Saturday, May 22, 2010

Resources tax: Australia may be the first, we won't be the last

The Paris-based Organisation of Economic Cooperation and Development has swung its weight behind Australia's proposed resource tax saying it represents a "sharing of the bonanza" and will not frighten away foreign investors.

The extraordinary intervention in support of the tax, in an ABC radio interview to be broadcast tomorrow suggests the so-called "rich nations club" regards the 40 per cent tax as a model to be followed by other members trying to regain control of their budgets.

Angel Gurría the Mexican-born OECD Secretary-General told the Sunday Profile program the tax was one of "a number of preferred ways in which we like to see tax structutres work".

"Whenever there is a bonanza, whenever there is a period in which there is a price spike or a price hike then it is legitimate for a sharing of that bonanza, a sharing of that benefit, especially if there are ways it can be used to stabilise markets in the future."

Asked whether the tax would turn away foreign investors Mr Gurría said "what drives investors is not necessarily that they are going to pay higher or lower tax... but the availability of raw materials".

"If you look at these things strategically rather than with your sights on the profit of next year or next quarter of course it's a wise thing to take the plunge, to take the risk and invest in Australia."

OECD forecasts to be released next week will show Australia near the head of the pack with growth of more than 3 per cent this year and "perhaps a little higher than that in 2011," predictions consistent with those in last week's budget.

China's economic growth will lead the rest of the world at 11 per cent this year and 10 per cent next year, with little risk of a collapse.

"On the contrary, the greatest concerns we have with China are precisely derived from the kind of growth they are experiencing, Mr Gurría said.

"For a country like Australia which is very linked up with China you are going to have a rather formidable trading and investment program. Don't rely only on that, but it's a good bet, its a very safe bet."

"You seem to have all the things that China needs to secure their growth medium and long term and at the same time having such a potent and fast-growing partner and also potentially a source of investment for Australia is very positive."

Asked whether Australia should have spent so much money stimulating its economy to avoid recession Mr Gurría said "everyone in the world went down the stimulus path, but you began in a good position".

Mr Gurría did not know whether Greece would avoid insolvency. He was worried that other European nations with less than half of Greece's debt were at risk as a result of the herd mentality of financial markets.

Published in today's SMH and Age 

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