Treasury Secretary Ken Henry , not happy with putting the Rudd Government's poll numbers in the toilet over his resources tax now wants to extend it to all companies. With the Government under siege over the mining tax this idea will be as popular as the plague with Labor and will give the Opposition plenty of ammunition against a big taxing government.
A super-profits tax should be rolled out for all companies in Australia as a long-term reform.
Treasury secretary Ken Henry says the tax would be similar to the model proposed for mining groups.
Companies would be able to earn up to the government bond rate tax-free, but would then pay a heavier tax on "super-profits" above that level -- although less than the 40 per cent mining tax.
Complaining about the difficulty in converting academic ideas on tax into practical policy, Dr Henry told a tax conference in Sydney yesterday that the success of his review should not be judged by the number of recommendations adopted by Canberra but by its influence over the next 40 years. He said that although lowering the company tax rate towards 25 per cent should be a short-term target, eventually Australia would need a better method of taxing companies. One of the problems with the existing system is that companies are allowed to claim tax deductions for interest paid on their debts, but not for dividends paid to their shareholders. This means they are encouraged to use debt finance.
Background papers prepared for the Henry review explain that this would allow companies to earn a return on their equity investment, which should be no greater than the government bond rate. Profits higher than this would be treated as a super profit or economic rent, and would be taxed at a higher rate.
Dr Henry said variants on this system had been trialled in Croatia, Brazil, Italy, Austria, Belgium and Latvia, and offered the "least-resistance path of reform". However, an IMF study said most of these countries had since abandoned that tax system.
So even the financial "giants" of Croatia, Brazil, Italy, Austria, Belgium and Latvia have abandoned this dopey idea but Henry still pushes it for Australia.
Henry laments: the experience of the past few weeks had underlined the difficulty in gaining "political traction" for ideas that were accepted wisdom among tax academics.
Academic qualifications do not necessarily mean wisdom and in this case exactly the opposite. You would not allow these academics to run a corner store and they are in charge of a country, God help us all!
We have seen what has happened when academics seized the climate agenda , a disaster we don't want replicated in the economy.
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