World-class fertiliser producer Incitec Pivot Ltd has painfully written $105m off its Gibson Island plant in Brisbane – squeezed by high gas costs, low Urea prices and bad taxes – just as it enters a major ‘shut’ to refurbish this key national industrial asset.
Turning gas into nitrogen fertiliser is genuine value-adding, unlike the three brand-new unviable LNG plants at Gladstone that merely make gas an easily transportable commodity.
IPL is one of the few domestic manufacturers not yet destroyed by the rent-seeker biases in Australia’s economic settings. We have an obligation to listen to CEO James Fazzino in his significant cost-out task ahead.
He said he wasn’t asking for a cash handout from government. But changes to regulation and reform around payroll tax would make the factory – which currently operates at a profit – viable in the long-term.
The government has got a role to play in terms of the taxes and charges on the plant. We paid $7 million in the last half – that’s a tax on manufacturing jobs,’’ Mr Fazzino said.
“I can assure you that our competitors offshore don’t pay that tax, and in terms of tax reform not enough people talk about tax on jobs, and taxing Australian manufacturing jobs.
“I’m highly aware that at the same time the government has got other calls but one thing for sure is if the plant shuts, we won’t be paying any of those taxes.”
Economic theory suggests Payroll Tax falls on labour or is passed on in higher prices.
Capital has little or no capacity to bear taxation – it moves away or refuses to reinvest, which is the dilemma Mr Fazzino faces today. Unable to pass Payroll Tax on in higher prices or lower wages, he must accept lower returns on investment and watch his, and Australia’s, competitive position drift away.
I am repeatedly astonished the Australian Labor Party tolerates Payroll Tax in any form. It skims the cream from work while other incomes from rents, interest, dividends and capital gains enjoy a free carry. Unsophisticated workers may think Payroll Tax falls entirely on business, while their alleged political champion knows better yet just looks away.
In recent months, a bizarre political charade has been played out before us. Prime Minister Malcolm Turnbull has energetically raised tax reform ideas then discarded them as unworkable. Two tax bases remain uncontaminated by this process: Payroll Tax and land tax.
I condemn Payroll Tax. It injures the honest and innocent while deterring economic activity. Give it up.
One tax base remains worthy of our attentions. One base that doesn’t cause harm: land tax.
(Disclosure: David Collyer owns IPL shares)