Lift GST, says OECD in dismal report card for Australia
Peter Martin, The Sydney Morning Herald, 18 March 2017
The Organisation for Economic Co-operation and Development has castigated Australia for inadequate progress on tax, Indigenous affairs and support for business in a report card to be presented to finance ministers from the group of 20 leading industrial nations in Germany on Saturday.
Entitled Going for Growth, the report examines progress on undertakings made at the 2014 Brisbane G20 leaders meeting overseen by then prime minister Tony Abbott and former treasurer Joe Hockey.
At the Brisbane meeting, Australia pressed world leaders to pledge actions that would inject an additional $2 trillion into the world economy over five years and "create millions of jobs".
The report says progress has slowed and is now back to where it was before the Brisbane meeting.
It says this has been the case in countries that were previously active reformers, and "also in a number of others where reform activity had not been so intense" such as Australia, Indonesia and Slovenia.
While the government's push to cut the company tax rate was largely welcome, a wider package of tax reforms should be developed that envisages raising the rate of goods and services tax and/or widening the base in combination with further cuts in direct taxation and the removal of inefficient taxes.
Prime Minister Malcolm Turnbull rejected an income tax for GST swap in early 2016 after seeing Treasury modelling that concluded it would do little to boost economic growth.
After noting that gaps between Indigenous Australians and the rest of the population remain large, the report notes: "No action taken".
In assessing conditions for business and competition it notes: "No action taken lately".
On education, it says preschool enrolment rates are low and that children from disadvantaged backgrounds miss out, fuelling future inequality and diminishing the capacity of the economy.
Under "actions taken", it refers to the Gonski reforms which began under the Gillard government in 2013 and are due to expire in 2018.
The report will be presented to finance ministers and Australia's Treasurer, Scott Morrison, in the resort town of Baden Baden near the border with France.
Mr Morison has used its conclusions to press the Senate to pass the bill containing the government's company tax cut within the next sitting fortnight. "Coming off the back of our 2015-16 small business package, it will provide encouragement for employers to invest and grow their businesses, providing greater job security, more employment opportunity and higher wages growth," he said.
"This comes in addition to the personal income tax cuts that were legislated in last years' budget. The government will continue to work with the parliament to argue the benefits of tax reform."
In Baden Baden Mr Morrison will also hold his first discussions with the new United States Secretary of the Treasury Steven Mnuchin and China's newly appointed Finance Minister, Xiao Jie.
Parliamentary Budget Office costs plan to abolish stamp duty in favour of broad-based land tax
Henry Belot, ABC News, 18 March 2017
The Parliamentary Budget Office has costed a proposal to abolish stamp duty and replace it with a broad-based land tax, adding to a fierce political battle over housing affordability.
Under the proposal put forward by the Greens, the Commonwealth would provide concessional loans to state and territory Governments to assist the transition.
The loans would hit the budget bottom line by $800 million, although states would rely on rising land tax revenue to repay the debt by 2030.
"States would also be required to cover the Commonwealth's borrowing costs for the proposal, with interest charged annually at a rate equal to the Commonwealth's cost of borrowing," the costings said.
The ABC understands the Queensland and West Australian governments are unlikely to support the proposals, given the significant revenue that stamp duty generates.
The Tasmanian Greens have previously proposed a similar idea, drawing criticism from the then state Labor government.
'Home of dangerous ideas'
The housing affordability debate is increasingly becoming the home of wacky ideas ranging from dangerous to disastrous, writes Michael Janda.
The proposal has been supported by the Grattan Institute's John Daley, who said it would be politically difficult to deliver but generally regarded as a good policy.
"Obviously if you then increase general property taxes the price of property comes down and that's bad news for existing home owners.
"If you do both at the same time it's a bit of a wash."
Mr Daley said the proposal would also give older Australians more freedom to downsize their homes.
"It deals with the situation of older people who are in a house that is maybe larger than they want," he said.
"They know that if they move from property one to property two then their net wealth will reduce because they will still have to pay the stamp duty."
Grattan Institute fellow Brendan Coates said stamp duty accounted for $19 billion nationwide each year and any increase in land taxes would have to match that revenue.
"To do that you're probably talking about a tax on unimproved land value of about $6 for each $1,000 of unimproved land value," he said.
"Given the median house price in Melbourne is somewhere around $800,000 to $900,000, you're talking about $2,700 for the average homeowner in Melbourne and in Sydney you would be looking a little north of $3,000."
No comment from Treasurer on 'budget speculation'
Federal Treasurer Scott Morrison would not comment on the proposal, saying the Government would not be drawn on budget speculation.
His spokesman said various ideas had been flagged and the Treasurer would continue to work on housing affordability and land supply.
Labor's treasury spokesman Andrew Leigh said the proposal had merit, but the Government needed to curb negative gearing and capital gains tax concessions.
"We know that when you look at the drag on the economy from stamp duty its one of the worst taxes Australia has," he said.
"When you look at land tax it has one of the lowest burdens on the economy of any tax we have.
"If the Government is serious about housing affordability they should take the idea that every serious economist has been urging on them for years, to get serious about the excesses in negative gearing and the capital gains discount."
The Victorian Government recently announced plans to exempt first-home buyers from paying stamp duty on properties valued at less than $600,000.
Mr Morrison welcomed the proposal saying "good on them for having a shot", but questioned its overall impact on the housing market.
"On the issue of stamp duty, I welcome it but at the end of the day if that just means that people just bid up more at the auction because they can borrow more because they don't have to pay stamp duty, obviously, that will just take prices in one direction," he told Sydney radio station 2GB.
Stamp duty reform was discussed by state and territory leaders at the Council of Australian Governments meeting in late 2016.
In 2012 the ACT Government announced plans to phase out stamp duty on house sales by 2022 and to abolish insurance taxes over five years, replacing the revenue with higher rates.
Tax reform needed despite improvements to WA economy
Shane Wright, The West Australian, 18 March 2017
The WA economy is showing signs it has turned the corner but the Turnbull Government is under pressure to revisit its company tax cuts and deliver much bigger tax reform to the nation.
ANZ’s measure of State-by-State activity shows the WA economy, while still one of the worst-performing parts of the Commonwealth, is on the mend.
Job figures this week showed a steep fall in the unemployment rate and a further lift in full-time employment.
The ANZ said the lift in the jobs market was a clear indicator that the worst may be over.
“The improvement in the State’s labour market has been the prime driver of the turnaround,” the bank said.
“In addition, rising export volumes and the recent pick-up in resource prices are adding to growth.”
The ANZ report came as the Paris-based Organisation for Economic Cooperation and Development, in its annual outlook on policies developed countries should adopt to boost growth, said the Turnbull Government should be far more ambitious.
The Government is focused on its company tax cut that would see the corporate rate reduced to 25 per cent gradually over the next decade.
But the OECD said it was clear Australia needed to go further in terms of tax reform, urging Mr Turnbull and Treasurer Scott Morrison to look at the GST as well as targeting State-based taxes such as payroll and land tax.
“While the tax measures under way are largely welcome a wider package of tax reforms should be developed,” it said.
“Raising the rate of the GST and/or widening the base in combination with further cuts in direct taxation and the removal of inefficient taxes would bring more substantial returns.”
Bank chairs renew calls for tax cuts, leave Gonski in the cold
James Frost, The Australian Financial Review, 14 March 2017
Australia's banking heavyweights have renewed calls for business tax cuts, breaking with ANZ chairman David Gonski, who last week questioned the effectiveness of the long-awaited tax relief measures.
The issue of tax cuts has become a hot-button issue among the business community on the back of promises of generous tax cuts for business from US President Donald Trump and broad reform of business tax among key trading partners.
Appearing at The Australian Financial Review's Business Summit, ANZ chairman David Gonski appeared to deviate from the script when he said that tax cuts would be more effective for small business than for large corporates.
"I strongly believe that to just focus on corporate tax rates is, in my opinion, only part of the story. Would corporate tax rates change investment? I believe for the small to medium enterprises it could," Mr Gonski said.
"If you ask me whether it is going to make a difference for big companies, I think things like accelerated depreciation and so on would make a bigger difference than reducing the tax rate."
But Westpac chairman Lindsay Maxsted and former Business Council of Australia president Graham Bradley are among those who believe that the delivery of tax cuts is crucial to business, and said any move to downplay their importance in stimulating the economy is wrong.
Westpac's Mr Maxsted on Wednesday reiterated his view that a cut to the corporate tax rate would reduce the incentives for corporates to conduct business overseas and support employment growth.
"Lowering the company tax rate is a policy imperative," Mr Maxsted said. "If Australia is to compete globally for scarce foreign investment, it must have a competitive corporate tax rate."
Former Business Council of Australia chairman Graham Bradley said Mr Gonski was wrong and that business tax cuts were a vital part of remaining competitive on the global stage.
"I disagree with David on this one. It's very clear that we have to reduce our corporate tax rate across the board," Mr Bradley said.
"The US will be significantly reducing its corporate tax rate, UK has already done so and we are uncompetitive with the many Asian countries that we compete with for capital."
Mr Bradley, who is chairman of HSBC Australia and former managing director of Perpetual, said the government needed to think big and look to New Zealand, where former prime minister John Key has successfully reformed the tax system with a minority government.
"This is just tinkering around the edges, we need much bolder measures to remain internationally competitive," Mr Bradley said.
Mr Bradley said that although Mr Gonski may be correct in saying that most important boost to the economy and investment would come from small to medium-sized industry, "we also depend on major capital investment initiatives from large companies".
"The differential in the corporate tax rate will become an increasingly important part of their decision-making," Mr Bradley said.
Outgoing Australian Bankers Association chief executive Steven Munchenberg said the right mix of taxes was important to drive economic growth and strengthen local investment.
"Reducing the company tax rate would encourage Australia's businesses to invest, helping to boost productivity and create jobs," Mr Munchenberg said.
"Under the Federal Government's tax package, Australia's largest banks would not receive a tax cut until 2023-24, and it would have a smaller impact on government revenues than other industries because of a high rate of Australian ownership and Australia's dividend imputation system."
Bank of Queensland CEO Jon Sutton said that although business tax cuts were welcome and would help Australia remain competitive at a global level, the government needed to be more ambitious.
"The current changes are not enough and tax reform needs to be looked at holistically to have a positive long-term impact", Mr Sutton said.
The views of BOQ's Mr Sutton dovetailed with a withering assessment of the Federal Government's appetite for reform delivered by NAB chairman Ken Henry last month in in a speech to the Committee for Economic Development of Australia last month.
Mr Henry, who oversaw the last comprehensive review of the tax system, which was released in 2010, said that the eight changes were the bare minimum of reforms that need to be implemented in order for Australia to remain competitive.
These included a much lower tax rate or some other mechanism that reduces the cost of capital sourced from international markets. He also called for the removal of stamp duties on residential property, a reform of the GST and symmetrical tax treatment of interest and capital gains.
Japanese government taps more benefit from Australian gas than us
Heath Aston, The Sydney Morning Herald, 14 March 2017
Japan is collecting more tax revenue from Australian liquefied natural gas than the federal government, heightening concern the public is missing out on the wealth benefits of the gas export boom.
Japan, which is the single-biggest buyer of Australian LNG at 30 million tonnes a year, levies an import tax that will deliver $2.9 billion to its national coffers over the next four years, according to research conducted by the International Transport Workers' Federation, a member of the Tax Justice Network.
By comparison, Australia will not receive a cent in petroleum resource rent tax from gas projects operating in federal waters over the same period.
The $800-million-a year PRRT collected in Australia - which has halved over recent years - is largely paid by established oil operations in Bass Strait rather than LNG producers.
Tax campaigners said on Tuesday that it was a "national scandal" that Australia's customer, Japan, could derive more financial benefit in revenue than the country that owns and sells the resource.
Treasurer Scott Morrison is weighing up whether to rework the Labor-designed PRRT scheme, against veiled threats from the petroleum industry to launch a mining tax-like campaign against changes to the system.
The Australian Petroleum Production and Exploration Association, representing the industry, has previously said the review was timely because it would expose a "dramatic collapse in profits" behind falling tax revenue.
Prime Minister Malcolm Turnbull will also sit down with energy company chiefs on Wednesday to discuss the government's other gas-induced headache, supply shortages and spiralling prices in east coast markets.
In October, Fairfax Media revealed that by 2021, when Australian LNG exports eclipse the current market leader Qatar, the government of the Persian Gulf state will take $26.6 billion in royalties compared to Australia's $800 million take.
The International Transport Workers' Federation-commissioned research found customers like Japan appear to benefit more than Australia from Australian LNG at a national government level.
Japan's petroleum and coal tax applies to imports at a rate that equates to $22 a tonne of Australian LNG.
The levy was raised in 2012 from 1080 Japanese Yen per tonne to 1860 per tonne under a new rate known as the "special provision for tax for climate change mitigation".
Tax Justice spokesman Jason Ward said: "This is a national scandal. As it stands, the Japanese government collects more direct tax on Australian gas than we do. Our five new offshore LNG projects are selling their gas overseas at a premium price when Australia is suffering from a domestic shortage. This needs to change and the public won't stand for our natural resources being given away for free."
Mr Morrison is awaiting the findings of a PRRT review by former Treasury executive Michael Callaghan amid calls for the introduction of a flat royalty on production to replace the existing profits-based system.
Fairfax Media sought comment from Mr Morrison.
When he announced Mr Callaghan's review, the Treasurer conceded that in relation to the PRRT: "We think it is a problem."
Analysis of Pauline Hanson's flat 2 per cent tax shows it would help overseas imports
Shane Wright, The West Australian, 8 March 2017
Pauline Hanson’s plan for a flat 2 per cent tax would cost the Federal Budget more than $230 billion and aid imports at the expense of the local manufacturing sector.
Analysis by the left-leaning Australia Institute shows it would be the most radical tax overhaul in Australia’s history.
Senator Hanson has backed a two per cent tax on all income, including welfare payments, as well as abolition of the GST.
One Nation’s policy statement commits the party to explore removing Federal taxation and “direct and indirect taxes on employment”.
But the institute’s analysis suggests such a major departure would punch a $232 billion hole in Federal finances in one year.
A 2 per cent tax on business turnover, property and income would raise almost $147 billion.
This year’s Federal Budget shows the Government will collect $379 billion in taxes.
Institute executive director Ben Oquist said a simple flat tax would leave the Federal Budget in tatters.
“This amounts to a cut equivalent to all Commonwealth payments to the States, including $8 billion to WA, plus the aged pension, plus Medicare and all income support to the disabled – just to name a few,” Mr Oquist said.
“This would be the most radical taxation policy in Australian, probably OECD history.”
One Nation has argued its tax policies would drive a lift in economic growth that would make the country richer and generate extra tax revenues. But the institute analysis suggests the biggest winners would be high-income earners and overseas firms.
A person earning more than $1 million would make a tax saving of almost $420,000. An international firm such as Shell would save $660 million. According to the institute, a turnover tax as suggested by One Nation would encourage large firms to produce goods and services in-house rather than outsource that work to small and medium-sized companies.
Australia needs to hike the GST if it is to grow more, says the OECD
Karen Gilchrist, CNBC, 2 March 2017
Australia's economy has adjusted well to the end of the commodity boom, however sustained growth will require a shake-up of current tax policy, the Organisation for Economic Co-operation and Development (OECD) has said.
Fiscal reform which shifts away from corporate income tax and "inefficient taxes" and instead raises the Goods and Services Tax (GST) and land taxes, is one way to support the economy as it adjusts to the global risk of a "low growth trap", the report on the country said.
Australian GST is a value added tax of 10 percent on most goods and services sales. It is currently levied on most transactions in the production process but is refunded to all parties except the final consumer. Land tax is imposed on owners of freehold land.
Commodity prices peaked in 2011, before reaching their lowest level in over a decade in mid-2015.
Given the economy's exposure to the swings of the global commodity markets, the OECD also recommended a spending ceiling during boom periods, which would help manage debt in the long term.
"The economy is now rebalancing following the end of the commodity boom," notes the report. However, combatting inequality must remain front and centre of the country's political agenda, the OECD recommended.
Real incomes for the top fifth of Australian households grew by more than 40 percent between 2004 and 2014 while those for the lowest fifth grew by approximately 25 percent over the same period.
At approximately 18 percent, Australia's gender wage gap is marginally higher than the U.S. and the U.K. (both 17 percent), and significantly higher than New Zealand's (6 percent).
"Australia's adjustment to the end of the commodity boom has not been painless," the report continues.
"Unemployment has risen, and inequality is rising. In addition, large socioeconomic gaps between Australia's indigenous community and the rest of the population remain."
It recommends introducing innovation programs and adjusting regulation to encourage market entry by new businesses and reduce the dominance of incumbents.
"Developing innovation-related skills will be important for the underprivileged and those displaced by economic restructuring and can help reduce gender wage gaps," the report added.