Professor Raja Junankar

Any plans to fast track US migrants for the construction and mining industries won’t help these industries find workers – because few people using a 457 work in mining, and most of them don’t come from the US anyway.

The Australian Government has announced it is going to fast track the assessment process for skilled workers. Under the agreement, US workers will able to complete a skills assessment before coming to Australia. The change will speed up the process of approving 457 visas. However I feel Chris Evans’ announcement about relaxing the rules for the 457 visa for US citizens seems to have missed the point – it appears an odd, short-sighted decision.

If there is really a shortage in workers due to the mining boom, then we should look at bringing in more plumbers and electricians, whereas the 457 visas mainly go to professionals.

Looking at the data on the ‘class 457’ visas, in 2011 72% of class 457 visas went to managers and professionals, and only 21% to trades and technicians. He says “The Australian states that received the vast majority of class 457 visa applicants was in New South Wales – which isn’t known as a big mining area. WA gained 23%, and Victoria 20%. Not Queensland, or the Northern Territory.

Also, look at how much they are earning. Wages for professionals are rising strongly, unlike those for non-professionals such as tradies: electricians, plumbers and the like. Certainly in the mining states such as Queensland, there is no increase in wages, compared with other states. This goes against what the miners are telling us – if there was a shortage, surely we would see wages go up.

The data for the 457 visas seems to go against what we are told they are for. The 3 main industries getting 457 visas are construction, health services and ‘other services’: nothing connected to mining. Also if we look at where people have come from that get a 457, the list in order is the UK, India, Ireland and then at 4^th, the USA. So we have to look at why the USA has been singled out to be fast-tracked, and the only conclusion I can come to is that it has nothing to do with demand, but is just down to being nice to the US. If the government really wanted to help mining companies they would help the UK, Ireland and India too.

We are told that fast tracked Americans will get mining jobs, doing the fly-in fly-out rotation, often from the US. But this seems a little odd – most of the jobs in mining are in very difficult conditions, and workers will not fly from the US to take them for a fortnight and then fly back. The USA market is also depressed, but not that many people will want to move over to take a job in a remote area. It just seems like the wrong move to make.

Professor Raja Junankar is a Professorial Visiting Fellow in Economics at the Australian School of Business.

 Professor Chris Jackson

How you answer the phone may influence your chance of a pay rise, your promotion and even your overall career prospects. Here at UNSW we have recently conducted a study which has analysed the personality traits and biological and environmental factors that predict so-called “career maverickism”.

Workers who lift the receiver to their left ear are more likely to be mavericks that bend the rules and foster new ideas, impressing their bosses, and moving up the career ladder much faster. It is important to foster better ways of working in organisations; working smarter, not harder, by doing things in a more efficient way. Those who break the rules and ‘just get things done’ are much better people to have working for you, if you are interested in the bottom line.

The study, based on 458 workers, found that managers can spot “mavericks” simply by assessing how they answered the phone. It details how those who hold the receiver to their left ear denote a preference for using the right side of the brain, which is associated with creative, problem-solving activities.

I’ve noticed that the GFC means that businesses are increasingly reliant on the skills of internal rule-breakers. Australia may have sailed through the global downturn, but there are still firms out there doing it tough. Firms need to be aggressive and competitive in the global market place. They want workers who don’t do it the same way ‘because that’s the way we’ve always done it’. They don’t want people who are cautious, safe or conservative. Maverick employees have been popularly described as independent thinkers, creative problem solvers, quick decision makers, and goal-oriented individuals. It’s all about avoiding ‘group-think’, encouraging workers to be creative and giving them just an extra bit of room to take measured risks.

The research also shows there is a drawback for people who can’t stop breaking the rules. They tend to be poor team players and are generally unpopular. They rub people up the wrong way. You need a manager with vision who can pick up on their insights, and not be put off by the way they do things. In some jobs what may be seen as dysfunctional behaviour, like risk-taking, is crucial.

Interestingly, men are more prone to “maverickism” than women – which I think suggests a further area for productive study.

There are several icons in the business world who don’t follow the rules – and who make great role models.

Just think of people like Richard Branson, Steve Jobs, or Michael Crouch, who has established a Chair in Innovation at the Australian School of Business. He started Zip Industries because he thought that instead of selling what everybody else sold – because it was much easier to sell – he came up with a new product that actually did what people wanted – give instant hot water. Mavericks are good at perseverance and overcoming hurdles.

They are good for businesses and good for Australia.

Chris Jackson is a Professor of Business Psychology in the School of Organisation and Management.

Robert Deutsch

The recent furore regarding the passing of the mining tax is a good reason to refocus attention on some important statistics relating to the mining industry in Australia.

Perhaps of most interest is the breakdown of iron ore and coal production across the states and territories of Australia. In this context one needs recall that the mining tax will specifically apply only to iron ore and coal and to a very limited extent to gas that is incidentally extracted as part of the process of extracting iron ore and coal. Left out of the equation are other minerals, in particular precious metals such as gold and silver and base metals like copper, lead and tin.”

When one examines the statistics a number of interesting features emerge:

• The overall value of minerals extracted in 2011 is in the order of $158 billion.
• Of that total approximately $110 billion is from iron ore and copper and $48 billion is from all other metals.
• In relation to iron ore the equation is very heavily weighted towards Western Australia where of the $66 billion of value extracted nationally $65 billion of it is in Western Australia.
• Surprisingly of the other four states which have sizeable iron ore deposits, the largest extraction and therefore the strongest effect of the mining tax will occur in Tasmania where something in the order of $340 million of iron ore value was extracted in 2011.
• Coal is responsible for $44 billion of the total value of minerals extracted in 2011 and perhaps most surprisingly the two largest States in this context are Queensland ($23 billion) and New South Wales ($20 billion). Western Australia has a relatively small coal extraction industry with only $495 million.
• Focusing on the total for iron ore and coal, it is readily apparent that the State most directly affected by the mining tax by a significant margin will be Western Australia with a total production value across iron ore and coal of $65.8 billion. The second most directly affected will be Queensland ($24 billion) and New South Wales ( $20 billion – coal assets only).
• Interestingly, Victoria is entirely unaffected by the mining tax with neither iron ore nor coal mining present.

All these statistics carry with them a number of messages that are relevant to the breadth and operation of the recently enacted mining tax.

First and perhaps most importantly since iron ore and coal make up the bulk of the value of all minerals in Australia any argument to extend the mining tax will in revenue terms have only a very marginal consequence. In this regard precious metals represents the largest component but even that in comparison to iron ore and coal is a very small amount ( ie $14 billion).

Secondly, the impact of the mining tax as currently drafted is most likely to have the greatest force in Western Australia and to a lesser extent in Queensland but the importance of the coalmining operations in New South Wales, which are significant, has largely been overlooked in most of the discussion.

Thirdly, the negative implications of the mining tax will largely be unnoticed in Victoria, South Australia and the Northern Territory.

The other interesting aspect of the recently released statistics is that in Australia there are currently somewhere in the order of 61 major developed mines spread throughout the country but with a large concentration in Western Australia, Queensland and New South Wales. Of these 61 major mines 17 are controlled by BHP-Billiton, 19 by Rio Tinto, 10 by Xstrata and 7 other companies (e.g. Newmont and Newcrest) control the others.

This highlights the fact that the amount of the mining tax which will or will not be paid by BHP and Rio Tinto will be critical to determining the overall take from the mining tax.

Professor Robert Deutsch is a professor of taxation at the Australian School of Business.

Vic Edwards

The Australian dollar has fallen almost one US cent on fears that China could be about to witness a sharp economic contraction. China’s National Bureau of Statistics on Tuesday showed profits in the country’s industrial sector fell 5.2 per cent in the first two months of 2012.

Although the World Bank has played down fears of a hard landing in China, the dynamics of Australia’s relations with China are undergoing a rapid process of change, and this will reshape international and foreign policy between our two countries. This comes as China prepares its 12th Five Year Plan – an unstable time for its economy.

China’s growth this year is below last year’s level as weakening external demand has hurt investment and exports. Very poor Chinese manufacturing data shows it is at a 32 month low. Alas, contagion from Europe is impacting China, and that is causing pressure on Australia.

China is the world’s biggest energy consumer and steelmaker. And yet fuel prices are rising for the second time in less than six weeks and the nation’s steel production is slowing. The World Bank has forecast that inflation will fall further, down from the 37 month high of 6.5 per cent in July, as its economy slows.

The world’s second largest economy fell heavily into the red last month after running huge trade surpluses for much of the past 10 years. A surge in imports saw the country post a US$31 billion trade deficit, which follows a string of other disappointing economic data, including weak car sales which may miss industry forecasts this year as economic growth slows to 7.5%, the lowest since 2005.

A blow-out in China’s trade deficit raises concerns about the country’s future economic growth, raising questions about whether the country’s economy is tailing off more rapidly than anticipated. The only bright economic star was that inflation slackened more rapidly than expected.

The overall results prompted analysts to predict that China will ease monetary policy over the coming months to bolster growth—but few expect a package remotely on the scale of the stimulus spending and lending that occurred in 2009 and 2010 in response to the global financial crisis. The market treats 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. However the recent $30 billion swap agreement between Australia and China augurs well for bilateral trade and investment between the two countries over the next few years and may set things back on track for free trade agreement discussions. 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 India.

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

Knowledge@Australian School of Business is a free online business publication produced in partnership with the Wharton School of the University of Pennsylvania.

The multi-award winning publication captures the latest business intelligence generated at the Australian School of Business and the Wharton School – through research, conferences, published papers, interviews and more – and distributes it online to a global business audience across 200 countries.

Help spread Knowledge
Please encourage your friends, colleagues and family members to sign up to receive the fortnightly newsletter and join the K@ASB community of over 300,000 business professionals.

http://knowledge.asb.unsw.edu.au/signup.cfm

Robert Deutsch

The mining tax that contributed to Kevin Rudd’s downfall has now passed the Senate: however the question is if the debate and angst expressed in response to the passing of the mining tax is actually justified.

 The reality is with the compromise deal the government was forced into, the Bill that has passed through Parliament is a very much watered-down version of what was originally anticipated by the Henry report in 2010 – just look at the narrow focus on iron ore and coal to the exclusion of other minerals.

Coal and iron ore miners will now have three taxation regimes: company income tax, ad valorem mine production royalties and now a new resource rent tax on profits that will be calculated quite differently to the other two.

To suggest that Australia is somehow unusual in this area is misleading as almost every country with substantial natural resources has worked frenetically over recent years to introduce similar measures. These measures have similar motivations, namely to prevent the extraction and utilisation of non-renewable resources without adequate compensation for the broader community. This increases taxation which makes additional funds available for other unrelated non-mining activities.

Instead of an overall tax at 40 per cent as the Henry review proposed, the tax is now 30 per cent, and with a cut of a quarter for an “extraction allowance” reduces the effective rate to 22.5 per cent. The tax is also only levied on coal and iron ore and only on profits above $75 million, so it doesn’t replace state royalties as originally proposed by the Henry review.

Of course other countries have implemented their own version of the mining tax:

Brazil levies a specific mining tax on aluminium, manganese and potassium (3%); iron ore, coal and certain other mineral substances (2%); gold (1%) and other precious metals (0.2%).

India levies a mineral tax which is imposed at rates ranging from 0.2% to 20% depending on the type of mineral and a mining royalty is also payable to State governments, the amount depending on the type of mineral involved.

South Africa imposes a secondary tax on companies in the mining sector which is 10% of the dividends which are distributed by such companies. Royalties are also payable on minerals classified as either refined or unrefined with the payments calculated in terms of a set formula. The royalty rates vary by the level of refinement – the royalty rate on unrefined minerals are set at a maximum of 7% and for refined materials at a maximum of 12%.

Russia subjects companies to minerals resource extraction tax levied at rates ranging from 3.8 to 8% based on the value of the extracted mineral. The tax is calculated by reference to the quantity of minerals extracted multiplied by their sales price with some adjustments.

In Canada each province imposes its own mining tax under systems that vary significantly with applicable rates varying from 10 to 16%.

In Kazakhstan there is a separate mineral extraction tax which is levied on the cost of produced volumes of minerals. The current rates for such minerals are fixed depending on the type of mineral extracted but it is applied to the value of the produced mineral where value is based on the world price of such minerals. There is also a general excess profits tax which subjects certain profits beyond a base to progressive rates of tax ranging from 0 to 60%.

Added to this are proposed new mining tax arrangements in Indonesia, Ghana, Guinea, Namibia, Zimbabwe, Nigeria, Mongolia, Peru, the Democratic Republic of Congo, Chile, Zambia and of course China. In addition South Africa apart from the measures referred to above is currently debating a 50% windfall tax on super profits and a 50% capital gains tax on the sale of mining tenements.

What this short world tour has demonstrated I hope is that the attempt to extract tax from the utilisation of non-renewable resources is not a narrow Australian phenomenon.

Although the rates and methodology for imposing the tax vary greatly and it may well be that after careful analysis one jurisdiction is somewhat more favourable for mining than another, it is unlikely that companies would go offshore.

The idea that somehow those mining companies operating in Australia currently will pack up their tents and move offshore as a result of the introduction of the mining tax is to a large extent fanciful. The inevitable question is where would they go? Our main competitors in relation to the two critical areas where the Australian mining tax will apply (iron ore and coal) also have in place mining taxes and some are looking at the introduction of further taxes which go way beyond what has been successfully passed in Australia. With a more ingenious implementation more revenue would have been generated for the state, and still with no danger of any businesses moving overseas.

Professor Robert Deutsch is a professor of taxation at the Australian School of Business.

This article first appeared in the Australian Financial Review.

Professor John Piggott

Should superannuation portfolio allocations be adjusted with age to reduce the financial exposure of senior Australians to stock-market crashes?

Certainly, I feel it is essential to take age and wealth into account in deciding on an individual’s asset allocations, including the government-mandated low-cost MySuper.

The architect of the federal government’s superannuation reforms, ­Jeremy Cooper, has commented today that stock-market crashes indicate fund managers should invest more in bonds, particularly for members nearing retirement who have less time to recoup losses. He highlights the way baby boomers that were just about to enter retirement lost a lot of wealth during the 2008-09 stock market crash, when the ASX 200 fell about 50 per cent.

I agree. Australian superannuation is constituted to a very unusual design and we rely very heavily on self-funded or privately funded superannuation to provide retirement income, much more heavily than most other countries. We need to be especially aware of the connection between an individual’s circumstances and the portfolio he has in his superannuation fund, and make portfolio allocation as flexible as possible.

Australia is one of many countries that have a rapidly ageing population. However there are few products that provide longevity insurance, which is protection against the risk of individuals living too long, running out of cash and then relying on the state.

We also need to have more superannuation products.

It is probably best early on in life for savers to invest in the stock market – they can ride out the natural peaks and troughs, and gain the benefits of a long term investment. However later on, when workers are approaching retirement, they really need to put their assets in a less volatile investment, such as bonds. If a default system is to be introduced on a mandatory basis then there should be multiple defaults determined by an individual’s age and wealth.

John Piggott is the Director of the ARC Centre of Excellence in Population Ageing Research at the Australian School of Business.

Professor Robert Deutsch

If ever there was any doubt as to the status of Australia’s reputation as the lucky country all doubt appears to have been removed by the recent debate regarding a 1% company tax rate cut for the very narrow sector of small business which is fortunate enough to operate through the medium of a company.

The proposal for those who missed it, is that one of the carrots to compensate for the stick that is the Minerals Resource Rent Tax (the technical name for the mining tax) would be a reduction in the company tax rate from 30% to 29% for incorporated small businesses. The planned start date is 1 July 2012. Small business in this context as currently planned will be defined broadly as any business carried on through a company where the annual turnover is no more than $2 million. According to some estimates this will deliver tax cuts for 720,000 incorporated small businesses out of a total of small businesses conducted through sole tradership’s companies partnerships etc of 2.4 million. The cost to government revenue in the first year is expected to be in the order of $200 million which would in part be funded by a $1.4 billion revenue take from the proposed mining tax based on current estimates.

Let us for a moment look at it from the micro perspective of an incorporated small business rather than from the macro perspective of the government. A business with an annual turnover of $2 million (which is the current proposed upper threshold to qualify as a small business) might reasonably have taxable income of $1 million assuming deductible costs against turnover of $1 million. Tax currently would therefore amount to $300,000 which after the proposed corporate tax reduction would be reduced to $290,000.

Of course all this assumes that the incorporated small business in question is profitable. If it is not, it is unlikely to be paying any tax and accordingly a 1% tax reduction even for such an entity would be meaningless.

Even when looking at profitable incorporated small businesses, most would be lucky to have the numbers suggested in the previous paragraph. More likely the numbers would be half that suggested and thus give rise to net annual savings of only $5000.

Without wishing to belittle the savings that might be achieved, one would have thought that at a micro level they are so marginal as to make almost no difference to the ongoing viability and profitability of most incorporated small businesses.

At a macro level $200 million in costs is a very small hit to a government budget which runs into many many billions. In any event one would think that if the government is to expend some of the yet to be proven revenue from the mining tax, there are far better ways to utilise those funds for the benefit of small business. Perhaps an upfront grant of $5000 to any newly established small business (in whatever form) which employs at least 2 unrelated individuals would be of far more benefit to the individual enterprise and to the economy as a whole, than a miniscule tax cut to existing profitable incorporated small businesses. Based on those numbers this could aid in the establishment of 40,000 new small businesses.

How we can spend so much time and energy arguing about so little is quite remarkable. We are undoubtedly the lucky country if this 1% tax reduction for such a small group occupies our headlines so extensively.

Professor Robert Deutsch is from the School of Taxation and Business Law, Australian School of Business UNSW. This opinion piece first appeared in The Australian on 16 March 2012.

Professor Peter Shergold | CSI blog

Let me begin with an extended apologia.  Actually it has two elements.

First, I plead tardiness – back in October 2011 I wrote a blog on the residential property developer, Stockland as a ‘shared value’ company creating social good (building communities) even as it seeks financial return.  I promised I would soon provide a second Australian example.  So here it is, I hope better late than never.  It’s AMP.

Second, I acknowledge conflict of interest.  I sit on the Board of AMP Ltd, its subsidiary AMP Life and a member of the Audit Committees of both organisations.   That means I understand AMP from the inside.  It also means that I can scarcely pretend to objectivity.  What follows are my personal reflections which, I should emphasise, don’t necessarily reflect the view of AMP.

Financial planners get a bad rap.  Last year’s Roy Morgan ‘Image of Professions’ survey suggested that only 28% of respondents awarded financial planners a high or very high rating for honesty and ethical standards (up from 25% in 2009 and 2010).  To put that score in perspective, car salesmen rated 3%, real estate agents 7%, journalists 11% and Federal politicians 14%.  At the other end of the scale, nurses scored 90%, school teachers 76% and police 69%.

The portrayal of financial planners in the media is often hostile.  The most egregious characterisations present the profession as little more than glorified loan sharks, squeezing from their hapless clients outrageous high fees for self-serving advice.

The inadequacy of the government and the opacity of their financial dealings have fuelled the anger and resentment of Wall Street Movements world-wide.  Financial planners, nearly all whom operate as small and medium community-based enterprises, have become associated with the dubious ethical standards that were displayed by some of the grants of international banking.

I suspect that many blog readers will think it purposeful provocation when I suggest that financial planning might have a positive social value.  Yet I’m not being a political contrarian.  Rather I’m returning to my academic roots as an economic historian.

It’s too rarely remembered now, only a generation after the great wave of demutualisation, that the AMP was born in the Australasian colonies of the mid-nineteenth century as the Australian Mutual Provident Society.  Geoffrey Blainey wrote a fine business history of the company, setting its growth within the fiercely competitive world of friendly societies, mutual benefit associations and cooperatives that were the foundation stone of much nineteenth-century enterprise.

In those days providence (the exercise of foresight in the management of one’s own affairs) was seen as a positive social value.  It was based on the unwavering belief that working people had both the responsibility and capacity to look after themselves.  By lives of exertion, punctuality and thrift the ‘deserving poor’ could become self-reliant.  Through frugality, without government assistance or charity, they could provide for the future needs of their families.

The means to achieve that was through mutualisation.  AMP – and other great institutions like National Mutual Life Assurance and Temperance and General (now both part of AMP’s corporate genetics) – were run on the view that ordinary working people possessed collectively the power to control their lives and care for themselves.  Those who paid subscriptions for protection were members of the businesses they ran.  Surpluses were reinvested for their mutual benefit.

One key to this remarkable ambition was what today we would call financial planning.  The ‘mutuals’ provided life assurance, income protection and deferred annuities.  They issued endowments for children and made loans available on the security of the policies held.   Friendly societies offered reimbursement of medical expenses or, failing that, the cost of a funeral.   The broad sweep of wealth management (to use contemporary jargon) was perceived to have social purpose.  Those who provided it were driven by a sense of social mission.

Today AMP is one of Australia’s top investing publicly-listed companies, with 980,000 shareholders, around 6,000 employees, 2,900 self-employed and employed financial planners and relationships with a further 6,000 independent financial advisers.  It provides planning advice, superannuation, income protection, life assurance, banking products and investment (including shared, fixed interest, property and infrastructure). It’s a large, modern corporation.  Yet what it offers, in its essence, is not so very different from 150 years ago.

That’s why I am so delighted that the current CEO of AMP, Craig Dunn, in addressing employees and financial planners, has restored that sense of societal value in espousing the ‘noble purpose’ of what they do.

It captures the sense that AMP has the capacity to make a positive social impact even as it seeks to maximise the long-term value to its policy-holders and shareholders.

I see at least four ways in which AMP (as an institution) and financial planners (as a profession) have the capacity to deliver societal value.

First, by helping Australians and New Zealanders take personal responsibility for the financial security of their families.  AMP is not a business that accepts that the challenge of solving social problems – of creating social impact – resides solely with government.

Second, by making the opportunities for building financial security as accessible as possible, catering to those with modest incomes not just those who have accumulated high net worth.   AMP needs to provide low-cost entry to superannuation.

Third, by recognising that AMP contributes directly to the public good and civil society.  It does so, for example, by reducing pressure on publicly-funded retirement savings and by investing capital assets in building Australia’s productive infrastructure.

Fourth, by emphasising the integrity of its corporate behaviours and transparency of actions, AMP can help to restore faith in the market economy (generally) and the responsibility of our financial institutions (particularly).

In the nineteenth century AMP’s mission was ‘to be a sure friend in uncertain times’.  Today, in more contemporary language, it is committed to ‘helping people own their own tomorrow’.  Both statements, appropriately pursued, have the potential to create societal value in pursuit of investor returns, underlying profits and shareholder dividends.

This, at least, is the message that I’ve now twice had the opportunity to deliver to senior executives at AMP.  If you would like to read the longer version of my address to them it’s now available.

I’d welcome your comments.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI blog.