Earlier this week, the Organisation for Economic Cooperation and Development (OECD) released its most recent economic survey of Australia. Many of its observations and recommendations closely reflected the Institute’s position in a number of areas.
The report said that ‘the proposed changes in resource taxation are welcome but should go further’. The OECD confirmed the economic merits of moving to a rent tax approach to non-renewable resources to replace the existing state-based royalties system.
Similar to the Institute’s position, the OECD recommended that ‘the resource rent tax [should] be extended to all commodities and all companies irrespective of their size’. Members will recall that our submission to the Policy Transition Group about the Minerals Resource Rent Tax (MRRT) included recommendations that the policy design of the new MRRT should be easily adapted to other commodities in the future as Australia’s reliance on coal and iron ore exports diminishes over time. While this recommendation has not been received well by some parts of the mining sector, I believe it represents a sensible approach to policy-making.
In other parts of the report, the OECD made observations about the need for Australia to drive down its corporate income tax rate. The report noted that at 30%, Australia’s tax rate is ‘well above the average’ of all small to medium-sized OECD countries. This message is consistent with the policy arguments we made during the Henry tax review. (Dr Henry ultimately recommended that Australia should move to a 25% corporate tax rate.)
The OECD also delivered a strong message to the government about the need to ‘increase the weight of the GST in total tax revenues’. This means Australia should broaden the base of its GST system and increase its rate. This reflects the Institute’s own policy thinking over recent years – increasing revenue collected from the GST would allow Australia to abolish a raft of inefficient and distortionary state-based taxes such as stamp duty and other levies.
It seems to me that international economic thinking and analysis all point to the same conclusions. All we need now is for the government to start thinking the same way!
Tuesday, November 16, 2010
Wednesday, November 10, 2010
All may not be what it seems…
As many of you are aware, the mining tax policy consultation group swept through Sydney late last week. Led by Australian business sector veteran Don Argus and Resources Minister Martin Ferguson, the Policy Transition Group (PTG) held several meetings with stakeholders during the two days they were in town.
The Institute participated in one of the stakeholder meetings alongside representatives of the Big 4 accounting firms and other professional associations. However, the meeting was not quite what I had been expecting.
Since I attended the meeting, a number of people have asked me what I thought about the process – the way in which the government and the PTG are going about putting the design of the new mining tax together. Unfortunately, my response to that question has typically been one of concern.
The major question to come out of this process for me is whether or not the PTG will be able to influence the government and its agencies in the final design of how the new Minerals Resource Rent Tax (MRRT) will operate, given it is mainly made up of external executives from the resources sector.
At the Sydney meeting, we were advised that the Treasury Department had already started drafting the legislation surrounding the new MRRT. In order to draft legislation, Treasury must have a pretty good idea of how the detailed policy design is going to work.
Does that mean that the government and Treasury have already pre-judged the outcomes from the PTG consultation process? If so, is that really the way we want to go about critically important reforms to our tax system in the future? You be the judge.
The Institute participated in one of the stakeholder meetings alongside representatives of the Big 4 accounting firms and other professional associations. However, the meeting was not quite what I had been expecting.
Since I attended the meeting, a number of people have asked me what I thought about the process – the way in which the government and the PTG are going about putting the design of the new mining tax together. Unfortunately, my response to that question has typically been one of concern.
The major question to come out of this process for me is whether or not the PTG will be able to influence the government and its agencies in the final design of how the new Minerals Resource Rent Tax (MRRT) will operate, given it is mainly made up of external executives from the resources sector.
At the Sydney meeting, we were advised that the Treasury Department had already started drafting the legislation surrounding the new MRRT. In order to draft legislation, Treasury must have a pretty good idea of how the detailed policy design is going to work.
Does that mean that the government and Treasury have already pre-judged the outcomes from the PTG consultation process? If so, is that really the way we want to go about critically important reforms to our tax system in the future? You be the judge.
Thursday, October 7, 2010
R&D tax concessions – coming soon
The first week of parliamentary sittings of the ‘new paradigm’ that is the 43rd Australian parliament is complete.
I watched the first sitting day at Parliament House and there was a decidedly different mood in the air. After the initial excitement of the official opening and swearing-in ceremonies, Parliament got down to the ‘real’ business of running the country. Prime Minister Gillard took the helm and introduced her new team to the people of Australia.
Wayne Swan remains in his pre-election portfolio of Treasury and at the same time maintains his role of Deputy Prime Minister. Nick Sherry, who was previously the Assistant Treasurer, has been replaced by Bill Shorten, who steps into a combined portfolio of Assistant Treasurer and Minister for Superannuation and Financial Services. He will have direct responsibility for the day-to-day functioning of our tax system.
One of the highlights of the first week was the Minister for Innovation and Industry, Senator Kim Carr, re-introducing the legislation that deals with the implementation of the proposed new research and development (R&D) tax credit regime. You may remember that the previous government had been embarking on a reform project around replacing the existing R&D tax concession with a new credit system that delivers ‘below-the-line’ tax savings to eligible businesses.
The government’s objectives for the new R&D tax regime are to shift the benefit of the tax credit from large businesses to small to medium enterprises. Whether the changes will deliver the outcome the government are looking for is yet to be determined.
My concerns are in regards to the start date of the proposed law, which is currently retrospective at 1 July 2010. In my opinion, the proposed start date must be pushed back to 1 July 2011. In the tax policy world, it’s highly unusual to pass retrospective tax laws unless there is some major integrity risk for the tax system; that’s clearly not the case here so there is no reason to pass the laws with a 2010 start date.
What are your thoughts on the new R&D regime? Do you think it will deliver any tangible benefits to the business community, and do you agree that the start date should be deferred by one year?
I watched the first sitting day at Parliament House and there was a decidedly different mood in the air. After the initial excitement of the official opening and swearing-in ceremonies, Parliament got down to the ‘real’ business of running the country. Prime Minister Gillard took the helm and introduced her new team to the people of Australia.
Wayne Swan remains in his pre-election portfolio of Treasury and at the same time maintains his role of Deputy Prime Minister. Nick Sherry, who was previously the Assistant Treasurer, has been replaced by Bill Shorten, who steps into a combined portfolio of Assistant Treasurer and Minister for Superannuation and Financial Services. He will have direct responsibility for the day-to-day functioning of our tax system.
One of the highlights of the first week was the Minister for Innovation and Industry, Senator Kim Carr, re-introducing the legislation that deals with the implementation of the proposed new research and development (R&D) tax credit regime. You may remember that the previous government had been embarking on a reform project around replacing the existing R&D tax concession with a new credit system that delivers ‘below-the-line’ tax savings to eligible businesses.
The government’s objectives for the new R&D tax regime are to shift the benefit of the tax credit from large businesses to small to medium enterprises. Whether the changes will deliver the outcome the government are looking for is yet to be determined.
My concerns are in regards to the start date of the proposed law, which is currently retrospective at 1 July 2010. In my opinion, the proposed start date must be pushed back to 1 July 2011. In the tax policy world, it’s highly unusual to pass retrospective tax laws unless there is some major integrity risk for the tax system; that’s clearly not the case here so there is no reason to pass the laws with a 2010 start date.
What are your thoughts on the new R&D regime? Do you think it will deliver any tangible benefits to the business community, and do you agree that the start date should be deferred by one year?
Thursday, September 16, 2010
Predictions - post election
Canberra’s been a hive of activity lately and last night I was fortunate enough to be part of a panel there at an Institute function. Naturally, the impact of the election result has been at the forefront of everyone’s mind, so the topic was particularly relevant: Post Election: The Economy, Markets and the Health of Small Business.
Dr Shane Oliver, Chief Economist for AMP Capital gave us the good news that the global economy is unlikely to move back into recession and that Australia is in a very strong economic position relative to the rest of the world.
I spoke about what the new era of federal government will mean for the business sector. My predictions sadly aren’t as optimistic as Shane’s but for what it’s worth, this is what I think will be happening over the next few years.
Firstly, complex policy-making will be difficult to work through parliament. There is clearly a mood in Canberra that is quite different to that which existed prior to the election; there’s a mood of caution about policy and major decisions.
Secondly, government announcements will be viewed with some trepidation until we know the position of the minor parties on any given issue (especially tax and corporations laws). The Greens and the Independents will become increasingly relevant players in terms of policy development, and all major stakeholders (such as the Institute) will need to work closely with them.
Finally, the government will work towards putting a price on carbon across the economy sometime in the next two years – it seems to me the community’s concerns in this area have been made quite clear in the way the election results played out.
A minority government is new for us all and only time will tell if my predictions are accurate, but I’d love to hear back from readers – will these changes be good or bad for the country? What do you think the next few years will look like?
Dr Shane Oliver, Chief Economist for AMP Capital gave us the good news that the global economy is unlikely to move back into recession and that Australia is in a very strong economic position relative to the rest of the world.
I spoke about what the new era of federal government will mean for the business sector. My predictions sadly aren’t as optimistic as Shane’s but for what it’s worth, this is what I think will be happening over the next few years.
Firstly, complex policy-making will be difficult to work through parliament. There is clearly a mood in Canberra that is quite different to that which existed prior to the election; there’s a mood of caution about policy and major decisions.
Secondly, government announcements will be viewed with some trepidation until we know the position of the minor parties on any given issue (especially tax and corporations laws). The Greens and the Independents will become increasingly relevant players in terms of policy development, and all major stakeholders (such as the Institute) will need to work closely with them.
Finally, the government will work towards putting a price on carbon across the economy sometime in the next two years – it seems to me the community’s concerns in this area have been made quite clear in the way the election results played out.
A minority government is new for us all and only time will tell if my predictions are accurate, but I’d love to hear back from readers – will these changes be good or bad for the country? What do you think the next few years will look like?
Friday, July 2, 2010
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?
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?
Friday, May 14, 2010
Federal Budget awakens real tax reform
If you joined me in thinking the Federal Government had shied away from any commitment to serious tax reform a week ago, you probably shared my enthusiasm on Tuesday night when it did an about-face in its Budget announcement.
The 2010-2011 Federal Budget, which the government labelled a ‘no-frills’ affair, was indeed no fiscal revolution. It did, however, mark the first ‘real’ step towards the kind of tax reform the country – or at least us tax professionals – were waiting for following the release of the Henry tax review.
I’m talking about the announcement of a standard $500 tax deduction and a simplified personal tax return process that will benefit around five million Australians.
Simplified individual tax returns are a good thing. Why? Not only will a simpler system relieve many Australians of the chore of wading through more than 200 pages of the annual tax pack, but it will also provide an opportunity for accountants and tax agents to focus more of their efforts on helping clients with truly complex tax affairs.
At the end of the day, accountants provide strategic tax and business advice, and the more the tax system allows time for them to do that, the better.
There were, of course, other measures announced in the Budget too. Have a look at the Institute’s response and the report we put together with Thomson Reuters on the Chartered Accountants website.
The 2010-2011 Federal Budget, which the government labelled a ‘no-frills’ affair, was indeed no fiscal revolution. It did, however, mark the first ‘real’ step towards the kind of tax reform the country – or at least us tax professionals – were waiting for following the release of the Henry tax review.
I’m talking about the announcement of a standard $500 tax deduction and a simplified personal tax return process that will benefit around five million Australians.
Simplified individual tax returns are a good thing. Why? Not only will a simpler system relieve many Australians of the chore of wading through more than 200 pages of the annual tax pack, but it will also provide an opportunity for accountants and tax agents to focus more of their efforts on helping clients with truly complex tax affairs.
At the end of the day, accountants provide strategic tax and business advice, and the more the tax system allows time for them to do that, the better.
There were, of course, other measures announced in the Budget too. Have a look at the Institute’s response and the report we put together with Thomson Reuters on the Chartered Accountants website.
Wednesday, May 5, 2010
Is this tax reform?
Well there has been no shortage of commentary on the Henry tax review, which was released on Sunday, 2 May.
Over the last couple of days, we have heard from economists, academics, advisers, policy experts and pundits from all sectors of industry as to whether the government’s initial response to the review constitutes the beginning of ‘real’ tax reform.
Most of the reaction has centred on the government’s response to the review, rather than the review itself. For those of you who followed the Institute’s initial reaction, you will know that I think the government on Sunday fell short of an important commitment to change Australia’s tax system for the better.
As I discussed in my last post, there was always a chance the government would shy away from making too many decisions too quickly. Particularly the difficult ones. But while I understand the political climate does not favour wholesale reform on the scale of which was expected under the terms of reference for the review, there is an important opportunity here that Australia cannot afford to squander if it is to remain a competitive, thriving economic hub.
When you look at Dr Henry’s package of recommendations there are so many feasible options that the reasons for change quickly outweigh the reasons for inaction. This is a comprehensive, well thought-out review that provides a clear roadmap for the future. What we need now is commitment from the decision-makers.
I am interested in your thoughts.
Henry tax review member survey
There is a lot happening at the Institute now that the review has been announced. First, I have already started to prepare for the Institute’s comprehensive response to the Henry tax review, which we will publish over the coming weeks.
I am hoping to get as much member participation as possible. To help the process along, we have created an online survey which sets out all of the recommendations made in the Henry report, and asks whether you agree, disagree or are undecided on each issue. We will also be conducting state-based member feedback sessions in the coming weeks to explore the key themes further.
Please note the survey is only open to Chartered Accountants – as we will use this information to feed into the Institute's ‘official’ response – but if you are not a member and have comments, I invite you to share them.
Post-Henry conference 21-23 June
The fun doesn’t stop there. In June, we will be hosting a conference at our Sydney offices that will bring together leading international tax and economic policy experts to dissect the plan for Australia’s Future Tax System. Dr Ken Henry himself will be there to listen to the academic community’s ‘verdict’ on his report.
The conference is being organised by UNSW and Monash University, and will run from 21-23 June, 2010. Registrations are now open.
It is an event not to be missed!
Over the last couple of days, we have heard from economists, academics, advisers, policy experts and pundits from all sectors of industry as to whether the government’s initial response to the review constitutes the beginning of ‘real’ tax reform.
Most of the reaction has centred on the government’s response to the review, rather than the review itself. For those of you who followed the Institute’s initial reaction, you will know that I think the government on Sunday fell short of an important commitment to change Australia’s tax system for the better.
As I discussed in my last post, there was always a chance the government would shy away from making too many decisions too quickly. Particularly the difficult ones. But while I understand the political climate does not favour wholesale reform on the scale of which was expected under the terms of reference for the review, there is an important opportunity here that Australia cannot afford to squander if it is to remain a competitive, thriving economic hub.
When you look at Dr Henry’s package of recommendations there are so many feasible options that the reasons for change quickly outweigh the reasons for inaction. This is a comprehensive, well thought-out review that provides a clear roadmap for the future. What we need now is commitment from the decision-makers.
I am interested in your thoughts.
Henry tax review member survey
There is a lot happening at the Institute now that the review has been announced. First, I have already started to prepare for the Institute’s comprehensive response to the Henry tax review, which we will publish over the coming weeks.
I am hoping to get as much member participation as possible. To help the process along, we have created an online survey which sets out all of the recommendations made in the Henry report, and asks whether you agree, disagree or are undecided on each issue. We will also be conducting state-based member feedback sessions in the coming weeks to explore the key themes further.
Please note the survey is only open to Chartered Accountants – as we will use this information to feed into the Institute's ‘official’ response – but if you are not a member and have comments, I invite you to share them.
Post-Henry conference 21-23 June
The fun doesn’t stop there. In June, we will be hosting a conference at our Sydney offices that will bring together leading international tax and economic policy experts to dissect the plan for Australia’s Future Tax System. Dr Ken Henry himself will be there to listen to the academic community’s ‘verdict’ on his report.
The conference is being organised by UNSW and Monash University, and will run from 21-23 June, 2010. Registrations are now open.
It is an event not to be missed!
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