Swan Takes Stock Of Australian Tax Policy

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

28 June 2011

One year into Julia Gillard’s government, the Australian Treasurer, Wayne Swan, has taken stock of the country’s achievements and focused on some of the government’s challenges.

He said that one of the biggest policy challenges confronting Australia was putting a price on carbon pollution, and he recognized that some people will feel anxious about the change.

“We'll be announcing the final design of the scheme in the near future, but what I can say today is that generous financial help for household budgets will be provided to the vast majority of Australians,” he said.

This support will be delivered through a combination of tax cuts and increases in family payments, pensions and allowances, with nine out of ten households receiving some form of help for their household budgets, and a big majority of households getting assistance covering the average price impact of a carbon price.

“That means millions of low- and middle-income families will be doing their bit to protect our environment without any negative impact on their net family budgets,” he said.

On the question of why put a price on carbon if all the money just gets handed back again, Mr Swan said that a carbon price will change relative prices, making goods and services that generate more pollution relatively more expensive, and those that generate less pollution relatively cheaper.

"If people want to continue buying the more expensive goods and services, they will have the additional cash to do that. But if they switch to items made with lower carbon emissions at a cheaper price, they'll be able to pocket some of the additional household assistance."

“We've also committed to provide assistance to trade-exposed, emissions-intensive industries. This assistance, which is the subject of continuing discussions, will be designed to support Australian jobs and help businesses prepare for the low-carbon future.”

“The government doesn't underestimate the pressures faced by these industries caused by the high dollar, high commodity prices and the lingering effects of the global financial crisis. In fact that's a key reason why we're cutting the company tax rate and letting all small businesses instantly write off any new asset worth less than AUD5,000 (USD5,225) – to help those millions of Australian businesses that aren't in the mining boom fast lane,” he said.

The Treasurer also referred to the taxation of Australia’s mineral wealth, and he was keen to correct some misapprehensions that he had been made aware of. One was that the tax favours large foreign-owned companies because it gives them large transitional deductions on the value of their mines.

“The truth is profits are treated the same under the Minerals Resource Rent Tax (MRRT) regardless of who owns the resource or how miners are financed. All miners can choose to value their mines at market value and deduct that over time. Larger companies are likely to have large market values on their mines because they are so profitable. This obviously means the companies will also have significant MRRT liabilities,” he said.

He also noted another incorrect claim being that the MRRT favours larger miners because it does not provide a deduction for interest costs. He said that this was standard for resource taxes, and is the same approach used for the Petroleum Resource Rent Tax and royalties. He believes that some people may have been confused because they are able to deduct their interest costs from company tax, perhaps forgetting their lenders must pay tax on those same interest receipts.

“The MRRT achieves the same neutrality in a far more practical manner by treating debt- and equity-financed investments the same. Providing an interest deduction for the MRRT, or royalties, would mean that the returns from mines financed by debt are taxed less heavily than the returns from mines financed by equity.”

“Instead, the MRRT imposes the same charge regardless of how the mine is financed. In fact, rather than favouring larger miners, small and medium miners get an important concession with no MRRT to pay where their MRRT liability is below AUD50m,” the Treasurer said.

Recommended