Build it and global investors will come

M4 Westconnex Concord tunnel breakthrough. Premier Gladys Berejiklian in attendance. Pic Nick Moir 27 july 2017If you’re a little cynical about big foreign-owned businesses pushing for a lower company tax rate, you’ll love this: the poor babies are spitting the dummy over a threat to the 15 per cent tax they’re charged on n infrastructure investment profits.
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And that’s if they even pay that much.

As Michael West has reported on these pages in the past, infrastructure players use a “stapled” structure to run rings around the tax man. When the company is local, such as Transurban, the tax burden is passed on to the unit holders of the trust structure. When the company is foreign, well, who knows what tax might or might not be paid.

The idea that this tax benefit could be under threat is one of the reasons given for big investors being a little less keen on the idea of putting money into n infrastructure projects, according to a survey run by Infrastructure Partnerships and Perpetual.

The n Financial Review reports 70 per cent of the 26 big global and n investors surveyed this year said they were “highly likely” to invest in n infrastructure, down from 94 per cent in 2016.

The investors have some legitimate reasons to be a little less keen – energy concerns, the federal government being more talk than action on funding, state governments flip-flopping on projects, our waffly politics in general.

But the gem in the list of complaints is the idea that investors might actually have to pay a half-way reasonable amount of tax on projects that they generally like to see quasi-underwritten by governments anyway.

As the AFR’s Jennifer Hewett reports, stapled structures are attractive to foreign investors because, when combined with rules for managed investment trusts, they allow tax to be paid at 15 per cent or lower.

“The government is worried companies in other areas have been able to re-characterise trading income into more favourably taxed passive income,” she writes.

“Although the industry is relieved the government acknowledges the problem, it adds to unease about sudden and unexpected changes in policy in .

“Taxation benefits in are already viewed as ‘below average’ by almost half. The bank levies imposed by the federal government and the South n government also had a negative impact on investor sentiment.”

Rich, isn’t it? Investors driving B-Doubles through the tax system spitting the dummy about even the possibility of change.

The reality is that the world is awash with capital looking for a half-decent investment.

The WestConnex model to be increasingly used here in effect sees government de-risking the project and then selling it off to the investors.

If the investors do their sums correctly, they get fat, reliable income streams from stable infrastructure projects in a country that is rich and enjoys the rule of law.

For all the cry-babies’ lobbying, put on a good project and they will come. The more common complaint is that there just aren’t enough projects they fancy.

In any event, Tony Harris’ Law applies: Everything is capitalised. Whatever the policy mix used by government, it gets built into the price. The show still goes on.


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