Wealthy executives have been abusing tax breaks that were meant to encourage workers to take a stake in their bosses’

companies.

The idea behind that scheme, which the Keating government introduced in 1995, was to promote industrial harmony in Australia.

The scheme has wide support in Federal parliament, with both the Rudd government and the Coalition, led by Malcolm Turnbull, backing it.

But the  Tax Office has reported that   wealthy executives, who abused it, have produced a “very serious loss of tax revenue.”

And the Federal Treasury has estimated that the Federal government could raise an extra $200 million in tax, over the next four years, if it closed the loopholes that permit this evasion.

So that’s precisely what the government set out to do, in its budget on May 12.

But it acted hastily and clumsily.

The protests that followed forced the government to make concessions, which have still to be settled.

“We do not mind admitting that perhaps we could calibrate this measure better,” the Assistant Treasurer, Chris Bowen, told parliament.

How, though, did the rorts work?

Mr Bowen said one executive had acquired options, under an employee share scheme, in the 2004 income year.

“The taxpayer did not elect to be taxed up front,” Mr Bowen said.

Instead, he deferred that liability.

“An ATO audit found the extra tax payable from that one individual was over half a million dollars.”

This was not an isolated case.

Mr Bowen said 8 per cent of the wealthy Australians, examined under a Tax Office high wealth investigation had “tax shortfalls.”

He and the Federal Treasurer, Wayne Swan are now promising to produce an issues paper, on how this problem might be fixed.  They say they will do so within a fortnight.

We don’t know yet, exactly what that paper will say.

But we can confidently predict that the government sill take a tough line on this kind of evasion.

The Federal government has stepped back from its budget crackdown on the tax breaks that come with employee share schemes.

That happened when the Assistant Treasurer, Chris Bowen, admitted that the government’s initial response had  been clumsy.

He said it could – and would – be “better calibrated.”

The government had proposed, initially, to prevent people benefiting from these schemes defererring their tax liabilities.

It also declared that it would restrict a tax exemption of $1,000, for those who pay up front, to people earning less than $60,000 a year.

Mr Bowen told parliament late yesterday that these schemes had, in fact,  become significant avenues for tax avoidance.

He said a Tax Office audit had shown that just two people had been able to avoid paying a combined tax debt of more than $1 million by using these tax breaks.

The Federal Treasury has estimated that the government would raise an extra $200 million in tax, over the next four years, as a result of the crackdown.

But a storm of protest, from both business and unions, followed the government’s announcement, on budget night.

That forced the Treasurer, Wayne Swan and Mr Bowen to issue a joint statement, earlier thia week, conceding that the government would take another look at the matter.

They also said then it would release a fresh “policy options” paper within a fortnight.

However Mr Bowen told parliament yesterday that most, but not all,  of the people who had lodged protests on the issue, had admitted that the tax breaks did involve genuine problems with revenue leakage.

He said they must  be fixed.

The ATO and the Treasury are both worried about the matter.

There are, essentially, two kinds of employee share ownership schemes.

These are the narrow ones, restricted to senior management and broad schemes, benefiting permanent employees, working both full and part time.

The two scoundrels, who each managed to avoid about $500,000 in tax, through these breaks, were both executives. Broad schemes simply don’t involve that kind of money.

That much, at least, is clear, even though Mr Bowen refused to name the miscreants, in parliament.

He said doing so would be improper, under the secrecy provisions of the Tax Act.

So what happens now?

Watch this space.

Malcolm Turnbull supported the concept of an emissions trading scheme, when he was environment minister in the Howard government.

And he probably still does now.

However he has found little support for the idea in the joint Coalition party room, where it was discussed, yet again, yesterday.

The outcome, if that is not too strong a word, was essentially yet another decision wait and see what developments occur in this area.

That gave the Prime Minister, Kevin Rudd, a brief chance to draw attention away from the Coalition’s sustained attack on his budget.

Addressing parliament at question time, Mr Rudd mounted an attack of his own.

“What the Australian nation saw today was the Leader of the Oppostion rolled in his own joint party room,” the Prime Minister said.

Mr Rudd said the Liberal party’s “hard men” of the right had combined with the National Party to produce that result.

“The leadership of the current Leader of the Opposition has been fundamentally undermined by his inability to stand up to the climate change sceptic in his own party,” Mr Rudd crowed.

What the business community is looking for on climate change is certainty, the Prime Minister added.

These were powerful points.

And they would have been even more powerful if Mr Rudd, himself, had managed to take the firm stance he recommended on climate change.

But he hasn’t

The government has, formally, adopted a carbon pollution reduction scheme, but it has not,  so far settled firm targets.

And it has also delayed the start of its new scheme until July 2011, well after the next election, which must be held by late next year.

The opposition is already road testing its central strategy for the next Federal election.

That is attacking the Rudd government over its debts and deficits.

Malcolm Turnbull pressed the issue again yesterday, when Federal parliament resumed its debate on the government’s second budget.

The Opposition Leader said Kevin Rudd must tell the Australian people just how big the government’s debt was likely to be.

Mr  Rudd said gross debt would peak at $300 billion.  The government has already admitted that it will produce a deficit of more than $53 billion in the new financial year.

There were cries of “hear, hear” from opposition benches, as Mr Rudd gave that debt figure.

The Treasurer, Wayne Swan, admitted later, though, that gross government debt could reach $315 billion

The next Federal election is not due until late next year.

But the opposition could seek to force an early election, by trying to block or even delay the budget in the Senate.

The government does not have the numbers it would need to be sure of getting its budget through the upper house.

Two independents hold the balance of power in that critical chamber.

However, it is still far from certain, at this stage, that the opposition will seriously try to block the budget.

Recent opinion polls certainly show that the government has lost some ground with voters.

But, at the last count, the government was still in a strong position, electorally.

So the conservative opposition would be taking a very big risk, if it pressed for an early election, too soon.

And the government does have, at least,  a plausible reply.

Wayne Swam. for example, accused the Coalition yesterday of mounting  a fear campaign, that is damaging both confidence and the economy.

And, on present figures, the government would probably win an early election, if one was held soon.

Several opposition backbenchers, encouraged by the Coalition’s early successes, are eager to try their luck.

Cooler MPs, though, are warning that the Coalition could deprive itself of a real chance of winning the next election, by moving too soon.,

Australia’s exports are expected to fall by $50 billion in the new financial year.

This would  certainly be, the biggest trade slump the nation has seen for more than 50 years.

And, most likely, it would be the biggest ever

The Treasurer, Wayne Swan, who revealed  this forecast yesterday, put the blame squarely on the global economic crisis.

He said Japan had already suffered the worst contraction in its economy, since records began in 1955, with a 4 per cent fall in its output in the March quarter of this year.

Activity in other regional economies, including Hong Kong, Singapore and Taiwan had contracted, too, Mr Swan said.

The Prime Minister, Kevin Rudd, said his government’s response had been “to pull out all stops,” organising “a war time like effort” to get stimulus projects up and running, to meet this challenge.

Statements from both Rudd and Swan left no room at all to  doubt the Federal government’s determination to push its big spending budget through parliament.

The budget will, once again, be before the House of Representatives, when Federal parliament resumes today.

But it won’t go before the Senate this week, as this week’s Senate program is filled with Committee meetings.

Rudd said the construction phase of his government’s stimulus plan is now “well under way.”

In a five page statement, he listed road, rail, social and defence housing, school, energy efficiency and community infrastructure projects that have already started.

The Federal government is picking up the bills for these projects and State premiers and chief ministers can hardly believe their luck.

But this work won’t be cheap.

Kevin Rudd said his government would be investing $22 billion in “our nation’s infrastructure”.

Australia’s superannuation funds are climbing slowly out of the hole they fell into, after last September’s share market crash.

Jeff Bresnehan, of Superratings, says the value of assets held by the median fund in Australia rose by 3.06 per cent in April.

He said that was the strongest monthly performance in any month in the new millenium.

April was the second successive month to produce a positive result.

But fund assets, this financial year, are still down 13.71 per cent.

Howevert that shortfall hit 18.32 per cent, in the financial year to the end of February.

The Former Federal Superannuation Minister Nick Sherry has often urged Australians to look at their super as a long term investment.

Heaccepts, though, that many Australians, who are now close to retiring age, are suffering significant losses, as a result of the crash.

However other figures, also produced by Superratings do support Senator Sherry’s case.

Superratings has calculated that the rolling 5 year return, for Australia’s mid level superannuation fund, was 4.67 per cent a year, over that time.

And the rolling average,  over a 10 year term, was 4.77 per cent a year.

Mr Bresnehan said the recent improvements had been “driven by a resurgent share market>

Bankwest economist, Alan Langford, also sees evidence that the appetite for risk – and reward – is returning to global finance markets.

He says the retreat in key debt market risk premia is starting to gather “significant momentum.”

There’s no doubt about it now. Last week’s Federal budget has shaken consumer confidence throughout Australia.

A Roy Morgan poll, taken on the eve of the budget last Monday, showed Labor was still riding high then, with 60-40 support, on a two party preferred basis.

But an AC Nielsen poll, published earlier this week, showed the Coalition trrimming  that gap.

But the real story was to emerge from a Westpac Survey of Consumer Confidence, released yesterday.

It showed that consumer confidence plunged 4.3 per cent in May, the second biggest monthly fall, in a post budget period,  ever.

Westpac’s chief economist, Bill Evans, said the Federal budget was clearly to blame.

But he added:”The fall, while large for a receent post budget period, is not particularly significant in the context of the volatility we have seen over the last decade..”

The latest fall follows a rise of 8.3 per cent in April.

But Australians’ view of their finances now, compared with a year ago, plunged 7 per cent this month.

The public is even more pessimistic in assessing their situation now, with their likely situation in 12 months’ time.

No less than 7.2 per cent saw their prospects dimming over that time.

But the Prime MInister Kevin Rudd, said it would be “irresponsible” for the government to step back now from the challenges

Speaking on Adelaide radio, Mr Rudd said:”We therefore have taken a responsible strategey to support the economy now because of this global recession.”

However Mr Rudd also said his government would also be taking the equally responsible path of returning the budget to deficit over the medium term

The Reserve Bank chief, Glenn Stevens, is -almost – tipping a recovery by the end of this year.

Mr Stevens chose his words, very carefully, when he addressed the  Canadian Australian Chamber of Commerce in Sydney.

But the tone of his speech was significantly more optimistic than the minutes of the last Reserve Bank Board meeting, which were also published yesterday.

That meeting, of course, was held two weeks ago.

Mr Stevens said that Australia and Canada were both “well placed” to take part in “a renewed international expansion.”

“It is too soon to say that this is beginning yet,” he added.

But he said “developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year.”

“That said,” Mr Stevens added,”most observers think that the early part of any new global expansion will be  chracterised by pretty slow growth.”

No-one should be too surprised by that final note of caution.

Bankers, always, like to temper their optimism.

However, Mr Stevens had mentioned strong grounds for confidence earlier in his speech.

He said both Australian and Canadian banks were  sound.

“Notwithstanding the global credit crisis, Canadian and Australian banks continue to be profitable,” he said.

Mr Stevens noted, too, that there has been a recovey over recent months in China, which is among Australia’s biggest customers.

“China’s industrial output fell for four months, between July and November,” he said.

But it had since “recovered all those losses.”

Mr Steven said a similar pattern had appeared in Korea.

Wayne Swan believes that a rise in the Federal tax on cigarettes would receive wide support.

“I think a lot of people would be supportive of that,” the Treasurer said in a radio interview yesterday.

He differed sharply from the Federal Finance MInister, Linsday Tanner, who had previously attacked Malcolm Turnbull for proposing such a rise, saying the Opposition Leader’s suggestion amounted to asking the poor to subsidise a tax break the rich emjoy on private health insurance.

Mr Swan,said, though, that the means test, the Federal government has now placed on the private health insurance rebate would help  to  fund  pensions, over the long term.

That was good policy, Mr Swan said.

But the matter won’t rest there.

The Treasurer also said that the government would look at rasing the present excise on cigarettes, when the results of the Henry review of Australia’s tax system are known.

That is expected to be late this year.

“We’ve said we will have a  look at it in the context of the Henry Review,” Mr Swan said.

“We are already on the record, unlike Malclm Turnbull, of supporting changes in taxation, when it comes to vital public health issues like alcopops,” he added.

What further hints do your need?

Quit now.  Save a packet. And, incidentally, your health.

The Federal government has been quietly clearing a path for superannuation funds which want to merge.

Nick Sherry has just released some of the details.

Addressing the Australian Institute of Superannuation Trustees in Sydney, Senator Sherry said:”In the current financial climate, it is imperative that we minimise any potential barriers to a robust and efficient superannuation industry.

“Fund mergers can improve economies of scale and enable funds to provide services to members more efficiently.”

The Federal Superannuation and Corporate Law minister said that is why he had announced optional capital gains tax rollover for capital losses, related to mergers of complying superannuation funds, last December.

Late last month the government had decided to expand that concession, Semator Sherry said.

The government had also decided to extend the period of application, in such cases, by one year, to June 30, 2011.

“By allowing superannuation funds more time to use the roll-over, this will provide better support for mergers of superannuation fund,” Senator Sherry said.

He said, too, that to reduce compliance costs, the measure would now allow funds in a net capital loss position to roll over assets with both capital gains and capital losses realised, rather than just capital losses.

“This change will further reduce impediments to mergers,” Senator Sherry said.

It would do that by ensuring that the taxation value of previously realised capital losses and revenue losses is not lost, when the transferring fund is wound up.

“The government is currently drafting legislation for this measure,” Senator Sherry said.

A debt colllector, acting for a large finance company, jumped a suburban gate, entered a garage, then opened its door from the inside.

He then repossessed a car, whose owner had fallen behind in his repayments on the vehicle.

The finance company, ESANDA, allowed this repossession to proceed, even though it had previously told its unfortunate client that his car could not be legally repossessed without a court order.

The Federal Court, which dealt with this matter, ruled that ESANDA’s conduct in this case had been unconcsionable.

The chairman of the Australian Competition and Consumer Commission, Graeme Samuel, told this story, once again, at a meeting of the launch of the Australian Collectors and Debt Buyers’ Association in Melbourne on Friday.

There was nothing accidental about that.

Mr Samuel said most debt collectors in Australia do act decently.

But he said those who don’t had better watch out.

The ACCC is launching a crackdown on their activities.

“Over the past five fyears, there has been a considerable improvement in debt collection practices and interaction with consumers,” Mr Samuel said.

But he warned, too, that his commission is concerned about “the continuatiion of unscrupulous debt collection activities by certain operators in the industry.”

Mr Samuel acknowledged that the incidence of default on debts is likely to increase, as the global economic crisis hits more Australian families.

And the debt collectionn industry is already managing about $6 billion worth of unpaid debt, in about 12 million cases, each year.  And that would have consequences.

“…it is imperative that the industry does not take short cuts and risk contravening the law,” Mr Samuel said.

He said many of the complaints the commission receives, about debt collectors, relate to harrassment.

“While some (complainants) mentioned violent and aggressive behaviour, the majority of callers were concerned about excessive contact from the debt collector, particularlly via phone call,” he said.

Don’t worry about an early Federal election.

It’s just not going to happen.

The Coalition has, certainly, identified the issue on which it will fight the next election – deficit and debt.

But not yet.

Malcolm Turnbull is all too well aware of one figure, that he doesn’t talk about much.

That is the huge gap that presently exists in the two party preferred vote, between the Rudd government and the opposition he leads.

That gap – 60 -40 -on the latest Roy Morgan opinion polls, published just last Friday, shows that the opposition leader still has much more work to do, before he can hope to win a Federal election.

A government measure, like the budget bills, must be rejected three times by the Senate, before it can become a trigger for a double dissolution.

Mr Turnbull has already declared that he is prepared to block the budget, particularly over the government’s plans to means test the private health rebate.

But as a former father of the house, Fred Daley, used to say, if you want to place a bet in politics, look for self-interest.

“At least you know it will be trying,” Fred was fond of  saying.

And Malcolm Turnbull’s self- interest, at present, does not lie with forcing an early election.

The opposition clearly has a lot more work to do, before it can hope to win the next election.

Its members are certainly comfortable with the debt and deficit issue.

It  resonates, powerfully, with nervous and conservative voters.

And no-one is accusing Kevin Rudd of being charismatic.

The numbers, though, are still clearly against Mr Turnbull taking such a drastic step.

He won’t do it just yet.

Besides the next full term election is now barely 18 months away.

Malcolm Turnbull says Australia could be put on the path to recovery without Labor’s “reckless spending” or its “colossal debt.”

Delivering his reply to the Rudd government’s second budget, the Opposition Leader said Labor’s budget would saddle every man, woman and child in Australia with a $9,000 debt.

“The budget was so unbelievable, that the Prime Minister is already running away from it, towards an early election,” Mr Turnbull said.

He proposed a four point plan, which he said had been worked out following meetings with employers throughout Australia.

Mr Turnbull said that plan would be based on four principles.

These were:-

1. The protection and creation  of jobs for all Australians
2. Government spending should be directed towards infrastructure and
3. Small business should be supported and
4. “The government should not incur $1 dollar more in spending or debt than is absolutely necessary to achieve these goals.

Mr Turnbull   said that when the Coalition  met  employers,  in every State, it had been told that business needs more incentives to take on apprentices.

He said a Coalition government would provide finacial support for employers who take on apprentices in the first two years of their apprenticeships.

He also proposed a tax “carry back” for business.

That would allow a previous year’s loss to be set against  against current profits for tax purposes.

And he said greater emphasis should be placed on reconstruction, in Australian law, when businesses face hard times.

He said thousands of jobs could be saved – and many businesses kept in operation – in that way.

Mr Turnbull also proposed an independent authority, to watch Federal spending and to report on its sustanianability.

This would be modelled on the US Congressional Budget Office.

Australia’s superannuation system could be weakened by the Federal government’s budget decision to trim its spending on co-contributions.

The government plans to save almost $1.4 billion this way, over the coming four years.

The Howard government introduced the co-contribution scheme back in 2003, to help Australians on low and moderate incomes to save for their retirement, through superannuation.

Under the scheme, the government would add up to $$1,500 a year to your superannuation account, if you qualified.

But Wayne Swan announced in his budget on Tuesday night, that his government would “temporarily reduce” the matching rates and the “maximum co-contributions” available under this plan.

As he had said earlier, he expects all Australians to “do their bit” to overcome the global economic crisis.

This decision, of course, will hit Australians on low and moderate incomes hardest.

And the superannuation industry, which has already been hit very hard, by the collapse in world share prices, after  the failure of Lehman brothers last September, is frankly apprehensive.

Pauline Vamos, chief executive of the Australian Superannuation Funds Association, said voluntary contributions to super are already 50 per cent down on those seen only 12 months ago.

“An unintended consequence of this cut may be further reductions in voluntary contributions to super,” Ms Vamos said.

She said the the scheme, as it had existed previously, had been “well targeted.”

“We are heartened that it is scheduled to return to its previous level by 2014,” Ms Vamos said.

“Hopefully, it will be extended further, as per our submission to the Henry review,” she added.

Australia’s compulsory superannuation system, though, is still far from mature.

It does  not yet provide adequate pay-outs or incomes, for most Australians, on retirement.

That’s because it hasn’t been running all that long.

But it is one of the three acknowledged pillars of the Federal government’s retirement incomes policy.

So any damage might well be seen as having significant, if not serious, consequences.

Wayne Swan preserved Labor’s promised tax cuts, in the budget he introduced into Federal parliament last night.

But he intends to raise an extra $125 million over the coming four years, by changing the definition of beer and wine.

Those drinks, which mimic spirits, will be taxed as spirits the Treasurer said.

He said his second budget had been “forged in the fire of most challenging economic conditions since the Great Depression.”

His calculations produced a deficit of $53.1 billion for the coming financial year – and a string of substantial deficits over the following four financial years.

Mr Swan said Australia’s economy would shrink by 0.5 per cent, in real terms, over the coming year.

And unemployment would rise to 8.25 per cent.

Single pensioners would receive an increase of $32.49 a week from September 20 and pensioner couples would get an extra $10.14 a week between them.

The First Home Owners Grant is being extended for another six months and the government will increase a tax break it offers small business to 50 per cent, for eligible assets purchased between December 2008 and December 2009.

But the high income earners will see their private health insurance rebate trimmed from July next year and the government will close several tax loopholes, that it believes unfairly favour investors.

Mr Swan said government revenues had collapsed by $210 billion over the past year, as a result of the global economic crisis.

To offset that, the government is trimming its superannuation co-contributions.

The budget papers show that the government expects to save a total of $1.395 billion, through this measure, over the coming four years.

Mr Swan said said, though, that the centrepiece of his budget is $22 billion worth of infrastrucure projects.

He said these would improve Australia’s roads, metropolitan railways, ports and include a national, high-speed internet service.