Our tax system is in a mess. It is easily exploited by the wealthy who can afford expert financial and taxation advice. We hear from Alan Jones and the Daily Telegraph about dole-bludgers. The Minister for Social Services Kevin Andrews says that disabled pensioners should get off the couch.
Tax avoidance and tax bludging however are much greater problems.
The Henry Review of Taxation addressed many problems but by and large the Rudd and Gillard Governments did not grasp the tax nettle. The scandal continues.
Let us look at a few recent examples.
Peter Martin in the SMH on 13 May reported that the latest tax statistics show that 75 ultra-high-earning Australians paid no tax at all in 2011-12. Their average income from investments and wages was $2.6 million each. They paid no income tax, no Medicare levy, no Medicare surcharge, even though 60 of them paid private health insurance premiums. PHI always favours the wealthy. These 75 ultra-high-earning Australians had a taxable income of $1.10 each. It is hard to believe but it is true.
The AFR on 23 May reported that ‘Almost 9,200 self-managed super funds have a balance of more than $5 million, a rise of 75% in the past three years, and that the number of funds with over $10 million had doubled. These self-managed superannuation funds are really on shore tax havens for the rich. The AFR continued ‘A lot of these tax strategies involve shuttling money in and out of super funds to trigger a lower tax rate or glean tax deductions on personal expenses. The most popular are 55 year old executives who start drawing a tax-free pension from their fund, while tipping their entire salary into it and effectively reducing their tax rate from 46.5% to about 15%. Another common strategy is to put money into super to get a tax deduction and then pull the money straight out tax-free.’
The AFR of 21 May this year, reported the Deputy Commissioner of Taxation, Mark Konza, as saying ‘While the global debate about how to tax multi-nationals has centred on such companies as Google and Apple, energy and resources companies were also a target. The tax office is reviewing international transactions by 233 multinationals and has identified 86 of these as high risk.’ In 2011-12 according to the AFR, Australian companies shifted $130 billion offshore, mainly to minimise tax.
In its last annual report Google Australia disclosed annual revenue of $3.6b and paid tax of only $296,000. What was that about ending the age of entitlement!
There are numerous tax havens. Mark Zirnsak of the Uniting Churches’ International Mission Unit examined the tax subsidiaries of Australia’s top 100 companies. He found that News Corp topped the list with 146 such subsidiaries. AMP had 15, Telstra 19 and Toll Holdings 64. All the banks had them.
In its 2010 annual report Westfield had 56 subsidiaries. But surprise, surprise we learn from the Saturday Paper that the Westfield report of 2013 did not mention a single subsidiary in Jersey or Luxembourg.
In May last year Business Day revealed that all but one of Australia’s top 20 companies listed on the stock exchange have subsidiaries in low tax countries or tax free jurisdiction including Hong Kong and Singapore. At least half those companies have subsidiaries in tax havens such as Bermuda, Switzerland, Jersey and the British Virgin Islands.
We have the continuing problem of hobby-farmers who purchase vineyards or dairy farms for lifestyle reasons and also to minimise tax. In the wine industry, these hobby farmers are responsible for a significant part of the over-production of wine. to the detriment of full-time wine producers.
According to Roman Lanis at UTS, the Westfield empire paid an effective tax rate of only 8% over the last decade. That 8% tax rate was well below the 22% average rate paid by ASX 200 companies which in turn is below the 30% company tax rate. Lanis said that tax minimisation like this is common in the real estate sector. If the full 30% tax rate had been paid Australians would have an extra $2.6b in tax revenue. This behaviour of Westfield is undoubtedly legal, but is it right? Further the privileged children of Frank Lowy are the highest paid executives in Australia. Last year Peter Lowy was paid $11.5 m up 43% on the previous year. Steve Lowy was paid $10.9 m, up 23%. Westfield’s small business lessees, consumers and taxpayers are subsidising these excessive salaries. As the Americans say it is an enormous advantage to be born on third base.
The Auditor General, Ian McPhee, has just released a report on the Australian Tax Office’s handling of high wealth individuals (HWI). He said that ‘Tax compliance of the 2,650 HWIs and 3,700 potential HWIs who had a total estimated wealth of $500 billion in 2012-13 represented a “significant revenue risk”. He added ‘These wealthiest people use a complex web of trusts and companies to hide what could be potentially billions of dollars from the tax office.’
All this sounds like a catalogue of artful tax dodging. The age of entitlement is not over for the rich, particularly for those with inherited wealth and with tax havens littered around the world. Don’t tell me about dole bludges and people lounging on couches.
Our problem is not government spending. It is overwhelmingly the decline in government revenue. There are some good examples above of why and how that is occurring