Welcome to Edition 37 of Boardroom Brief.
This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.
KEY BOARDROOM BRIEF
Productivity Commission releases draft report on horizontal fiscal equalization. The Turnbull Government welcomes the Productivity Commission’s (PC) draft report on horizontal fiscal equalisation (HFE). The draft report provides a comprehensive analysis of HFE and how GST revenue is distributed to the States and Territories, the impact of the current method on national productivity, efficiency and economic growth, and how this could be better achieved. The draft report affirms the benefits of HFE and finds that Australia does better than any other comparable federal system in the world in how we seek to deliver HFE. However, the PC also finds that the system goes too far, creating significant weaknesses. The PC finds that the way ‘same standard’ has been defined for HFE purpose has crept upwards over time, making the system less able to deal with economic shocks that have an uneven impact across the states, producing unforeseen and unfair outcomes, what they describe as ‘unfair equality’. The report recommends that ‘revising the objective of HFE would be in the best interests of national productivity and wellbeing’. The Productivity Commission is undertaking a further round of consultation to gather stakeholder views on the draft report. Submissions are due by 10 November 2017. There is enough in the Report for both sides of West Australian politics to say “I told you so”; but the more important take-out is the need for broader ranging tax reform to boost national productivity, something the business community has been pushing for over more than a decade. See draft report on the Commissions website and Treasurer of Commonwealth of Australia, the Hon Scott Morrison’s media release.
ASIC and RBA welcome the publication of ASX BBSW Trade and Trade Reporting Guidelines. ASIC and the Reserve Bank of Australia (RBA) have welcomed the publication of the ASX BBSW Trade and Trade Reporting Guidelines (ASX BBSW Guidelines). The bank bill swap rate (BBSW) is the major interest rate benchmark for the Australian dollar and is widely referenced in financial contracts. A major concern over recent years has been the low trading volumes during the rate set window, the time of day that BBSW is measured. In response, the BBSW methodology is being strengthened to enable the benchmark to be calculated directly from a wider set of market transactions. ASX, the Administrator of BBSW, has been consulting market participants on this new methodology with the strong support of ASIC and the RBA. Directors should be aware that it is possible we will see more major corporate contracts move away from BBSW as a primary interest rate benchmark. See ASIC’s media release.
Uber reforms. Newly appointed Uber CEO Dara Khrosrowshai has kickstarted a reforming era for the ride-hailing giant, winning a series of unanimous votes for governance changes at September’s board meeting. According to the New York Times, Khosrowshahi and investment bank (and Uber investor) Goldman Sachs had circulated the governance proposal to the Uber Technologies Incorporated Board prior to the 3 October 2017 meeting. Japanese conglomerate SoftBank had stipulated the reforms as a condition of a deal to invest more than a US$1 billion investment in Uber. According to meeting attendees who requested not to be identified in media reports, the approved governance changes include: removing special voting power for Uber’s two stock categories; adding six new seats to the 11-person board and setting a deadline for taking Uber public by 2019. The Uber example is a case in point for Directors as to why culture matters, particularly in the current era of social media and the intense scrutiny perceived violations of societal norms (a lesson the Hollywood film industry is also starting to learn).
ATO publishes large corporate groups tax gap. ATO has published Tax and Corporate Australia, a new publication about the tax affairs of the large market which includes the large corporate groups’ tax gap. The large corporate groups’ tax gap is an estimate of the difference between the tax the ATO collects from these taxpayers and the amount that would have been collected if every taxpayer was fully compliant. The net large market tax gap is estimated at $2.5 billion, or 5.8 per cent. The size of the large corporate groups’ gap reflects a tax system that is operating well, demonstrates a high degree of voluntary compliance, and compares favourably with other international jurisdictions – for example, the United Kingdom, which has a gap of approximately 5–6 per cent. The ATO, in particular through the Tax Avoidance Taskforce, is focused on identifying, managing and sustainably reducing it over time. See ATO’s media release.
THE WEEK AHEAD
Energy Markets in Transition. In January this year, as the Australian policy debate was starting to heat up, two senior members of Gilbert + Tobin’s energy regulation team, Simon Muys and Geoff Petersen, headed to colder climes for a two-week study tour. The purpose of this tour was to seek global insights and perspectives on the challenges facing our energy markets, regulation and policy. During the tour, Simon and Geoff met with and discussed current trends in energy market regulation and transformation with a range of leading new energy businesses, utilities, policy advocates, regulators and academics. See G+T’s client publication Energy Markets in Transition: Insights from a Gilbert + Tobin global fact-finding tour.
Politics in flux. The arguments have been heard and the High Court must now decide the fate of seven parliamentarians who face questions under s.44 of the Constitution. Directors dealing with Federal Government stakeholders should bear in mind the potential for political and regulatory risks to rear their heads over the next few weeks, just as Parliament sits again in Canberra.