Doubts Loom Over Australian Tax Policy

by Mary Swire, Tax-News.com, Hong Kong

09 September 2010

With the support of independent parliamentary members and the Greens, the Australian Labor Party and the Prime Minister, Julia Gillard, have been able to obtain a one-seat majority in the House of Representatives and will form a new government, but, as each piece of legislation will have to be negotiated, the future progress of the party's tax manifesto commitments must be under some doubt.

During Gillard's press conference following the news that the final two independent members had finally thrown their votes her way, Gillard admitted that, given the parliamentary arithmetic, her government would have to be pragmatic in the future, and would have to find more common ground with the Coalition opposition. This is particularly so as, not only will she have a majority of only one in the House, but also the Greens will, next year, have the balance of power in the Senate.

However, both Gillard and Wayne Swan, the Deputy Prime Minister and Treasurer, who was also at the press conference, stood by the pre-election tax reform commitments made by the Labor party, including the 30% mineral resources rent tax (MRRT) from July 2012, which would provide funds for proposed reductions in company tax.

In addition, while the independent members who will support the government have indicated that the Labor party has agreed to a “tax summit” by June 2011, so as to have a “structured discussion” about the recommendations of the Henry tax review, it is not apparent that the MRRT will form any part of that discussion.

In fact, Swan confirmed that the MRRT’s Policy Transition Group is still working its way through its considerations of the technical design of the new tax, and consulting with interested parties, and that “what remains in terms of the Henry review, we’re happy to have a structured discussion about.” As regards the MRRT and the company tax cuts, “they’re already factored into our budget”.

Furthermore, while she recognized that she will be seeking to deliver legislation in a parliament where she did not have automatic support, Gillard reiterated that: “We’ve actually got our commitment to our MRRT. We put forward to the Australian people a cut in the corporate rate as recommended. We put forward to the Australian people a tax cut for small business with the instant asset write-off. All of those things are commitments.”

It is should also be noted that the Greens would be looking not to a delay in the MRRT, but to an increase in its rate back to the originally-proposed 40%. Their negotiating position on the mining tax, and also on another contentious issue between government and opposition on which they favour action – the delayed carbon emissions trading scheme – will be important in the future if parliamentary debate progresses to the Senate.

After the announcement of the new Gillard government, the chief executive of the Association of Mining & Exploration Companies (AMEC), Simon Bennison, said in a statement that AMEC “welcomes the proposal to establish a tax summit with all of the Henry tax review recommendations on the table for open, transparent and constructive discussion. This provides a perfect opportunity to immediately withdraw the extra tax on mining and develop a long-term strategic tax reform programme.”

“As the recent debate over the extra tax on mining has created significant uncertainty and confusion in the industry, and with potential investors in the decision making process,” he added, “the Gillard government should immediately implement appropriate initiatives that will restore confidence in the market.”

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