Saturday, July 10, 2010

Australia's "China Co-Prosperity Tax"

TAX Mark One was going to raise $12bn based on one set of price forecasts, while Mark Two would raise $10.5bn on another set of figures.

JULIA Gillard's first Big Lie at the heart of her resources tax coup has now been fully exposed -- how she was able to gut the tax, almost putting smiles on the faces of the main intended taxpayers, and yet lose only $1.5 billion of expected revenue.

The first clues to the dynamics of the lie were reluctantly revealed by Treasury Secretary Ken Henry in his now characteristically truculent appearance before the Senate Estimates Committee.

Tax Mark One was going to raise $12bn on the assumption of one set of commodity price forecasts.

While Tax Mark Two would raise $10.5bn on another, conveniently, higher set of commodity price forecasts.

But Henry could not give any numbers for a "like-for-like" comparison, as he saw no need for them.

In concept, it is based entirely on the belief -- hope? -- that China will keep on booming. That it will consume, and this is crucial: ever more and more of our coal and iron ore.

No China boom, no high commodity prices as "estimated" by Treasury; no super profits; no resource tax revenues. And, it's worth adding, no budget surplus.

It is not sufficient for China to maintain some growth in its economy, far less just sustain the level of its current activity. It has to keep growing at around 10 per cent a year, give or take a percentage point or two either way, every year. Even one year of "time out" would be devastating for commodity prices and our tax revenues.

Why? Well deputy Reserve Bank governor Ric Battelino captured the answer in a graph in a speech earlier this year.

Posted via email from Garth's posterous

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