative sources of minerals and energy are being developed in Africa, South America and across Central Asia.

 

Beyond the terms of trade our growth is driven by the “three Ps” – population, participation and productivity. We know population growth is slowing, and the community is aging rapidly as the baby boomers exit the workforce. This means a decline in the proportion of the population working. If productivity stays flat, these forces will combine with steady terms of trade to produce flat real per capita income growth.

 

Using the Treasury Intergenerational Report model, but holding productivity at the average levels achieved since 2000, suggests that real per capita income growth would drop from 2.5 per cent per year to under 1 per cent per year for the next two decades. If there is a negative trade shock we could see real incomes declining. The US and European Union have shown the pressures this places on social cohesion. Concurrently, government budgets will come under increasing pressure as revenue growth weakens and demands grow with an aging population. This doesn’t have to happen. The answer is in kick- starting productivity growth, and working hard to lift participation.

The Grattan Institute’s The Game-Changers: the economic reform priorities for Australia  report found that the single policy change with the biggest impact on productivity would be to reduce income and company tax, stamp duty and payroll tax. But that loss of revenue must be more than offset from other sources if we are to avoid sliding into a fiscal mire.

 

This means broadening and increasing the GST and revisiting the sharing of commonwealth and the states revenue and functions. It also means seizing the opportunity to rebuild the income tax, social security and childcare structures to encourage participation by women and older workers. But one of the few things that is bipartisan, and maybe even tri-partisan, in our normally fractious polity is a refusal to even consider lifting the GST. Not because our leaders think it is wrong, but because they do not believe they can, or worse, do not have the courage to try to, convince the public these changes are necessary.

 

It is time for business and the public policy community to reach out to the public to do the politicians’ work for them. My fear is that otherwise they will only move when we face a crisis. It is unsurprising that many in business are resolutely opposing the current proposals to change business taxes unless it is part of a total package to cut overall business and personal taxes.

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Let's talk tax - and make the future fairer

Matt Wade, Sydney Morning Herald, 19 September 2012

It's nearly three decades since the GST first roiled Australian politics. But our long-running consumption tax saga isn't over yet. Barry O'Farrell opened a new chapter over the weekend when he declared ''we'd be mugs'' not to consider a lift in the GST's rate, scope or both to help the states deliver the services voters expect.

He's right. State coffers across the country are under serious strain and there are warnings things will get worse. When O'Farrell won office last year he commissioned the former Treasury secretary Michael Lambert to audit the state's books. Lambert concluded the state's tax system ''does not provide a sustainable and efficient basis for funding increasing levels of service delivery''. This echoed a report by the state's independent pricing regulator in 2008 that warned that without major changes, the NSW tax system would ''not be able to raise sufficient revenue to meet the state's future expenditure requirements''.

 

Since those warnings there's been a fresh blow - the federal government slashed its GST forecasts leaving the NSW government with $5.2 billion less than expected over the next four years. Shifting spending patterns are one reason for slower GST growth. When the tax was introduced 12 years ago household consumption was equivalent to 59 per cent of gross domestic product but that had shrunk to 54 per cent by last year. At the same time, households have been saving more of their incomes. Another reason for subdued GST growth is that spending on things exempt from the tax - such as food, health, education and rents - has been growing more quickly than spending on goods and services that do attract GST.

 

NSW Treasury estimates the share of household consumption subject to GST has fallen from about 64 per cent to 60 per cent over the past decade. The lower growth in GST revenue is likely to stay for the foreseeable future, with major implications for state finances.

 

The GST is now growing at about 4.5 per cent but health costs, the biggest area of state government expenditure, are projected to grow at about 8 per cent, driven by our ageing population and the advent of new technologies. Despite its growth slowdown, the GST is still the best revenue source the states have got. It contributes about a quarter of NSW's $60 billion budget.

 

The outcry that followed the state government's announcement last week that $1.7 billion would be cut from the education budget over four years showed how strongly voters feel about state government services. But the cost of providing them, especially health, will rise significantly as the population ages. Those same demographic trends are likely to gradually weaken important revenue sources such as stamp duty and payroll tax.

 

The new GST debate, heralded by O'Farrell, will be different to the one before its introduction in mid-2000. The tax was originally sold as a way to replace a clutch of highly inefficient state taxes that distort economic activity and are costly to collect, with one much more efficient one. The new tax mix promised to boost the economy and give the states a more stable revenue base.

 

While O'Farrell still wants any increase to the GST to help replace inefficient state taxes, the main objective is to pay for the services that voters seem to want.

 

Any change to the GST will require all Australia's governments to agree. The federal Opposition Leader, Tony Abbott, the Treasurer, Wayne Swan, and even some interstate counterparts were quick to reject his call for a GST rethink. But I think that could change fairly quickly if state revenues continue to deteriorate.

 

This year's federal budget forecast of GST revenue was $14 billion less over five years than predicted a year earlier. Another similar downgrade could force O'Farrell's counterparts to take him much more seriously.

 

Whatever the short-term politics Australia will probably have no choice but to lift the rate and scope of the consumption tax as the population ages. It will be one of the only options available to fund the state services that voters expect.

 

In the meantime, O'Farrell could do a lot to repair the state's tax system without anyone's co-operation. Lambert's audit found that 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.

Co-ordinated reform in which all Australian states replace bad taxes with more efficient ones would yield the greatest benefit. But 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 boost gross state product by 1.4 per cent.

 

The centrepiece of Lambert's reform agenda was a ''stamp duty replacement tax'', levied on the value of all land, regardless of how it is used or who owns it. Axing stamp duty - a highly inefficient tax - and replacing it with the broad-based land tax would deliver a welfare benefit of $2.3 billion a year and increase NSW's gross state product by 1.2 per cent. Lambert also called for the threshold at which businesses are levied payroll tax to be reduced 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.

 

Of course, each one of these reforms would be controversial and Lambert's recommendations have been largely ignored.

 

The O'Farrell government seems to have made the political calculation that the cost of going it alone on state tax reform is too high.

 

That's a pity. A serious effort to improve the state tax system would benefit voters. It would also make it harder for the likes of Swan and Abbott to dismiss O'Farrell's call to rethink the GST.

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Swan Quizzed on spending promises

Paul Osborne, AAP Senior Political Writer, 18 September 2012

Federal Labor MPs have grilled Treasurer Wayne Swan over how the government will fund its big-policy spending promises while keeping taxes down.

 

Coalition MPs and the Labor caucus held meetings in Canberra on Tuesday without Tony Abbott and Julia Gillard, while the party leaders were attending a soldier's funeral in Perth.

 

Mr Swan, who is preparing the mid-year budget update in the face of falling tax revenue and softening commodity prices, spent much of the caucus meeting answering questions about the economy from backbenchers.

Shadow treasurer Joe Hockey told the coalition party room he believed Labor faced a revenue shortfall of between $20 billion and $25 billion, largely due to a drop in corporate tax.

 

Tax was also on the minds of the Labor caucus members, one of whom received a blunt "no" after asking if Mr Swan would consider raising the Medicare levy to pay for the national disability insurance scheme (NDIS), which will cost $1 billion over the first four years.

 

Asked by Labor senator Doug Cameron if he would consider broadening the tax base to pay for big-ticket items - such as the NDIS, school funding, dental care and offshore processing of asylum seekers - Mr Swan restated his commitment to ensure taxes as a proportion of gross domestic product were lower than under the Howard coalition government.

 

The treasurer was also questioned about the future of science grants and overseas development aid, but gave no commitments beyond what was in the budget papers.

 

In parliamentary question time, Mr Hockey failed to get answers from the treasurer on whether the government was contemplating tax rises or new taxes to cover its spending promises, which the opposition tags at $120 billion over eight years.

 

Earlier, the shadow treasurer told coalition MPs he believed federal tax revenue had fallen by up to $25 billion since the May budget as China's growth slowed, the European economy declined and the US faced a "fiscal cliff" of tax increases and spending cuts.

 

He predicted the mid-year review would be brought forward to hide some costs and Mr Swan would use tricks to make the books look better than they were, including changing accounting rules for government departments.

Nationals leader Warren Truss told MPs Queensland Liberal National Party Premier Campbell Newman's costing-cutting strategy was justified.

 

Mr Newman had a mandate to deal with a "disastrous" budget situation left to him by Labor, and the 14,000 public service job cuts were less than half of the 30,000 jobs created by former Labor premier Anna Bligh in her last term, he added.

 

In parliament Mr Swan said Queensland's "scorched earth" budget strategy was a foretaste of what a federal coalition government would do and highlighted Labor's commitment to supporting jobs.

 

Employment minister Bill Shorten joined the attack, saying Mr Newman was acting in "lockstep" with the coalition.

"He's never seen a public servant that he didn't want to sack," he told parliament.

 

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 Reform is essential, say business groups

Phillip Coorey, Sydney Morning Herald, 18 September 2012

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Congestion charge just more regulation

Scott Ryan, Australian Financial Review, 18 September 2012

Over the past month the head of Infrastructure Australia, Rod Eddington, and the ACCC, Rod Sims, have raised the prospect of congestion charges. According to comments in the Weekend Financial Review, Sims believes that the issue needs a “national push”.

Ignoring the fact that the commonwealth has no role in managing urban roads, the campaign for congestion charges makes certain assumptions about the role of markets.

Despite familiar language such as “market signals” and “efficiency”, are congested roads really a market in the sense that we would normally understand one? Is the time we travel an appropriate target for regulation or influence by government?

 

Congestion charging is merely the latest example of the government seeking to create a market where none exists. But it is part of a trend in recent years, of the state artificially creating markets in order to influence behaviour or achieve some other policy objective.

Because we are familiar with the language of markets, there has been little examination of these. Critically, such state-created markets are unlike others in several important ways. This is particularly true of roads and the call for congestion charges.

 

The main objective of these markets created by government is often simply to ration use. This is usually cloaked in language of influencing behaviour through market signals, but the basic aim is to ration. This is particularly true where the government also controls the provision of a good.

In relation to congestion charging, it is the limited capacity of roads and public transport capacity and location, as public transport is the most accessible substitute good.

One of the most important differences these markets exhibit from regular product or service markets is that the state is often both the beneficiary of the charge levied as well as the regulator of the market and potential competitors.

To return to the issue of roads, the government will be the direct beneficiary of any taxes or charges collected and it will regulate the charge applied.

 

Even more importantly, government also controls how many roads are built and where, as well as the provision of the main substitute good, public transport.

For those who argue that private competitors may provide these, I encourage them to attempt to build a competing train line or road in one of our major cities and see how far they get. The state effectively controls the provision of alternatives and no proposal for congestion charging has proposed opening up this urban transport market.

So while the argument for congestion charging relies on our familiarity with markets, these state-created markets are profoundly flawed. Without the ability for substitutes to be developed and supplied, and with the beneficiary of the new tax also controlling the supply, the state is in a uniquely powerful position.

It will have an incentive to limit outlays on new roads or transport options and continually increase charges in what is a predictably inelastic market. Even if the long-term incentive differs, as increased capacity may lead to increased revenue, a short-term incentive to defer large capital expenditure remains.

This represents dominance that would not be tolerated in any other market, as competition is nobbled from the outset.

 

It also reflects the broader problems of the state creating markets, particularly for the purpose of simply rationing use.

Unlike other markets, where competitors can enter and increase supply of directly competing goods or substitutes, these rationing devices limit the dynamic market developing alternatives.

The models also seek to justify this approach on the grounds of improving efficiency, in this case the costs to the broader economy from congestion. But these models have not been sufficiently examined. Often they fail to take into account the individual benefit people enjoy from travelling at their preferred time while they assign broader economic costs to the time taken to do so.

Such models are often merely a rationale for the proposal.

While the models assign a value to the time people and goods spend in congested traffic, we should seriously question whether the use of our own time is something the government should have a role in determining or even influencing through taxes.

 

In the end, a congestion charge becomes just another tax increase or state-imposed rationing mechanism. Only this time it is justified on different grounds and uses the language of markets with which we are familiar.

We should remain sceptical of markets created purely by regulation. They can too easily be a veil to increase taxes and regulation under the veil of the language of markets.

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Federal parties rule out GST rate increase

ABC Online, 17 September 2012

Federal Nationals leader Warren Truss has poured cold water on state requests for an incoming Coalition government to increase GST payments.

The New South Wales Government wants the Coalition to commit to boost payments if it wins government next year. It has warned there is no extra money for the state to fund its share of the expensive Gonski education changes. Mr Truss has told Sky News the Coalition will look broadly at revenue and make announcements closer to the election.

 

But he says the National Party fundamentally supports tax cuts rather than increases. "When we introduced the GST, not only us but the state governments made a commitment at that time that the rate would not be raised; a commitment that we made in good faith," he said.

Nationals Senator Barnaby Joyce says NSW Premier Barry O'Farrell can debate the idea with his joint partyroom, but it has got little chance of becoming reality.

"As far as raising the GST, that's just not on, and I'll tell you why it's not on, because you can't get it through without the agreement of both houses of Parliament and every state and territory, and good luck with that," he said.

 

Prime Minister Julia Gillard also ruled out increasing the GST. "Federal Labor will not raise the GST," she said.

"I do understand Barry O'Farrell has called for this today so it's maybe something you should raise with Tony Abbott, but Federal Labor will not be raising the GST." Federal Opposition Leader Tony Abbott says the Coalition has no plans to boost the GST either.

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Abbott dismisses any GST change

Andrea Hayward, Sydney Morning Herald, 16 September 2012

Opposition Leader Tony Abbott has poured cold water on Liberal premier Barry O'Farrell's call to increase the GST rate or revamp the tax to revive his state's revenue flow.

 

The NSW premier said on Sunday it was time to re-examine the GST and whether its rate should be increased or some state taxes traded off in exchange for an increased share of the tax receipts.

Prime Minister Julia Gillard said federal Labor would not raise the GST and was quick to put pressure on Mr Abbott over the issue. "I understand that Premier O'Farrell has called for this today, so it should be maybe something you raise with Tony Abbott, but federal Labor will not be raising the GST," Ms Gillard said.

Later in the day Mr Abbott was keen to squash the possibility of a change to the tax. "The coalition has no plans to change the GST, none whatsoever," he told reporters in Sydney.

Mr O'Farrell said current national economic circumstances had never been worse and he couldn't see when they would pick up. He blamed federal Treasurer Wayne Swan for being unable to articulate an economic plan to fill the community with confidence.

 

"It's a lack of confidence at a national economic level that's caused the reduction in GST receipts, that's caused the flow-on consequences for the states," Mr O'Farrell told Sky News on Sunday.

If there was no prospect of things picking up everything should be on the table, Mr O'Farrell said.

Mr O'Farrell said he had not discussed the move with his Liberal counterparts or other premiers. He would not rule out raising royalties to increase state revenues, but said the mining sector was facing lower commodity prices which had already resulted in job losses. "There's only so much juice you can squeeze from a lemon that's already under pressure," he said.

 

Mr Swan said governments at all levels had to adjust to lower tax receipts in recent years and the federal government had to find responsible and measured savings. "This is always a tough process and it gets tougher with each budget," he said in his economic note on Sunday.

 

"But we will keep going about this task in a way that does everything possible to protect jobs, and the interests of low- and middle-income households and our community's most vulnerable."

 

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Financial storms on the horizon

Adam Creighton, The Australian, 15 September 2012

AUSTRALIA may have a Department of Sustainability in Canberra with 2230 staff, but the sustainability of Australia's large and growing government footprint is not on its agenda.

 

Before the global financial crisis struck, revenue poured effortlessly into government coffers, thanks to banks' ballooning profits and a worldwide, debt-fuelled explosion of house and share prices.

 

Far from being dividends of the "new economy", such revenues were shown to be an ephemeral side effect of a bloated financial system pumped up by reckless leverage and fanned by perverse incentives.

 

Australia, meanwhile, flush with the proceeds of a massive minerals boom and harbouring a people unusually averse to public debt, has avoided having to face inconvenient truths laid bare to governments in the US and Europe.

Revenues receded to reveal swollen public payrolls and vast unsustainable social welfare programs. Gaping budget deficits and mountains of debt dotted their horizon, prompting calls for punitive hikes in taxation, which overtaxed, ageing workforces can little endure.

 

Even the German government, for all its vaunted strength, has triple the debt burden of Australia.

But Australia may face a similar reckoning. BHP Billiton and Fortescue are shelving key mining projects in South Australia and Western Australia, China's slowing economy is sapping the prices of iron ore and coal, Australia's two biggest exports, and the country's public revenues are beginning to recede too.

Even the biggest resource boom in Australian history has failed to produce a sizeable budget surplus among its state or federal governments.

 

"Government has become giant insurance operations with an army on the side," says John Cochrane, an economics professor at the University of Chicago, pointing out Western governments have long lost their focus on building public infrastructure and maintaining public order in favour of redistributing income.

 

To the extent Europe's and America's problems stem from oversized governments, Australia should consider how it can slow the growth of its own, which are already large and growing rapidly.

 

Yet the country's political debate remains oblivious to the possibility global woes are a harbinger of Australia's future. Labor and Liberal politicians blithely propose substantial additions to and expansions of Australia's welfare state: national disability insurance, paid parental leave, a higher dole and more school funding, for example.

 

Ordinary Australians also appear little concerned. Campbell Newman's decision this week to prune the Queensland public service, which has grown at twice the rate of the state's population for five years, roused thousands to furious protest in the streets of Brisbane, and undermined the Premier's popularity.

 

"Rather than providing benefits for A and B, governments now function mainly to take from A to give to B," Cochrane says.

 

In Australia general public services and defence amount to only 12 per cent of commonwealth government spending, the remainder filled out by welfare services, including health and education, which are growing at more than twice the rate of inflation or population.

 

"One way or another, taxes will almost certainly have to rise in Australia," says Andrew Podger, former head of the Australian Public Service Commission and now professor of public policy at the Australian National University, echoing recent comments from former Treasury secretary Ken Henry.

 

Tax collected as a share of Australia's national income increased fivefold to about 30 per cent during the 20th century, underpinned by the relentless expansion of pensions, allowances, family payments and burgeoning costs of "free" health and education.

 

Tax and spending have stayed at relatively constant shares since, but such measures obfuscate the true reach of government.

The volume of new commonwealth legislation has grown exponentially, up from a few hundred pages a year in the 1950s to 7160 pages of legislation last year. State parliaments are churning out new laws at similar rates.

Ignorance of the law may not be an excuse, but how now can it be anything but universal? David Kemp, a political historian and former Howard government minister, tells Inquirer: "We are now witnessing the decay of the institutions that are essential for democracy to flourish, such as the rule of law, freedom of speech and even, in some states, the right of unions and other interests to participate freely in election campaigns.

"The government's peremptory rewriting of the law to prohibit the super-trawler, despite the science, is another classic example of the breakdown of stable, clear, impartial application of the laws for purely populist ends."

The growing thicket of regulations sustains a vast shadow public sector of lawyers, accountants and consultants, thousands strong, employed to explain, avoid, interpret and analyse the impact of the laws.

Between 1939 and 1990 the proportion of public servants in the population rose from one in 14 to one in nine. Since the GFC their number across all levels of government has grown 8.3 per cent to 1.9 million, more than 30 per cent faster than the population.

 

Concerns about national and border security are fuelling the expansion. In the decade to June last year, Australian Federal Police ranks swelled almost 150 per cent to nearly 7000, while ASIO tripled its staff to 1700. The Department of Immigration, busied by Australia's strict entrance requirements, now employs 3424 people in Canberra alone, in addition to 4929 in other states and 1194 abroad

When John Maynard Keynes was writing The General Theory of Employment, Interest and Money in the 1930s, taxation in Australia, across all levels of government, was about 15 per cent of national income, well short of the 25 per cent mark Keynes thought to be the "maximum tolerable proportion". When government expands beyond its natural limits, it saps and distorts economic growth, and curbs productivity, by dulling entrepreneurship and the incentive to work, directing smart people into jobs with remuneration that is scantly related to their inherent value.

Public spending in France and Britain is near 50 per cent of national income. Cochrane says it is about 45 per cent in the US once all tiers are counted.

 

Democracy itself has fanned the growth of government, as politicians inevitably pander to voters' interests, a chunk of whom care little for the unintended consequences of their demands.

"De Tocqueville in the 1830s predicted government regulation would continuously grow, driven by people's desire to reduce uncertainty in their lives," says Kemp.

 

"Democracies have been hectic interludes," American historian William Durant wrote, noting their repeated rise and fall throughout history from Roman and Greek to modern times, along with the ebb and flow of government itself. The economics profession, perhaps unwittingly, has aggravated democracy's destabilising drift.

"Keynesian economics has become a horrible nightmare leading to all manner of politically expedient waste in the name of growth, a word which perversely has come to mean debt-fuelled consumption," Cochrane says.

The financial crisis only accelerated the crisis of government. In the 20 years to 1997, the public debt to national income of the 12 original euro-area countries grew from 31 per cent to more than 75 per cent. Deficit-financed public spending, especially to "stimulate growth", became the norm.

"How could anyone accuse Greece, in deficit for decades, of not stimulating enough?" Cochrane jests, mocking the widespread idea Europe's woes stem from austerity.

"Austerity in Europe means you keep spending the same outrageous sums as before and raise taxes as well, crippling already overtaxed economies," he adds.

 

William White, the chairman of the OECD's Economic Development and Review Committee in Paris, pours scorn on the economic policies being pursued by the world's major central banks.

Days after the European Central Bank agreed to buy Spanish and Italian government bonds to keep their borrowing costs artificially low, and the US Federal Reserve agreed to unleash a third round of quantitative easing, White tells Inquirer central banks are providing "false comfort" to government and threatening the stability of the financial system.

 

"The more (ECB president Mario) Draghi and (Federal Reserve chairman Ben) Bernanke say, the less likely their governments will prosecute any of the reforms that would foster real economic growth," he says, suggesting the spectacle of economies hinging on the decisions of a handful of bureaucrats is pathetic and "extremely unhealthy".

Growing government is partly a demographic accident. States, including Australia, have largely withdrawn from the traditional commanding heights of the economy - power generation, supply and manufacturing, for instance. But their presence in the economy is ballooning because of their longstanding provision of "free" healthcare, which older Australians increasingly are demanding.

Despite the mining boom, in Australia health and education sectors together have mopped up almost one in three new jobs created here since 2002.

 

Former Howard government finance minister Nick Minchin says cutting down government in Australia requires a deliberate attack on duplication at the federal level. "It's hardly a case of states intruding on federal responsibilities," he says. The election of state Liberal governments and the prospect of one federally are not boosting hopes for renaissance of smaller government.

 

Julie Novak, a researcher at the Institute of Public Affairs, says the opposition's pledge to trim the commonwealth's 258,000-strong payroll by 12,000 is barely two years' natural attrition. "If we tally up employment in departments that ought to be abolished, such as the Human Rights Commission, those that perform functions the states are meant to, such as the new Australian Curriculum Authority, and entities that should be privatised, such as Medibank, we could cut the total by 90,000 right away," she tells Inquirer.

 

Podger argues the public service has relatively little fat given the programs it is expected to administer, but blasts the "efficiency dividend", beloved by both sides of politics. "I have no problem with shedding public-sector jobs but politicians need to be upfront about which programs they want to cut," he says.

Keeping government at bay, let alone slimming it, requires more sophisticated tools.

White recommends nominal caps to government spending growth and hard, legislated ratios for public debt, similar to rules already in use overseas. "Before the crisis many countries spent their booming but temporary revenues on permanent social programs," he says, pointing out "Switzerland has a constitutional 'debt-break' rule, which prevents its government growing spending faster than revenue over a fixed multi-year period".

White also underlines the importance of having a considered and planned list of public infrastructure projects on hand, so any efforts to stimulate the economy in a sudden downturn can be spent wisely rather than splurged on populist handouts.

 

Cochrane is sceptical - "The ECB rules were meant to prevent it from buying government bonds," he says - but is optimistic democracy can save itself when enough people realise the prevailing track is a path to collapse.

Kemp agrees. "The growth of government can be controlled by a sceptical political culture that gives prominence to the value of individual liberty and empowerment, and is alert to the dangers of regulation or programs based on little more than hope and prejudice," he says.

"In the 1970s and 1980s Australia was losing international competitiveness, and the public supported reforms to roll back political management of the economy by floating the dollar, reducing tariff protection and deregulating the financial sector."

 

Australia is once again perched among the world's richest nations, but circumstances once again may force politicians' hand.

"The Canadians and the Nordics are very worried about their debt levels," White says. He notes Australian households' debt levels and house prices are among the highest in the world. He suspects countries such as Canada, Australia and those in Scandinavia, whose banks appear - a word he stresses - to have survived the financial crisis, have yet to develop the symptoms of their economic excesses. "Their crises are still to come," he says.

 

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Tax office puts heat on struggling firms

Clancy Yeates, Sydney Morning Herald, 14 September 2012

The tax office says it is taking a more aggressive stance on small businesses that may not be financially viable, in an attempt to protect tax revenue and other creditors.

After rising corporate insolvency rates were blamed partly on the taxman putting firms into administration, Tax Commissioner Michael D'Ascenzo today said the ATO was applying more scrutiny to firms that were struggling to pay their tax bills.

 

Since the global financial crisis, the ATO had introduced software tools that provided a "more objective assessment" of small firms' viability, he said.

"What we have done that's probably different is be a little bit more rigorous in our evaluation of whether or not a business is viable and, whether the issues are short term or longer term," Mr D'Ascenzo said in Canberra.

"That has meant that in some situations we have said 'no we really cannot give you a payment arrangement or defer further action, because in some way we actually think that you might be trading in a position of perhaps insolvency."'

Mr D'Ascenzo said it was not in the interests of the business owners or their creditors to be granted ongoing relief if they were unlikely to survive in the long term.

 

In the year to June, the number of corporate insolvencies jumped 25 per cent nationally, with east coast states taking the biggest hit.

Despite this increase, Mr D'Ascenzo said the ATO had an "empathetic approach" and it tried to help firms "over the line" where possible.

"Where in doubt, we have genuinely tried to support the tax paying business," he said.

 

The ATO's decisions to put small businesses into liquidation were independently assessed, and those probes had shown the ATO was not acting too quickly, he said.

"The feedback has always been that we're not too quick, if anything we might be a little slow," he said.

At the end of June, he said there were 152,007 small businesses with arrangements in place to help them pay off their tax bills in instalments. As well, there were 33,270 firms who had received relief on interest repayments on their outstanding tax bills.

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GST action against states still on table

Ben Packham, The Australian, 13 September 2012

Labor hasn't given up hope that its GST review will give the green light to punitive action against states that drain its mining tax revenue by hiking state royalties.

The review panel's second interim report advised in June against stripping GST revenue from states that took advantage of a loophole offering refunds to MRRT-liable companies for state royalty rises.

But Finance Minister Penny Wong said the federal government had not abandoned the option. "As the Treasurer has made clear, and this is on the public record, the Treasurer has asked the GST Review to consider these issues. So I'm not going to pre-empt their consideration of that," she said.

Senator Wong today admitted Queensland's $1.6 billion hike in coal royalties would hit the federal budget bottom line.

She said it was a "distraction" from Premier Campbell Newman's move to slash thousands of public service jobs.

 

The GST review panel's second interim report said that the Gillard government's design of its minerals resource rent tax had provided an incentive to states to increase mining royalties.

The panel found "it would not be desirable" to used the GST distribution system to punish states for increasing royalties because doing so would create an " unintended reward for other states".

It said the commonwealth and the states should ideally come to an agreement to eliminate the incentive to hike royalty payments.

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Queensland, Commonwealth brawl over mining taxes

Simon Cullen, ABC Online, 12 September 2012

A fight is brewing between the Federal Government and Queensland over mining royalties, with the Commonwealth threatening to cut infrastructure spending.

Queensland's LNP Government yesterday announced plans to increase coal mining royalties, a move which it predicts will raise $1.6 billion over four years.

The move threatens to blow a hole in the federal budget because the Commonwealth has agreed to refund state royalty charges as part of the mining tax package.

 

Federal Finance Minister Penny Wong has accused Queensland Premier Campbell Newman of trying to pick a fight with Canberra to distract attention from his decision to cut 14,000 public service jobs. And she says the move will backfire on the State Government. "Royalty increases will obviously reduce the pool of revenue that's available for infrastructure, and that's been on the public record for some time," Senator Wong told ABC Radio National.

Treasurer Wayne Swan is yet to comment on what action the Federal Government will take.

But Mr Newman is not backing down, declaring any move by Mr Swan to punish Queensland will be done so "at his own peril".

 

"I know the (Queensland) Treasurer Tim Nicholls will be delighted to go out, and I certainly would, to campaign in the Federal electorate of Lilley," Mr Newman told Lateline.

"We'll tell Mr Swan's electors about any such move. Time and time again he has put the interests of other parts of Australia ahead of his home state."

Queensland is not the first State Government to increase royalty charges after the mining tax was announced, despite continued threats from the Commonwealth against such moves.

The Federal Opposition says it is further proof the minerals resource rent tax is a "dodgy deal" which has left the Government with a budget black hole of more than $4 billion.

"As we have argued for some time, Labor's mining tax deal with the big three miners has provided a direct incentive to state and territory governments to increase their royalties on iron ore and coal," shadow assistant treasurer Mathias Cormann said in a statement.

 

"Since their private mining tax deal with the big three miners, most states have now increased their royalties on iron ore or coal knowing that most of it will come out of the federal budget."

The mining industry has slammed the Queensland Government's move, saying it will be the "final straw" for some of the state's more marginal coal mines.

The Queensland Resources Council says the state will become one of the highest taxing coal jurisdictions in the world, and it will mean mine closures and job losses.

BHP Billiton says it previously warned the Queensland Government against increasing royalties, and is disappointed by yesterday's announcement.

 

"We have made it clear to the Queensland Government that any additional royalty impost will directly impact the profitability of our existing operations, and will affect future business decisions regarding growth capital allocation," the company said.

Time and time again he [Wayne Swan] has put the interests of other parts of Australia ahead of his home state. The company says it is currently undertaking an extensive cost review of its metallurgical coal business in the face of increasing costs, the high Australian dollar and falling commodity prices. It says the hike in royalties will be factored into the review.

 

But Mr Newman says if any mines do close, it will have a lot more to do with the performance of the companies themselves and not the royalty increase. "The mining industry has had problems for some time," Mr Newman told ABC News 24.

"They've allowed their costs to get out of control, they've allowed basically poor industrial relations practices, poor management practices, the productivity has dropped.

"On the one hand, they've been happy to let that happen while prices were high, and now it's all coming home to roost."

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Democratising tax evasion

miCHAEL JANDS, THE DRUM, 12 SEPTEMBER 2012

Once it was only the very wealthy who could afford complex schemes to avoid paying their taxes. ABC's Michael Janda says the internet is now helping everyone to dodge their taxes.
Australia has spent the last 40 years all but eliminating tariffs on imports.
Now it seems the pendulum has swung so far that we're willing to put tariffs on local businesses while allowing foreign companies to trade tax-free.
That is effectively what the $1,000 low value threshold for the GST and duties for goods purchased from overseas is doing.
For those who've missed the debate over the last couple of years, largely pushed along by Harvey Norman founder Gerry Harvey, the point is that imported goods aren't subject to GST or duties if they are worth less than $1,000.
That gives most online purchases an automatic 10 per cent price advantage over local sales, with many goods having a 15 per cent price advantage due to the low value duty exemption, and up to 20 per cent on some items (including clothing from certain countries).
Put simply, the internet is helping to democratise tax evasion.
In the past, it was mostly the very wealthy who could afford to dodge a large part of their taxes by complex schemes to shift their money to some exotic tax haven.
But, with an increasing share of revenue coming from consumption-based taxes post-GST, all of us can now share in a little piece of tax dodging by jumping on our computers to order something for under $1,000 tax free online.
The attraction of the tax loophole is demonstrated by a Sydney Morning Herald poll that shows only 9 per cent of readers thought the GST threshold should be lowered to $30 - then again, 24 per cent of people thought the GST should not be applied at all.
Those of you with a good memory and an interest in the topic would remember that the Productivity Commission concluded last year that the costs of collecting GST and duties on goods at a significantly lower threshold would outweigh the revenue collected and benefit to local retailers.
The Commission found (PDF) that lowering the low value threshold to $100 would raise just under $500 million and may cost consumers and businesses over $1.2 billion.
Scary figure, huh?
However, like any economic report, those findings were based on a series of assumptions (mostly freely acknowledged by the Commission). The key one being that the current tax collection system would remain unchanged, as would its costs.
Specifically, the Commission assumed that the threshold for both duties and the GST would be lowered. Duty declarations are much more complicated than the information required to collect GST, thus contributing $630 million to the cost figure, but only $110 million in revenue.
That leaves $385 million in revenue at a cost of around $600 million (an estimated $378 million for Customs and $228 million for Australia Post and courier services) - still a bad deal.
However, one of the key recommendations of the Productivity Commission report was an investigation into reforming the way low value parcels are processed.
That investigation found much lower estimated collection costs, especially for parcels coming through the mail, with costs to keep falling as volumes increase and processing technology improved.
The Low Value Parcel Processing Taskforce estimated (PDF) that in 2014 at a $100 low value threshold the collection cost would be $15.04 per mail item, while the average revenue collected would be $22.31. The estimated collection costs were higher for air cargo.
That is not a very efficient tax change, as more than two-thirds of the revenue is lost in costs.
However, if the aim is not increasing revenue but increasing equality between local and offshore retailers, it is hard to argue against a change that will earn cash strapped state governments some extra money as well.
The Productivity Commission does argue against such a change, citing the deadweight loss of all the administrative and compliance costs which diverts resources from more productive activities.
Yet most kinds of administrative and, let's be frank managerial, activity is really a deadweight loss so defined - yet public and private sector administration is necessary to allow productive activities to continue.
The Productivity Commission compares the high cost of GST collected on low value imports to that collected on domestic sales, which is only around 1.4 per cent of the total revenue collected.
However, it would arguably be better to view the cost of GST being collected on low value parcels as part of the total cost of collecting GST.
That is because, in the modern communications and transportation age, the whole GST system will be gradually undermined if overseas suppliers continue to escape tax free on most of their transactions while local businesses do not.
Already, large Australian retailers are starting to set up overseas outlets to exploit the tax loophole.
That's not to mention the revenue that is already being lost, and will increasingly be lost, on services and intangible goods (like software, music and movies) downloaded or supplied from overseas sites.
While tax-free overseas online sales are clearly not the only, and probably not even the main, reason why many Australian retailers are struggling, neither are they getting smaller or going away.
Research by Ernst & Young for the National Retail Association estimates (PDF) that overseas online retailers will be better off to the tune of $7.6-12.7 billion in turnover in 2015 if the status quo is maintained than they would be if the low value threshold was abolished.
That report estimates between 20,000-33,400 Australian retail jobs could be saved by abolishing the low value threshold, with flow on benefits to the economy and government revenues.
While these retail industry commissioned figures clearly need to be taken with a grain of salt, it is clear that the current low value threshold disadvantages local stores compared to foreign rivals.
The Productivity Commission says postage costs offset this tax disadvantage for most smaller purchases.
Yet Australian bricks and mortar retailers pay some of the highest retail rents in the world, which has to be passed through to prices in the same way postage adds to the costs of goods supplied online.
Australian-based retailers also have to pay Australian wages, superannuation and penalties, which can be considerably higher than some of the countries many overseas online retailers ship from.
The commission's report shows there certainly are not many other countries willing to give overseas retailers such a break on their domestic competitors.
It makes sense the thresholds are low - where is the integrity and logic in a tax that actually encourages citizens to both avoid it and send their money outside the local economy?
Assuming the low value parcel processing taskforce is right in its cost estimates, it seems the most compelling reason to subsidise Australians' growing love of online shopping on overseas sites is public anger if this tax haven is taken away.

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Tax refund injection to help keep start-ups alive

Mahesh Sharma, The Age, 11 September 2012

Cash-starved start-up businesses will receive a funding injection under new government plans to quadruple the frequency of refunds for a lucrative research and development tax incentive.

From January 1, 2014 the tax office will process quarterly returns for the R&D incentive that refunds 45 cents for every dollar spent on experimental and risky innovation by companies turning over less than $20 million and not generating a profit.

 

The details will be finalised next year while the government develops an improved payment process, the AusIndustry general manager, David Wilson, told IT Pro in an exclusive interview.

Melbourne-based developer CultureAmp believes quarterly refunds would have greatly assisted their development of HR survey app 'Murmur'.

The quarterly payments will complement the annual tax return. ''It's all about getting their refunds to them sooner - where they're entitled - because we understand that cash flow is an issue for small firms, particularly in some of the high-tech sectors,'' said Wilson, whose organisation processed 20 written submissions and stakeholder interviews before the consultation process closed in August.

''We want to make sure the arrangements in place are smooth and there's no compliance burden on small companies to access the quarterly credits.''

Small companies live and die by their cash flow, especially in the winner-takes-all world of technology development, where spoils often go to the first company to satisfy market demand.

 

Melbourne-based CultureAmp bootstrapped the development of its human resources mobile application Murmur, but co-founder Douglas English said the delayed refund - months after closing the financial year - slowed company progress. ''We'd never put ourselves in a position where we would run out of money, but we've definitely delayed starting things and been less aggressive with the buildouts than if we could rely on quarterly payments,'' English said.

''The way technology is heading, tech start-ups that can't execute within a year are dead.

''The quarterly payments fit much better with the speed and agility tech start-ups require to survive. It would help us reduce our expenses as we go, and help us to keep the focus on building awesome products rather than how to fill short-term cash shortfalls."

Wilson said small businesses had responded positively to previous changes introduced on July 1 2011 with 9000 registered companies investing more than $20 billion combined on R&D. He expects participation this year to increase further with the quarterly payments.

AusIndustry and the tax office are also trying to resolve the issue which disqualifies small companies from the 45 cent refund when they have sold over 40 per cent equity to an investor, such as a venture capital firm.

However, Wilson wouldn't say if the aggregated turnover rules would be changed. Entrepreneurs also want the restrictions on employee share option plans reviewed.

"We appreciate it can be complex and it can be different for most individual company circumstances," Wilson said. "We're certainly looking further into it and working with our colleagues in ATO and policy, to ensure the rules are applied in the appropriate way for the program.

"Ultimately and for individual companies that might fall into this space, they need to talk to the ATO, so they can assess the arrangements of that company and get a view back to them."

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 Tax Office leads surplus cash drive

Adele Ferguson, The Age, 10 September 2012

If the confidential settlement between the Australian Taxation Office and Paul Hogan wasn't evidence enough that the tax collector is reshaping itself into a body that works in the shadows, its latest scorecard on disputes shows a seismic shift from legal battles to alternative dispute resolution and private settlements.

 

The move is being driven by the federal government, which is pulling out all stops to achieve a budget surplus, partly by putting added pressure on the ATO to reduce costs and boost revenue.

 

But it isn't just the ATO; the federal government has made it clear it wants all federal agencies to shift towards a ''dispute resolution'' culture. These include the corporate regulator, the Australian Securities and Investments Commission, the financial services regulator, the Australian Prudential Regulation Authority and the competition regulator, the Australian Competition and Consumer Commission.

 

Court cases are costly, can take years to resolve and there is no guarantee of winning. In the High Court, statistics collated by the Inspector- General of Taxation show that since the ATO's most recent High Court victory in 2008, it has been involved in 10 other High Court battles for one victory. In sharp contrast, settlements are relatively quick, provide up-front cash and reduce legal bills.

 

With this in mind the ATO released a report on litigation, settlements and tribunals late last week, with a none-too-subtle message that resolving disputes before they get to the courts is a win-win for all parties.

 

The report, Your Case Matters, reveals that the number of court cases has nearly halved to 121 in 2011-12 and the number of appeals settled before a hearing more than tripled to 81 in 2011-12. While some of this is due to the finalisation of a number of mass-marketed scheme-related cases, it is also due to a concerted effort by the ATO to resolve matters before they get to messy legal action.

 

A perusal of the various market segments shows that on average the ATO claims twice what it ends up agreeing to settle. According to the report, the ATO settled 256 cases worth $920 million for $481 million in the last financial year. In the case of big business, the ATO settled with 17 companies in the year to June 30. The ATO's original gain was $408.6 million, but it settled for $215 million.

 

When it comes to the country's wealthiest, the ATO seems prepared to play hardball, with the report stating that the ATO pinged 15 high net wealth individuals with a tax dispute of $240 million. It eventually settled for $150 million.

For small businesses and micro businesses the ATO is prepared to give the most ground, settling micro at $53 million, compared with an origina claim of $153 million, which is a 64 per cent backdown and a 66 per cent variance on the original claim for small to medium sized businesses.

 

The message is, settlement works, even for serious tax fraud cases. Indeed, of the many cases that fall into this category, 49 were settled with 23 resolved at an early stage and the remainder before the hearing. But in the other 14 cases that escalated to the Federal Court or the Administrative Appeals Tribunal, the ATO won 11 of them.

 

The move by the ATO to settle disputes comes as the Inspector-General of Taxation, Ali Noroozi, released a report in May on the ATO's use of alternative dispute resolutions. It made 22 recommendations, all designed to improve the ATO's ability to settle disputes early. The ATO is implementing them at present.

 

The Clayton Utz partner Niv Tadmore says he believes the intensity and rigour of ATO audits is much higher since the GFC. He says the shift to early settlement and alternative dispute resolution will improve its performance as a tax administrator, including in respect of collection of revenue. ''We will be operating in a different tax disputes environment in three to five years,'' he says. ''There will be more issues resolved within a shorter period of time.''

It comes against a backdrop of other changes at the ATO, the most notable being the introduction of a reportable tax position system, which requires companies to signal to the ATO any financial decisions made when doing their tax returns that they believe might be contestable. They must lodge this with their tax return.

 

In the past year, 56 big companies took part in a pilot RTP program, but this financial year the RTP system has been expanded to taxpayers that the ATO categorises in the ''high-risk'' basket.

 

A reportable tax position system is a gift to the ATO as it requires companies to effectively blow the whistle on themselves. The ATO can then send in an audit team to investigate. If they see a tax issue, they can then settle it quickly and grab the cash.

 

While the ATO is sending out the warm fuzzy message that it wants to settle, the reality is far different. The ATO is a cold-blooded arm of the government with a single-minded purpose to collect tax and the government is on a mission to boost tax revenues, particularly given recent company results show a fall in profits and therefore tax payable.

 

By beefing up alternative dispute resolutions and engaging in more intrusive audits, including the introduction of the RPT, the ATO is effectively widening the net and, to extend the metaphor, it will catch more fish, which ultimately means raising more tax revenue.

 

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States cool on plan to create more childcare centres

Patricia Karvelas, The Australian, 10 September 2012

The Gillard government's plan to overhaul planning and tax laws to create more childcare places has been dealt a blow by the states, with only NSW welcoming the move. Queensland has its own plans under way and does not trust the federal government to reduce planning red tape, while Victoria claims there are no roadblocks to the development of childcare centres.

 

Childcare Minister Kate Ellis will write to state, territory and local governments to push for an overhaul of planning laws to allow the building of centres in areas of shortage. Ms Ellis said urgent action was needed on zoning, development consent, building code regulations and associated taxes, which she would raise at the next meeting with her state and territory counterparts.

 

A spokeswoman for the Victorian Coalition government said the state had nothing it could change to make more land for childcare centres available. NSW Education Minister Adrian Piccoli was prepared to work with Canberra, giving the most positive response. ``I agree that there need to be affordable and accessible childcare places in NSW where needed and I look forward to seeing the proposal from the commonwealth at the next Ministerial Council Meeting.''

A spokesman for the Queensland Liberal National Party government said it was yet to receive Ms Ellis's letter. ``The Gillard government is not known for making regulatory matters easier to deal with; rather, its approach is to further burden business with red tape,'' he said.

 

Speaking on Friday, he said the Queensland government was not aware of any planning restrictions or requirements imposed by the state on the location of childcare facilities. The Newman LNP government was reviewing all state planning policies to remove unnecessary, restrictive regulation and provide a positive, enabling planning system.

West Australian Community Services Minister Robyn McSweeney said there were ``no planning impediments to the establishment of childcare centres in WA which have been brought to the state government's attention to date''.

Ms Ellis said data released last week by her department showed a 9 per cent growth in the number of children in childcare, but this was not being matched by the growth in services in some areas.

 

She called for the involvement of local government, especially those councils in growth corridors as well as areas where there was an oversupply. ``There are still state and local government barriers stopping new childcare services from being established,'' she said.

 

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Labor goes after super tax breaks

Laura Tingle and Katie Walsh, Australian Financial Review, September 9 2012 

The federal government is considering cutting billions in superannuation tax concessions to pay for expensive new policies in education and disability services. Generous capital gains tax breaks for self-managed superannuation funds which invest in property are the government’s clearest target. For the first time, the government is also focusing on super tax benefits after people retire, when pensions paid by superannuation are tax free.

 

When Labor commissioned the Henry review of the taxation system in 2008, it excluded any discussion of ending the tax-free status of superannuation pension payments. The government isn’t considering imposing tax on super pensions. However, it appears to be concerned that some superannuation nest eggs are so big they go beyond what is needed to fund a comfortable retirement and wants to limit the cost of such funds to the public purse.

 

The government wants to stop the super system from becoming a massive tax-minimisation scheme. The super tax system was established by the Hawke/Keating government in the 1980s.

 

The Gillard government’s move is in line with budget measures this year to reduce the relative value of tax concessions for the wealthy on their super contributions.

 

A Tax Office ruling five years ago that allows self-managed super funds, which hold assets worth $440 billion, to borrow for investments triggered a surge in purchases by super funds of houses, apartments and shares. Artwork, jewellery and collectables have also become popular investments for super funds.

 

Earnings on assets owned by super funds are taxed at 15 per cent before the owner retires. After, the assets can be cashed out free of capital gains tax, which has helped make property an increasingly popular investment. There has been a 50 per cent surge of more than $15 billion in commercial property holdings by self-managed funds since June 2008 and a $4 billion increase in residential property holdings.

 

There has been a big increase in the number of self-managed funds – which can have a maximum of four owners – holding exceptionally large assets. Tax Office figures show there are more than 6000 self-managed super funds with assets of more than $5 million. Five have assets of $100 million, implying superannuation payouts of $25 million per individual. Many super funds don’t provide enough income for the retirement of average income earners.

 

There have long been warnings families have been using the super system to set up funds that skirt the spirit of the tax system.

 

For example, adult children may start a fund with their elderly parents. The children give money to the parents, who invest it in the family fund. The parents receive the money as a tax-free pension and return it to their children.

The latest tax expenditures statement from federal Treasury show the biggest cost to government revenue in the super system is the low tax rate charged for employer contributions, which cost about $14.9 billion last financial year.

The low tax rate charged on super entity earnings cost the government $14 billion in forgone income. Prime Minister Julia Gillard said this week that all levels of government would have to make tough policy choices to find the funds for education and disability reform and other policies. “I am prepared to make those choices but I want the Australian people to understand that today I am asking them to support not just our goals for school improvement but the tough budget choices that go with that,” she said.

 

“Governing is and has always been about setting priorities – and I want to make very clear this is not just one of my priorities, but one of the country’s priorities.”

 

The federal government’s thinking about possible changes to the super tax arrangements is in its nascent stages. The government believes it has an obligation to implicitly recognise a “grand bargain” between the compulsory nature of superannuation contributions and the tax treatment of contributions and earnings.

 

But Treasury has identified self-managed super funds as the “taxation minimisation vehicle of choice” in its 2010 brief to the incoming government and warned the superannuation system was “increasingly leaking revenue”.

 

In a speech last month, Treasury’s executive director of the revenue group, Rob Heferen, said that while Australia nominally had a comprehensive income tax system, the capital gains tax discount and the treatment of superannuation “has shifted it closer to an expenditure tax model”.

 

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Online tax no silver bullet, say retailers

Deborah Gough, Sydney Morning Herald, 9 September 2012

A goods and services tax on overseas online purchases will make Australian retailers only slightly more competitive, and will not be the adrenalin shot needed to revive local shopping, analysts and retailers say.

 

A federal taskforce study has given support to lowering the $1000 threshold on GST on imported goods, saying the cost of collecting the revenue may not be as high as previously suggested by a Productivity Commission report.

But, said Deakin University lecturer in consumer marketing Michael Callaghan, shoppers who bought from overseas websites would not be deterred by a 10 per cent rise through the GST, because they often saved up to 50 per cent. ''It is not going to alter shopping behaviour, that will just continue,'' Mr Callaghan said. ''If they do their sums, if it was 10 per cent less they [consumers] would probably go to the local shops for it, but anything more and they will continue to go where it is cheapest.''

 

A National Australia Bank study released this month showed international online sales made up only 28 per cent of total online sales; the rest were from domestic retailers.

 

In the year to June, the NAB Online Retail Sales Index found, traditional retail spending was at $220 billion while online retail spending was at $11.7 billion.

 

Australian Retailers Association chief executive officer Russell Zimmerman agreed that lowering the GST threshold was only part of the problem for local retailers. ''It is not the silver bullet, there are three or four other barriers to more competitive pricing for Australian retailers,'' Mr Zimmerman said.

 

Wage rates for local shop assistants that were higher than in other countries and the cost of retail space were two of the factors that most affected the price of goods in shops, he said.

 

Mr Zimmerman pointed to Morgan Stanley research released in July that showed retailers paid up to three times more per square metre in rent than for comparable space in the United States.

 

The study into the GST threshold by the Low Value Parcel Processing Taskforce was released last week by the Assistant Treasurer, David Bradbury.

 

The taskforce estimated that if the threshold was lowered to $500, it would cost $20 to collect $60 in GST revenue per item, on average. If the threshold was lowered to zero, the cost would be $12 for a $7 GST return per item.

 

The government has not responded to the recommendations but told the ABC that any change would affect Customs and Australia Post and freight companies. ''Even if we pass a law and say you have to register for GST, the difficulty we have is when they thumb their nose at us and say, 'Well, we're not going to','' Mr Bradbury said.

 

''At that point we have an enforcement issue''.

 

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Retailers want swift action on online GST

Colin Brinsden, Sydney Morning Herald, September 7, 2012

Retailers hope the federal government doesn't spend too much time contemplating calls to impose GST on items bought online from overseas, after NSW Treasurer Mike Baird called for a sharp reduction in the $1000 tax threshold.

 

Mr Baird wants Canberra to slash the threshold to $30, as recommended in a report last year by the Productivity Commission, to bring the tax system into the "modern age" and reflect the shift to online retailing. "If this is a growing trend, it seems strange that Australia is so far different from the rest of the countries around the world," he told ABC radio on Friday.

Australians enjoy GST-free goods purchased from abroad online if they cost less than $1000, and they are also enjoying the benefits of the high Australian dollar at a time when local retail sector is in the doldrums.

Data this week showed retail spending at "brick-and-mortar" stores shrank 0.8 per cent in July, compared with the previous month, and was the biggest monthly drop in nearly two years.

 

The Australian National Retailers Association (ANRA) said a number of international governments, including the Britain and Canada, had dealt with the issue of consumption taxes on foreign goods years ago. "I think it is about time we got real about this," ANRA chief executive Margy Osmond told Sky News.

 

While she appreciated the government would need time to consider another report, handed to the government by its Low Value Parcel Processing Taskforce, she said retailers wanted action now. "We are in the run-up to Christmas now. The last thing we need is an extended period of navel gazing and for retailers to lose the benefit this Christmas and potentially the next one," she said.

 

Assistant federal treasurer David Bradbury said there was no silver bullet to address an issue that was complex and difficult to enforce, although the taskforce report suggested making the change might not be as costly as the Productivity Commission concluded.

 

The report focused on what can be done around customs and handling processes that might reduce costs if the government went down the path of reducing the GST threshold.

 

Mr Bradbury said the way GST normally worked was the company supplying the goods and services was located in Australia, registered for GST and had an obligation to comply with GST laws. "If they don't comply, then the tax office goes after them," he told ABC radio.

 

But even if a law was passed to cover goods sold to Australian by offshore websites by making companies register for GST, a firm could still "thumb their nose at us" and not do it. "At that point we have an enforcement issue," he said.

"That's a very complex issue in terms of managing the flow of those physical items into the country, and that impacts on Australia Post, on customs, on all of the freight forwarders and handlers."

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 NSW eyes online shopping for GST boost

ABC Online, 7 September 2012

The New South Wales Government has thrown its weight behind plans to make online shoppers pay more for goods purchased from overseas.

 

State Treasurer Mike Baird says the threshold for paying GST on overseas online purchases should be lowered from its current level of $1,000, saying that in other countries similar taxes kick in at prices between $19 and $28. The move could potentially raise hundreds of millions of dollars and allow New South Wales to dump stamp duty on new home purchases without taking a revenue hit.

 

Last year a Productivity Commission report found that lowering the GST threshold would not be worth it, because it believed the cost of collecting the tax would be more than what the Government would actually pocket in revenue. But a new report commissioned by the Federal Government and released yesterday found the opposite, saying the incremental revenue raised by scrapping the threshold would cover the cost of collecting GST.

 

For example, the report said that dropping the threshold to $100 would cost the Government $15 to collect the tax, but would raise $22 in GST.

 

The change has also been the subject of a campaign by some retailers. Mr Baird says there are a number of precedents for a rethink. "Around the world it is significantly lower, in places like Canada it is $19; in the UK it is $28," he said.

 

"Importantly, it is about looking for additional revenue opportunities for the state, but at the same time that could be used to offset some of our inefficient taxes.

 

"Stamp duty in particular [is] obviously the most inefficient tax that we have."

 

Questioning the cost of administering the threshold change, the Productivity Commission's report estimated that it "would generate revenue of around $600 million at a cost of well over $2 billion borne by businesses consumers and government."

 

Mr Baird admits it would be an issue. "Such a consideration would be done when more revenue is raised than the cost," he said.

 

"I think it's time that this was looked at and something that I'll be proposing to the state treasurers."

 

The National Retailers Association's Margy Osmond told AM that governments should act sooner rather than later. "The last thing we need now is another endless discussion about this," she said.

 

"It is about money that would flow back to the states for hospitals and schools and roads.

 

"It is about levelling the playing field for local retailers, whether they're bricks and mortar or online, for a marketplace that employs 1.2 million Australians."

 

The Federal Government says it is considering whether to lower the GST-free threshold. But Assistant Federal Treasurer David Bradbury says some foreign bought items would still be cheaper even if GST was payable. "It is a significant issue, it's not the only or most important issue in the retail sector," he said.

 

"But we are committed to working with all of the relevant stakeholders to work through this and see whether or not a more level playing field can be achieved in a way where the costs of doing that do not grossly outweigh the benefits." Mr Baird expects to put the ideas to his counterparts at COAG before the end of the year.

 

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No tax hikes for Gonski reform: PM

Bianca Hall and Michelle Grattan, The Age, 5 September 2012

PRIME Minister Julia Gillard has ruled out raising taxes to pay for the Gonski schools funding reforms, dismissing the suggestion as an opposition scare campaign.

 

And Australia's university peak body says the Prime Minister's plan to have student teachers come from only the top 30 per cent of year 12 students is unworkable and ''completely undermines'' current university entry schemes.

Universities Australia chief executive Belinda Robinson said Ms Gillard's announcement on Monday was incompatible with the move to uncap university places.

 

''As soon as she said it, I said, 'huh?' '' Ms Robinson told The Age. She said raising teaching salaries would be a better way of attracting students to teaching.

 

Currently Australian Tertiary Admission Ranks for undergraduate education courses vary, with Australian Catholic University offering a course with a 59.2 ATAR, RMIT offering one with a 69.35 ATAR. Courses regularly require ATARs of above 75. A spokesman for Tertiary Education Minister Chris Evans insisted student teachers would have to be ''in the top 30 per cent of the population for literacy and numeracy''.

 

Meanwhile, Ms Gillard spent yesterday moving to assure the states that her new federal education funding plan would not remove autonomy from them or their schools.

 

Victoria, Queensland and Western Australia remain angered by the plan, with Victorian Premier Ted Baillieu saying yesterday: ''I don't think there's anybody in Australia who has a clue what Julia Gillard actually meant … no funding, no details, no certainty and there has been no discussion with the states about the level of funding.''

 

Only Tasmania, the ACT and South Australia pledged outright support. Queensland's Campbell Newman said people should ''stop believing the Prime Minister''. But New South Wales' Barry O'Farrell was more supportive. He said that since the Gonski report was released in February ''I've repeatedly said that it was heading in right direction''. Ms Gillard had a meeting with Western Australian Premier Colin Barnett in Perth yesterday.

 

Mr Barnett later said he was pleased with his meeting. ''The Prime Minister made it very clear that the Commonwealth didn't have any ambition of running schools or employing teachers,'' he said.

 

In Perth Ms Gillard also urged the mining industry to lobby premiers to back the schools reform, which will cost $6.5 billion a year extra, an unspecified part of which the Commonwealth wants the states to provide.

 

Speaking to a mining convention in Perth she said implementing the plan would certainly take money but ''the availability of money depends on the availability of willpower and co-operation''.

 

In a cheeky jibe at the miners' campaign against the resource tax, the Prime Minister said: ''Now the mining industry knows a thing or two about lobbying. Let's say you can be influential when you get together.

 

''So use that tremendous organising power to say to the premiers and chief ministers: get on board with Gillard's plan.''

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Sydney of future faces tax on traffic

Imre Salusinszky, The Australian, 5 September 2012

Commuters in Sydney will know by Christmas which of the "missing links" in the city's freeway system the O'Farrell Coalition government plans to tackle during its first term in office.

 

But motorists are on a warning they may be forced to pay distance-based tolls and higher peak-hour parking charges -- a congestion tax under another name -- to pay for the project and ease congestion.

 

The announcements were made by NSW Premier Barry O'Farrell yesterday as he released a 20-year transport masterplan for the state.

 

A key feature of the plan is aligning land use and transport so that selected corridors are quarantined from development to leave room for future roads, rail lines, or dedicated bus routes.

 

The masterplan lists major projects, such as an extension of the M4 motorway, which terminates 15km west of the CBD, and a second Sydney Harbour crossing for trains, which could boost capacity across the rail network by up to half.

 

But there were no deadlines or funding details, which will follow in coming months and years. The first and most important will be a report by Infrastructure NSW, in about four weeks, which will list capital spending priorities.

Mr O'Farrell said the government would respond to that report by Christmas and be guided by it in committing immediately to one of the missing links: the extension of the M4 into the CBD; a second tunnel on the M5 connecting Sydney Airport to the southwest; a connecting link from the F3 to the M2; or a new F6 linking the CBD to Waterfall on Sydney's southern outskirts. Mr O'Farrell said: "This is a plan for the whole of NSW developed with the people of NSW and it will deliver for major cities and rural and regional areas."

 

The most controversial suggestions in the masterplan are to investigate "a consistent distance-based tolling regime for the Sydney motorway network" and a possible boost in parking charges to encourage use of public transport during peak periods.

 

Sydney University transport expert David Henscher said distance-based tolling would work only if applied across the freeway network. "The last thing you'd do is put it only on selected roads," he said.

 

NSW Opposition Leader John Robertson branded the masterplan a "road map to nowhere". "Instead of building rail links and new motorways, like he promised, Barry O'Farrell wants to make people pay for roads they are currently using for free," he said.

 

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 Rinehart’s zone push ‘worth exploring’: Hockey

Australian Financial Review, September 5 2012

The federal opposition is entertaining Gina Rinehart's push for a special economic zone in Australia's north.

 

The billionaire is the chairwoman of Australians for Northern Development and Economic Vision, which says it wants to unleash the potential of northern Australia by moving government out of the way.

 

Opposition treasury spokesman Joe Hockey has indicated that he agrees with the group's notion that Australia's north should be classed as a distinct economic zone for tax and concessions.

 

Mr Hockey says he has been discussing the issue with Opposition Leader Tony Abbott and others.

 

Prime Minister Julia Gillard has dismissed the iron ore magnate's call.

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Tourism drops after introduction of new tax

Angela Saurine, The Australian, 4 September 2012

 

Australian tourism has suffered a setback following the rise in the overseas departure tax, while growth in international travel by Australians has also slowed.

 

The number of international visitors fell by more than one per cent compared to the same month last year, according to latest Overseas Arrivals and Departures figures from the Australian Bureau of Statistics.

The growth in international travel by Australians also slowed to under one per cent, compared to an annual rate of more than seven per cent. The passenger movement charge rose from $47 to $55 in July after changes announced by the government in the May budget.

Arrivals from Australia's biggest source market, New Zealand, fell by more than four per cent. Tourists from Thailand fell nearly 20 per cent, Korea dropped almost 13 per cent and Malaysia was down more than three per cent.

Tourism and Transport Forum chief executive John Lee said the falls showed fears about the impact of the rise in the passenger movement charge were well-founded.

"Price-sensitive leisure travellers will be put off visiting Australia, which now has the highest departure tax for short-haul flights of any developed country,'' he said.

"The passenger movement charge is an inequitable charge which unfairly impacts on visitors from short-haul markets and we are concerned that this is just the beginning of exacerbated declines in arrivals from markets Australia is targeting for growth in the future.''

The Tourism and Transport Forum has written to prime minister Julia Gillard to reiterate its concerns about the rise and ask her to discuss measures with New Zealand prime minister John Key to mitigate this impact.

 

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Gillard says no tax hike for school plan

Sydney Morning Herald, September 4, 2012

Prime Minister Julia Gillard has ruled out tax increases to pay for the federal government's portion of a new schools funding model that will require an extra $6.5 billion a year.Ms Gillard also insisted Labor would "certainly" deliver a budget surplus in 2012/13 as promised.

 

But Liberal premiers in NSW, Queensland, Victoria and Western Australia say the schools proposal lacks detail and they want to know how the $6.5 billion would be split.The commonwealth currently pays 30 per cent of schools funding.

Ms Gillard reiterated on Tuesday she was asking for some "tough decisions" but wouldn't be drawn on where federal spending cuts would be made to pay for the plan. "I'm not going to play silly rule-in and rule-out games," she told ABC radio. But she later told Sydney radio 2SM: "We are not going to have taxes rise".

 

The prime minister said the detail would be revealed after a deal was finalised with the states and territories, which is expected by the first Council of Australian Governments meeting in early 2013. The extra money for schools will be gradually added over six years from 2014 - the first year after current funding arrangements expire and the first year after the next federal election due in late 2013 - with the aim of lifting Australia's global education system ranking to the top five by 2025.

 

Ms Gillard said the states must pay their "fair share" but anticipates "usual posturing" from the premiers during negotiations.

Meanwhile, shadow treasurer Joe Hockey dismissed Labor's school funding plan as "building monuments to the Gillard government". He said Labor had a huge challenge to find the cash needed to support the model. "Words set goals - what sets outcomes is legislative action backed by real money on the table," Mr Hockey told Sky News. "I'm sick of the government lying to people about what they're promising and what they're delivering, it's massively overdone."

 

Finance Minister Penny Wong accused Mr Hockey of being "shrill and carping" and said she hoped the premiers would not take the same approach when they meet with Ms Gillard. "It was so shrill and carping and negative - surprising that Joe seems to have gone down that path," Senator Wong told Sky News.

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Dental scheme: safety net or spider’s web?

Jamie Briggs, Australian Financial Review, 04 Sep 2012

Federal Health Minister Tanya Plibersek stood with Greens senator Richard Di Natale last week to proudly announced a new scheme to ensure every approved child has access to “free” dental care from 2014. Asked by journalists how the government was going to pay for this $4 billion “free” scheme, the minister proudly and unashamedly proclaimed that the government would let us know later.

 

Later the ABC’s 7.30 TV coverage included an interview with a disability pensioner. The welfare recipient, clearly delighted with the news, remarked: “I’d like to go and see a dentist regularly if it was for free . . . and they were more readily available by the government.” Thankfully for this pensioner, she has Tanya on her side.

The problem with this is that when we are told it is free, it means it is provided by the government, which means you, the taxpayer. And, frankly, it is far from free. In fact it is extremely expensive and in large part paid for by future generations. As are the other $120 billion worth of unfunded commitments the government has made in recent months, revealed by The Australian Financial Review last week.

 

It is easy for politicians to make popular social spending announcements that satisfy a group and a perceived need in our society, particularly when you don’t see it as necessary to allocate the funding within our means. If you argue against this on the basis of fiscal prudence you are labelled as callous, lacking empathy and with no adherence for social equality. Caring about our future financial sustainability should not be read as not caring about looking after those in need, rather it should seen as trying to ensure the government is doing only what it needs to do and no more.

 

Borrowing money to fund a new social spending program without any idea how it is to be funded is not achieving the social equity its proponents would have you believe. It creates an intergenerational debt time-bomb that will explode in the face of the next generation, creating more inequality than we can possibly imagine. In fact, we don’t have to imagine, we only need to see the developing social disorder in European economies to realise what happens when a government promises and spends too much, for too long.

Of course, social equity is in the eye of the beholder. Reliance by an increasing number on welfare means that those who fight to avoid the welfare trap – in most cases by outrageously striving to earn more than the legislated means test – pay an ever-increasing bill for those rewarded with “free” services.

 

How is it fair or equitable for middle-income families to be punished for being more successful? How is it fair or equitable for a government policy to punish those who are trying to make a better life for their family by paying more tax for services of those who don’t? Or for a government to announce long-term spending without giving thought to how future generations will pay for their choices? The problem with the Plibersek view of the world is that it quickly turns the safety net into a spider’s web, where people are stuck in the cycle of government dependence with no way out.

 

The truth is that being in government is ultimately about choices. A government that chooses to commit billions to social spending without a means to pay for it is making a choice based on their political priorities, while at the same time showing a reckless indifference to the budget it will bequeath to future generations. A government that chooses to increase welfare reliance ultimately ensures a larger state with less choice for its own citizens.

Australia should have a social safety net but it must be no more than absolutely necessary and it certainly needs to be within our means. Anything else, in the long run, is the most inequitable policy a government can pursue.

 

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Streamlined Aussie-NZ tax systems 'would save $4bn'

Annabel Hepworth, The Australian, August 30, 2012

A high powered group of industry leaders, including former Sydney Olympics supremo Rod McGeoch, is calling for major streamlining of the tax systems of Australia and New Zealand to help create a seamless trans-Tasman powerhouse and unlock $NZ5.3 billion ($4.1bn) in economic growth across the nations.

The Australia New Zealand Leadership Forum has commissioned modelling that calls for scrapping double taxation of trans-Tasman investment, finding it is a form of tariff and is causing investment decisions to be made with minimising tax payments in mind.

 

Under the existing system, Australian investors in New Zealand are slugged with an effective tax rate of 60 per cent because investment dividends are subject to company tax in New Zealand as well as personal tax in Australia. But the forum, co-chaired by Mr McGeoch, wants the nations to agree to mutual recognition of their franking and imputation credit schemes, a move that would let people claim personal refunds on the tax companies have already paid on the dividends they distribute to shareholders. So far, governments have resisted the plan because of concerns that it would take a toll on revenue.

 

New Zealand wants to return its budget to surplus by 2014-15, while in Australia the government has forecast a return to surplus in 2012-13 of $1.5bn. But the modelling by Sydney's Centre for International Economics and the New Zealand Institute of Economic Research finds that mutual recognition would cause the trans-Tasman economy to grow by NZ$5.3bn by 2030.

 

Household incomes would rise by $NZ7bn, generating tax revenues in turn as the money was reinvested or spent. But there would be a short-term hit to tax revenues of NZ$494 million for Australia and NZ$156m for New Zealand. And the bigger boost to GDP would be to NZ, as Australia is such a significant investor and has tipped about NZ$37.5bn into the Kiwi market.

 

The modelling was given this week to the Productivity Commissions of each country, which are conducting a joint inquiry ordered by Julia Gillard and New Zealand's Prime Minister John Key into strengthening economic ties. Former prime minister Kevin Rudd promised to help create a single trans-Tasman economic market, but the forum says that tens of billions of dollars of investment has been left out. "While much progress has been made in the markets for goods and services, there remain barriers to the free flow of capital," Mr McGeoch and his co-chairman, Jonathan Ling, told the Productivity Commission in a letter dated Monday. Mr Ling is the boss of Fletcher Building, an Auckland-based group that is listed in both Australia and New Zealand.

 

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Federal ministers urged to act on housing

The Australian, August 30, 2012

Welfare groups say tax reform, improved rent assistance and a target for building low-cost rental properties will improve the housing affordability crisis.

 

Australians for Affordable Housing have released a four-item wish list ahead of a meeting of federal and state housing ministers in Perth on Friday. The campaigners want a housing fund set up to deliver between 20,000 to 30,000 new affordable housing units each year.

 

Spokeswoman Sarah Toohey said housing affordability could also be improved through reform of tax breaks for housing investors, such as negative gearing and capital gains tax discounts. They also want an increase of between $22 and $27 per week in commonwealth rent assistance. "The cost of living debate should be a cost of housing debate," Ms Toohey said. "Housing is the single biggest household cost in Australia and, over the last 25 years, housing costs have been taking a bigger bite our of the household budgets."

 

In the past 25 years, housing costs as a proportion of household spending had risen by 41 per cent, Ms Toohey said. In contrast, she said, Australians were spending slightly less on energy bills compared to 1984. "We hear increasing outrage about the burdens of power bills, political parties are not calling for similar action on our housing affordability crisis," she said.

 

Australian Greens senator Scott Ludlam said the target of 30,000 units would reduce homelessness and bring stability to the lives of many people who struggle to pay the rent from one fortnight to the next.

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A dental sweetener with a bite

The Australian, August 30, 2012

As a means of regaining support in its former heartlands, the Gillard government's $4.2 billion dental subsidy to be spent over six years is likely to be a real sweetener. It will have broad appeal, giving families eligible for Family Tax Benefit Part A up to $1000 worth of dental care over two years for each child aged two to 17 from January 2014.

As well as benefiting 3.4 million children, low-income adults such as pensioners and concession card holders will also be assisted. It will be especially beneficial for families without private healthcare "extras" cover.

 

A year ago, Newspoll research for The Australian found that 35 per cent of people had, to save money, delayed or avoided seeing a dentist, which is why the initiative will produce better social outcomes than untargeted lump-sum payments spent on plasma-television sets. And the government estimates that one in five poorer Australians have not seen a dentist in five years, if ever. Such a situation is unacceptable in an advanced economy, though more people could have taken greater personal responsibility and cut down on alcohol, cigarettes and sweets to afford a dental check-up.

 

Health Minister Tanya Plibersek is right when she says the new scheme focuses on children and will make dental care "accessible, affordable and focuses on prevention". For all the hype about the generosity of the scheme, however, through an adroit piece of political footwork, the government has set itself up to save money on public dental care - assuming that most of the eligible families with 3.4 million children do not spend the maximum entitlement. The main saving will come from scrapping the Chronic Disease Dental Scheme, which cost taxpayers $953 million to treat 1.5 million patients during the 2011-12 financial year. This makes sense. The CDDS, which was not means tested, was instigated by the Howard government and entitled patients to claim $4250 for dental treatment over two years after a GP had determined they had a chronic health problem. Because it was not well focused and targeted, it was subjected to rorting and over-servicing, which should never be tolerated. It is not the role of government to provide cradle-to-grave welfare, including funding dental health, but to provide a safety net for those in need. On that score, Ms Plibersek's scheme is better policy than the previous scheme and smart politics.

 

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NSW govt rules out congestion tax

The Australian, August 30, 2012 7:10AM

The NSW government has ruled out introducing a congestion tax in Sydney despite opposition claims it is secretly working to impose such a measure.

 

NSW Roads Minister Duncan Gay says the government is considering implementing pricing mechanisms like distance-based tolling but strongly denies claims a congestion tax would be introduced."The NSW government is not planning to introduce a congestion tax," he said in a statement."We will consider advice from the experts and the community and make an announcement about the best way to deliver transport infrastructure into the future."But imposing a congestion tax on motorists has been ruled out."

 

The opposition, however, said transport experts had told it the O'Farrell government was enthusiastically working on a congestion charge."Transport experts have confirmed the premier is secretly working on it right now," Opposition Leader John Robertson said.

 

Mr Robertson said introducing a congestion tax would break an election promise and hurt families and small businesses. "Instead of building new roads and rail infrastructure to deal with congestion, Barry O'Farrell's solution is to tax motorists," he said. "The premier needs to come clean today - where does he plan to slug motorists? On what roads? And by how much?"

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Complex laws encourage avoidance

Peter Anderson, Australian Financial Review, 29 August 2012

As a student in the 1980s, I recall the secretary of the Taxpayers Association, Eric Risstrom, railing against the complexity of tax laws. Each federal budget, he persuasively argued that tax laws were so complex they made it hard for honest people to comply, and they spawned an avoidance industry that undermined the rule of law. Sadly, Risstrom has passed on. Nowadays, most have given up that fight to accountants and lawyers.

 

If there were an Olympics for legal complexity, our tax system would fast be challenged by industrial relations laws. The federal government’s recent 294-page Fair Work review proposed 53 technical changes to a 600-page Act that gives rise to hundreds of extra pages of transitional legislation. And don’t forget the thousands more rules in industry awards, which have been reduced in number but expanded in content, and are far from “modern”.

On the score of comprehension, its industrial relations predecessor, Work Choices, was no better. The bureaucrat’s handbook for approving agreements ran to 100 pages, and approval times took months – if you were lucky.  Given business owners have a responsibility to comply with workplace and tax law, it is reasonable for business to expect governments to make laws that are accessible and comprehensible.

 

Complexity fosters an avoidance mentality, not just in business, but also among trade unions. Avoidance does as much damage to the rule of law as non-compliance. Some of the most damaging examples are the ways unions get around laws against unlawful strike action. Two recent disputes in Melbourne – at a Coles warehouse and the Myer city store – saw businesses find it difficult to have court orders against unlawful picket lines enforced.

 

The head of Grocon, Daniel Grollo, this week pointedly said he hoped business and political leaders were watching closely. Watch we did, and it was ugly. Since the waterfront dispute, unions in our second largest state have largely got away with labelling a picket line a community protest. Court orders have been one step behind, just like the 1970s taxman trying to chase bottom-of-the-harbour tax schemes. In last month’s Coles warehouse dispute, the union disowned the picket. Remarkably, when the dispute was settled, the union assured all and sundry that the picket would disappear.

 

Strikes damage innocent parties, the public no less. The rule of law has to push back against artificial tactics that sanitise industrial misbehaviour, such as flying pickets, community protests that prevent the freedom of non-protesters, and memorandums of understanding with enforcement agencies. When court orders don’t have the intended effect, something is seriously wrong.

 

Unions taking strike action usually defend themselves by criticising employers for not genuinely bargaining. But understanding bargaining rules is no easier than working out who is an employee or a contractor under tax laws. In a recent case, Federal Court Judge Geoffrey Flick resorted to multiple dictionary definitions of bargaining to work out how mute or otherwise an employer was allowed to be when faced with union claims. He went on to say that “illustrative of the process of ‘bargaining’ or ‘haggling’ is the exchange between Brian and the street merchant in Monty Python’s Life of Brian.”

 

As a Monty Python tragic, I like His Honour’s analogy. But as a business leader requiring my members to comply with workplace laws, resort to the Pythonesque world is a reminder of how far removed the Fair Work system is from business reality. If industrial law is not to be avoided or mocked, it needs to stand up to the myriad ways that unions and smart lawyers use to get around anti-strike laws or laws prohibiting pattern bargaining.

The government’s Fair Work review proposes some useful technical changes, but on these bigger questions, it sat mute. The now infamous haggling scene in Life of Brian has now found its way into industrial relations jurisprudence as a means of interpreting Fair Work laws. Just as businesses cannot sit mute against unreasonable union claims, nor can governments when their laws don’t bring ugly strikes to a just end.

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New fire levy added to rates

Tom Arup, The Age, August 29, 2012

Households will soon pay about $140 through their council rates to help fund Victoria's firefighting services under one of the biggest shake-ups of state taxes in decades. The Baillieu government says the changes - from 2013-14 - will leave most households better off as it will scrap the existing fire services levy on house and business insurance premiums from next July, spreading the tax burden to more people through a new property-based levy.

The changes largely follow recommendations by the royal commission on the Black Saturday bushfires and mean homes and businesses currently not insured or underinsured will now make a full contribution to the costs of running the Metropolitan Fire Brigade and the Country Fire Authority. The former head of the Australian Competition and Consumer Commission, Professor Allan Fels, has been drafted as a monitor on insurance companies to ensure the savings are passed on. Premier Ted Baillieu yesterday described the current system as broken. ''It's ineffective, it's unfair, it's inequitable and we're going to change it,'' he said.

 

The new levy will be charged on properties and collected by councils when rates are due. Each household will be charged a flat rate of $100 a year, while commercial, industrial and farming properties will pay $200. In addition, homeowners will pay a variable amount - averaging around $40 - depending on the value of their property and the funding needs of the firefighting services.

 

The government currently charges a fire services levy on home and contents and commercial insurance policies. In recent years, the levy has risen to as much as 95 per cent of premiums in some parts of country Victoria, sparking uproar from farming bodies. Under the changes, the government will not collect the GST and stamp duty charged on the fire levy, costing the state budget $75 million a year. It will also offer a $50-a-year concession to pensioners and veterans at an annual cost of $20 million.

 

But the opposition yesterday said the government had failed to extend the $50 concession to healthcare card holders. The government estimates the changes will mean households will pay on average $145 in metropolitan regions in 2013-14, down from $195 under the current system. In country areas, households will pay an average $140, down from $260. Treasurer Kim Wells said households and businesses overall stood to be more than $100 million a year better off.

 

But Property Council of Australia executive director Jennifer Cunich said modelling showed the changes could mean an increase of up to 800 per cent on current fees for commercial property. "This is a concern as the Victorian commercial property market is already losing momentum. The proposed measure could further inhibit economic activity and job creation," Ms Cunich said. Municipal Association of Victoria chief executive Rob Spence said councils did not welcome the burden of tax collection. ''Councils shouldn't become the whipping boy for people unhappy about the state government levy,'' he said.

 

Opposition treasury spokesman Tim Holding said the government should guarantee that no insured Victorian property owner would be worse off.

Insurance Council of Australia chief executive Rob Whelan welcomed the reform, saying the current levy added about 20 per cent to the premium for a metropolitan home and contents policy, and 35 per cent in regional areas. "The insurance industry supports the disclosure and transparency of information and looks forward to working with Professor Fels and Victorian agencies during the transition period,'' he said.

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Can we afford national disability insurance?

Alan Mitchell, Australian Financial Review, 29 Aug 2012

Can we afford the proposed national disability insurance scheme? According to documents released by the Treasury, wage rises for community workers have increased the additional annual running cost of the fully fledged scheme by 15 per cent, to $7.5 billion at 2012 prices. With Treasury secretary Martin Parkinson warning about the revenue shortage now gripping the budget, it may not be long before politicians start talking about phasing the scheme in “as budgetary conditions permit”.

 

But perhaps we are focusing on the wrong question. Obviously a country that earns $1400 billion a year in national income can afford $7.5 billion a year for a disability insurance scheme.  The most important question is not the cost to the budget, but the cost – and the benefits – to the economy. According to the Productivity Commission, the net economic cost of disabilities will fall with a properly constructed national insurance scheme.

That is not very surprising. The cost to the economy (as opposed to the budget) of providing the insurance scheme is nothing like $7.5 billion a year. That money is a transfer between members of the economy, and it is not a cost to the economy any more than a transfer of money between members of a household is a cost to that household.  The economic cost of taking $7.5 billion a year from taxpayers to spend on the disabled is the “deadweight” loss to the economy incurred as taxpayers work and invest less.

 

That was estimated by the commission at about $1.6 billion on the assumption that the scheme would be funded from income tax. (And it would be true even if other spending were cut to pay for the scheme: income tax would still have to be $7.5 billion higher with the scheme than without it.)  On the commission’s reckoning, the disability insurance, therefore, would have to generate benefits averaging $3800 for each of the 410,000 people funded by the scheme in order to offset the deadweight loss and pass a cost-benefit test, which it believes is “strongly probable”. Its calculation is based partly on an assumption that the money paid out by the scheme will be worth more to the beneficiaries than to the taxpayers who financed it. That seems reasonable.

People with disabilities and their carers are among the most disadvantaged in Australia. The money will make only a small difference to most taxpayers, but a big difference to the recipients. However, the estimate is also based on the expectation of significant efficiency gains in the disability services sector.  The commission cites a study of aged care that found efficiency could be improved by about 17 per cent. Aged care, it says, shares common features with some disability services.  Introducing a national insurance scheme and reforming the disability pension would also significantly increase employment among disabled people.

 

If Australia lifted its rate of employment among the disabled to the average for the rich developed economies, another 100,000 workers would be added to the workforce by 2050. That, the commission estimates, would increase real gross domestic product in that year by about 0.2 per cent, or about $8 billion.

If the federal government agreed to fully fund the disability insurance scheme, the states could use the money they saved to cut their least efficient taxes. The economic gain from the improvement in the tax mix is estimated by the commission to be about $500 million a year.

 

Of course, the federal and state governments don’t need a new disability support scheme to reform the national tax mix. A similar point also can be made about the estimated economic benefits of redistributing income to poor households. So some economists, therefore, will protest that the gains attributed to the disability reforms are exaggerated. But even if we accept that claim, the real cost of providing more efficient, pro-employment support for the disabled is still nothing like the cost estimates that now confront our politicians.

 

The problem is not the cost to the economy of the disability insurance scheme, which is small or even negative, but the reluctance of the politicians to make room for it in their economically inefficient federal and state budgets.

Australians are not highly taxed by rich-country standards, but our governments are too dependent on economically damaging taxes. And too much money is wasted on programs such as the submarines and subsidies to manufacturers, none of which have been subjected to the kind of rigorous, independent analysis applied to the disability insurance scheme.  Had there been more rigour in assessing public spending, disability insurance would have been in place years ago.

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US tax laws to hit banks

Eric Johnston, Sydney Morning Herald, August 29, 2012

THE government is seeking to secure a deal with US authorities aimed at easing the effect on Australian banks of tough new anti-tax avoidance laws. The move follows intense lobbying by Australian bank chiefs against the rules that require lenders here to identify American citizens and companies sheltering assets and investments offshore to avoid tax.

 

The US rules, the Foreign Account Tax Compliance Act, are due to come into effect from next July and are designed to help the US government track down any overseas assets and income of US tax evaders. But they require banks and investment funds to identify all US customers, report to the US tax authority and potentially withhold customer funds on certain income. Financial institutions that don't comply face a 30 per cent withholding tax on certain payments they receive from US sources.

 

Australian banks said the added cost of meeting the rules would be prohibitive and also voiced concern at disclosing customer information. A Treasury consultation paper issued yesterday has confirmed that Canberra was considering an agreement with the US.

''The objective of such an agreement would be to minimise compliance costs for Australian stakeholders while enhancing the existing tax co-operation arrangements between Australia and the US,'' the briefing paper said.

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