As easy as MRRT

Let me start by saying I’m feeling a bit sheepish looking at my last entry date on this blog. All I can say in my defence is it’s been hectic in the tax world!

Over the last few weeks the whole world, it seems, became besmirched in the resource super profits tax wrangle that emerged following the government’s package of tax reforms announced on 2 May.

Today, though, our new Prime Minister, Julia Gillard, revealed a re-design of the tax, putting an end to the speculation and uncertainty for many Australian businesses.

Fresh with a new name – the Minerals Resource Rent Tax – the new tax boasts several concessions which were deal-breakers up until now, including a reduction in the headline rate from 40% to 30%, an applicability to only iron ore and coal, and an uplift factor of the government bond rate plus 7%. In addition, oil and coal seam gas will be rolled into the existing Petroleum Resources Rent Tax and taxed at 40%.

While the changes mean the government loses $1.5bn of expected revenue, today’s announcement is a major win for investment certainty for Australian businesses and their shareholders.

From day one, it was clear the initial announcement of the proposed resource tax did not strike the right balance between delivering a better return to the community and protecting investment in the mining sector. But it looks as though today, we have finally achieved a much better balance of those objectives.

My feeling is that real progress can now be made in moving to the next stages of consultation around the detailed design features of the new tax. Key to this will be working through the details of how existing projects will be transitioned to the new regime.

Importantly, the government also said today it will retain other aspects of the tax package unveiled as part of its response to the Henry tax review; specifically, the corporate tax rate cut and the superannuation guarantee increases. This means taxpayers can now make fully informed, long term decisions about the impact of those changes.

The decision to wind-back the original 2% corporate tax rate cut to 1% is a shame, but in reality it is appropriate given the importance of getting the design of the new resource tax right. We’ll keep putting the case to the government to reduce the tax rate further once the budget bottom line improves a little.

Tax reform is never easy, but what the last two months have shown us is that early engagement around policy proposals in a more open and consultative manner is always better than a 'surprise launch' of tax reform announcements.

If the goal is long term tax reform, then we must heed the lessons from experiences like this. Wouldn’t you agree?