Wednesday, May 5, 2010
Dr. Ken Henry's tax review has been released and on Sunday the Australian government indicated some of the changes from the review which they'll be implementing.
The biggest impact is on miners. With China's growth the government has introduced a Resource Super Profits Tax of 40% on profits that miners earn from the exploitation of non-renewable resources. BHP and Rio Tinto's share prices are both down about 10% on the news.
An interesting fact I read recently is that 25% of Australia's GDP comes from mining. And with the mining boom, 21.4% of our total GDP is exports, more than half of which comes from mining. Only Germany and China have a higher percentage of their GDP coming from exports.
25% is a huge proportion of our GDP to come from one industry, and the country is making a lot of money selling our resources to China and other countries. However this is not something that will necessarily last forever and we need to be investing some of this money in education and encouraging growth in other industries so that our economy is prepared for any downturn in the mining industry in the future. So while I feel bad for the mining companies facing this new tax, I think it's a sensible move for the government to make.
The two main changes for a small business like ours are:
1. Company tax rate falls from 30%-28%
Without a change in personal tax rates this change won't necessarily have a big impact on what we earn from the business, but given we're unlikely to be drawing money out of the business for a while, paying 28% company tax instead of 30% improves our cash flow and leaves us with more money to invest in the business.
2. Employer Superannuation Contributions to rise from 9%-12%.
This is not quite so good for us, particularly as we look to hire our first Australian based employee, but like the new mining tax I think this is a reasonable thing to do. Australia's population is aging, our generation is likely to live longer than previous generations and we need to fund people's retirement. The changes are to be introduced gradually over 10 years so the impact won't be big initially. Australian wages should be a relatively small percentage of our costs too. This change will have a bigger impact on service based businesses where wages form a higher percentage of their costs.
The most disappointing thing about the government's announcement on Sunday is that very few of Dr. Ken Henry's recommendations are actually going to be implemented. Australia's tax system is very complex and the Henry Review had a whole raft of recommendations to simplify things like payroll tax and issues around trusts all of which the government has put on hold for the moment. While these changes aren't being implemented now the government has left them on the table to be discussed, so hopefully this or future governments look to implement some more of Ken Henry's changes moving forward.
Have you had a chance to read up on the new changes? Any thoughts?
Posted by Michael Fox at 3:19 PM