It took over four months for the Rudd Government to respond to the report of its tax review panel, headed by Treasury Secretary Dr Ken Henry.
The Government will impose a 40 per cent Resource Super Profits Tax on mining companies from July 1, 2012. This is the centrepiece of the Government’s response, and will yield $9 billion in 2013-4, if mining profits continue to rise at their present rate.
While the Prime Minister trumpeted the slashing of company tax from 30 per cent to 28 per cent, most if not all of this will be swallowed up in increased employer contributions to employees’ superannuation, which will rise from 9 per cent of income to 12 per cent over the next 10 years.
The big winners in the Rudd tax reform will therefore be the Commonwealth Government and the superannuation funds, which are largely run by trade unions. Benefits for most employees will be years away.
But the Henry Review’s 138 recommendations will influence taxation policy in Australia over the next 10 years, as the Treasurer Wayne Swan acknowledged last week. It therefore should be considered independently of the government’s actions last week.
The Henry Review proposed that personal income tax be assessed “on a more comprehensive basis”, in other words, with few or no exemptions and deductions. Among those most affected by this would be defence force personnel and families, for whom the Family Tax Benefits would be substantially curtailed, if not completely removed.
It recommended against income-splitting for young families, as is practised in France, a measure which has kept France’s birth rate well above Europe’s average.
It proposed that all fringe benefits tax exemptions should be reviewed, and tax breaks for defence force personnel should be abolished.
The measures adversely affecting defence force personnel show that the Henry panel utterly disregarded the reasons why deductions and exemptions had been introduced, and would discourage Australians from serving their country.
The review proposed that employer-provided education for employees should be assessed as income by the employee, and taxed at marginal tax rates.
It proposed offering a 40 per cent discount on tax on income from savings, a half-baked measure which falls short of giving people a real incentive to save. By contrast, for business purposes, people enjoy a 100 per cent deductibility of interest on borrowings.
Mining industry tax
In relation to the mining industry tax, the Henry Review does not call it a “Resources Super Profit Tax”, as did the Prime Minister and Treasurer, but rather, a “resource rent tax”, an entirely different concept, although the rate is the same. It will lift the company tax on profitable mining companies to between 60 and 70 per cent.
Previously, the resource rent tax applied only to petroleum produced off-shore. It had been introduced by the Hawke Government in 1987.
The Henry Review proposed that it be extended to profits on all oil, gas and mineral projects, in place of the existing state royalties, which are usually based on the quantity of material exported, not on profits. The rationale for the state taxes was that it provided states with compensation for the cost of building infrastructure such as ports, railway lines, electricity, etc.
The resource rent tax, or as Mr Rudd calls it, the “Resources Super Profit Tax”, is nothing more than a tax grab which will encourage large mining companies to develop resources in other countries, where company tax rates are falling. Already companies like Rio Tinto and BHP have very substantial mining operations in Africa, Indonesia and South America which compete with Australian exporters.
The new tax will provide a huge cash benefit to the government, but gradually choke off mineral exploration and development. Some smaller miners have already cancelled projects.
Among other growth taxes put forward by Dr Henry were a road congestion tax, higher taxes on road freight, substantially increased taxes on the struggling wine industry, which would destroy much of it, and increased taxes on tobacco and gaming.
Among the more obnoxious proposals is that income-support arrangements for parents are not to be directed at helping parents care for their children, but rather to “encourage participation in work”. The report says, “As a condition of payment, parents should be required to look for part-time work once their youngest child turns four.”
This policy will deprive young couples of the incentive to have children, and accelerate families’ dependence on child-care facilities, ultimately, with very damaging effects on family life.
The review also proposed that additional payments for larger families, including the large family supplement and multiple birth allowance, should be cut.
The Henry Review must be defeated in the battleground of public opinion, and finally, in parliament.