The latest Tax Expenditures Statement shows that Australia can easily afford the Gonski funding plan to bring under-resourced public schools up to the national standard and reduce the large proportion of disadvantaged students not achieving expected benchmarks. It is simply a matter of reducing the tax privileges of the wealthy to support increased learning opportunities for the disadvantaged.
The 2016 Tax Expenditures Statement published by the Federal Treasury shows the huge cost of tax concessions of at least $40 billion a year that mostly benefit the wealthy. Reducing this revenue loss would easily fund the last two years of Gonski estimated at $7 billion.
The Statement shows that just two tax concessions mainly used by the wealthy will cost the Federal Budget $43.7 billion in 2016-17. Superannuation concessions will cost $33.1 million and the capital gains concession $9.6 million. The latest Mid-Year Economic and Fiscal Outlook (MYEFO) report estimates that the cost of these concessions will blow out to $50 billion by 2019-20.
The large part of these tax benefits go to the top income earners.
The Financial System Inquiry (Murray) report in 2014 estimated that about 55% of superannuation tax concessions went to the top 20% of income earners. On this basis, the top 20% of income earners will receive $18 billion in superannuation tax concessions in 2016-17 and $22 billion by 2019-20. The National Centre for Social and Economic Modelling (NATSEM) has estimated that the top 20% of income earners account for 81% of the benefit flowing from the capital gains discount. On this basis, the top 20% of income earners will receive $7.8 billion in 2016-17.
Capital gains tax concessions also interact with negative gearing provisions to provide more benefits for the wealthy. NATSEM estimates that negative gearing of residential investment property currently reduces tax revenue by $3.7 billion per year. The Grattan Institute has estimated the cost of tax concessions for negative gearing cost at least $4 billion a year. More recently, it found that nearly 70% of this flows to the top 20% of income earners.
These three tax concessions that primarily benefit the wealthy provide a revenue pool of some $30 billion a year to improve funding of schools and other services.
They are just a few of the myriad ways the wealthy and corporations are advantaged by the current tax system. They include a multitude of tax exemptions, tax deductions, tax offsets, concessional tax rates and deferrals of tax liability. According to research published by the International Monetary Fund, Australia has one of the highest tax expenditures in the world. It tops the list of 16 OECD countries with tax expenditures amounting to 8.5% of GDP.
In addition, the use of tax havens by wealthy individuals and large corporations in Australia to avoid tax is rampant. The second tax transparency report published by the Australian Tax Office in December 2016 shows that 36% of the largest 1,900 Australian and foreign-owned corporate entities did not pay any tax in 2014-15. A report by the Tax Justice Network in 2015 found that the 200 largest publicly listed companies in Australia avoid up to $8.4 billion a year in corporate tax. Nearly one third have an average effective tax rate of 10% or less compared to the statutory corporate tax rate of 30%.
One reason is that many of them transfer assets and profits to tax havens. A report just published by the Tax Justice network estimates the loss to Australia from the tax cheating by multinational corporations is $6 billion a year by shifting profits to tax havens such as Singapore, Hong Kong, British Virgin Islands, Cayman Islands, Mauritius, Luxembourg, Switzerland and the Channel Islands. A report published by Oxfam last year showed that Australia is losing $5-6 billion a year in tax revenue because foreign-owned multinationals are shifting profits to tax havens.
The Panama Papers published last year revealed 118 offshore companies, trusts and foundations linked to Australia as clients of Panama-based law firm Mossack Fonseca, which has facilitated massive tax evasion on behalf of the wealthy and corporations around the world. The Papers revealed more than 1700 Australian directors, shareholders and/or beneficiaries connected with Mossack Fonseca. The Australian Taxation Office is investigating about 800 Australians in relation to the Panama Papers.
The Government plans to introduce a Diverted Profits Tax (DPT) aimed at multinationals that artificially divert profits from Australia. However, it will only apply to companies with global turnover of $1 billion or more. It will leave many companies free to continue to evade tax by diverting profits to tax havens and will only raise about $100 million a year compared to the billions in tax being evaded every year.
The wealthy in Australia are on a gravy train of exorbitant tax concessions and tax evasion. Their greed and lack of any sense of social responsibility to pay their due tax is abominable. It denies children from the most disadvantaged families the resources to ensure they have a successful school education and set them up for the life opportunities available to the rest of society.
The Gonski plan was designed to boost funding for under-resourced schools and disadvantaged students. Large proportions of disadvantaged students fail to achieve minimum international and national standards and their results continue to lag those of advantaged students by 3-4 years of learning. Over 80% of these students are in public schools.
The cost of the last two years of the Gonski funding plan was originally estimated at $7 billion, that is, an average of $3.5 billion a year. It could be easily financed by reducing the revenue forgone to the wealthy through the superannuation, capital gains, negative gearing and other tax concessions and by reducing tax evasion. The refusal of the Turnbull Government to seriously challenge the tax benefits of the wealthy and fully implement the Gonski plan demonstrates that its priority is to support privilege at the expense of the disadvantaged.
Trevor Cobbold is National Convenor of Save Our Schools.