The Great Australia Tax Dodge

Money
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Yes but many of the assets that were acquired from Billiton as part of the merger have subsequently been sold off. Perhaps the most significant lasting effect was the dual-listing. Maybe someone in the Creative Financing Department at BHP decided that they might as well use the dual-listing for something. :slight_smile:

What makes this even a meaningful comparison? I mean why would anyone think that the ratio of tax collected from companies to the tax collected from individuals should be any particular number? The change over time is probably more significant than the actual number (the ratio).

Businesses’ profits are more volatile than individuals’ taxable incomes. Maybe business really was struggling.

It won’t be showing up on the graph yet but smaller businesses have had a reduction in the company tax rate.

Another factor is bracket creep. Because there is (more or less) only a single company tax rate, business is not subject to bracket creep, whereas individuals of course are.

To the extent that a business has only Australian shareholders and distributes its after tax profits as dividends, it really doesn’t make any difference what the company tax rate was - because of the imputation credit (franking credit) system. It could be artificially high and the green line would go shooting up. It could be artificially low and the green line would go shooting down. However in either case the Australian government’s budget position, and the shareholder’s financial position, would be essentially unchanged! It would just be swings and roundabouts.

So what was the increase for enterprises over the same period?

Also, the graph uses the word “levied” rather than the word “collected”. Neither word makes it clear how the implicit double counting that is addressed by imputation credits is being represented in those numbers.

It is important to understand what the ATO means by ‘tax gap’. From the ABC’s equivalent article:

The tax gap measures the theoretical difference between the total amount of income tax collected and the amount the ATO estimates would have been collected if every one of those taxpayers was fully compliant.

It is unclear what is meant by “compliant” since it may be that every one of those taxpayers is fully compliant with the law i.e. creatively reducing their tax but not violating tax law. Maybe what the ATO means is “if every one of those taxpayers took no steps to reduce their tax”.

Ignoring that question, we should note the words “theoretical” and “estimates”.

Also from the same article:

It was also lower than the ATO’s estimate of the small business tax gap of $11 billion annually

So, in perspective, if there is rorting alleged then “rich Australians” are rorting only chicken feed, as compared with small business.

What is a “rich Australian”, you may ask?

individuals who, together with their associated entities, control net wealth of $50 million or more

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The call by Biden to increase Corporate Tax rates rather than cutting them has also caused debate about taxes on the Companies and wealthy people here. Some discussion has put a figure of around $158 Billion over the next decade to be gained by increasing the taxes on the wealthier end of town. The OECD & IMF have also come out in favour of short term hikes on the wealthy to help fund post COVID recovery with many now recognising that some of the extreme rich do not seem to be contributing their fair share.

While the article headline is about Biden the detail in the article is also about Australian outcomes.

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I also like the thought bubble about a treaty to establish global minimum corporate tax rates. The odds of it getting anywhere are not good, but.

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Always interesting to consider, but if Biden’s changes go ahead, they would just move US corporate rates back up towards, but not reaching, Australia’s corporate rate. So it is unlikely to put upward pressure on Australia’s corporate rate. If anything it could be used as a justification to lower Australia’s corporate tax rate, to create a level playing field with US rates.

Mmm. Yes, we know about “short term hikes”. It does seem plausible that there will be a “temporary” COVID levy. We will know in about a month’s time when the budget is handed down?

This figure has two bogosity indicators however.

  1. It is quoted over 10 years, rather than the much less impactful 1 year figure.
  2. It may be assuming that tax increases don’t cause any change in behaviour.

Australia’s imputation credit system means that any change to the corporate tax rate has far less impact on total revenues than would otherwise be the case. If the company pays less tax (lower corporate tax rate) and the company therefore distributes more of the profit to Australian shareholders then the Australian shareholders pay exactly correspondingly more tax. Similarly if the company pays more tax.

So it is not surprising to see the focus of the revenue claims on items that are outside the corporate tax system, specifically

  1. Taxing individuals more.
  2. The (so-called) Mining Super Profits Tax getting another outing.

In reality, this is a very frequent discussion and there are quite a few other areas that could also be looked at. The usual suspects. Fuel excise rebate. Super. Capital Gains Tax discount. Negative gearing.

Reading the article, it is almost as if every tax payer thinks that taxes should go up … as long as it is someone else paying the increase.

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Unless you qualify for the lower tax rate we charge a Small Business or Base Rate entity which at the moment stands at 27.5% but which will drop to 25% next tax year. At the rate the US want to levy it (28%) and according to a quote in the article about our Small Businesses this would seem us still heading Southwards rather than Northwards.

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Yes, I was talking about the big end of town (30%).

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Base Rate Entity (Small Business now have to be determined as a Base Rate Entity) turnover has to be $50 Million or less a year. Still quite a lot of turnover and still a substantial portion of businesses in Australia.

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This should be interesting.

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We do something similar each year when looking at the household finances and budget. We agree not to spend as much on ……

It’s a great commitment, but needs more than just the words. I take the announcement from the G7 as a similar outcome. It’s recognition of the problem and an in principle solution. Something politicians are VG at. Optimism - Maybe this time?

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None of the tax havens who specialise in low corporate taxes are in the G7. The following have zero rates or lower than the 15% specified.

  • Anguilla
  • Bahamas
  • Bahrain
  • Bermuda
  • Cayman Islands
  • Guernsey
  • Isle of Man
  • Jersey
  • Turks and Caicos Islands
  • Vanuatu
  • Hungary 9%
  • Montenegro 9%
  • Andorra 10%
  • Bosnia and Herzegovina 10%
  • Bulgaria 10%
  • Gibraltar 10%
  • Macedonia 10%
  • Moldova 12%
  • Cyprus 12.5%
  • Ireland 12.5%
  • Liechtenstein 12.5%

There are other lists that contradict this one and such things change all the time but it is an indication.

Then there is the problem that the stated rate can often be watered down in practice so much that it becomes meaningless. For instance one of the big players in the game is Ireland that has a headline rate of 12.5% but according to some computations an effective rate nearer 4% and is haven to 100B$ US of profit a year.

So is there a way that they will be influenced to raise their rates or is this a feel good promise that the in-crowd are promising not to race to the bottom?

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It appears that some of the wealthest Aussies are still free loading on the taxpayers.

I can guess a few names based on the JobSeeker parasites.

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Your JobKeeper friends might or might not be included in the 66. Something that the award winning journalist and the chief economist failed to mention is that 54 of the 66 gave a total of $211 million in gifts and donations to charities. Details for the other 12 could not be ascertained from the ATO data.

The other 15,292 individuals earning more than $1 million of income paid a total of $15.7 billion of tax.

It is disappointing that writers of articles like this cherry pick one number to portray the tax system as unfair without considering the wider data or suggesting any ways to make it fairer.

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In this case very rich people donated significant sums to charity, some paid significant amount of tax, both in absolute dollars.

What some people want to ignore is that regardless, these large amounts can be very small fractions of their annual income. Therein lies the difference in viewpoints. An ‘average bloke’ will be paying roughly 20% or more of their total income in taxes, ignoring potential benefits they may receive to keep it simple. Why should someone who has an income that buys an unimaginable lifestyle pay 4%?

It is an ideological difference in perspective.

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Taxes? What taxes?

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An average of $1M in tax each? It sounds impressive. Would that be fair if a tax payer earned $5M and paid just $1M in tax or is it still fair if the tax payer earned $10M and paid just $1M?

We can’t see the finer detail, or make a properly informed assessment. Especially since how that wealth accrued from the community as a whole is being used, is also not transparent.

The Conversation has an assessment.

One observation offered by The Conversation:
That most of us have little idea of what others earn suits those in charge when they propose tax cuts skewed to high earners.

They can con us that most of us will be better off, and those on high incomes can con themselves they are not already better off.

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That isn’t the intention of this proposal.

A company would be free to continue being taxed in Ireland and paying (nominally) 12.5% for the privilege but they would then, as a US company (for example) pay a further 2.5% in the US. That’s the best case scenario for Ireland.

The worst case scenario for Ireland is that the company unwinds its Irish connection and just pays 15% in the US and Ireland gets nothing.

Makes no difference to the company (between those two options).

The tax rate is only half of the announcement. The other half of the announcement is aligning the proportion of tax remitted with the proportion of revenues derived - for each country in which the company does business i.e. that 15% tax would be divided among countries in proportion to revenues, in an ideal case.

(This is important because otherwise a US, for example, company could simply ditch its US domicile and actually become a genuine Irish, for example, company - in which case the boot would be on the other foot, with Ireland getting 12.5% and the US getting nothing.)

You would think that Ireland, as part of the EU, would over time come under some pressure to lift the corporate tax rate to 15%. The rationale for having the lower tax rate will be eroded while the logic for consistency across the EU will remain.

None of this is easy. With the obvious billions and billions of dollars at stake, a company will always have a massive incentive to maximise its position. I don’t pretend to know what will eventually be passed into law, let alone what the actual consequences will be, let alone how it might evolve in the future.

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Apparently we’ll need to pay for the things that we want. Tax bludgers will no doubt find ways to evade.

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They’ll just keep doing what they already do.

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The headline is a non-sequitur however. Yes, expenditure has to be paid for. No, paying more tax is not the only option.