12/10/2011 - 10:52

Reform agenda needs commitment

12/10/2011 - 10:52


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The outcome of last week’s jobs forum in Canberra was sensible, incremental reform, but don’t expect the policy change to have a big impact on local industry.

CANBERRA was the venue for two high-profile policy forums last week; one was a dull flop, the other just might have scraped through with a pass mark.

The first was the tax forum, which the federal government agreed to host in order to appease Rob Oakeshott, one of the three independent MPs who hold the balance of power.

The forum was attended by a large line-up of community, union and business groups, and it provided a platform for some challenging and far-sighted thinking about the tax system.

Many groups advocated changes to the GST, specifically a widening of its coverage to include exempt sectors such as food, and lifting the rate above the current 10 per cent.

This would be a very efficient way of raising additional revenue, and would provide enormous scope to abolish many other, less-efficient taxes such as stamp duty, conveyance duties and possibly even payroll tax.

Speakers also challenged the merit of some of Australia’s very expensive tax concessions, such as negative gearing on investments. 

The accepted wisdom holds that any government wanting to abolish or water down negative gearing would be committing political suicide.

Yet as The Grattan Institute’s Saul Eslake pointed out, the generous tax break on negatively geared investments that apply in Australia exceed what is available in most other countries. 

This tax break does nothing for equity goals (the largest beneficiaries tend to be people on higher incomes) and nothing to boost the economy (most property investors buy established homes).

These and other reform proposals warrant close scrutiny, yet Treasurer Wayne Swan made it very clear from the outset that the tax summit would not be open-slather.

In particular, he ruled out any debate on the two biggest and most contentious tax changes facing the country – the carbon tax and the mining tax.

The result, not surprisingly, was that the tax summit achieved almost nothing.

The very next day, Canberra switched its focus to the jobs forum. 

Like the tax forum, the real agenda was much narrower than its title suggested. It was really a platform to discuss issues facing the manufacturing sector in a so-called two-speed economy.

There is no doubt that manufacturing is under pressure – the two principal reasons are the high Australian dollar, which makes it harder for local industry to compete against imports, and the country’s lacklustre productivity performance.

Neither of these factors is likely to change in a hurry. The dollar may have slipped to about 97 cents, after briefly touching $US1.10 a few months ago, but by historic standards it is still very high. The strength of commodity prices means it is likely to stay that way.

Lifting productivity is no easy feat, particularly when workplace relations policies are gradually eroding flexibility in the labour market. That, on its own, is a huge challenge.

Against this backdrop, there has been a lot of focus on the resources sector, which is often painted as the bad guy – stealing workers, pushing up costs and failing to support Australian suppliers.

The politics behind these claims are crude but may be effective. It’s easy to tar ‘rich multinationals’ that are thriving on the back of Australia’s mineral wealth.

Of course, these are the same companies that are pumping billions of dollars into Australia and creating thousands of jobs.

The more nuanced question is: how responsibly are these companies investing their money? Are they investing in training? Are they giving local suppliers reasonable opportunities to participate in their projects? And are they contributing to their local communities? In other words, are they being responsible corporate citizens?

Last week’s jobs forum concluded with one constructive policy reform, designed to encourage project developers (and state governments) to support local suppliers.

Project developers will be required to publish more extensive details on local content opportunities if they want to receive a 5 per cent tariff exemption on imports.

This is a tightening up of the long-running Enhanced Project By-law Scheme. Subject to seeing the detailed proposal, this change should not concern major project developers.

Many utilise the Project Connect website to advertise work opportunities, along with the Industry Capability network, which seeks to help local suppliers win work on large projects.

Adding a little more pressure to the major project developers to ensure that all do the right thing should be a positive development.


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