Raja Junankar

Weak inflation figures have been seized on as an example of the slowing Australian economy. However if we listen to the politicians it appears that the Australian economy is suffering from a major crisis of ballooning government debt and an impending crash. This is patently not the case – the way the economy has continued to grow shows Australia really is the miracle economy.

Most of the countries of the OECD are still suffering from the Global Financial Crisis – or as the Americans call it the Great Recession. However the Australian economy is still very healthy. Admittedly in the past few months, it appears that the Australian economy is finally slowing down as the resources boom comes to an end, however unlike most of the OECD countries, Australia did not have a recession, and indeed finances remained very healthy.

Indeed, much rhetoric from Canberra seems to ignore this. For example, if you look at the unemployment rate it increased slightly after the GFC, but it came down again. All the other countries had much higher unemployment rates than Australia in the post-2008 period. The period of record low unemployment in Australia for the past five years seems to be frequently ignored in discussions about the economy.

Looking at how well the Australian economy has fared over the past few years, compared to other countries, it appears to score very highly.

Looking at the debt to GDP ratios, Australia has the lowest ratio. Even Germany, the country that is imposing austerity on the eurozone countries, has higher debt ratios. And yet if you listen to some politicians they believe that Australia is in debt crisis – but actually, Australia is in a far better situation than pretty much every other country. Until the population start listening to some of the facts, rather than myths about the economy, the negative stories will dominate rather than the facts.

Honorary Professor Raja Junankar is from the Industrial Relations Research Centre at the Australian School of Business.

Dale Boccabella

If we needed another example of just how difficult meaningful and principled tax reform is in Australia, we got it recently in the reaction to the Government’s announcement that it would abolish the “statutory formula” method for valuing fringe benefits representing employer-provided cars. The reaction at times was hysterical.

Some of the claims were extreme and they are obviously calculated to put as much pressure on the Government to back down fully, or at least in part. These are the facts in regard to the relevant tax law.

Where an employer provides a car for the use of an employee, a fringe benefits tax liability might arise. There are two methods of valuing this type of car usage benefit. One is the “cost method” and the other is the“statutory formula” method.

The cost method works out the cost of operating the car for the year (for example, petrol, servicing, insurance). From there, the employer (with the employees help) establishes the percentage of private use (such as a weekend drive to country) and percentage of income producing use (travelling from work premises to clients) of the car by the employee.

This is done on the basis of kilometres travelled on each activity by the employee. This is ascertained by the employee, for the employer, by keeping a log book of income producing trips for 12 weeks in the first year in which the employee had use of the car.

Once the percentage of private use is established, it is applied to the cost of the car to establish the taxable value of the benefit (for instance, the operating cost of $8,000 with 40% private use would mean a taxable value of $3,200).

Putting aside some transitional rules, the statutory formula method applies a flat 20% to the cost of purchase of the car. (If the car is more than four years old, the cost of the car is reduced to 66.6% of the cost of purchase). Under the statutory formula method, there is no requirement on the employer to establish the percentage of private use of the car by the employee.

That is, the statutory formula is not valuing the car fringe benefit by reference to the employee’s private use of the car. For example, if the car has a purchase cost of $32,000, the taxable value of the car benefit is $6,400 under the statutory formula method (that is, $32,000 x 20%).

The employer can choose whichever method suits them, including the one that gives the lowest taxable value. It is clear that the statutory formula method, like other presumptive tax mechanisms, is a simplification measure; it means an employer (or employee) can avoid the tax compliance obligations associated with keeping a log book under the cost method.

Generally, the statutory formula method will give a lower taxable value than the cost method when the car has a high percentage of private use, and the cost method will give a lower taxable value when there is a low percentage of private use. One could question the costs that are included in calculating costs(and therefore, taxable value) under the cost method (e.g. deemed interest, deemed depreciation). However, it is only the cost method that accurately ascertains the private use element of the car benefit.

This is what a principled, equitable and efficient income tax system should be taxing. Fringe benefits tax (FBT) is a surrogate income tax on employees who receive benefits for private consumption, but one unfair aspect of the FBT regime is that it taxes all benefits at the top marginal rate of tax applicable to natural persons (currently 46.5%) even though the recipient of the benefit may be on a lower tax rate than 46.5%).

This means that where the statutory formula method gives a lower taxable value than the cost method, the taxpayer is getting a tax concession.

This is recognised in the annual Tax Expenditure Statements issued by Treasury. The Tax Expenditure Statements contain a list of items where taxpayers are getting a tax concession, along with an estimate of the aggregate of the tax concession.

The statutory formula method is listed as a significant tax expenditure. On the other hand, where the statutory formula method gives a higher taxable value than the cost method and the employer fails to elect into the lower cost method (this will rarely happen), the employer is being (unfairly) overtaxed. This would be a negative tax expenditure.

The removal of the statutory formula method simply moves this part of the tax system back to a principled position by removing a tax concession. These facts have been completely lost in the “debate”.

In spite of the above, there is a legitimate issue about the start date of the new rules. The removal of the statutory formula method only applies to all new contracts entered into after 16 July 2013, but even then, the statutory formula can be used for the rest of the current FBT year (that is, until 31 March, 2014). After that year, only the cost method will be available.

All existing employee car usage arrangements can continue to use the statutory formula until the car is changed over. In this sense, these new rules are not retrospective. But, many employers and employees would have been in the process of arranging a new car on the announcement date but that arrangement may fall short of having a concluded contract.

In this sense, it is arguable that the Government measure does operate retrospectively for these employers and employees. To deal with the “immediate start date” issue and “retrospective” issue, the Government could have provided for a more generous deferred phase out of the statutory formula method (for instance, until March 2015).

In 2011, when the Government amended the multiple rates under the statutory formula method to move towards one rate (i.e. 20%), which increased the taxable value on most cars, the Government provided a transitional period whereby tax increases were progressively introduced over three years.

More important to the national interest, does this episode (which may not be over yet) say anything about the prospects for meaningful and principled tax reform? It is certainly not encouraging. It does send the message that those with tax concessions, and the industry serving those tax concession recipients, will not give up their concessions without a fight. It probably does not help where there is a lack of bipartisanship, which is the case with the removal of the statutory formula as the Coalition have indicated they will oppose this measure.

Similar to many areas of human conduct, the longer tax concessions remain in place aspart of the tax system, the higher the level of normality that isachieved. Normality and entrenchment can reach the point where usersof the tax concession start believing that the concession is a normalpart of a benchmark tax system.

Some of those complaining about the removal of the statutory formula method may genuinely believe that the government is imposing a tax increase on them over and above what a benchmark income tax would impose, rather than seeing the government’s announcement as the removal of a tax concession.

Many complainants though will be moved by pure self-interest and these people know full well they have been accessing a tax concession. Sadly, our tax system is riddled with many significant tax concessions that depart from a benchmark tax system – such as the 50% tax concession on capital gains of natural persons, 100% exemption on all the gain made on the family home, generous tax concessions on superannuation, failure to tax all land under state land tax regimes.

Some not-so-apparent concessions involve negative gearing, or the current generous treatment of discretionary trusts and the lack of death duties. The longer tax concessions remain in our tax system, the more normality they will achieve. In turn, the harder it will be for future politicians to remove or scale back the concessions.

In a future where Australians demand more services from Government and at the same time resist higher taxes, scaling back tax concessions may be the least displeasing option to meet desired revenue needs. One heartening thing for future governments is that there are still many tax concessions worth a lot of lost revenue that could be wound back.

Dale Boccabella is an Associate Professor of Taxation Law at the Australian School of Business. This opinion piece was previously published on The Conversation under “The truth about FBT on cars: meaningful tax reform is hard“.

Vic Edwards

There are reports that China could be about to witness a sharp economic contraction.

Figures show China’s annual economic growth has slowed to 7.5 per cent in the second quarter of 2013 from 7.7 per cent – the second straight quarter of slower growth. In the past month the Australian dollar has fallen sharply on fears about the Chinese economy.

Never the less, I would like to play down fears of a hard landing in China. Growth at 7.5 percent really isn’t that bad, and certainly not for the world’s second-largest economy. Certainly there are some downward projections for China but these aren’t too severe.

However last week China reported an unexpected fall in its exports and imports, adding to concerns of a slowdown in its economy. Exports fell 3.1% in June from a year earlier, indicating weak global demand for Chinese goods, and this contradicted forecasts of a sharp increase in shipments.

China’s growth this year is below last year’s level as weakening external demand has hurt investment and exports. China has been keen to rebalance its economy, after a decline in global demand hurt its export-led growth, and that is causing pressure on Australia.

This raises concerns about the country’s future economic growth, raising questions about whether the country’s economy is tailing off more rapidly than anticipated. However at least inflation has slackened more rapidly than expected.

China is also the world’s biggest energy consumer and steelmaker, however steel production is slowing. The World Bank has forecast that inflation will fall further, as its economy comes down from the peaks seen last year.

Certainly the markets treat the Aussie dollar as a proxy for China so that slowdown in exports in China is perceived by the market as being a bad sign for Australia. Australia will need to improve its trade standing with China in order to preserve its position as a major supplier of raw materials, as China is actively pursuing other sources particularly through its new BRICS arrangements, particularly with South Africa and Brazil.

Vic Edwards is a Visiting Fellow in Banking and Finance at the Australian School of Business.

Nigel Stapledon

From its lows of just over 4% in early 2008, unemployment  rose sharply to close to a peak of 5.9% in June 2009 before resumption of the resources boom and fiscal stimulus saw it decline back just below 5% in early 2011. Since then there has been a clear trend rise to its current level of 5.7%.

The Treasury estimates have the ‘full employment’ unemployment rate in the range 4.5-5%. Against that benchmark, there is an increasing amount of slack in the economy.

The leading indicators, e.g. ANZ job ads, point to unemployment continuing to rise. It is likely to break over 6% in the second half of the year.

Employment growth is positive but has been and remains at well below the rate needed to match the influx of new workers into the job market. The best measure here is hours worked which is currently showing a (slightly flattering) trend growth rate of 0.8% against long-term trend or required growth of 1.7%.

Mining investment might still be high but it is now declining and causing a decline in construction activity which is just starting to emerge in the employment numbers. With prices squeezing profitability, cost-cutting is the name of the game now.

With the news from China not at all encouraging, if anything there is prospect of a sharper pull-back in mining investment.

Another factor at play is the lagged effect of structural decline in manufacturing which has accelerated in the past 12 months. It will not be reversed by the recent fall in the $A. Firms will need to see it lower and sustained at a lower level before their expected level of the $A will change sufficiently to reverse the trend to closing operations in Australia. On the other hand, tourism might benefit in the short term as particularly some domestic travellers shift to local market.

It is not clear at all that the slack in mining and mining construction will be taken up by housing construction. While interest rates are low, the offset is that the increased risk of unemployment will cause some potential home-buyers to defer a large investment in housing.

Dr Nigel Stapledon, Australian School of Business

Frank Zumbo

With the departure of senator Stephen Conroy after Labor’s recent switch to Kevin Rudd, it is opportune to consider what might now happen to the national broadband network.

There is no doubt the NBN was Conroy’s ”baby” with the Victorian politician having nurtured, protected and driven the project with the zeal of a religious leader determined to recruit as many new followers as possible. For Conroy, the NBN was a vision to be pursued at seemingly any cost.

Conroy’s line was simple. We were asked repeatedly: How could anyone doubt the superiority of fibre to the premises?

The super speed of fibre and the view that fibre would enable endless amounts of content to be streamed into almost every Australian home were the cornerstone arguments in Conroy’s passionate pursuit of his version of the NBN.

It has been a devastating line of attack and Conroy has been relentless in pursuing any critic of the NBN who dared to speak out. The problem was always going to be that Conroy’s NBN was just one possible path to high-speed broadband. Much like different religious leaders having different paths to the ultimate goal, there was always going to be a difference of opinion as to the most appropriate path to a national high-speed broadband network.

Fixed versus wireless was going to be the obvious first point of contention. This is closely followed by the debate about fibre to the premises or fibre to the node. Ultimately, however, the real debate would always centre on the relative time and cost of pursuing the different paths to a national high speed broadband network.

Here the point is simply that Conroy’s NBN is by far the most expensive version of a national high-speed broadband network.

Trying to connect almost every home with fibre was always going to the stumbling block and the ever-present threat to the NBN. That is assuming there would be a sufficient, ongoing amount of skilled labour and technical expertise at an affordable price to sustain a project of an increasingly unknown duration.

Just think about it. Walk down any street of Australia and you will see many houses that would need to be individually connected under Conroy’s NBN. Multiply the number of houses by the thousands upon thousands of streets across Australia and you start to get some idea of the magnitude of the task ahead for Conroy’s NBN.

The danger of a large cost blow-out will constantly hang over Conroy’s NBN. A nice-sounding vision of connecting almost every home to fibre can soon become an economic nightmare. Ongoing delays in deploying Conroy’s NBN will add considerable costs to an already very expensive project.

These cost blow-outs eventually get passed on to consumers one way or another. More problematic for consumers is that construction delays in the NBN would mean that it would take longer for consumers to get access to the promised higher broadband speeds.

So, while Conroy pursued his NBN with zeal, it was always going to be a race against time. The NBN was only guaranteed while he remained the the Broadband and Communications Minister and so long as Labor stayed in power. Any change in minister or government would inevitably cause a rethink, or at least a risk of a new minister wanting to put his or her mark on the project.

If there’s one thing that is certain in politics, it is that each minister wants to cast a project in his or her image. A new minister often means a new approach or nuances on the previous minister’s approach.

Will Conroy’s NBN survive in its present form? Time will tell if the new Minister for Broadband and Communications, Anthony Albanese, has any new ideas of his own. With the NBN still in the relatively early construction stage it is clearly vulnerable to change now that Conroy has gone.

The workforce and engineering challenges that have delayed the construction of the NBN are likely to cause a reassessment sometime soon. Then there is the lingering debate as to whether fibre to the premises is ”superior” as claimed. Yes, fibre may be superior if you want to be connected to a landline and download lots of content on a regular basis, but it may not be superior if you want the mobility and convenience that wireless provides.

Any assessment of ”superiority” depends on the requirements of each individual consumer and a ”one-solution-fits-all” view was the inherent flaw in Conroy’s NBN.

At the end of the day, a national high-speed broadband network is really all about access, convenience and affordability. What’s the point of building the most expensive fixed broadband network if it can only be accessed from your home?

It makes more economic sense to provide a fixed broadband network that provides a basic high-speed service with fibre to the node, with the potential for high-end users of broadband to be able to upgrade to fibre from the node to the premises. And let’s not forget that wireless will become the preference for all but the people who prolifically download content.

Frank Zumbo is an associate professor at the school of business law and taxation at the Australian School of Business.

A shorter version of this opinion piece appeared in the SMH.

Tim Harcourt | The Airport Economist

For most of our respective histories, Australians have typically ignored Brazil. That was partly down to the tyranny of distance, as the two great southern lands were so far away from each other that it was a case of “out of sight, out of mind”. Our colonial ties were very different too. Australia looked to the British Empire and Brazil to the crumbling Portuguese ; our legacy was transportation theirs was slavery;  and while Australia looked to London, Brazil looked to Lisbon. Brazil, with political instability and economic crisis, seemed like a place with too many problems that was best to keep away from (except at carnival time).    More recently, the sheer importance of our bilateral economic relationship with China sometimes seemed to leave little room to consider other emerging markets.

But times are changing and the rise of the new Brazil has seen many international delegations flying down to Rio, (and Sao Paulo, Brasilia, Belo Horizonte, Porto Alegre and the rest of Brazil’s burgeoning metropolises) to seek stronger economic ties with Brazil. Brazil is being overrun by international business diplomatic delegations from the US, Canada, Germany, Japan, China and increasing the emerging powers of Asia, the Middle East and Africa too.

Although we are hardly a first move, Australia has now joined the pack with significant investment in Brazil by Pacific Hydro, Westfield, and major resource, agribusiness and infrastructure players. The Australian Government has also redirected resources to Brazil and Austrade has made a strong push to strengthen ties with Brazil when the spotlight hits the country with the FIFA World Cup in 2014 and the Rio Olympic Games in 2016 with its highly respected Business Club Australia programme.

So why all this attention on Brazil?  As we highlight in a new report, there are several good reasons for Australians to pay more attention to this other great southern land.

It’s economic.  Brazil is already a major global economy. Brazil is the world’s fifth largest country by population and the seventh (on a purchasing power parity ppp basis) or sixth (on a US dollar basis) largest country in the world, accounting for between 3 and 3  ½  per cent of world output (depending on how GDP is measured). As an agricultural, mining and aviation exporter, it’s a food aerospace, resources  and energy superpower with Petrobras, Vale, Embaer, JBS Beef and Ambev some of the world’s most influential multinationals and investors.  Granted, Brazil’s recent economic performance has disappointed.  Growth last year slumped to less than one per cent and policymakers must now manage a complex macro environment.  But key fundamentals, including sheer size and vast ecological wealth, keep Brazil firmly in the ‘too big to ignore’ camp. 

It’s diplomatic. As a member of the BRICSA grouping (Brazil, Russia, India, China and South Africa), Brazil is playing an important role in international affairs as we have seen in the World Trade Organisation (WTO) and G20 multilateral fora.  Brazil has undertaken a charm offensive in the developing world under the ‘South-South banner’. Under President Luiz Inacio ‘Lula’ da Silva, Brazil opened up 53 new embassies in Africa and has expanded its sphere of influence across the globe.  The diplomatic initiatives have continued under President Dilma Rousseff: A Brazilian will be the next head of the WTO.

It’s because of China. Australia now faces a resources rival in Asia. We saw at the height of the global financial crisis (GFC) that Australia and Brazil were the two largest beneficiaries of the Chinese stimulus package, as Brazil and Australia’s resources and energy stoke China’s rapid urbanisation and industrialisation.

It’s because of shared challenges.  Like Australia, Brazil has had to manage the complexities of the current resource boom, the challenges of Chinese investment into sensitive resource sectors, and the side-effects on its exchange rate from quantitative easing and the so-called currency wars. 

None of this is to deny that there are risks to Brazil’s outlook. Our co-author Patrick Carvalho, who outlines Brazil’s recent macroeconomic achievements, has also warned of: “Weak infrastructure, inefficient bureaucracy and tax system, expensive and unfair pension system and despite some recent improvement, high crime rates.”  As he reminds us, “economic development is a marathon not a sprint” And Brazil is still some distance from the finish line.

However, for all of these challenges, as the world’s 6^th largest economy, Brazil is an important player, and like with the Girl from Ipanema, it’s now Australia’s turn to do the wooing.

A shorter version of this blog post was previously published in The Australian Financial Review.

Tim Harcourt is the JW Nevile Fellow in Economics and an adjunct professor in International Business Strategy, at the Australian School of Business, the University of New South Wales (UNSW) & author of The Airport Economist:  www.theairporteconomist.com.

 Tim Harcourt and Mark Thirlwell are the co authors, along with Fernando Cardim and Patrick Carvalho, of Great Southern Lands: Building ties between Australian and Brazil, a report by the Lowy Institute & COALAR.

Justin O’Brien

Australia cannot ignore the Singaporean investigation into attempts to manipulate key financial benchmarks. 

The investigation by the Monetary Authority of Singapore into the attempted manipulation of key financial benchmarks has profound implications. Notwithstanding the fact that no evidence of actual success has been proffered, Singapore has moved quickly and decisively to change the domestic and international regulatory battleground.

The regulatory change is based on very loose principles articulated by the International Organization of Securities Commissions earlier this year. The decision is a considerable victory for IOSCO, which is chaired by Greg Medcraft of the Australian Securities and Investments Commission. Its articulation of global principles, although purposively vague, was designed to demonstrate both the timeliness and efficacy of international coordination. In fleshing out these principles in a radical redesign, Singapore is providing a much needed route map to navigate two pressing hazards.

The first of these is how to handle the investigation and enforcement process. The MAS action has foreclosed individual investigation and the piecemeal erosion of trust associated with periodic disclosure of individual institution misconduct. Instead it opted for a comprehensive settlement. The second and potentially more significant navigational aid is how the settlement forcibly enlists the industry in protecting the integrity of the rate-setting process.

The benchmarks are conceived as a public good that industry has an obligation rather than an interest in protecting. Cleverly, the MAS has forced ‘skin in the game’ by demanding individual banks increase the level of reserves deposited with the central bank.  Under the terms of the settlement, released on Friday, the banks implicated have to deposit additional reserves in Singapore for a period of one year, during which they will not receive any interest.

The exact amount depends on the degree of complicity in the scandal, with the highest imposed on ING, RBS and UBS (S$1-1.2 billion each). What is also clear, however, is that the MAS does not trust the capacity of any of the banks to clean this mess up without external supervision. The banks are required ‘to report their progress to MAS on a quarterly basis, and conduct independent reviews to ensure the robustness of their remedial measures.’ Self-certification, therefore, is deemed in itself inadequate.

The Association of Banks in Singapore is to be stripped of its capacity to self-regulate the benchmarks. Manipulation or attempted manipulation is to be made specific civil and criminal offence. At the same time, the authorities have made it clear that ongoing integrity can only be vouchsafed by a significant change in practice. The MAS has managed to force the industry to institute an effective early-warning system linked to blacklisting those directly implicated (if not charged with wrongdoing). It notes that ‘the industry will put in place measures to facilitate reference checks, so that an institution would be made aware if a potential hire had been implicated in attempts to inappropriately influence benchmarks.’ 

In taking such robust enforcement action, Singapore is guarding itself against the possibility that any future civil or criminal proceedings in the United States will seek to quarantine guilt to subsidiaries operating in Asian markets. Its integrated approach also has the capacity to break the impasse within the IOSCO taskforce set up to evaluate how benchmarks can be refined. The United Kingdom continues to insist Libor and its facsimiles can be reformed; the United States by contrast wants it replaced by observed rates. These too, however, run the risk of being manipulated.

It goes without saying that the primary focus of the MAS investigation will be the main British Banks implicated, including RBS and Barclays. It is, however, also significant that US banks have been censured formally. The involvement of two major Australian banks – ANZ and Macquarie – in the scandal also raises serious questions about the efficacy of oversight here in Australia.

Because ANZ and Macquarie were in the bottom range (S$110-300m) they failed to make initial international media reports. Although Macquarie itself does not itself submit to the Association of Banks in Singapore benchmark rate, it too is found to have ‘deficiencies in governance, risk management, internal control and surveillance systems.’ Along with the other banks censured it must adopt measures to address deficiencies and appoint an independent party to ensure the robustness of remedial measures.

With the MAS action, the manipulation of financial benchmark scandal has gone global. Australia, the lucky country, has for once not been saved by the tyranny of distance. In today’s globalized marketplace, it is too obviously implicated for regulatory agencies here in Australia to ignore.

Professor Justin O’Brien is director of the Centre for Law, Markets and Regulation at UNSW  Law.

His most recent research paper on Libor has just ben published by Edmond J Safra Center for Ethics at Harvard university. It is available for download at http://ssrn.com/abstract=2277172

A shorter version of this article was previously published in The Australian Financial Review.

However, Australia’s approach to monetary policy has not been as standard, when compared to many other countries. Since 2008, many economists and central banks have modified their views on what is an acceptable level of inflation.

Sound arguments can be made to justify an inflation rate of 4 per cent. Whereas, the RBA post 2008 has instead increased interest rates when needed to keep the inflation rate averaging within the 2 to 3 per cent band.

This policy resulted in Australia having very high interest rates, relative to other countries, which pushed the Australian dollar to extreme levels, damaging many sectors of the Australian economy over the last three years.

The RBA currently has the official cash rate at 2.75 per cent, however, there is a strong argument that this could have been done much sooner. It may have resulted in inflation averaging around 4 per cent for a period, though in the current economic environment, this would have been beneficial.

Private sector debt levels and house prices are at excessive levels and moderate inflation over a number of years is one way for adjustment to occur to more sustainable levels of real (inflation adjusted) debt and house prices.

Given the volatility in the mining sector, for a strong Australian economy, we also need other sectors of the economy to be strong. Over recent years, monetary policy has provided insufficient support for these other sectors.

The impact of monetary policy on the unemployment rate can often be delayed. For example, the relatively high interest rates and resulting high exchange rate in recent years, is only now showing up in a rising unemployment rate.

Due to this delayed reaction, current expansionary monetary policy is unlikely to prevent the unemployment rate from rising over 6 per cent. If the goal is to keep the unemployment rate from rising too much, more fiscal stimulus will probably be required.

The recent New Zealand experience provides lessons to be learned. New Zealand’s response to the global economic crisis was unconventional and focused on monetary stimulus with little fiscal stimulus (despite moderate levels of government debt) which resulted in the NZ unemployment rate sharply rising to over 7 per cent.  

However, the rebuild due to the Christchurch earthquakes, provided a major stimulus to the economy (similar to a very large fiscal stimulus) which resulted in a substantial reduction in the unemployment rate. The unemployment rate in Christchurch (NZ’s second largest city) is now below 5 per cent.

Australia still has moderate government debt levels which allows the government the ability to provide further fiscal stimulus.  In addition, to the obvious benefits of keeping people employed, government spending on projects such as infrastructure spending, can provide great long term benefits for the economy.

Dr Jonathan Reeves is a financial economist at the Australian School of Business, UNSW Australia.

Professor Chris Styles

Twenty years ago, St Kilda footballer Nicky Winmar made an important statement about the place of indigenous players in the AFL and the place of indigenous people in the wider community.

He lifted his shirt in an act that said: “I’m black and I’m proud.”

It was a line in the sand, a moment that shaped the AFL’s approach to indigenous affairs and had a huge impact on the community generally.

Winmar’s message was that indigenous players should be proud of their contribution to the sport and not accept the abuse they were regularly being subjected to.

Last weekend, the AFL played its Indigenous Round which celebrated the extraordinary and disproportionate contribution made by indigenous players to the sport over the years. The game – and Australian society – has come a long way since Winmar’s statement and that is something to be noted and celebrated.

But in the opening Friday night match, as has been extensively reported, a 13-year-old girl called Adam Goodes – a dual Brownlow medallist (the highest individual honour in the AFL) – an “ape”.

Goodes is not just a great athlete, he is a proud member – and leader – of the indigenous community and was having one of the greatest games of his career.

His reaction to the slur was spontaneous, heartfelt, and that of a true leader. How he conducted himself in the following days has further demonstrated his leadership.

When the incident happened, near the end of the game, Goodes’s reaction was instantaneous. The Aboriginal high school student who had been racially vilified in the playground and just took it, finally stood up.

Goodes identified who was at fault to security guards and made sure she was evicted. The message to his playing peers was clear and by taking this very public stand, he dramatically highlighted that such behaviour is not acceptable and should not be condoned by the community.

He also showed all those non-athletes, especially children experiencing school-yard bullying, that there is no place for racism anywhere. By practicing what he preaches, Goodes showed strong leadership.

When he fronted the inevitable media scrum following the event, Goodes again highlighted why he is one of the Australia’s bravest leaders. He described the situation as “sad”. Rather than laying blame directly on the teenager, he suggested that she didn’t know what she was saying and that she was an innocent teen who didn’t realise that her comments were derogatory.

Great leadership means not only standing for something, but being able to articulate that something in a way others can relate to. The overwhelming and positive response to this incident, particularly on social media, says much about Goodes’s ability to create a strong narrative around the ideas he stands for.

In his press conference he recounted the experience of being bullied in his youth, and painted a picture of how we should be reacting to analogous events in our lives. This was not an angry man who had been wronged, but a leader who used a personal incident to tell a story and provide a path forward for the community.

Importantly, Goodes also followed up on his initial outburst and made sure the incident had a resolution. He didn’t throw the young girl to the wolves but encouraged the public, via social media, not to vilify her. He used social media as a tool for educating the public about the issue rather than as a way to score cheap points. There are many others with influence in the public eye who could take note.

Goodes pointed out that the teenager was a victim of the environment in which she had grown up. He wanted the girl to take responsibility for her comments and offered her the opportunity to call him and apologise. He wanted to be able to take time to explain to her what she had done.

And while the nasty incident was an unfortunate blight on this important round, he hoped it would serve as an important lesson and talking point for the community about the importance of respect for Aboriginal people.

She did apologise. He did explain. And now we’re talking.

Professor Chris Styles is Deputy Dean and Director at Australian Graduate School of Management. This article first appeared on The Drum.

Dale Boccabella

There can be no dispute with last week’s call from the Business Council of Australia for meaningful tax reform. This is a larger issue than both the looming budget and September’s election.

However, it is harder to reach agreement on precisely what areas need reforming, and what that reform should be.

The reason for dispute comes back to two basic things; namely, what is a fair allocation of the tax burden and how should the tax system promote economic growth? It’s which of these goals should be the top priority that is at the centre of substantial tension.

If economic growth is the main criterion, most observers accept the continued presence of a number of inefficient and highly distortionary state and territory taxes is unacceptable.

The Henry Review was scathing of many of these. Stamp duties on real estate are the most damaging, mainly because of their magnitude. But removing these or reducing their current levels will prove very difficult because the revenue raised is badly needed by the states.

It needs to be remembered that the poor state of federal-state financial relations will continue to influence the states’ approach to their revenue raising. The fiasco around some states increasing their mining royalties in light of the credit mechanism under the mining tax, is a recent example.

Addressing this poor relationship is not just about getting a fair division of the GST revenue between the states. Finding a long-term solution also requires a fair way of sharing income tax between the states and the federal government. It should also be remembered that the parlous financial position of local councils is also a sub-theme of federal-state financial relations.

A relatively high corporate tax rate is also said to make Australia a less desirable place for foreign investment, thereby dampening economic growth. And relatively high personal tax rates are said to discourage work and effort, and in some cases, lead to a “brain drain”.

Fairness in the tax system is a major area of focus for many. The “tax mix” switch is probably the major point of dispute. The GST rate is set at 10%, and changing this requires rare political consensus across party lines.

By international standards, the GST rate is relatively low. This means that Australia’s main consumption tax has reduced capacity for revenue raising, which in turn means that the income tax has to shoulder more of the revenue raising burden. The tax base of the GST is also less than comprehensive, as basic food is excluded.

But many argue we need to keep income taxes down to promote overseas investment in Australia and provide incentives to work. Our corporate tax rate is much higher than that of many other countries in our region.

Increasing the GST rate and thereby allowing income taxes to fall would partly address this. At the same time though, increasing the rate of the GST compounds the unfairness of the flat consumption tax, and one can never be certain of the sustainability of compensation measures.

Within our income tax, there are a number of areas that can be seen as an affront to fairness. The main ones are largely open-ended tax concessions for superannuation; open-ended exemption for gains on the family home and the 50% discount for capital gains of individuals.

Also, I would argue you could include in this list the income splitting of property and business income that is readily available through the use of family discretionary trusts, and to a lesser extent through family partnerships and companies.

I welcome the BCA’s call to start with “everything on the table”. This is the only way to subject all tax measures to scrutiny so that tax preferences are justified. I am not so sure though that we need another “tax review process”; there is sufficient data available through the numerous tax reviews and other commissioned work to support a genuine and honest community debate and discussion about our tax system.

The obvious problem is that the “everything on the table” debate does not start with a clean tax slate (with the tax system being designed from scratch). Instead, we have had, and need, a functioning tax regime in place.

This means we all come to the debate “with baggage”, and in particular, aspirations for the continued preferential treatment of an area and/or removal of preferences in some areas.

The history of tax reform in Australia is that sectors do not readily come to an “everything on the table” debate, and in particular, giving up preferences previously won.

We do not have to look too hard for examples of this (such as the unwillingness of the mining and forestry sector to give up accelerated depreciation for a lower corporate tax rate, or the hysteria whenever tax on the family home – or death duties – are raised).

If organisations like the BCA really want an all-inclusive, open and honest debate about tax reform, their focus should really be on bringing divergent sectors to an “everything on the table” debate.

Part of this is thinking of a way or ways of taking the politics out of tax, or at least reducing the effect of political operatives on the debate. This may be asking too much.

But, taking the misinformation and some of the emotion that seems to necessarily go with taxes out, would increase the chances of an all-inclusive, open and informed debate on tax reform. This is necessary for a long-term sustainable and stable tax system.

Dale Boccabella is an Associate Professor of Taxation Law at the Australian School of Business.