Category: Articles

The new Victorian Government won the 2014 election on a platform to inter alia introduce a cap on council rates in all Victorian councils. This means that a rate-cap will be introduced beginning with the 2016/17 financial year, with future rises in rates pegged at the Consumer Price Index (CPI) after this date. This paper provides a comparative empirical analysis of New South Wales local government – the only Australian local government system to operate a rate-pegging regime – and Victorian local government with respect to rate-capping. We find evidence to support the proposition that rate-capping has deleterious effects on municipal revenue effort, equity, debt and infrastructure maintenance. Moreover, our findings do not provide empirical evidence in support of the claim that rate-capping increases municipal efficiency. The paper concludes by considering various alternative public policy instruments to rate-capping.

Australia’s income tax regime contains a number of charging provisions that may apply to non-cash proceeds of personal exertion and business. There is overlap in the operation of these provisions, which in turn requires priority of application rules and anti-double taxation rules. The fact that one of these charging provisions (i.e. fringe benefits tax) is in a separate piece of legislation adds complexity. Further difficulty is added because the various charging provisions contain different valuation rules. This article highlights the problematic areas and anomalies concerning charging provisions as they apply to non-cash benefits, with the aim of attaining some clarity to the operation of the rules. The approach is to use a tabular summary (table) to identify the relevant charging provision (e.g. ss 6-5 and 15-2 of the Income Tax Assessment Act 1997(‘ITAA 1997’)) that applies in regard to various economic activities (e.g. personal exertion that is not employment), and to reconcile the charging provisions where overlap exists. For completeness, the table also identifies circumstances where no charging provision applies to common non-cash benefits obtained by taxpayers (e.g. mere gifts).

The doctrine of sovereign immunity as it is applied in taxation law allows for foreign governments to be exempt from income tax on their passive investments, as opposed to direct foreign investments (‘FDI’) in a number of jurisdictions. The US, for example, has legislated for the recognition of sovereign immunity in relation to withholding taxes on foreign investments by foreign governments and sovereign wealth funds (‘SWFs’). However, Australia has not passed similar laws enshrining this exemption for SWFs or State Owned Enterprises (‘SOEs’).

The Australian Treasury and other interest groups have advocated the need to have similar laws enacted in Australia in order to compete for foreign investment and to formalise the law. Simply requiring SWFs and SOEs to apply for a private ruling from the Australian Taxation Office is not sufficient when other countries have enshrined this immunity in their domestic law. Private rulings only apply to the particular taxpayer and are only granted for a limited number of financial years. However, with the growth in foreign investment by China and in particular through SOEs predominantly in mining and agricultural land, it would appear that the Australian government is reluctant to formalise the taxation exemption for political reasons.

The issue of Chinese investment in mining and agricultural land has been politicised by various sides of politics in Australia and appears to be of great public concern. The paper will examine the doctrine of sovereign immunity in relation to taxation and then discuss the current situation with foreign investment by China through SOEs and other government sovereign funds. The paper will then assess the merits of formally granting the sovereign immunity from taxation for SWFs and Chinese SOEs and the likely political repercussions in Australia. The main thrust of the paper is that the political considerations appear to have dominated this area of taxation law and that the lack of formal recognition of the immunity from taxation is threatening the future of foreign investment in Australia.