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, Spin and score with free best online slots games like Wheel of Fortune® Slots, Deal or No Deal™ Slots, and Pirate’s Fortune Slots. 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 free download car racing games for mobile phone online casino 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.
David Whiteley is chief executive of Industry Super Network.