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Tag Archives: tax avoidance

Actions speak louder than words

Joe Hockey has been making noise about tax avoidance.

“They’re stealing from us and our community,” he told the Nine Network on Friday, labelling tax cheats as “thieves.”

Tony Abbott told us we should judge the Coalition on their actions rather than their words – sound advice considering their words bear no resemblance to what they actually do – so it would be timely to consider what they have done to address this growing problem.

While other countries are closing their tax minimisation loopholes, the Abbott government has spent the past year opening them up.

One of Treasurer Joe Hockey’s first acts in office was to roll back Labor’s measures to tackle profit shifting and improving tax transparency – effectively handing back $1.1 billion to big global firms.

As it pushes for a G20 summit agreement this weekend to crack down on corporate tax evasion, the Abbott government has set a timetable for action that is about one year behind the biggest European economies including Britain, France and Germany.

The “early adopters” in the global program will begin exchanging information in September 2017, however, the exchange of information with Australian authorities will not take place until September 2018.

In March this year, the ATO announced an amnesty for offshore tax cheats. For those who come forward before the end of the calendar year, there is a guarantee of no prosecution and only four years of offshore income is assessed with a maximum shortfall penalty of 10 per cent.

“For lots of people, their forebearers came from war-torn Europe”, tax lawyer Mark Leibler told the ABC’s AM program. “They wanted to keep nest eggs overseas, not primarily in order to avoid or evade tax, but just as a measure of security.”

So these people and their families have been avoiding tax since they arrived here after the war but let’s not worry about that.

Around $150 million worth of assets is the most declared by one person so far. The money has come from 40 countries including Switzerland, the UK, Hong Kong, Israel and Singapore.

Australian Tax Office deputy commissioner, Greg Williams, said new migrants with limited knowledge of Australia’s tax system and people that have deliberately sent money offshore are also among those coming forward.

“You’ve got that whole gamut from old money, new money, recent migrants and people sending the money offshore,” he said.

These ‘people’ include our own government.

Australia’s Future Fund has revealed it has invested more than $20 billion through offshore tax shelters, including the Cayman Islands, warning of lower returns if it does not minimise its tax bill.

The $77bn fund for federal public-servant pensions has revealed that 14.4 per cent of its assets, worth about $11bn, are invested in subsidiaries based in the Cayman Islands (a tax haven in the Caribbean) and a further 1.3 per cent is in its subsidiaries in the British Virgin Islands and Jersey.

On top of this, the fund has tipped 12.6 per cent of assets, about $9.6bn, into private market vehicles based in these tax shelters and a small fraction is invested in a vehicle based in Luxembourg.

Answers to a Senate inquiry revealed that, at June 30, the fund held stakes in 15 tobacco manufacturers including a $55.4 million stake in British American Tobacco in Britain, $44.5m in Lorillard and a $44.9m investment in Philip Morris in the US.

Individuals within the government also embrace the benefits of tax “minimisation”.

In July, it was disclosed that Malcolm Turnbull, Australia’s second-richest parliamentarian, has invested in a ”vulture fund” based in the tax haven Cayman Islands.

Mr Turnbull, who has divested himself of shares and switched his investments to managed funds and hedge funds since being elected, updated the register of members’ interests on June 18.

The IPA, not surprisingly, is against any moves to tighten up the laws.

“Inspired by the sensationalist headlines, the emerging policy agenda for a clamp down on tax avoidance should be seen for what it truly is: a ploy by indebted countries, with overgrown public sectors, to hoover up more cash from productive people and enterprises, stifling tax competition in the process.”

You have to give them credit for never letting morality or ethics interfere. They were no doubt impressed when their much-loved patron, Rupert Murdoch, single-handedly blew an almost billion dollar hole in our budget when the ATO chose not to appeal a court ruling condoning Murdoch’s tax avoidance practices.

In a 1989 meeting, four News Corp Australia executives exchanged cheques and share transfers between local and overseas subsidiaries that moved through several currencies.

They were paper transactions; no funds actually moved. In 2000 and 2001 the loans were unwound. With the Australian dollar riding high, News Corp’s Australian subsidiaries recorded a $2 billion loss, while other subsidiaries in tax havens recorded a $2 billion gain.

By last July that paper “loss”, booked against News Corp’s Australian newspaper operations, had become an $882 million cash payout.

Under a legal arrangement when the company was spun off last June, News was forced to pass all of the tax payout to Mr Murdoch’s 21st Century Fox.

News Corp said it had retained $A81 million because it faced income tax charges on the interest payments by the Tax Office. However it seems unlikely to actually pay these funds: News Corp Australia carried another $1.5 billion in tax deductions from a separate paper shuffle that it made when News reincorporated in the US.

The Australian Taxation Office says its $882 million loss to Rupert Murdoch’s News Corporation may just be the tip of the iceberg.

Tax Commissioner Chris Jordan and deputy Neil Olesen told a parliamentary inquiry the Tax Office has recently lost even more valuable cases against individual taxpayers.

“There are others bigger than this one,” Mr Olesen told a parliamentary hearing in March. “There were significant amounts at stake that we were also unsuccessful with through the courts.”

In a current case, Australian tax authorities allege multinational oil giant Chevron used a series of loans and related party payments worth billions of dollars to slash its tax bill by up to $258 million. The claim is now being heard before the Federal Court of NSW.

Despite growing pressure to crack down on multinationals reaping massive profits in Australia each year and paying little tax, the ATO has been scaling back its technical ability to force the “transnationals” to pay up.

After cuts of $189 million in the May budget, the ATO announced that they had to cut staff by 2,100 people by the end of October.

Community and Public Sector Union (CPSU) deputy national president Alistair Waters said “The tax office has provided evidence to the Senate that for every $1 spent on resources by the tax office, that collects $6 in tax revenue. Obviously if you are pulling resources out of the tax office that makes it easier for people who might want to avoid paying their tax.”

Public servants with hundreds of years of combined technical know-how have left the ATO’s “Internationals’ Group” in recent years, with the process accelerated by the present massive cuts to the agency.

Private advisors hired by “transnationals” to minimise their tax payments know too much about internal workings of the ATO and are using their insider knowledge to profit their clients.

Case deadlines of 90 days imposed on audit teams by ATO bosses eager to increase the number of cases covered have allowed transnationals to simply “wait out” the Taxation Office or to have low-ball settlements accepted.

Swedish furniture giant IKEA paid just $7.7 million in tax in Australia in 2013-2014, despite banking an operating profit of $92 million for its Australian activities that year.

Even the government’s domestic decisions belie their stated willingness to crack down on tax rorting.

Repealing the legislation regarding novated car leases and FBT cost us $1.8 billion in revenue and the only people to benefit are those who fraudulently claim business usage of their car, and the salary-packaging industry that has sprung up to service this perk.

But what can you expect from a Prime Minister who keeps caucus waiting for an hour – his excuse being “he had to schedule an early morning visit to a cancer research centre in Melbourne on Tuesday so that he could justify billing taxpayers to be in the city for a “private function” the night before”.

Or a Treasurer who defended “his practice of claiming a $270-a-night taxpayer-funded travelling allowance to stay in a Canberra house majority-owned by his wife” as did the Communications Minister who “rented a house from his wife Lucy when in Canberra.”

In Canberra, MPs are not required to show a receipt to prove they stayed in a hotel because the blanket $270 rate applies whether you stay in a hotel or a house owned by yourself or another person.

Because of the rules, many MPs purchase property in Canberra to provide a base during parliamentary sittings and use their travel allowance to pay off their mortgage.

We also have our Prime Minister, Attorney-General, Foreign Minister and Agriculture Minister defending their practice to claim travel and accommodation costs to attend weddings whilst grudgingly refunding the money only after it was exposed in the press. Attendance at sporting events apparently still constitutes official business.

Tony Abbott had promised to lead an honest government that would respect taxpayers’ money and end the age of entitlement.

Joe Hockey has “vowed to give the Tax Office whatever laws it needs” and is “determined to use all available resources to close tax loopholes.”

Sorry boys – your actions make me doubt your sincerity.

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First speaker in the mature debate

image Dear Mr Abbott,

I welcome your call for a mature debate on taxation. I too deplored the “screaming match” that surrounded the introduction of carbon pricing and am pleased you realise how counterproductive that sort of approach is to constructive governance.

As a concerned citizen I would like to make a few suggestions to get the ball rolling.

Your opening gambit is to increase the GST. This is a regressive tax which will, once again, disproportionately hit lower income earners. Treasury modelling done for the previous government showed that even a modest increase in the rate to 12.5 per cent – along with removal of exempted items such as food, health, childcare, and school fees – could hit a two income two-child family by as much as $205 per fortnight.

Perhaps there is a better way. For example:

Fossil fuel subsidies.

The Australian Government is set to spend over $40 billion in the form of tax rebates and concessions, foregone revenue and expedited write downs of assets per year from 2013/14 to 2016/17. This assessment only includes tax measures, and does not include direct grants or State Government measures, which could add billions more to the annual totals.

The proposed replacement climate policy, the Emissions Reduction Fund, relies on paying companies as an incentive to reduce their emissions. A fundamental contradiction exists between such a policy and the continuation of a range of existing fossil fuel subsidies. Many subsidies significantly reduce the economic signal for companies to identify efficiency opportunities.

Polluter handouts are also highly inequitable. For instance, the mining industry receives a 32c per litre discount on fuels such as petrol and diesel for off‐road use. So while most Australians are paying full price for their fuel at the bowser, their taxes also cover the cost of a huge discount to the mining industry. In all, this handout costs Australian taxpayers $2 billion each year.

Australia, along with all other G20 nations, committed in 2009 to phase out inefficient fossil fuel subsidies over the medium term. In his recent State of the Union address, US President Barack Obama reiterated the need to phase out tax‐based fossil fuel subsidies. Other organisations like the International Monetary Fund, the World Bank, the United Nations and the International Energy Agency are also calling for nations to end fossil fuel subsidies.

In 2009, the Commonwealth Treasury identified $8 billion in annual savings that could be made if Australia fulfilled this commitment. This money could be used to fund a wide range of nation‐building projects, yet to date we continue to use these funds to line the pockets of polluting, and in many cases highly profitable, industries.

Prime Minister Abbott has said that there is to be an end to corporate welfare. Statements by Treasurer Joe Hockey have warned that “the age of entitlement is over,” and that “everyone in Australia must do the heavy lifting now.” It is critical that this rhetoric, if applied, is applied consistently.

Superannuation tax concessions

A study by the Australia Institute found the rate of growth of super tax concessions is greater than that of the pension despite the ageing population, meaning the cost of the tax concession will soon overtake the pension to become ”the single largest area of government expenditure,” by 2016-17.

”’The age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14,” the study found.

It notes that the Commonwealth bill for these concessions is projected to rise at a staggering 12 per cent annually to be $50.7 billion in 2016-17.

”The overwhelming majority of this assistance flows to high-income earners,” the report finds.

”Low-income earners receive virtually no benefit. The combined cost of these two policies will be $74 billion in 2014 alone.”

Negative gearing

The Grattan Institute’s report, Balancing budgets: tough choices we need, included a section on abolishing negative gearing, which it claims would save the Budget around $4 billion per year initially, falling to a saving of around $2 billion per year over the longer term.

Grattan highlights a number of non-budget (social) benefits from reforming negative gearing, namely:

1.increasing home ownership rates by reducing returns at the margin for landlords relative to first homebuyers; and

2.increasing investment in other more productive assets.

The report also debunks claims that reforming negative gearing would raise rents, since “for every landlord that sells, there would be a renter that buys and becomes a home-owner. The supply of rental properties would fall at the same rate as the number of renters”. It also does not believe that the construction of dwellings would be materially affected, since “almost all of investment property loans are now for existing dwellings”.

Tax avoidance

A report by the Tax Justice Network – an international group focused on investigating tax avoidance – and the United Voice union says almost a third of companies listed on the ASX 200 pay 10 per cent or less in corporate tax.

This is substantially less than the statutory 30 per cent corporate tax rate.

Some companies, such as James Hardie and Westfield Retail Trust, pay zero tax.

Rupert Murdoch’s 21st Century Fox pays 1 per cent tax and casino group Echo Entertainment pays 5 per cent tax.

The report says the government is losing out on at least $8.4 billion in tax each year, which is substantial but may be the tip of the iceberg.

According to the research, 57 per cent of all ASX 200 companies have subsidiaries in tax havens.

Several big-name companies, such as 21st Century Fox, Westfield, Toll Holdings and Telstra, have more than 40 entities in well-known tax havens such as the Cayman Islands, Luxembourg, the British Virgin Islands and Bermuda.

Fourteen in the 20 top companies, including two of the country’s big banks, also hold entities in these locations, according to the report.

“Secrecy jurisdictions play a key role in multinational tax dodging and undermine the ability of democratically elected governments to levy taxes in a just and fair way,” the report’s authors say. “Corporate tax avoidance must be addressed.”

Financial transaction tax

Introduce a Financial Transactions Tax on various categories of financial transactions including: stocks, bonds and currency. If implemented on a global basis, its projected revenue could be as much as US$400 billion a year, depending on the size of the levy imposed, the size of the reduction in trading (if any), and the number of implementing countries/jurisdictions. In the US alone it has been estimated that annually, between US$177 and $353 billion could be raised.

A flat rate of 0.05% has been proposed on all financial market transactions, many experts actually advise vary rates (of between 0.01 and 0.5%) depending on the transaction (stocks, bonds, currency, commodities, swaps, derivatives, etc). The UK stock exchange, one of the largest in the world, already has a 0.5% tax on share transactions.

(1) An FTT will reduce the instability in the global financial system by reducing the volume of trading in financial markets, especially the sort of trading that increases market instability and has led to the turbulence in the financial markets over the last decade.

(2) An FTT will provide an effective way of raising revenues for both domestic purposes, such as assisting governments help pay for the costs of post-financial crisis bailouts, as well as for spending for international public goods, such as the funds needed for climate change adaptation, and to assist countries in meeting the Millennium Development Goals.

The tax is specifically designed to target high frequency traders, especially of securities, where the average holding period is often minutes or seconds. High-frequency traders currently account for 70% of US equity market trading and 30-40% of the volume of trading on the London Stock Exchange.

The tax will only affect financial institutions and funds to the extent that they are involved in this type of high-frequency trading.

Australia is a leading player in global finance in its own right: the Australian Securities Exchange (ASX) is the ninth largest stock exchange in the world. Australian support of the FTT would be a significant boost to the cause of the global campaign. Moreover, Australia is a G20 country and plays a significant role in the group whose endorsement would effectively make the FTT a reality.

 

You could always keep the mining tax and close the rorting of FBT car leases and…dare I say, bring back the carbon tax…if you are mature enough to admit when you are wrong.

So let’s have some mature debate on these issues Mr Abbott before we jump to charging pensioners more for their bread and single parents more for childcare and sick people more for their medicine.

Over to you……

 301 total views

Heavy lifting . . . for some

Photo: sbs.com.au

Photo: sbs.com.au

“The rich regard wealth as a personal attribute. So do the poor. Everyone is tacitly convinced of it. Only logic makes some difficulties by asserting that the possession of money may perhaps confer certain qualities, but can never itself be a human quality. Closer inspection gives this the lie. Every human nose instantly and unfailingly smells the delicate breath of independence that goes with the habit of commanding, the habit of everywhere choosing the best for oneself, the whiff of slight misanthropy and the unceasing consciousness of responsibility that goes with power, the scent of a large and secure income.” — Excerpt from rich people’s code of living, The Man Without Qualities, Robert Musil

When Kerry Packer appeared before the Print Media Inquiry in 1991 he famously said

“Now of course I am minimizing my tax and if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra. I pay whatever tax I am required to pay under the law, not a penny more, not a penny less”

His daughter Gretel got married earlier in the year and Kerry spent $3 million on her wedding. Apparently, that same year he paid no income tax.

In 2012, mining magnate Nathan Tinkler of Whitehaven Coal put his plans for a $13 million beachfront pad in Newcastle on hold and moved his family to Singapore. In an amazing coincidence, Gina Rinehart has reportedly spent $S57 million ($A43.8 million) on two units, off the plan, in the same Seven Palms Sentosa Cove condominium project. Eduardo Saverin, who co-founded Facebook at age 21, also lives in Singapore.

It might be because Singapore is a nice place that so many mega-wealthy people are flocking there – or it could have something to do with the fact that capital gains are not taxed. Individuals are only taxed on income earned directly in Singapore, and for the super wealthy, there are no inheritance taxes. Personal tax rates in Singapore are among the lowest in the world, with a cap of 20 per cent, compared to the top tax rate of 45 per cent in Australia. It’s got the banking secrecy laws, it’s becoming a financial centre, new casinos and now a lot of the big banks are operating out of Singapore purely because it’s becoming a very exclusive place to live

Gina Rinehart’s personal wealth is more than two times greater than the gross domestic product (GDP) of Cambodia, population 14.5 million. She has about 41 times more than the GDP of East Timor, population 1.3 million. She has more than the GDPs of Haiti and Bolivia put together (combined population 20 million).

She could buy up the economies of the world’s 10 poorest nations, and still have about $22 billion left over.

One in seven people — or 1 billion people around the world — do not have enough to eat. Rinehart could feed them all for a year.

In 2011, Rinehart made $1.5 billion more than was spent on the entire NSW health system ($17.3 billion). She made 18 times more than was allocated to the federal government’s climate change department. She made 70 times what the federal government will spend to improve education and training for young Aboriginal Australians.

In 2012 BRW Magazine said that Rinehart’s rise in wealth “is unparalleled”. It said she might soon become the world’s richest person: “A $100 billion fortune is not out of the question for Rinehart if the resources boom continues unabated.”

Despite her huge fortune, Rinehart is convinced she pays too much tax. Her tax lobby group ANDEV (Australians for Northern Development and Economic Vision) campaigns to cut taxes on mining industry profits and lower payroll and income tax.

In February 2013, the Coalition released its policy/discussion paper ‘2030 Vision for Developing Northern Australia’. The catalyst for the policy was a 2010 open letter signed by the executives of over 50 resources companies that called for the establishment of a special economic zone with fewer regulations and taxes to develop Australia’s north, and the capacity to import cheap labour.

“Various industries in Australia already make use of overseas countries’ labour without restriction – for example, sending work overseas to India and the Philippines and elsewhere in Asia where labour costs are lower. The group argues mining companies should be allowed to hire short term workers from overseas for the construction periods only, for say up to two years and nine months, thereby increasing long term job prospects in Australia, rather than becoming uncompetitive and these jobs heading overseas to countries like Guinea and other countries in Africa.”

It was quickly followed by the establishment of ANDEV, a lobby group chaired by Gina Rinehart to realise this vision. The Institute of Public Affairs was soon recruited to give the project a veneer of free market respectability.

ANDEV’s plan was not just a slight drop in taxes. It included vast sums of taxpayer investment in infrastructure, accompanied by the abolition or dramatic reduction of taxation levied. The Coalition policy has wording pulled straight from the ANDEV site in a series of op-eds and speeches. The 2012 National Party Conference keynote address, given by one of Rinehart’s employees, was dedicated to promoting this vision, going so far as to include ANDEV promotional material in all delegate’s packs and exhorting the audience to meet with him to discuss ANDEV privately.

The central thesis behind the ANDEV plan is that northern Australia is ‘underdeveloped’, ‘underutilised’ and ‘underpopulated’. The Coalition’s policy adopts these claims uncritically, spicing them up with promises of taming Australia’s ‘last frontier’. ANDEV also bandies around some odder reasons; the “multitudes of snakes” and “excessive heat” that afflicts residents of the North apparently entitles them to generous tax offsets. The latest Coalition incarnation of the policy leaves it to a future white paper to review how to achieve a preferential taxation regime without ending up in the High Court as it is probably unconstitutional.

Going on the word of vested interests, especially when the result is worth a huge influx of government subsidies, does not make for sound economic policy. Herein lies the problem at the heart of the Vision for Developing Northern Australia: it’s been driven from the office of a vested interest into a Liberal party that can no longer distinguish between crony capitalism and free markets. It undermines federalism by subsiding infrastructure spending and tax cuts without imposing the fiscal responsibility that a state faces in having to balance the books on this equation.

In 2010, the mining industry spent over $22 million in six weeks on its campaign against Kevin Rudd’s plan for a resource super profit tax. This led to a slump in Rudd’s popularity contributing to the Gillard takeover and the subsequent compromise deal on the MRRT costing the nation billions in revenue.

In March this year, the ATO announced an amnesty for off-shore tax evaders. Under the disclosure initiative, those who come forward will “generally” only be assessed for the last four years, even if they held the assets offshore for longer than that, and be liable for a maximum shortfall penalty of just 10% of their debt rather than 90%, the ATO said. Those coming forward also will escape investigation by the tax authority, and will avoid criminal prosecution.

While these people are busy investing their money and lobbying the government so they make no contribution to the country that has afforded them such wealth, average Australians are being hit with a “sick” tax and a deficit tax and told that we must work till 70, that pensions will decline in real terms, and the minimum wage will be slashed. We will continue to hand over billions in fossil fuel subsidies, spend billions on infrastructure for the miners, and provide guarantees for banks while we listen in amazement to the profit announcements. We will continue to provide tax concession schemes like negative gearing, investing in superannuation, and private health insurance rebates.

As Adam Bandt said

Around the world, there are some people who are incredibly wealthy who see it as part of their social duty to lift people out of poverty and to give a bit back to our society. Gina Rinehart certainly doesn’t fall into that category.

But there’s a broader issue here than just about the individual – it’s about in Australia, what do we consider to be a fair share for billionaires who make their money out of the minerals that we all own digging them up and selling them off overseas, which we only get to do once, what’s a fair share for those people to pay?

Gina Rinehart wrote and self-published a book called “Northern Australia and then some: Changes we need to make our country rich.” I will close with a quote from a review done by Cameron Whitehead at Crikey.

“What she has produced is a weirdly amateur book which is everywhere inscribed with the signature of someone accustomed to command but it is also — sometimes with a wildcard, unexpected poignancy — the work of someone who is blind to how she is being perceived. This is a book that reveals a woman for whom love, work and money are indistinguishable, a woman who has so much, and yet so little.”

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