Death and taxes

Dr Ken Henry AC, Secretary to the Treasury, stood in the room as the Prime Minister and Treasurer released Australia's Future Tax System Review (called the 'Henry Tax Review').

Dr Henry had delivered a far-reaching report. Over two years, he Chaired the independent review panel that received over 1,500 formal submissions, conducted public meetings, focus groups and discussions with representatives from the community, business and government, and provided over 130 recommended changes to Australia's tax system. However, as the Federal Government outlined its response, you could hear the immortal line from Benjamin Franklin, "in this world nothing can be said to be certain, except death and taxes."

In the document, there was constant reference to "a comprehensive 'root and branch' review of Australia's tax system", creating a tax structure that will position Australia to deal with its social, economic and environmental challenges and enhance economic, social and environmental wellbeing. To this end, the Henry Tax Review had many recommendations that would influence any taxpayer.

For business, the headline would have to be a reduction in the company tax rate from 30% to 25%. There was also the recommendation that the definition of a small business, for tax purposes, be adjusted from $2million in turnover to a calculation on net asset value set at $6million.

Further, there was the recommendation that depreciating assets costing up to $10,000 be immediately written off. As well that the State payroll taxes should eventually be replaced with a broader measure of the 'value add of labour'.

Of importance to our Industry

The Henry Tax Review did state that fuel excise and vehicle registration taxes should be abolished - if replaced by more efficient road user charges. If a government chose not to abolish fuel taxes, the Review recommended that all fuels used for road transport be taxed on their energy content, and be indexed to CPI.

It also outlined changes to the taxation of road transport and freight in Australia. The review stated that: "Heavy vehicles should be exempt from fuel tax and the network access component of registration fees if full replacement charges are introduced."

Replacement charges would include a congestion tax and the development of a 'mass-distance-location' charge for heavy vehicles. This would more efficiently charge for the specific wear and tear that individual trucks cause on roads.

In addition, on routes where road freight is in direct competition with rail, heavy vehicles should face an additional charge on a comparable basis, where this improves the efficient allocation of freight between transport modes.

For petrol convenience operators it was recommended that the existing regime for tobacco taxation in Australia should be retained, with the rates of tax substantially increased, depending on further evidence on the costs of harm from tobacco smoking.

The Governments Response

The Federal Government's response was delivered in a statement titled, 'Stronger, Fairer, Simpler: A tax plan for our future' and the Federal budget. In its own agenda for tax reform in Australia, the Labour Government's long-term plan is to apply a Resource Super Profits tax and use this income to:

generate more superannuation savings;

lower tax for all companies; and

invest in future infrastructure needs.

The Federal Government in making its announcement outlined what it proposes as the first steps in a 10-year agenda:

Increasing the superannuation guarantee rate to 12 percent;

Raising the superannuation guarantee age limit from 70 to 75;

Government contribution to low income earners' superannuation;

Superannuation concessional contribution for over 50s;

Lower company tax rate to 28 percent, with early start for small business;

Small business instant asset tax write-off increased to $5,000;

Yearly infrastructure funding to states.

While clearly not taking on all the recommendations coming out of The Henry Review, the Government did not rule out adopting further recommendations in the future.

Budget Review

This is pinned to the belief that the economy will rebound by 3.25 per cent in 2010-11. This is one of many key projections supplied by treasury, which support the Federal Government's revenue and expenditure plans. If these predictions are realized, the Government believes the Federal budget will be in surplus in 2012-13, three years earlier than previously budgeted.

Of course, there are a wide range of policy statements in the budget that influence the operation of any business in the Australian economy. However, there have been announcements in several areas that will be key to the petroleum distribution and petrol convenience industries.

The ACCC has received $4.2million over two years to continue the position of Petrol Commissioner. That specifically includes the monitoring of petrol prices, costs and profits of the industry until 2011-12.

LPG and Ethanol will now have an excise based on energy content of the product and custom duty equivalent for any imports. This means that from 1 July 2011 the energy excise on LPG and Ethanol will be 25cpl, with a custom duty of the same amount on imports. This will be phased down to 12.5cpl by July 2015. Local producers will receive an offset of 22.5cpl from July 2011, reduced to zero by July 2015. There will be no offset of the custom duty during this time.

An extra $4.2billion has been tipped into the long-term fund, up to 2013-14, to maintain and upgrade the nation's highways and major arterials. In addition, $20million will be spent under the Heavy Vehicle Safety and Productivity Program to build or refurbish 37 heavy vehicle rest areas, parking bays and decoupling areas, and nine bridge upgrades.

The Federal Government will use $8.3million to progress wide ranging reforms to the transport sector. Part of these funds will be used to establish a national heavy vehicle regulator who will be responsible for the national alignment of registration and regulation of trucks and buses over 4.5 tonnes.

A one off grant of $10.0million will be provided to the Trade Union Education Foundation in 2009 10 for the development and delivery of national workplace education programs. The programs will enable employee representatives to increase their understanding and knowledge of the Fair Work workplace relations system, including practices and procedures for the resolution of workplace grievances and disputes, and collective bargaining.

For employers, The Shared Industry Assistance project will offer grants, whereby employer or industry organisations will be able to apply for up to $104,000 to develop guidance material in partnership with the Fair Work Ombudsman. The Government will provide $2.0million over four years to centralise the procurement and delivery of dispute resolution services for industry codes of conduct, including Oilcode.

Over four years $38.5 million will be provided to the voluntary roll out of the low aromatic Opal fuel. By 2012 13, Opal fuel is expected to be available at an additional 39 petrol supply sites around 11 communities in the Northern Territory, Queensland and Western Australia.

Tobacco and Australia's health system came in for much scrutiny prior to the budget. Petrol convenience operators across Australia will now be living with the reality of the increase in tobacco excise, as well as dealing with state based legislation on displays. The budget has reinforced the commitment to plain packaging, though there is no set timetable. The other health area that would affect petrol convenience operators is legislation that may tax the sugar and fat content of consumer products. As yet, there seems to be no announcements in this area.

A road to reform

The recommendations of reform in the Henry Tax Review do not signal the end of taxation. However, as the ideas of many Australian's have been distilled into this report, it would be wrong if they were not debated.

The Federal Budget has taken tentative steps on only a small few of the recommendations. This could be viewed either as cautious or as a snub to far reaching tax transformation.

As the demise of Prime Minister Kevin Rudd has shown, political death awaits anyone who does not tread wisely on this road.