How is it that recent parliamentary bloodletting over tax breaks and electricity pricing continues to detract from steady planetary exsanguination? Are we now to accept that farm tours, milk levies and infrastructure spends are to be the ready tourniquets for our Australian economy? The political focus on Tax breaks to increase wage rates while the world’s climate renders economics a mute subject, for a planet less habitable, is a distraction we probably can’t afford long-term. The political rhetoric around these subjects is diversionary, and there is little truth expressed in the alleged relationships between these subjects.
Bribery or Donations
There is a growing awareness that our conservative government’s policy needs a little work or is that a massive understatement? The Sydney Morning Herald listed just a few policies that it had no problem in describing as “Bad Policies“.
The article (in the link aforementioned) doesn’t touch on the one cause and two reasons for bad policy decisions. That being – Money driving Bribery and Financial Corruption! Neither reason alone but a combination of both – as well as to whom they are directed – is necessary. Major industrial complexes that can afford significant donations to the Liberal party keep their industry alive and prosperous. The call for a Federal ICAC has been growing. Not one like the NSW ICAC which has been recently neutered by the very party that is currently being caught with their collective hands in the cookie jar. Especially as Australia’s ranking in global corruption index has been falling.
For example: consider the case for Mining versus Tourism.
Mining interests are primarily big consolidated industries heavily subsidised by the government who return portions of that welfare subsidisation, by way of donations to political parties. Despite Minings falling demand on world markets, falling contribution to our GDP and the diminishing employment of Australians, they continue to be supported as “welfare” recipients to the tune of around $18B. However, Mining was only paying taxes of around $12.7 billion (in 2013 according to Deloittes). Inclusive to this they are exporting our finite resource to foreign markets and actively channelling profits overseas to tax havens rather than back into our economy. It makes one think supporting these grifters is a losing proposition, long term. Taxes paid by –
Adani’s Abbot Point Terminal: Nothing;
- Exxon Mobil Australia: Zilch;
- Chevron Australia, Peabody Australia, and Whitehaven: Nada.
Somebody paid that $12.7 Billion of the $18B we paid them.
Consider the case of one company where in 2014-15: BHP Billiton contributed $1.7B in taxes on $33B income although they declared only $6.3B as taxable but still paid under the 30% company tax threshold. BHP Billiton utilises its Singapore marketing office to be channelling iron ore sales and profits overseas to avoid Tax. A practice protected by our political legislation and given our Prime Minister hordes $200M in the Cayman Islands; such protective policies are not going to change. In fact, Turnbull’s latest legislated decision to cut $24B in taxes for corporates means these companies will contribute even less! Is a picture forming for any of you yet?
It is not just local mining magnates such as Gina Rinehart who bribed the political class. Foreign Chinese mining interests also participated. One of these was Sally Zou, who alone donated $400,000 to the liberals. When Origin, Santos and Beach Energy can contribute about $226,000 to the LNP to keep fracking alive, you can be guarantee legislation will provide aid to keep them in place on farms around Australia.
Tourism is where the real money is.
Tourism, on the other hand, is dominantly comprised of diverse micro & small businesses that are not heavily subsidised and yet contribute $87.3 Billion to our economy according to government records. In June 2012 there were over 283,000 tourism businesses in Australia. The individual business interests do not contribute as significantly to the political donation process/bribery and soliciting donations. Bribes from them are difficult, because of the sheer logistics of chasing numerous entities to give – from what little margins they make – to maintain the government protection racket.
As the mining sector is largely dominated by a few large firms, it is far easier to approach the much smaller numbers of mining CEOs and therefore extract significant financial support in return for subsidies and legislative protection. Only .5% of tourism businesses are large companies – there are still over 1000 of them. One can, therefore, begin to see why tourism doesn’t get enormous political support.
Thus, when an Indian mining company “Adani” wants to drink up the Great Artesian Water Basin and pollute an already two-thirds bleached Barrier Reef, guess whose side our political elite preference? This bias exists despite Reef tourism being a direct contributor (according to Deloittes) to our economy of over $7.04 Billion. Indirectly, Reef Tourism contributes another $3.1B to our economy and employs well over twice the number of people employed by mining. The Liberal’s do not come down on the side of who makes the most money or who supports the largest employment of Australians – as many might believe they do.
Conservative governments are not interested in Australians making money or employing people. They come down on the side of those who can contribute or donate more efficiently to their wealth, employment and power base.
Population Ponzi Scheme
Is Australia facing a crisis of overpopulation and do we have enough resources to continue to expand our numbers by bringing in more immigrants into our country? Should we persist in growing our population, allowing immigration, consuming limited resources or close our borders, therefore, limiting population growth and over-consumption? Or is there something else at play of which we are not factoring?
The Government and media often imply that increased population growth is needed to prop up growth in the economy. The premise is that economic demand is only sustainable in Australia through population growth. These adherents note that Australians are exhibiting a spiralling decline in fertility, and rising mortality and permanent departures from the country. They observe that the only reason our population grows at all is immigration. So despite our inherent xenophobia entering the public dialogue, immigration is still officially encouraged.
The slow total Australian population growth, courtesy of immigration, was evident in 19M in 2000 to 24M in 2016. Opponents to population growth, argue that the earth’s finite resources make it necessary to limit population growth.
More radical opponents have gone as far to describe growth in population as an unsustainable “Ponzi scheme”. A Ponzi scheme is a fraudulent investment operation that pays a return to investors from new capital rather than from profit. In this case generating a new population of tax payers to support the earlier “investors” or older people. While a Ponzi scheme does not destroy anything, it does not create anything new either. Although it generates the illusion it does, eventually finite limitations prove it unsustainable, and it fails. The opponents of population growth in this country have suggested the population “Ponzi scheme” is failing and our economy is showing signs of it. They claim that the population Ponzi scheme is responsible for the failures in environmental, resourcing, consumption, borrowing, credit, homelessness, debt, food supply, health care, jobs, etc. While it is true Australia’s economic trajectory has shown a glut of economic indicators depicting downfalls in these areas, is the Ponzi scheme of population growth responsible? Is population the scapegoat that generates these downturns? Just which of these failures are the responsibility of this “scheme” or is the population Ponzi scheme argument a red herring stopping us from considering more relevant factors.
- We don’t need population growth to support a stronger taxation base to, in turn, support our ageing population.
- That we were not suffering from a skills shortage which could only be resolved through skilled immigration.
- Faith in human ingenuity is not sufficient to generate solutions to critical resource shortages.
All well-supported arguments, but will a zero growth rate change these either way? Are these issues arising from population or policies of inequality? One of the inherent faulty assumptions behind the population Ponzi hypothesis is that all people are regarded as equal consumers. Our environmental impact and consumption is anything but equal. The Ponzi arguments often overlook the role of public policy decisions which are driving inequality. The following paragraphs will illustrate where these policies make a greater contribution to unsustainable consumption, ageing population support, unaffordable housing, transport congestion, job vacancy absences and risks of recession than population demographics.
Be born, .
The SPA has mounted criticisms at Baby bonuses, child care rebates and family tax rebates because it presumes to promote population growth. Australia’s commitment to these policies has been half-hearted at best. The reality is these bonuses and rebates do not offset how expensive it is to bear children in this country. Australia’s has the world’s most expensive childcare and rising economic cost of children. So the SPA’s concerns are hyperbolic. Hence the Federal Government’s abolition of the Baby bonus among other spending cuts “reform” for families, reflects the real lack of commitment to supporting any population growth, despite their verbal claims to the contrary. Did anyone seriously imagine Peter Costello’s call to increase the birth rate with “One for Mum, one for Dad and one for the country” was a patriotic call that any family took seriously? Excuse me if I think any Treasure’s image or public “patriotic” call into the Australian bedrooms was anything of an incentive? Despite a blip in 2007/2008, our continuing experience has been the falling birth rates of the last few decades. There are a few grounds for concern here for the SPA, as the government’s efforts are lacklustre at best. On the other hand, the costs of immigration to bring in workers, to facilitate 457 visas, and even to pay them for working in our economy, is nowhere near as expensive as rearing children. Certainly, elements of corporate Australia would prefer to boost our population via this means, then use Australians, as foreigners can be bought cheaply. Abuse of visa workers is certainly not uncommon. So the question should be, is the need to boost the population to provide support for our economy, which or to facilitate exploitation and inequality?
Travel to work, .
Transportation congestion while being an issue in Australia is a product of an ideology that favours roads over public transport. The ongoing failings of planning and the dubious justifications of WestConnex’s impact on the Sydney transport are illustrative of a political ideology that is rewarding corporate road builders who donate heavily to political parties, over and above developing good public transportation. Not so much a factor of the population but a failure of political impetus to build sustainable infrastructure that should have easily met our population growth.
Borrow to Buy, .
Governments tend to favour population increases to spread the burden of public debt bond borrowings, raise revenue and stave off recession, presuming our population has the discretionary income to transact. The over-focusing on our tiny public debt (despite it growing from 10.1% to 18.3% of our GDP under the coalition), ignores the real recessionary pressures in Australia. These being credit growth and our unsustainable private debt at 123% of our GDP. While certainly a by-product of the population, perhaps we should focus on evidence-based conclusions for what debt levels we ought to be concerned about. Providing better regulation of banks to alleviate our society’s over-consumption of debt, serves Australian’s interests more than does current ideological policy.
Australia has a high rate of consumption, but our household consumption is not rising at the same consistent or relative speed as the population in Australia. There are many inconsistencies generated in our entrenched poverty and social inequality in Australia. This makes the links presumed between consumption of housing and population tenuous, especially as the housing construction rate is exceeding demand needs. For example, Sydney is already a city of 90,000 unoccupied homes and Melbourne with 83,000 vacant residences. Blaming population for the risks of Recession and Housing booms/busts as suggested by Michael Janda’s ABC article ignores the effects of policies that support un-quarantined Negative Gearing Capital Gains concessions and facilitating Asian laundering of cash needs. Even where population contributes, inequality breeds erratic consumption levels and greed consumes far more than its fair share.
Invent to Sell, .
Technology is often considered labour-augmenting as it increases GDP without an accompanying growth in population. It might have been labour-augmenting in a pre-industrialised society but the onset of technological innovation is changing the playing field. Malcolm Turnbull’s “innovation nation” has an often unpredictable capacity to destroy jobs. The consequences of automation, is disappearing more jobs than outsourcing has ever done. This is evident when we consider the MIT modelling on the relationship between machine learning/technology and job decline. In fact, “Gartner Inc, the technology research firm, has predicted a third of all jobs will be lost to automation within a decade“. This technology overreach will create a shortfall in jobs often inaccurately attributed to over-population.
Produce more, ..
Despite the productivity growth over the last couple of decades in Australia, it has not been accompanied by corresponding increases in jobs and wages earnings. Technology and falling remuneration’s impact suggest, paradoxically, that the human component (population) is becoming less relevant to the emerging economic, wealth generation structures. This has implications for the assumption that GDP growth is being fuelled by population growth. Demand and need, certainly continue to exist, and to grow with increasing population, but the relationship between economic and population growths is not proportional. For economic growth to be driven by demand then there must exist a capacity for supply to meet demand. But what if supply can not be paid for, because fewer individuals hold jobs?
Work and slave, ..
Jobs earn income, and public services provision is dependent on adequate collection of income tax. Already 13.9% of Australians live below the poverty line (including 17.7% of all children). Full-time jobs are diminishing in preference to part-time positions and the top earners/corporations utilising tax avoidance means tax collection will only diminish. Internships providing unemployed labour for minimal costs favour corporations who already pay minimal tax. When population movement does not provide equitable changes in internal revenue collection for distribution into the economy then it can’t serve a population at any level.
and age to Die!
A rising life expectancy has contributed to an ageing population. The justification to pay for this through an increase in younger income earners ignores how increasingly more expensive over time children are to bear and rear. It also overlooks how the aged baby boomers actually contribute financially to the economy and the young (as even Mark O’Conner recognised). While the public purse is quite capable of supporting an ageing population, the lack of political will to do so impedes us. Solutions such as social cooperatives for aged care delivery, lifelong education, taxation on assets, corporations and superannuation are solutions we are unwilling to implement. In fact, the aged – well supported by the public purse – would result in greater spending inside our economy, in the same way as providing for the impoverished would. The ideological and political redirection generating vast inequality is more responsible for a deterioration in support for the aged, than population numbers and longer life expectancy.
What of we who Survive?
At the risk of pointing out the obvious, the ponzi accusation for Australia’s population is somewhat limited by our “surviving” population density. Australia outside of it’s capital cities has the smallest by a long shot. You probably don’t think that if you live in Sydney but then a fifth the population for our entire country lives there. Perhaps we can find a localised ponzi population effect in Sydney? Outside of our capitals you may have to move south to the Antarctica to beat Australia for a lower population density. Yes, it is a semi-desert continent and our capacity for rural production will be victim to climate change but again, the failures of government to support rural Australia should not be laid only at the door of population. So perhaps a country whose population is only .3% of the global population on 5% of the world’s land mass, the population is not the primary problem?
The real Ponzi Scheme
The ponzi scheme that is failing, is not population, but the redistribution of per capita wealth. Given no appropriate investment in infrastructure for our population to generate jobs, create wealth and hence taxes, where lies revenue growth? Instead the government is desperately fighting a rear guard action by cutting services and talking of deficits limiting redistribution. Instead they speak erroneously of inter-generational debt and budget to commit $50 Billion to reduce company taxes. This economic insistence towards trickle down economics despite all the evidence of it not working to generate any significant economic growth. Morrison’s argument that Australia is being more divided into the taxed and untaxed is only relevant where he is talking about income taxes (which as Ross Gittons points out is “only a little over half the federal taxes we pay”). What Morrison fails to observe though, is the untaxed (from his limiting perspective of taxes) occur at both ends of the income spectrum. They that pay little or no Tax who farm their profits offshore to remove it from our economy and they who are increasingly impoverished (currently 2.5M live under the poverty line), who make too little to pay income tax! It is the diminishing middle class that have a larger tax burden (although small by international standards). Cutting taxes for the wealthy reduces their contribution to any redistribution of wealth via taxation. The unwillingness of the government to re-distribute income to that portion of the population that spends the majority of their income in the economy is counter-productive to our larger national wealth. These policies are merely provisioning for the inevitable revenue winter to come.
What does matter?
Private debt in Australia has escalated beyond the $2 Trillion mark shooting past Australia’s GDP of $1.6 Trillion by 123%. Housing affordability is reaching crisis levels driven beyond the budgets of many Australians, by negative gearing and capital gains concessions.
In fact, we have just bypassed Denmark (the previous first placeholder) to hold the prize for the single largest ratio of household debt to GDP. Our government net deficit/debt is minuscule by comparison at only 17% of GDP. It was only 11% when Labor left Office. At the time, Australia had the third smallest net government debt relative to GDP in the OECD. Unfortunately, the sheer hysteria over government debt expressed by Joe Hockey led many voters to believe this was significant. Ignoring that Australia used to be one of the world’s best-performing economies in 2013. One of the predominant components of any magic act is the art of distraction. Hockey, and later Morrison, frequently shrieked at the “mouse” of Government debt to catch your eye, while allowing the “elephant” of private debt to sneak across the stage. Despite doubling our deficit since then, we are still in an internationally enviable position as far as Government net debt is concerned.
The issue of negative gearing has been confusing for both the Coalition and the public. Kelly O’Dwyer was contradicting Malcolm Turnbull on whether or not the revocation of negative gearing would result in house prices falling or rising, did nothing to assure the public.
ABC’s Lateline hosted a debate between IPA Stalwart, Sinclair Davidson and economist Saul Eslake on the 10th of May 2016. Saul suggested Negative Gearing (which he has opposed for 30 years) was costly and ineffective for its originally intended goal. Saul referenced the Reserve Bank’s analysis and the Grattan Institute’s research, as supporting his case. Davidson referenced his own personal “number crunching” but mainly appeared to channel his inner apprehensions over losing negative gearing. Curiously he claimed the “poor folks” who earned only $100K a year were not “rich”. (Despite that only 10% of Australian taxpayers can earn more than that.) With that redefinition of “relative poverty” in place, he argued negative gearing was not “a lurk or a rort for the rich”. He provided neither his “modelling” nor independent evidence that the absence of negative gearing would cause housing prices would decline. He was, although, perfectly prepared to disparage the modelling conducted by the Grattan Institute. In fact, pages 30 to 32 of the report go to some length to explain why it is unlikely to do as Davidson feared. These pages explain that a 2% reduction in the normal 7.3% average growth experienced since 1999 is the most its absence would affect the rate of growth.
Negative gearing is designed to compensate for the losses encountered by a borrower for an investment property where the rent and costs of managing the investment exceed the cost of borrowing. In Australia and New Zealand deductions for negatively geared losses on a property can be made against income from any other source. In other countries, this is quarantined. For example, in Canada, losses cannot be offset against wages or salaries. Similar restrictions exist in the UK and Netherlands. Australia has by far the most generous conditions now. Before 1985 it had been quarantined so losses could not be transferred to an individual’s income from labour.
Between July 1985 and 1987, the Hawke government abolished it and rent prices fell everywhere except in Perth and to a lesser extent in Sydney. This price fall was not due to Negative Gearing’s absence, but the meagre “available” vacancy rates and competition from inflated rent prices. (Grattan Report: Page 34-34) After that though, a less quarantined negative gearing was reinstated.
Housing & Rent prices rose but not at the rate they have since 1999. What mitigated the potential effects on the economy of unchecked negative gearing, was the 1985 introduction of a CPI indexed Capital Gains Tax. In 1999, the Howard government removed indexing and introduced a 50% discount for capital gains for individuals. From that point on, housing prices (and rent) skyrocketed an average of 7.3% annually. (Grattan Report: Page 31) The 2010 Henry Tax Review recommended reining it in, and at the very least, capping the deductions. The Labor and subsequent Liberal governments chose to ignore this. In 2013-2014 these features of Negative Gearing & Capital Gains cost the Tax department $11.7B a year in deductions claimed. (Grattan Report: Page 34-34)
Negative Gearing was originally touted as a means to increases the supply of rental property and decreases the rent charged by Landlords. Lobby groups with enormously financially vested interests such as the Taxation Institute of Australia and Real Estate bodies continue to do so. Like bad journalism, they have a dislike for when the facts get in the way of a good story. In fact, precisely the opposite of their claims has occurred.
While housing construction has grown, occupancy or use has not. Sydney, by way of a singular example, is a City of between 90,000 unoccupied homes. There are 83,000 in Melbourne. Notably, we have 45,000 homeless, Australia wide.
So the myth of housing scarcity that requires Negative Gearing to support it is not born out of anything other than a fabrication. That isn’t to say that the “scarcity” isn’t artificially maintained by refusing access to these unoccupied properties. These properties are primarily bought by Chinese investors needing to launder illicit funds.
The argument put forward by the Government though is that the majority of negatively gearing taxpayers earn under $80,000 and revoking it would adversely impact these “mum & dad” investors from “getting ahead”.
As Tax earnings go, it’s an interesting choice from which to start. Especially when you consider that the median wage in this country is more accurately $52,000. Only 40% of negatively gearing taxpayers lie below this median income. So why do the Liberals and the IPA spokesman, Sinclair Davidson, begin focusing on $80K? It’s not the average medium wage, so what does it represent? Is it because it is the lowest rounded number figure in which the majority of negative gearing taxpayers exists below? That being 67%. (Cart before horse thinking?) It’s the point at which the Liberals can confidently say the “majority exist”. Taxpayers that earn greater than that $80k demarcation represent only 20% of all taxpayers.
There are three problems with this analysis spoken of in these terms.
- The large percentages are a deception because we are talking about a minimal subset of all taxpayers.
- We are using taxable income as the measure after they are adjusted for negative gearing.
- The undeclared interest these politicians have in maintaining the status quo.
- Notice the use of the term “negatively gearing taxpayers” because the reality on the larger scale is, that “negatively gearing taxpayers” represent just under 10% of ALL taxpayers. So regarding total taxpayers it is 6.7% of all taxpayers that negatively gear and earn less than $80,000. Conversely only 4% of all taxpayers therefore negatively gear and earn less than the median wage of $52K. More than 90% of taxpayers don’t negatively gear and just want an affordable home in which to live.
- The level of “earning” is based on declared income to the Tax department after negative gearing losses have been deducted. As many corporate figures and recent tax avoidance scandals do suggest, there must be a lot of individuals pulling in very, very large incomes but whose “declared” income is so modest that they pay negligible tax. The whole purpose of negative gearing is to lower your “taxable income”. (Grattan report: Pages 27&28) So using a measure of “Taxable income” as a valuation is a smart statistical deception. “The typical tax savings for negatively geared individuals is $1,800 per year”, although it may be as much as $11,800. An individual could conceivably be earning the pre-gearing taxable income of $90K a year and still fall into the category of being “below $80K of taxable income”. If you take out rental losses from negative gearing from taxable income then only 56% of people who negatively gear are in reality earning less than a disposable income of $80K (or 5.6% of all taxpayers). A similar adjustment for the median average taxable income is 33% (or 3.3% of all taxpayers). Negative gearing mainly benefits those on higher incomes as the top 10% of taxpayers receive almost 50% of the benefits from it. (Grattan report: Pages 27-29) The suggestion that it doesn’t, borders on hallucinatory ideology or deceit. This is the realms of magicians and conjurers.
- Even before becoming Prime Minister as a high-profile Communications Minister, Malcolm Turnbull owned an impressive portfolio of seven properties, and many of his ministers have similar conflicts of interest. Interestingly it is Turnbull’s electorate who are the biggest negative gearers in the country. It is no wonder the Government resists any action to repair the economic damage done by this facility.
Warnings about housing bubbles bursting have appeared for a while. As Jessica Irvine wrote in the SMH, Sydney houses now cost “12 times the annual income”, up from four times from Gough Whitlam’s time. Jessica went on to describe it as a “classic Ponzi scheme” which is even how Liberal Backbenchers like John Alexander have described it. Walled Aly discussed these faults on “The Project” on the Coalitions negative gearing claims, which may engage from the perspective of the graphics, the numbers quoted and the nonpolitical research provided.
If economic rationalism, the deterioration of wages, rising living costs and housing & rent price explosions hadn’t caused as much damage as it has to our economy, negative gearing could have been easily dismissed. It has become a much more complex and entrenched mechanism. Labor’s grandfathering negative gearing strategy is one safer way to ease out of the problem. Affordable housing will continue to evade the grasp of average Australian in pursuit of the “great Australian dream” of home ownership while the current system is maintained. The only hope many Australian’s have for affording to buy a home in the future is if negative gearing and the capital gains concessions are dismantled. (Grattan report: Pages 46-47)
Tax bills are perceived, by many wealthy entrepreneurs, as the slicing guillotine blade of government. Ever since the French introduced Madame la Guillotine’s blade as their historical precedent for resolving differences with the wealthy upper class, the wealthy 1% have been understandably nervous. Anything that separates them from their beloved wealth irks them mightily. They traditionally hold it securely, so none of it can trickle out or hide it in havens, lest any be taken from them. To settle the proletariats, the government must be observed to be taxing the bourgeois, without actually removing their entitlements to wealth. The Liberal Party’s 2016 budget is an illusion of mastery of this particular magic. Allow me to paint a scenario.
The stage is dark. The white haired magician enters stage left. He is tall, imposing with a smug look of self-assurance. All born of the certainty this is a trick he has had much personal experience. Having performed it in Panama, the Cayman and the Virgin Islands. Doing it before an Australian audience of stupefied Aussies should be a milk run. Malcolm the Magnificent waves his hands and the lights fall upon Madame la Guillotine. It’s fearsome blade poised over a skimpily covered, but not too revealing $100 bill. Dame Nelly bats her eyelids and smiles up at the poised blade. All eyes watch as the blade descends, threatening to tax Dame Nellie Melba, right before our very eyes.
The Government’s latest trick is the traditional guillotine illusion where the blade falls upon the “victim”, but nothing is cut off. Tax cuts and tax management were a predominant topic of the Budget. Shaving off a little less for the not even 1/5th of the taxpayers that earn over $80K but apparently pursuing deeper cuts from they that hoard their treasures. Certainly, none of the Liberal Party’s largest donors in the corporate world wants to have Madame la Guillotine chop their perceived entitlements.
In fact many corporations and wealthy bourgeoisie protest and quite legitimately, to ATO auditors that everything is above board and legal. Let us consider the three primary ways that companies avoid Madame la Guillotine’s taxing burden. The basics for facilitating reduction of their taxes.
- Offshore Registration of your business in a foreign municipality with a cheaper rate of Tax aids companies in avoiding tax in the country wherein they may do business.
- Transfer Pricing makes use of a subsidiary firm - again in a foreign country with cheaper tax rates – in which that firm is the official sales agent. An agent is selling your Australian product. Much like Google does by selling Australians advertising locally (to the tune of $2 Billion in 2015). Although it is officially billed to Singapore where they pay only 2.5% tax (or $5M). The business pays reduced tax on profits acquired at the foreign rate, not the local rate. It’s essentially a legal means of money laundering.
- Tax Havens are numerous, such as Panama, Luxembourg, Cayman Islands (our Prime Minister’s choice to hold his stash), Bahamas, Seychelles, Maldives, Malta, Tonga, Singapore, Bahrain, Channel Islands, San Marino, Hong Kong, Nauru, Cook Islands, Costa Rica, Marshall Islands, Switzerland, the Virgin Islands and many others. They all provide the facility for companies to set up holding companies on paper. Practices such as:
- IP Licensing – where you sell your intellectual IP back to your business and
- Debt Loading – where your foreign holding company lends money to your subsidiaries in Australia.
In the latter case, the Australian firm pays back the “loan” at crippling interest rates reducing any profits the company would otherwise make. As a result of this “loan sharking” manoeuvre, profits vanish. Often the interest acquired overseas is not even taxed at all. All their hard earned profits disappear in a puff of smoke. The cabinet that cute little tax dollar walked into, is reopened, to reveal the cupboard is bare. Nothing to tax here!
This disappearing act is not unlike the magic performed by the “Murdoch the Mystic” when the Tax office held in their very hands the $882M that they had taken in tax from him. With a wave of his wand, the profit he made in Australia was relocated to foreign US shores. Before you could pronounce “expecto patronum”, the $882M had relocated itself back into Rupert Murdoch’s bank account. It was coincidental, of course, that this occurred during the election period, which resulted in Abbott being magically levitated onto the public stage as Prime Minister. Mr Hockey who was hysterically alarmed by our enormous national debt never raised the spectre of these funds vanishing from the public purse. Perhaps he was befuddled by the mind manipulating force that emanated from a Sith Lord.
Apple booked $8B in revenue in Australia yet paid us only $85M. Something must have gone drastically wrong with their profit redirection to be paying as much as 1%. I am sure they have fixed the trap-door now, so everything vanishes down it cleanly. Certainly no longer leaving any caught sliver of clothing that the tax-man can scavenge.
These corporate raiders have made use of the resources of our country. They pay for our labour (but not the development of it), transport (but not what it moves on), ports (but not their construction), power & rent (but not the infrastructure that supports it). Every other small business in Australia pays for this as well, because the rest of us pay taxes! Taxes paid by their customers, employees, and even the staff that clean their offices. Individually any of these often pay more tax then have these companies. They are allowed to exploit our country by taking money (and sometimes resources, technology and/or minerals) out of the country. They deplete the wealth of this country for their profit but don’t pay the cost. It is no wonder we have a net foreign debt of 1 Trillion dollars with all that draining from the country.
So how does one lower Madame la Guillotine’s blade without chopping off anything? Mr Morrison announced “1,000 specialist staff in the ATO to police and prosecute companies, multinationals and high wealth individuals not paying the tax they should”. Whish, down comes the “blade” to be “combating tax avoidance, especially by multinationals, with new measures to ensure everyone pays the tax they should on what they earn in Australia, not avoid tax by shifting their profits offshore”, said Morrison. The joint media release later elaborated that “The Taskforce will have around 1,300 jobs in the ATO, including 390 new specialised officers.”
But does the blade cut anything?
First off and the most obvious, 1300 newly minted Tax officers are hardly a replacement for the 4700 very experienced ATO officers that lost their jobs since Hockey cut their funding. They weren’t keeping up with the multinationals that weren’t paying tax when they had that many. Now they are short-changed by 4400 staff and have lost a world of experience.
Less obvious is to what extent these new diverted profits laws are applied. These new laws came into effect on 1st Jan 2016 and applied where the annual turnover is more than $1Billion. This will positively affect Apple and Google, but many foreign interests who carry on through subsidiaries in Australia will not be affected. The only real targets will be the top mining and technology sectors where services, research or marketing performed in Australia is booked to overseas subsidiaries.
What needs to be reiterated is companies like, Amazon, Google, Energy Australia, GE, Bhp Billiton, Facebook and the like, practice legal tax avoidance. They will modify their strategies, as booking transactions to overseas is just one strategy. Certainly, companies with $1 Billion in turnover can well afford to restructure and break their turnover up amongst multiple entities to go below the threshold. While an obvious strategy, I am sure they will come up with better ones. Remember none of their tax avoidance practices is illegal, immoral, yes, but not illegal. They may stonewall in Senate hearings because they are embarrassed and want to avoid public distaste and a drop off in profits, but they HAVE DONE NOTHING ILLEGAL. These Billion dollar turnover companies may lose a few locks of hair to Madame la Guillotine’s blade, but certainly no head.
Unless the government changes the Law, to significantly cast, a wider net encompassing transactions made in Australia facing tax liability, not much will change. The falling blade of Madame la Guillotine’s blade is nothing more than another clever illusion. Mr Morrison’s taxing blade may apparently thrill your perverse appetite for expecting blood on the scaffolding. But the results will ultimately disappoint your blood lust. There is little hope of seeing the corporations and wealthy spill as much as one drop of their precious blood money into the dry, thirsty, cracked soil of the still economically barren landscape of Australia.
No taxes here please!
The government’s unwillingness to look at taxation management for the country via any method that involves they, that have more capacity, is quite obsessive. The decision not to proceed with tax investigation into the evasion of tax by so many large companies was a written part of the LNP Government’s budgetary papers! (Pg 117 of MYEFO Dec 2014). To facilitate this, the dismissal of 4,400 tax officials described internally as the “go to” people in the department, renders the Tax office without the resources to pursue dodgy corporate tax fraud. So Treasurer Joe Hockey then follows up with his latest tax white paper suggesting the need for a “fairer” corporate tax cut – meaning they need pay less. Given how little they already actually pay, it appears to be simply an attempt to make the disparity what the should pay and what they don’t, LESS offensive to other taxpayers. The present status being that 30% of Australian companies are paying less than 10% or no tax. So if the legal requirement for them to pay anything is being minimised further, it would be less embarrassing to the government. All of these aforementioned factors represent a gradual coverup. Add to this the recently written endorsement not to name and in fact to hide who these corporations are – it’s a huge and immediate cover-up endorsed by Joe Hockey himself.
Given that the burdens of Australian financial management still needs to be serviced by the rest of us who are forced to pay their share of the tax. Or as the last budget showed, they want to cut services to the population but would facilitate the transfer of wealth and power to the already wealthy. We only seek little things, like education, medical, social support, etc. These Tax reductions are effectively subsidising corporate Australia’s greed. Instead, we subsidise their businesses by billions, especially the mining and fossil fuel industries. The Liberal party is engaged in a massive corporate heist as they propose lowering corporate tax and continuing subsidies. The LNP have stated in writing they don’t want to collect these taxes (Page 117 MYEFO). They don’t want to modify laws to collect appropriate taxes from 30% of the countries largest companies, which by some estimates – i.e., the Tax Justice Network – it might amount to around 8.4 billion a year, and where would the Deficit the Liberal’s are so concerned about, be then? Perhaps Hockey would have to contribute even more money for the Reserve bank, to what end? Perhaps the Treasurer will buy more defective US jets, & weapons to pay for another expensively futile war which will create even more refugees for which we already pay currently anywhere between 40K to 400K/person/yr. The smaller $40,000 is for an asylum seeker to live in the community on a bridging visa. The larger $400,00 is for offshoring in Naru and Manus. It’s much cheaper to do community processing. We haven’t yet begun to pay for the metadata keeping expenses they have landed on us, running over a 3rd world speed internet.
So for just how much of this corporate heist do Australian citizens want to bear witness? I am sure these companies are delighted you are both buying their products and having government pay for their subsidies. I mean what could go wrong with that? It’s capitalism. It’s just how the system works. Besides, for the most part, you don’t even know who they are. So you can’t even choose to stop your patronage of them. It’s a win for them but you…. Well, I’m sure they appreciate your continued patronage and are thinking of you. “<suckers!>”
This article was modified in early 2017 with more accurate offshore asylum costs which I had previously suggested were estimated between $40K to 1.3M along with links to supporting articles. Beyond that, it’s still sadly a relevant article as nearly every situation mentioned here has only gotten worse.
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