28/01/2011 - 00:00

Purist theory short on dollars, and sense

28/01/2011 - 00:00

Bookmark

Save articles for future reference.

Profits tax debate has an echo of past policy.

DURING the Resource Super Profits Tax debate I was struck by the economic theory driving that policy – the idea that once a project reached an acceptable rate of return, any further profit could be taken as tax without impacting on the investment decision.

This idea revolved around a very purist view of economics that minerals were immobile and, therefore, those who sought to exploit them would therefore do so whatever the cost, up to that which gave them the minimal acceptable return.

A further fiction in that theory was that capital was unlimited.

All of this fits a theoretical world rather than a real one.

In fact, I keep thinking these ideas belong in the 1950s, 1960s, 1970s and even early 1980s when the world seriously dabbled with socialism, the welfare state and central planning.

In those times, business profits were seen almost as a matter of luck or windfall, rather than hard work or risk.

What brought this home to me was some surprising logic I encountered last week in Laurie Oakes’ book On The Record, which includes a collection of his past political reporting. In one 1982 piece, entitled ‘Shades of 1949’, Mr Oakes comments on the potential business backlash after the Labor opposition floated the idea of a super tax in banking, pointing to a 226 per cent rise in profits in just four years from the sector’s then big three players. Does this sound familiar?

Mr Oakes reflected on the political campaign the banks waged against the Labor government of Ben Chifley when he sought to nationalise the sector in 1949. In acknowledging that Bill Hayden’s 1982 policy did not quite go so far, the political reporter reveals the thinking of the time.

“The super tax idea does not threaten the banks’ existence, merely their profits,” the highly respected political commentator wrote at the time.

Even if the context is partly obscured because he doesn’t reveal how much super profit tax was proposed, it is a remarkable statement.

Ask any insolvency expert whether a business’s existence depends on profitability. Hopefully, 29 years later, we all understand that without promising profits, including the incentive of very big ones, few businesses would find the capital to exist in the first place.

If only I could reminisce about this line of Mr Oakes’ as a piece of nostalgia. Unfortunately, as 2010 proved, the notion that business profits are some sort of bonus still lives today with many at the heart of our decision-making processes.

How much?

ANOTHER oddly similar strain of thinking on business was broadcast by ABC current affairs program 7.30 on Tuesday night, when former Queensland Labor premier Wayne Goss was interviewed after Prime Minister Julia Gillard appointed him to chair a business taskforce in the immediate recovery effort following the devastating floods.

According to Ms Gillard, the taskforce was evidence that Australian businesses had answered the call to pull together in the wake of the floods, just as so-called ‘everyday’ people had.

The taskforce’s focus is to: leverage corporate donations; help drive and coordinate in-kind donations; and use Australia’s best business expertise to help with business recovery and rebuilding efforts in Queensland.

All this seems fair enough to me. Business has a lot riding on the reconstruction efforts in Queensland. Many businesspeople have been personally affected, many businesses in the region have been directly affected and many more businesses around the country will feel the flow-on from this disaster.

While some in sectors such as construction may well benefit in the medium to longer term from the rebuilding efforts that will take place, the impact on business is overwhelmingly negative. In fact, I’d go as far as suggesting that, due to the nature of interstate trade, the ripple effect on business will be much more widespread than the social impact which is, by and large, restricted to Queensland, most notably those who live in the flood-affected suburbs and their immediate families.

But here is the first question Mr Goss was asked regarding the taskforce by 7.30pm presenter Scott Bevan.

“Now, the fact that the business taskforce is being set up and one of the key roles is to further leverage support from business, how much do you think that’s a concession in the federal government’s eyes at least that corporate Australia hasn’t done enough to contribute to the flood recovery effort?”

It is only possible to theorise about the thinking behind such a question, which came barely a couple of days after the flood waters started to recede and the 7.30 report team returned to air.

Was it the images of seemingly ordinary or ‘everyday’ people (presumably none of them was in business) giving up their weekend to help their neighbours that prompted the idea that business wasn’t doing enough?

It begs the question, what is enough? The answer, according to Mr Goss, was around $200 million.

I’ll let you enjoy the rest of this encounter straight from the transcript. I note, thankfully, the last question I have selected shows a better understanding of reality.

Wayne Goss: “Look, the bottom line is that the federal and state governments are going to have to carry the load. The federal government has to carry 75 per cent of it.

“But I think while $90 million or so was the last figure I heard in the flood relief fund, we are going to need so much more. There are so many businesses that don’t have insurance, so many people in their homes that don’t have insurance.

“So many businesses and people now discovering there are three or four different definitions of what is a flood. So we are going to need more from corporate Australia, either in cash, or in kind and a lot of companies have been really stepping up to the plate.”

Scott Bevan: “Now in saying corporate Australia needs to do more, does that mean they haven’t done enough to date?”

Wayne Goss: “Yes. Well, I this I they can do more and I think they will do more. And I think there is a very important economic as well as a very important social reason for doing it.

“The mining industry, agriculture have been hit for six. Tourism is already doing it tough, retail is doing it tough, but now we’ve got a range of businesses right across the state that are simply out of business. Some of them may not make it back.

“So there is an economic reason, but also a social reason because the Queensland economy is a very important part of the Australian economy, and I think it’s in our interests as a country to get it back on track, get business and people back on track. That job has started and the spirit is there, but there is a long way to go.

Scott Bevan: “Mr Goss, given there are reports today estimated that rebuilding may cost up to $20 billion, and that could impact on the federal government’s goal of returning the budget to surplus in 2012-2013, how concerned are you that corporate Australia will perceive this push to business as simply being a way of the government trying to ensure that its plans are not derailed?”

Relief

WEREN’T we all glad to see the community response to floods in Brisbane was so different from that seen in New Orleans in the US a few years ago?

Perhaps the disaster was not of the same magnitude but, nevertheless, a healthy spirit of cooperation was evident – rather than menacing violence and lawlessness.

• mark.pownall@wabn.com.au.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options