THE DISTILLERY: Budget stuffing

One commentator shows just how creative Canberra is becoming with corporate tax in its quest for a budget surplus.

Treasurer Wayne Swan’s Mid-Year Economic and Fiscal Outlook demonstrated, if anything, that in order to bring the budget back into surplus the government is willing to muster some creativity. But while the MYEFO is a clinic in short-termism, Labor’s efforts to increase the Australian Taxation Office’s take from corporate Australia have been apparent almost since they won office in 2007. The Age’s Adele Ferguson shows just how creative the government is getting on corporate tax revenue, with the ATO piloting a program that would effectively ask corporations to ‘out’ themselves when uncertainty arises internally about a taxation matter. Regardless of what happens, Australia’s corporate tax take should remain reasonably healthy, particularly, as one business writer explains, from Rio Tinto.

We start Monday’s Distillery with The Age’s Adele Ferguson, who explains how the government is using a number of strategies to fill the hole in the budget.

"One of the most powerful and insidious is the introduction of a new Reportable Tax Position system, which requires companies to alert the Tax Office to any tax decisions that involved debate and are therefore contestable, or face jail time. It is currently in its pilot phase, with the Tax Office still developing the schedule in consultation with accountants and businesses, but it will be introduced on a wider scale over the next few years. The latest Tax Office bulletin, released late last week, reveals that 56 companies have been sent a schedule to take part in the pilot program of this system. These guinea pigs – which include some of the biggest companies on the Australian Securities Exchange, global companies and private equity operators – will get a taste of things to come, because they will be required to blow the whistle on themselves.”

Secondly, as 2011 draws to a close, expect a number of business writers to begin speculating about what could happen in 2012; some of them might even throw in a solid prediction or two. The Australian’s Matthew Stevens kicks off this annual period of prophecies with some thoughts about which Australian mining major will take the honours next year.

"The point is that Europe's sovereign debt crisis and the impact it is having – and will continue to have on broader capital markets and the fabric of the continental banking system – will have a material impact on the shape of a global resources market that was already set for profound change through FY12. When Marius Kloppers made his precocious bid for Rio in 2007, he talked up the idea of creating a super-major miner. That deal famously fell at a hurdle called GFC I. But the idea lives on and could be made manifest by this latest series of capital markets shocks. And, for my money, the company best suited to take full advantage of the shake-out ahead is not BHP Billiton but Albanese's Rio Tinto. Let me explain my thinking.”

Meanwhile, The Age’s Asian affairs correspondent Peter Cai gets a spot in this morning’s Distillery for offering readers something counter-intuitive. We’re used to hearing about Chinese journalists antagonistic to the Communist Party for a short period of time until they disappear. Not Hu Shuli, founder of China’s enormously influential Caixin Media.

"One of her earliest scoops was the revelation of extensive wrongdoing in China's murky securities industry, in October 2000; she published an explosive story of corruption and collusion within the industry, leaving no stone unturned in the expose. So damaging was the report that 10 of the largest funds in China were forced to take out full-page declarations of innocence in major newspapers. She withstood pressure from government officials to retract her story. Instead she penned a rebuttal that vigorously defended ‘the media's right to scrutinise and the public's right to know’.”

And fourthly, The Sydney Morning Herald’s Paul Sheehan points out that with a spate of tech IPOs starting to fall foul of the market, it’s worth remembering just how bad the last chapter of the global financial crisis was for tech companies in particular.

"Tech Wreck II destroyed trillions of dollars in market value in less than a year during 2007-08. No company was safe. No business model was secure. Google lost 60 per cent of its value during 2008. Microsoft dropped 50 per cent. It is still trading well below its peak of late 2007. Amazon and Dell Computers plunged by two-thirds, while eBay haemorrhaged 70 per cent of its market value and is still trading well below its $US39 peak of four years ago. All these companies were hallowed names brought low by financial chaos.”

Staying with the markets and economy to tick off the rest of the commentaries from this morning and over the weekend, The Australian’s national affairs correspondent, Jennifer Hewett, says the recent relief rally will be a brief episode unless Europe can get its act together. The Sydney Morning Herald’s Ian Verrender explains just how far we have to go. The Herald Sun’s Terry McCrann offer his analysis of global markets, while The Australian’s economics correspondent, David Uren, finds the West urging Asian countries to do more to stimulate their economies.

The Sydney Morning Herald’s Ross Gittins has a real go at business economists attacking the Gillard government for an economically reckless political promise to return the budget to surplus in 2012/13, by claiming these same players weren’t so vocal when the Opposition was being similarly negligent by urging tighter purse strings after Lehman Brothers collapsed. Separately, Gittins asks, quite pointedly, what the government’s mid-year budget update will actually do to the economy, while fellow SMH writer Michael Pascoe points out that little attention was given to Treasurer Wayne Swan's massive reduction to his jobs growth target – although the columnist adds that the number he's reduced it to still isn't bad.

Meanwhile, The Sydney Morning Herald’s Elizabeth Knight believes the risk of an inflation outbreak has eased and, given that the Reserve Bank won’t meet again until February, urges governor Glenn Stevens to consider giving retailers a bit more joy this Christmas.

Staying with Australian news, Fairfax’s Garimpeiro columnist Barry Fitzgerald finds Jason Chang – chief executive of the recently created EMR Capital – talking up investment from China in small to medium-sized miners. Elsewhere, The Australian’s John Durie examines the final, tantalising details before the NBN deal goes through.

And finally in international news, The Australian’s Robin Bromby finds new Peruvian president Ollanta Humala entering a potentially dicey confrontation with global miners, while The Age’s Michael West takes a look at US Republican presidential candidate Ron Paul.

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