A new 40% tax on the super profits of resource companies to offset a lower corporate tax rate is the main business-affecting recommendation of Australia’s Henry Tax Review.
The long-awaited report, which was sent to the federal government last December, and the government’s response was kept under wraps until Sunday.
The other big changes affect superannuation. Employers will be required to increase their superannuation contribution from 9% to 12% by 2019-20.
The changes will be phased in over seven years starting in 2013, and will give employees who are aged 30 today an extra $A108,000 in super savings.
In his reaction, Finance Minister Bill English said a lower corporate tax rate and other changes to the New Zealand tax system would be announced in a few weeks.
“It’s important that our tax system generally remains competitive with other countries – particularly Australia, given our close economic and trade ties with our Transtasman neighbours,” he said.
“The government will set out details of its tax package in the Budget later this month [May 20] and I don’t want to pre-empt that process today.”
Wine tax unchanged
From a New Zealand perspective, another closely watched area was alcohol tax.
The wine industry will be relieved that the federal government has shelved a recommendation to impose a single tax rate on all forms of alcohol based on volume.
Under Australia’s current excise arrangements, tax is based on a valumentric basis, effectively taxing beer at a higher rate than cheap cask wine.
The federal government said there would be no changes to alcohol tax "in the middle of a wine glut and where there is an industry restructure under way.”
"Taken together, current alcohol taxes reflect contradictory policies," the review says. "They encourage people to drink cheap wine over expensive wine, wine from smaller rather than large producers, beer in pubs rather than at home, and brandy rather than spirits, and to purchase alcohol at airport duty-free stores."
The large producers, who do not benefit from a rebate for smaller producers, including most New Zealand owned wineries, industry had lobbied for a tax based on volume.
Lower corporate tax
The revenue from the resource tax, estimated at $A9 billion a year, will be used to fund a lower company tax rate that will drop from 30% to 28% from in two yearly stages from 2012-13, though the lower rate will start a year earlier for small businesses.
Treasurer Wayne Swan believes the mining companies were undertaxed by $A35 billion during the last commodity price boom.
JP Morgan economist Stephen Walters says, in effect, the government is intervening via the tax system to re-balance Australia’s two speed economy – “slowing down the booming mining companies via a new tax, the proceeds of which the government will use to boost growth in less fortunate parts of the economy.”
Mr Walters says a big problem with the Henry Review is that it bumped up against the election cycle:
“Many of the more meritorious measures recommended on efficiency grounds simply are unpalatable in an election year. Indeed, the government declined to adopt many of the Henry measures that would have represented a broader taxation reform effort.
“The measures deferred, for example, include addressing the tax treatment of the family home, energy, traffic congestion, interest earned on savings, and the vice taxes – gambling, alcohol and tobacco.
“This caution is understandable with the federal election looming, but represents a golden opportunity missed.”
The Henry review made 138 recommendations of which the government has adopted four.
Apart from Sunday's mining tax, the company tax cut and allowing small businesses to write off upfront $A5000 in assets, the other move was last week's large hike in tobacco excise.
The Rudd government ruled out 27 controversial recommendations, including reintroducing fuel excise indexation.
This article is tagged with the following keywords. Find out more about MyNBR Tags
Most listened to
- MediaWorks has won a case against a former sales manager, Victoria Young reports
- Security expert Daniel Ayers on the 'Krack' wi-fi vulnerability scare
- Century 21 national manager Geoff Barnett discusses banks' increasingly cautious approach to even pre-approved home buyers
- NZ Beef and Lamb chairman James Parsons on what an NZ/EU FTA would mean for the beef sector
- Retirement expert Barry LaValley on misconceptions of your "golden years"
- NBR Radio: The best interviews, with Grant Walker — updated daily