News – Page 780

Memo to Sir Kevin: a brave decision, Prime Minister

The government could not have reasonably been asked to rule anything in or out until it had had an opportunity to absorb the report and the debate that followed. But frightened of anything like a public debate on the merits of tax reform, the government sat on the report for five months, made it public a week before the budget and – by adopting only a handful of recommendations and rejecting or ignoring the rest – it in effect rendered the review irrelevant.

All the attention and debate is focused on what the government proposes to do, the central element of which is a huge new tax on the mining industry. Even this is carefully calibrated to avoid too much offence, as 80 per cent of it will be paid by two companies, BHP Billiton and Rio Tinto, which Rudd has pointed out are substantially owned by foreigners.

So Henry had every reason to look glum as his political masters made public their response , which picked up two or three of his 138 recommendations, and layered on top unrelated initiatives he did not recommend and in several cases probably opposes.

Even the name of the tax is Orwellian. Rudd has called it a “super profits tax”. One would reasonably assume they were profits way above a reasonable rate of return. But Rudd’s definition seems to be any revenue above investment plus the 10-year government bond rate – now 5.7 per cent.

Given the enormous risk inherent in any resource project, nobody would regard 5.7 per cent as satisfactory. Describing as a ”super profit” any return higher than the risk-free rate paid by the Commonwealth on its bonds is an abuse of language.

Thanks to Rudd’s timidity, a lot of good work in the review will struggle to get an airing. A tax-free threshold of $25,000 and a flat rate of 35 per cent on income up to $180,000, rising to 45 per cent thereafter, would dramatically simplify the personal income tax system. But nobody is talking about it.

Another recommendation was to allow tax losses to be carried backwards and be offset against an earlier year’s profits, entitling a taxpayer to a refund. This was proposed by the Coalition a year ago and has many international precedents. But it too has fallen by the wayside.

It is surely remarkable that the Rudd who wanted “a thousand flowers to bloom” at his 2020 summit now seeks to constrain and control debate on this vital area of reform to the narrowest possible political agenda.

His abandoning the emissions trading scheme is also political cowardice. After all, he described climate change as the “greatest moral challenge of our times” and the scheme was the centrepiece of his response to it. Yet faced with Senate opposition, he is unwilling to take the scheme to a double dissolution. He points to the Coalition opposition to it, but Labor’s opposition to the GST did not deter John Howard and Peter Costello from campaigning for a tax reform that was much harder to sell than emissions trading.

The scheme had relatively high levels of support in recent times and was supported by the Coalition at least in principle until late last year. Further, its objective is to reduce greenhouse gas emissions, a goal that still commands majority support even if there is debate about the means.

This streak of cowardice may gratify Sir Humphrey, but it will count against Rudd, even among those who despise the idea of an emissions trading scheme and have no interest in Henry’s thoughts on tax reform.

Political leaders need to have guts. They are respected for standing up for what they believe in, even by those who do not agree with them. If a prime minister cannot stand up for his own answer to the greatest moral challenge of our times, what on earth would he stand up for?

Is it any wonder the immediate result of his cowardice has been a collapse in his personal support and, for the first time in nearly four years, a Newspoll shows the Coalition in the lead.

Malcolm Turnbull is the Liberal member for Wentworth.

Certainly, social movements often need to ally with wider sections of society or lobby government, but, the leaders of a movement must keep in sight the fact that the power they had in the first place rested on public support which they gained by campaigning around very important issues, and they must take the public with them. If they get too far from their public support base, they risk leaving themselves with no one to turn to when they inevitably come under sustained and bitter attack from their enemies, especially those in the resources sector and the conservative media.

This is the dilemma the Australian environment movement currently finds itself in. Desperate for wins after the miserable Howard years, the big, national conservation groups are now disciplined by state and federal governments who know how to keep NGOs “in the tent” and compliant. They have become risk-averse, fearful of activism, dominated by fundraising imperatives and locked into support for pathetic government policies like Rudd’s Carbon Pollution Reduction Scheme (CPRS).

With the failure of international attempts to address climate change and the determination of State and Federal Governments to turn Australia into a simple, resource exploitation economy, the stage is set for environmental actors to step forward and take on the agents of destruction, some of whom are among the most powerful corporations in the world. They have an excellent argument, since what’s at stake is the future of the planet.

Unfortunately, Australia’s big, national environmental NGOs, and especially their leaderships, are not up to the task. When the times call for community education and mobilisation, activist training, direct action and a host of other, newer forms of grassroots activity such as internet-based campaigning and viral messaging, the leadership is incapable of acting as anything other than a powerless insider. A quick look at the larger, national groups will show what I mean.

The Australian Conservation Foundation (ACF) and the Climate Institute have joined up with the ACTU and the Australian Council of Social Service (ACOSS) in the Southern Cross Climate Coalition (SCCC). In order to be acceptable to the ACTU (and business) ACF and the Climate Institute had to support the Rudd Government’s CPRS — a policy which was little more than a pollution incentive for business. When the Copenhagen Conference on climate change collapsed and the Rudd Government backed away from any attempt to address greenhouse gas reductions, the two environmental groups were left with no viable strategy and serious questions raised about their future direction.

The World Wide Fund for Nature (WWF) is a slightly different case. It has always been a conservative organisation, friendly to business and with no activist base whatever, but with excellent scientific and research back-up. During the Howard years WWF became quite unpopular with many conservationists who thought they were far too close to the Coalition government. Nevertheless, WWF has a capable governing body with a wide cross-section of expertise and experience and will undoubtedly continue to play an important role as an environmental NGO.

Meanwhile, for Greenpeace, the relationship between management and public support base is more complicated. Locally, Greenpeace has pizzazz, resources and the capacity to carry out well-organised direct action as well as the other, more conventional things a big environmental NGO does. Greenpeace Australia is currently in transition between CEOs so it is not certain at this stage what role it will play in the next few years. However, one thing is clear: Greenpeace will do what Greenpeace management decides it will do and much of that will come from its international organisation.

And that brings us to the Wilderness Society itself. TWS has grown into a feisty, well-resourced organisation that knows how to back up its lobbying of government with solid community-based campaigns. It grew out of the failure to stop the damming of Lake Pedder and led the campaign to stop the same happening to the Franklin River. Nevertheless, it has been affected by the same bureaucratic tendencies as the other NGOs.

It does have a very large membership (about 45,000), and includes state offices (Campaign Centres) across the country. However its fundraising is mainly run out of its national office and members are increasingly isolated from participation in the overall direction of the organisation. It does retain the loyalty of many of the more active environmentalists as well as those members of the public who admire its determination to protect wild places. The current internal conflict between its national office and its campaign centres about future campaign direction and a loss of confidence in its senior leadership have caused a hiatus in much of the group’s campaigning and if a new leadership takes over it will be interesting to see where they take it.

The other national environmental organisation is Friends of the Earth (FoE). It is much smaller than the others and, while it is currently recruiting some promising young activists and has played an up-front role in certain campaigns, it has not yet grown into a major player.

All of this would be of interest only to academics or insiders in the conservation movement if we were not facing the most dangerous and defining environmental challenge of our era — climate change and global ecological destruction.

However, all is not lost. Around Australia, hundreds of local climate action groups have set up and are networking. Farmers and other rural dwellers are taking on the big corporations wanting to mine their high-quality agricultural land and dot the countryside with gas wells. The very size and urgency of the environmental challenges presented by these developments and the inevitable failure of governments to regulate them in the public interest will ensure widespread popular resistance.

The new movement needs to capitalise on the fact that it is not restricted by the old Left/Right political binary, especially since neither conservative nor social democratic governments are capable of separating themselves from the powerful resource corporations. Also, the class-based character of the old Left and the productivist nature of most of its base in the trade union movement will make it difficult for them to be relevant. Only a movement that asks people to take sides on the sustainability/resource exploitation divide can provide a meaningful framework for these struggles and for the environmental crusade to come.

Such a movement will still require large national groups who can connect with political power, add coherence to a campaign and provide scientific, policy, research and financial backing. If there is one thing to be learned from all the great wilderness campaigns of the past, it is that the chances of success are greatest when the movement has many foci — direct action affinity groups and professional lobbyists; grizzled community organisers and polished media performers; policy wonks and IT nerds — all part of a seemingly chaotic and potentially hostile mix but also a highly effective one.

To embody this movement, the national environmental organisations will need to go through their own internal revolutions, but essentially these changes will involve a power shift away from management and towards the membership. There is no point expecting this from groups like the Climate Institute and WWF since these two have no hope of becoming member-driven organisations. There are only two environmental NGOs that can lead the new wave of environmental activism. These are the ACF and the Wilderness Society, being the only ones that have a large membership base possessing, at least in theory, the potential to drive their organisations.

Both of these groups also contain organised dissidents who oppose the bureaucratic inertia, the fear of campaigning and the narrow focus on government that characterise each. These internal dissidents wish to change the internal culture and the leadership, but the issues are much wider than a few individuals; they go to the heart of the movement’s strategies and its ability to mobilise an effective resistance to the forces of environmental destruction.

That’s not surprising — it is always questions of strategy that most fundamentally divide the Australian environment movement. In the case of ACF the strategy for the past 10 to 15 years has been to largely ignore its social base except as a source of funds, to focus on building alliances with powerful forces in Australian society and to persuade the ALP to enact the better part of ACF’s policies.

Now, with the failure of this strategy and a new, more dangerous era for the Australian environment emerging, both organisations need generational change — but not just generational change. They need to re-discover the power that lies in inspiring, motivating, mobilising and empowering thousands of new environmental activists who will carry the movement forward.

You can trust politicians…to do exaclty what’s best for them

So let’s ignore our appalling politicians and pay the Henry report the courtesy of considering what it has to say. Its key point is we need changing taxes for changing times. We’re in the early part of a new century, our lives are changing, the position Australia finds itself in is changing, so how does our system of taxes need to change in response the major challenges we’re likely to face over, say, the next 40 years?

Ken Henry and his fellow panel members identify three big trends we need to adjust to. The first is demographic change. The population is ageing and the higher proportion of older people will involve increased demand for spending on age pensions, aged care and healthcare, putting a lot of pressure on federal and state budgets.

You’ve heard that before from the pollies, but you haven’t heard this: ”We do not expect total tax burdens will rise in the next few years, but some increases in later times may be unavoidable.” So taxes will be going up, not down as politicians like to fantasise. We need a ”robust” group of taxes, the collections from which keep up with ever-increasing government spending, and the rates of which can be increased from time to time without causing distortions.

We need to ensure older people – facing choices about when to retire and whether to work part-time in semi-retirement – aren’t discouraged from working by rates of income tax that are too high. We also need to keep getting the bugs out of the taxation of superannuation so people are encouraged to save for their retirement income needs on top of the age pension.

The second major trend is globalisation. Australia has always needed to attract foreign capital because our opportunities for economic development far exceed our ability to save the capital needed to exploit them.

Globalisation is increasing the alacrity with which international investors (including pension funds) are willing to move money around the world in search of the highest returns. But development of the poor countries, particularly in Asia, means we’re facing more competition in attracting the foreign investment we need.

When you boil it down, governments tax only four main things: land (including natural resources), capital, labour and consumption spending. The Henry panel believes the greater international mobility of capital – and the competition between small economies to attract that capital – means we can’t get away with taxing it as heavily as we once did. This explains its recommendation to reduce company tax from 30 per cent to 25 per cent. It also believes globalisation is making highly skilled labour more internationally mobile and thus harder to tax at high rates.

But if mobile resources need to be taxed less, then immobile resources will have to be taxed more. Nothing’s more immobile than land and natural resources. Hence the proposal for an annual land tax, at a low rate of, say, 1 per cent, on all land (but with the abolition of conveyancing duty).

And hence the proposal for a resource rent tax on natural resources. The coal and iron ore belong to all Australians, not the mining companies, and the use of this tax to effectively replace state royalties is just a way of ensuring the miners pay us a price for our resources that more accurately reflects their hugely increased value (as a result of globalisation and the economic development of China and India).

The third major trend is environmental degradation. Environmental pressures are emerging ”in areas such as land degradation, species decline, water use and climate change”, the panel says. Higher population and continued economic growth ”will put pressure on our increasingly fragile ecosystems”.

Our economic prospects are strongly linked to environmental sustainability. ”The environment provides natural resources essential to Australia’s productive capacity, and ecosystems that absorb and assimilate the waste generated by people and industry. Sound land and water management practices are essential to maintaining agricultural production; biodiversity enables technological progress, particularly in medical and pharmaceutical applications; and low atmospheric pollution is essential to climate stability.”

People and businesses make decisions every day that affect environmental quality, but in many cases they aren’t fully aware of their impact, or don’t value those impacts as highly as others do, particularly future generations. ”Accordingly, there is a role for government to influence decision making with a view to achieving better environmental outcomes.”

The tax system can play a greater role in promoting sustainable policy outcomes by influencing the incentives that lead to environmental degradation. ”An equally important consideration is to ensure that settings within the tax and transfer system do not unintentionally produce adverse environmental incentives or conflict with the broader environmental goals of . . . other policy measures.”

Bet you haven’t heard that kind of talk about tax reform before. And what’s the one big reform we need to get us moving on the right path? A carbon pollution reduction scheme.

Oh.

Ross Gittins is the Herald’s economics editor.

How to take a grand vision and smother it

Michael Stutchbury, Economics editor
From: The Australian
May 04, 2010 12:OOam

WE are now witnessing the end of a broad-based economic reform agenda and its replacement by narrower and more intense political fights.

Kevin Rudd has set a national goal of lifting productivity growth. And the tax review, commissioned from Ken Henry out of the heady blush of Rudd’s 2020 ideas summit, provides a rational blueprint for doing this through wholesale tax reform.

Instead of embracing this, Rudd has now narrowed the tax reform agenda into a fight with the big miners, and BHP Billiton and Rio Tinto in particular.

That turns tax reform toward a zero-sum distributional stoush with the industry that, along with banking, helped save Australia from the global recession. Singled out, the mining industry has no alternative to fighting back, possibly by putting projects on hold.

The result is the opposite to the broad-based reform dynamic of the 1980s and 90s. That created losses for some groups. But these were more than compensated by overall wider efficiency gains. This reinforced the reform dynamic, encouraged investment and enterprise, and increased the size of the economic cake.

By itself, Rudd and Wayne Swan’s resource rent tax is potentially a worthy reform that could even boost mining activity by replacing state mining royalties, estimated to be the most inefficient taxes. Henry nominates Australia’s natural resources as one of the system’s four “robust and efficient tax bases” along with personal income, business income and private consumption.

Henry’s review estimates that the efficiency gains from improving the tax treatment of these tax bases could boost economic output by 3 per cent, or $40 billion, by reducing the tax disincentives to work, save and invest. Real wages could be lifted by 5 per cent.

The Henry agenda confronts globalisation (by cutting taxes on footloose capital), the budget costs of an ageing population (by reducing disincentives to work) and the digital age (through congestion charges on our roads).

And it confronts what Henry calls an “unsustainable tax structure” with “too many taxes and too many complicated ways of delivering multiple policy objectives”. Ninety per cent of national tax revenue is raised by 10 of 125 different taxes. The system has “overreached” in its complexity.

The ideas are big. For instance, Australia’s highly means-tested tax-transfer system targets welfare payments. But it also encourages welfare dependency as the combination of benefit withdrawal and income tax produces high “effective marginal tax rates”.

Henry would partly deal with the problem by exempting individuals from paying taxes until they earn $25,000 as part of a much flatter tax rate system based on a 35 per cent marginal tax rate for 97 per cent of taxpayers.

The Henry review says such recommendations provide a unique opportunity for reform. It has not offered a one-off big bang tax reform package. But it also is “by no means advocating a slow boat to reform”. Its proposals are broadly revenue neutral.

Yet, rather than using the Henry review to break through political impediments to reform, Rudd and Swan are smothering its politically uncomfortable results. The review headed by its own Treasury secretary is an “independent” exercise that has merely “informed” the government’s agenda. Henry cut a mute figure at Sunday’s press conference, barred from publicly contributing to Swan and Rudd’s “mature” tax reform debate.

The 40 per cent Resource Super Profits Tax, which funds a small cut to the company tax rate, increased superannuation subsidies and some modest infrastructure spending is supposedly the “first wave” of Labor’s tax reform agenda. But Rudd and Swan provided no in-principle support to the thrust of the Henry report and its call for “a robust approach to an ongoing reform agenda”. Swan says Henry’s proposed two-rate personal income scale — 35 per cent above $25,000 and 45 per cent above $180,000 “is not on our agenda for the next term”.

Rudd and Swan politically package their super profit mining tax as “stronger, fairer, simpler”. Henry calls for a “fairer, more efficient and simpler” tax system. The government avoids the rhetoric of efficiency, except when batting off mining company attacks on its resource rent tax. Yet efficiency is the key for Henry.

The distinction becomes clear from the list of Henry recommendations that Rudd and Swan won’t adopt “at any stage”. Take the luxury car tax Swan hiked to 33 per cent in his 2008 budget before being forced into messy special treatment for farmers, tourism operators and for fuel-efficient cars.

Amid the wreckage, Swan referred the tax to the Henry review, which finds that: “a tax on luxury cars is not a desirable means of raising revenue. It discriminates against a particular group of people because of their tastes. It is not an effective way of redistributing income from rich to poor. Its design is complex and becoming more complex over time.” Moreover, its special treatment of fuel-efficient luxury cars “is a costly and ineffective way of limiting greenhouse emissions”. Yet Labor dismisses Henry’s call to abolish a tax that is not efficient, or fair or simple.

It gets worse with Rudd and Swan’s immature vow to “never increase the rate or broaden the base of the GST”.

The Henry review finds that consumption is one of Australia’s “most efficient and sustainable tax bases”, that John Howard’s GST made the tax system more efficient and that taxing consumption more and income less would make it even more efficient. Yet the $5bn exemption for food makes the GST more complicated without improving its fairness. One-third of the GST food exemption goes to the top 20 per cent of income earners.

But the Henry review also suggests that the GST is operationally complex because of its reliance on mountains of debit and credit invoices more suited to the business practices of the 1960s.

It suggests that a more efficient business cash-flow consumption tax could replace state payroll tax. This would tax the difference between business cash purchases (excluding wages) and cash sales (excluding exports). Small businesses could use a single bank account to allow their cash-flow tax liability to be calculated automatically, without the need for invoices. It could be a simpler, more comprehensive and single-rate replacement for the GST.

This potentially could break the political logjam to more efficient taxing of the economy’s consumption base. But it took a quarter of a century to implement the key tax reforms, including the GST, recommended by the 1975 Asprey report. This slow boat tax reform took far too long to arrive. Rudd and Swan’s politically narrow approach to tax reform won’t help the Henry boat dock any earlier.

19 comments on this story

4 May, 2010

Rudd on the nose for lacking fortitude

John Howard used to often attribute his longevity not to the fact people liked what he stood for but the fact they knew what he stood for.

Rudd has managed to cultivate an image of standing for whatever is popular and then turning tail at the first whiff of grapeshot. The Newspoll is reflective of what the party polling has been finding internally.

The response to the Henry review has been universally derided as weak.

But this assessment misses the key point: that it is not timid to impose a massive tax and to pick a fight with the mining industry and the business sector more broadly.

It will be a tough fight against powerful interests that has not started well for the Government.

If if backs away, however, the damage will be severe.

Rudd is in a corner and all eyes are on how well he responds.

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Ship-breaking exposes Bangladesh to climate change threat

AFP May 2, 2010, 3:46 pm

SITAKUNDU, Bangladesh (AFP) – When huge waves hit Bangladesh’s sleepy southeastern Sitakundu coastline after a cyclone in 1991, shopkeeper Abul Kalam survived by hanging on to a coconut tree.

Kalam’s parents, brother, sister and young nephew and niece were among the 138,000 people killed that May when a tidal surge from the force-five cyclone destroyed his family’s house and the tiny fishing village they called home.

Those who survived — including Kalam and his wife — owe their lives to the protection provided by the trees, which is why they are concerned about the deforestation they’re witnessing around them.

“In 1991 we survived, but now we are surrounded by ship-breaking yards, there are hardly any trees left,” Kalam said.

“I hung onto that coconut tree for dear life. The waves were so strong they ripped my clothes off.”

In just two decades, Sitakundu beach has been transformed from a quiet, leafy shoreline into a sprawling industrial hub, home to one of Bangladesh’s largest, most profitable and most controversial industries: ship-breaking.

Thirty percent of the world’s condemned ships are recycled in Bangladesh, and the industry creates tens of thousands of jobs and provides three-quarters of the country’s steel — but at a serious environmental cost.

“More than 40,000 big trees were felled in the last six months to clear the way for new ship-breaking yards,” Mohammad Ali Shaheen, the Bangladesh head of the Platform on Ship-breaking lobby group, told AFP.

“Not only are the yards dumping toxic waste on the coast, they are also clearing forests that have been painstakingly planted and nurtured to work as natural barriers to cyclones.”

Local environmentalists say Bangladesh is on the frontline of climate change and that rampant deforestation, particularly by ship-breaking yards, is making things worse.

In the past five years, Bangladesh has been hit by two cyclones which left 5,000 people dead, displaced millions and caused three billion dollars worth of damage.

“There is now hardly any forest left along a more than 20-kilometre (12-mile) stretch of Sitakundu coast,” said professor Mohammad Kamal Hossain, a forestry expert at Chittagong University.

“The ship-breakers have gobbled up most of the plantations, showing scant regard to the government’s environmental laws.”

Felling old growth forests is illegal in Bangladesh but laws are not enforced as ship-breaking is a billion dollar industry and yards owners are some of the country’s top business tycoons, he said.

Ships broken up in Bangladesh also routinely contain materials like asbestos, banned in many countries.

The government’s recent attempt to impose strict environmental standards on the industry ended with an about-face within three months after devastating strikes threatened the country’s steel industry.

The proposed law, which required ships to be certified by the selling nation’s environmental authorities, was amended to allow yards to bring in ships on their own declarations that the vessels are free from toxic materials.

But the 100 shipyards in Bangladesh — up from just 36 in 2008, with all the new arrivals on the Sitakundu coast — are damaging the environment in more ways than just through these toxic chemicals.

“Thanks to these ship-breakers, poor villages along the coast now have practically no natural protection against cyclones. If a major cyclone like Sidr hits, I am sure there will be hundreds of thousands of deaths,” Hossain said.

Cyclone Sidr, which had wind speeds of up to 240 kilometres (150 miles) per hour, hit Bangladesh’s southwestern coast in November 2007, leaving at least 4,000 dead and millions homeless.

Experts said Sidr’s toll was far lower than the 1991 cyclone as the Sunderbans, the world’s largest mangrove forest, stood in the path and bore the brunt of the storm.

“The wind speed of the cyclone of 1991 (which hit the southeast coast) was far less than that of Sidr. Yet its death toll was 35 times more,” Hossain said.

Jafar Alam, president of Bangladesh Ship Breakers Association — a powerful industry group — admits that some shipyards have cleared forests.

“But they are not our members. They acted individually,” Alam said, adding that his association had promised to help the government take action against ship-breakers who illegally encroach on forest land.

Addressing attacks on the industry regularly offered by groups like the NGO Platform on Ship-breaking, he told AFP that such organisations were “the lackies of foreign governments talking nonsense”.

“There were no major forests where we set up our scrapyards. There is no question of us causing environmental damages,” said Alam, whose association oversaw more than 80 percent of the 200 ships broken last year in Sitakundu.

“We are an important industry. We employ tens of thousands of people and directly and indirectly our worth is around three billion dollars,” he said.

“There are more areas we are planning to set up yards as business is really booming.”

Such talk sends shivers down Jyotindra Jaldash’s spine. The 70-year-old fisherman who lives in a village along Sitakundu coast said watching his childhood home transform into a shipyard has turned him into a cynic.

“When the ships first arrived here, I liked the look of them when they were moored. But now they are everywhere. They have killed all the fish, they have cut the forests, and soon, they will drive us all out,” he said.

2 May, 2010

Category: News

Memo to Sir Kevin: a brave decision, Prime Minister

Eco Movement At The Crossroads

You can trust politicians…to do exaclty what’s best for them

How to take a grand vision and smother it

Rudd on the nose for lacking fortitude

Poll: Is the Rudd government’s popularity in decline?

Ship-breaking exposes Bangladesh to climate change threat

Ship-breaking exposes Bangladesh to climate change threat