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Inside Business -

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(generated from captions) Especially when he gets the final

word. As soon as the politician

leaves the word, he keeps talking.

We've got a minute left. Final

observation, prediction? Stay tuned

for coalition angst over the

prospect of a reshuffle and Mark

Vaile standing down from Mark Vaile

. Ian Macfarlane would like the job. Liberals are saying there's

good reason to leave it as a job. Liberals are saying there's no

National Party portfolio per se,

given that our trading interest

changed and given their a bit cross given that our trading interest have

with the National Party generally.

On for young and old, I think.

If John Howard was watching the

carry on of the Nine Network this

week he might have second thoughts

about leaving. Kerry Packer's been

gone six months and the place

wouldn't look like it can run

itself. I think we'll see exactly

that this week, with John Howard

back from an extended period

overseas, this trip to Indonesia,

and America, and I think we'll see

an extraordinary focus on domestic

politics in the next .about leaving. Kerry Packer's been back from an extended period

Thanks Barrie. G'day. Welcome to the program. a new financial year, Well this week, as we usher in Tax Commissioner Michael D'Ascenzo we'll catch up with new James Hardie ruling to talk about the contentious and his ambitious plans does its business. to change the way the tax office And with General Motors announcing

will go, that a third of its workforce the giant car maker crashed we will look at how and whether it's a write-off. And in First Person - and cheap imports. battling oil prices in plastics. The key to success and we deal with it as best we can We take it in our stride was known for the next 10-15 years but, you know, if everything would it? business wouldn't be very hard your papers Well, as you start ferreting around in order, getting this year's tax returns Michael D'Ascenzo. spare a thought for Tax Commissioner in a political storm This week he found himself by James Hardie after ruling that the fund set up to look after victims of asbestosis and should be taxed. was not a charity very big jobs ahead He has also got a couple of in tracking leaking revenues of the way tax is collected. and designing a radical overhaul I spoke to Michael D'Ascenzo in the tax office's top job. as he marked his sixth month can we start with James Hardie? Well, Michael D'Ascenzo, There seems to be an inconsistency now are tax deductable in that payments by James Hardie is not a charity, yet the Special Purpose Fund and Compensation Fund is a charity. whereas the Medical Research to be inconsistencies there? So could you explain what seems where, of course, Well, Alan, we started on an area to talk about taxpayers the law doesn't allow me does is to have to apply the law to and ultimately, what the Tax Office the facts of a particular case, the material facts so in situations, a fund - or changes in, for instance, to others charitable purposes, one fund might distribute funds might not distribute it that way. another fund It can make a very big difference. So ultimately what we do the fund complies with the law is try to look at whether or not that way. and then we have to call it great public interest But this is a matter of are talking about it and the taxpayers themselves so it would seem to be a case clearly what is going on there, where you could at least explain in, perhaps, in a broad sense. Well, the broad sense is that between the funds obviously there's a differences and ultimately, the best way to make that clear to be made public, would be for the various fund deeds funds to do that, but that's a matter for the various not a matter for me. The effect of it seems to be statements that despite the quite strong and the Prime Minister by the Treasurer on the subject, are tax deductable, James Hardie's payments in the hands of the beneficiaries - yet the money virtually the asbestos victims - is not tax deductable. something like $1.4 billion in tax. In fact, is going to cost them The situation is simply this - for any fund, compensation fund, for personal injuries where someone pays compensation that's on capital account, it's not taxable to the victim. In relation to funds, or they're not charitable. they can either be charitable They're charitable if all the funds - can only go to charitable purposes. all the disbursements of that fund they're charitable. And if they meet that criteria, they're not. If they don't meet that criteria, If they're not charitable, any amounts in the fund - then the income that they earn on over and above the amounts - and this is just income like any ordinary taxpayer. is assessable So you seem to be suggesting status of the Special Purpose Fund that in order for the charitable to change, the fund itself, they would need to change that your ruling is final? in the charity side. The ruling is final

back to us I mean, taxpayers can always come all the time. and explain - talk to us if we've misunderstood the facts - If they've got facts that change, happy to take that on board

in a judicial sense, and ultimately they have some rights as we see it. but we have to call the position Well, just moving on then. high-wealth individuals program In May the ATO talked about its and the taskforce high-wealth individuals is growing and the fact that the number of they have got is also growing, and that the amount of money that share market is booming which is understandable since the and property is booming. Yet in June, it was revealed

high-wealth individuals that the tax collections from to $117 million. had fallen in 2005 from $400 million the other way? So shouldn't it be going what compliance is all about. I think people misunderstand being the amount of money People talk about collection we go out and collect from people. of tax administration The whole art is trying to create an environment where people voluntarily comply. So the fact that you are out there providing a real deterrent is all about trying to ensure that you don't have to catch anybody out. It's all about trying to get people to pay up. What those collection figures don't disclose

is the higher level of voluntary compliance by that segment. There seem to be some inconsistencies that have been raised recently, in particular, there was the case of the Queensland mechanic who was sent to jail for 12 months for failing to declare $160,000 around about the same time the former Reserve Bank director,

Robert Gerard, and his company were able to settle for $75 million. Now, I understand you can't talk about individuals but there does seem to be some inconsistencies there. Well, people talk about that and you can do that but without really knowing all the facts of each case... ..I mean, we have guidelines with the Director of Public Prosecutions where we have an obvious situation where someone has sought to defraud the revenue. We refer the matter to them. The Director of Public Prosecutions makes a decision, "Yes, we will pursue this in the courts," and the courts make out an area of whatever judgement they think is appropriate. In another situation, we have a matter that may not be free from doubt, where the evidence doesn't, on its face, indicate a strong likelihood of success we get advice from external counsel, we get advice from internal counsel. We see what is in the best interests of the Commonwealth overall. And it's all documented, it's all above board and it's all open and transparent in terms of external scrutiny. Wen you joined the Tax Office in 1977, it was the height of the bottom of the harbour boom

and you were quoted as saying that it was really exciting to be part of that at the time. What do you find exciting now? What is exciting now

is the fact that what we do in the Tax Office

is all about trying to create the level of fairness. Like I explained beforehand in relation to high-wealth individuals, the aim there is to try to encourage people who do the right thing, who want to do the right thing, to do so. And you have to have that by trying to help people, trying to make it easy for people and also, ultimately, ensure that those ones that don't want to do the right thing have some consequences, so that there's a fair playing field - where people are not at a personal or competitive disadvantage. I find that very exciting because ultimately it's a very important role for the community. You've been talking lately about small business tax debts getting quite high. At some point, do you have to stop talking about it and actually start foreclosing on small businesses who have got to the point where they can't control their debts and is there a political problem in doing that? I think people don't like anyone being heavied unnecessarily

and I think we all agree that it's best for people to be there continuing in business

and making good productive worth for the economy rather than having them out of business, but it becomes a question of fairness there as well. If someone is continually running their business on tax debts,

then they're at a competitive advantage to people who are trying to do the right thing. So there has to be that level playing field between people who pay their tax and people who don't and it's only really at the last resort where we say, "Look, it's just not going to work and it's unfair for others "to allow you to continue to trade off the community". Have you figured out your audits on this year? where you are going to focus that we'll release in August, We've got a major compliance program but for individuals, the individual level. tax time's usually more at of very large work-related expenses, I mean, it's the usual sort of areas large rental claims, of sales of major assets, shares. capital gains tax implications areas of focus They're areas that are going to be in terms of our follow-up. that's one side of the coin. But again, for the Tax Office The main side of the coin through the process, is trying to help people allowing them to get the entitlements that they can. For most taxpayers, most individual Australians, tax time is a time when they can expect a refund, which they're entitled to. Just one final thing - one of the things you have inherited here is a huge project to rebuild the tax office system which is going to take a few years and hundreds of thousands of man days, and so on. Is one of the things that you will come out of that with is the Scandinavian-type system where you will, as it were, tax returns before they get them? pre-populate or pre fill-in people's trying to achieve? Is that what you are in a number of different areas Well, I think it works and that is certainly one area see what we can do where we are continually trying to to pre-populate the returns

just to help people save the expense and put it in of having to find these details actually in the last Budget, and the Government, to continue pilots in that area gave us some more money that we will grow and explore so that is an area and use as much as possible. So people would get a tax return that was already kind of half filled in, is that the idea? As much as possible, that's right. And that would save people having to find the bits and pieces of information and then to put that information into the returns themselves. Because they will be got from the share registries? Share registries, financial institutions, banks, employers, and off we go. The more you can think of, the more we can start to pre-populate. It's still up to the taxpayer it meets their requirements to have a look at whether or not on the return. and then sign off ultimately We'll have to leave it there. Thanks very much, Michael D'Ascenzo. Pleasure. the week's market and business news Now with a wrap-up of here's Kate Tozer. Money poured back into shares after the US Federal Reserve hinted in interest rate increases. towards a possible pause Rates rose by 0.25% the Fed than some had expected. but it was a softer approach from are set to merge Steel giants Mittal and Arcelor in a deal worth US$32 billion, larger than the nearest rival. creating a company three times In other takeover news, mining company Phelps Dodge has bid US$40 billion for two nickel companies - Inco and Falconbridge.

And music labels EMI and Warner

have lodged hostile $4.5 billion bids for each other. On Wall Street's close, the major indices were weaker. Blue-chip stocks fell 41 points and the S&P 500 and Nasdaq were also lower. Over the week, the US market gained more than 2%. London's FTSE finished at a six-week high.

near-3% rally. Stocks in Germany staged another Japan's Nikkei Index rose 2.5%.

financial year on a positive note, The Australian market closed the explains. as Tom Elliott from MM&E Capital interest rate rise The smaller than expected US sent most stocks soaring,

and wallets thus gladdening the hearts around the country. of fund managers the end of financial year rally Still, only reinforces the sceptics' view that the share market is likely to the extreme volatility continue displaying over the past two months. experienced Telstra was steady despite the CEO Sol Trujillo demonstrating he still lives in a type of business twilight zone when he claimed he was actually proud of Telstra's 30% share price decline over the past year. Sol's musings failed to impress the Prime Minister,

who, as a 50% owner, said he was concerned with the share price. On the steel making front, there was plenty of action. Courtesy of OneSteel, Melbourne's Smorgon family for Smorgon Steel finally received the takeover bid they had been waiting for. Bluescope Steel Potential counterbidder and job cuts announced both a profit downgrade and rising input prices. due to weakening demand Graeme Samuel and the ACCC the domestic steel industry will be having a close look at before approving any takeover bids,

Smorgon's to be somewhat drawn out. so expect the potential battle for the best share market performers Mining stocks have been among this year on the back of soaring metal prices. and Zinifex are all stand-outs, Oxiana, Paladin Resources but a rampant gold price like Sons of Gwalia has not prevented mid-cap producers and, more recently, Croesus Mining going bust. Automotive suppliers Repco and Nylex are among the companies doing it tough. They've been hit by the perfect storm of rising fuel prices, fierce global competition and in Australia, an increasingly open car market. Repco will probably pull through, but Nylex my soon be having to ask major shareholder Kerry Stokes to reopen his wallet and stump up some more cash if the company is to survive. is Village Life, The winner of the week which jumped 60% to investment group MFS. after selling 23 retirement villages an alternative energy company, The loser, however, is Geodynamics, which fell to a three-year low to its drilling program. after a major setback

This week,

the US car industry was on show the depth of the crisis in with the news from General Motors would leave the company that one-third of its workers by the end of the year. announcement from Delphi, When taking into account a similar a key supplier of GM's components, 50,000 jobs have been lost in the latest round of cuts. It's an attempt to get the one-time industrial powerhouse of Detroit back in the race and, as North America correspondent Michael Rowland reports,

it could have ominous implications for Australia's car and parts makers. As a handyman, Jerry Mellon comes better qualified than most. The trained electrical engineer enjoys helping out at this church in the rough end of Flint, Michigan, but he spent most of his life worshipping at one of the countries biggest corporate temples. General Motors in 1972. Well, I hired into My father worked there before I did. before he did. My grandfather worked there for all of us. It's kind of been a family adventure Jerry Mellon about six years ago That adventure ended for after 34 years, when General Motors decided that the company didn't need him anymore. because of - You know, they had to cut back was foreign vehicles. their excuse at the time So, when they started cutting back, we started losing jobs. all the big American car companies. It has been a constant theme at Mass sackings and factory closures have been a way of life now for decades, but it has never been as grim this. We have worked our whole life here and then at the very end, someone is going to pull the rug out. Now, as long as they're building new factories around the world, we don't think it's fair. The American workers should have their jobs right here. not in China, Japan, Korea, wherever. Over the last five months,

General Motors and Ford have announced 6 o,000 job cuts and at least 28 plant shutdowns across the US the corporate road. as they struggle to stay on a staggering $14 billion. GM posted a loss last year of In the last week, the company has revealed has accepted buyouts nearly one-third of its workforce by the end of the year. and will be out the door sustained profitability and growth, Our goal is to structure GM for for years to come to set us up to be successful global auto industry. in an ever more competitive It's a crisis, absolutely required a crisis but frankly, this industry to do big things, to bring the sense of urgency big things is happening right now. and that kind of process of doing We are going through just a massive restructuring,

and survival is not assured in this industry.

NEWSREEL:The parade of new cars starts across the stage.

Not so long ago, having a Buick or a Cadillac in the driveway

was an essential part of the American dream. NEWSREEL: The new Chevrolet Bel Air. What was good for General Motors, so the saying went, was good for America, and just like the country, think of themselves as invincible. the big US car companies came to Up, up, up, up! and back down again! Hold 'er Joey, Well, they became inefficient a virtual lock on the US market. during the period where they had They raised their wages too much. They promised their workers too much to living too well. and they all became used It was a good place to work. of their people. I mean, they took care you made good money. You had good benefits, it was clean, understanding with each other. the union and management had a good I mean, nobody was at anybody's throat. Workers like Jerry Mellon took home big pay packets and even after they leave General Motors, they still enjoy one of the most generous health care and pension schemes in corporate America. Now all this was fine while the companies were actually making money, through building and selling cars Americans wanted to buy. But, as the competition intensified and Americans lost the compunction to buy local, themselves extremely vulnerable. the titans of Detroit suddenly found really two huge issues. A company like General Motors has particularly health care. One is the legacy cost issue, They have three retirees for every active employee, and that burden is in the area of US$1,500 to US$1,600 per car. The other is excess capacity. They have been running at about 85% of capacity and excess capacity, unfortunately, is a fixed cost in this industry here with the union contracts. David Cole is one of America's top car industry analysts. The son of a former GM president, he says these financial burdens

are forcing the big US car companies to stay in the slow lane in the intensely competitive car market. They are running a race and they've got an extra 20-pound weight to carry, or they're trying to hop on one leg, and it's a tremendous challenge to do that, potentially a fatal challenge.

It's already been fatal for dozens of cities and towns where the big car companies serve not just as the main employer, but also the source of considerable civic pride. Flint, Michigan was once the epicentre of General Motors' manufacturing operations. It is now an industrial ghost town. Waves of brutal cost-slashing and job cuts have sucked the life out of this once thriving community. Its streets have become just as derelict as GM's balance sheet. Spend some time in a place like Flint and it's very easy to get the impression the US auto industry is well and truly on the skids. Behind me is what's left of Buick city, once the jewel in General Motors' corporate crown.

A place where hundreds of thousands, if not millions, of gleaming new vehicles rolled off the assembly lines, now lies in ruins. But areas like this don't provide the full picture of where car manufacturing is heading. In fact, a few hundred kilometres south of here, the industry is undergoing something of a revival. But it's not American companies in the driver's seat.

Asian care companies like Toyota and Kia are busily opening factories in southern American states, attracted as much by the generous financial incentives as they are by the more agreeable weather. We think that it opens up an opportunity that we otherwise would not have had, and placing this where they did is going to be good for Alabama. It's not just coincidence

all the Asia car companies are setting up shops down south. In bypassing Detroit, they are out of reach of the powerful auto unions and can staff their factory floors with much more flexible employees. But the true secret to the Asian company success is a basic corporate tenant that American competitors lost sight of years ago.

Focused on making a product that people want to buy and keeping their cost down, they recognise that in the end you can only pay people the value they create. so they pay their workers well, but they don't pay more than they can fetch in the marketplace for their cars. As they struggle to stay afloat, the American companies are pinning their hopes on rapidly accelerating overseas markets, such as China. Cars that are considered passe in the US have emerged as must-have status symbols on the streets of Beijing. The Detroit market has been around for a long time. There is an ageing workforce. There are legacy costs. We are starting from a fresh situation here and we are able to create a modern General Motors in China. The future may not be as promising for the Australian subsidiaries. After all, in Australia, the market isn't large enough

to design cars merely for the Australian market. The Australian manufacturers or the manufacturing arms of Ford and General Motors in Australia are dependent on the worldwide operations of those companies for vehicles to produce. My concern is that within a few more years, the General Motors and Ford will lose their ability to design competitive products for any market. The decisions being made in Detroit

will indeed have global implications. A city equally famous for its upbeat music could have something much more baleful in store for Australia's car industry. SAXOPHONE PLAYS Happy new financial year - and happy it is. The All Ordinaries went back over 5,000 on the last day of the year, making it a third 20%-plus total annual return in a row on the stock market. And to help us celebrate, we get a tax cut. The top marginal tax rate is now 45% and you only pay it if you earn more than $150,000. The second-highest rate is down to 40% and kicks in at $75,000 and the 30% rate applies from $25,000. The tax offset for low-income earners rises from $235 to $600 and seniors will pay no tax at all on income up to $24,867

and $41,350 for couples. Oh, and the baby bonus goes up from $3,166 to $4,000, and money out of super has been made tax-free for the over-60s. The commodity boom largesse is being sprinkled like fairy dust - investors, savers, retirees, young breeders, low-income earners, high-income earners - everyone's a winner. And it's happening in the best possible way - super and tax cuts, not wages. Maybe this resources boom will not end in tears with a wages break-out, high inflation, high interest rates and recession like the last two. This time, wages are growing at a pretty reasonable 4-5% and part of the reason for that

is that we're getting it in tax cuts and investment returns instead. So, there's much to celebrate this new financial year - economic growth, rising profits and tax revenue,

and low inflation. It's what is supposed to happen. On the face of it, there isn't much to these humble plastic tags, but almost every Australian household has at least one tucked in a drawer, and they are at the centre of one of the nation's successful export businesses. The latest Australian Industry Group survey found Australia's manufacturing activity in decline amid the fastest rise in input costs in four years. But the company that makes these little tags is bucking the trend, seemingly finding the key to dealing with climbing oil prices and competition from China.

60s-STYLE GUITAR MUSIC PLAYS The higher oil price has translated through to higher raw material prices to the nature of about 30-odd per cent.

For any business, that's a significant increase. We look at the oil price daily and watch the barrel price go up and down.

The price of raw material isn't quite as volatile as the petrol price at the pump but the lag might be three or four weeks. SONG: # Plastic man # Phil Parton took over Kevron Plastics three years ago, and has spent the last two years watching the price of oil and with it, his one-tonne bags of plastic raw material, skyrocket. His response? To invest,

spending hundreds of thousands of dollars on robotic equipment and a larger factory on the city's fringes. We have moved our business from Brunswick to Campbellfield about 12 months ago. We invested in our new production facility here. We redesigned the layout of our factory and our warehousing. We are a far more efficient business as a result of that

and the efficiencies that have been created have enabled us to absorb some of the pressure from higher raw material prices. we have some specialist equipment in the business I think those opportunities exist to improve the production processes. It requires investment, but if you're not prepared to invest in your business, I think you're going to struggle. The company employs 13 people and produces about 10 million key tags, bag tags and accessories each year - the sole Australian maker of the products. We supply products to the automotive industry, the locksmith trade, the hardware market, the promotional products industry, and they all have different requirements. But we haven't increased the prices of our core products for three years and don't intend to at this point in time. If we can hold prices stable for our major products whilst hopefully or, potentially, competitor prices are increasing, maybe there's an opportunity for us to improve our market share.

Kevron started out in the early 1950s in inner Melbourne, named after founder Ernie Chambers' two sons, Kevin and Ron. Phil Parton took a leap from corporate banking to buy the company, attracted by its strong brand presence and customer base. Prior to buying the business,

I had no knowledge of the plastics industry at all but I had some skills that I'd developed over many years that enabled me to asses how businesses operate

and understand how they operate. LIVELY POP/ROCK MUSIC PLAYS I'm sort of one of these crazy guys that jumps on a bike on weekends and rides up and down Beach Road. That sort of gives me something to focus on from a physical perspective. MUSIC CONTINUES Kevron exports to 22 countries and 35% of sales revenue comes from overseas, but it's peddling against stiff competition from Chinese manufacturers. We're a price taker in this market. What I hope is that Chinese manufacturers of plastics products are price takers as well and that we're all struggling with the same issue. What I see potentially

is Chinese manufacturers moving down a quality curve to offset the higher price of raw materials so the consumer may end up actually buying a lesser quality product for the same price. It's a challenging existence running a company that is affected by events and decisions on the other side of the world, but Phil Parton says it is just part of being in business. We take it in our stride and we deal with it as best we can, but if everything was known for the next 10 to 15 years, business wouldn't be very hard, would it? That's right. It wouldn't. Jayne Edwards reporting. Transcripts of all today's stories and interviews will be available at: Thanks for your company. See you next week. Now it's back to Barrie and the 'Offsiders' team. Alan, thank you. Welcome to Offsiders. Slowly, eventually, Australian sport will return to normal. We tried, but failed to climb what Collingwood coach, Mick Malthouse describes as the "Mount Everest of global sport". It is a slow process because so many fans could clearly see the summit. At least, they thought they could. But for those still pining for one last act of soccer genius by an Australian, well at least Melbourne supporters got it - thanks to Aaron Davey.

COMMENTATOR: Puts the foot down,

lights up the jets. It's home! Unbelievable!