It turns out that labouring in the wilderness may not be fruitless after all. The AFR this morning reports that the government is looking at some new tax initiatives aimed at addressing Dutch disease:
Treasurer Wayne Swan is facing another battle with the mining industry as the government considers scrapping lucrative tax benefits to fund a multibillion-dollar tax break to help struggling small businesses.
The measures, expected to be included in the May budget, would cap interest claims by multinationals, and curb depreciation benefits for explorers, and the oil and gas industries.
Mr Swan’s business tax working group is expected to tell the government to limit debt deductions for foreign companies to pay for changes to help businesses, in particular manufacturers, which are struggling with the two-speed economy and high dollar. The changes would allow a loss-making small businesses to get a tax refund against a past year’s profit.
Under the current law, companies must wait until they make a profit in the future before they can deduct a previous year’s tax loss.
The recommendations from the working group will provide Mr Swan with the framework for the next tranche of business tax reform arising from the 2009 Henry tax review.
It also delivers a way of funding tax breaks for small business in the May budget.
The government’s most urgent priority is to help small businesses struggling with the two-speed economy. One option is through a new carryback tax loss scheme to be funded by changes to the so-called “thin capitalisation” rules. These rules are arguably more generous than in other countries and allow some multinationals to heavily gear their Australian arms, effectively shifting profits overseas.
So, we now know where the recent rhetoric aimed at the billionaires is headed in a policy sense. It seems Swan learned his lesson of softening up the population before aiming for national interest policy that will compromise powerful interests. And the government’s process is different and better on another front too, this time consulting up front:
It is understood the working group has been canvassing the ideas in meetings with industry sectors and business groups where there have been fears the proposed tax changes would be seen as another attack on the resources sector and a disincentive to foreign businesses to invest in Australia.
The working group held meetings in Brisbane yesterday; next week it will talk with interested parties in Sydney and Melbourne.
Still, there are already concerns that the timetable is too short:
Institute of Chartered Accountants general manager of leadership Yasser El-Ansary said it was vital the government took its time in considering the recommendations of the business tax working group, and not rush reforms to meet the May budget timetable.
“I have some real concerns about the process through which these potential reform have been considered,” Mr El-Ansary said.
Maybe so in policy terms, but as a political tool this looks like a winner. It’s a very different political economy now that Dutch disease is a widespread phenomenon, with real consequences for an increasing number of people.
Jessica Irvine also has a ball tearer this morning (though it’s bit loaded with populist rhetoric).