February 17th 2007


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Articles from this issue:

EDITORIAL: The Qantas buyout - how to avoid tax

SCHOOLS: Education or political indoctrination?

CANBERRA OBSERVED: Eight months for Howard to claw his way back

WATER: PM puts water on the agenda, but ...

BUSHFIRES: Fuel-reduction burn-offs needed - ACT Coroner

STRAWS IN THE WIND: Double double, toil and trouble / Choosing a new battlefield / Immigration mess / A fire sale for DFAT?

INTELLIGENCE CORNER: The next socialist Shangri-La / Downplaying the Islamist threat / Beware the Bear

INTERNATIONAL AFFAIRS: Pakistan feels jilted by US-India nuclear deal

SPECIAL FEATURE: The legacy of B.A. Santamaria

MARRIAGE AND FAMILY: Rights and wrongs in relationship recognition

PREGNANCY COUNSELLING: Health Minister Abbott's initiative attacked

OPINION: My unhappy memories of Julia

SCIENCE: WA bid to host $2 billion radio telescope

Milton Friedman let off far too lightly (letter)

Free-market capitalism and Christianity (letter)

The enemy in our midst (letter)

Nativity film defended (letter)

CINEMA: Heroism amidst inhumanity - Blood Diamond

CINEMA: Enchanting story for all ages - Miss Potter

AS THE WORLD TURNS: Those with superior intelligence need to learn to be wise

BOOKS: TREASON IN TUDOR ENGLAND: Politics and Paranoia, by Lacey Baldwin Smith

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EDITORIAL:
The Qantas buyout - how to avoid tax


by Peter Westmore

News Weekly, February 17, 2007
Allowing the buyout of Qantas could open the floodgates to companies which want to reorganise their affairs to avoid paying tax.

If, as expected, Australia's flagship airline Qantas becomes a private company owned by a consortium, including Macquarie Bank, Allco Equity Partners and the American-owned Texas Pacific Group, it will rewrite the rules of corporate buyouts by paving the way for companies to operate effectively tax-free, and without some of the regulations which apply to other Australian companies.

Qantas is a highly profitable Australian company, making about $480 million last year, despite record high prices of aviation fuel.

For many years, Qantas was a government-owned corporation, but was privatised by the Keating Government in 1993. Despite its privatisation, it continues to operate with substantial public support. This includes the fact that government employees travel only on Qantas, while the Federal Government has protected Qantas by rejecting many attempts by foreign airliners to operate the lucrative trans-Pacific route between Australia and the United States.

Without these concessions, Qantas would probably have folded long ago.

While Macquarie Bank is being described as leading the consortium which will buy Qantas, the capital to finance the takeover comes from overseas.

Extraordinary statement

In defending the plan to de-list the company in what has been called a "private takeover", it was extraordinary that Qantas Chairman, Margaret Jackson, should say that the Qantas Board supported the move, as the requirements of Australian company law are too onerous.

As a privately-owned company, Qantas will be exempted from much of the regulatory scrutiny which applies to public companies. This scrutiny is designed not only to protect shareholders but the public interest as well.

Last year, Qantas announced plans to shut down maintenance operations in Australia and move them off-shore with the possible loss of over 2,000 of the 37,000 jobs at Qantas. The moves were put on hold, following a public outcry. This followed moves to hire and locate flight crews overseas.

Qantas management has long been frustrated by what they describe as a lack of workforce flexibility — which have now largely been removed by the Federal Government's new industrial laws. The new ownership structure is unlikely to improve job security at Qantas.

The structure of the takeover is such that the top management of Qantas will be unaffected, so the intention is not to change the company's direction: the change in corporate ownership is intended to free both new owners and management from the restrictions of Australian corporate law.

It is important to understand how the buyout of Qantas is being financed. The corporate financiers will pay shareholders $5.60 per share, and will finance the takeover by borrowing some $8 billion from abroad.

The borrowers will have to repay both capital and interest. The annual interest payments on these borrowings, which are expected to be about the same size as Qantas's profits, become a business tax deduction.

The interest payments on the $8 billion loan will effectively mean that Qantas makes little or no profits, which are swallowed up in interest payments. Qantas therefore will pay little or no company tax.

What are we to make of the statement by the Federal Treasurer, Peter Costello, on February 6, that "the Government will require that Qantas has majority Australian ownership, that it be under Australian control, that it be located in Australia and that the airline continue to serve important domestic and regional routes"?

This statement conforms exactly with what the takeover partners promised on December 14, 2006. At the time, a media statement issued on behalf of the buyout consortium, Airline Partners Australia, listed "key benefits" of the takeover as:

• The airline remains majority Australian-owned;

• More than two-thirds of the Airline Partners Australia Board will be Australian citizens; and

• Compliance with all ownership laws and regulations.

It further quoted Bob Mansfield, a spokesman for the consortium, who said: "Qantas would retain the current Australian management and their growth strategy, a strategy that does not involve a break-up of the airline, cuts to regional services or the movement of maintenance operations offshore."

On the issue of the new owners' tax liability, the Treasurer was strangely silent.

If the takeover is permitted, the Treasurer is giving the green light to every other major Australian company to reorganise its affairs to avoid payment of company tax which, in 2004-5, yielded over $40 billion to the Federal Government.

Qantas is not the first company to reorganise its affairs to avoid Australian law. James Hardie Industries, the major building materials group, announced in July 2001 that it would shift its base to the Netherlands to minimise tax charges. It was also believed to have done so to avoid liability for the asbestos-linked disease, mesothelioma.

However, if the Qantas move is successful, it will open the floodgates.

— Peter Westmore is national president of the National Civic Council.




























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