Scrap RSPT and Start Again from Ground Up

23 June 2010

The Australian Financial Review

By Graham Bradley

President, Business Council of Australia

An important lesson from previous tax reform is the benefit that flows from having a proper process.

Almost 26 years ago, the then Labor government announced a new approach to the taxation of petroleum. At that time the Treasurer highlighted how the views of industry and the states had played a central role in influencing the development of policy, including modifications around whether the new arrangements should be applied to existing projects.

Some 10 years ago, John Ralph delivered a report on reforming business tax to a different treasurer in which he noted that the review process had been an open and transparent one. He explicitly acknowledged the input of business and the wider community in the development of recommendations.

Following a good process is even more important at this time because the resource super profits tax (RSPT) is a radical, untested and never before implemented tax proposal. Moreover, it contravenes the long-standing principle against retrospective application of new taxes.

The government has chosen to limit its initial response to the Henry review to a very narrow package of reforms, including a new 40 per cent RSPT and a minimal cut in the company tax rate. The lack of consultation from the government in arriving at this position is a real disappointment.

Consultation is important for a number of reasons. It matters not just because consultation provides an opportunity to understand how policies will affect stakeholders, but because the government is not always aware of every detail and all of the potential consequences of policy changes.

A comprehensive process of consultation allows for options to be fully tested. It can also be a major source of information into the policy development process and help deliver better policy outcomes.

Last year’s budget announcement to change the tax treatment of employee share plans highlighted the potential pitfalls of not taking enough notice of the practicalities of proposed changes. It is not reasonable for Treasury to have expertise on how the entire range of employee share plans operates in practice. It was only through consultation with business that a better understanding emerged.
The Henry review notes that “Australia’s future success depends vitally on a robust approach to an ongoing reform agenda, and this will rely on support from all sections of the community. All governments … should be charged with the task of pressing ahead with reform implementation on an open and transparent basis.”

By any measure, the process associated with the development of the RSPT has fallen well short on the grounds of openness and transparency. The new tax was announced to take effect from July 1, 2012 without proper consultation, with serious concerns about its workability and with legislation yet to be drafted. This is creating confusion and uncertainty, and destabilising the market. The reactions of the broader business, financial and investor communities reflect this concern.

In March this year, the Business Council of Australia released a set of high-level principles to guide tax reform, and it is clear that the proposed RSPT does not rate well against these principles. Of most concern to the BCA is the failure of the RSPT to meet the principle that the taxation framework be characterised by stability and predictability, with any change prospective so as not to adversely affect existing investments or create perceptions of sovereign risk.

The breakdown in the process around the RSPT has damaged Australia’s international standing and, unless concerns are addressed, there will be long-term consequences for investment and our growth prospects.

The best alternative now for the government is to embark on a revamped process for the development and design of a more efficient and less damaging approach to taxing resource profits in this country, one involving comprehensive public consultation.

This consultation should be open to the full range of options to better tax the resources sector. It must take place across the entire sector, and pay regard to the legitimate concerns raised by mining companies and the threshold issues they have identified.

Such a consultation process would lead to better reform, including a new tax regime for resources that does not work against the ongoing competitiveness of one of Australia’s most internationally competitive sectors.

Business leaders and politicians alike know that true leadership is acknowledged when good results are delivered. If you get good advice, the odds are you will make good decisions. If you make good decisions, you’ll get good results.

Leadership is also about inspiring people with confidence for the future. The nature of the RSPT debate so far has not reflected this kind of leadership. It is unfortunate that there has been a lack of transparency in the advice being provided, including that the resources sector has not paid its way.

It is also unhelpful that questions have been raised over the legitimacy of returns to foreign investors. Neither of these claims has instilled confidence, an ingredient of critical importance to our economy.

In the greater national interest, the BCA, representing all industry sectors, calls on the government to instigate the appropriate reform process in developing its approach to resource taxation. 



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