THE DISTILLERY: Mining fiscal fallout

The commentariat challenges the idea that the mining boom has ended, and recommends Martin Parkinson's proposed tax reforms.

Secretary to the Treasury Martin Parkinson is front-and-centre of two commentaries this morning from two of this country’s greatest economics writers. One challenges the suggestion that the mining boom is over, while the other debunks the idea that the states are the victim of a vertical fiscal imbalance. Also in this blended shot from The Distillery, BHP Billiton is jumping on an increasingly crowded corporate bond train, while Optus is getting on top of customer disloyalty.

But first, Fairfax’s Ross Gittins picks up the recently dropped discussion of what constitutes the end of the resources boom and repeats the observations by Dr Ferguson. Simply, Asia’s rise as an economic region is happening too quickly for our boom to end.

"We're greatly affected because of our proximity, but also because our economy is so complementary to the emerging Asian economies. We have in abundance what they need in abundance: primary commodities. Their need for our raw materials will roll on for decades yet, driven by the likes of Indonesia as it transforms itself from the world's fourth most populous country to its fourth richest. This raises the final reason the mining boom shouldn't be lightly dismissed. As Parkinson reminded us last week, it's just the first wave of change arising from the Asian century. Next comes the rural boom as global demand for agricultural produce surges. The third wave is the global growth in the middle class – from half a billion to more than 3 billion souls – with its growing demand for better services, goods and experiences. Just another passing boom?”

The observation about Indonesia is particularly apt. The Australian’s Asia Pacific editor Rowan Callick emphasises the lack of engagement with a handful of Asian nations beyond China, particularly Indonesia. Come on, it’s right above us.

Similarly, The Australian Financial Review’s economics editor Alan Mitchell is on Dr Parkinson this morning, with a discussion about federal and state tax policy.

"Martin Parkinson’s proposal for expanded state land and payroll taxes is worth pursuing. As the Treasury secretary makes clear, none of the major political parties will agree to increase the GST on the states’ behalf. If the states need money, reformed payroll and land taxes would do less damage to the economy than the other taxes at their disposal. Payroll tax, which was given to the states as a ‘growth tax’, is a close cousin of the GST, and a properly designed land tax is one of the least distorting taxes available to any government. Moreover, raising more money from these taxes could result in less spending by state governments in the longer term.”

Mitchell goes on to debunk the myth that Australia’s premiers are the victim of our vertical fiscal imbalance, adding that what better arrangement could you imagine as a premier for the commonwealth to do the bulk of the revenue raising while you do half the spending.

Meanwhile, Business Spectator’s Cliona O’Dowd explains how BHP Billiton’s first domestic corporate bond offering in 10 years is part of growing trend towards blue chip bonds.

"In the wake of the global financial crisis, banks around the globe have been subjected to greater restrictions and capital adequacy requirements. But for companies looking to raise capital from banks, using them as a source of funding has suddenly become much less attractive. According to a recent analysis by Ernst and Young, in the six months to June 30 there was a 29 per cent increase in the amount raised by corporate bonds on a global level. In dollar terms, it jumped from $46 billion to $59 billion in the six-month period, and was the largest growth area of capital raising. Meanwhile, government bonds the world over have lost their appeal since the global financial crisis. For now, blue chip bonds are seen as one of the best investments – providing a decent reward for moderate risk.”

And The Australian Financial Review’s Chanticleer columnist Tony Boyd has a great piece on the work being done by Optus to treat consumers more equitably, led by consumer business boss Kevin Russell.

"Recent research done for Optus in relation to customer loyalty and advocacy showed that the telco industry had much worse ratings on both these measures than the financial services industry. Advocacy was negative for telcos and utilities. In fact, Optus managing director of the customer division, Vicki Brady, revealed yesterday that she had seen research showing advocacy ratings for telcos of minus 20 to minus 30. Russell has made net promoter scores, which is a measure of customer satisfaction and customer willingness to recommend your product to others, as the key performance indicator of Optus staff. It has taken the telco industry about a decade to come to the realisation that it needs to treat customers fairly and not to use confusing and complex plans to extract excess profits. That strategy is untenable now that the total revenue in the mobile market in Australia is declining. Optus says the mobile market went ex-growth in the June quarter of this year."

Also in company news, The Australian’s Bryan Frith says a bidding war could open up for Acer Energy between Senex Energy and Drillsearch.

Meanwhile, The Australian’s John Durie writes that Australian boards have heard the call for greater representation of women, but ethnic and age diversity are being pretty much ignored. His colleague Richard Gluyas points out there’s still a way to go for women representation as well.

Fairfax’s Malcolm Maiden has perhaps the most comprehensive rundown of the Reserve Bank’s bribery scandal from an Australian business commentator to date. Fairfax newspapers have led the charge on this issue that is not getting enough attention – when you consider the drubbing that NBN Co chief Mike Quigley seems to come in for.

Fairfax’s Michael Pascoe enlightens his readers to the other side of banking that we seldom hear about because of the focus on mortgages – deposits.

The Australian Financial Review’s Matthew Stevens is disappointed by the Queensland government’s decision to go down the road of New South Wales in opening exploration permits up to bidding.

And finally, Fairfax’s Adele Ferguson explains how Cabcharge is on the edge of its seat with the taxi industry for the Victorian government’s response to the final report on the sector.

The key recommendation is to slash the cost of a taxi licence from $500,000 to $20,000 to aid competition.

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