Okay so no-one likes to part with profit, but the mining fight is becoming a spectator sport

And both sides are getting desperate. On the weekend each quoted me

The mining giant Rio Tinto has urged its thousands of workers to mount a grass roots campaign against the government’s proposed resources super profits tax.

With tensions between the mining sector and Rudd government at boiling point, Rio Tinto’s managing director, David Peever, has sent all employees a letter urging them to lobby their local MP, write a letter to the newspaper, and even ring talkback radio.

It comes as the government yesterday accused the mining industry of skimping on company tax while running a "fear campaign" and the industry launched an advertising blitz targeting 190 radio stations.

Fortescue Metals chief Andrew Forrest told the ABC he had received a "note from the Chinese consulate" saying Australia's competitive advantage over China, Brazil and India was "now gone".

A spokesman later clarified that the note was not from China but from "an Australian counsel in China". Foreign Minister Stephen Smith said none of his staff had issued such a note...

Mr Peever met the government’s consultative committee last week and left complaining that too little was on the table. Rio, like the rest of the industry, wants to negotiate down the 40 per cent rate, the definition of a super profit and the tax’s retrospectivity.

His email to staff says the process was "flawed" and the parameters "too tight".

It says the company’s executive director, Sam Walsh complained directly to Kevin Rudd, Wayne Swan and the Trade Minister Simon Crean, and urges Rio employees to do their bit.

It directs them to a website that provides tips on how to "actively participate in the debate by contacting your local MP, writing a letter to newspapers or calling talkback radio".

The Minerals Council last night unleashed a radio advertising campaign to run on 190 stations claiming the tax would "make everything more expensive" and cut the value of retirees shares. The tagline for each ad is "I don't think they've thought this through".

Deputy Prime Minister Julia Gillard turned up the heat on the industry claiming Australian-owned mining companies paid an effective tax rate of only 17 per cent and foreign-owned companies only 13 per cent.

By contrast Australian-owned manufacturers paid 25 per cent, retailers 23 per cent and financial corporations 27 per cent.

"The next time the Australian people hear a fear campaign coming at them from the mining sector, they might want to consider those figures," she said.

The Minerals Council chief executive Mitch Hooke hit back claiming the figures came from "a small 2009 American study not commissioned as part of the Henry Review".

Including royalties the mining industry paid 43 per cent.

The government released a list of nine special tax breaks available to the industry including deductions for "black hole expenditure", site rehabilitation, "frontier expenditure" and fuel.

Resources Minister Martin Ferguson said there would be "no movement at all" on the proposed 40 per cent tax rate but held out hope of movement on other details including where the tax cuts in.

"The mining industry has had a great decade," he said. "The companies themselves acknowledged privately to me we should be getting more taxation. We will take our chances electorally and lead by example and make sure we put in place a proper taxation system."

Economist Ross Garnaut appealed for peace labeling the industry campaign "dangerous from a number of points of view".

"Simply to roll the Treasury on an issue that's been subject of very careful analysis without a lot of very careful analysis being the basis of variation of policy, I think would be very dangerous," he told the ABC.

"We need a strong Australian policy making process, we need a strong independent centre of Australian policy making, that's what gave us 20 years of reform and what is the main reason why we're in better shape than most of the world right now."

"To simply have pressure from industry roll this, rather than have a good discussion in the public interest leading to legislation would, I think, be dangerous."

Published in today's SMH 


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Peter's post: Continued... Published in today's SMH and Age Graphic: From here Related Posts

Read more >>

A Reserve Bank currency firm was willing to supply prostitutes and pay bribes...

Today's Age, tonight's Four Corners:

Sex, bribes in banknote deals

RICHARD BAKER AND NICK MCKENZIE

A RESERVE Bank currency firm was willing to supply prostitutes and pay bribes to win contracts, according to a federal police witness at the centre of Australia's most serious corruption investigation.

The revelation is one of many made by a key witness in the federal police inquiry into the Reserve Bank company, Securency International, which makes polymer banknotes.

The witness has told an investigation by The Age and ABC TV's Four Corners - aired tonight - that a middleman hired by Securency to win contracts from foreign governments told him that he intended to bribe a central bank governor from an Asian country.

The witness, who was a Securency employee, has given the Australian Federal Police his diary in which he recorded the middleman telling him in 2007 that the ''governor would be very happy if the commission [payment] was increased''...


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So what effective tax rates do mining companies actually pay?

Nowhere near the effective tax rates paid by our manufacturing, retail and finance industry firms:

Effective Tax Rates NBER 2009




The table comes from this paper quoted with approval by the Henry Tax Review.

At Catallaxy Sinclair Davidson reaches a different conclusion.


Do Multinationals or Domestic Firms Face Higher Effective Tax Rates?

Kevin S. Markle, Douglas Shackelford

NBER Working Paper No. 15091, June 2009

"To our knowledge, this paper provides the most comprehensive analysis of firm-level corporate income tax expenses to date. We use publicly available financial statement information to estimate firm-level effective tax rates (ETRs) for 10,642 corporations from 85 countries from 1988 to 2007. We find that multinationals and domestic-only companies face similar ETRs. We also find that, on average, ETRs declined by seven percentage points or 20% over the period. German, Japanese, Australian and Canadian decreases were large. American, British, and French declines were more modest. Nonetheless, because ETRs were falling worldwide, the ordinal rank from high-tax countries to low-tax countries changed little. Japanese firms always faced the highest ETRs. ETRs for tax havens and countries from the Middle East and Asia (ignoring Japan) were always lower than those for the U.S. and European countries. These findings should provide some empirical underpinning for ongoing policy debates about the taxation of multinational profits."




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Sort of puts Australia into perspective, doesn't it?

Click here to see the graphic in all it's glory.

informationisbeautiful


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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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It's not a tax, it applies to more than super profits, so how did so many people get it so wrong?

Someone somewhere in the Treasurer's office must be deeply regretting ever calling it a Super Profits Tax. For one thing it applies to profits that are pretty ordinary. For another, it's not a tax...

As Ken Henry has tried to explain since and as the Minerals Council itself explained in its submission to the Henry Review the right way to think of developing minerals is as a "joint venture" between the citizens who own them and the company that extracts and sells them. Each has rights to the proceeds.

Until now state governments have sold those rights for a standard fee, varying from a low of 3.5 per cent of the value of uranium mined in South Australia to a high of 10 per cent of the coal mined in Queensland. As mineral prices have soared and profits with them the fees have began to look shabby.

The Minerals Council proposed and the Henry Review agreed that instead each partner should share in the profit.

The Treasury has taken the idea further and made each side genuine partners sharing in both the costs and profits. While the government chose to emphasise the 40 per cent profit share (perhaps to make it look as if it was standing up for Australia) the other equally important side of the equation is its commitment to stump of 40 per cent of the costs.

It will not only be a partner, but the best kind any business could want, a "silent partner" as Ken Henry put it this week - someone who will without a vote and without complaint put up 40 per cent of whatever the mine developer decides to spend and then come back for 40 per cent of the profit only when and if that venture is raking in rewards.

That several high profile mining executives and much of the public don't see it that way says something about Australia, something about the thinking of the government as it planned its sales pitch, and also something about a kink in the arrangement that has ensured that many in Henry's words, don't "get it"...

Queensland mining magnate Clive Palmer demonstrated a shaky hold on maths in the days after the policy's release. Not only did he add the 30 per cent company tax rate and the 40 per cent super profits rate together to tell tell Lateline it would tax him at 70 per cent (the most it could tax him is 57 per cent which is what you get when you apply a 40 per cent tax then the new company tax rate of 28 per cent tax to the rest) he forgot about the government's pretty substantial contribution to his costs.

It's the kink that made him forget and the kink that's causing much of the anguish. The government doesn't actually pay 40 per cent of the costs at the time they are incurred - that might break its budget. Instead it does something that mathematically amounts to the same thing. It guarantees to pay the costs in the future by deducting them from any eventual super profits tax payments. If the company winds up without ever paying the tax, it'll send it a cheque. To compensate companies for the delay it increases what it owes by the bond rate each year.

As Henry sees it that's as good as handing the firms money. The only risk, as he puts it, would be if the government folded. Many of the firms see it as pie-in-the-sky algebra. BGF Equities chairman Warwick Grigor fronted Henry Tuesday and said in the real world miners relied on intuition not academic analysis.

Henry said he did "not want to debate the relative merits of intuition over analysis,' but added "I obviously I have a rather marked sympathy for the later."

Miners say they won't be able to get loans if the government merely guarantees to come good with the month later. Henry says that's simply a matter of financial engineering. "The people we call call financial engineers can translate theory into practice at the speed of light," he said this week. A guarantee of payment from a AAA rated government such as Australia should be valuable asset anywhere in the world.

Henry's probably right, and much of the rest of the resource-rich world including India, Canada, Peru and Chile is already looking at following Australia's lead.

But right doesn't always win the day. When launching the tax review process in 2008 Henry was asked whether he would have another go at removing negative gearing as he tried to when advising Treasurer Paul Keating in 1985.

Henry said he still thought he was right but that he "still wares the scars" of the attempt.

Australians have long been been attached to the idea of mining in a that extends beyond its practical importance and most of their day to day experiences as city dwellers. Mining directly employs just 174,500 of Australia's 11 million workers. it accounts for 7 per cent of our GDP.

But its booms and slumps have a outsized effect on an otherwise fairly steady economy. And it's seen as our Saviour, in away that wool once was when Australia rode "on the sheep's back" and we enjoyed a wool boom.

A previous Labor government lost office in 1975 when it tried to borrow $4 billion to buy back mines from mining companies. This government is planning to use legislative muscle to buy in. Neither has proved popular.

Published in today's SMH


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Two views of the Resource Super Profits Tax

Here's Ken Henry, Tuesday:

"I know that some of you would have found some of the commentary surrounding the Government’s proposal a little confusing. And its theoretical basis would not be familiar to all of you. In passing I should note, however, that some financial market economists obviously do ‘get it’ – Michael Blythe and his team from CBA in particular. If you haven’t had a look at their very clear presentation of the issues, then I would encourage you to do so."

Here it is:

Michael Blythe - Explaining the Resource Super Profits Tax:




And here's another view, less disinterested, view:

Fortescue Statement:





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What the Coalition would cut, according to the government

What the Coalition Would Cut


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The Coalition's savings list - $46.7 billion

Coalition's Savings Measures May 2010



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Wednesday Column: Who would have thought? It's all up to Hockey.

Could the dog have eaten his homework too?

There's a terrific story in biographies of Neville Wran. The centrepiece of the campaign that swept him to power in NSW was transport.

There was only one problem the day before the launch of his transport policy - he didn't have one.

He grabbed David Hill, a young economics tutor he had only just met, put him in a room with his Transport spokesman and they worked through the night to come up with the policy hours before it was launched to acclaim on a Tuesday morning.

Its Wednesday morning and the Coalition had better hope Joe Hockey has been working nights.

Last Thursday in one of the oddest Budget reply speeches in memory Australia's Opposition Leader played for more time.

Given a good TV slot and months if not years to come up with a economic program of his own Tony Abbott delivered what was perhaps the ultimate "dog ate my homework" line.

Here's what he said... "Next Wednesday at the National Press Club, Shadow Treasurer Joe Hockey will announce further measures to reduce spending and to increase productivity including a detailed response to the new spending and new savings proposals in the budget."

I'll be there. I hope it won't sound as if it's been thrown together.

Because the rest of the Coalition program outlined by Tony Abbott last Thursday night sounded scandalously thrown together.

"Smaller government," Abbott told us "in our DNA".

Ignoring for the moment the way the Coalition actually behaved during its final seven years in office, allowing the pubic service excluding Defence, ASIO and the police to swell 25 per cent, lets look at how Abbott proposes to bring about smaller government.

Rather than examine what's needed function by function and axe what's not needed the Coalition will "introduce a two year recruitment freeze to reduce public servant numbers through natural attrition".

If letting the public service explode 25 per cent (44 per cent for senior public servants, 30 per cent for ministerial staff) at was careless, this is worse.

As Abbott explains, "there will be no redundancies, but for two years 6000 bureaucrats who retire or resign each year will not be replaced".

He surely wouldn't manage a company that way. Think about a mining company, on in which the geologists resign or retire early because they can get better jobs elsewhere, leaving behind other less-useful staff in, say, public relations. Abbott appears to be saying he wouldn't hire replacement geologists for two years.

By then he wouldn't have a company.

As a government minister the consequences would be less obvious but potentially worse.

Abbott was minister for health. If he let go of his influenza specialists, because for instance they received better offers from the pharmaceutical industry, the consequences of getting bad or late advice in that area could be catastrophic.

Abbott would know this. He served Australia with distinction during the 2005 bird flu scare.

Shutting the public service to new entrants for two years would create broader problems.

An entire cohort of bright young economists would become unavailable to the Treasury, a constraint that would become accute if the private sector snafled its best macroeconomists.

Graduates who had enrolled in university in good faith would have to put their careers on hold and might find themselves unable to compete with new graduates when the freeze was lifted.

And public service numbers wouldn't be cut by anthing like the 6000 per year Abbott expects. As soon as the freeze took hold resignations would slow to a tricke. It's what always happens during hiring freezes. Workers with low prospects won't risk leaving if they know they can't get back.

The public service would seize up and the expected savings wouldn't come.

None of this is saying the public service shouldn't be cut. It is overdue for a cut, but it is best done intelligently by working out what the government wants to keep rather than in a "lazy way" as Abbott terms it in another part of his speech.

The pledge to cut government advertising by 25 per cent, coming from a man who served in a governement that filled our screens nightly is not credible.

And nor is the most specific promise in a budget reply speech generally free of them - rollback, Abbott's promise that the Coalition "will oppose the mining tax in opposition and we will rescind it in government".

That's right, the Coalition will not only oppose the mining tax ahead of its implementation but will roll it back afterwards.

The ongoing uncertainty this would add to mining investment decisions on top of that that's there now has the potential to do the industry real harm - if the industry took it seriously.

The tax treatment of mining is not only a 40 per cent super tax on profits, its also a 40 per cent government contribution to the cost of achieving those profits.

Rolling that back, unscrambling the egg, would be about as unlikely and damaging as would have been Labor's Kim Beasley coming good on his promise to "roll back" the GST.

Abbott could have outline serious policies last Thursday. He passed up the chance.

Today it's up to Hockey.

Let's hope he has come up with good ones.


Published in today's SMH and Age


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Henry to Indigenous Australians - some of this should be for you

Aboriginal Australians would have a special claim over the money raised by the proposed Resource Super Profits Tax if the head of the Treasury had his way.

Dr Ken Henry endorsed the idea while selling the tax at the annual post-budget economists briefing in Sydney.

Asked whether the revenue from the tax should really flow to the original people of Australia he replied that Australia's natural resources belonged to all Australians "including people not yet born".

"I don't want to get into a debate over whether the first settlers have a stronger claim than those who are second settlers or in my case those of sixth or seventh generation European extraction," he said.

"But if your question is, is there a case for some amount at least of that income, that revenue going to support Indigenous development, I would say very firmly yes, absolutely yes"...

Dr Henry's idea is not government policy but was yesterday given a cautious welcome by Indigenous Affairs Minister Jenny Macklin who said the proposed tax would boost mining and as result benefit Indigenous communities as native title holders.

Dr Henry told the economists Australia had an abundance of natural resources and should not "undercharge" for them.

What was proposed was a "tax reform" rather than a tax increase and would represent world’s best practice in charging for the exploitation of non-renewable natural resources.

Shortly before he spoke India's Mines Minister announced plans for a windfall tax on iron ore to apply "where prices are substantially higher than the cost of production".

India is the third biggest exporter of iron ore after Brazil and Australia.

Dr Henry said the existing state-based royalties to be replaced by the Super Profits Tax were amongst the most highly distorting taxes his panel discovered in its review of Australia's 125 taxes.

Many of the companies which have consulted with Treasury in the last two weeks "have come in equipped with all of their numbers project by project and very good discussions have place".

"I would have to say as well that in other cases the consultations have been less productive," he told the economists.

"Those who have come to the table have not brought their numbers with them and instead have come along armed with rhetoric."

Dr Henry signaled there would be no compromise on one of the key elements of the plan - the rate of return taken at which the tax cut in.

It was not so much a tax as a joint venture with the Australian government a "silent partner" stumping up 40 per cent of a costs and taking 40 per cent of the excess profits.


Published in today's SMH and Age 


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Henry to miners - no compromise on where the tax kicks in

His whole speech is worth reading

Treasury boss Ken Henry has flatly rejected talk of a compromise over the mining super profit tax saying to give in on the threshold would overcompensate miners to the point where they might not actually mine.

In a series of sometimes fiery exchanges at the annual business economists post-Budget address in Sydney he also denied suggestions that the tax changes were intended to slow the mining industry and ease the effects of a two-speed economy.

"I have provided no such advice to government. Indeed my panel's view is that the resource super profits tax will not in any way affect the pattern of Australia's comparative advantage," he said.

"And taking a long-term view one should expect to see over time a higher level of mining activity - that is an Australian economy that has more mining activity taking place rather than less."

The Treasury Secretary said by design the tax ensured that projects which are earning supernormal profits at present would continue to earn supernormal profits, "and for that reason in the long-run the level of that mining should not be affected".

"But projects which are right at the margin will become profitable once the existing royalties are removed. That's why the modelling projects an increase in mining investment."

"Now bear in mind this is long-term modelling, this is not modelling that attempts to nail down quarter by quarter what the result will be," he told the business economists.

"The results should not surprise anybody."

When told mining companies didn't see things that way Dr Henry said he did "not want to debate the relative merits of intuition over analysis," adding "obviously I have a marked sympathy with the later."

"I don't know how many times in 25 years I've been told... well that's all very well in theory but it's not actually how the real world works, only to observe years down the track that the people we call call financial engineers who can translate theory into practice at the speed of light have moved so quickly and done so much that governments have had to respond and at last recognise the power of the theory over perceptions of what the real world is like."

The tax effectively made the government "a silent partner in each investment, sharing in costs, risks and returns".

Those costs were carried forward at the bond rate and written of against tax or handed to the company when the project was wound up.

To use a higher rate would "overcompensate for the delay in the government guaranteed tax credit".

"It would be equivalent to the government issuing an alternative debt instrument at the same price as normal government bonds, but paying a higher rate of interest."

"It would provide an incentive to delay production to maximise the value of the subsidy — which could be as large as $330 million for every $1 billion invested.

The Treasury Secretary produced calculations to show that if the rate was 5 percentage points above the bond rate a project with zero net present value would generate a taxpayer funded return of 33 per cent.

Published in today's SMH and Age


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Are prices climbing? That depends on who you are.

Worried about your cost of living? Don't be, if you are on a salary. At least for now.

The latest especially-tailored living cost indexes show employees faced an inflation rate of just 2 per cent over the past year.

But the prices facing Australians out of work climbed quickly.

The Bureau of Statistics says prices facing age pensioners jumped 3.1 per cent.

This needn't be bad news for age pensioners as their payments are increased each March and September in line with either the official inflation rate or their own cost of living index or increases in male wages, whichever is the greatest.

But others receiving government benefits aren't as fortunate. Unemployed Australians on the $12,033 NewStart allowance get only CPI indexation whether it meets their costs or not.

The Bureau says all through last year the prices facing so-called "other government recipients" climbed faster than the CPI, falling back only in the most recent quarter.

Once close to the pension, the NewStart allowance has slipped to around two-thirds of it as a result of the different indexation treatment... Projections by the Australia institute suggest if the different treatment continues it will be worth a mere one-half of the pension by 2050.

Self-funded retirees are also finding life tougher. Their prices climbed faster than the CPI throughout last year and are now climbing at the same rate; 2.9 per cent per annum, well above the 2 per cent facing workers.

Why are employees so well off compared to Australians not on a wage? Its because of the things they spend their money on.

Whereas the prices of financial services and mortgages are important in the budgets of wage earners, they matter less to Australians out of work. Both were falling early last year.

Retirees spend about twice as much of their income on health services than employees, especially on prescription drugs.

According to the Bureau "other government recipients" spend 10 per cent of their budget on alcohol and tobacco, compared to 8 per cent for workers and 7 per cent for age pensioners.

Food also features much more prominently in the budgets of Australians receiving benefits and the cost of overseas travel matters a lot to self-funded retirees.

But history suggests the inflation tables are about to turn. Mortgage rates matter to families who work, and they've begun to climb.


Alright for some:

Annual increase in living cost

Employee households 2%
Age pension households 3.1%
Other benefit households 2.8%
Self-funded retirees 2.9%

Official Consumer Price Index 2.9%

ABS 6463.0, March quarter 2010

Published in today's SMH and Age


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This Resource Super Profits Tax... how will it work?

CommSec Explains

Also good commentary today from Malcolm Maiden, who suggests a way out.



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Does Australia rely too heavily on mining taxes?

Not according to the IMF

The full report is below.


IMF From Stimulus to Consolidation



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The Millionaires' factory's fight to survive

Brilliant work from Michael Evans and Ian Verrender in this morning's BusinessDay:

EXCLUSIVE

As the tsunami engulfing global markets in September 2008 crashed into Lehman Bros, a besieged Macquarie Group wasted little time swinging into action.

Under attack from short selling hedge funds and with its share price plunging by half, Macquarie launched a concerted lobbying effort with the government and regulators.

Documents obtained by BusinessDay under freedom of information laws reveal the haste and well-targeted strategy Macquarie employed as the maelstrom of the global financial crisis rocked banks around the world.

Macquarie's efforts appear to have been brutally efficient. Within days ASIC would impose a ban on the short selling of financial stocks - an investment strategy used to make money by punting on a share price falling further - that would halt the precipitous plummet of the bank's shares.

And within weeks, the government would implement a banking deposit guarantee and a wholesale lending agreement allowing Macquarie and other banks to use the government's stronger AAA rating to borrow money when credit markets were closed.

The backroom dealing began within hours of the collapse of Lehman Bros on September 15, sparking the most intense phase of the global credit squeeze.

The next day, Macquarie's Trevor Burns typed a two-page email to the head of the Treasury's markets division, Jim Murphy, with the subject line marked "confidential". The email has been identified in response to a specific freedom of information request by the BusinessDay for correspondence concerning Macquarie's representations to Treasury on the state of global financial markets...

A day later, on September 17, as global markets reeled and Macquarie shares continued to slide, a flurry of emails flew between the floors of 1 Martin Place, the old GPO building housing both Macquarie and ASIC...

Appearing to show uncommon haste, ASIC acted within two days of the first email flurry.

On September 19, it banned naked short selling, effectively ending the rout in Macquarie shares, which surged 9 per cent that day. Within days, it fully banned short selling on financial stocks.

But Macquarie was free to continue its trading activities, including short selling shares in other companies.

By early October, the government had swung into action, guaranteeing all deposits and implementing a wholesale funding guarantee.

Macquarie spared no effort to shore up support. BusinessDay understands that as part of its lobbying effort, Burns met the then financial services minister Nick Sherry to push for a ban on short selling. It is understood Macquarie's chief executive, Nicholas Moore, also met Sherry.

The flurry of activity from Macquarie is starkly at odds with repeated assurances from its chief financial officer, Greg Ward, that the bank was at no stage under threat, having ample reserves to meet all obligations. But that argument overlooks the crisis in confidence engulfing Macquarie at the time, evident in its plunging share price which hit a low of $15.75.....

Continued here.



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Too many cooks: Our immigration program gets saner

Australia is about to become harder to get in to if you are a dance instructor, piano tuner, hairdresser or chef.

Immigration Minister Chris Evans has slashed by half the list of 400 occupations given an easy ride into Australia in the independent skilled migration program, replacing them with 180 "highly valued occupations".

Still on the list are medical professionals including osteopaths, dentists, surgeons and nurses, as well as engineers, teachers, IT professionals and welders. But off the list from July will be dance instructors, piano tuners and - significantly - hairdressers and cooks.

"In 2007-08 as we came to office of the 41,000 general skilled visas granted, more than 5000 went to hairdressers and cooks," said Immigration Minister Chris Evans.

"And three quarters of them had studied in Australia... Our migration program should not be determined by the courses studied by our international students."

Senator Evans said the new list, developed by the independent body Skills Australia, would ensure the skilled migration program was demand-driven rather than supply-driven.

"We value the international education sector. Its students will still be able to apply for permanent migration or be nominated by employers but we will no longer almost automatically accept the thousands of cooks and hairdressers who applied under the guidelines established by the Howard government.”

The Minister flagged the change in February saying that far more people applied for skilled migration than the 108,000 places available.

"The old system served everyone in order, just like pulling a ticket number from the dispenser at the supermarket deli counter," he said.

"Our reforms will shift skilled migration from the supply-driven system we inherited to a demand-driven system. We need the skills that are actually in demand in the economy, not just those applicants present with."

"If hospitals are crying out for nurses they should have priority over the 12,000 unsponsored cooks who have applied and who, if all were granted visas, would flood the market."

Skills Australia was set up in 2008 with the express purpose of identifying skills shortages. Its 8-person board includes the head of the Australian Industry Group Heather Ridout, the president of the Australian Council of Trade Unions Sharan Burrow and a former head of the Prime Minister's Department Michael Keating.

It will update the pared-down skills list annually.

Senator Evans said students already in Australia intending to apply for permanent residence could take advantage of transition provisions announced in February.

A separate report released this morning by the economic consultancy BIS Shrapnel finds that population growth is set to slow sharply in response to lower foreign student numbers and a drop in the number of sponsored applicants for short-term work visas.

An Australian Industry Group survey also released today finds 75 per cent of employers are dissatisfied with the skills of their Australian-trained workers with 45 per cent believing their labourers have worrying low literacy and numeracy skills and 25 per cent believing their apprentices have low skills.

Published in today's SMH and Age 


New Skilled Occupation List 2010


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Peter Dutton is ahead on his BHP shares

Coalition frontbencher Peter Dutton bought BHP on Tuesday May 4 when it closed $38.59

Friday it closed $38.64

He was better share trader than he was a politician.

Debate over the proposed Resource Super Profits Tax has turned personal with Coalition frontbencher Peter Dutton confirming that he bought shares in BHP two days after his leader said the tax would kill the mining industry "stone dead".

In a statement issued late yesterday the Shadow Minister for Health and Aging said he bought $2000 of BHP shares on May 4 "because Mr Rudd's reckless announcement of his new mining tax wiped value off good companies".

"I believed then as I do now that the Coalition will win the election and put a stop to this damaging tax".

Asked on Channel Nine to explain his frontbencher's actions Opposition leadxer Tony Abbott said he would "let every person make their own investment decisions".

"But if you take BHP at its word, there's the coal mines in Queensland, the iron ore mines and the uranium mines in the west, there’s the $22 billion Olympic Dam expansion. All big question marks over them because of the new tax"...

Treasurer Wayne Swan said it was impossible to trust an Opposition that was "out there saying this will ruin the mining sector while one of their most senior frontbenchers is buying shares in BHP."

"Mr Abbott and Mr Dutton must now admit this is nothing but a scare campaign."

Mr Swan rejected Opposition claims the changed tax arrangements could hit the prices of phosphate, gravel and sand and through them the prices of food and housing.

"The fact is many of these low-value commodities might do much better in a resource super profits tax than they currently do," he told the ABC. "We are talking to them to see whether they might be better off or not. Low-value commodities are punished, absolutely punished, by the present royalty regime."

At present low profit mining companies or those in the early state of mining pay royalty fees regardless of whether or not they are doing well. The proposed super profits tax would refund those fees, grant a tax credit for 40 per cent of the cost of developing the mine and take 40 per cent of the excess profits only after the mine was clearly in the black.

BHP Billiton shares have slipped 5 per cent in the fortnight since the tax was announced at a time when the overall ASX-200 index has slipped 4 per cent.

The union which represents mining workers last night launched a television ad urging their bosses to accept the tax and "put something back".

Over images of mines and cash registers the advertisement says "for decades the mining industry has been tkaing things out of Australia. Along the way it's made some mining bosses very very rich. Now Australia is asking them to give something back."

Australian Workers Union national secretary Paul Howes said the campaign aimed to "inject a bit of truth and reality" into the debate.

"This is all about the personal profits, not the companies' profits, not employment levels," he said. "There is a lot of bullshit out there, a
lot of rubbish."

Published in today's SMH and Age 


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Are Some Forecasters Really Better Than Others? Oh my

The truth ain't pretty.

Are Some Forecasters Really Better Than Others?

Antonello D’Agostino, Kieran McQuinn, Karl Whelan, April 2010

"In any dataset with individual forecasts of economic variables, some forecasters will perform better than others. However, it is possible that these ex post differences reflect sampling variation and thus overstate the ex ante differences between forecasters. In this paper, we present a simple test of the null hypothesis that all forecasters in the US Survey of Professional Forecasters have equal ability. We construct a test statistic that reflects both the relative and absolute performance of the forecaster and use bootstrap techniques to compare the empirical results with the equivalents obtained under the null hypothesis of equal forecaster ability. Results suggests limited evidence for the idea that the best forecasters are actually innately better than others, though there is evidence that a relatively small group of forecasters perform very poorly."


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Full steam ahead: 1100 new jobs per day

Australia is creating new jobs at a blistering pace of 1100 per day, just about all of them full-time.

But despite the rhetoric, very few are in the mining industry.

During a year in which 174,000 new jobs were created nationwide, only 9400 were added by mining companies.

Although many extra jobs were created in industries that serve mining including administrative services, warehousing and accommodation, Australia's biggest and fastest growing employer was the health and aged care industry, propelled by population ageing.

Employment figures released yesterday show Australia piled on an extra 37,500 full-time jobs in April; following on from 37,400 in March which was revised up from an earlier estimate of 30,100.

In the same months it lost 3800 and 9700 part-time jobs as employers made positions full-time.

Since December Australia has put an extra 110,000 people into work creating jobs at an annualised pace of 3 per cent, well in excess of the 2.5 per cent forecast in this week's budget...

Around 30,000 of the new jobs were created in NSW, the biggest chunk in the nation, as its labour market picked up pace.

The NSW unemployment rate climbed from 5.5 to 5.8 per cent but only as a result of many more people deciding it was the right time to look for work.

"It’s what you expect to see in the early phases of an upswing," said ICAP Securities economist Adam Carr.

"During a slowdown people tend to leave the job market or postpone entering it due to the difficulty of finding the job they want. In effect they fall out of the labour market, especially in two income families."

"As the economy picks up these people feel more optimistic and start looking again. It causes a blip in the unemployment rate but it's nothing to be worried about."

Australia's unemployment rate stayed broadly steady at around 5.4 per cent as an extra 40,200 people looked for work, more than meeting the 33,700 new jobs created pushing the unemployment rate up from 5.35 to 5.39 per cent.

Tasmania has the nation's highest unemployment at 5.9 per cent with Western Australia the best off state at 4.7 per cent.

The figures show that or the first time more than 11 million Australians were in work; 6 million men and 5 million women.

Marking the occasion Deputy Prime Minister Julia Gillard paid tribute to the "employers and unions who helped steer Australia through the global financial crisis by keeping workers engaged in the labour market".

She said the budget forecast of an unemployment rate of 4.75 per cent by June next year was in reach.

TD Securities strategist Roland Randall said it would mean the Reserve Bank would "have to hike rates again".

"The very tight labour market is going to result in rising wages which will flow through to inflation pressures," he said.

But Reserve Bank Assistant Governor Philip Lowe held out the prospect of a pause in interest rate hikes telling a Sydney audience Australia was "in the fortunate position of having the policy flexibility to be able to respond" if the problems in Europe got worse.

"The Bank will be watching carefully over the weeks and months ahead to assess how the balance of the risks is evolving," he said.


Making jobs

New full-time jobs since December Unemployment rate

NSW 28,500 5.8%
Victoria 23,500 5.3%
Queensland 26,700 5.6%
South Australia 3,800 5.6%
Western Australia 15,900 4.7%
Tasmania 2,700 5.9%

ABS 6202.0


Published in today's SMH and Age


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You'll see me, and others, here.


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That link between fiscal and monetary policy - it's baaaack! Swan says so.

Treasurer Wayne Swan has held out hope of restraint from the Reserve Bank as new figures emerged showing home lending tumbling to nine-year lows.

Asked at the National Press Club what impact his budget would have on interest rates Mr Swan said he thought its fiscal restraint would be "welcomed by the Reserve Bank".

"This is the largest fiscal consolidation since the early 1960s," he said. "We have put in place a medium term plan which I think would give everyone confidence we are absolutely serious about fiscal discipline."

"We understand the need for settings that put maximum downward pressure on inflation and therefore maximum downward pressure on rates. But at the end of the day the Reserve Bank takes its decisions independently."

The prospect of spending restraint leading to interest rate restraint was spelled out by Reserve Bank Governor Glenn Stevens in February when he told an international symposium to expect "a lengthly period of rather low short-term interest rates" if governments committed themselves to repairing their budgets...

His speech included the disclaimer that it was "not intended to provide any particular message about current issues for monetary policy in Australia".

Figures released as the Treasurer conducted a round of media interviews to promote the budget showed new lending for housing sliding to a nine-year low.

Lending to buy homes plunged 4.5 per cent in March to be down 24 per cent in six months.

"The cumulative interest rate hikes are taking their toll," said Commonwealth Securities economist Savanth Sebastian. "No doubt the likelihood of further rate hikes and the substantial growth in house prices are making potential buyers rework their sums."

Mr Savanth said the Reserve Bank now had "plenty of reasons to pause" in its process of increasing interest rates.

"Not only is housing lending sliding, but retail spending, building approvals and gauges business activity have been soft. It may prove a temporary weakness, but the Reserve Bank should be safe rather than sorry."

Against the trend in lending to owners, lending to investors climbed a further 3.3 per cent to its highest point in more than two years.

Four out of every ten dollars lent to buy a house are now lent to investors, up from three in ten a year ago.

But disturbingly borrowing by investors to construct houses was unchanged on a year ago, meaning that none of the extra $1.5 billion borrowed by investors will itself create more houses.

Housing Industry Association economist Harley Dale said the trend was "worrying" and did "nothing to instil confidence in the prospects for a recovery in new residential construction that extends beyond this year".

Published in today's SMH 


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Get ready. Get interest. You could be taxed at just 15%

Savers are in for an even bigger tax break than recommended by the Henry Tax Review and taxpayers will no longer need shoeboxes in which to file receipts.

In two tax revolutions recommended by the Henry Review and adopted by the Rudd government most Australians earning interest from banks will pay just 15 per cent on their earnings with high earners paying 18.5 per cent and they'll be an automatic deduction for personal taxpayers whether or not they collect receipts.

The Henry Review recommended that 4 out of every 10 dollars earned in interest be tax-free. Instead from July next year the budget will make a more generous 5 out of every 10 dollars earned tax-free, effectively having the tax rate on savings.

Already-scheduled tax changes mean from July Australians earning $37,000 to $80,000 will face a marginal rate of 30 per cent and Australians earning up to $180,000 $37 per cent. The half-tax arrangement for savings will result in effective rates on interest of 15 and 18.5 per cent.

The low rates will apply to the first $1,000 of interest earned, meaning that at current interest rates savings of up to $16,500 will be half taxed...

In a signal he would use the move to pressure banks to restrain mortgage rates Treasurer Swan said it would give banks, building societies and credit unions greater access to stable deposit funding, cutting their need to raise money on overseas markets.

Personal taxpayers will be moved one-step closer to automatic "tick and flick" pre-filled tax returns with the introduction of a standard deduction of $500 in lieu of work-related expenses from 2012, climbing to $1000 in 2013.

While the deduction is well below the average of around $2000 claimed per taxpayer at present, some 6.4 million taxpayers are expected to be better off claiming the automatic deduction.

Taxpayers that want to claim more will still be able to by presenting receipts.

Mr Swan told parliament that in the Henry Review's consultations around the country it found that many taxpayers simply wanted "more time with each other" and less completing tax forms.

"This will mean less time with the Tax Pack, more time with loved ones, and for 6.4 million Australians it also means a bigger tax refund, he said.

Creating a standard deduction is the first step toward toward the automatic "one click" tax return recommended by the Henry Review in which taxpayers merely verify a return already prepared by the Tax Office and accept the refund it has calculated.

Around 5.7 million taxpayers are expected to benefit from the tax break on bank accounts, with many expected to put more of their savings into banks as a result.

The discount will cost $950 million in its first three years.

It will bring bank interest into line with capital gains which are already half-taxes cutting the attractiveness of tax strategies such as negative gearing.

The Henry Review found there was a worldwide trend to lightly taxing earnings from savings as they were far more mobile than earnings from labour.

Bank interest was penalised compared to other forms of saving, facing an effective after-inflation tax rate of more than 60 per cent.

The discount will also apply to interest earned from bonds, debentures and annuity products. In a sign that it might be extended further the Treasurer has promised to consult with industry about "boundary issues". The Henry Review suggested extending it to funeral policies and scholarship plans, which is said were in some ways similar to bank accounts.



MONEY IN THE BANK

. Tax rates on bank interest halved
. 15% rate for mid-income earners
. 18.5% rate for high earners
. Automatic $500 tax deduction from 2012
. Automatic $1000 deduction from 2013


Published in today's SMH and Age 


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To recap - there was a budget rabbit, there was a budget hat

Nice one.  And congratulations to Tony Wright who got it right

A dramatic turnaround in the nation’s finances has halved projected debt and put Wayne Swan in position to deliver just one more budget deficit.

A year ago in projections derided by market economists as too optimistic Treasurer Swan forecast deficits all the way until 2015-16 funded by $203 billion in government debt. The new forecasts slash the peak in net debt to $94 billion and put the budget back in surplus in 2012-13.

The change in fortune makes a mockery of Opposition claims that Labor will never deliver a surplus and renders near irrelevant the Coalition ‘‘debt truck’’ that toured Australia last year emblazoned with a picture of a bomb, a lit fuse and the size of the projected gross deficit - $315 billion.

The budget has net debt peaking in 2011-12, two years sooner than previously projected and has it paid off in 2017-18, three years sooner. Next year’s deficit will be $41 billion, well down on the $57 billion forecast in the last budget and the revised $47 billion forecast in the November budget update. It will be followed by a deficit of $13 billion and then what the Treasurer concedes will initially be a ‘‘small’’ surplus of $1 billion in 2012-13 widening to $5.4 billion the following year.

Driving what the Treasurer last night called the fastest fiscal tightening since the 1960s is an projected explosion in tax revenue as the economy improves and the mining boom gets under way with annual takings from company tax set to climb 47 per cent by 2013-14 and takings from personal tax 45 per cent...

Extending his commitment to save rather than spend the extra income Mr Swan last night committed himself to limit real spending growth to 2 per cent per annum for the entire next term of government and until 2015-16, when the surplus is expected to top 1 per cent of Gross Domestic Product.

The major savings that propel the budget into surplus include $12 billion to be raised over four years from the new Resource Super Profits Tax, $5 billion from the increase in tobacco tax, $1 billion from a crackdown on companies not passing on Goods and Services Tax, and a $1 billion cut to projected spending on foreign aid.

Ahead of the budget Mr Swan played down talk he would be able to bring down an early surplus saying a report the surplus could be four years early was ‘‘frankly, pie in the sky’’.

‘‘We get this sort of speculation before every budget,’’ he told the ABC’s Kerry O’Brien in March. ‘‘And that particular piece of speculation is most certainly pie in the sky.’’

Finance Minister Lindsay Tanner also rubbished the idea saying it was ‘‘totally over the top’’. Journalists were warned that speculation of an early surplus would prove wide of the mark.

So successful was the government in managing down expectations that this week Shadow Treasurer Joe Hockey challenged Mr Swan to bring in a surplus three years early saying if he could it would be a sign of good management.

The surprise surplus will see the Treasurer and Prime Minister appropriating the language of the Coalition, selling themselves as successful because they have slashed projected debt and moved the budget back to black.

Published in today's SMH and Age

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