Ken Henry Tax Reform

[drsmith]

RRT is double taxation... Pay RRT on what you extract then pay company tax.
Miners with assets overseas are fine but Aussie miners are screwed.
If you're earing more than 6% on your mine you'll get slugged with the RRT.

Existing mines will fill govt coffers. But new ones? Risk is incredibly high. A potential 30% return on a mine is suddenly 20%
No-one wants to take the risk anymore. No-one wants to expand mines anymore. Why not just buy bonds and earn that 6% RISK FREE.

Killing the golden goose...

The RRT is worthy of a thread in itself. I've allready made some specific comments;

https://www.aussiestockforums.com/forums/showpost.php?p=552287&postcount=87
https://www.aussiestockforums.com/forums/showpost.php?p=552295&postcount=93
https://www.aussiestockforums.com/forums/showpost.php?p=552316&postcount=103
https://www.aussiestockforums.com/forums/showpost.php?p=552338&postcount=111

Miners are currently paying state royalties on top of a 30% company tax and seem to be doing OK as a whole.

The general thrust of the RRT to me seems to be good in that it is levied once a certain profit level is reached. The points above do however require careful consideration in relation to the threshold and rate set. I don't have enough background knowledge to make specific judgements on that.

It would be interesting to know how Henry came up with a 55% total tax take (25% corporate rate +40%*75%) above the 10yr bond rate and how that compares internationally.

The government at the very least is trying to grab the golden goose around the neck and give it a good hard shake to see what falls out short term. Not good from a long term economic management perspective I agree.

 

[Julia]

That's one perspective. Another perspective may be that Palmer was weighing up the positives and negatives of investing in New Guinea compared to Australia when this new resource tax was introduced. This is what I was referring to in my earlier post. If you don't think that this new tax will alter the investment decisions of mining companies in the future then you are living in a dream world. Mining companies have finite levels of capital to re-invest, which will be reduced even more by this new tax. With these reduced finite levels of capital, the mining companies need to decide which projects and investments will give the greatest level of return for the level of risk they are willing to carry. The pendulum is slowly swinging away from Australia.

Australia is becoming less and less attractive as far as mineral investment goes, and to assume that the mining industry will always be here in the same strength as we have seen over our history is a dangerous folly. This new tax, the ever increasing complex and costly Industrial Relations regime operating in this country, and the CPRS hanging over our heads, all point towards a deterioration in operating conditions for mining companies. No wonder mining companies are starting to court countries like New Guinea and Cameroon (SDL), where the taxation regimes being employed there are looking more and more attractive as time progresses. Mining companies are starting to wake up to Africa's potential, and more importantly, Africa is starting to wake up to Africa's potential. Every further restriction or deterioration in conditions mining companies experience in this country will push them further towards the point of looking elsewhere to invest their capital. Wouldn't it be a crying shame if this policy actually slowed down project investment into the future and all of the benefits that come with it?

I hope mining companies do start identifying overseas projects that would receive their investment instead of Australian projects if this new tax policy was to come into effect. Maybe then the Australian public might realise that Rudd is planning on actually taxing the industry into a point of uncompetitiveness internationally.

Thanks Kevin, and thanks Wayne. This is nothing more than a tax grab to plug leaks in the budget, leaks that were created by over-spending and extremely poorly executed Government policies that have ended up costing billions. If you don't think that revenues from this tax will end up in consolidated revenue for Labor to spend away then I personally think you are a little naive. Rudd is talking about infrastructure funds for the future, well we already had a few of those future funds and Labor has already raided them to pay for such brilliant policy as the BER (Builder's Early Retirement) scheme. Let's not even mention the almost criminal way that the budget surplus was thrown away. Just how much better does this make Howard & Costello's previous performance on Economic Management look?

Great summary.

3/138 is a little bit of a misnomer.

Rudd is a popularist style politician, in that the polls are more important than getting the right thing done at the right time. I have no doubt that there are more reforms that he may perceive as unpopular that he will include in the first post-election budget, should he be re-elected.

Exactly. He simply doesn't have the courage to put these out before trying to convince the electorate to re-elect him. If I hear him or Wayne Swan just one more time saying "well, we've had to take the tough decisions" I will scream. Tough??? Give us a break! They are proving to be quite breathtaking in their cowardice.

Rudd's supporters try to convince themselves that whacking the big miners and the smokers were courageous decisions. From an electoral point it takes no courage at all to attack two unpopular minorities and is just another example of his gutlessness.

The smokers cannot fight back, but the big miners are obliged to try to defend their shareholders.

Attacking unpopular minority groups has long been a favoured ploy of dictators. It helps to keep the masses distracted from the really nasty bits.

He will release a few sweeteners before the election, a few nasties after the ejection but most recommendations (like the health reform package) will disappear into the "way down the track" basket

Yep, you're quite correctly summing up the government.

Do we really want more rushed changes and schemes to end up in a scrambled mash or should we be greatful that maybe this time Rudd is showing signs of taking things a bit slower in an effort to, or that the people can speak out to, help to get the implementation right.

Oh dear, Whiskers, the Henry Report was about two years in the making and surely you don't think Dr Henry did not communicate and consult with his masters during the formation of this? And then the government have had half a year to release it and offer their response. Hardly rushed, for god's sake.
It is as Calliope has said, they will be offering what is most likely to get them re-elected (think of all those punters who are thinking, oh goody, I will be getting more Super and I don't have to even lift a finger to provide it for myself,) and then if they are re-elected, out will come the stuff they really want to do to shore up the coffers once again.

I can't believe how supporters of the government appear to be quite unable to see or at least acknowledge that government's blatant failings.

Much of the "working families" the Krudd refers to don't have the financial knowledge or experience to effectively use this increase to their advantage. Meaning that they will be left to the tender mercies of financial planners and advisers, whose pie just got bigger. I'm sure the financial companies will be laughing all the way to the bank.

Exactly so. I think I said this yesterday.

 

[trainspotter]

I think the media grab that annoyed me the most was the one where Swann and Krudd were sitting on a couch clutching a document and forelock tugging each other and saying things like "Mmmmmmmmmmm, this one is going to be tough to sell" whilst they stabbed at the bit of paper in their hands. Warped in his piety as he stroked his chin and peered over the rim of his bifocals Krudd then went onto say "Let them eat cake" and such like frivolness.

 

[drsmith]

Increasing super contribution rate - bad idea - my views on superannuation and the horrible nature of this vehicle as an investment mechanism is well stated on these boards. Much of the "working families" the Krudd refers to don't have the financial knowledge or experience to effectively use this increase to their advantage. Meaning that they will be left to the tender mercies of financial planners and advisers, whose pie just got bigger. I'm sure the financial companies will be laughing all the way to the bank.

When the government reviewed superannuation several years ago and compared the actual numbers with the projected numbers which were wildly different, the response from Finance companies boiled down to "Well there wasn't enough money in super to start with which is why our fees seem high." And so the government response to Tax reform is....more of the same.

People should have more and simpler investment choices for superannuation and there should not be up-front income tax deductions on contributions. It is primarily this that leads to poor investment choice and exploitation by fund managers.

Superannuation requires an incentive over conventional savings/investment to encourage long term planning for retirement.

A simple model where there are no deductions for contributions and there is no tax on the earnings would achieve this. There may need to be limits on how much new capital can be put into super each year, possibly increasing with age.

With no deductions on contributions the income tax base would be strengthened. This I suspect would result in a net tax gain overall which could be used to reduce marginal rates.

With regard to performance, the range of investments should be broadened to generally include all those available for conventional saving/investment such as interest earning bank accounts, term deposits etc. The only difference would be that the principal and earnings could not be withdrawn until preservation age.

 

[Sir Osisofliver]

People should have more and simpler investment choices for superannuation and there should not be up-front income tax deductions on contributions. It is primarily this that leads to poor investment choice and exploitation by fund managers.

https://www.aussiestockforums.com/forums/showpost.php?p=552397&postcount=123

Drsmith - I think more and simpler are mutually exclusive when referring to the Financial services industry. There are already a plethora of products with new one's being made all the time to keep the waters impenetrable to the inexperienced investor.

The tax deduction on contributions is the governments bribe to encourage people to put more money in. It seems like a good idea but is in actuality a terrible thing to do.

Cheers

Sir O

 

[drsmith]

Drsmith - I think more and simpler are mutually exclusive when referring to the Financial services industry.

I was looking at it from the perspective of offering simple products in addition to what we all ready have with the expectation that higher returns (as a consequence of no fees) and simplicity would over time weed out some of the poorer performing products.

In other words, use tax reform and additional superannuation options to facilitate a passive reform of the financial services industry by market competition.

 

[Sir Osisofliver]

I was looking at it from the perspective of offering simple products in addition to what we all ready have with the expectation that higher returns (as a consequence of no fees) and simplicity would over time weed out some of the poorer performing products.

In other words, use tax reform and additional superannuation options to facilitate a passive reform of the financial services industry by market competition.

LOL that's nice in theory, in actuality however most of the Fin Services industry is a sales job. So without unbiased education, the consumer would be simply sold into the product that is in the best interests of the salesperson rather than their own best interest. To someone who knows little it's confusing as hell.

Cheers

Sir O

 

[Whiskers]

Oh dear, Whiskers, the Henry Report was about two years in the making and surely you don't think Dr Henry did not communicate and consult with his masters during the formation of this? And then the government have had half a year to release it and offer their response. Hardly rushed, for god's sake.

Let's be clear (again), I'm not and never have been aligned to any political party. I'm simply taking a logical and pragmatic look at all the information. Do you remember the six hats from your dispute resolution training. They are just as important to individual everyday application.

Secondly, but they have been spending money left right and centre during that half year and have needed to spend more to rectify problems.

Then there is the issue of accounting for or budgeting for these costs, remembering that the COAG deal was also happening at this time and the exact numbers to nail that down were not known untill recently.

So from an administritive, financial and accounting perspective, starting with the key or limiting issues, (White hat)... surely you're not surprised that nothing too big was released until after COAG and re-crunching the budget.

You might notice that I intentionally play the devils advocate ocassionally as part of wearing different hats and some others maybe unconsciously do the same.

It seems to me that too many people wear the red or black hat too often and just don't want to change it.

Now if you're dwelling in your red or black hat for too long you may wrongly think I'm (different things)...

 

[drsmith]

LOL that's nice in theory, in actuality however most of the Fin Services industry is a sales job. So without unbiased education, the consumer would be simply sold into the product that is in the best interests of the salesperson rather than their own best interest. To someone who knows little it's confusing as hell.

Judging by these rates the benefit of tax concessions on income from super is going to the bank, not the investor.

http://www.commbank.com.au/personal/super-retirement/super-savings-account/rates-fees/default.aspx

If investors could access the bank's normal savings products for superannuation, they may bypass the investment advisor alltogether.

The tax deduction on contributions is the governments bribe to encourage people to put more money in. It seems like a good idea but is in actuality a terrible thing to do.

That deduction ultimately does not finish up in the hands of the investor. It's eaten up, slowly but surely by fees and lower rates of return as shown in the link above.

 

[Sir Osisofliver]

Judging by these rates the benefit of tax concessions on income from super is going to the bank, not the investor.

Tell me something I don't know. And this is an industry wide characteristic.

If investors could access the bank's normal savings products for superannuation, they may bypass the investment advisor alltogether.

*snort* Good luck getting that through. It's the banks that establish product, therefore they control it. And when it's mandated that it be in a complying product...this is what is called a captive market.

That deduction ultimately does not finish up in the hands of the investor. It's eaten up, slowly but surely by fees and lower rates of return as shown in the link above.

So we agree It's a bribe, just not an effective bribe. More of a Clayton's bribe as it were.

Cheers

Sir O

 

[drsmith]

*snort* Good luck getting that through. It's the banks that establish product, therefore they control it. And when it's mandated that it be in a complying product...this is what is called a captive market.

A possible solution to that is to reduce compliance to presevation as an investment until presevation age.

If at the end of the day investment houses don't offer like for like investment products for superannuation savings when compared to ordinary savings, there should be no tax advantage for superannuation whatsoever. On that I do agree.

So we agree It's a bribe, just not an effective bribe. More of a Clayton's bribe as it were.

As it stands it's very much a clayton's bribe along with those stands of blue gums and illusionary wealth from inflated property prices.

 

[trainspotter]

Let's be clear (again), I'm not and never have been aligned to any political party. I'm simply taking a logical and pragmatic look at all the information. Do you remember the six hats from your dispute resolution training. They are just as important to individual everyday application.

Secondly, but they have been spending money left right and centre during that half year and have needed to spend more to rectify problems.

Then there is the issue of accounting for or budgeting for these costs, remembering that the COAG deal was also happening at this time and the exact numbers to nail that down were not known untill recently.

So from an administritive, financial and accounting perspective, starting with the key or limiting issues, (White hat)... surely you're not surprised that nothing too big was released until after COAG and re-crunching the budget.

You might notice that I intentionally play the devils advocate ocassionally as part of wearing different hats and some others maybe unconsciously do the same.

It seems to me that too many people wear the red or black hat too often and just don't want to change it.

Now if you're dwelling in your red or black hat for too long you may wrongly think I'm (different things)...

ROFL@Whiskers - Dispute Resolution Training?? More like verbal judo in your case mate ! Six hats?? Hah ah aha ha ha ha ...... the Mad Hatter more like it ! And that is what Mr Rudd has been lately .....

Whiskers typed "Secondly, but they have been spending money left right and centre during that half year and have needed to spend more to rectify problems." Spend money to rectify exactly WHAT problems? The problems that they created themselves perhaps?

"There are times when it is better to do nothing then rush headlong into a folly" my grandpappy always used to say and I believe this is one of those times.

Different coloured hats for Chrissake ! Pfffffffffffffffffffttttttttt !!!

 

[bellenuit]

Cape Lambert cancels plans at WA project as a result of Henry tax

http://www.theaustralian.com.au/bus...ult-of-henry-tax/story-e6frg9no-1225862152771

 

[The Muffin Man]

Cape Lambert cancels plans at WA project as a result of Henry tax

http://www.theaustralian.com.au/bus...ult-of-henry-tax/story-e6frg9no-1225862152771

This will be the tip of the perverbial ice-berg.

 

[prawn_86]

Cape Lambert cancels plans at WA project as a result of Henry tax

http://www.theaustralian.com.au/bus...ult-of-henry-tax/story-e6frg9no-1225862152771

Publicity stunt? Or just an excuse to get out of a marginal project?

 

[Bushman]

Publicity stunt? Or just an excuse to get out of a marginal project?

They have decided to focus on Sierra Leone; just lol.

 

[Whiskers]

Cape Lambert cancels plans at WA project as a result of Henry tax

http://www.theaustralian.com.au/bus...ult-of-henry-tax/story-e6frg9no-1225862152771

Publicity stunt? Or just an excuse to get out of a marginal project?

Yeah, it seems odd that the Henry review is still a long long way from being L A W, and no gaurantee that it ever will be... AND the latest opinion polls suggesting a coalition win if an election was held now.

It looks like opertune criticism of extra taxes as one would expect, but what are they really afraid of... the libs as the next gov, accepting Henry's recomendations too!

 

[JTLP]

Now...i'm just a n00b so shoot me down if you will...but...

Super to 12% - What if we have stagnant growth in the market ala Japan? Does the 'extra' money your average 30 year old get over the period of 12% super really equate to that much of a greater return?

Couple this with crippling the backbone of Australia...we are reknowned for resources etc...how does Rudd & Co intend to boost our super bottom line if our best performing sector is only returning profits to share holders at the 10 year bond rate? Wouldn't it make sense for super funds etc to just drop money into bond rates for a guaranteed return whilst still collecting fat fees?

Maybe i'm just confused.

 

[Whiskers]

ROFL@Whiskers - Dispute Resolution Training?? More like verbal judo in your case mate ! Six hats?? Hah ah aha ha ha ha ...... the Mad Hatter more like it ! And that is what Mr Rudd has been lately .....

Whiskers typed "Secondly, but they have been spending money left right and centre during that half year and have needed to spend more to rectify problems." Spend money to rectify exactly WHAT problems? The problems that they created themselves perhaps?

"There are times when it is better to do nothing then rush headlong into a folly" my grandpappy always used to say and I believe this is one of those times.

Different coloured hats for Chrissake ! Pfffffffffffffffffffttttttttt !!!

Trainspotter, mate... I do wish you had not bought into other people's discussion... at least before making sure brain was engaged first.

Sorry to be blunt, but when you ask any Psychologist, Manager or Human Resource Manager in particular, with a degree or better who has done a thorough job of their study you will see how careless, ignorant and useless, to put it mildly, this attempted ridicule is.

They are not my concepts, they have been around for ages and any teen doing a half decent job studing Psychology or Management, HRM in particular at uni will be familiar with it.

I might just add that most competent managers and leaders are also familiar with the concept, as is I'm sure Rudd is, as his ability to influence people indicates.

Try google search 'Six Hat Thinking' or 'Six Hat Brainstorming' for an intro.

 

[Whiskers]

Now...i'm just a n00b so shoot me down if you will...but...

Super to 12% - What if we have stagnant growth in the market ala Japan? Does the 'extra' money your average 30 year old get over the period of 12% super really equate to that much of a greater return?

That's always the risk with managed super in particular.

At least if you manage your own, if you are confident and competent too, you can move your funds around sectors. There's usually something that's making money at any one time.

I've not seen recent figures, but I suspect the Rudd gov is concerned about future age pension committments, especially now that he has spent a lot of money around the place and is looking for savings in this case, or extra tax revenue to balance future budgets.

Even if the libs win the next election for 10 years I suspect it will be on the adgenda sometime later because the notion that the rate may need to increase in the future has been around for quite a while now.

But from a tactical perspective, I suppose it's better to try to get these things done in boom times rather than gloom times.