Government response to Henry lacks direction
2 May 2010
The Government's response to the Henry Tax Review has left Australia without direction according to PricewaterhouseCoopers partner Tim Cox.Of 138 recommendations that had the potential for real, long term tax reform, the Government has announced it will act on five plus some additional measures it introduced on superannuation.
Of the remaining recommendations, 29 were wholly or partially rejected leaving 114 for discussion as part of a "mature tax debate in the coming years".
Mr Cox says, "The recommendations made by Ken Henry provide a platform for real and comprehensive tax reform.
"If tax reform is as important as the Government would have us believe, we need to see more intent, a blueprint and clearer guidance to take the Henry Review's recommendations further. That we haven't is frustrating.
"The Government received the report four months ago yet we still have no indication of its thinking on the shape and timeframe for tax reform in Australia.
"Structural tax reform is a long term objective, but there is no reason for an absence of an agenda on many of the recommendations which could be progressed in the short term."
Resources
A resource super profits tax ("RSPT"), as currently proposed, may see an exodus in the long-term of investment dollars from Australia to other resource rich regions, according to Michael Happell, national energy and resources leader, PricewaterhouseCoopers."Australia's largest miners are global businesses with assets spread across many countries. Tax is an important consideration for these companies in deciding where to invest."
"There is a risk an RSPT may make Australia's resources industry less competitive globally and see investment dollars flow to resource rich locations such as Africa, South America and Canada."
"We saw how an uncompetitive tax regime can impact investments 10 years ago, when many global companies relocated their regional head offices to Singapore."
"An RSPT may provide the government with short-term gains, but result in an overall reduction in resources-generated tax receipts longer term."
Mr Happell believes the details of how State royalties will be rebated and the basis for which unused project losses are to be refunded, will need to be clarified and will benefit a consultation process.
"An RSPT on top of state royalties does not simplify compliance for miners - it is an additional tax, with an increased administrative burden."
"It is clear that an RSPT will have far-reaching implications and mining companies will need to fully understand the mechanic to ascertain the impacts on their businesses and to provide timely and meaningful feedback to Government in the consultation process."
"Overall, the proposed RSPT does not appear to be a genuine tax on the "super" profits of natural resources projects. This is due to capital costs only being amortised over time, while the Long term Bond Rate as an uplift factor on capital costs and unused losses does not adequately compensate companies for investment risks.
Superannuation
The Government has not adopted the vast majority of the Henry Review's recommendations. Instead it has chosen to discuss the recommendations further as part of the "mature tax debate in coming years." It has also introduced some of its own measures.PricewaterhouseCoopers partner Mike Forsdick says, "There will be increased costs for business but higher retirement benefits for most Australians, But it will be nine years before the full force of the changes is felt."
"The impact on individuals will be positive with the exception of higher income earners who can expect to see a reduction in the tax concessions on their contributions.
"While businesses will be faced with increased super costs on their workforce from 1 July 2013," Mr Forsdick says.
At an individual level the winners of the changes to be implemented fall into four categories:
- Employees with more super support
- Those over 50, but with less than $500k in super, will enjoy higher contribution caps from 1 July 2012
- Low income earners will have $500 more in government matched contributions
- Those over 60 have the promise of the Government that the super benefits they take out will remain tax free
"In the short term individuals must continue to re- assess their personal super strategies. Employers need to consider the increased super cost implications from 1 July 2013 and how to respond them."
"For individuals and businesses alike the message is simple: watch this space for the future responses from the Government to the Henry Review's recommendations", he says.
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