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Achieving sustainable prosperity

By Shann Turnbull - posted Wednesday, 1 December 2010


A new tax regime is required to enrich all Australians without growth damaging the environment. The regime would provide businesses with bigger, quicker and less uncertain profits from a lower tax rate if they distributed their ownership to local stakeholders. In this way individual Australians would acquire ownership of income producing assets to yield them a diversified rich mix of dividends. With sufficient participation all voters would become financially independent of work, compulsory superannuation, welfare and big government.

Australian employees of participating businesses would obtain shares without cost in their employer. Executives would continue to manage participating businesses for all stakeholders. Other citizens involved as customers and/or suppliers would also acquire free shares in the businesses according to their patronage. In this way both domestic and foreign owned companies would transform into locally controlled enterprises.

As profits are reported after taking into account depreciation costs, there would be no change in profits by distributing the ownership of assets as the rate the assets are depreciated. However the new ecological tax regime would increase profits for firms that chose to participate. The lower rate of tax would provide a basis to attract more foreign investment but with "boomerang ownership".

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Boomerang ownership

Boomerang ownership removes the "unlimited, unknown and uncontrollable foreign liabilities" of foreign investment identified by Professor Penrose. Australia would become a richer country as the export of profits overseas was phased out. Australian balance of payments would be improved. Prosperity would be increased and widely shared with Australian voters.

Government tax revenues could increase as the tax base transferred from corporations to individuals who pay tax at a higher rate than corporations. In this way an ecological tax regime could raise more revenues for the government than was lost. The new tax regime could create a win, win, win outcome respectively for businesses, citizens and the nation. It is difficult to conceive how a tax regime that was introduced on a voluntary basis could attract political opposition.

It makes environmental and operating sense for transferred business assets to be largely controlled by individuals in the community where the assets are located. In this way communities can protect both their environment and their stakeholders in the most economic and socially responsible manner. It would avoid resource rich communities being cash poor.

An ecological tax regime could be far more beneficial and raise more revenue than a tax on a few resource companies. All commercial investors would obtain the opportunity to increase their profits with many citizens obtaining additional income from asset ownership. Over the long run, national income could be distributed with less taxes, welfare and big government. Full employment policies could be replaced with policies of fulfillment in employment or retirement leisure.

Multiple revenues and benefits

The tax concessions required to introduce an ecological tax regime are not substantial. This is because equity investors discount the value of cash received in the future. The value of future cash is discounted at a compounding rate from the lost opportunity to earn interest today. More importantly equity investors are not fortune-tellers, so they will ignore receiving any cash beyond the foreseeable future. This is likely to be less than ten years. The discounting of future cash values means that even if investors could foresee the future after 20 years it would still be more profitable for investors to give up all ownership after this time in return for just 3% more cash in the first year.

The largest investors in public companies are superannuation funds and other fiduciaries with a duty to maximize returns. A modest tax incentive could obligate fiduciary shareholders to vote for changing corporate constitutions so that corporate property rights transferred to a new class of stakeholder shares.

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Only Australian voters and/or their nominees could become owners of stakeholder shares. Australian executives would obtain an incentive to maximize residual values for themselves and so all Australians. Stakeholder shares could be issued in a similar way to fly-buy points issued to customers but extended to individual working in the business and/or suppliers.

Tax equity and efficiency

At present both foreign and local business investors can recover the cost of their investments on a tax-free basis while owning their assets indefinitely. However, individuals can only pay off the cost of their homes with after tax income.

The loss of tax revenue to the government from businesses recovering the cost of their investments on a tax-free basis must be offset from other taxpayers like homeowners. If businesses are to maintain this tax advantage it seems only fair for citizens to obtain ownership of the assets written off by businesses from their tax advantage.

There would be no limit on the profits commercial investors could obtain while they recovered the cost of their investment tax-free. Corporations participating in ownership transfer could raise new funds to grow their business from dividends re-invested by their shareholders. The re-investment of dividends could be made through new "off-spring" corporations. Much higher dividend payouts would be expected because of the reducing ownership of future earnings.

An additional incentive for firms to become a stakeholder mutual would be to exempt firms from making superannuation contributions. With sufficient firms participating the need for government expenditures on health, education and pensions could be substantially reduced, as citizens became financial independent with social dividends.

Social dividends provide the most efficient method to provide a universal guaranteed minimum income. Efficiency becomes more important in economies with declining populations and their citizens living longer without working. During this century all nations in the world are expected to follow advanced countries with declining populations. An ecological tax regime makes it political attractive to accelerate global prosperity without growth sooner to protect the environment. Australia could become a role model for the world in pioneering ecological capitalism to sustain both nature and society.

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About the Author

Dr Shann Turnbull BSc (Melb); MBA (Harvard) is the Principal of the International Institute for Self-governance based in Sydney and a co-founding member of the Sustainable Money Working Group established in the UK. He is a founding life Fellow of the Australian Institute of Company Directors, Senior Fellow of the Financial Services Institute of Australasia, Fellow of the Governance Institute of Australia and Fellow of the Australian Institute of Management. He co-authored in 1975 the first course in the world to provide company directors an educational qualification and wrote Democratising the Wealth of Nations. His bibliography reveals he is a prolific author on reforming the theories and practices of capitalism.

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