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Australian Think Tank Flags Danger Of New Taxes

by Mary Swire,, Hong Kong

19 August 2011

Australian free market think tank, the Institute of Public Affairs (IPA), has called on the Gillard government to scrap its mining and carbon taxes in light of the looming economic downturn in Australia's biggest export market, China.

“The recent stock market roller-coaster and the European and US debt crises have shed light on the risks associated with Australia's reliance on China's thirst for our resources,” Hugh Tobin, Director of the North Australia Project at the IPA, said.

He said that China's inflation is now at a three-year-high, has nowhere to move on interest rates at the moment, and can't afford another massive stimulus package like the one that kept it growing strongly during the recent global financial crisis.

“China is an export driven economy. As the global economy slows we will see demand for Chinese goods slow as well. This will have a flow-on effect to Australia as China will need less iron ore and other raw-materials to produce their exports,” Tobin observed.

The IPA believes that China will continue to grow, but even a modest decline in Chinese growth will have disastrous consequences for the Australian economy.

“Once global demand drops in the resource sector we will see commodity prices fall from the current high levels. The combination of falling commodity prices mixed with the introduction of mining and carbon taxes will make many Australian projects unprofitable,” Tobin said.

He believes that China is deliberately moving to reduce its reliance on Australian minerals in favour of increasingly cheaper markets in parts of West Africa and South America. It is, he says, not a good idea to add on new taxes and make Australia uncompetitive at a time like this.

“Australia should be cutting taxes. We need to simplify regulation and we need to increase the supply of skilled workers. These are problems that should be the major priorities for the government,” Tobin said.

The Institute of Public Affairs, in conjunction with Australians for Northern Development and Economic Vision (ANDEV), is calling for the establishment of a Northern Special Economic Zone (SEZ) to combat tax and regulatory burdens and skills shortages.

“The government must think through the long-term consequences of its policies for Australian jobs and the economy. We need a low tax, low regulation Special Economic Zone throughout Northern Australia so that we can remain competitive and prosperous even with a slowing Chinese economy,” Tobin concluded.

TAGS: tax | economics | business | mining | Australia | manufacturing | carbon tax | inflation

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