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Rudd Election Dash - Cash Not Reform Wins the Day
Monday, 03 May 2010


It is hard to go past Ross Gittins' summation of the tax reform announced yesterday by the Federal Government. His comments of "picking the easy bits" and "very little courage" will resonate as the light of day hits the many press releases churned out on Sunday afternoon.
 
The current Rudd Government formula of grand statements (in this instance "root and branch" tax reform) followed by little in the form of follow up (read only a handful of recommendations adopted out of 138) would make someone think this was just another day in the life of the Rudd Government not an historic day for our nation.
 
Indeed it stands in stark contrast to the Howard Government who when confronted with the need to tackle tax reform took a GST to an election. A tough decision that helped forge the economic framework that set Australia up to withstand the recent GFC and provided funds to address the huge shortfall in unfunded superannuation liabilities. It was conviction politics based on policy reform that was in the interest of the future of Australia.
 
So today surely we have to ask the question why everyone but mining companies will be supposedly better off under the guise of tax reform? It is almost as if Julie Andrews can add another line to her song of favourite things for everyone in Australia to include tax reform. Well, at least until after the election. So Kevin, fancy an election on what needs to be done or throw more cash at the voters and call it tax reform? For the record this is a rhetorical question.
 
On the issue of the resources tax the principle appears noble but, like any of these announcements let's consider the detail. What we need to see is the impact this has on the cost competitiveness of mining assets more broadly and for New South Wales our assets specifically. It is one thing to share in the upside of the next mining boom and to invest proceeds across the economy but, it is another to shift long term investment from this country to another.
 
The NSW Treasurer has been silent on this point so we will today be asking the Prime Minister for modelling to be released showing how this tax impacts our overall competitiveness taking into account both current mining assets and those expected to come on line in the next decade. My hope is that this work has been done but, it is critical it is released to allay these very real fears.
 
From a State perspective the big issues remain just that - big issues without direction. The vertical fiscal imbalance remains with no direction or timetable on when it might be addressed. Most of our State taxes are labelled inefficient and the Henry report clearly tells Premiers that they should keep their GST revenue above any other tax they currently receive.
 
In a deeply concerning point, it is not a stretch to suggest that Ken Henry would have advised every Premier in this country to keep their GST rather than give it away under last week's badged policy of the day "health reform". This revelation certainly demands Kristina Keneally answer some serious questions not the least being did she read this report before giving up a tax that Henry is urging all States to retain?
 
We again note that health reform is needed but why have we given up the GST when the Federal Government's own Tax Advisor essentially recommends against it?
 
So the much hyped tax reform is a damp squid for States and until modelling is released leaves some long term economic questions for our mining industries. In terms of vertical fiscal imbalance the Federal Government needs to grow some policy courage but in an election year all we are getting is well - more money. Today the mining industry has been found to help the Government with its latest cash splash but, in terms of cash that has been splashed before - the next few Governments will have to sort that one out.
 

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Comments (5)
RSS comments
Tax reform
Would you recommened adopting all 138 of teh Ken Henry recommendations?
Posted by: Gwenyth at 03-05-2010 12:56
answer to Gwyneth
Hi Gwyneth - no, not all of them, but given the time and the rhetoric that preceded it, it's hard not to be disappointed with the government's response. 
cheers 
Mike
Posted by: Mike Baird at 03-05-2010 13:35
Election Dash - Cash Not Reform wins the
Will the politicians and pundits objectively analyse the impact a resource super profit tax will have on the share index and superannuation investments, given:  
- the index weighting BHPB and other resouce stocks, 
- most Australians with superannuation accounts will be affected, as their super accounts are either indirectly invested in resource stocks, or directly invested in the case of SMSF's.  
 
Whilst Telstra may be the genisis for a sovereign fund, will Government shilly shally with utilising a resource super profit tax or just redistibute the wealth to take money from superannuants / investors to pay others. 
 
Footnote: Ion Iddriess wrote about the discovery of silver and zinc in Broken Hill in the early 1900's having an expected life of 10 years like most mining ventures at that time, but noted in in the 1950's Broken Hill had underpinned Australia's prosperity).  
 
History continues to repeat itself.
Posted by: Annonymous at 03-05-2010 14:23
Pre -Budget Tax Major Resources Tax Hike
By smoke screening the Tax hike on resources the Rudd Government shows it needs to cover its massive spending. All Australians who have invested their retirement money in Aussie Resources have been screwed financially! There is no honesty in this decision. Where is our two party system? 
 
Wayne
Posted by: Wayne Moynham at 03-05-2010 15:58
Henry's tax
This was supposed to be a major reform of our tax system. the biggest in 50 years. 
Like everything else this government touches, just an expensive joke. 
It appears we have a south park actor for our pm
Posted by: Jeff Walton at 04-05-2010 18:23
 

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