Let’s not get bogged down in an old debate

Debate has raged for some weeks now about the 'opportunity cost' of the federal government striking a deal last year with the big mining companies over the design of the proposed new minerals resource rent tax (MRRT). Recent reports have suggested that the amount of revenue ‘lost’ could be as high as $100bn over 10 years.

While this sort of analysis makes quite an emphatic statement about the revenue that would have been collected had the original policy design been implemented, the fact of the matter is that it’s a waste of time to keep discussing hypothetical projections about the original policy design – that debate has already run its course.

An almost unanimous chorus of opinion last year concluded that the government's policy design for the original resource super profits tax (RSPT) was flawed, and that significant policy changes would need to be made if the new tax arrangements were to be fair and justifiable on policy grounds.

During the height of the mining tax debate last year, the Institute was one of the lone voices that said the original RSPT would deliver significantly higher revenues than what the government was forecasting at the time.

How did we know that?

Policy history in Australia suggests that the Treasury Department typically underestimates the potential revenue to be collected from new tax imposts: capital gains tax, fringe benefits tax and GST are recent examples. The RSPT was always likely to follow suit; and the MRRT may yet prove to be the same as well.

Recent figures released about the foregone revenue in fact reaffirm the veracity of the concerns raised last year - that the original RSPT was simply too big an impost on the Australian resources sector.

In my mind, I think it's reasonable to secure a better return to the community from the country's natural mineral wealth, but I don’t think it’s reasonable to extract mountains of cash from normal commercial businesses that take calculated risks in return for premium profits.

That said, this debate about revenues is for the history books.

Focusing on the future, I hope the government takes steps soon to release a White Paper explaining the detailed policy principles for the new tax, so that businesses and their advisers can begin to understand the inner workings of how the new laws will operate.

An announcement by the government is anticipated in the very near future. Stay tuned!

A watershed moment for policymaking

It is no government secret that all too often, big policy decisions are made behind closed doors and rolled out to an unsuspecting sector of the economy when the political timing is right.

But in a welcome change of gears, the financial advisory services industry will not have to run after the ‘bus’ of legislative reform.  This week, representatives of the accounting profession and financial planning industry came together with policymakers in federal government to broker an agreement on how financial planners who provide taxation advice will be regulated going forward.

In a watershed moment for policymaking in financial advisory services, the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP, facilitated the agreement of a set of principles governing the regulation of financial planners who provide tax advice as part of financial planning services.

The new principles place consumer protection as the centrepiece of the design of the new regime.

The agreed principles spell out that ASIC would be the key agency for interacting with financial planners and consumers in relation to tax advice provided as part of financial planning services.  This would minimise duplication and red tape. However, ASIC would be supported by a strong and collaborative arrangement with the Tax Practitioners Board to utilise expertise (tax and finance), and ensure that consistent approaches to regulation can be implemented as far as possible.

This is a welcome milestone on a policy issue that has been lingering for well over 12 months, when financial planners were excluded from new rules introduced to regulate all tax advisory services and deliver consistent consumer protection measures to Australians who rely on that advice.

The details of this model are still being developed so changes are not yet applicable, but what is clear now is that the government will ultimately require planners to comply with specific competency standards in relation to the provision of tax advice; something that to this point, has not been a key feature of the existing Australian Financial Services licencing regime.

The Institute will continue to talk to the government throughout this ongoing process in the lead-up to the release of Exposure Draft legislation for public consultation in the next few months.

Overall, this is a very good outcome that prioritises the interests of consumers above other interests - precisely what you should do when you look to make important public policies changes such as this.

More information can be found on the Institute's website.

Easing the burden of natural disasters

Australia has seen its fair share of natural disasters this summer. Following the devastation caused by the flooding across Australia and Cyclone Yasi in northern Queensland, it is important for affected communities to rebuild and recover as soon as possible. The government’s responsibility is to assist individuals and businesses in this process.

A good way to speed up the recovery of communities is the introduction of an investment allowance for businesses impacted by the floods or the cyclone. This kind of incentive would encourage people to rebuild their businesses quickly and subsequently, rebuild the economy. The success of previous temporary investment allowances, such as the one used in 2009 during the global financial downturn, suggests this type of financial incentive is effective in kick-starting business activity when the economy needs it most.

For the long term, in light of this year’s natural disasters, and those in previous years (such as bushfires and storms), it is important that the government puts a plan in place to manage the unfortunate and unexpected (though not unpredictable) costs that natural disasters bring.

If the government sets aside funding (through cutting costs or delaying projects), Australia can be better prepared to rebuild and recover quickly, whatever nature may bring.

See our 2011-12 Federal Budget submission for more.