afr tax reform summit - phil edmands - media coverage

Let everyone know what's at stake in a tax overhaulTax reformAustralia's taxsystem willneither createthejobs of thefuture, norefficientlysupport asocial safetynet. Thepublic must beengaged inimproving it.

Phil EdmandsIf I were to nominate a guiding principle fortax reform, it would be "maximiseprosperity, minimise harm".

All taxes distort behaviour and impose aneconomic drag in some way. Taxes arelevied because we need services andinfrastructure, and an adequate safety netWe also need the tax system to be fair, and toincentivise desirable outcomes like high-tech innovation and greater workforceparticipation by women and olderAustralians.

But subject to these things, we shouldimpose the lowest and most efficient taxespossible - any overreach is going to pulldown economic activity - limiting growth,innovation, productivity and jobs.

Despite all the talk about moving from aconversation to practical proposals, we are"yet to get the conversation right Eventssuch as the AFR Tax Reform Summit arevital, but we can't settle principles and thentry to "sell" a consistent package ofmeasures to the broader community.

Wider Australian society needs to beengaged in the formulation of that package.They will look for assurance about the detailbut they need to understand the issues andtrade-offs, and to have input into theirmanagement

They need to know what's at stake. Theyneed to know why the economy will be inserious trouble without tax reform and howdifferent measures will affect their regions

and them personally.Australia faces unprecedented

technological disruption. The fundamentalimperative is to drive innovative growthbecause we need as many new high-techjobs as possible to replace jobs thatdisappear-and we need them here rather •than overseas. Tax reform is central to thisstructural change.

Proper tax reform takes time. And thoughwe can allow for transitioning, we need tobake in a plan that doesn't leave outanything fundamental.

The tax system is just that - a system - andanything left out will miss its offsets and so

miss the boat, possibly for a decade.We must be ambitious. In Britain, the

incoming government in 2010 set out a five-year tax reform blueprint and stuck to it,despite its fiscal, budgetary and debtconstraints. As a result its tax system andbusinesses are more competitive and it isbetter placed to attract business.

Australia's complicated tax system relieson economically inefficient taxes. There isheavy reliance on income and corporatetaxes and insufficient reliance on broadbased low-rate taxes like the GST and landtax. Our payroll tax has so manyexemptions and inconsistencies that itseconomic efficiency is undermined.Ultimately, Australia has too many taxes -just 10 taxes raising 90 per cent of ourrevenue and 110 taxes raising the rest

Addressing whether personal taxation isfit for purpose - given the effect on labourmobility and participation incentives - haswidespread acceptance. Perhaps less

universally accepted but just asfundamental is lowering our high corporatetax rate. Ironically, this is rational from botha business and a labour point of view.

The optimum corporate tax rate will beset by what our competitors are doing.Britain is moving to 18 per cent, the OECDaverages 25percentandAsia22percent.

On that basis, 30 percent long term is justtoo high. It dampens foreign investmentand damages the competitiveness ofAustralian companies.

Treasury estimates that every extra dollarof corporate tax reduces our livingstandards by 50<t in the long run, throughreduced investment

Treasury research also indicates that aconsiderable burden of corporate tax fallson Australian workers.

It reduces investment and labourproductivity - ultimately reducing real

wages.A not-insignificant amount of the cost of

any reduction in the corporate tax ratewould be clawed back by personal tax ondividends, but very progressively, as thoseon higher tax thresholds pay top uppersonal tax on those dividends.

The Business Council of Australia arguesfor a rebalancing of our tax system towardsmore efficient broad-based low rate taxeslike the GST.

While each $1 of corporate tax imposes a50(t economic cost, each $1 of GST isestimated to impose a 19<t economic cost. Ofcourse, anyGST changes require relief forlow-income Australians, but againironically, greater reliance on GST couldimprove our ability to compete and grow,providing services and a strong safety net.

Everything needs to be in the mix,including fairness issues raised in relationto taxation of savings and ofsuperannuation, as well as integrity andtransparency. But these need to be factbased and proportionate.

Flying in the face of this, and the high levelof compliance by the vast majority ofcompanies, are those who seek to distort thedebate for their own ends and undermineany sensible conversation.

In Rio Tinto's case, we paid more than $6billion in taxes and royalties in Australia lastyear - and $32 billion over the last five years- as detailed in our Taxes Paid reports. Wehave also received confirmation from theAustralian Taxation Office that "Rio Tinto isconsidered an engaged and transparenttaxpayer who is fundamentally compliant".

Australia's effective integrity measuresneed to keep up with changes in the wayinternational commerce is conducted. Butpredictions of revenue gain from tighteningthem are often wrong, and don't obviate theneed for fundamental tax reform.

Phil Edmands is managing director of RioTinto Australia and a Business Council ofAustralia boardmember.

AFR Tax Reform Summit

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23 Sep 2015Australian Financial Review, Australia

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Peter Davidson, Ged Kearney and Phil Edmands at the tax summit, PHOTO: LOUISE KENNERLEY

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• Unions, welfare groups, economists push to narrow personal income concessions, but don't rule out GST hikes

Company tax cut - at a priceBen Potter

The Australian Council of TradeUnions, the Australian Council ofSocial Service and Labor have signalleda willingness to talk about tough taxreform options such as raising the GSTand lowering the corporate tax rate inexchange for cuts to tax breaks usedby the rich.

The careful concession by thenation's leading civil society groupsand the opposition at the AFR TaxReform Summit on Tuesday, marked aadvance in the stalled tax reformdebate.

It came a day after new Prime Minis-ter Malcolm Turnbull declared all taxreform options were back on the tableas he committed his government tochanges to spur growth and innovationin the wake of the mining boom'scollapse.

But the civil society groups made itclear the price for their participation inthe tax reform debate would be anagreement from business to a windingback of superannuation, capital gains,housing and other income tax breaksenjoyed by the rich.

"Let's start by looking for solutionsthat have stronger equity and efficiencyat the moment," said Peter Davidson,senior policy adviser at the AustralianCouncil of Social Services.

"Then we can turn our attention toissues such as the GST if we can't get farenough down that track."

On the first day of the summit,hosted by The Australian FinancialReview and KPMG, top economist SaulEslake challenged business to offer cutsto a range of tax breaks such as super-annuation, trusts, and capital gains.

Mr Eslake, a former chief economistat Bank of America Merrill Lynch andANZ Banking Group, said it would be"hypocritical" for business to urge thegovernment to broaden the base of theGST without accepting the need tobroaden the base of income tax tomake space for cuts.

ACTU president Ged Kearney saidshe was willing to be part of a debateabout whether the 30 per cent corpor-ate tax rate was too high.

But she told the Tax Summit she didnot believe the tax reform discussionshould immediately leap to raising theGST to fund company tax cuts.

"Having said that perhaps it is toohigh, I don't know - I'll be in theargument there," she said.

"But I do agree it has to be neutral.We cannot decrease the tax base.

Under any changes it has to be neutral,and I don't think we need to leap imme-diately to the GST to do that."

Earlier, shadow treasurer ChrisBowen said Labor accepted formerTreasury secretary Martin Parkinson'sargument that the burden of companytax fell most heavily on workers andthat Labor would look to cut the rate to25 per cent over time.

But, as reported in Tuesday's Finan-cial Review, Mr Bowen said Labor didnot accept that raising the GST was thebest way to pay for cuts to company taxor income tax.

Ms Kearney disagreed sharply withMr Parkinson on where the companytax burden fell at last month's NationalReform Summit sponsored by The Fin-ancial Review and rival newspaper TheAustralian.

But on Tuesday the ACTU presidentsaid she was willing to accept that itcould be true. "I think there's a dangerin saying the only thing that makes acompany competitive is a corporate taxrate," Ms Kearney said.

She said other issues such as theexchange rate, the imputation system,played into decisions such as bloodproducts group CSL's decision to put anew manufacturing plant in Switzer-land rather than in Australia.

Mr Bowen said Mr Parkinson's state-ment was "a statement of fact which Iagree with."

"I would like to see the corporate taxrate come down over time. I have previ-ously said the nation should be aimingfor a 25 per cent corporate tax rate,"Mr Bowen said, adding that it wouldnot be easy to do. Rio Tinto Australiamanaging director Phil Edmands toldthe summit that CSL had been motiv-

ated by tax rates when it made the deci-sion earlier this year to locate the newContinued next page


Perhaps it is toohigh, I don't know -HI he in theargument there.Ged Kearney, ACTU president,referring to the 30 per cent companytax rate.

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It's just not feasibleto maintain a30 per cent rate.It doesn't matterwhat yourphilosophicalposition is. It's justnot practical.Phil Edmands,Rio Tinto managing director

I am stating as amatter of principlethat you'd like tosee the corporatetax rate come downovertime.Chris Bowen, shadow treasurer

We have beenAustralia's largesttaxpayer over thepast decade.We have paid $65billion in taxes androyalties.Jane Michie,BHP Billiton head of group taxPHOTO: SAHLAN HAYES, LOUISE KENNERLEY

From previous pageCompany tax cut-at a price

plant in Switzerland.He said it wasn't feasible to maintain a

company tax rate higher than rivalnations and regions, regardless of yourphilosophy.

"I guess what the business communityis saying is if the UK is moving towards18 per cent, the OECD is 25 per cent, Asiais moving to 22 per cent, it's just not feas-ible to maintain a 30 per cent rate,"Mr Edmands said.

"It doesn't matter what yourphilosophical position is. It's just notpractical."

Mr Edmands said that although Aus-tralia had historically had a big advant-age in political stability over otherresource-rich nations, some rival nationswere getting their political systems inorder and as these barriers to investmentreduced, "relative tax rates comeinto play".

Former top Treasury tax official GregSmith suggested that the global fall incorporate tax rates meant the 30 per centcompany tax rate implemented in 2001needed to fall to 25 per cent now to havethe same level of international competit-iveness.

But he argued against financing anycut in the company tax rate by increasingthe rate of GST, saying that would not bepolitically sustainable. Instead, he agreedwith Mr Eslake about personal incometax concessions.

"The personal income tax rate in Aus-tralia has quite a few holes in it," saidMr Smith, who now chairs the Common-wealth Grants Commission.

AFRGA1 T002

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Jennifer Hewe

[email protected]

Talk's easy, reform's nitty-gritty less soThere's no mistaking the newenthusiasm in business about theprospects of tax reform under aTurnbull government.

But as shadow treasurer ChrisBowen points out at the AFR TaxReform Summit, agreeing on the needfor tax reform is relatively easy.Agreeing on just what that reformshould look like is the hard part-

In his prime ministerial honeymoonphase, Malcolm Turnbull is not rulinganything in or out as part of his drive tomake the economy more innovativeand productive.

This openness is a deliberatecontrast to the caution of the Abbottgovernment when faced withpolitically contentious choices on tax.

Pollster Mark Textor says it's firstnecessary for a government to "join thedots" - a political life skill that TonyAbbott and Joe Hockey proved unableto master.

According to Textor, that includesstarting with an organising principle sothat people understand therelationship of tax to economic growth,fairness and efficiency.

Voters are like investors, he says;needing to figure out the likely risksand rewards for themselves and forthe country.

Textor has had plenty of experiencein what makes sense to the public. Hewas not only pollster and strategistadvising the Howard governmentduring the introduction of the GST inAustralia, but has also assisted theCameron government in the UK andthe Key government in New Zealandwith their very successful re-electionstrategies and various economicreforms, including tax changes.

But despite the sudden eagerness fora national conversation about tax,Textor says it is still necessary toeventually come up with a package of

measures that people can assess onthe merits.

And he argues this will inevitablyinvolve a political battle rather than thefantasy - common in the businesscommunity-of any real bi-partisanship.

Lindsay Tanner, former financeminister in the Labor government andnow with Lazard Australia, was evenblunter.

"Bipartisanship is the enemy ofaccountability," he declared at the AFRTax Summit. In his view, the real issueto be dealt with is the need to curbspending rather than focusing onchanges to the tax system.

He ranks increasing the rate orbroadening the baseof the GST as a lowpriority, for example, compared withthe enormous structural changes goingon in the economy and in jobs - themagnitude of which he says is still notwell understood.

Such propositions are all certain tobe tested ahead of the next election,especially given Labor's resoluterejection of any increase in the overallrate or application of the GST as part ofany reform package.

That's despite general acceptance ofthe need for compensation for lowerincome earners in exchange for anychange to the GST.

It would also be linked to a raft of taxchanges and trade-offs rather thananything to be considered in isolation.

Scott Morrison didn't attend thesummit as he is still trying to get togrips with his new Treasury portfolio(not to mention a most unhappy ex-Prime Minister).

But Bowen was happy to argue thealternative case. It's simplistic, heinsisted, to equate a GST rise with taxreform, particularly when there are somany different and mutually exclusive

rationales for what to do with theadditional money.

These range from paying for states'health care costs to reducing thecorporate tax rate to ending bracketcreep to paying down the deficit.

"It's like when you get a raise in yoursalary and you think of five things you'dlove to do with the extra money, butdeep down, you know you can only doone," Bowen said.

Nor is there any agreement on whichone of those should be the priority or

how this can all fit together, especiallyin a time of indefinite budget deficits.That doesn't translate into a lot of sparemoney to smooth over complaintsfrom those most directly affected.

The common view, for example, isthat corporate and personal incometaxes are too high and increasinglyinternationally uncompetitive.

Bracket creep was the main tool inmaking Joe Hockey's budget numbersin future years look even slightly lesshorrific. Will Scott Morrison give upthat version of a budget safety net?

While dividend imputation reducesthe headline corporate rate of 30 percent, even the ACTU and the ALP canagree that high corporate tax rateshurts workers and jobs creation byinhibiting investment. Bowenconcedes the rate should come down to25 per cent over time.

But persuading people that acorporate tax cut will end up paying foritself by increasing economic activityand productivity is still a tough sell. Itwas not just the ACTTTs presidentGed Kearney saying so.

Expert tax academics professorRichard Vann expressed doubts areduction in the corporate tax rateis worth the cost, as opposed todealing with specific and morelimited problems.

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Phil Edmands, managing director ofRio Tin to, argued the communityneeds to know why the economy willbe in serious trouble without taxreform, and that the organisingprinciple should be to maximiseprosperity while minimising harm.

He quoted Treasury estimates thateach extra dollar of corporate taxreduces living standards by 504: in thelong run because of reducedinvestment That's compared to anestimate of 19<t worth of economic costfor every dollar raised by a GST,making it much more efficient.

Yet although simplicity andefficiency are regarded as cardinalvirtues in tax, there's now also greaterinterest in complicating matters byoffering tax breaks to encouragedesirable types of investment andinnovation. Even the chairman of theBoard of Tax, Michael Andrew, said hewaxes and wanes on this issue. Reformdoesn't come as easy as talk of it

The common view isthat corporate andpersonal incometaxes are too high.

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Chanticleer.For crowing there was not his equal in all the land...

www.afr.com I Wednesday 23 September 2015

A template for tax reform

Business representatives atThe Australian FinancialReview Tax ReformSummit in Sydney onTuesday were underintense pressure afterpollster and campaign

strategist Mark Textor claimed thecorporate sector lived with the delusion thattax reform would come from politicalbipartisanship.

"For years I have heard business say weneed bipartisanship," he said during a paneldiscussion of the ingredients for successfultax reform. "We have an adversarial system- harden up, get over it, its not going tohappen.

"We have an adversarial system that's asystem where you have this idea, I have thatidea, now let's have it out

"It comes down to not fantasies, teenagestyle fantasies, about bipartisanshiponreform but rather someone making the casewell with a tight package where someonecan make a decision on risk versus rewarddecision - it's pretty simple."

Textor's challenge was embraced by thebusiness representatives, Phil Edmands,who is managing director of Rio TintoAustralia, Kate Carnell, who is chiefexecutive of the Australian Chamber ofCommerce and Industry, Peter Nash, who ischairman of KPMG, and Lisa Gropp, chiefeconomist at the Business Council ofAustralia.

They put a strong case for cutting thecorporate tax rate, an objective that wassupported by shadow Treasurer ChrisBowen. The Tax Reform Summit, whichwas sponsored by KPMG, provided atemplate for attacking tax reform.

It ought to provide strong ammunitionfor new Treasurer Scott Morrison.

Edmands put forward strong argumentsin favour of cutting the corporate tax rate

from its current level of 30 per cent toaround 25 per cent

"What we want is the lowest and mostefficient taxes we can get because alloverreach is going to be a drag on economicactivity," he said.

"If s going to be a drag on growth, a dragon productivity and a drag on jobs.

"I don't think tax reform is about wealthdistribution - if you redistribute wealth youkill the incentive to create it."

Edmands pinpointed the key reasondiscussion of tax reform has been confinedto occasional summits and a series ofgovernment studies and white papers.

"I think the underlying problem is that Ithink the Australian community has notengaged in the underlying issues and trade-offs," he said.

He says the presentation of reform asbeing around general propositions such asefficiency fairness, equity and simplicity arenot resonating in the community.

"The community need to know why theeconomy is in trouble, how it [tax reform]will affect them personally," he said.

He says it would be a mistake tooutsource the reform package to a bunch ofexperts and present it as a fait accompli."That will drive division - and be seen ascliches and slogans."

This analysis was on the same page as thecomments made by ACTU president GedKearney, who said the organisation's2 million members were cynical about taxreform.

She said there is a feeling there is growinginequality, that a rise in the GST will makethem pay more taxes while rich peoplewon't

Kearney says we need to change thenarrative to discuss what taxes do forsociety.

"I think there is a danger in saying theonly thing that makes a company

ASRG01A044 MR

competitive is the corporate tax rate," shesaid. But she later said that the corporate taxrate at 30 per cent was perhaps "too high". "Iwill be in the argument there," she said.

Kearney said any changes to tax rates hadto be neutral.

Gropp said the starting point of anydiscussion about corporate tax had torecognise that every dollar of tax was a dragon future investment, which was backed upby Treasury modelling.

The assumptions underpinning thatmodelling were questioned by RichardVann, Challis Professor of Law, Universityof Sydney. His concern is that cutting thecorporate tax rate is a blunt instrument forimproving Australia's competitiveness.

He believes one of the biggestbeneficiaries of a corporate tax rate cut willbe those Australians who have "moneystuffed in trusts and companies - you neverhear about them in this debate".

Nash said Australia had to realise it wasoperating in a "new world" and that wecould no longer apply the same thinking

about tax that has been applied in the pastand which got the country relatively high onthe GDP per capita league table.

"We are living in a time now where wehave never had so much mobility in capitaland skills," he said.

He said capital will find the destinationthat is most friendly to that capital.

Nash said KPMG is seeing this inoperation all the time in its advice to clients.

"We know capital and investment iscritical to our growth and employmentaspirations," he said. "Are we doing all wecan to attract that capital to Australia?"

Nash said that more than at any point intime many countries around the world areusing their corporate tax rate as aneconomic weapon and Australia had torespond.

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"It is naive to believe we don't have to fightfire with fire," he said.

The person with the most experience oftax reform at the coal face was Greg Smith,who is a senior fellow at the Melbourne LawSchool and chairman of theCommonwealth Grants Commission.

He has been involved in tax reform since1983 and was personally a member of theteam that cut the corporate tax rate to 39 percent in 1988 and to 30 per cent in 2000.

Smith says the tax system has served thecountry well having "made Australia one ofthe most robust economies in the world".

But he questions whether cutting thecorporate tax rate will deliver as mucheconomic benefits as expected. The reasonhe is doubtful is because the middle marketcompanies with revenue between$10 million and $250 million account foronly 17 per cent of our company tax basewhile manufacturing is only 6 per cent

These are the two types of businessAustralia wishes to stimulate.

In other words cutting the corporate taxrate would deliver the most benefits tocompanies with location- or incumbency-based rents.

He said corporate tax cuts should be donegradually.

He also warned against trying to matchthe tax rates in countries like the UK

"There is no doubt in my mind thatAustralia cannot chase footlooseinvestment as its strategy. To do that wehave to get to 15 per cent [company tax rate]basically. Yes you will get a growth rate. Butyou will blowyour political equation waybefore that" he said. Also, he said that a risein the GST would not be a politicallysustainable way to go about paying forcorporate tax cuts.TONYBOYD

Twitter. @[email protected]

For years I have heardbusiness say we needbipartisanship. We havean adversarial system -harden up, get over it, itsnot going to happen.Mark Textor, pollster and campaignstrategist.

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mm REVIEWTax system gearedfor growth needed

After last month's National Reform Summit,the AFR Tax Summit has outlined a majortax package that would help secure Austra-lia's modern prosperity and that MalcolmTurnbuU's new form of economic leader-ship should be able to sell to voters. Over thepast two days, the key interest groups repre-sented at last month's summit - business,

the unions, welfare and seniors - debated the issue with tax special-ists from professional consultants, think tanks and academiaUnlike the National Reform Summit it did not come up with a finalagreed statement But also unlike the reform summit nor did anyindividual interest group exercise effective veto.

Instead, the Tax Summit's unofficial conclusion stuck to the ini-tial premise: tax reform is needed to help revive productivity growthand support living standards at a time when technological disrup-tion is intensifying the competitive pressures on the Australianeconomy. Australia's tax system is not fundamentally broken. Butit's been a decade and a half since the last serious reform effortJohn Howard's 10 per cent goods and services tax.

And, as former Victorian Labor premier John Brumby told thesummit yesterday, the tax system has since shifted back to anincentive-dulling over-reliance on taxing income. Bracket creep con-tinues to push more middle to lower income earners into higher taxbrackets and worsening work incentives by stealth, especially formothers seeking to re-enter the workforce.

Former Treasury secretary Martin Parkinson told last month'sreform summit it was "indisputable" that the heavy reliance on tax-ing income over consumption was undermining productivity.Union and welfare groups at this week's summit sought to down-play the need, outlined in the Abbott governments tax discussionpaper, for a tax mix switch towards consumption. But Mr Brumbyrejected this position, arguing it was "inevitable" the 10 per cent GSTrate would have to rise. The only debate, he said, was whether itsbase should be broadened. He was supported by current South Aus-tralian Labor Premier Jay Weatherill and by former NSW LiberalPremier Nick Greiner.

Moreover, there was perhaps a surprising degree of support atthis week's summit for cutting Australia's headline 30 per cent cor-porate tax rate to 25 per cent or so in order to remain competitiveon global capital markets. As the federal Treasury estimates, cuttingcompany tax is one of the best options for tax reform.

At the same time, however, the union and welfare groupsgathered support for the idea that the personal income tax base is

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riddled with unjustifiable concessions, like a block of Swiss cheese.Economist Saul Eslake pointed to concessions for superannuation,fringe benefits, negative gearing, capital gains and trusts. And ACTchief minister Andrew Barr outlined how he is pioneering taxreform by getting rid of some of the worst taxes of all - stamp dutieson properly conveyancing and insurance taxes - by phasing in oneof the least-distorting taxes of all - land tax, even on the family plotLike SA's Mr WeatherilL Mr Barr is getting out in front on taxreform because he needs to attract outside capital that will grow hiseconomy and its tax base.

In return, business signalled it is prepared to support narrowingincome tax concessions, including the most generous super breaksfor upper-income earners. "Superannuation is there to allow peopleto provide for their retirement" said Rio Tinto managing directorPhil Edmands. "It is not a wealth accumulation vehicle".

The qualification is that on its own, closing income tax conces-sions is unlikely to generate enough revenue to finance a seriouspro-growth tax reform package. The GST almost certainly needs tobe part of the mix because that" s where the money is. Cover it withpolitical wrapping that reinforces Turnbull-style themes of exploit-ing disruption, incentivising start-ups and encouraging mothersback to work, and this provides the outline of a tax package to growthe economy, expand its tax base and generate good paying jobs.The alternative of trying to tax wealth creators more almost cer-tainly would be counter-productive.

There was surprising degree of supportat the summit for cutting Australia'sheadline corporate tax rate to 25per cent

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Higher GSTinevitable,says BrumbyJacob Greber and Ben Potter

One of the most successful state Laborleaders and treasurers, John Brumby,has challenged federal Labor and theunion movement's opposition to whathe regards is an "inevitable" expansionof the goods and services tax.

Expressing regret about 15 years ofrising reliance on income taxes and thefalling relative GST take, Mr Brumbycalled for a significant rebalancing ofthe taxation system. Properly com-pensating losers for any tax increasescould win over some of the biggestopponents, he said.

The ACTU and federal shadow treas-urer Chris Bowen have said they areopposed to increasing the GST. MrBrumby suggested they might be pre-pared to shift position.

"I don't know how vigorously that'sbeen tested," he said. "But a compensa-tion package for low-income earnerswould be a good way to test that atti-tude. If you look at all of the argumentsand all of the facts, it is inevitable thatwe need to increase in the GST - theonly debate is really about the basebroadening."

Mr Brumby's remarks capped twodays of debate at The Australian Finan-Continued p8

From piGST hike inevitable,says Labor's BrumbyFinancial Review's tax reform summitin Sydney, where there was broadrecognition that 25 per cent should bethe "new 30 per cent" for company tax;that the "swiss cheese nature" of con-cessions across the income tax systemshould be closed; and that superannu-ation and capital gains concessionsshould be cut

Phil Edmands, a Rio Tinto managingdirector and Business Council of Aus-tralia director, said the savings systemshould not be used as a vehicle forwealth creation.

"Superannuation is there to allowpeople to provide for their retirement,"he said. "I think business accepts thatthe concessions need to be looked at"

South Australia Premier Jay Weath-erill added weight to Mr Brumby's GSTcall, but said debate on changeshouldn't be limited to a discussionabout the 10 per cent rate, but also whatthe tax applies to.

Mr Weatherill challenged federal andstate leaders to show the "wit" and find amechanism to apply the GST to finan-cial services, which he said wouldimpose a greater cost on the well-offrather than the "regressive" approach ofcharging the tax on food, and health-care. Mr Brumby, who as treasurer andpremier of Victoria delivered budgetsurpluses and pushed for a national

reform agenda to boost states' revenueto fund health, education and skills,said he wasn't a supporter of expand-ing the GST completely and warnedagainst using such revenue to pay forcompany tax cuts.

"It's very difficult to broaden the baseout on fresh food to 15 per cent andthink you'll get that through the Senate,especially if at the same time you'reusing that revenue to cut companytax," Mr Brumby said. "That's a hardstory for a politician to sell."

Mr Brumby presented his ideal taxchanges, which would raise an extra$40 billion by increasing the GST to 15per cent and "some" base broadening.Some $5 billion could be used for taxcompensation; $15 billion would go tothe states, $5 billion would be'used for acompany tax cut to 25 per cent by 2020;and the remaining $15 billion could beused by the federal government forincome tax cuts.

"The reality is now that in the 15years that the GST has been in place...we've seen a shift back to reliance ontaxes on income, a significant shift," hesaid. "So we need to rebalance the sys-tem, reorient it towards consumptionand take the weight off bracket creepon ordinary earners."

The second goal of tax reform is to

help states cope with their strugglingbudgets and growing demands for ser-vices.

"It's got to be a twin-edged effort onthe revenue side and the expenditureside to bring that deficit down muchmore quickly than it otherwise would[come down] so this burden doesn't

just crush the next generation," he said.John Daley, the chief executive

officer of the Grattan Institute, pro-posed a similar package but said therewasn't a "compelling argument" forreducing corporate tax rates becauseglobal interest rates are so low.

While tax theory suggests lower cor-porate taxes would lead to more invest-ment, with global interest rates at sucha low level that notion was more theor-etical that practical, Dr Daley said.

Former NSW premier Nick Greinerurged reformers to keep the options ontax change as broad as possible and saidit was "outrageous" new Treasurer ScottMorrison to rule certain changes out

"Both sides of politics ought to growup," he said. "Malcolm [Turnbull] hasbeen mature and grown up and saidlet's put everything on the table andthat"s the only way to go to get serioustax reform."

Not least, Mr Greiner said, becauseof the "massive issue" of funding thenational disability insurance scheme. "Ithink the NDIS is a really good ideawith huge support across the com-munity, [but] is fundamentallyunderfunded going out," he said. "Ithink we should be honest about that"

ACT chief minister Andrew Barrexplained why the territory is replacingproperty stamp duly by increasingproperty taxes and cutting payrolltaxes. "We are prepared to expendsome political capital in order to get abetter tax system. For the ACT as asmall economy we need a comparativeadvantage. That is how we'll get capitalflows into our jurisdiction."

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Author: Jacob Greber And Ben Potter • Section: General News • Article type : News ItemAudience : 57,243 • Page: 1 • Printed Size: 614.00cm² • Market: NationalCountry: Australia • ASR: AUD 10,736 • Words: 1086 • Item ID: 470339387


Tax incentivesJohn Brumby's proposed tax measures John Daley's top five tax measures

1 GST to 15%, some base broadeningCompensation • $5b:Revenue for states $15b :Company tax cut 28%, to 25% by 2020 $5b :Income tax cut • $15bTOTAL -$40b j

2 Super reforms (the Bowen plan)Increase super adequacy (LISC: Guarantee to 12%) • $1.5-$3b ;•

3 Restore carbon pricingIncentives for R&D, startups, medical research i $3b

4 Limit negative gearing to new housingCommonwealth deficit reduction $3b

5 Replace fuel excise with road user charges (revenue neutral)

It is inevitable thatwe need to increasethe GST.John BrumbyFormer Victorian Premier & Treasur

$40b ;

Si .5-3.0b

53b

$3b •

1 Property tax at 0.4% of property value,eliminate land tax and stamp duty

2 Reduce marginal income tax ratesparticularly for lower income tax brackets:15% from $18.2k; 28% from $37k; 34%from $80k

3 Increase GST to 15%; use 20% of revenue toover/compensate bogom 20% (Newstart);provide $5b to States for health

4 Reduce CGT discount to 25%

5 Quarantine wage and salary incomefrom investment losses

No "compellingargument" forreducing corporatetax rates.John Daley Gratafl lnstitMp%

$7b

Sl9b

$30b

-Sllb

$3b

S6b

SOURCE: FINANCIAL REVIEW, PWC

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CALL FOR REFORM IN I.R. AND APPROVALS PROCESS

Sector lays out its wishlist for FrydenbergMATT CHAMBERS PAUL GARVEYRESOURCES

The resources sector had calledon its new minister Josh Fryden-berg to drive change on industrialrelations and the nation’s com-plex approvals process, now thatthe industry once again has topbilling for a cabinet minister.

The elevation of Mr Fryden-berg from assistant treasurer toMinister for Resources, Energyand Northern Australia drew awarm reaction from industry,who hailed his economic back-ground as a strong positive, de-spite the respect for departingminister Ian Macfarlane.

Mr Frydenberg received en-dorsement from former Laborresources minister Martin Fer-guson, who is on the board of oiland gas giant BG Group, is re-source executive for Seven GroupHoldings and chairs an Austra-lian Petroleum Production andExploration Association advisoryboard.

“Josh has always taken aninterest in this industry and when-ever APPEA met in Canberra, healways attended and spoke open-ly about his endeavours, as minis-ter responsible for reducing theregulatory burden, about his com-mitment to doing something for

the industry,” Mr Ferguson said inPerth yesterday. “We’ve had opendiscussions about regulatoryreform, about trying to progressthe one-stop (regulatory) shop ...and the question of industrialrelations, he’s been in thosediscussions with Ian.”

APPEA chief executive Mal-colm Roberts highlighted thesame issues. “The challenge for

industry and governments now isto ensure that Australia stayscompetitive in the increasinglytough global market,” Mr Robertssaid. “Reforms to lift productivityand cut regulatory costs areessential.”

The return of resources andenergy to a lead role in MrFrydenberg’s portfolio, drewapplause from an industry thathad been concerned about it notreceiving separate billing underMr Macfarlane’s industry andscience brief.

The nation’s biggest miningand energy company, BHP Billit-on, underlined this point inwelcoming Mr Frydenberg.

“We acknowledge the govern-ment’s move to separate resour-ces and energy from the previousportfolio and believe this demon-

strates the importance placed onthe industries and their contri-bution to the nation,” BHP said ina statement yesterday.

In following on from Mr Mac-farlane, who was also resourcesminister under John Howard, andMr Ferguson, Mr Frydenbergfaces an industry used to havingministers it felt championed itscause and represented the indus-

try strongly, especially in the faceof negative policies such as themining taxes.

Fortescue Metals Group chiefNev Power said Fortescue was“really pleased” with the changesto cabinet, both at the level ofresources minister and havingfive ministers representing theresource-rich state of WA.

“Overall the Abbott govern-ment made a good start in termsof building a foundation for thefuture, and I think what we’reseeing now is a strong cabinet thatwill continue that great work,” MrPower said in Perth yesterday.

Mr Frydenberg is the lower-house member for the traditionalVictorian Liberal stronghold ofKooyong.

Rio Tinto Australia managingdirector Phil Edmands said he

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22 Sep 2015The Australian, Australia

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looked forward to working closelywith the new minister.

“We acknowledge the strongeconomic experience he brings tothe portfolio,” Mr Edmands said.

The Chamber of Minerals andEnergy of Western Australia andthe Perth-based Association ofMining and Exploration Com-panies both added efforts toencourage minerals exploration,which has plunged in recent years,to their wishlist for the newminister.

“Minister Frydenberg shouldmaintain a focus on reducing thecost of doing business andincreasingly exploration activity,”CME chief executive RegHoward-Smith said.

AMEC chief Simon Bennisonsaid sourcing capital was ex-tremely challenging for mid-tierminers and explorers and that

Continued on Page 20

COAL FUTURE WARNING P20

Sector putswishlist toFrydenberg

certainty was needed for busi-ness decisions.

“AMEC looks forward toworking with the new PrimeMinister, and his new cabinetto refine the Exploration De-velopment Incentive (explo-ration tax breaks) and take awhole of government ap-proach to new infrastructuredevelopments to unlockstranded assets,” Mr Bennisonsaid.

Mr Frydenberg acknowl-edged the industry need forgreater productivity amid apost-boom price crash.

“We’ve come off the super-cycle, where we saw recorddemand and prices for ourresources, back to more cyclictrends and that will be a chal-lenge,” Mr Frydenberg toldABC Radio yesterday.

“But if we can boost pro-

Continued from Page 19

ductivity here in our domesticindustries, if we can capitaliseon the (China) free trade agree-ment ... and if we can capitaliseon the lower Australian dollar,then the future for the sector ispretty bright.”

The new head of the WorldCoal Association called for thenew cabinet to invest more intotechnology around clean coaltechnologies.

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22 Sep 2015The Australian, Australia

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Turnbull faces the reform mountain Abbott fearedEXCLUSIVE

RICHARD GLUYASPOLITICS

On Tuesday last week, an in-triguing mix of optimism and deepfrustration swept the room as thebusiness community’s pin-uppolitician, the reformist NSWPremier Mike Baird, addressed aBusiness Council of Australiadinner at the Sofitel WentworthHotel in Sydney.

The event, held under Chat-ham House rules, was attended byabout 100 chairs and chief execu-tives of Australia’s top companies,

including BCA president and Tel-stra chair Catherine Livingstone,Wesfarmers chair Bob Every, RioTinto Australia boss Phil Ed-mands, Macquarie chief executiveNicholas Moore, and Westpacchief Brian Hartzer and his prede-cessor Gail Kelly.

As Baird beguiled his audiencewith a sermon about the GST andrestructuring the tax system,spirits were briefly lifted, but exas-peration about the Abbott govern-ment running dead on reform wasnever far away.

“There’s a six-month windowfor reform and it’s closing fastahead of (next year’s) election, sothere’s an acute awareness of the

mountain we have to climb,” oneattendee says.

“The Premier put up the casefor tax reform and talked about

the trade-offs and the options;everyone was very impressed.”

Only six days after the BCAdinner, a political earthquakeripped through Canberra, top-pling Tony Abbott and installingMalcolm Turnbull as the nation’ssixth prime minister since 2007.

No one at the BCA dinner hadeven the barest hint of what wasabout to unfold.

While Turnbull is well-con-nected to the top end of town, theformer Goldman Sachs invest-ment banker and successful inter-

net entrepreneur did not courtbusiness to play an active role inhis challenge.

In fact, with a handful of excep-

tions, the business communitywas no better informed than a lotof Abbott’s frontbench about thetiming of Turnbull’s putsch.

The prime minister’s diabolicalposition was well known, withlines of communication cracklingbetween Canberra and coalitionsympathisers in the far-flungcommercial centres of Sydneyand Melbourne.

For example, there was wide-spread talk of an electoral wipe-out in Victoria. So bad was theoutlook that the blue-ribbon Lib-eral Party seat of Higgins, now

Continued on Page 36

GLENDA KORPORAAL P36

Malcolm faces the reform mountain Abbott feared

held by Kelly O’Dwyer after the2009 retirement of ex-treasurerand current Future Fund chair-man Peter Costello, was on aknife’s edge. “The realisationdawned that we were staring intooblivion,” one insider says, addingthat previously rusted-on support-ers in a seat the party had neverlost were deserting “in droves”.

“There was no real trigger; itjust started dawning on peoplethat something needed to be done,and that became an epidemic,” an-other business/politics crossoversource says.

It wasn’t always thus under Ab-bott. Some of the former PM’sharshest critics in the businesscommunity today are quite openabout their initial optimism.

“The key difference betweenTurnbull and Abbott is that Turn-bull has this boundless intellectualcuriosity, whereas Abbott is justlooking for certainty — he wantsto find a rock and hang on to it,”says one business leader.

“Abbott’s got a great capacity to

Continued from Page 27 produce three-word slogans butit’s all tactics and no strategy, andhis eyes glaze over when you talkto him about a serious businessissue. He’s got no real interest,understanding or insight.”

It’s an excoriating analysis ofAbbott, but the same businessmanconfesses to an initial attraction tothe former PM’s eclectic interests.

“Generations of Liberal Partyleaders have been farmers, lawyersor in business,” he says.

“One of the interesting thingsabout Abbott is that he’s got a deepinterest in social policy. You won’tfind many past leaders who werefascinated by welfare traps.”

Former BCA president TonyShepherd, who was chair of theAbbott government’s NationalCommission of Audit, is one of thefew in elite business circles whowill talk openly about the ex-PM.

“Look, I think the governmentdid a better job than they’re givencredit for,” he says.

“The support from Joe Hockeyfor the Commission of Audit wasfirst-class, but the way that thegovernment subsequently han-

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dled it was regrettable.“The budget is still in structural

deficit and it’s got worse because ofthe slowdown in growth and thedecline in the terms of trade.”

The evaporation of businesssupport for Abbott is closely corre-lated to the government’s creepingremoval of options from the re-form table. It started early with in-dustrial relations, with Labor’skneejerk fear campaign about ex-huming WorkChoices still work-ing a treat, extended to the GSTand tax reform before an unlikelyalliance between Baird and SouthAustralian premier Jay Weatherillput it back on the table, and in-cluded the prospect of any genuinerepair-job on the budget.

Ask any business leader aboutAbbott’s economic failures andthey will rattle off their short lists,and quickly proceed to long lists.Without hesitation.

Australia, with its high costs

and relatively low productivity,clearly must do something aboutits uncompetitive company taxrates, or it can bid farewell to itsworld-class businesses as they arelured to countries like Britain withits 18 per cent corporate rate.

The transition to a digital econ-omy also offers hope of closing thegap to more competitive countries,but where is the vision on digital,let alone a passing reference to thethreats and opportunities in anoccasional stump speech?

On Monday, there was a collec-tive sigh of relief in the businesscommunity as Turnbull got to thecore of the issue when heannounced his intention to chal-lenge. “It is not the fault of individ-ual ministers, ultimately the PrimeMinister has not been capable ofproviding the economic leader-ship our nation needs; he has notbeen capable of providing theeconomic confidence that busi-ness needs,” the soon-to-be-PMsaid. “The big economic changesthat we’re living through here andaround the world offer enormouschallenges and enormous oppor-tunities, and we need a differentstyle of leadership.

“We need a style of leadershipthat explains those challenges andopportunities; explains the chal-

lenges and how to seize the oppor-tunities. A style of leadership thatrespects the people’s intelligence,that explains these complex issues,and then sets out the course of ac-tion we believe we should take,and makes a case for it.

“We need advocacy, not slo-

gans. We need to respect the intel-ligence of the Australian people.”

The budget remains key, be-cause it sets the parameters for re-form. As the BCA said in Marchafter publication of the intergener-ational report, the starting point of$245 billion in debt is weak, andgetting weaker. To make thingsworse, the budget was in deficit by$40bn, the economy growing at2.8 per cent, and the report fore-cast average spending growth of3.1 per cent through to 2055, takingnet commonwealth debt to 60 percent of GDP, or $2.6 trillion intoday’s dollars.

In Hong Kong on Tuesday,ANZ chief executive Mike Smith,who also attended the BCA dinnerthe week before, said Australianeeded spending restraint and fis-cal discipline, because debt wasgrowing at an unsustainable rate.

For these and other reasons,Turnbull’s withering, implicit cri-tique of Hockey on Monday for hisfailure to provide economic lead-ership was a message that echoedthrough the business community.

The sense of drift is so pervasivethat several business leaders con-tacted by The Weekend Australianseriously advance the argumentthat prosecution of the govern-ment’s economic case has default-ed to Small Business MinisterBruce Billson and the Minister forAgriculture, Barnaby Joyce.

As evidence, they point to theproposed crackdown on abuse ofmarket power through the intro-duction of a so-called “effects test”.

The Harper review of compet-

ition policy, which reported to Bill-son, argued for the new test, whichwould prohibit a company withsubstantial market power fromengaging in certain conduct likelyto substantially lessen competitionin any market. Supporters of theproposed changes, including Aus-tralian Competition & Consumer

Commission chair Rod Sims, havesaid it’s extremely difficult to pros-ecute abuses of market powerunder the existing legislation.

Big business, however, is out-raged, saying prices will go up andlegitimate competitive actions willinevitably get caught in the net.

Says one executive: “They’replaying with competition policy inthe lead-up to an election whenthe Greens and crossbenchers arein control of the Senate. The out-come can’t be good.”

Another executive fumes thatopposition Treasury spokesmanChris Bowen is “rock-solid”against it, and that 11 previousreviews of competition policy haverecommended against it.

Abbott parked the issue in thelong grass, but Turnbull has put itback in play as part of a new agree-ment with coalition partner, theNationals. Business might havegot its man but, for some, the newPM is on probation pending thefinal outcome of the effects test.

“Malcolm’s an individual, not ateam player,” a former businessrival says. “He’s actually a bit likeKevin Rudd — he can be aggress-ive and a bit narcissistic. But he’swhip smart so let’s just see if he canchannel it. Seat belts on.”

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