Data recently released by the Australian Tax Office (ATO) reiterated the sad fact that Australia’s highest earners often pay little or no tax.
Forty-five millionaires paid absolutely no tax in the 2018-19 financial year because they reduced their astronomical gross incomes to “taxable incomes” below the tax-free threshold by applying various legal deductions.
Guardian Australia’s Greg Jericho argued the data vindicates federal Labor’s 2019 election platform, which would have limited deductions for negative gearing and tax management. However, there has been little critical examination of the biggest deduction wealthy individuals are claiming: donations to charities.
The ATO’s latest data dump revealed that 14 of Australia’s highest earners — many featured in The Australian Financial Review’s recent Rich List — gave away a whopping $161 million in the 2018-19 financial year, about $11.5 million each.
While some rich-listers give to truly worthy causes, many recipients of their largesse are not quite so altruistic as World Vision or the Guide Dogs. Australia’s richest person Gina Rinehart has contributed millions to the conservative think tank The Institute of Public Affairs (IPA), all of which would have been tax-deductible as the IPA has tax-deductible gift recipient status.
Last Friday Rinehart pledged another $1.6 million to the SAS Resources Fund, another tax-deductible gift recipient. The fund is in part paying the legal fees of returned servicemen caught in the fallout from the Brereton inquiry into alleged SAS war crimes in Afghanistan — which Rinehart regards as largely a beat-up by the “left media”.
But if the government were to limit tax deductibility for rich donors, couldn’t that affect truly deserving non-profits too?
Despite survey data suggesting we all dug deep for the Black Summer bushfires, ATO data shows charities increasingly rely on the rich because of a long-term decline in average donors due to stagnant wages and declining consumer confidence. Some rich-listers would surely contribute regardless of our tax settings, but a few disgruntled billionaires may stop returning the Royal Children’s Hospital’s calls.
But this might not be such a bad thing.
In the United States, the consequences of non-profits’ over-reliance on elite funding were exposed by Bill and Melinda Gates’ recent divorce. The incident highlighted the financial risk of many global humanitarian efforts being so dependent on two individuals whose future philanthropic propensity is now uncertain.
Philanthropy can also allow wealthy individuals to cleanse their conscience and burnish their social status after profiting from others’ misery, instead of simply acting ethically in the first instance. And often the social problems rich do-gooders showboat as saviours for could have been prevented if they had simply paid more tax.
As Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World, wrote: “Gifts to the arts and other good causes are not only a way for ultra-wealthy people to scrub their consciences and reputations. Philanthropy can also be central to purchasing the immunity needed to profiteer at the expense of the common welfare.”
Capping rich-listers’ tax write-offs from donations would not only benefit Treasury’s coffers — it would forge a more sustainable and impactful charitable sector. And it would rein in elite power by ensuring the rich contribute to the collective assets of our elected government, not their own preferred causes.
Before federal Labor lost its nerve on tax policy, such a deductions cap briefly gained traction. In 2015 Anthony Albanese moved a failed motion at the ALP’s national conference recommending the adoption of the “Buffett rule”, named after US investor Warren Buffett who derides his fellow billionaires’ substantial tax deductions.
The plan would have capped the percentage of total income that the richest Australians could shave off with deductions. The Australia Institute suggested capping it at 35% for those earning more than $300,000. Labor figures including party president Wayne Swan pushed the policy even after it failed on the conference floor.
But Labor’s Treasury spokesman Chris Bowen rejected the proposal in 2017, partly due to concerns about its impact on philanthropy, opting instead to confront tax loopholes such as negative gearing and franking credits directly.
Since Bowen’s strategy imploded at the 2019 election, revisiting the Buffett rule could allow Labor to improve the equity of our tax system while assuring middle-income voters the limits would not apply to them.
As the end of the financial year approaches, charities are bombarding the public hoping that generosity might be heightened by the prospect of getting the cash back in your tax return.
If you’ve got the capacity, you should dig deep for a worthy cause. But if you’re in the top tax bracket, you should not give for want of a tax deduction — but out of the goodness of your heart and the fatness of your wallet.
The US and to an extent the UK experience has shown how corporates can use charities or foundations not just for tax reason but also to buy influence in government policy making….. that caters back to the same…..
A weak case made by cherry picking and assumptions about peoples’ morals. Donations to charities give full dollar value. The only immoral donations are those to politicians and their parties. Another story could be about pruning the list of charities. Politics and religion off, anyone?
There should be no tax deduction for donations.
Public funding, either directly or indirectly thru tax deductions, should be allocated by the decisions of the public expressed thru the government; it should not be allocated by private bodies or individuals according to their private priorities and interests.
The social problems that are increasingly being alleviated by charity exist in a massive part because economic conditions that allow the ultra rich to exist. They’re two sides of the same coin and the ultra rich are well aware of this.
Charity is a poor solution to social problems because it relies on personal preferences of the donor as the bill and Melinda gates situation shows.
It’s frustrating to see Labor take such a soft and technocratic approach. It would be great if labor were a bit more principled and stood for something more than a slight sanitised version of the liberals.
Define “charity”
Look at the finery worn by the dealers at the top of “insert name here” religious order, and then work out how and where that cash should be better spent.
The new kingie, or ill-papa, or the grand whazoo don’t need their trappings of office to be what they are.
Ffs, chuckie’s foil hat onky comes out of it’s box once per monarchy, so why bother. Cash in the baubles, and fix the british nhs.
No charitable donation should reduce a tax burden. Donate, or not, but pay your bloody tax on what you earn.