Before voting for a Labor government please read the following.....

Very concerning, and a must read for political buffs who want an honest breakdown as to what really went wrong with a Labor governments RSPT proposal.

Pete Costello knows his stuff, and those seriously considering voting for a party incapable of understanding their own policies, schemes even, really should question their own capacity to cast an informed vote.

If you still decide to vote for Gillard after reading this, then either you have a short attention span and are incapable of absorbing information, this or really aren't into the business of making informed decisions, thus probably shouldn't be voting at all.

Quote :

KGB TV: Peter Costello

Published 9:07 AM, 19 May 2010 Last update 9:49 AM, 20 May 2010

Former federal Treasurer and BKK Partners managing director Peter Costello tells Business Spectator's Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz:

With Australia experiencing an unprecedented mining boom, the government should be doing a lot better with the budget
The proposed resource rent tax is based on faulty data and will have a detrimental impact on investment in the mining sector
Ken Henry is entitled to be upset by the manner in which the government has ignored large portions of his review
Costello had made his leadership aspirations clear to John Howard after the 2001 and 2004 elections
Adopting measures to deter capital investment in a bid to control inflation would be lunacy


Alan Kohler: Well, Peter Costello, perhaps we could start by asking you what you think of Wayne Swan’s third budget.

Peter Costello: I think as a strategy it worked reasonably well. The strategy, of course, was to lift the focus from the budget he was actually handing down; that is the budget for 2010 and get everybody talking about the budget he wasn’t handing down, which was the budget for 2012/13. As a strategy that worked quite well. If you read the headlines the next morning or indeed watched the commentary after the presentation of the budget, you would have thought this was a budget that was a surplus. In fact it was a big deficit of $40 billion.

AK: Did you focus on the budget he was handing down?

PC: Well, bear this in mind, a budget is actually a request to the Parliament to appropriate money for the forthcoming financial year; that is the year beginning July 1 2010 to 2011. The appropriation he was asking for was to spend $40 billion more than he was raising. That was the appropriation that he was asking for. If you’d listened to the commentary, you would have thought he was actually budgeting for a surplus. So as a strategy it was good and it diverted the journalists, but I think as people look more and more into the detail and try and pick it apart, the really noticeable thing coming out of it I think was the resource rent tax. I don’t think there was much reform otherwise. And I make one observation, the really interesting budget paper statement number four on the mining boom makes interesting reading because it premises the terms of trade surge for another decade. Now, I hope we have a terms of trade surge for another decade, but that’s looking a long way in the future.

AK: Do you think that the $40 billion deficit for the coming financial year is justified in the circumstances?

PC: I will make this point, we are in a terms of trade boom, an unparalleled mining boom which is the biggest since the days of the gold rush. We have survived the financial contagion coming out of the United States. We have had six interest rate rises in a row and now is not the time to still be putting out stimulus spending. I think that is a complete mistake. I would think in those sorts of parameters where you’re predicting above-trend growth, a terms of trade boom, we have had six interest rate rises, you should be doing a lot better than a $40 billion deficit.

Stephen Bartholomeusz: If we do get this protracted terms of trade boom, there will be elements of windfall profits particularly for the resources sector. Is the government’s response to this proposed resource super tax the appropriate one?

PC: No, I don’t think so. I think the government was quite misleading when it released the Henry report, which had a graph in it purporting to show that tax-to-profits was declining. Now, that was a graph which was about royalties and other resource-specific taxes. That graph left out the company tax. Company tax, as you know, is 30 per cent, so if you’re taxing companies 30 per cent of their profit, the share of tax-to-profit does not decline. It’s only when you leave that out and only put in the ones that do decline that you get a graph that shows they decline. You know, surprise, surprise, we left out the 30 per cent tax and it shows tax-to-profits declining. Well, of course, that’s the whole point of leaving it out, to show it. And on the day when the government released the Henry report, Wayne Swan was running around, 'look at this, look at this, tax-to-profits is declining'. Yes, because you drew a graph designed to show that. I couldn’t figure out whether or not he understood it or whether or not he’d been taken in by it himself.

But you need to read the Henry report closely. What Henry recommends is that there should be an overall tax of 55 per cent on the mining companies which he says should be 40 per cent resource rent tax, 25 per cent company tax. When you get a rebate of one against the other you get an effective rate of 55 per cent. The government ran with 28 per cent company and 40 per cent rent, which makes it 57. But Henry said if we ever get to the point where we reduce the company tax, we should increase the resource rent tax to keep it at 55 per cent. It is a deliberate strategy to get a 55 per cent tax rate on mining companies. Now, you can debate whether that’s right or wrong. From my own point of view, no government should take more than half the profits of any enterprise. I don’t think it’s right myself. But let’s be honest about this, it is a 57 per cent tax take.

Robert Gottliebsen: Peter, let’s go back a bit. How much of your success as Treasurer would you put down to the good advice you received from Ken Henry?

PC: Well, I appointed Ken as Treasury Secretary. Ken was a tax specialist. I think tax is his forte and he’s very good at tax. Ken was indispensable during the period when we were doing the GST, Ken had supported Option C in 1985, he opposed GST in 1993 but I brought him back to support GST in 1998 and he was very good as a tax specialist. I didn’t use Ken so much on macro-economic advice. He was more a tax specialist.

RG: What were his weaknesses?

PC: Ken is very intellectually able. He understands tax extremely well. Ken can argue both sides of a case. Ken’s argued for a GST, against a GST and for a GST which, you know, shows he’s very flexible. But in my view it’s up to the politicians to set the objectives. It’s not up to the public service.

RG: Is he a bit green?

PC: I think Ken is very environmentally conscious. He and his wife save wildlife, damaged wildlife. I think he comes from a timber family, so he’s pretty conscious on the environment. Now, I’m not saying that’s good, I’m not saying it’s bad. My point is this. Ken is a technician, a very good one and should be a technician. It’s the elected politicians who account to the people that should determine the design.

RG: But why would he say that mining investment will rise when you put a 57 per cent tax on it?

PC: Well, I haven’t looked carefully at the modelling. Some people say that the model just has built into it an assumption that investment will be constant. I haven’t looked at this KPMG Econtech model. They may also be saying that mining would be rising anyway given the China boom, not that the tax would cause a rise, but it would be rising anyway and the tax won’t diminish from it – and you could argue that. But one thing I don’t think you can argue with is this proposition; that whatever investment was going to be absent this new tax, it will be less with this new tax. I don’t think you can dispute that proposition because the way the global mining companies work is they have so much for their capex budget. They determine that they’ll spend, say, $20 billion, $30 billion over the next X number of years and then they just look at it project to project, region to region, country by country.

The truth of the matter is if you’ve got $20 billion in capex and a new nickel mine in Brazil will give you a better return than a new nickel mine in Western Australia then the capex goes to Brazil. That’s the bottom line. That’s how global mining works. So, whatever the investment was going to be absent this tax, one thing we can say for sure is it will be less with this tax.

AK: There’s a lot in the report that Ken Henry and his pals have put out on the future tax system, one of which was the resource rent tax that we talk about. I mean the assumption after Wayne Swan made his response to it was that Ken Henry was unhappy because a bit had been plucked out of it and the rest of it had been ignored and there are all these pictures of Ken Henry looking grumpy. Do you think it was wrong to just pluck something out of it like that? I mean do you sort of side with Ken Henry if he is grumpy about that, do you think that he’s got something to be grumpy about?

PC: Oh, I think Ken Henry is entitled to feel grumpy. He’s sent away and asked to do a root-and-branch – I think that is the expression – review of the taxation system. He comes back with it and the root is ignored and the branch is ignored. So, what was the point of that? I think he has every reason to feel grumpy and, you know, to have him there and for him to stand mute as his report is buried is bad form.

AK: And what did you think of his report?

PC: Well, you see the thing about tax reform is it’s like a balloon. You push it down here and it goes up there, you push it down there and it comes up here. Everything interrelates. The income tax system interrelates into the welfare system; the company tax interrelates into dividend imputation. The way you tax capital gains interrelates into the way you tax income through other entities like trusts. Everything interrelates and when you are trying to design tax reform, you’ve got to design it as a whole and if you just take one bit, you can actually make the remaining bit worse, not better.

So, when I did tax reform in 1998 we had a new GST, but only because we were abolishing wholesale sales tax and bank account debits tax, financial institutions duty, stamp duty on shares, stamp duty on mortgages, stamp duties on leases. A GST wouldn’t have been good in itself; it was only good because it allowed you to get rid of these other things. Now, if you want to go down the resource rent tax path, just whacking a new resource rent tax in is wrong, but if you had said a resource rent tax will replace royalties, which will be abolished, and you had added in a whole lot of other design features, you could have ameliorated, but if you just want to plonk a new tax on the existing system, you can make things worse, not better. And that’s what I think they’ve done.

To me tax reform means getting rid of taxes, cutting taxes, simplifying taxes. That’s what tax reform is. What did we get? We got no simplification. One thing I can tell you is this is – Kevin Rudd and Wayne Swan can’t explain a resource super profits tax. Got no idea how it operates. I mean its excruciating trying to listen to them explain it. Complex, on top of the existing system with no corresponding abolition, so Ken Henry will think to himself my root and branch got rooted.

(LAUGHTER)

SB: Peter, if this tax is introduced, it will tie the government’s revenue base much more closely to the commodity cycle. Is that a good thing? And under the government’s plan, this $9 billion a year revenue is dedicated to recurrent spending, so is that a good thing?

PC: You see, this is the other side of it. The intellectual justification of a resource rent tax is it’s a non-renewable resource which is once-only and for that reason you’re entitled to take a much higher proportion because the resource will be gone. Now, if you want to run that argument, I would say there’s a corollary, but if you’re saying we need to get a fair share for future generations of a resource that can be depleted in this generation, you would have locked that away for future generations. That’s my argument. This is what the Norwegians did with their sovereign wealth fund. It’s what the Chileans do with their copper stabilisation fund. If Rudd and Swan had come in and said the proceeds of this resource rent tax will be put in the future fund and locked away for future generations, I think they would have been on much stronger ground. But what, in fact, they’ve said is the revenue from this resource rent tax will be used for recurrent expenditures. Now, we need to tax this once-only resource. Why? So, we can spend it on recurrent expenditures. People are going to say what’s the point of that?

RG: Peter, as I was just listening to you then, it occurred to me that if you’d stayed in parliament and replaced Malcolm Turnbull as the leader, you’d be now a red hot favourite to be the next prime minister. With the benefit of hindsight, do you have any regrets?

PC: Look Robert, I was in politics for 20 years. I was the deputy leader of our party for 13 and a half. John Howard was always on the eve of resigning and you can’t live your life on hold, which is the situation I got to. You know, would he go at 64? Would he go after the 2004 election? Would he go at APEC? In the end, the public said we’ll decide when he goes and voted him out.

I loved my parliamentary career. I had the opportunity to serve longer as Treasurer than anybody else and I was the deputy leader of my party. I think it would have been in the interests of my party to have tapped John on the shoulder when there was still time to do it. The party didn’t do it, the electorate did. They tapped him on the shoulder; they not only threw him out of office they threw him out of his seat. After 13 and a half years in that position it was time for me to do other things. Life is too precious to live it on hold.

RG: It wasn’t apparent then, but it’s now apparent that you could almost certainly be prime minister.

PC: I thought it was apparent in 2004 and even before that the Liberal Party needed a change and I think I was proved right.

AK: Do you regret not tapping John Howard on the shoulder?

PC: Well, I did tap him. I did it twice. On two occasions I went in and I tapped him.

RG: You didn’t do a Keating though and resign.

PC: I mean I could have resigned. I could have tried to bring the government down. I didn’t think that was the right thing but I went and tapped him. Be under no misapprehension…

AK: But you didn’t have the support.

PC: As directly as I’m speaking to you – and I think your audience will agree I can be a very direct person – and let me tell you I don’t think there would have been any mistaking the message that I gave him. It was after the 2001 election and after the 2004 election.

SB: Can we go back a moment to the resource tax and the budget settings? The RBA seems to think it wouldn’t be a bad thing if we had less business investment in resources at this moment in time than we might otherwise have. Can you have too much of a good thing when we’re talking about business investment?

PC: I’m not commenting on whether the RBA does think that or not. I have seen some reports and statements that have been made, but nobody in their right mind in the modern world would say that we would like to reject investment. Nobody in their right mind would say that. Every country in the world, as we speak, is competing to bring capital in because capital brings investment, investment generates jobs, investment generates profits and profits pay tax. You can go through North America, you can go through Europe, you can go through Asia; you meet a finance minister, every one of them will be trying to bring capital into their country and if there’s a country that puts a flag up and says no, not here please, not us. You know, you’ll be laughed out of international forums. And if there’s anybody in Australia that thinks that today, honestly, they should go and get psychiatric counselling and if anybody around the world hears that Australia is saying that, they’ll laugh themselves silly. They’ll say right, the Australian’s have gone out of business, good we’ll pick up the slack.

SB: And you could manage the pressures on the economy from the bottlenecks?

PC: Investment brings its own problems and a surge in the terms of trade will bring other problems. The problem that it will bring, of course, is inflationary problems. When the terms of trade started picking up in about 2004, that brought the problem of inflation, and we had a tightening of monetary policy in the lead-up to the 2007 election which didn’t help us very much. Along comes the financial crisis, the world turns down and the inflationary pressures go out of the system. But the terms of trade now are higher than they were in 2004, higher than they were under the Coalition government. It’s great for this government and they’ll reap the revenue until the cows come home, but the problem will be inflationary pressures and what this government won’t have is what we had, a flexible industrial relations system. Now, a flexible industrial relations system allowed you to get big wage settlements in the mining industry which was profitable without the risk that they were going to flow back through into less profitable areas. Now, this government’s new industrial relations system won’t give them that opportunity and so on a very high terms of trade with a inflexible industrial relations system, what you have to watch out for here in Australia will be inflationary pressures. We’ve had six rate rises already and for an economy which is running still quite a big deficit, inflation is still quite high. I have to think about that, which is why I think our fiscal position should be stronger.

AK: We have to wrap up, Peter, but can I just ask; while you were Treasurer you were quite disparaging of high salaries in the investment banking world, so I wonder now that you’re joining investment banking whether you’ve had to put a modest cap on your salary, say about $200,000?

(LAUGHTER)

PC: Well, I’d be going back into politics if I was interested in that cap, Alan. Thank you for your time.

AK: Thank you, Peter.

http://www.businessspectator.com.au/bs.nsf/Article/Peter-Costello-Henry-Tax-Review-Budget-2010-RSPT-pd20100518-5K7QJ?OpenDocument

Quote :

To me tax reform means getting rid of taxes, cutting taxes, simplifying taxes. That’s what tax reform is. What did we get? We got no simplification. One thing I can tell you is this is – Kevin Rudd and Wayne Swan can’t explain a resource super profits tax. Got no idea how it operates. I mean its excruciating trying to listen to them explain it. Complex, on top of the existing system with no corresponding abolition, so Ken Henry will think to himself my root and branch got rooted.

-PC

If they cant explain this RSPT themselves, how on earth can voters make an informed decision either way?

Now if Peter Costello found it excruciating trying to understand this tax 'reform', this has to be a bad sign, really, think about this people.

Here they are trying to sell a product they themselves cant even explain.



If this tax system is passed, our sustainable future looks grim, and future generations of Australians will not reap the rewards of their mineral resources as there will be nothing left. We should be conserving for future generations of Australians to come, this or directing the profits into some sort of future fund, this opposed to allowing a spend-thrift government to squander and sell off our mineral resources to satisfy their own investment portfolios.

In doing so, they are robbing future generations of Australians.

Thankfully John Howard and Peter Costello are both guiding/advising Abbott, in fact, the moment Howard heard that Labor were purging Rudd, the first thing he did was call Abbott, this and advised him to do exactly the same thing again with Gillard, re- exposing this Labor partys apparent flaws and obvious lack of experience.

Abbott has Costello and Howard advising him, who does Gillard have again?

Swan and her union thugs!

This said, and after having read a little more on the matter, I think Abbotts in with a good chance, (as soon as the Gillards honeymoon effect subsides) and believe it's up to the Labor party to prove they are capable of at least understanding their own policies, tax schemes, in the few short months they have to reinvent an Industrial Lawyer and ex-Union Official bully-girl into a switched on economic rationalist capable of explaining her parties proposed RSPT, this and convincingly come up with a few of her own policies.

Abbott plans to lay his archivable policies on the table, can Gillrudd say the same?

Her gift of the gab wont get her through the next federal election, because Australians now expect her to lay her policies on the table, this and demonstrate how a young, relative green-stick (only 12 years of parliamentary experience) who has failed to deliver on a number of smaller projects as deputy PM has what it takes to lead this country during what's being heralded as our modern day gold rush, (mining wise).

When her party cant even explain it's own RSPT proposal.

Love GillRudd


I won't be voting Leftard any time soon.

SpotOn wrote:

Love GillRudd


I won't be voting Leftard any time soon.

re- Gillrudd....
She's a hansom devil isn't she...