Latham and mental illness
Niall Clugston writes: Re. “Rundle: Latham’s twisted fantasy echoes Labor’s disconnect” (yesterday). I don’t understand why Crikey needs two articles bagging out Mark Latham. And I don’t understand how calling him an “headcase” promotes sensitivity about mental illness. But maybe that’s because I’m a fruitloop.
Why tax reform is well overdue
Martin Gordon writes: Re. “Voters agree: tax big companies more, not less” (yesterday). Bernard Keane must have wondered how to present voter perceptions about taxation. He gave a rather low key commentary, when he could have put a few facts in about Australia’s tax levels, and a bit about tax incidence which clearly escapes most taxpayers understanding. Typically prejudice is a big driver about views. Australia is a low tax country, in large part because we don’t have a contributory social security system. We tend to be a bit more reliant on income tax (both personal and corporate than many developed countries) and a bit light on for indirect taxes. Our system is very progressive, and many people pay little net tax (if social payments of all kinds are taken into account) that is why I wondered how some people imagined low and middle income earners paid a lot of tax.
Bank bashing used to be popular, as is TNC bashing it seems. We go through cycles in these things. Thirty odd years ago it was bottom of the harbour tax avoidance, and the revenue at the end was nothing like people assumed it would be. Obama claimed that a crackdown in the US on avoidance would yield a lot (the headline amount was big, but not in relative terms to revenue collected, or spending. Actual collections have been less than expected too). Yes, pursue avoidance, but given we police transfer pricing, and other transactions, the revenue may not be what we think it will be. The ALP plan relating to ‘thin capitalisation’ rules is a marginally positive action, but it only hurts you if you are highly geared.
The standout misconceptions were the belief that small business paid its fair share of tax. The ATO would be astonished to hear that. The relative revenue loss as a percentage of business turnover would be higher than for larger businesses. Tax incidence can be a bit eye-glazing, but surprising amounts of corporate taxation fall on consumers, so hitting ‘the big end of town’ does not quite make sense either. The impact of taxes is often overstated (and which vested interest group does not claim the sky will fall in in its sphere be it tax or outlay focused?). But given the level of public ignorance about even basic aspects of financial issues, taxation and many other issues, it is surprising how ill-informed public opinion is?
Les Heimann writes: The survey of Australians that highlighted — regardless of political persuasion — the desire for more tax from big companies, proved the obvious. Thing is that the overwhelming majority of multinationals don’t pay tax; at least not in Australia. Equally the Australian mega companies are in on the act as well. As Crikey points to; it’s all about “tax avoision”. What is “tax avoision?” When I worked in the ATO it was the expression used to cover the murky world between tax avoidance and tax evasion. Tax evasion is illegal and can create much grief to those taxpayers caught evading tax; whereas tax avoidance is the legitimate practice of arranging ones business so as to legally minimise tax liability.
The more diverse and complicated ones business is (or is arranged to be) the more opportunity to take advantage of tax law and ultimately to enter the world of “avoision”. “Avoision” occurs when business practices become “tax questionable” and the easiest examples of this includes the practice/ process of allegedly borrowing for revenue purposes and “internal” charging of fees for services. One can easily argue that a company creates a tax deductible figure that is simply a myth by doing this sort of stuff — and if it is a myth it is evading tax by artificially reducing taxable income through the use of a false deduction.
Of course where the law allows this sort of behaviour the same transaction is smart tax planning. But the law only allows what is genuine. Proving it isn’t genuine … that’s the problem. Add to this our double Tax Agreements with other countries and the whole world is at the mercy of this shadow world. Solution. Tax entities should be charged tax on their gross income in the country of origin. It’s that easy and the sooner we get an honest government that will admit to this truism and abolish our tax system and replace it with a genuine gross income tax all our problems will disappear; including our so called “debt and deficit”.
Dr. John Nightingale writes: While I don’t think that economic theory of the neoclassical/neo-liberal kind has lots of answers to our problems, something that should be tested is the argument that because profits tax is dependent on profit and not on output, employment or other size metric. It doesn’t shift cost relationships at all, therefore, increasing profits tax has no effect on a company’s choices of pricing, outputs, etc etc. The Business Council argument that the rate of profits tax changes decisions about companies’ activity should therefore be treated by our neoliberal friends as nonsense. Why do we not see this argument advanced in the public discussion?
“Our system is very progressive, and many people pay little net tax (if social payments of all kinds are taken into account) that is why I wondered how some people imagined low and middle income earners paid a lot of tax.”
There is much sense in what Martin Gordon says, however I’m not sure why or where Martin got the impression that low and middle income earners paid a lot of tax. I haven’t quite found the same impression, and don’t see people saying it that much.
On the other hand, the effective marginal tax rates for low income earners can be off the charts, and there were a number of years that I was paying 61.5% EMTR’s, which I used to my advantage and worked less. Why not, the government was giving me back 61.5 cents in every lost dollar.
And Martin could have also pointed out that the one group in society that invariably pays their fair share of tax, with bugger all avoidance or avoision, is the lower and middle income pay as you earners.
Also, the vast majority of tax receipts are from lower and middle income earners, so that also answers the question to some degree. And working out how much an individual pays in tax less social payments is completely different according to circumstance, so while overall you can make the statement that they pay little ‘nett’ tax, healthy individuals do pay a substantial tax.
Compare that to multi-nationals who can have billions in revenue and pay little to no tax at all. Or pensioners with substantial assets, who pay no tax and take money out of the system, or pensioner with bugger all assets who pay no tax and take out of the system.
Then there’s the trust funds, negative gearing, superannuation concessions and all manner of avoidance schemes that are almost exclusively the reserve of the well-to-do.
Martin’s comment that “but surprising amounts of corporate taxation fall on consumers” is also questioned strongly and correctly by Dr Nightingale. Certainly if our tax act worked effectively that would not be the case, other than for GST.
There is a lot of malarkey about tax, and all manner of shibboleths spouted by the business unions, oops, lobby groups, but mostly it is about rent-seeking.
So a slight change in perspective on the problem might have answered Martin’s wonder.
Re Les Heimann’s comments, it seems inevitable that we, and most of the west, will have to move to taxing gross income of tax entities, and the sooner we bite the bullet the better.
Of course the coalition won’t have the courage, and Labor is just as spineless. The Greens are the most likely to take this path, and the business lobby will fight this tooth and nail.
But it makes tremendous sense, and will then enable companies to focus on the arcane and long forgotten art of actually making money rather than producing book losses.
Further, as companies start to focus on their actual business rather than tax law, productivity will rise substantially as a natural consequence.
And finally, and most gratifyingly, we can put those hoards of overpaid tax lawyers and accountants to productive work, like tilling soil, gardening, mowing lawns and maybe even building houses, soup kitchens or at least helping someone who is actually a useful member of society.
Win, win, win.