These are taxing times for NSW business

It is almost certain that the NSW Government will mark 2008 as a year best forgotten.

The state witnessed political instability at the top, with the ousting of premier Morris Iemma and his treasurer Michael Costa after their failure to head off objections by unions to the mooted electricity privatisation.

The state economy had also been painfully ground towards a halt.  The global financial crisis and severe economic slowdown at home had seen NSW growth projections cut by a full percentage point for this financial year.  This pared-back growth is already delivering pain to many households, and the official forecast is for a rise in unemployment in 2008-09.

These factors, some due to the Government's own mismanagement, have contributed to an unprecedented state budget meltdown.  From a projected surplus of $268 million to a deficit of $917 million, this $1.2 billion turnaround sparked a feverish set of policies to arrest the budget decline.

One area affected by policy on the run is new and increased taxes.  But to assess the impact of new measures, it is essential to know where NSW already stands on tax issues.  Is it a high-tax or low-tax state?  Is NSW already taxing businesses too heavily as it is, without fresh tax hikes in the mini-budget?

To help answer these questions, we have developed a state business tax calculator.  This calculator estimates the amount of tax paid by a business if it were to operate in any of the six states.  It sheds light on which states are the most competitive on the tax front.

Using a method employed by the World Bank, our calculator finds that NSW assumed the unwanted position as Australia's highest-taxing state.  A business would have expected to paymore than $222,000 in payroll tax, land tax and stamp duties in 2008.  This tax liability was about 7 per cent above the average of all states, and 14 per cent above the low-tax state of Western Australia.

While the June budget announced some immediate payroll tax relief, 2008 could be seen as a case of two steps forward, one step back as the mini-budget foreshadowed increases in land tax and a deferral of abolition for nuisance taxes.

However, our calculator shows that NSW is already the high tax state.  The reality, then, is more like two steps forward, three steps back on tax.

Ultimately, the mini-budget tax increases are a flawed strategy as they blunt incentives for business to kick-start growth, investment and employment.  Our analysis clearly shows that small and large businesses are particularly affected by transaction-type taxes.  Even IPART, a government statutory body, recommended the reduction or elimination of these anti-business taxes.

By the end of 2008, tax hikes had become the order of the day for the Rees Government.  The new year would be off to a much brighter start if it took strong action towards making NSW a low-tax state.

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Commodities could topple our domino

The world economy looks like a set of falling dominoes at the moment.

What started out as solvency problems in the subprime mortgage market has spread throughout the United States.  Asset write-downs and credit losses for banks, combined with tighter credit for small and large businesses alike, has lead to fears of recession in the world's largest economy.

Some of Europe's dominoes have also fallen, as a lack of liquidity translates into slower economic activity.

The International Monetary Fund predicts a sharp fall in economic growth for the Euro area in 2008 and 2009 compared to last year.  As in the US, governments in Germany, Greece, Iceland, Ireland and Spain and the UK are bailing out financial institutions using taxpayers' money.

So far, the Australian economic domino has remained largely unscathed from the fallen heap around it.  While national growth is predicted to moderate,and business and consumer sentiment has weakened this year, our financial system remains strong in the midst of some perilous international
conditions.

Strong global demand for Australia's commodity bounty over the past few years has fuelled exports as well as our incomes.  With almost half of Australia's coal exports alone mined in the Hunter Valley Region, and shipped out from an increasingly busy Port of Newcastle, the local region has been at the forefront of our national prosperity.

The local economic good times have been driven by Asian economies, especially China, needing our resources to help them grow.  It should also be remembered that Australia was growing at a healthy rate before the current commodities boom.

Yet, as is the case of the current domino dynamic of world economies, there are some hints that Chinese growth is slowing.  There are reports that slowing demand and tighter lending by banks are forcing Chinese purchasers of commodities to delay their shipment orders.  It is predicted that
coal and iron ore prices could fall by as much as 20 per cent next year.

Other factors point to a Chinese economic slowdown.  Subdued growth in America will surely affect China's export incomes, as will concerns about quality standards of Chinese merchandise sold overseas such as toys, paint and confectionary.

What might happen to our economy if the Chinese domino either falls or teeters about precariously?

For a start, there could be some local impacts.  Falling demand by the Chinese for Newcastle's coal and iron ore may, at the very least, dampen growth in local employment and business investment.  It could raise new questions about the economic viability of major projects such as the mooted expansion of the Port of Newcastle.

The ramifications of a China slowdown could branch out across the national economy.  It is estimated that a 20 per cent reduction in iron ore and coal prices could lower Australia's annual export earnings by some $20 billion.  The resource rich states of Western Australia and Queensland could be particularly affected.

Changes in China's economic outlook could affect the state budget.  On the tax side, mineral royalty payments could fall, as well as taxes sensitive to economic activities including payroll tax, stamp duties and motor vehicle taxes.  GST revenues, passed onfrom the Federal Government, could also fall if consumers spend less in a slowing national economy.

Without any cutbacks to government spending, falls in revenues could further erode an already diabolical state budget position.  The failure of the Carr, Iemma and Rees Labor governments to reduce excessive public spending in the good years means that the "fiscal crunch" from a slowing China would be a tortuous one.  The Rudd Labor Government is not immune from the potential impact of a China slowdown either.

Despite its assurances about a strong budget surplus, the take from federal income taxesand other levies could nonetheless decline.  This would place upward pressure on interest rates, and put in doubt big-ticket spending items such as the proposed $20 billion splurge on state infrastructure projects.  In a globalised world, it pays to carefully watch the ebbs and flows of economic conditions abroad and to act appropriately.

Consumers and businesses are already doing so, by way of tightening their belts during a time of economic uncertainty.  The key question is whether governments will follow suit by paring back the spending churn and waste of recent years.

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NSW work safety law undermining industry

New South Wales work safety laws are the worst in Australia and possibly the worst in the world.  The laws create unsafe work cultures involving complacency and responsibility avoidance.  They are dramatically impacting on the NSW mining industry.

The NSW Occupational Health and Safety Act 2000 presumes managers to be guilty even before an accident investigation occurs.  They are denied trial in a proper court or trial before a jury and cannot appeal.  They are personally fined large amounts in the NSW Industrial Court even if something happens over which they had no control.  They are denied basic rights to legal justice that the worst of violent bank robbers receive.

If these laws were in place but hadn't been used, perhaps there wouldn't be much community anger.  But the NSW mining industry saw these laws being used against some of its managers in the Gretley coal mine disaster prosecutions and now the industry is in silent but near panic.

The Gretley disaster occurred in 1996.  The government initiated the manager prosecutions in 2000.  Four miners drowned in the Gretley underground mine in Newcastle when drilling accidentally broke into a 100 year old, disused and water-filled mine shaft, flooding the new mine.

The subsequent formal investigation found that flooding occurred because the company was using mine maps that were wrong.  The company was required by law to use maps supplied to them by the NSW Government's Mines Department.  The maps showed the old flooded mine to be in a different location to where it was.  The NSW Mines Department admitted in evidence it was at fault.

But the NSW OHS laws impose "absolute" obligations on companies and managers.  This meant that the managers at Gretley were supposed to have god-like powers that enabled them to discover that the government maps were wrong.  Three mine managers have been prosecuted and personally fined in excess of $100,000.

But the government refused to prosecute its own Mines Department and has never explained why.  Is something being hidden?  Why were the mine managers picked-on and the department left alone?  Since Gretley there have been other NSW mine incident prosecutions that raise questions.

The company that now owns the Gretley mine has tried to support the managers by challenging the validity of the government's laws that block appeals.  But the government strengthened the appeals blocking laws just before Christmas last year.  This is as close to a stacked kangaroo court, legal process as can be found in Australia.

In addition, the NSW OHS laws do not apply similar responsibilities to employees.  So if a mine employee does something that leads to a mine incident they won't face OHS prosecution in the way a manager would.  This sends signals to employees that they don't have to be as diligent on safety as in other States because in NSW someone else will be blamed.  No other state applies these double standards.

What's the outcome?

Mine managers and NSW mine companies are worried.  The government passed new OHS laws in 2005 that enable the jailing of managers in the event of a work death.  Presumption of guilt applies to managers stripping them of criminal justice rights.

NSW mine companies won't publicly say so but they are having difficulty finding new managers.  Existing managers down to supervisors are actively looking for jobs in the mining boom states of Western Australia and Queensland.  NSW mine managers are looking to become "consultants" where they can give advice but not be the decision makers.

And no one will disclose how these laws are impacting on mine upgrades and future mine investment considerations.  It's easier and safer for companies to quietly make investments outside of NSW.

None of this should be occurring.  Victoria for example, strengthened its work safety laws in 2004 by applying responsibility to everyone at work for what they control.  Proper principles of legal justice apply under OHS laws in the other states.

NSW is currently undergoing a review of OHS laws.  But there are concerns the review may prove to be a piece of political management rather than a serious re-consideration of the dangerous OHS laws.

What is needed are strong laws that apply full responsibility to everyone who is involved in work and who has control.  Legal justice must apply.  Only then can work cultures and behaviours be fully focused on safety.

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Locking up parklands is blinkered approach

J.K. Galbraith famously said that the conventional wisdom is always wrong.

For 50 years the conventional wisdom on national parks and conservation areas has been that we need more of them and that we need to strictly limit human activity in them.

In May, the Prime Minister announced a further 180,000 hectares of Tasmania would be set aside.  In NSW Premier Bob Carr announced that 348,000 hectares of the Pilliga State Forest would be reserved.

Plans are afoot for Queensland to reserve 1 million hectares in the western hardwoods region.

With almost one-twelfth of NSW locked up and similar or larger proportions of other states it is time to ask at what point have we created enough park.

After all, parks are not free goods and we have only been able to reserve the huge areas we have by transferring land in public ownership, particularly productive forest.

The National Parks Association would like to reserve 20 per cent of NSW.  Currently almost 8 per cent is reserved.

We would need to lock up additional areas equivalent to 15 new Kosciusko National Parks in NSW.

The Green movement in its various forms has even more ambitious plans for massive linked public reserves across Australia.

But we are not laggards internationally.

International statistics suggest that Australia's reservation of land for conservation compares very well with other countries in the highly protected categories of park.

Moreover, state legislation in recent years has reduced broadscale clearing on private land to a tiny fraction of historic levels and will phase it out entirely in the future.

However, there is evidence that we don't value our parks all that highly.  We are happy to lock them up but then tend to forget about them.

The resources we commit do not meet the challenge of managing the parks.  So we do not control the feral dogs, foxes, cats, goats, rabbits and pigs nor the bitou bush, lantana and blackberry.

And when there is a severe fire season, as there was two years ago, then the forest equivalent of 50 years of logging can be cleared by wildfire in a few weeks.

None of this is surprising when we consider that a mere 260 rangers are supervising the one-twelfth of NSW conserved.

Which leads to another question.  Do we really need to lock up our parks so completely?

Proposals to make more use of parks would no doubt be greeted with howls of outrage.

But we need to recall that much of the land thought worthy of inclusion in parks has been state forest for decades.

Much of it had also been subject to systematic Aboriginal fire regimes before European settlement, which continually modified its structure.

It should not be beyond the wit of policy makers to devise selective, sustainable forestry operations that leave the big trees untouched.

Nor should it be impossible to allow mining in the relatively tiny areas of park that this would involve.

The recent announcements by the Prime Minister and the NSW Premier already move policy some way in this direction.

It might release new mining prospects and at the same time prove a better alternative than increased imports of timber from tropical rainforests in our region.

The tourism industry has also put proposals on the table for a more active use of the parks for international tourism.

Visits to parks are a minuscule proportion of total international tourism when compared with city and resort visits.  Many of NSW's 650 parks have few visitors.

Increased public/ private partnerships in park facilities should be possible without compromising conservation.

The theme of such a new "unconventional" wisdom would be a more active but still sensitive use of conserved areas.

This is already commonplace in many countries around the world.  Perhaps we could look outward for ideas rather than persisting with conservative, inward-looking park policies.

Hunter the big loser in carbon-trading move

NSW Premier Bob Carr has spearheaded a move by Australian State Governments to introduce a system of carbon trading.  This aims to implement a more aggressive reduction in carbon dioxide emission than that favoured by the Commonwealth.

It is modelled on the European Union's (EU) carbon dioxide trading market which commenced operating this year.  The EU scheme itself is an outcome of the Kyoto treaty on greenhouse gas.

The Commonwealth, like the US, China, India and others has not ratified the treaty, because it considers the resulting cost increases in energy would be too great.

Under its carbon dioxide trading scheme, all the EU's 12,000 electricity generation plants and major factories have been given an annual quota of carbon dioxide units.  Fossil fuel burning electricity generators are allowed to produce more energy if they don't increase their outputs of carbon dioxide.  Those that are able to reduce their outputs of carbon dioxide (either by reducing overall production or doing things differently) can sell their surplus quotas.

The going price in the market now in place for European carbon dioxide quotas is $22 per tonne.  Much higher prices would be necessary to meet the jeremiahs calls for progressively deeper cuts in carbon emissions -- and Bob Carr has called for a massive 60 per cent cut in greenhouse gas emissions.

Because electricity plants use different forms of fuel, carbon quotas have different impacts on their cost structures.  Wind, hydro and nuclear plants do not use fossil fuels and are favoured over plants emitting relatively little carbon (gas) and those with high carbon emissions (coal).

Based on present European prices, a carbon dioxide trading system would raise the cost of electricity from NSW's coal plants, centred on the Hunter region from about $40 per MWh to $60.  Gas plants like that proposed at Tomago would see initial costs rising to about $56 per MWh, though increases in gas demand would soon push this above the coal plants' costs.

Wind, hydro and nuclear fuel plants would see no cost increase.  For hydro this is immaterial since Australia has limited additional potential.  In the case of windpower, it is largely irrelevant since the technology is a dead-end that will always be uneconomic no matter what burden is placed on its competitive energy sources.

Nuclear however is another matter.  Even at current European carbon dioxide prices, nuclear would be more competitive than coal generation if a carbon trading regime were to be introduced.

Of course, Australia's mindless rent-a-crowd protesters would bring additional political obstacles to nuclear.  However Labor leaders like Britain's Tony Blair are conditioning their flocks into accepting nuclear power which is, after all, safe clean and reliable.  Premier Carr has refused to go so far, but Peter Garrett after a lifetime of opposition to all things nuclear has recently raised his hat to the nuclear power option.

A nuclear electricity future for NSW could be brought about by quotas on carbon dioxide emissions that would penalise coal.  This would mean higher electricity prices and bring the loss of energy intensive industries like aluminium, but it would avert a need to return us all to the energy-less cave.

Unfortunately, it would also destroy the State's fabulous low cost steaming coal asset.  As well as raising the entire electricity cost structure, this means writing-off tens of billions of dollars worth of wealth.

The carbon trading proposals are among a suite of measures the NSW Government has introduced that target electricity generation from coal.

These include the decision to recruit state financed green action groups to oppose the Hunter Valley Redbank II Power Station.  The Government had initially paraded this as an example of environmental excellence;  however it later fomented environmental opposition to renege on a contract that turned out to be high cost.

This sort of action destroys confidence in the Government's integrity.  As a consequence, it is doubtful that another private sector supplier will take a chance on state owned companies' assurances -- new power industry suppliers would need a sovereign guarantee, placing NSW in the banana republic category of investment risk.

In addition, coal powered generation faces a hidden state tax levied on energy consumers, the Greenhouse Gas Abatement Scheme.  By 2012 this will impose a $220 million tax on coal power.  As well as an imposition on households, this puts the State at a massive disadvantage compared to Queensland and Victoria.

Measures that penalise coal generation can only prove damaging to NSW's competitiveness and to the industry that underpins the Hunter region.

The Carr Government's pursuit of such proposals sacrifices its responsibilities for the economic well-being of people in NSW to the green zealotry of its political leaders.