Support for resources super-profits tax bound to fade away.John...

Support for resources super-profits tax bound to fade away.

John Durie From: The Australian May 27, 2010 12:59PM

PRIME Minister Kevin Rudd is likely to fail in his attempts to drum up business support for his mining tax, for the simple reason that benefits to other businesses are minor and so long-dated as to appear almost meaningless in the face of the real sovereign-risk issues raised by the handing of the tax.

Rudd reportedly is seeking help from the superannuation industry, given it is allegedly a beneficiary because he is lifting the compulsory contribution levy. The PM proposes the levy should rise from 9 per cent to 12 per cent, over eight years from 2013-14.

That is a lifetime away, as is the phased company tax reduction from 36 per cent to 34 per cent, which in the scheme of things, while welcome, will almost be irrelevant in a few years.

In actual fact, the dinner at the Lodge this week included industry fund representatives, with no representation from the so called dark side, being AMP, Colonial and others.

In this context, the support being sought was more from within the club than the wider business community.

Increased savings is great, but most big and small employers see the increased levy as simply adding to their wages bill, so Rudd is not actually delivering a bonanza.

If he really wanted to help the superannuation industry, he would open up the default market by outlawing the practice by which union members who do not nominate default funds see their money automatically diverted into the relevant industry fund.

This is an extraordinarily effective distribution system, which as a guide directs $133 billion into industry funds hands compared to the $305bn which goes into the retail fund network.

Breaking this barrier would deliver the economies of scale Jeremy Cooper wants and in the process cut fees to deliver cheaper superannuation.

But somehow such reform seems a distant hope.

Business also worries about the process by which the mining-tax plan was delivered, which was an unmitigated disaster.

Senior business figures report being told by senior ministers that the tax was under consideration but there would be full consultation and nothing would come before the election, and then out of nowhere came Kevins surprise packet.

No industry sector is going to come out to support him, given the real sovereign risk issues raised by his approach, and out of fear that they might be the next to be hit whenever the moment suits Rudd.

The concept of the tax is obviously widely supported by business but Rudd killed of any hope of support by his dim-witted execution.

The bottom line then is simply this - Rudd's tax has created real costs in the way it was unveiled and will increase costs for everyone if implemented, while the accompanying benefits are minor, and therefore his chances of getting support are nil.

http://www.theaustralian.com.au/business/opinion/support-for-resources-super-profits-tax-bound-to-fade-away/story-e6frg9io-1225872048567