ECONOMY

The RBA is concerned by the level of housing credit, particularly in Sydney and Melbourne where house prices have risen by 18 per cent and 13 per cent over the past year respectively.

Growth in housing credit to owner-occupiers had moderated slightly over the preceding six months, while growth in housing credit to investors has increased, although investor loan approvals had declined in February.

Regulators could take drastic action to slow Sydney and Melbourne’s runaway housing markets according to RBA.

The RBA said that the Council of Financial Regulators could clamp down on home loans and “consider further measures if needed” to maintain financial stability.

The council, which includes the Australian Securities and Investments Commission (ASIC), Treasury, and the Australian Prudential Regulation Authority (APRA), would keep a watching brief on the market as it responds to its previous warnings to keep investor loans and interest only loans in check.

According to the minutes, developments need to be kept under review depending on how the system responds to the [previous] measures. In particular, interest-only loans allow investors to take greatest advantage of particular features of the tax system.

Deloitte Access Economics’ quarterly business outlook stated that Australia had overtaken Denmark to become the world’s second-most indebted households in the wake of “dangerously dumb” house prices that were “threatening to blow”.

 

“The seeds of future slowdown are already well and truly sown. The better that NSW looks now, the greater the troubles that this state is storing up for the future,” the outlook warned.

http://www.abc.net.au/news/2017-04-18/reserve-bank-hints-tighter-loan-requirements-likely/8449454  – 18 April

The Australian Government has confirmed in the 2016-17 Budget that from 1 July 2017, GST will be applied to low value imports of goods by Australian consumers.

This follows an announcement made by the Government in August last year and is designed to boost the competitiveness of domestic suppliers who incur GST on sales of low value goods within Australia.

Currently, goods imported into Australia with a customs value that does not exceed $1,000 are not subject to GST. From 1 July 2017, it is proposed that GST will be applicable to goods below this threshold.

Under the proposed legislation for low value goods supplied to consumers in Australia, a ‘vendor registration model’ will apply, which requires registered vendors to collect GST at the point of sale. The new measure will require offshore vendors that have an Australian projected annual turnover of $75,000 or more to register for, collect and remit GST for supplies of low value goods.

The only difference between the supply of goods below and above $1,000 for offshore vendors will be the method of collecting the GST. Goods with a customs value above $1,000 will continue to be stopped at the border and GST charged to the importer.  The importer can either be the Australian customer or the offshore vendor depending upon the terms of trade.

While reaching the same outcome in terms of the amount of GST collected, the different GST collection methods may cause confusion, for instance where individual items are valued under $1,000 but the total cost of the transaction is more than $1,000. Further clarification will be required from the ATO as part of the consultation process on the new measure.

The vendor registration model is in line with the model adopted for the proposed ‘Netflix Tax’, which will require offshore suppliers to register and account for GST on the supply of things other than goods and real property to Australian consumers. The Netflix Tax measures are also intended to apply to offshore vendors from 1 July 2017.

As such, offshore vendors will need to have their systems and processes ready to apply GST to both low value goods and digital products sold to Australian consumers by July next year. More specifically, offshore vendors will need to assess the robustness of their sales systems to ensure that they can accurately identify whether they are selling to an Australian resident consumer.

A consultation period will be held in the lead up to the commencement of the new legislation to assist with clarifying some of the more practical issues associated with the new rules. Further, the Australian Government has stated that these arrangements will be reviewed after two years to ensure they are operating as intended and take account of any international developments.

We recommend that our international clients who sell to Australian consumers start a process now to ensure that they appropriately assess their requirement to register for and charge GST, and that their systems are capable of ensuring compliance with the new legislation by 1 July 2017.

https://www.ato.gov.au/general/new-legislation/in-detail/indirect-taxes/gst/gst-on-low-value-imported-goods/       – Feb 16, 2017

 

 

Policy makers are trying to stimulate the Australian economy which is caught in a disconnect between the trajectory of its key commodity export and a currency that refuses to follow suit.

Iron ore has slumped 30 per cent since Chinese Premier Li Keqiang signalled plans to cut his nation’s steel capacity. The world’s No. 2 economy is Australia’s biggest trading partner and iron ore exports account for more than 3 per cent of gross domestic product down Under. The Aussie dollar, trades around US75 cents currently.

A commodities rebound in iron ore and coking coal surge and boosted earnings at global miners is set to peak this year. “If commodities are falling appreciably and the currency’s not offsetting it, that’s a net tightening in financial conditions and becomes more of a headwind.”
Traders are now pricing in a one-in-five chance the Reserve Bank of Australia will end a pause in September and lower interest rates by a quarter point from the current 1.5 per cent.

That’s a turn away from the consensus view: that policy makers can’t cut for fear of further inflating property prices and household debt; and can’t tighten to contain the housing market because weak employment, record-low wage growth and subdued inflation suggest it would hurt the economy.

http://www.smh.com.au/business/mining-and-resources/australia-bucks-chinadriven-drop-in-iron-ore-20170420-gvooda.html – 21 April, 2017

 

The Australian Taxation Office (ATO) has said it has not seen significant evidence of large multinationals involved in tax evasion.

The ATO made the comment in response to a Freedom of Information request by ABC. The broadcaster said that the ATO’s letter had confirmed that the Office had not conducted any reviews or reports into tax evasion by multinationals, and is not currently considering measures to deal with the issue.

The ATO told ABC that it does “vigorously examine” the tax affairs of multinationals, and would pursue these matters through the courts if necessary to uphold the integrity of Australia’s tax system.

The ATO added that it has a unit to deal with tax evasion, but that the Serious Financial Crime Taskforce deals with tax evasion activities.

http://tax-news.com/news/ATO_Multinationals_Not_Engaging_In_Tax_Evasion____74083.html

25 April, 2017

COMPANY NEWS

If the government pushes ahead with plans to apply GST on all goods sold through the online marketplace, EBay will likely block Australian shoppers from buying goods from overseas.

Goods worth less than $1000, bought from overseas sellers and imported to Australia are currently GST exempt, but Treasurer Scott Morrison wants to apply the 10 per cent tax to all sales from July 1 this year.

Regrettably, the Government’s legislation may force eBay to prevent Australians from buying from foreign sellers. No tax would be paid to Australia and none would be owed. It would raise no revenue, deny Australians access to choice and lessen price competition.

 

According to officials, an eBay ban would not even help local bricks and mortar retailers – who have been lobbying for the tax –  and nor would the tax generate significant revenue, because Australians would simply move to “opaque parts of the internet” where they could buy from online retailers that did not comply with the new rules.

The proposed tax treats online sales platforms like eBay and Amazon as the supplier, meaning they would be responsible for applying the tax but eBay said that it did not own, hold or distribute goods, nor handle payments.

“In reality, buyers use the eBay search engine to find goods and choose which seller to transact with, Deeming eBay to be a seller is a fiction designed by the Government to give the impression of raising revenue.”

The proposed tax rule appear to attract both tax treatments, Goods worth under $1000 having tax applied by the seller while goods worth over $1000 would be shipped tax-free and taxed by Australian customs upon entry to the country.

Shipping companies, including Australia Post and its parcel arm star Track, be made responsible for tax. These companies can require buyers to declare whether a good is new and to nominate a value of the good as part of the pricing of parcel delivery to Australia,” he said.

In its submission, Amazon said GST should be levied on all goods but said it shouldn’t have to collect the tax, agreeing with eBay that shipping companies should be made responsible.

http://www.smh.com.au/business/retail/ebay-threatens-to-block-australian-shoppers-over-gst-20170417-gvmkoe.html – 18 April, 2017

Oil and gas companies have built a $238 billion shield against future resource tax bills through investment in megaprojects such as the Gorgon field, tax statistics show.

Australian Taxation Office figures released show “exploration expenditure” claim­ed by industry players has soared from $970 million in 2003-04 to $238bn last financial year, with the vast bulk run up since 2012.

Companies are allowed to carry the expenditure forward and claim it as a deduction against the Petroleum Resource Rent Tax, which is now under review by the government and the Senate amid plummeting receipts.

Resources rent tax paid by the industry has halved in three years, falling from $1.79bn in 2013-14 to $845m last financial year, the tax statistics show. Of 62 oil and gas projects under way in Australia, only six had any resources rent tax liability.

A review of the matter has been ordered along with a  PRRT review as part of a wider probe into corporate tax avoidance that has galvanised crossbenchers to demand tweaks that bolster revenue.

The new figures follow hot on the heels of concerns over corporate tax minimisation in the oil and gas industry in general flagged by the Australian Taxation Office in its submission to the Senate inquiry.

Industry players are unanimous that the tax is working as intended and have warned that any changes might scare off future ­investment.

http://www.theaustralian.com.au/business/mining-energy/oil-companies-build-238bn-future-tax-buffer/news-story/94a63de41ee79f31626a6ed54729ab66   – 12 April

SUPER FUND

In the first quarter of the year, Australian superannuation funds have benefited from booming markets, but analysts warn the country’s fragile housing market “may be due for a correction” that could spoil investment returns.

The most commonly held type of super fund in Australia gained 1.5 per cent over March, bringing the total gains for the first quarter to a healthy 2.5 per cent.

Despite a slight negative return in January, global equity markets have roared to life on the signs of improving economic data and consistent signs inflation will continue to rise. With bonds selling off, investors have been ploughing money into share ­markets across the globe, pushing equity prices higher.

“The rotation into equities has been a consistent theme since October last year, with yields moving off historic lows and shares pushing ever higher,” Super Ratings chairman Jeff Bresnahan said.

The Australian share market has benefited greatly from the so-called Trump trade, so far. Over March, local shares galloped 3.3 per cent higher. Over the past 12 months, the local stock market is up a “non-trivial” 20.5 per cent.

While the rising markets have so far been welcomed by investors and super savers alike, recent signs have indicated the rally may have got ahead of itself. Rate rise expectations from the US Federal Reserve, a proxy for the expected pace of economic growth and inflation have continued to be revised lower.

Bond yields have also plunged while the price of gold has surged amid a retreat to safe assets.

Financial regulators have been sounding the alarm on deep imbalances in the Australian housing market, with a focus on loose lending standards, exploding household debt and extreme rates of higher-risk investor loans.

The main threats to fundamentals come from the interrelated issues of low wage growth and rising house prices, especially in the Melbourne and Sydney markets.

http://www.theaustralian.com.au/business/financial-services/super-funds-shine-but-housing-market-looks-uncertain/news-story/1f35659fd489274089f35b6a30144679

– 21 April, 2017

INTERNATIONAL

 

A group of five Australian business associations has published a factsheet on the benefits of free trade, which argues that tariff cuts have made the average family up to AUD3,900 (USD2,940) better off each year.

The factsheet was prepared by the Australian Chamber of Commerce and Industry, the Australian Petroleum Production and Exploration Association, the Business Council of Australia, the Minerals Council of Australia, and the National Farmers Federation.

According to the factsheet, tariff cuts have boosted Australia’s GDP by 2.5 to 3.5 percent. It said that Australia’s international trade was worth AUD662bn in 2015-16, with 2.7 million Australian jobs reliant upon trade. It also stated that Australian exporters pay employees 11.5 percent more on average than non-exporters.

The factsheet argued that tariffs hit those on the lowest incomes hardest. It warned that “shutting off” trade would reduce the purchasing power of the poorest 10 percent of income earners by 63 percent. By contrast, those on high incomes would lose 28 percent of their spending power.

It added that halving trade barriers in G20 nations would boost Australia’s exports by 28 percent, GDP by 6.9 percent, employment by over two percent, and wages by over four percent.

Jenny Lambert, Acting CEO of the Australian Chamber, commented: “Trade has had an enormous impact in Australia to create jobs, grow businesses, spark innovation, and expand choices. The living standards of Australians would be much lower today were it not for our long-standing openness to trade.”

But many people are not aware of how trade has improved their lives, so have become easy targets for opportunists spreading misinformation. We have already seen a populist backlash in some parts of the world against free trade, and must act now to avoid that backlash taking hold in Australia.

http://tax-news.com/news/Australian_Business_Groups_Promote_Benefits_Of_Free_Trade____74048.html

21 April, 2017

Australia needs to focus on trade opportunities with China and India rather than being derailed by nerves about the rise of protectionism in the United States and Britain, according to a recent report.

The report cautioned against moves to adopt protectionist policies in Australia and that rather than protecting local jobs, isolationism posed a risk to living standards.

Professor Maddock said that outbound investment was often viewed negatively as local company’s off-shoring jobs to cut costs in a high-wage economy.

Offshore investment can deliver significant economic benefits to the Australian economy and in fact create jobs both here in Australia and abroad. The lifting of trade barriers and integration of Australia into the global market-place has resulted in the biggest increase in our living standards in our history.

However, recently there have been conflicting views on whether the Australian taxation system is biased against outbound investment.

The Committee for Economic Development of Australia (CEDA) cites the protectionist policies of US President Donald Trump and the UK vote to leave the European Union, as two key factors clouding potential deals with key emerging markets.

But in its Outward Investment report, CEDA’s policy committee chairman, Professor Rodney Maddock said Australia was over-emphasising traditional trade with the US, UK and New Zealand at the expense of deals China and India.

The amount that flows to China and India only accounts for 2.9 per cent of Australia’s total outbound investment, with concern about trade barriers stemming from Brexit and the Trump presidency, Australia should focus on engagement with its immediate region where growth opportunities are substantial.

CEDA estimates that Australian investment in traditional partners like the US and UK is valued at more than $540 billion a year.

But the report said there was a major opportunity for Australia to be a premium food provider to Asia and recommended setting up “food processing clusters” to speed integration into Asia markets.

There is a significant opportunity for Australian outbound investment in distribution systems for chilled and fresh foods in Asia, which remain poor. The report also urged the Federal Government to “better articulate” the benefits of outward investment, especially with the emerging economies of China and India.

“There are significant emerging markets with an exploding middle-class, demanding higher quality products and services. This represents a huge opportunity for Australia,” Professor Maddock said.

http://www.abc.net.au/news/2017-04-27/australia-encouraged-to-focus-on-trade-with-china2c-india3a-r/8475172 – 27 April, 2017