Scott Morrison said it was a “fantasy” that cracking down on multinational tax avoidance, or reducing the generosity of superannuation tax breaks, would deliver sufficient scope to enable the government to counter the impact of bracket creep, or deliver broader personal income tax cuts beyond basic bracket creep compensation, or cut company taxes which is why he must increase GST.
Treasury modelling shows that increasing the GST to 15 per cent and expanding the GST base to include food, non-alcoholic beverages and water and sewerage would raise $45 billion ($32.5b if we maintain the current base), at least half of which would go in compensation for low- and middle-income households.
The Commonwealth bill for superannuation concessions is projected to be $50.7 billion in 2016-17, rising at 12% per year.
A report by the Tax Justice Network investigating corporate tax avoidance 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 and almost a third of companies listed on the ASX 200 pay 10 per cent or less in corporate tax.
On 6 November 2014 the Australian Financial Review reported on a number of Australian companies using complex tax avoidance schemes based on secret tax deals in Luxembourg via accounting firm PwC. The article cites ‘hybrid debt structures, total swap returns, royalty payments and intra-group loans to reduce taxes’. The article claims that ‘the ability to move profits around the world purely by paperwork in return for what seems a minor fee to Luxembourg is a recurrent feature in the leaked tax agreements’.
Even the government-owned Future Fund seems involved under an agreement with the authorities in Luxembourg which ‘appears to limit any income tax on trades in specific distressed debts to $136,000 a year, no matter how large the profits from a $500-million portfolio in Europe’.
And the real killer is that the government had been looking to outsource ATO auditing the to big 4. It will save us a fortune to let them audit their own clients…apparently.
In the 2015 budget, tax receipts from companies are forecast to grow 0.3 per cent in 2015-16. By contrast, taxes on individuals will jump 8.5 per cent in fiscal 2016, or 28 times the gain of company taxes.
If we index tax brackets to inflation, as recommended in the 1975 Mathews Inquiry into Taxation and Inflation, bracket creep no longer becomes a problem, though I cannot see why it is considered one in the first place. If you move into the second top tax bracket, for every dollar you earn above $80,000, you will get to keep 63c instead of 68c (ignoring medicare levy) – hardly a reason to knock back a raise.
It would make more sense to raise the tax free threshold if they want to give everyone a boost. This would mean substantially more to low income earners and would reduce the number of people filing returns.
I can see no reason for Morrison’s complicated dance other than to bedazzle us. We will hear about the compensation offered (eventually) while forgetting all that has already been taken away like the schoolkids bonus and the increased superannuation guarantee. We will be offered the inevitable election year tax cuts while forgetting that they will be funded by a great big new tax on everything we buy, every bill we pay.
But you can be certain of one thing – Scott will find a way for business to pay even less and it is the rest of us who will foot the bill. Lobbyists like Kate Carnell are lining up eagerly to spur him on – lower wages, lower company taxes, less regulation, government subsidies and protection, no unions, no penalty rates. And let’s not forget, businesses can claim back any GST they pay.
It’s an exciting time to be a spin merchant – just ask Sir Lynton Crosby.
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