HOWLS OF ANGUISH GREET TAX CHANGE
The immediate direction of Australian participation in international capital markets has been clouded by the federal government's decision on July 1 to scrap withholding tax exemptions for most offshore raisings. Confusion, despair and considerable anger greeted the move, leading to a sharp marking down of both Australian dollar issues and the already frail dollar.
The confusion stemmed from the lack of detail which accompanied what has been the greatest blow for Australian borrowers overseas in years. Despair came from the blow Australia's standing might take among international investors after the dust from the decision has settled. The anger flowed from the fact that there appeared to be little consultation by the authorities about the impact of the decision on the market at home or abroad.
"This was a political decision that had just not been thought through," said one banker. Ian Martin, an economist with BT Australia, was blunt in referring to the crack in the Australian currency in early July. He said: "The government brought a lot of this on itself -- the withholding tax change was a bad decision badly timed."
The announcement from the Treasurer, Paul Keating, removes the exemptions from interest withholding tax in three major areas -- widely-distributed securities (including bearer bonds), borrowings by Commonwealth and State authorities, and rollovers (including Euronotes, Euro and US paper).