Bloomberg News

Gillard Signals Business Tax-Cut Support After Corporate Outcry

June 12, 2012

Australia’s Prime Minister Julia Gillard signaled she still supports cutting the corporate tax rate, weeks after her government drew criticism from business groups for scrapping the proposal.

“I’ve got no doubt the company tax rate should be lower, and no doubt the revenue base has to be maintained as well,” Gillard told 130 business, union and community leaders in a speech in Brisbane yesterday. “The benefits of a lower corporate rate would flow to workers and the wider community in more jobs and better pay over time.”

Gillard’s Labor government is attempting to court a business community left offside by its plan to introduce levies on mining profits and carbon emissions on July 1 and a decision last month not to reduce the 30 percent company tax rate, instead funding payouts for low- and middle-income earners. Business lobby groups and companies including BHP Billiton Ltd. (BHP) have called for a simplified tax system.

The nation’s first female prime minister is trying to boost business support for her government as she hosts a two-day meeting with executives in the Queensland state capital. While a resources boom has made Australia one of the fastest-growing economies in the developed world, the government isn’t getting a lift in opinion polls as tourism, manufacturing and retail industries struggle with a local currency that has appreciated 74 percent against the U.S. dollar in the past decade.

Gillard said she will press leaders at this month’s Group of 20 summit in Mexico not to focus solely on spending cuts as Europe wrestles with a sovereign debt crisis.

“Austerity alone is not the right path,” Gillard said. “That’s the case I’ll be making at the G-20. Here, we have put growth and jobs first -- growth which in turn is the solid foundation for fiscal discipline in the long term.”

Industry Demands

The government had proposed that proceeds from its levy on mining profits be used to reduce the corporate tax rate to 29 percent, before axing the plan, citing a lack of support in parliament. Liberal-National coalition leader Tony Abbott opposed the plan while the Greens, which hold the balance of power in the Senate, only supported a cut for small businesses.

“I cannot overstate how the level of uncertainty about Australia’s tax system is generating negative investor reaction,” Jacques Nasser, chairman of the world’s biggest mining group, BHP, told business leaders in Sydney May 16. “People don’t know where it’s going. In time we will need to address the complexity of our layered tax systems and ensure that they are competitive on a global basis.”

Mining, Carbon

Australia expects to raise A$24.7 billion ($24.4 billion) in four years from the carbon tax, as the government seeks to reduce emissions and spur investment in cleaner energy. The mining tax will reap about A$6.5 billion in revenue over two years from companies including BHP and Rio Tinto Group (RIO), government estimates show.

“We continue to call on all political parties to commit to significant taxation reform including the ambition to reduce the corporate tax rate to 25 percent,” Australian Industry Group Chief Executive Officer Innes Willox said in an e-mailed statement yesterday. “Australia must cut back on the burdens imposed on businesses.”

A Newspoll survey yesterday showed support for the ruling Labor Party slid even after the central bank lowered interest rates at its past two meetings, the government announced cash handouts, the economy expanded twice as fast as forecast, and employment growth accelerated.

Labor’s primary vote dropped 1 percentage point to 31 percent and the Liberal-National opposition fell 2 points to 44 percent, the survey published in the Australian newspaper showed. The poll of 1,146 people was taken June 7-10 and had a margin of error of 3 percentage points. The Greens gained 2 percentage points to 14 percent.

Borrowing Costs

The Reserve Bank of Australia lowered borrowing costs by 75 basis points in the past two meetings, to 3.5 percent, benefiting households in a nation where almost 90 percent of mortgages have variable rates.

RBA Governor Glenn Stevens last week expressed optimism about the nation’s economic outlook in a speech titled “The Glass Half Full.” Stevens said he felt the need to do some “cheerleading” for the economy in response to negative commentary on the country’s prospects. The governor is due to address the conference in Brisbane today.

Australian employers unexpectedly added workers in May, as the number of people employed rose by 38,900, capping the best January-to-May period of hiring in five years, a government report showed June 7. A day earlier, data showed that compared with a year earlier, the economy expanded 4.3 percent in the first quarter, the fastest annual pace since of 2007.

Resource Projects

The nation’s economy is being powered by an estimated A$500 billion pipeline of resource projects that is spurring hiring by companies including BHP.

Gillard is faced with a two-speed economy -- a phrase the RBA uses to distinguish resource-rich regions in the north and west that are powering growth and hiring workers, from struggling tourism, manufacturing and retail industries across the south and east.

“There are big challenges still before us and the job for tonight and tomorrow is as simple as this -- to follow through on our investments and reforms to lift productivity, to do more to sustain and spread growth,” she said in the speech. “Workforce is one of the real nubs of the economic discussion in Australia. We’re doing structural adjustment at a time of employment growth, and that’s a good thing, but it doesn’t make the fact of a business closing its doors any easier.”

To contact the reporter on this story: Jason Scott in Brisbane at jscott14@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Stephanie Phang at sphang@bloomberg.net


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