The title of the Treasurer’s speech – Australia: Open for Business – had echoes of the UK coalition government’s corporate tax agenda, suggesting that the new Australian government might be looking to follow the UK’s lead of cutting corporation tax and introducing incentives to attract foreign investment.
“I have a clear message for you today: Australia is open for business, open for investment and is going for growth,” Hockey said.
However, taxpayers should not necessarily expect similar policies to be adopted in Australia.
“The title of Hockey’s speech is in response to concerns that foreign investors and the business community generally have had about the policies of the Labor government over the past six years,” said Jonathon Leek, partner at Corrs Chambers Westgarth – Taxand Australia.
Clint Harding, partner at Arnold Bloch Leibler, agreed that the use of the term “open for business” is a reference to a general intention to reduce the costs of doing business in Australia, and said it demonstrates a renewed focus on creating stability and certainty, which in turn will be key factors in attracting foreign investment. He does not draw too many parallels between Australia and the UK.
“I cannot foresee the Australian government introducing enough broad tax incentives over this term to be accused of turning Australia into a tax haven for multinationals,” said Harding. “Australia’s corporate tax rate remains one of the highest in the Asia-Pacific region and this, together with new measures such as the proposed tightening of Australia’s thin capitalisation rules, means that any such comparison between the countries is premature.”
Rather than implementing a raft of new investment-incentivising tax measures, the message to foreign investors for now seems to be that Australia is a stable and certain environment in which to operate.
“We have seen a big increase in regulation, trade union influence on the rise, the carbon tax introduced contrary to the policy taken to the 2010 election, and the botched introduction of the minerals resource rent tax (MRRT),” said Leek. “This has contributed to a sense of instability and sovereign risk that hasn’t applied to Australia in the past. Also, in the most recent election campaign, Labor lurched towards nationalism and protectionism in a last ditch effort to be popular. Hockey is trying to send a message that Australia will return to the stability of the past.”
On top of confirming indirect tax policies such as scrapping the carbon tax and MRRT from July 1 2014, Hockey outlined the future process for reform. He announced this as the initiation of a “new era” of tax reform.
He said that the Treasury team is going through every previously announced tax policy that has not been legislated – a backlog dating back to 2001.
“We are cleaning up that backlog and ensuring that stability and certainty in tax policy become enduring themes for the new Coalition Government.”
Hockey said the government will deliver a tax reform programme that keeps to the core principles of fairness and simplicity, and that it would consult widely with stakeholders.
“We will then seek endorsement from the Australian people for our plan at the next election,” he added, in a thinly-veiled reference to former Prime Minister Julia Gillard’s introduction of the carbon tax without a mandate and despite having promised that “there will be no carbon tax under the government I lead”.
G20 and international cooperation
One way in which the new government is not diverging from the previous Labor government’s policy is when it comes to taking the lead on international taxation issues such as tackling base erosion and profit shifting (BEPS).
“The Treasurer is focused on the broader role of Australia in chairing the G20 and providing thought leadership on the BEPS issues rather than looking specifically to the UK as an example of encouraging foreign investment into Australia,” said Harding.
Hockey confirmed there will be a focus on the erosion of the integrity of corporate tax systems and on completing and implementing the core financial regulatory initiatives that have been developed in response to the global financial crisis.
“This is not just a domestic agenda but one we share with all our international partners. We will work closely with them to foster these goals more broadly especially given our chairing of the G20 over the year ahead,” he said.
