Assumption of China's growth makes investors wary
By ADELE FERGUSON | smh.com.au | 06 May
Day three of the Henry tax review hustings and retail investors have slammed the reforms as bad for the sharemarket and criticised the Rudd government's decision to adopt so few of the 138 proposals.
These findings came on a day when the overall sharemarket was down 1.3 per cent, as miners, consultants and analysts continued to condemn the proposal to introduce a 40 per cent resource tax.
The latest Investor Pulse survey by the market research group Colmar Brunton and BusinessDay indicates that 65 per cent of investors believe the proposed reforms assume too much about China's continuing growth and demand for resources. A massive 75 per cent believe the government's promise to channel a portion of the estimated $9 billion a year raised from the resources tax into a new infrastructure fund is not enough.
The survey has thrown up a surprising result. A slim majority of 53 per cent supported the government's resource super profit tax on the basis that the cuts to company tax would keep the economy more balanced and that all Australians owned the minerals our miners export.
Interestingly, the share price of companies including BHP Billiton, Rio Tinto and Fortescue Metals rose yesterday, after falling in the two previous days.
The survey also showed that 53 per cent don't buy the argument that the resources tax will chase mining companies such as BHP Billiton and Rio Tinto overseas.
This is based on the belief that Australia is economically secure, politically safe and has a well-educated workforce. They also believe the miners have easy access to China that they can't get elsewhere.
It seems the government's plan for spending the proceeds of the resources tax is crucial to investors support. Foremost among the reasons for endorsement was the cut to company tax rates, with 87 per cent in favour. Another 57 per cent supported the increase in the superannuation guarantee from 9 per cent to 12 per cent because they saw it increasing the superannuation pool and decreasing company access to equity capital.
Most (84 per cent) also agreed with the small business tax reforms including increased options for write-offs and depreciation.
However, only 36 per cent say the government's adopted measures were good for the sharemarket. These figures suggest that although the government has mashed together a very limited set of policy options from the review, it understands the politics with great precision.
On the wider Henry review and the many ideas that have so far been ignored or discarded by the government, investors were most positive about raising the tax-free threshold to $25,000 and using a two-step scale thereafter. Second was cutting bank account tax rates so that they are competitive with superannuation. A distant third was reversing the Howard government's cuts to capital gains on shares.
Reflecting the problem that too much of Australians' savings are tied up in housing, last was any suggestion that capital gains tax should be increased on the family home. This result was bolstered by 15 per cent agreeing that the tax changes were more likely to make them consider buying an investment property. Tax reform in housing may spark a revolution.
However, before the Rudd government begins popping the champagne corks, there are also results in the survey that suggest the limited application of Henry's vision have cost the government. Almost half agreed with the statement that the Rudd government had wasted everyone's time and money by accepting less than 10 of the 138 proposals. Another 19 per cent thought Rudd was squibbing sensible economic reform and 65 per cent thought the reforms were too dependent on China's continuing growth and demand for resources.
Most worryingly, despite their support for the resource tax, 46 per cent supported the government's narrow application of the review, suggesting the Rudd strategy of shifting from broad to narrow economic reform is costing the government votes from investors.
First published by Smh.com.au on May 06 2010
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