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A $60b riddle: how miners took taxpayers to the cleaners

February 18, 2011

Could this be the biggest con job ever visited on the Australian public?

Forget Ern Malley, the campaign waged by the mining companies against the original mining tax emerges as Australia’s most costly national swindle, both in terms of the cost of the heist – $22 million for a six-week television advertising campaign – and the continuing hit to budget coffers – $60.5 billion in revenue lost over 10 years.

To put that in perspective, for every dollar the mining lobby spent fighting the tax with emotive ads, featuring wholesome-looking miners, it saved another $2750.

But far from cutting back on investments, BHP Billiton this week revealed its true intentions. In fact it plans to invest an additional $80 billion over the next five years, mainly in Australia, to expand its production capacity, despite the proposed, watered-down, mining tax.

Sure, this sum could have been even bigger if there were no tax at all, but $80 billion is still a substantial investment program, particularly in an economy running at close to full capacity.

To put that in perspective again, BHP Billiton will be spending more each year on new mines and equipment than the federal government will spend on the nation’s primary and secondary schools (about $14 billion a year).

How did we let ourselves be convinced taxing miners’ ”super profits” would force them to walk away from some of the world’s richest resource deposits? That so-called sovereign risk concerns would forever deter foreign investment in Australia? That is now the $60.5 billion question.

It is all too easy, albeit appropriate, to blame politicians. Tony Abbott opposed the tax to feed his ”great big new tax” scare campaign. Kevin Rudd failed to consult the mining industry and then failed to sell the need for the tax to an uncertain public. The fledgling Prime Minister Julia Gillard caved in to the mining industry in an attempt to ”clear the decks” of a policy and electoral headache.

Nor should it be a surprise that the mining companies decided to fight tooth and nail against the tax. Their obligations to shareholders all but demanded it. But why did ordinary Australians shun the tax? As collective owners of the rich iron ore and coal deposits we stand on, why was it so easy for the mining industry to convince us the tax was a dud?

I suspect it was because, fundamentally, the original super profits tax was too complex to understand. Which is not to say it was a bad tax; it wasn’t. Just that it involved mastery of a few theoretical arguments, like uplift rates and the present value of future tax concessions. It was structured so that the government in effect became a silent venture partner with miners, taxing them more heavily in good times, but granting them concessions in bad times. Theoretically pure, but hard to understand without an economics degree.

The price of our ignorance is now abundantly clear, with Treasury’s estimates that the new tax will raise just $3 billion a year towards the second half of this decade, down from $10 billion plus in the original design. Of course, these are just projections. They depend on a number of factors including commodity prices and movements in the Australian dollar. But the loss will be substantial.

Having walked away from billions of dollars, perhaps the best we can hope for now is that we get the $40 billion the new mining tax is forecast to raise.

The resource super profits tax was a good tax. But so is the mineral resources rent tax, for a host of reasons.

Firstly, it meets a fundamental principle of good tax design, that you should tax most heavily the things that can’t move, so you don’t create incentives for tax avoidance. It’s why broad-based consumption taxes, such as the GST, are good, and transaction taxes, such as stamp duties, are bad.

What could be more immoveable than minerals buried hundreds of metres below the ground?

Secondly, it continues, albeit somewhat less effectively, the idea of replacing state-based royalties, which tax miners as heavily in bad times as in good, deterring investment in some riskier projects with long lead-in times.

The new mineral resources rent tax also satisfies the criteria that it only kicks in when miners are earning a ”super-normal” profit, that is those above a certain deemed commercial rate of return.

Importantly, taxing the super-profitable mining industry also has benefits for the wider economy. By capturing a greater share of profits, (assuming the money is saved, not spent) it helps to take some of the heat out of a strong economy, easing pressure on inflation.

In a speech this month a senior Treasury official, David Gruen, predicted rising living standards in China and India would continue to power the Australian economy for years to come. Rising urbanisation means rising demand for the metals and minerals needed to build roads, railways, homes and appliances, everything a modern Chinese or Indian family could want.

”China and India should continue strong catch-up growth for at least a few more decades – and certainly for the next 15 years,” Dr Gruen says.

By keeping interest rates lower than otherwise would have been the case and easing upward pressure on the dollar, taxing mining can also help to even up the two-speed economy.

Make no mistake, manufacturing is still likely to decline in relative terms as mining booms, but higher taxes from mining can be spent on helping some people adjust to new careers, new lives.

But there remains considerable political work to do before even the new version of the mining tax passes Parliament, ready for its proposed start date of July next year.

Mining companies are threatening all-out war again if Gillard does not agree to reimburse them all future state royalty increases. But to do so would be to write a blank cheque to state governments to increase royalties, potentially eating up a large portion of the revenue raised through the mining tax.

BHP’s record profit suggests it is mining companies that should shoulder the risk of higher royalties, not taxpayers.

Fool me once, shame on you; fool me twice, shame on me.

By Europe correspondent Emma Alberici

Posted 6 hours 3 minutes ago

The Organisation for Economic Cooperation and Development (OECD) has welcomed Australia’s plan to introduce a parental leave scheme but says it is less generous than what is offered by other countries.

Of all the advanced economies, Australia and the United States are the only countries that do not offer statutory paid-maternity leave.

Economist Willem Adema of the OECD’s Social Policy Division welcomes the announcement of an Australian scheme to begin in 2011 but says the amount allocated to it is low when judged against similar schemes around the world.

While Australia’s proposal is means tested, the paid leave offered in the other 38 other OECD countries is open to all parents, regardless of income.

The OECD reports that in many European countries parents are given between 75 and 100 per cent of their wages for up to 18 months.

Friday, 17 April 2009

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A new report by The Australian Institute show there are significant benefits for working parents and the economy from paid maternity leave and has led to renewed calls from the ACTU for the Federal Government to include the scheme in the May Federal Budget.

The report, Long Overdue: the Macroeconomic benefits of Pail Parental Maternity Leave, shows that a paid maternity leave scheme would create 9000 jobs, and cut the net cost of the scheme by $225 million.

ACTU President Sharan Burrow said the report is further evidence that paid maternity leave must be in the next Federal Budget.

“Jobs are being lost and families are facing financial uncertainty. What this report shows is that paid maternity leave would help to remove that uncertainty by providing financial assistance to families in a way that would also benefit the Australian economy as a whole.”

“Paid maternity leave will provide highly positive outcomes to Australian families and the economy as a whole, that’s what this report shows.”

Ms Burrow also pointed to the “highly positive social and economic return for relatively small net investment, as has been outlined in the recent Productivity Commission report.”

“What this report from the Australian Institute indicates is that there are benefits to the entire Australian community through a national paid maternity leave scheme.”

“These highly positive outcomes can only be achieved if the Government includes a national paid maternity leave scheme in its forthcoming budget,” Ms Burrow said,

“Paid maternity leave will provide a solid foundation for economic growth by ensuring women retain a secure connection to the workforce while being able to take time out to have a baby.”

For more information please call Adrian Dodd on 0401 726 476.

Malcolm Maiden
March 21, 2009
The Government is moving to rein in what an angry public see as excessive executive payouts. Here, four key players debate the issues, and look for answers, with BusinessDay’s MALCOLM MAIDEN.

MALCOLM MAIDEN The question that people outside the business world are asking is – in this environment, is executive remuneration too high?

MARTIN LAWRENCE There are certain cases where pay is just too high.

CEO pay – Sir Rod Eddington
Sir Rod Eddington, Chairman JP Morgan Australia and NZ and a director of News Corp and Rio Tinto explains what boards must do to regain community confidence.

We don’t see it happen very often in Australia. There was a case with Adelaide Bank two years ago where the termination payout to their managing director was so large that they had to issue a profit warning. Everyone, I think, would quite happily say that that is too high.

The better question is: is executive pay linked to performance? Is it actually a fair reward for what’s been achieved?
We’re finding that out right now because we’re starting to see the first disclosures made after things have really started to turn down.

In some cases it’s looked pretty disproportionate.

SIR ROD EDDINGTON Historically, it’s a debate you only have when markets are turning down. It’s not usually a big issue when markets are ramping up, shareholder values increasing, businesses are doing well.

The key question is: is executive compensation linked to the right things? And does it deliver the right behaviours? Linking compensation to medium and longer-term shareholder return is a good thing. You get some strange outcomes – because there’s a lead and a lag effect, you’ll perhaps have rather bigger incentive payments at a time when the market is going down.

You need to make sure that the incentives for senior executives are aligned to the objectives of the company – that the relative salary packages of senior people in a company are appropriate.

In Japan, senior executives get a much smaller premium over the packages of what I would call front-line staff. In America, that difference is substantial. Australia is sort of in the middle.

MAIDEN Are the Government’s moves to cap golden handshakes, and inquire into executive remuneration, the right ones?

JOHN COLVIN With the benefit of hindsight, it would seem there have been mistakes made by some companies. But we believe that education is better than legislation in fixing whatever problems exist. On the termination payments changes – we’re disappointed that legislative action is being taken without prior consultation and ahead of the expected Government discussion paper.

LAWRENCE The changes will allow shareholders to protect the company against huge payments to departing executives and should help boards in their bargaining with executives. If boards respond by simply increasing salaries – again – it will be clear whose interests they are protecting.

MICHAEL O’SULLIVAN The inquiry’s timetable will mean that the Government will not be taking any further steps to intervene in the remuneration issue for at least 12 months.

MAIDEN Well, should shareholders get the power to determine executive pay packages?

O’SULLIVAN I think it’s a foolish proposition to ask shareholders to make detailed judgements when they don’t have – they simply can never have – the information. You need the degree of disclosure you would have in a takeover situation, where you’re in a locked room, in order to make those kind of judgements in any sensible way.

We think that the Opposition policy of a compulsory shareholder vote is foolish. We do think that shareholders should vote on issues of shares, including shares bought on-market for executives. But other than that, we don’t want a compulsory vote.

We’ve done a longitudinal study looking at the movements in chief executive officer payments. From ’01 to ’07, the consumer price index has increased by 17.7 per cent; average weekly earnings have done quite well, 32 per cent; but CEO fixed remuneration – not bonuses, not rights issues, not options – 97 per cent.

It just seems to me that what used to be the work value of any job hasn’t increased in that kind of proportion.

Now that the tide’s gone out and a lot of “boats” are left a long way from the water, people are in some cases going for short-term cash bonuses (that are) not in any way transparent – described to us privately as “if we don’t retain this fellow, he’ll walk”. We really don’t think that is credible: where’s he going to walk to?

COLVIN In the US, in ’84, Congress brought in a law saying that you can’t get a tax deduction for more than three times pay for a termination payment. Everybody (then) rose to that level because that was a norm which the Government had set, as opposed to leaving people to say “well, is that right?”.

I think it was Bill Clinton who brought in a law, in ’93, that said you can’t have a tax deduction for anything more than $1million. Short and long-term incentives just shot off.

So you’ve got regulation distorting the market, making it much worse. We have some of those distortions in Australia. Squeeze the balloon at one end and it goes somewhere else.

O’SULLIVAN It’s hard to say that those regulations caused the egregious behaviour.

COLVIN It doesn’t drive it, but it does distort it. Boards must take control of executive remuneration, particularly the CEO’s. You’ve got to get that absolutely spot on.

Ironically, you probably should be paying more money because they’re actually working harder (now) that the numbers are going the wrong way. When everyone’s rising with the tide, you probably shouldn’t be paying as much.

MAIDEN When remuneration reports are rejected, the same shareholders at the same meeting overwhelmingly support the re-election of the directors who presented the report – seems illogical, doesn’t it?

COLVIN Does it? It is such an emotive issue. I think it is used as a grab bag for voting dissatisfaction against lots of other things. There’s often other angst about the share price: “This is my retirement saving, I’m angry … I’m not quite sure how to deal with it, but I’ll vote against the remuneration report.”

O’SULLIVAN: Institutions don’t vote against remuneration proposals unless we’ve analysed them and are dissatisfied. The best thing is to engage with the company about the bad things in their remuneration policy, or anything else. Our beneficiaries depend substantially, in their retirement, on the success of these companies. We don’t want to be bagging them in the public. It’s much better to approach them privately, see if we can persuade them to adopt a better course, or at least satisfy us that the course that they’ve taken is actually correct.

MAIDEN And when that doesn’t happen?

O’SULLIVAN That’s why there is the beginning of voting against particular directors. There are failures for which I think you can legitimately say that independent directors didn’t play the role that we would have expected of unconflicted representatives.

MAIDEN Do remuneration committees work? When the board votes on those reports, would there be directors thinking: “I can just tick this – the work’s been done?”

EDDINGTON It’s not uncommon for a non-executive director who’s not on the remuneration committee to ask for clarification because they know it’s going to be very much in the public domain, as it should be, and they’re going to have to defend it collectively.

If you want every member of the board involved in the minutiae of compensation or remuneration, or the risk and governance, directors will need to meet once a week and they’ll need to be full-time.

COLVIN Most boards don’t appoint a CEO more than once. Some don’t do it at all, because they become a board member when it’s been done previously. If the board’s doing it correctly, they will also have the remuneration consultants, the lawyers, the governance people, reporting directly to the subcommittee first, and then secondly to the whole board.

O’SULLIVAN The damage is frequently done with the original contract, and can’t be undone. That’s what gives rise to golden parachutes and all these kinds of “welcome-aboard” payments.

LAWRENCE Part of the problem is that when a board is recruiting a new CEO, it’s like drawing up a pre-nup agreement when you’re trying to convince somebody to marry you.

And we’ve seen it go wrong spectacularly fast.

COLVIN When I was drafting them, the best boards started the contract well in advance of looking for anybody. They had a big discussion about how far they’d go, the hot spots. The board was basically ready to say: “Whoever’s doing the negotiation … has authority to those levels. Come back and chat to us if we get him.”

EDDINGTON I didn’t get a golden goodbye. I would never have accepted one. I wouldn’t expect it to be in the contract. And my view is it’s nonsense, really. You don’t need to put it in there. Good chief executives will front up as long as you offer them a good competitive salary. They don’t want payment for failure either.

But look at (US insurer American International Group) and their bonus payments. Not all boards are smart.

MAIDEN Are the remuneration and search consultants part of the answer or part of the problem?

O’SULLIVAN A bit of both.

COLVIN The lawyers, if they’re doing their job well, will set out the contract and the structure. They won’t advise – because they’re not qualified – on remuneration levels. A lawyer will be asked: is this permissible under law. Their job is to say it is or it isn’t.

Then the next question of the remuneration consultant is: is this fair and reasonable? Yes or no? Remuneration consultants are good up to a point, and then it’s got to come back to commonsense.

LAWRENCE: Unfortunately we see, too many times, boards hiding behind their advice. We’ll say, “Why did you decide to pay your CEO an amount which, if I compare him to the obvious peers, his base for turning up is much higher?” And they say, “Oh, we got an appropriate peergroup from an independent consultant.”

Remuneration is one of the very few insights you get into the relationship between the executives and the board. An executive team that is able to get the remuneration outcomes it wants most of the time is also more likely to be able to come to a board with a merger proposal that perhaps shouldn’t have been done, and get it through. It’s an insight for how that relationship works.

O’SULLIVAN One of the issues in a merger was options that people had. They got a remuneration company to reconstruct what would have happened at an assumed share price.

They paid people for forgone options packages that would have been underwater by 10,000 fathoms if they’d been allowed to run.

When we confronted the chairman, he was sort of laughing with us, saying, “Well, I don’t blame you for not being able to understand it; I could never understand it either.”

That’s just not an independent chairman’s role – to give something a tick when he plainly had no idea how it was calculated.

MAIDEN What is the difference between short and long-term incentives?

O’SULLIVAN One is to encourage making decisions that pay off in the long term. And we’ve always said we don’t mind if people don’t get the rewards for that after they’ve left the company.

Short-term incentives are frequently based not only on financial, but non-financial considerations which (companies say) are sometimes difficult to disclose – but we are very sceptical about the non-disclosure.

LAWRENCE The Corporations Act doesn’t actually acknowledge short and long-term incentives’ existence. It just says any remuneration that is tied to a performance condition, you must disclose a detailed summary of the condition. In 2008, in the top 100 companies, 94 per cent of CEOs got more than 50 per cent of their target bonus, and 45 per cent got more than 100 per cent.

MAIDEN It does seem that it’s base pay in drag.

COLVIN Why not go back to where you get a base pay and a discretionary bonus? Many commentators say we’re not going to have any part of a (system) which allows the board to use their discretion – but that’s probably a trust issue.

Let’s say a chairman went to the shareholders and said: “We’re going to have a base pay. Then the CEO can have a bonus at the discretion of the board up to a set amount.” The chairman may say, “I’m going to do that because I don’t know yet whether the CEO’s going to work out. I also don’t know whether we need to pay a little bit more to keep somebody around in really tough times, or really good times.”

However, this will give the board the flexibility to adjust up and down to meet the existing circumstances without relying on any complicated formulas.

O’SULLIVAN Very largely, the behaviour over the last 10 years has caused a loss of trust. I think you can never have a situation where you don’t disclose the basis for your discretionary judgement.

COLVIN But if the chairman got up and said, “Look, I have awarded 50per cent, because we have been on the edge of going out (of business)”, are you giving really confidential information to your competitors?

Are you spooking the market by being really honest?

LAWRENCE Just say that the board exercises discretion this year to reduce these payments.

EDDINGTON Boards will never do that, nor should they. If a chairman’s going to have a performance discussion with the chief executive he doesn’t want to read about it in the annual report – or the newspapers the next day.

LAWRENCEThe problem is we do (read) about the non-performance payments.

EDDINGTON You don’t read about the conversation where the chairman says to the chief executive, “I think you’ve earned 70 per cent of your bonus this year.”

That’s the sort of conversation a good chairman has with his chief executive, although clearly the size of the bonus should be in the public domain.

MAIDEN Do we have agreement that simplification of remuneration policies is desirable?

EDDINGTON Simple has always got to be better. If you’ve got a formula everyone can understand quite quickly – staff and shareholders – then you’re probably in the right place.

If you need a PhD in mathematics to work it out, self-evidently it’s wrong. People don’t trust what they don’t understand.

MAIDEN Finally, what do you think is going to be the biggest change to remuneration policy that comes out of this?

COLVIN I think one will be something which we haven’t got on to: a focus on what does remuneration do in terms of the culture of the organisation, not only in terms of who we are and what we do, but the ethics and the whole structure that goes behind that.

EDDINGTON I hope that all this focus on remuneration which we’re seeing now will result in clear and hopefully simpler compensation packages for executives that are tied to the things that matter in the business.

O’SULLIVAN What ought to happen is that boards should understand that in relation to some of these bad remuneration policies, responsibility is with them.

If the same people repeat the same errors, then the ultimate recourse is to say to these people, “We really need to get somebody else in there.”

LAWRENCE What I hope will happen is that boards think about whattheir stance on executive pay says about their position with theirshareholders and with the community.

Trust is a precious commodity. It’s hard to get, very easy to lose.


SIR ROD EDDINGTON Chairman-designate of ANZ Bank. He is also a director of News Corporation and Rio Tinto and a former chief executive of British Airways. Chairs Prime Minister Kevin Rudd’s Business Advisory Council.

MICHAEL O’SULLIVAN President of the Australian Council of Superannuation Investors, which advises super funds on corporate governance and other investment risks. Deputy chairman of CARE Super.

MARTIN LAWRENCE Co-head of Asia-Pacific governance research for RiskMetrics, responsible for Australia and NZ proxy research. Former manager corporate governance at BT Financial Group’s Governance Advisory Service.

JOHN COLVIN Chief executive of the Australian Institute of Company Directors. A lawyer by training, he was formerly a partner at legal firm Freehills, specialising in employment law and corporate governance, advising companies on executive appointments.

Mark Davis, Political Correspondent
March 20, 2009

SENIOR Federal Government ministers plan an intense election-style campaign designed to direct worker anxiety over job losses against the Coalition and to put Malcolm Turnbull’s leadership under pressure if the Senate rejects Labor’s industrial relations legislation.

With the Government heading for a confrontation with the Senate, the Prime Minister, Kevin Rudd, yesterday accused the Opposition of frustrating the electorate’s will on industrial relations and exposing workers to having entitlements such as redundancy pay ripped away as the economy slowed.

The Workplace Relations Minister, Julia Gillard, said 700,000 workers would lose protections against unfair sacking under Opposition-backed amendments to the Fair Work Bill.

The Government plans to use the Parliamentary recess to re-run the 2007 election debate on industrial relations if the Senate waters down Labor’s unfair dismissal protections.

Mr Rudd made it clear yesterday that the Government would not accept amendments increasing the number of small businesses exempt from the bill’s full suite of unfair dismissal rules.

Under the bill, businesses with less than 15 employees would be allowed to sack a worker within 12 months of hiring the employee without any redress under unfair dismissal rules.

The Opposition, Family First Senator Steve Fielding and South Australian independent Senator Nick Xenophon were last night expected to amend the bill to extend these special rules to all businesses with less than 20 employees on a full-time equivalent basis.

The Government plans to keep Parliament sitting on the weekend if necessary so it can use its numbers in the House of Representatives to reject these amendments and send the bill back to the Senate. If the Senate then insists on the amendments the legislation will be defeated.

That would mean Labor’s reforms – new national employment entitlements, minimum wage-fixing arrangements and stronger legal backing for unions and collective bargaining – would be stymied and the former Howard government’s Work Choices legislation would continue regulating workplaces.

Mr Turnbull has said the Opposition would insist on its amendments. If the Government can persuade either Senator Fielding or Senator Xenophon not to insist on the unfair dismissal amendment, the legislation will get through.

If the legislation is blocked, Labor will bring the bill back when Parliament resumes in winter, setting up a potential trigger for a double dissolution election if the Senate fails to pass the bill a second time.

Mr Rudd said the Liberal Party was split into two factions: purists, led by the former Treasurer Peter Costello, who wanted to deregulate the labour market and pretenders, led by Mr Turnbull, who wanted to avoid a backlash from voters on industrial relations.

He predicted that Mr Costello would take over the Liberal leadership from Mr Turnbull. “It will be like Frankenstein having the electrodes reconnected as far as Work Choices is concerned.”

March 20, 2009 – 5:02PM

Mr Swan conceded forecasts predicting an unemployment rate of 7.0% next year are now dated.
Australia is likely to suffer a jobless rate above 7% because of the growing severity of the global economic recession, Treasurer Wayne Swan says.

A further downgrade in the International Monetary Fund’s (IMF’s) global growth forecasts suggests the federal government’s own outlook for Australia – devised only last month – is now outdated.

“So what we are seeing is a sharper contraction in the global economy and the consequence of that for Australia is slower growth and higher unemployment,” Mr Swan said.

He refused to make any predictions at this stage, saying updated forecasts will be included in the budget, due to be delivered on May 12.

In February, the government’s updated Economic and Fiscal Outlook forecast economic growth for Australia of just 0.75% for 2009-10 while predicting an unemployment rate of 7.0% next year.

In IMF staff notes from last weekend’s G20 finance meeting, released early on Friday, the institution said it now projected global economic growth would contract by 0.5% to 1% in 2009 on an average annual basis.

This would be the sharpest decline in global growth in the postwar era and a 1 to 0.5 percentage point downgrade from the IMF’s January forecast.

There was no specific forecast for Australia, but advanced economies are now expected to contract between 3% and 3.5% on average.

Opposition Leader Malcolm Turnbull says the Australian economy has likely entered a recession in the first three months of this year, at least in the technical sense.

In the December quarter, the economy recorded its first negative quarter in eight years, contracting by 0.5%.

A technical recession is defined as two quarters of negative economic growth.

“Certainly, there aren’t many people who believe that the March quarter will show positive growth,” Mr Turnbull said. “So, if it shows negative growth we are technically in a recession.”

Nomura Australia chief economist Stephen Roberts agrees.

“There’s no way under the sun that we can possibly avoid recession, and we are effectively in it anyway,” he said.

Mr Roberts is already more pessimistic than the government about the outlook for unemployment next year, with a forecast above 8%.

He may revise that up even further.

“It’s just the way in which the unemployment has gone up so fast, and we haven’t had the pullback in employment yet.”

The unemployment rate jumped to 5.2% in February from 4.5% in December.

The jobless rate was being bolstered by an unusually high workforce participation rate supported by the current economic climate, Mr Roberts said.

This was caused partly by people in their late 50s and early 60s putting off retirement because their superannuation had been “trashed” by global sharemarket volatility.

In downgrading its forecasts, the IMF urged governments to take further action to stimulate their economies.

Mr Swan said the government had already put in place stimulus measures worth about 2% of gross domestic product (GDP), an amount recommended by the IMF.

“Most of that direct investment kicks in in the second half of this year and through next year.”

Further measures would be undertaken if required, he said.

But Mr Turnbull said any stimulus must be responsible and deliver results.

“You can’t just say: ‘I’m spending money’ and call it a stimulus and that makes it effective,” he said. “You’ve got to make sure you get a bang for the buck.”

Jacob Saulwick and Phillip Coorey
March 19, 2009

THE existing contracts of executives will be unaffected by the clampdown on “golden handshakes” announced by the Government yesterday as part of its campaign against greed.

After months of railing against excessive executive salaries, the Federal Government flagged laws giving shareholders more power to control the size of exit payments granted to executives.

The Treasurer, Wayne Swan, also charged the Productivity Commission with a nine-month, sweeping review of executive pay, meaning further limitations could be imposed next year, before the federal election.

Mr Swan said the community was “rightly offended” by excessive bonuses paid to some executives. He framed the measures as necessary to rebuilding confidence in the economy.

“If there isn’t a level of trust between executives and workers and the wider community we cannot build a stronger economy for the future,” Mr Swan said.

Under the changes, the Government will lower the maximum payment a company can grant a departing executive without asking shareholders.

As it stands, companies can lavish exit payments on executives of up to seven times their annual remuneration without seeking shareholder approval.

The changes to the Corporations Act will make termination payments limited to one year’s base salary – excluding share options and other instruments used to drive up pay – before requiring shareholder assent.

The Government also widened the range of executives whose termination payments need to be put to shareholders. But the laws will not be retrospective, so they will have little effect on the current crop of executives.

The announcement will bolster the case the Prime Minister, Kevin Rudd, makes at the Group of 20 summit in London on April 2, where he will urge other nations to curb executive largesse. He will also be armed with as-yet-unreleased recommendations from the Australian Prudential Regulation Authority on reducing greed-induced risk-taking in financial institutions.

Mr Rudd has been coming under pressure from his own back bench to do more than talk about executive salaries.

Several MPs have raised the matter at successive caucus meetings over the past fortnight, citing anger in their electorates.

Last year Malcolm Turnbull said shareholders should decide the entire remuneration of executives and board members, not just their severance packages.

Yesterday the Opposition Leader said a review was not needed and his proposal was “the simplest and fairest solution”.

The Minister for Corporate Law, Nick Sherry, said the “retirement gold watch” had been “replaced by a truckload of gold bullion”. He cited as examples Owen Hegarty at OZ Minerals, who received a bonus of $8.35 million, and John Alexander’s $15 million bonus from Consolidated Media – as payments that would be difficult to make under the new legislation.

The director of the corporate governance advisers Riskmetrics, Dean Paatsch, praised the initiative. “I think they’ve got the balance right. They are acting to constrain the worst excesses of compensation structures.”

Allan Fels has been appointed an associate to the Productivity Commission and will help inquire into executive pay. The Government said all options are on the table for the inquiry, which will report early next year.

The chief executive of the Australian Institute of Company Directors, John Colvin, lamented not being consulted. “Acting in haste or going too far with legislative solutions could be counter-productive,” he said.

The Business Council of Australia said excessive corporate salaries “that have occurred overseas have not been such an issue here in Australia”.

Sandy Easterbrook, director of the advisory firm CGI Glass Lewis, said boards had responded to complaints about excessive exit payments and would no longer be likely to grant them. “It is shutting the door when you don’t need to,” he said.

Michelle Grattan | March 17, 2009 – 10:35AM

The Senate is likely to widen the net for small businesses exempted from the unfair-dismissal requirements in the Government’s Fair Work Bill, as the Opposition sharpens its attack on the bill.

Workplace Relations Minister Julia Gillard met Family First senator Steve Fielding and independent Nick Xenophon yesterday, but sticking points remained with each.

Both favour exempting more small businesses from unfair-dismissal procedures. Senator Fielding wants to exclude those with the equivalent of fewer than 20 full-time workers; Senator Xenophon would accept a head count of fewer than 20. The Government is persisting with a head count of fewer than 15.

The Opposition wants fewer than 25 full-time equivalents, well below WorkChoices’ 100, but would support the cross-benchers’ position when its own amendment failed.

The Government signalled last night that it is willing to give ground on unions’ right of entry to workplaces but wouldn’t go as far as Senator Fielding’s demand to exempt all small firms.

With its final position on the bill still to be decided but apparently toughening, the shadow cabinet will put extra amendments, described as technical, to today’s Coalition parties meeting.

In Parliament, the Opposition lashed out at Labor’s “job-destroying industrial relations changes”, while the Government claimed the Coalition still backed WorkChoices.

Challenging the Opposition to state its current position on WorkChoices, Prime Minister Kevin Rudd said: “I thought their position was that WorkChoices was dead. It is part dead, is it?”

Mr Rudd pointed to the “very pathetic spectacle” of Malcolm Turnbull being reined in not only on industrial relations and climate change but “right across the board”. Coalition policy development was “paralysed by the opportunism which arises from its own internal leadership conflict”.

Michelle Grattan and Peter Martin
March 16, 2009

AUSTRALIA’S intake of skilled migrants will be slashed by 18,500 over the next three months — 14 per cent of the annual intake — in a dramatic move to protect local jobs.

Less than a year after increasing the skilled migrant intake to record levels, the Rudd Government has responded to the deepening economic crisis by removing building and manufacturing trades from the list of workers Australia is seeking from overseas.

Bricklayers, plumbers, welders, carpenters and metal fitters will no longer get entry. The list of critical skills is now confined mainly to the health and medical, engineering and IT professions.

The cut reduces the skilled migrant intake for the 2008-09 financial year from 133,500 to 115,000.

The Government had already foreshadowed a reduction in skilled migrants — who form the bulk of the immigration intake — next financial year, with details to be announced in the May budget.

The decision to cut the number of skilled migrants now shows the Government’s growing concern about ballooning unemployment, which in February rose from 4.8 per cent to 5.2 per cent.

The official forecast of a 7 per cent unemployment rate by mid next year is certain to be revised up in the budget.

The deep cut in skilled migrant numbers follows December changes that meant only migrants sponsored by an employer or in an occupation on the critical skills list could get a permanent visa. Almost half the visas granted in this category are to people already working in Australia.

Immigration Minister Chris Evans promised further paring back of the critical skills list if warranted. “The Government will remove occupations from the list if demand for those skills can be satisfied by local labour.”

Senator Evans said the overwhelming message from business and industry “is that Australia still needs to maintain a skilled migration program but one that is more targeted so that migrant workers are meeting skills shortages and not competing with locals for jobs”.

There were still shortages in sectors such as health care. The measures will enable industry to continue to get the skilled professionals needed “while protecting local jobs and the wages and conditions of Australian workers”, Senator Evans said.

He added that the Government remained committed to a strong migration program. “Skilled migration plays a crucial role in stimulating the economy.”

The cuts came as Mr Swan signed an international communique agreeing to “fight all forms of protectionism and maintain open trade and investment”.

Finance ministers and treasurers from the Group of 20 large industrial and developing nations met in Horsham, south-west of London, to thrash out an agreement that committed them to “take whatever action is necessary until growth is restored” with the proviso that they kept their borders open.

“We will try to ensure that there is no intended or unintended trade protectionism,” said the meeting’s chair, UK Chancellor of the Exchequer Alistair Darling, speaking to reporters after the meeting.

Mr Swan told the ABC there had been little disagreement: “You didn’t see that in the meeting today. It was a very encouraging outcome. I’ve been coming to a number of these meetings over the last six months or so and today I saw a resolve we haven’t seen before.”

Ministers agreed to boost their contributions to the International Monetary Fund to let it help countries that can no longer get credit.

The leaders of the G-20 nations including Prime Minister Kevin Rudd will continue the negotiations in London on April 2. The global financial crisis will dominate Mr Rudd’s first face-to-face meeting with US President Barack Obama next week.

Mr Obama yesterday singled out Australia as a country taking appropriate action in the face of the global economic crisis. “Kevin Rudd has taken similar steps (to stimulate the economy) in Australia,” he said.

There’s a new force in town with extraordinary powers to find out everything about you, even if you don’t give it

It’s the Rudd government’s Fair Work Bill `police squad’ and it’s made up of union officials with powers of
inspection equal to police officers.

The Fair Work `police’, headed up by its ‘Chief Commissioner’ Sharan Burrow, has the authority to go into anyone’s
business uninvited and pore over private documents on all employees.

These documents include personal information and medical records.

“This is the scenario if the Rudd government’s Fair Work Bill gets the green light in the Senate and it’s anything but
fair. It fact, it stinks,” Family First Leader Senator Steve Fielding said today.

“If the Rudd government is so keen to give unions these extraordinary powers then it should establish a statutory
body so it is done fairly and within defined boundaries.

“I would be surprised if the ordinary worker supported this plan that gives a union unlimited access to private
information about them. I know that few employees would welcome it, particularly smaller businesses that have
little recourse but to agree.

“Big business has the muscle to look out for itself but vulnerable small businesses, often family businesses, will just
have to cop it and that’s not fair.

“The police are a statutory body. They are responsible for all citizens and they are partial. The unions, while
important, are anything but partial. The unions, while concerned for all workers, are responsible only to their
members. Family First cannot support granting powers of entry to the unions which will turn them into a law
enforcement agency.