by Alan Thornhill
Wealthy executives have been abusing tax breaks that were meant to encourage workers to take a stake in their bosses’
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.
by Alan Thornhill
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.
by Alan Thornhill
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.
by Alan Thornhill
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.,
by Alan Thornhill
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”.
by Alan Thornhill
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.”
by Alan Thornhill
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
by Alan Thornhill
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.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Friday December 13
The Dow Jones index falls 105 points to 15,739.
The $A drops to US 89.39US cents shortly after 8am, Sydney time
The Senate rises for the year, without passing government bills to abolish the carbon tax
Car industry workers’ plight to be high on the agenda, when the Prime Minister meets State premiers today
Australia’s unemployment rate rises slightly to 5.8 per cent in November 2013 (seasonally adjusted):ABS
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