Letter to AFR
1 July 2011
Tax uncertainty takes its toll
PUBLISHED: 01 Jul 2011 PRINT EDITION: 1 July 2011
Tax Office second commissioner Bruce Quigley asked for facts to support what he termed “baseless” and “scaremongering” statements that tax treatment of private equity has resulted in reduced investment in Australia (“Mergers activity triggers greater scrutiny”, June 30).
I would be pleased to provide him with some. Current fundraising by Australian private equity funds is at its lowest since 2005, and unfortunately is trending even lower.
Private equity and venture capital funds are used to invest in start-up, small and large enterprises, the sorts of companies engaged in innovation which Prime Minister Julia Gillard says is “crucial in driving economic prosperity and social and environmental well-being”.
That Australia needs foreign capital is surely not in dispute. Without it we would not have the prosperity and the industries that Australia’s economy has come to rely on.
The continuing uncertainty of the tax treatment for investors means that Australian companies trying to raise those much-needed foreign funds for expansion and innovation are finding it very hard to do so.
In 2008, Australian private equity and venture capital funds raised over $3 billion, in 2009 that figure dropped to $1.6 billion and last year to $1.3 billion and the downward trend looks set to continue.
Overseas investors make it very clear to Australian fund managers trying to raise new private equity funds that the continuing tax uncertainty is negatively affecting the attractiveness of Australia as an investment destination.
This is not scaremongering, but simply reporting the facts.
Dr Katherine Woodthorpe
Author: Kosta Sinelnikov, Senior Research Analyst, AVCAL