Gillard backs down on super profits tax

Australia’s miners have had a big victory in their battle with the Federal government over its proposed super profits tax.

As a result, the government’s super profits tax proposal will be withdrawn and replaced by a new minerals resource rent tax.

The agreement, on which the  miners’ victory is based, will clear the decks for Ms Gillard to call an early election.

She could name the date as early as this weekend.

The new deal will reduced Federal revenue by $1.5 billion dollars.

Much of that cost will be met by Australia’s small business operators.

The government had been planning to gradually cut their company tax rate from 30 to 28 per cent.

They will still get a cut, but only to 29 per cent.

However, although it is not yet absolutely clear, it appears that the Federal government will proceed with its plan to gradually raise the compulsory superannuation levy from its present 9 per cent to 12 per cent.

A few minutes ago, the Prime Minister, Julia Gillard, was still meeting reporters in Canberra to explain the changes.

Shortly before her press conference began, she issued a joint statement with her Deputy, Treasurer Wayne Swan, to explain the changes.

It read:-

“The Federal government has replaced its proposed super profits tax on the mining industry with a minerals resource rent tax.

The decision, announced jointly by Prime Minister Julia Gillard and her deputy Wayne Swan is a clear victory for miners, who bitterly opposed the proposed tax.

Ms Gillard will meet reporters in Canberra shortly, to explain the decision.

Meanwhile she and Mr Swan have issued a joint statement, which reads:-

“Today the Gillard Government is proud to announce a breakthrough agreement on improved resource tax arrangements that addresses the concerns of the resource industry.

The new tax arrangements will underpin major economic reforms that will strengthen our economy so we can move forward together with confidence.

These arrangements will fund an historic boost to superannuation, new and better infrastructure, and business tax cuts including an up-front tax break and less red tape for small businesses to help them grow and thrive.

This agreement provides certainty to the resources industry, to mining communities right around the country, and to the broader Australian economy.

It sends a very clear message to the world that the Australian resources sector is strong and its future is secure.

The breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once. It is the result of intense consultation and negotiation with the resources industry.

The improved resource taxation reforms focus on the most profitable resources, raise the uplift factor for tax losses, remove refundability and offer generous depreciation arrangements to promote new investment.  They are more generous to industry in some respects, while industry has given ground in other areas. The improved profits-based taxation reforms will apply from 1 July 2012.

The improved resource tax reforms involve:

* a new Minerals Resource Rent Tax (MRRT) regime applying to iron ore and coal in Australia; and
* extending the current Petroleum Resource Rent Tax (PRRT) regime to all Australian onshore and offshore oil and gas projects, including the North West Shelf.  This will provide certainty for oil and gas projects and ensure all oil and gas projects are treated equitably.

The Government will focus the resource tax reforms on our biggest and most profitable commodities: iron ore, coal, oil and gas. These represent three-quarters of the value of our exports and resource operating profits and account for an even greater share of resource rents in the mining industry. They also represent the vast bulk of growth in the sector over the coming decades.

Since the beginning of the mining boom, prices for iron ore have increased by over 400 per cent and prices for black coal have increased over 200 per cent.

Other commodities will not be included, which reduces the number of affected companies from 2,500 to around 320. These commodities were not expected to pay significant amounts of resource rent tax, and excluding them will allow many companies to remain in their existing taxation regimes.

The agreement also provides certainty for projects in the emerging industry of converting coal seam gas to LNG, by including all Australian onshore and offshore oil and gas projects, including the North West Shelf, in the PRRT.

Including all oil and gas projects in the one regime will ensure equitable tax treatment between competing projects.

To ensure the smooth implementation of the new arrangements the Government is establishing a Policy Transition Group (PTG) led by Resources Minister Martin Ferguson AM and Mr Don Argus AC to consult with industry and advise the Government on the implementation of the new MRRT and PRRT arrangements.”

The two ministers also said:-

“The improved resource tax reforms are estimated to reduce revenue by $1.5 billion over the forward estimates. As the Government has always said, all elements of the tax reform package are dependent on the package being balanced by the revenues from resource taxation.

The reduced revenue makes necessary the following revisions to the associated reforms:

* The company tax rate will continue to be cut to 29 per cent from 2013-14 but will not be further reduced under current fiscal conditions. Small companies will benefit from an early cut to the company tax rate to 29 per cent from 2012-13.
* The resource exploration rebate will not be pursued.  Resource exploration costs will continue to be deductible in the normal way and the PTG will consider the best way to promote future exploration and ensure a pipeline of resource projects for future generations.

We believe these improved reforms offer the best chance of delivering for hard-working families and small businesses around Australia while protecting and growing our great mining industry.

All along, our objective has been to deliver Australians a better return for the resources they own, which can only be extracted once, and this plan will deliver on that commitment.

We came together as a nation to stare down the worst of the global recession and now we come together to reform our economy, improve our tax system, and move forward with confidence.”

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Share plunge hits super, but….

Weak share prices are still hitting superannuation fund returns.

But – although lower than they have been – those returns are still strong.

And one expert is warning that people with self managed superannuation funds should resist the present temptation to panic.

Jeff Bresnahan of SuperRatings says Australia’s major superannuation funds are now looking at an estimated 9.6 per cent return over the financial year, which has just ended.

That’s down from the 15 per cent returns that were chalked up, in the 12 months to the end of April.

Mr Bresnahan said though that even the latest figure should be regarded as “strong.”

He said it represents a real return of almost 7 per cent, once the current rate of inflation is taken into account.

Mr  Bresnahan said he hopes this will help restore public confidence in the superannuation system.

That was damaged by the share market crash produced by the global financial crisis.

He warned against making short term assessment of  investments in superannuation.

Mr Bresnahan said short to medium term superannuation funds now look “quite sick” when assessed against their objectives.

However long term superannuation funds are still “quite strong.”

“Hence we are still strong believers in the set and forget investment strategies,” Mr Bresnahan said.

“In fact it would be good if most people with super, particularly those under 50 years of age, could simply stick their heads in the sand and pull them out about five years away from retirement.” he added.

Mr Bresnahan admitted that people get scared, when share markets fall.

And that could cause them to make changes at “precisely the wrong time,” he said.

SuperRatings also estimated that Australia’s superannuation funds had recorded average earnings of 3.7 per cent a year over the past five years.

However average returns, since the introduction of compulsory superannuation, had been a much healthier 6.8 per cent a year, before inflation, which had averaged 2.6 per cent a year, over that time.

In a major development yesterday, the Superannuation Industry Review handed its third and final report to the Federal government.

This report deals, in part, with the fees charged by Australia’s superannuation funds.  It is expected to lead to simpler superannuation accounts, with much lower fees.

The Federal Superannuation Minister, Chris Bowen, said the reforms which would flow from this report, which has not yet been made public, would complete the overhaul of Australia’s superannuation industry.

He promised to release the report “quite soon.”

The Federal government has also announced that it will extend drawdown relief, for account based pensions, into the new financial year.

The industry welcomed this announcement, saying it would particularly help retirees with low balance accounts.

Pauline Vamos, of the Australian Superanuation Funds Association said:”This is an important initiative as there is still ongoing volatility in investment markets.

“Fund members need more time to allow their account balances to recover,” Ms Vamos said.

Related stories:

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