Over the past few weeks the Government
has announced substantial changes to three industries: accounting, financial
planning and mining. The response from the three sectors has been a study in
contrast. A proposal by the Government to provide taxpayers with the option of a
$500 standard tax deduction (rising to $1000 from 2013-14) to replace existing
deductions for work-related expenses was announced as an end to workers keeping
bills in shoe boxes. It will have a profound effect on the accounting
profession, with a proposal that the Government claims could affect 6.4 million
Australians. The Institute of Chartered Accountants welcomed the proposal, supporting
a Government decision that is in the interests of the general population,
rather than a specific industry, its executives or lobby group.

The response of
the resources sector to the Resource Super Profits Tax (RSPT) is at the other
end of the continuum. Mining executives have launched an extraordinary lobbying
and public relations assault on the Government. Mining companies are predicting
the shelving of major projects, withdrawal of capital and claim the RSPT will “adversely
impact the future wealth and standard of living of all Australians”. Deloitte
suggested that workers’ super returns could be lower as a result of the tax and
that funds may become reluctant to invest in the resources sector if they felt
they could not achieve sufficient risk-adjusted, after-tax returns.

As
long-term shareholders in the resources sector, industry super funds have a
vested interest in its long-term sustainability and profitability. Industry Super
Network (ISN) therefore has had a good look at the RSPT and, in particular, the
impact of its announcement on fund returns. In the week following the
announcement of the RSPT, ISN economists estimate the direct cost of the
Resource Super Profits Tax (RSPT) to super fund members is surprisingly low (12
basis points), and within normal volatility generated by equities. For a member
with a balance of $50,000 it amounts to a variation of $57 on their fund
balance. Further, any direct cost is likely to be more than offset by
substantial benefits, though some of these may take time to materialise and be
difficult to value. The RSPT will make it more cost-effective for mining
companies to undertake risky or high-cost projects.

This is because State mining
royalties are levied on production, irrespective of profitability, while the
RSPT is a profit-based tax. The Federal RSPT will compensate State royalties through
a rebate. Further, while taxpayers will enjoy 40 per cent of the super-normal mining
profits, they will also be liable for 40 per cent of the mining company losses
from failed projects. The Government has announced it will guarantee 40 per
cent of project investment costs. Finally, the RSPT is likely to dampen
commodity price inflation, leading to a more predicable inflationary environment
for business investment and facilitating a less restrictive monetary policy.

Industry
super funds are therefore backing the RSPT on economic grounds and investment
grounds. So what of the third industry to face profound change? The financial planning
industry – after a long public debate – has broadly welcomed the reforms
outlined in Minister Bowen’s
Future
of Financial Advice
.
Unfairly, the media’s first response was to suggest that financial planners and
retail funds would find ways around new regulations and return to “business as
usual”. Perhaps this demonstrates the lengths to which the financial planning
industry has to go to rebuild confidence. The financial planning industry is on
the cusp of transformation into a profession. A threshold to achieving this
will be to not only support the Government’s changes publicly, but to avoid
entering into a strategy to dilute the effect of the reforms behind closed doors.
This will be self-defeating.

 

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