Powell Tate’s snapshot of some of the year’s major issues that will have ongoing implications for business in Australia into 2018.
A constitutional crisis of their own making
The second half of 2017 saw federal politics dominated by a widening constitutional crisis around the eligibility of a number of Senators and MPs over the issue of dual citizenship. Although some resigned for their oversight, a number of parliamentarians were referred to the High Court to determine their legitimacy. Several Senators lost their positions. By-elections were held in the electorates of Bennelong and New England, which were retained by both incumbents, John Alexander and Barnaby Joyce.
A review of the citizenship status of all parliamentarians has raised questions about the eligibility of more MP’s and Senators, which means a number of by-elections may ensue in the early part of 2018.
Shanghai’d in Canberra
In the final sitting week of Parliament for the year the Federal Government introduced legislation to curtail foreign – read Chinese – influence in Australian politics. The catalyst was questions around political donations by high profile Chinese businesspeople to both sides of politics and their alleged attempts to influence Australian Government policies. (The issue claimed the scalp of Labor Senator Sam Dastyari, who resigned from the Senate in early December following allegations he had provided counter-surveillance advice to a Chinese businessman.)
According to former Attorney-General George Brandis the anti-foreign interference legislation seeks to strengthen existing espionage and treason laws, but would also limit activities of foreign organisations seeking to influence Australian politics, policies and laws. Importantly, foreign donations to political parties and political activist groups would be banned under the proposed laws (Labor introduced a bill to ban foreign donations earlier this year).
China, which denies interference in Australia’s domestic politics, warned the Australian Government that its proposed legislation would further weaken trust between China and Australia. The risk of China taking retaliatory action against Australian business interests cannot be ruled out. With Australia’s resources, agribusiness, education and tourism sectors heavily dependent on the renminbi, 2018 could prove a rollercoaster year.
The taxing times behind us … and yet to come
Tax was a consuming issue during 2017 with Labor pursuing company tax avoidance.
The Government sought to collect the Goods and Services Tax (or GST) on low value online purchases from overseas. It proposed that overseas platforms should be made responsible for the collection of the GST on purchases worth less than $1,000. The new law is
due to take effect from July 2018. But the issue may continue with a number of online retailers arguing Australia should work with other OECD countries to find a global solution to taxing online sellers and distributors.
A Senate inquiry into corporate tax avoidance was extended. Numerous multinationals have made submissions and appeared before the inquiry, which is due to report by 30 May 2018. Importantly the Australian Tax Office (ATO) has announced a crackdown on multinational technology giants that it says have been avoiding $5 billion in taxes. The ATO says the companies it is targeting have used loopholes to claim they have minimal operations in Australia in order to reduce their taxes. The Government’s Multinational Anti-Avoidance Law (MAAL), which came into effect last year, will be used.
The bad news for companies may not be over as the Government’s plans to reduce corporate tax rates is likely to be rejected by the Senate. While the Senate supported tax cuts for small business it has rejected proposals by the Government to reduce the corporate tax rate from the current 30 percent to 25 percent by 2026.
Banking on an inquiry
After a year of trench warfare to keep a royal commission into the banking sector from being established the Federal Government announced in November that an inquiry would proceed. The backflip followed growing concerns that some Nationals would vote with Labor and the Greens for an inquiry. The Royal Commission will also look into the insurance and superannuation sectors. Expect the inquiry to dominate the news next year – it needs to report its findings by February 2019, though extensions seem likely given the inquiry’s scope.
A less cryptic way forward
Bitcoin, Etherium and other cryptocurrencies took a step closer to legitimacy after the
Australian Government announced plans to regulate blockchain technology and cryptocurrencies. The Australian Stock Exchange (ASX) recently announced it would use blockchain to track its transactions, giving legitimacy to the technology that supports cryptocurrencies.
The proposed new regulations would give AUSTRAC new powers to police digital currency exchanges where cryptocurrencies are bought and sold. The legislation is meant to ensure cryptocurrencies are not used for money laundering and financing terrorism. The ATO has also announced investors in cryptocurrencies will be taxed on gains they make.
Although the sector has welcomed regulation, it is likely to seek amendments to the proposed legislation. Many cryptocurrency exchanges believe the proposed legislation could stifle the nascent industry. They argue transactions of less than $1,000 should be exempt.
Super legislation’s super delays
The last week of Parliament saw the government’s much vaunted changes to the $600 billion superannuation industry taken off the table. The changes would have increased the supervisory powers of regulators, forced super funds to appoint independent directors (which would weaken the position of union appointed directors), and caused the not-for-profit funds to disclose their administrative costs. The Government was unable to secure the support of cross-bench senators needed to pass the legislation. It is anticipated that the legislation will be reintroduced next year. It is also likely that the industry’s intense lobbying of cross-bench senators will continue. Don’t expect the legislation to pass anytime soon. Indeed it may even have to wait until after the next election, due by mid-2019.
Bolshie Regulators, Shareholders and Consumers
This year saw a rise in activist regulators and calls from the public and politicians to monitor the nation’s ‘C’ suites and boards for compliance on a range of areas from taxation to diversity obligations and responsible marketing. And they do it armed with a well authored media release, sometimes just to announce that an investigation is being considered, and even – surprisingly in a high profile ACCC matter Powell Tate advised on – to suggest a judge should impose a higher penalty than had been usual.
Scrutiny of corporate Australia from both internal and external forces continues to intensify. Activists, consumers, employees and even investors have shown a willingness to flex their muscle and force change.
It’s a fine balance for corporate leaders, who are increasingly encouraged to take stances on social and political issues so as to be seen to be part of the communities in which they operate. Qantas CEO Alan Joyce, who was the standout corporate Australia activist in the same sex marriage campaign, noted that companies that ignored taking a stand on social issues risked losing customers and employees.
Add to this a willingness for stakeholders to take legal action against organisations that have over promised and under delivered. In particular class actions increased in Australia this year, largely due to rules that allow litigation funders into the market, stumping up for legal fees in exchange for a slice of the settlement. In true spirit of the times, we’ve even seen class actions against class action law firms.
Their success may have backfired, though, with announcement of a federal inquiry into litigation funders.
Careful what you wish for
The Australian property market has started to cool after several years of hyper growth. For the first time since 2013 prices have flattened and may fall slightly in major growth centres Sydney and Melbourne. Sharper falls have been recorded in other centres as well. The decline has been linked to more stringent curbs introduced on capital out flows from China. Although the price decline relieves state and federal governments of the pressure to address concerns about rising costs of home ownership, concerns about a wider impact are beginning to emerge. If housing construction is impacted a ripple effect through the economy is possible. The Reserve Bank may have to cut interest rates further. The cash rate is currently at a record low of 1.5 percent.
Not even a lump of coal for Christmas
As we went to print Adani’s proposed Carmichael coal mine in the Galilee Basin remains in doubt. Australian banks refused to fund the project and the Queensland Government reneged a commitment to support the project, saying it would veto a $1 billion loan from the Northern Australian Infrastructure Facility (NAIF). The company’s troubles worsened when it emerged former Labor Foreign Minister Bob Carr had lobbied Chinese investors against funding the mine. Carr had told Chinese Government officials and bankers the mine was unpopular in Australia as it posed an environmental risk to the Great Barrier Reef.
Adani claims that the Palaszczuk Government’s backflip on the project raised Australia’s sovereign risk profile and that this would deter future foreign investment into the country, particularly from India.
In the meantime, the Queensland Government looks set to veto use of the NAIF for other projects intended for the central Queensland coal basin.
As the year ended, deep fissures started to appear in the mining industry. A leading coal mining company announced it would exit both the World Coal Association and the Minerals Council of Australia if they continued to promote policies denying climate change was man-made with coal carbon emissions as a major source.
We all get to tie the knot
A considerable amount of ink and air time was consumed debating same sex marriage after the Federal Government announced a postal survey to determine the issue. Australians voted in favour of legislation.
Yes, Malcolm; there is a Santa Claus
The year ended on a higher note for Prime Minister Malcolm Turnbull and the Coalition,
though the polls still remain dismal. The Mid-Year Economic and Fiscal Outlook (MYEFO), released on 18 December, allowed the federal government to crow about appearing to rein in debt. Add to that rising commodity prices and claims of increasing jobs numbers (economists are debating the figures) could mean a positive (read election) budget in May 2018.
On 19 December, the Prime Minister announced a reshuffle of his Ministry. The list of the new Ministry can be downloaded from here.
Quote of the Year
“And the High Court will so hold” – Prime Minister Malcolm Turnbull told Parliament that legal advice to the Government was that the High Court would find Deputy Prime Minister Barnaby Joyce was not in breach of Section 44(i) of the Constitution. The Court ruled Mr Joyce was, forcing a by-election in his seat of New England. Mr Joyce renounced his New Zealand citizenship and comfortably won the seat with a favourable swing.