Gillard, soaking the rich to share the wealth in the corporate sector.

Cartoon (Economic suicide bombers): By Pickering.

Recently when announcing her reshuffle of Cabinet to reward her backers and punish Rudd’s Julia Gillard stated that her priority was "ensuring that Australians can share the benefits of the nation's wealth." Her plan for achieving this was not to encourage people to try for the numerous fairly highly paid jobs in the mining sector, or to invest in the sections of the economy that are doing well, but to punitively tax those sectors in order to spread the wealth around.

The latest scheme is to expand the super profits tax, or as it is now called the MRRT into all sectors with higher profitability, such as mining and banking in order to reduce taxation on other sectors such as manufacturing. This appears to be something of a corporate redistribution of wealth, which has the additional aspect of punishing the banking sector:

A WORKING group set up by the Treasurer, Wayne Swan, is planning a shake-up that would see most companies pay no corporate tax and a smaller number pay a much higher rate of "super tax" on profits clearly above the odds. …

The nine-person working group, set up by Mr Swan after the tax summit, is examining a proposal known as Allowance for Corporate Equity, which would apply no tax to the portion of corporate profits necessary to get a reasonable return on equity. Most companies - especially manufacturers - fail to meet that hurdle and would pay no corporate tax.

Banks and mining companies make a much greater return on equity and so would be liable for the super tax on the excess portion of their earnings. A working group member, John Freebairn from Melbourne University, told the conference the super tax rate could be as high as 40 or 50 per cent. He nominated McDonald's and KFC as examples of companies able to make larger than normal profits because of the power of their brands.

"How are they going to get those profits from Australians without doing it in Australia?" he said. Good tax design said that if something couldn't move, it should be taxed. Mining of Australian resources could also only be done in Australia.”

Apparently this ‘working group’ is totally unaware of the massive mineral deposits in other areas of the world, especially in Africa, where a great deal of Australian investment is already moving. Curiously, the government is likening this move to the introduction of the GST by the Howard government:

Addressing a tax conference at the University of Canberra, the head of Treasury's revenue group, Rob Heferen, compared the change to the introduction of the GST in 2000. He said this would be a more radical change, if more worthwhile.

It is difficult to see where they are coming from with this claim. The GST was introduced to broaden the tax base and replace a significant number of other taxes, which were inefficient and counterproductive. This proposal narrows the tax base and hits our biggest earners. There are at least two areas where this can go seriously wrong.

The first is that in narrowing the tax base to the higher profitability areas makes the tax system more vulnerable to downturns in the world economy. The higher earning areas of the economy in boom times are significantly more vulnerable to fluctuations when things go backwards. A number of US states that have tried this have come a gutser when the earnings drop, especially California which has moved from ‘golden state’ to basket case in a short time.

With the Euro zone in deep trouble and the US not far behind, Asia is probably about to suffer a serious downturn which will reduce their use of our resources. This will in turn seriously affect our banking sector and the rest of the economy as it trickles down. The government is putting its eggs into the basket most likely to be dropped.

The other serious problem is the effect on superannuation and nest egg investment, which stands to be seriously effected by this. When the Keating government realized that the pension system was a Ponzi scheme, which was unsustainable the move was made towards superannuation in order to ensure that retirements could be saved for. Swan and Gillard are possibly destroying the savings of millions of Australians.