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Turning Scott’s fantasy into reality

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.

What rubbish.

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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21 comments

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  1. Jaquix

    Then there is the 11 billion private health subsidy. Morrison must think we are stupid, cant add up, or are easily dazzled. Or maybe HE cant add up?

  2. Kaye Lee

    negative gearing is costing the Federal Government about $3.7 billion a year in lost revenue, while the 50 per cent capital gains tax discount wipes off $4 billion.

  3. Terry2

    When it comes to compensation for an increased GST, Morrison has already laid out a red herring :

    “Mr Morrison pointed out the carbon tax compensation package put in place by Labor had been kept by the Coalition, despite the repeal of the tax, and therefore a “lag compensation” was already in the system.”

    So that’s alright then !

  4. Matters Not

    Both Katherine Murphy and Paula Matthewson cite the same statement from Morrision:

    it was the government’s belief that high rates of personal income tax and company tax were currently holding the Australian economy back, and the government’s motivation in pursuing tax reform was to boost efficiency and economic growth

    So it’s all down to a belief. No evidence offered. No examples provided. Just a belief.

    The fact that such a belief, and the implied remedies, happens to promote further inequality (in an already unequal society) just goes through to the keeper.

    Nevertheless, Matthewson (a former Liberal staffer) realises that the ‘sell’ will be a lot harder this time around, even though they have recruited many of Costello’s former staffers. I think that 15% (a fifty per cent increase) is a bridge too far and the final proposal will be12.5% (a 25 per cent increase) in the hope that the punters will breathe a sigh of relief and think how lucky we all are.

    Shorten should win this one but won’t be helped by State Labor leaders who seem to lack the ability to think strategically.

  5. Matters Not

    By the way, if you don’t want changes to the GST, then bring back Tony Abbott who promised:

    no cuts to education, no cuts to health, no change to pensions, no change to the GST and no cuts to the ABC or SBS

    Got that: no change to the GST. Bring back Tony so the promise can be honoured. 🙂

    I note that Tony and Margie are winging their way to the US to give an ‘address’ and also to have a meeting with Murdoch. Be interested to see who is paying when the next expense claims are revealed.

  6. Kaye Lee

    In terms of the overall tax-to-GDP ratio, Australia is ranked 29th out of 34 member countries in 2013 (the latest year for which tax revenue data is available). Australia had a tax-to-GDP ratio of 27.5 per cent compared with the OECD average of 34.2 per cent.

    Unlike most other developed countries, Australia does not levy social security contributions.

    “In OECD countries, social security contributions on average comprise one quarter of total taxation, but make up over 40 per cent of total taxation in some countries (such as Japan and the Netherlands),” it says.

    The OECD regards compulsory social security contributions paid to “institutions of general government” as tax revenues.

    They include payments towards unemployment benefits, accident, injury and sickness benefits, old-age and disability pensions and the OECD publication notes that contributions can be levied on both employees and employers.

  7. Matters Not

    bracket creep …. though I cannot see why it is considered one in the first place

    If you look at average annual change in hourly rates of pay over recent years, ‘bracket creep’ is a much lesser of a problem than at other times in our history. Indeed at 2.3% it’s at historic lows.

    While that argument was once somewhat powerful, it’s now somewhat limp. Play around with the timeframes on this graph to see what I mean.

    http://www.tradingeconomics.com/australia/wage-growth

  8. Kaye Lee

    You can trust the Coalition to have a handle on economic reality. Two years ago, our then employment minister Eric Abetz said:

    “Employers and unions must be encouraged to take responsibility for the cost of their deals; not just the cost to the affected enterprises but the overall cost in relation to our economy efficiency and the creation of opportunities for others. If this is not done, then we risk seeing something akin to the wages explosion of the pre-accord era when unsustainable wage growth simply pushed thousands of Australians out of work.”

  9. OzFenric

    Jaquix: we *are* stupid, innumerate and easily dazzled. We were stupid to believe all of Tony’s impossible, conflicting promises in the 2013 election. We were innumerate when we didn’t pay attention to the budget black holes in Coalition policies, based on their own numbers. We were easily dazzled and distracted and befuddled by talk of leadership squabbles, then by a Labor party too badly spooked to avoid leadership squabbles. And there’s every indication we’ll be stupid and innumerate and dazzled once again, come the next election. The minority who read this website don’t make up for the general mass of electors, whose trust in Tony Abbott and the Coalition at the 2013 election tells you all you need to know about their level of knowledge or interest.

  10. Sen Nearly Ile

    Bill’s dancing and discussions over a lettuce make it odds on his birthday cake dangles by a hair over his head. He needs to set the questions for the small car’s son to answer and avoid answering.himself.

  11. Wayne Turner

    Morrison and these whole Libs are just for their BRIBERS from the BIG END OF TOWN. They will and continue to use any excuse NOT to crack down on the BIG BUSINESS TAX DODGERS and/or the WELFARE FOR THE WELL OFF.

    The real fantasy is that these Libs will EVER do ANYTHING that will upset their BRIBERS.

  12. lawrencewinder

    Clear and concise…. Well…Morrison does go to Happy-Clappy, Sunday Skool!
    Can we really expect anything more sophisticated than what he’s already been doing, in both portfolios?

  13. Florence nee Fedup

    Seems we are not paying for this trip. He is probably picking up cheque for speech as well.

  14. Matthew Oborne

    Dr John Hewson publicly stated recently it was predominantly the Howard era Cuts and super breaks for the richest 20 percent that have resulted in our economy not being able to cope with less than top gear growth.

    If (I say if because there are other measures) that is the case how would the Liberals undo ideologically motivated tax breaks when their ideology is currently pushing for more tax breaks to be paid by the masses.

    People say it is nuts to to tax so they can hand out tax breaks but the language is obvious.
    Bracket creep is another way of saying we wont adjust the top tax levels so eventually everyone falls into them and then will demand a tax break.

    Putting the average australian in the same boat as people on hundreds of thousands each year just to get the masses to agree to tax cuts for the wealthy is yet another sick twisted sociopathic Liberal plan.

    So far they have governed by ransom, they have governed via sophies choice and they govern by making the less wealthy pay as much tax as the rich.
    They are the worst government this country has ever had to suffer through.

  15. Sen Nearly Ile

    A brilliant photo! It says it all:
    ‘I don’t give a fig for truth or a fair go. The poor can pay now for their pension just like the rich.
    They won’t be conning doctors for services when they have to pay.’
    It should be beaming from the windows of every shopping centre with an ever changing message of the coalition ‘crimes’ against the poor.

  16. margcal

    Off topic but I can’t resist. A friend sent me this link …
    http://theartnewspaper.com/market/art-market-features/top-sydney-gallerist-launches-blistering-attack-on-the-art-world/
    … saying he laughed out loud, without saying where … but I’m betting it’s this section:

    In the 1990s, when Malcolm was still a merchant banker, the Turnbull family commissioned one of my father’s artists, Lewis Miller, to paint a portrait of Malcolm. Unhappy with the work, Turnbull confronted my father at a function and exclaimed: “That artist of yours is no good; he’s made me look like a big, fat, greedy c*nt”, to which my father replied, “He is a realist painter, you know”.

    Hughes says he’ll be running for the ALP in Wentworth.

  17. Michael Lacey

    James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted new research for the Tax Justice Network campaign group. Using the BIS’s measure of “offshore deposits” – cash held outside the depositor’s home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world’s tax authorities. To put that into perspective that is a sum larger than the entire American economy. In total, 10 million individuals around the world hold assets offshore, according to Henry’s analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And
    that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world’s movers and shakers like to use as homes for their immense riches. Clearly the world does not address the problem at all! As John Passant commented Australia being 2% of the world economy. Two percent of $32 trillion is $640 billion. A five percent rate of return on that would yield income of around $32 billion. Assume an average tax rate and company rate of 30% would yield $10 bn. And that is before capital gains tax applied to any sold assets. A pretty penny to add to the funds for public health, education and transport.

  18. Jennifer Meyer-Smith

    I’m not a tax expert, I admit, but my political response to corporate tax avoidance is for the government to take a default position (unless the company can explain otherwise) on any company that has a complex accounting system and especially if it has branches in other countries. That means an imposed default tax percentage of 35% on income and/or revenue.

  19. Mal Cayman

    BHP, Rio Tinto et al all pay close to zero dollars income tax and yet they are shedding jobs like there is no tomorrow!

    Surely that, in itself, must be proof-positive that the rhetoric about job creation is just that – rhetoric!

  20. Jaquix

    The government could also look at a banking transaction/transfer tax, or a company turnover tax, which you would think could catch something off all of them. That is, if they were really trying to to something about tax avoidance.

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