Sunday, May 02, 2010
They're pretty unrelated.
The Henry Review is here.
The government's response is at futuretax.gov.au
Aside from the Resources Rent Tax, renamed the Resource Super Profits Tax, there's little relation between the two.
And don't hold out hope for much more.
Swan has released a list of the things he won't do.
Great coverage here and here.
What Swan won't do
Stronger Fairer Simpler a Tax Plan for Our Future
THE HON KEVIN RUDD MP
THE HON WAYNE SWAN MP
PRESS CONFERENCE OPENING REMARKS
2 May 2010
PRIME MINISTER: Today the Australian Government will take concrete steps to reform the tax system to deliver Australia a strong and secure economic future. The Government acted decisively during the global financial crisis to keep the Australian economy out of recession.
Today, the Government will take action on tax reform to: one, keep Government finances strong. Two, to protect the future of the Australian economy. And three, make sure working families and small businesses get their fair share.
Australia has come out of the global recession as one of the world’s strongest economies. We have the fastest growth, the lowest debt, the lowest deficit and the second lowest unemployment of all the major advanced economies and we’ve kept our triple-A credit rating.
Just as the Government has worked hard to ensure our economy was the envy of the world during the downturn. We must now work hard to build a strong economy for the future. This long-term plan, released today, builds a stronger economy by using super profits earned from the resources owned by all Australians to provide better super for working families, simpler, lower tax for all companies especially small business [and] the future infrastructure needs of our nation.
This plan means that working families of the future will have to worry less about their retirement. The plan increases the superannuation guarantee from 9 per cent to 12 per cent, supports older workers to top up their super, and boosts the super of lower income workers.
These reforms will add $108,000 to the retirement super of an average worker aged 30 now and increase Australia’s pool of superannuation savings by $85 billion over the decade ahead. These are major reforms.
Second, the plan also means that Australian businesses will become more competitive. 2.4 million small businesses will face lower and simpler tax. All Australian companies will benefit from a cut to the company rate boosting investment, jobs and productivity.
Third, the plan will also help build the rail, roads and ports we need for the future, in particular, in our resource states. This package dedicates over $5.6 billion over the decade ahead to fund our critical infrastructure. For the first time nation building infrastructure will become a permanent structural feature of State and Commonwealth Budgets.
We also want to expand and to broaden the mining industry itself by providing big tax incentives to exploration companies. The mining industry is a fantastic industry. It involves great enterprise and hard work from tens of thousands of Australians. That is why changing the tax structure to help smaller emerging miners and exploration companies will help expand the industry. Independent modelling advises that this package will increase mining activity by 5.5 per cent.
By building a stronger economy, creating more job opportunities and higher wages, this reform will make our economy more globally competitive, it will boost long term GDP by around 0.7 per cent, and lift wages by 1.1 per cent putting $450 per year into the pockets of average workers right across the nation.
This package won’t be popular with everyone. Some will say it will cost projects and jobs. The fear campaign will be large and the fear campaign will be well funded and London-to-a-brick our political opponents will use it for a scare campaign. But I’d ask the proponents of the fear campaign why it is that mining profits have risen $80 billion in the last decade but revenue from royalties for all Australians have only increased by $9 billion. I’d also ask them to answer this question. Why should we put up with a tax system for the next decade that has cost us $35 billion in lost revenue over the last decade, money that could have been funding the rails, roads, ports and other infrastructure that our nation needs.
This is real reform that will help convert Australia’s strong economic position today into enduring prosperity for the future.
I’d like to thank the secretary of the Treasury, Ken Henry, and his team for all their work. In particular I’d like thank the Treasurer, Wayne Swan, for all his work. This has been an extraordinary undertaking by his team.
Also, Chris Bowen, Nick Sherry and Martin Ferguson and other Cabinet colleagues who have worked together on this package.
I’d now like to hand over the Treasurer to take you through the package in more detail.
TREASURER: Thank you very much Prime Minister. It’s good to see so many people flocking to Canberra on a Sunday. I know that it’s the joy of tax reform that brings you all here.
The package that we have today is an ambitious package for long-term reform. For better super, less tax for business – especially small business – and, of course, as the Prime Minister was saying before, 21st Century infrastructure. It will ensure that all Australians get a fairer share and the benefits of the boom are directed where they can make the best impact on jobs, growth and savings.
What I want to do now is just take a few minutes to go through both the historical and the macro context before I go to the specifics of the reforms. There’s probably been nothing I’ve thought about more, first of all as a Shadow Treasurer and then as a Treasurer over five years, than how do we manage the resources boom better than our predecessors managed the last boom. Because if we don’t, we will simply sell Australia short. And that objective has informed the development of this package.
It goes to the core of what we’re doing in infrastructure. It goes to the core of what we are doing when it comes to company taxation and small business taxation. And it goes to the core of the objective of increasing national savings. Not just for individuals, as important as that is, to recognise dignity, to recognise the need for adequate living standards in the retirement. But also to support national savings. That is the objective that has driven us through the late nights in the preparation of this package over a period of five months.
I want to just run through a few graphs and a few facts. Now, what we’ve seen in recent times – as the Prime Minister was saying before – we’ve seen that our mining profits have increased, but the taxpayer’s share of revenue from those mining profits has decreased. You can see the orange bars which, of course, are the profits. You can see the purple bars which, of course, are the state royalties.
If our share of profits had remained at the average of the first half of this decade we would have collected $35 billion more between 1999-2000 and 2008-09. Now these are billions of dollars that the Australian people have missed out on; billions of dollars that could have been invested in our future prosperity. Let’s give that some context. That $35 billion could have delivered something like 14 major hospital redevelopments. Now Australia simply can’t afford to make the same mistake in commodity boom mark two that was made during commodity boom mark one.
Now, there are also some macro-economic reasons why we have to get this right because we are at a crucial turning point in our economic history. Having seen off the worst of the global recession, seen off the worst that it could throw at us, Australia now faces the future from a position of economic strength. That’s a great thing for Australia, but it brings a series of challenges which are linked to the return to full capacity, and of course, the re-emergence of a two‑speed economy
The global recession has accelerated the economic shift towards the big developing countries in our neighbourhood, and that has obvious implications for our terms of trade which you can see in the next chart. Export prices will reach a 60 year high this year. Now, we don’t expect them to stay at those levels forever, but we do know our terms of trade will remain at high levels relative to what we have seen in the past.
Now, the return of boom conditions in the mining sector makes things more challenging for other industries such as manufacturing, construction and tourism. The other sectors find it harder to find workers and capital and, of course the stronger dollar makes them less competitive in their own global markets.
Now, in a two-speed economy we can still build our mining sector while we simultaneously do everything we can to grow other areas of our economy. It is absolutely critical that we grow all sectors of the economy together. We don’t want to grow apart, we actually want to grow together and that is a central objective. And, of course that’s why we’re going to cut the company tax rate to 29 per cent in 2013- 2014, and to 28 percent from 2014- 2015. In terms of competitiveness, this takes us from 22nd amongst comparable OECD countries to 17th. . And you can see that in the chart
Reducing company tax will create new jobs and grow the economy right around the country – to the ultimate benefit of all Australians. I recognise the independent review recommended the company rate of 25 per cent. This isn’t affordable right now, but depending on future revenues from the super profits tax, we have an open mind on whether 28 [per cent] is a final landing point.
And of course, small businesses will get a head start in the cut to the 28 per cent rate. This will give small business a direct financial benefit from the resource boom and an incentive to retain profits to grow their companies. But also, small business will also benefit from an instant write off of assets worth up to $5,000 and simpler depreciation arrangements for other assets.
And as I move around Australia talking to small business, this is a big reform for small business. This gets rid of red tape. This does simplify the tax system for millions of small businesses in this country and that reform should not be underestimated. The changes will let them write off many assets more quickly, increasing their cash flows at a time when they are investing to grow. This is a very big deal for small business, and as I said, it will also cut red tape.
Which brings me to national savings which the Prime Minister talked about before. And where I think we have an absolutely historic reform here. Not only in terms of the accumulation of national savings, but recognising the dignity and respect that people in retirement deserve from our nation.
And, of course there’s nothing that is more on the mind of many people who may be my age or above than what is actually happening in the retirement income system. And we know from the Intergenerational Report what an important challenge this is for Australia, which is why we have chosen to put together this reform.
Now, you’ll all remember that last year we made a real difference to the age pension, a very big difference to the base rate of pension, because so many people were living in great difficulty and in poverty. This year we build on that. We build on that by building up the private savings of Australians who are saving for the future. So it’s a source of great pride to us today that we do build on the great Labor legacy that began two decades ago – compulsory superannuation.
We are boosting super savings so we can ensure that whenever the commodity boom ends, we’ve got something more to show for it than last time. And that is terribly important. And it’s also terribly important in terms of macroeconomic management. Our plan includes concessions on additional superannuation guarantee contributions, a new government contribution for low income earners, and higher caps for the over 50s.
In increasing the SG to 12 per cent, we’re providing a three year lead time before the gradual changes start, so businesses get a decent run-up. We’re also making super fairer, namely a refund of up to $500 of contributions tax from mid 2012 for workers with incomes up to $37,000.
Our changes mean something like an extra $108,000 in the retirement super balances of today’s average 30 year old worker. And they’ll increase Australia’s pool of superannuation savings by $85 billion over 10 years which, as I said before, further boosts investment in the economy.
Now, that brings me to infrastructure, because we will make infrastructure spending a permanent structural feature of State and Commonwealth Budgets. Every single Budget, for every single year will now contain infrastructure investment funded by the Resource Super Profits Tax. I’m proud to announce some of the proceeds will be invested in a new $5.6 billion infrastructure fund focussed particularly on the resource states. That’s a very important step forward given the nature of the challenges that are coming down the road.
And, of course that brings me to the Resources Super Profits Tax. The reforms I’ve just outlined to super, business tax, and infrastructure will be completely funded by the Resource Super Profits Tax. This is entirely consistent with our belief that a fair share of the proceeds of the boom should be dedicated to a stronger and broader economy.
Our resources belong to all Australians, and Australians do deserve a fair share. That is why we will now tax mining profits in a way that supports the growth of the industry and the economy and ensures the community gets a fair return.
From 1 July 2012 we will apply a 40 per cent tax to profits from resource projects after allowing for extraction costs and recouping capital investment. Companies will not pay the tax until after they provide shareholders with a normal return on capital investments, and then only on any additional profit. The generous tax treatment of capital investment will improve the viability of less immediately profitable mining ventures, boosting investment and boosting jobs.
We’ve listened to the States, letting them keep their royalties, but refunding them to mining companies as credits, removing the distortions. And we’ve listened to the resources companies and will put in place generous transitional arrangements that we will detail in time.
So there are big gains to come from these reforms that we have announced today. Taken together, the reforms we’re announcing today will provide a long-run boost to GDP of around 0.7 per cent, and that’s in the chart there. On their own, the changes to mining taxation are expected to increase GDP in the order of 0.3 per cent in the long run. And the cut in the company tax rate is expected to increase GDP by 0.4 per cent in the long-run. Real after-tax wages are estimated to rise by 1.1 per cent in the long-run, which means $450 a year in the pocket of an average worker.
The package we are presenting today is fully funded both over the forward estimates and the medium-term projections. It fully meets our fiscal strategy, including the commitment to keep the tax-to-GDP ratio on average below what we inherited in 2007-08.
These reforms will strengthen the economy and generate a growth dividend that will be returned back to the Budget to bolster our fiscal position.
And I want to be very clear about this one point. The package I have outlined just now depends entirely on the successful implementation of the Resource Super Profits Tax. No super profits tax – no super investments, infrastructure or tax cuts.
Now of course, as the Prime Minister indicated before, there will be hysterical opposition from the Liberals but they should remember this. It isn’t possible to support the investments in this package today without supporting the Super Profits Tax that pays for it. It’s not possible to do one and not the other.
So to make sure these measures are successfully put in place, we will consult with industry on the implementation of a number of the reforms announced today. These are very significant steps in a decade long process of reform. On their own they do represent a very big agenda for the next few years. We will make more announcements on tax simplification and savings in the coming months, and you’ll see from the release we are also ruling some things out.
Can I just say this package today is built on the hard work of the tax review team, but also on the Government’s own values and priorities.
I want to take this opportunity to thank Ken Henry and all of the team that have worked on the independent tax review. I want to thank everybody in the community who contributed all of their views to this very extensive process. I also want to thank my Cabinet colleagues, particularly Chris, Nick and Martin.
As the Prime Minister said before, we are under no illusions about how difficult it will be to win support for this package. Support will never be unanimous, and we understand there will be many who will oppose parts of this reform.
But in all of my years in politics the one thing that I’ve learnt is this: that it’s the big, hard reforms that are the one that are worthwhile. They’re always the toughest to implement, but they’re always the most worthwhile for the long-term national interest. In my view the question isn’t whether Australia can afford to embark on this reform course – we can’t afford not to. For a country that stared down a global recession it should not be beyond us to face up to all of these challenges with confidence.
Now is the time to build foundations for a stable and long lasting recovery. Now is the time to start managing the next boom better than the last. Thank you.
. The end of cheap wine, and other things to look for in the Henry Review
. Guess what? Henry examined the evidence
. Wednesday column: We'll still be mining