Ford Australia to close

Economic reality rocked Australia’s industrial base today when Ford announced that it would cease manufacturing in this country from 2016.

That will involve the loss of some 1,200 jobs.

Sales of Ford’s key local product, the Falcon, have been in terminal decline for years.

As a result, Ford has been producing no more than 30, 000 cars a year at its local plants, in Geelong and Broadmeadows.

The two other local producers, Holden and Toyota, each produce about three times that number.

So Ford could not take advantage of the economies of scale.

It was also hit by the high $A dollar, which cut the price of the foreign cars, that have been flooding into Australian showrooms.

And Ford Australia continued to produce a big six cylinder car, years after rising fuel prices forced local motorists into smaller fours.

Australian taxpayers have lost heavily, through financial support to the local car industry over the years.

This has cost some $1.1 billion over the past 12 years.

However the Prime Minister, Julia Gillard, made no secret of the fact that she was disappointed by Ford’s decision.

But she said: “The Australian and Victorian Governments are working together to do everything we can to look after the interests of the Ford workforce, the automotive supply chain and the communities of Geelong and Broadmeadows in Melbourne.”

Ms Gillard said the extra $34 million, which has already been promised to Ford, will still be delivered, to help these workers.

She said she expects that Ford, itself, will also make a substantial contribution to that fund.

What was Joe really saying?

Paying tax was once thought to be “optional.”

That was back, not so long ago, in the rip-roaring days of tax avoidance.

In the 1970s.

Your reporter remembers them well.

But it was the rich who were ripping and the rest who were roaring, because they had to pay other people’s tax.

I covered a court case in Perth, in those times, which clearly showed that an athletic tax avoider had paid almost as much, for his daring scheme, as he would have had to pay in tax.

In the wash-up, of course, this man had to pay twice.

His high priced advisers weren’t about to refund his money.

And the Tax Office still had an unsatisfied claim.

Part of Joe Hockey’s speech, to the National Press Club in Canberra, bears examination against this, still recent, history.

The man who could well be Treasurer, after the September 14 elections said:

“The Coalition will also foster a more cooperative relationship between taxpayers and the Australian Taxation Office.

“We all have to pay our fair share of tax.

“But the relationship with the ATO does not have to be adversarial and should be based on mutual respect.

“One measure that will help change the culture of the tax office is to appoint people with business experience to senior posts.

“The new Commissioner, Chris Jordan, is a breath of fresh air in this regard and the Coalition welcomes his appointment.

“But for too long the tax office has developed an insular and inward looking culture that has put it at odds with taxpayers, particularly in relation to its overly aggressive interpretations of tax laws.

“Taxpayers are not the enemy.

“They should be respected.

“I have previously announced that the Coalition would expand the number of Second Commissioners of Taxation, from three to seven, with appointments of “outsiders” who have market place experience to the executive group, which sets the strategic direction of the tax office.

“A second step is to reduce the complexity and increase the certainty of tax law.

“In areas like self-assessment and compliance we can do better.

“But when dealing with tax payers the ATO has everything in its favour,” Mr Hockey said.

That’s a long quote.

But these words are important.

Some will, certainly, be wondering if they can, once again, avoid paying their full share of tax.

Others will be saying that Mr Hockey is weak, and giving sly signals to his rich mates.

Words often have more than one meaning.

One thing, though, is certain.

If the Tax Office is, indeed, “overly aggressive” in its interpretation of tax law, that would be a consequence of a non-too-pleasant history.

Perhaps, as Mr Hockey says, it is time for everyone to be more reasonable.

However there is another side to this story.

Dr Martin Parkinson, the Treasury Secretary, warned Australians this week that they might have to pay more tax, to keep the level of public services they expect.

And the words of the American jurist, Oliver Wendell Holmes, still sound a clarion call.

“I like to pay taxes,” he said.

“With them I buy Civilization.”

What went wrong:Treasury chief explains

Some key Treasury forecasts had held up “reasonably well” Dr Martin Parkinson said today.

However Dr Parkinson, who is Secretary to the Treasury, was careful not to include its revenue forecasts, in this assertion.

Addressing business economists in Sydney, he said: “As you know, and has been much commented on of late, the past few years have been a challenging period for economic and revenue forecasting.”

“Yet, despite considerable global volatility and structural changes domestically, the Budget forecasts for the volume of economic activity and employment – the real economy – have held up reasonably well over this period.”

Dr Parkinson then made a concession.

“The same cannot, however, be said of the forecasts of nominal GDP and tax revenue.”

That is an understatement.

The Federal Treasurer, Wayne Swan, promised last year that he would deliver a small surplus, in his 2012-13 budget.

However revenue collections fell $17 billion short of the projections the Treasury made, in last year’s budget.

That was due, mainly, to shortfalls in company tax.

That left Mr Swan with an embarrassing $19.4 billion deficit in 2012-13.

The Treasurer was also forced to admit that the much anticipated surplus would not arrive for another four years.

Dr Parkinson admitted that Treasury’s revenue estimates had left the Federal Government in a difficult position.

“The direct impact of the, now well-known, overestimation in tax receipts is that the Australian Government faces a more difficult fiscal environment than had been anticipated a year ago,” he said.

Then he offered an explanation.

“Today, I want to take you through some of the drivers of recent weakness in nominal GDP growth and the Government’s tax receipts, and consider why the extent of this weakness had not been anticipated,” Dr Parkinson said.

He said these drivers had included:

• the difficulty that we, and other economic forecasters, have had in predicting the future path of global commodity prices, the exchange rate and capital gains and

• the significant structural changes that have taken place since the Global Financial Crisis in the Australian economy and in the Government’s tax base.

Small business:a warning

Australia’s small business sector is still trading below par.

This is reflected in the results of a new survey, just released by the Australian Chamber of Commerce and Industry.

However it noted that some indicators are recording “a marginal improvement.”

The chamber also had a message for Australia’s political leaders.

“With two million small businesses employing seven million people, lifting the profitability and confidence of small business is absolutely fundamental to economic development, a reality that cannot be ignored in this election-year,” it said.

The Chamber’s, Chief Economist, Greg Evans had a warning.

“Subdued small business conditions require a concerted effort by policy makers to take cost and regulatory pressure off small business,” he said.

“This should start with tomorrow’s national wage hearing discounting future wage rises by at least the value of the higher superannuation levy to be paid by small employers from 1st July,” Mr Evans added.

This Survey clearly shows that weak trading conditions have become entrenched for the majority of Australian small businesses.

Abbott casts a wide net

Tony Abbott tried to be all things to all voters, in his Budget Reply speech to Federal Parliament tonight.

As expected, the man who might well be Prime Minister, after the September 14 elections, promised to abolish both the carbon tax and the mining tax.

He even spoke of a cut in company taxes, when that becomes possible.

But there was no talk of an early return to a budget surplus, or any plan to cut Australia’s national debt.

Let alone detailed costings.

Perhaps the most significant thing Mr Abbott did say is that he would keep the present income tax thresholds.

That is important.

The first $18, 200 of income is now tax free.

That tax free threshold, which came into effect in July 1 last year, is much higher than it used to be.

Until then, we started paying tax when our income hit $6,001.

It would have been electoral suicide, of course, if Mr Abbott had tried to revert to anything like the old tax scales.

Don’t hold your breath, though, waiting for his abolition of the carbon tax to cut your electricity bills.

Firstly because would have to persuade the Senate to do that.

This is a sensitive subject for the Greens.

Besides,despite appearances, the carbon tax wasn’t really to blame for the bigger electricity bills that we have been seeing, since that tax was introduced last July.

The Productivity Commission has reported that – yes – the carbon tax did have some impact.

But it said the main contributor had been the efforts of our electricity suppliers to get back the extra money they had spent on poles and wires.

Some malcontents were even murmuring, back then, about “gold plated” electricity networks.

For all that, this was one of Mr Abbott’s milder speeches.

That was no accident.

The Opposition Leader knew, very well, that it was critical for him to appear, well, Prime Ministerial, as he spoke.

And that is what he set out to do.

Tony Abbott talks of tax reform

Tony Abbott has promised to say more about his plans for tax reform in the near future.

He was speaking in a television interview, in response to last night’s Federal budget.

The Opposition Leader was asked about his plans for tax reform if he becomes Prime Minister on September 14.

He replied: “What we said going into the last election is that we would have a comprehensive look at things, provided we got things lower, simpler and fairer.

“ We’ll have more to say about this in the days and weeks and months ahead.”

He added, though, that the carbon tax “would go” and the mining tax would be abolished.

Mr Abbott also spoke of a small cut in company tax.

“We won’t make promises that we don’t keep…” he said.

“…we won’t get things wrong like the carbon tax revenue because we will abolish that.

“We won’t get the mining tax revenue wrong because we will abolish that.

“…tax reform starts with abolishing the carbon tax,” Mr Abbott said.

“ That will go.

“ It continues with abolishing the mining tax.

“ That will go.

“ It continues with a modest company tax cut and that’s certainly something that we want to deliver.

“ So, tax reform is very important” the Opposition Leader said.

Swan puts profit shifters in his sights

The Federal government is tightening Australia’s corporate tax laws to stop “erosion” and close “loopholes.”

The Federal Treasurer, Wayne Swan, made that clear in a detailed statement he made on Budget night.

He said the government would accept a series of amendments the Treasury had made on these issues.

Multi-national companies, that evade tax by profit shifting, are squarely in the Treasurer’s sights.

He said: “Protecting the integrity of our corporate tax system will ensure a stable source of revenue to fund vital investments in our economy and community, underpinning a stronger, smarter and fairer Australia.”

Mr Swan said Australia is not alone in making these changes.

“The aggressive tax practices of some multinational and other large companies is an increasing focus of many G20 countries.”

And he is not apologising for the crackdown.

“Businesses that aggressively exploit tax loopholes gain an unfair advantage over their competitors,” Mr Swan said.

“If a few large companies use loopholes to avoid paying their fair share of tax, a greater taxation burden is placed on other taxpayers, like small and medium businesses and individual taxpayers.”

Mr Swan said: “The Commissioner of Taxation has identified a range of aggressive tax minimisation strategies, currently being exploited to take advantage of design flaws, vulnerabilities and unexpected interactions in Australia’s corporate tax laws.”

He said some of these loopholes emerged from Howard Government reforms following the Ralph Review of Business Tax in 1999 and the Review of International Taxation Arrangements in 2006.

A belt tightening budget. Where’s the balance?

A belt tightening budget, just months before an election, isn’t great politics.

But that’s what the Treasurer, Wayne Swan, delivered tonight.

He warned us, saying last week that this would not be a traditional budget.

Most of us will feel some pain, from decisions announced tonight.

But there were also some powerful appeals, in the budget.

The prospect of much better schools for our kids.

And a better deal both for people with a disability – and their families.

So how, broadly, does it all look, on balance?

Families will lose:-

* The baby bonus, which is being abolished

* Promised tax breaks, under Family Tax Benefit Part A

* Some carbon tax compensation

But they will not face tax hikes, even though the government saw its tax collections fall by no less that $17 billion, this financial year.

Companies will face:-

* Tighter rules on profit shifting

The government, itself, is facing a $19.4 billion deficit this financial year, instead of the small surplus Mr Swan promised last year.

It is also expecting an $18 billion deficit in the new financial year.

And that promised surplus, however small, is still at least three years away.

Still, these developments do not add up to a horror budget, by any means.

And even John Howard admits that Australia has a “resilient” economy, an unemployment rate with a 5 in front of it and a relatively low debt to GDP ratio. (see earlier story)

These things are not to be undervalued, particularly in the wake of a global economic crisis.

Mr Swan said the government is also:-

• improving the sustainability of the family payments system by extending indexation pauses; not proceeding with increases to Family Tax Benefit- part A announced in the 2012-13 Budget and abolishing the Baby Bonus while providing new support for families of newborns through FTB-A

• closing loopholes and protecting the corporate tax base to ensure multinationals and big businesses are not being given an unfair advantage

• better targeting superannuation tax concessions to improve the system’s fairness, sustainability and efficiency

• improving the sustainability of the health budget through phasing out the poorly-targeted Net Medical Expenses Tax Offset and making changes to the timing of Medicare Benefits Schedule indexation

• changing tobacco indexation to make it more consistent with consumers’ purchasing power

• continuing to grow overseas development assistance to 0.5 per cent of gross national income, but deferring the target date by one year from 2016-17 to 2017-18 and

• continuing to improve the responsiveness of income tax instalments for all large entities.

But will voters, carrying the weight of five years of global financial crisis fatigue, be persuaded?

We’ll find out on September 14.