Monday morning and we sit down to digest the raft of professionally prepared updates from various analysts who have spent the weekend poring over the Federal Government’s announcements on tax simplification.
The documents released on the government website are beautifully written. Someone has clearly invested a lot of time and energy distilling some fairly difficult maths and policy into a series of single page briefs on the major changes. It seems the aim is to take on a Robin Hood profile, whereby you can justify ‘taking from the rich to give to the poor’. The core of the dollars is set out clearly on page 14 under the title “Fiscally responsible tax reform”, which shows $9bn coming from the rich resource companies in the 2013/2014 year and $6.405bn being distributed throughout the broader economy through company tax cuts, small business incentives, an infrastructure fund and a little gift back to those resource companies that keep up exploration. All this leaves $2.595bn in government coffers.
It’s harder to imagine a more barefaced tax grab.
And yet more difficult still to imagine a more reasoned, considered and appropriate review of the failings of governments to take advantage of the historically rare spike in Australia’s terms of trade coming out of the massive lift in commodity prices.
And the “Yes Minister” reference comes from the hilarious result that the government need do NOTHING right now. Not a thing. Perhaps more modelling. Maybe a nationwide summit or two where interested folk can have their say on reams of butcher paper. And there is the added advantage that an election or two could be dealt with quite comfortably without having to actually DO anything beforehand. Truly magical. Andvery funny.
As an observer of all things financial, it seems natural that the proposed government changes are being announced at a time when the recent past suggests it is actually financial companies, and not resource companies, that have been doing well. Here is a comparison of the Minerals versus Financials indices…
One year performance of Materials versus Financials index
If we look at the longer term, you can see where the Government’s ideas for redistribution are coming from…
Comparison over 10 years.
It is worth remembering that this is a pretty bare comparison. The reality is that the financials index usually pays out a larger dividend than the mining companies do. Over 10 years, such a difference will amount to a large improvement to the comparative return for the financials. Not big enough to take away the central point of the government assumptions. I may also be a bit skewed in using the financials as the point of comparison, as there are other sectors which could have been used.
Feel free to comment or criticise.
