Monday, May 18, 2015

Company tax cuts won't spark investment explosion says treasury chief John Fraser

The push to cut Australia's 30 per cent company tax rate in order to attract more investment has reached a roadblock in the form of John Fraser, the former investment manager who now runs Australia's treasury.

Mr Fraser told a budget forum in Melbourne on Friday that while he understood the argument about attracting more investment, his own experience told him that tax rates were a second or third order issue for corporates considering investments.

Mr Fraser headed UBS Global Asset Management in London for twelve years before returning to Australia in December to rejoin the treasury.

He told the Grattan Institute forum other factors were more important in making investment decisions.

"Generally the internal rates of return that are required - the hurdle rates - are so high it would be false to say the taxation rate, unless they were ridiculous, really large, make a big difference. Whether the tax rate is 30 per cent or 35 per cent frankly is not as important as other issues such as governance and dispute resolution," he said.

Exchange rate risk was also important.

"The rule of thumb for most big firms looking at acquisitions, I'll put a number on this: it's well above 20 per cent, because things go wrong."

For Australian firms, especially small and medium sized ones, the tax rate did matter, and he supported cutting the corporate tax rate to help them. But dividend imputation made the tax rate less important for bigger firms.

Dividend imputation refunds to Australian shareholders tax that companies have already paid creating their dividends.

A plea in the treasury's tax discussion paper for the government to consider removing dividend imputation appears to have fallen on deaf ears.

Asked his own view, Mr Fraser said the government had "made its views clear" and he wasn't going to stroll into the issue. But he added: "in the longer term it's something you've got to look at, it is something I would hope one day will be looked at holistically"

He had already had several sessions with big accounting firms seeking their input into the tax white paper due in December.

"What we need are real life experiences," he said. "The industry associations are very professional and very good, but often the circumstances of particular companies differ greatly. That's why we've got this big engagement process over the next few weeks."

"The tax system is designed for another era, it's a FJ Holden. We've got to have a good look at it because when reform does come I suspect we will be stuck with it for 30 years.

"We've got to have a few warriors out there."

In The Age and Sydney Morning Herald