27/05/2010 - 00:00

Standardisation suits business, except on tax

27/05/2010 - 00:00

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A properly administered federal system offers many advantages over centralistion.

Standardisation suits business, except on tax

AS the mining community ponders the potential cost of the resource super profits tax, the issue has helped bring back into perspective the issue of states’ rights.

I hate to say this but big business – including mining companies – has to share some of the blame for this debacle.

That is because big business is continuously pushing for harmonisation of rules and regulations across all jurisdictions.

It suits big business to see uniformity in red tape, including taxes, across jurisdictions because it gives it an advantage. The bigger the business, usually, the better equipped it is to deal with the administrative burden of government.

The marginal cost of managing regulation is lower than for small business.

If regulation changes from place to place, however, that advantage is lost. If a national business, for instance, has to have specialist roles to calculate local taxes, or has to issue different invoices in different states, the confusion and complexity negates its advantage in being able to administer red tape from one place.

Sometimes, then, the small local company has an advantage in such circumstances because the regulation is uniform for everything it does.

Royalties is a good example. From an administrative point of view, the operator of a single nickel mine in Western Australia would have far easier time coping with the royalty regime than a big company like BHP Billiton, which mines different minerals across several states.

So it is no surprise that the Minerals Council of Australia, in its submission to the Henry Tax Review, sought a more efficient regime.

While the MCA in a way sought a RSPT in the form that has been proposed, it was open to the idea of a tax that did away with much of the complexity of the state royalty system.

Arguably, the minerals industry is simply reaping what has been sown over the decades as big business has continually pushed for uniformity across the states, lobbying for laws that favoured centralism.

That is the exact opposite of what a federal system is supposed to gives us.

A federation is supposed to allow different systems to work under one overarching banner of sovereign protection, which is why Canberra’s original focus was supposed to be foreign affairs and defence.

This should allow different approaches to common problems to be tested. The best system ought to work to attract people, investment and companies, forcing laggard states to follow or be left behind.

Instead we end up with attempts to introduce homogeneity. Take health as a good example. Victoria’s Jeff Kennett successfully introduced an activity based funding model. Now the federal government wants to takeover the system and follow the Victorian path. Why can’t all states just follow the Victorian lead if it suits them, as WA has said it now will, rather than have a one-size fits all solution thrust upon them?

Centralisation is the issue here. It always looks good when the political climate suits those wanting a centralised outcome but it provides no escape when Canberra turns nasty, as it has with the miners.

In recent years we’ve seen such centralisation pushed by industry with regard to industrial relations laws. Under the Howard government, business was happy to see IR taken over by the federal government through corporate law, another body of rules business had pushed to be controlled by Canberra.

But when the government changed, that same central body has now imposed an IR regime more antagonistic to business. How much smarter would it have been if IR had remained state based?

In contrast, we’ve seen poor centralist policy – insulation funding and school building programs – managed quite well in WA because this state has better systems, it appears. If Canberra controlled this directly we may have seen the same waste, and worse, here as we have in other states.

In my view, dramatic change is much harder when there are a numerous law-making bodies such as states in a federation. States take a risk if they act unilaterally; instead they have to be mindful of neighbours. If one state raised taxes, it would have to do in a way that was possible without bleeding business and investment to other states.

At a national level, the consequences of unilateral action are harder to judge because of the lack of comparative options.

Of course, there are consequences for acting alone at a global level. For instance, the Canadians are making hay while the sun shines, targeting resource companies that might otherwise have invested in Australia.

Companies can move to other countries, of course, and often do. Or they can focus on business in other countries, like many West Perth mining companies already do.

However, such a shift is fraught with difficulty, or may not even be possible, as is the case with BHP Billiton, which must have its head office in Australia.

Personally, I would like to see national and multinational companies learn to live with the federal system we have in places like Australia and the US – and stop pushing for homogeneity.

There are great advantages in having competitive tension across jurisdictions, including a restriction on introducing sweeping changes that may be unloved by a big proportion of that community.

It is a natural cap to excess and stupidity, offering change through evolution that tests each new rule, weeds out the worst and retains the best.

It isn’t perfect but it’s better than anything that gives us a super tax on mining profits.

Central role

THAT is not to say that the central government shouldn’t have a role in domestic regulation.

While I am opposed to Canberra forcing homogeneity on the states via the chequebook, as it does with GST revenue distributed via Commonwealth Grants programs and the National Competition Council, I do see a role for a central government to be a judge regarding what works best.

For instance, there’s no reason a federal government couldn’t give successful health policies, such as Victoria’s, prominence in debate and discussion.

A prime minister pointing out that one state’s health system works better than another is very valid. That doesn’t invite him to take it over.

Deputy Prime Minister Julia Gillard has taken the right approach, so far, with the MySchools website. The federal government has funded a project that provides transparency to parents. That is good stuff, so long as it isn’t a precursor to another takeover attempt.

The central government ought to remain lean, focus on what its good at and help the states find the best ways to solve the nation’s problems. It doesn’t need to try to overwhelm the states and deliver policy that has no comparison on offer.

• Feedback welcome to: mark.pownall@wabusinessnews.com.au

 

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