Expect to hear and read a lot about tax over the coming months. In the 200 page tax discussion paper, Re:think, the Treasurer Joe Hockey asks how we can create a better tax system that delivers taxes that are lower, simpler and fairer.
The National Welfare Rights Network (NWRN) begins with the proposition that everyone should pay their fair share of tax. We should be talking about progressive taxation methods. For example, progressive income tax is a critical feature of a fairer tax system. Australian taxes are not high when compared to other developed countries.
“High company rate ‘strangling our appeal’”, screamed one headline in The Australian on the day that the Re:think tax paper was released. “Company tax was the highest in the world, handicapping the economy, sapping wages and repelling foreign investors”, the article continued.
Two days later, however, The Age ran a story on the front page with the headline, “Big business took $25 billion in tax relief in 2014”. This story revealed that the ATO’s own data showed the top 900 companies paid an effective tax rate of just 19.3 cents in the dollar on pre-tax profits in 2014. This information is extremely interesting given that the corporate tax rate is 30 per cent. Australia’s largest companies were actually paying proportionately less tax on their income than the average wage-earner. On average, Australia’s biggest companies were paying less than Britain’s mandatory rate of 21 per cent as were Australia’s top 900 companies.
Tax exemptions are growing at a spectacular rate. Exemptions for business should be put under the same level of scrutiny that is applied to government expenditure on social security, education and health.
Tax minimisation is legal and big business bin Australia. High wealth individuals can also reduce tax liabilities through structures that are not an option for average PAYE wage-earners. Any discussion about taxation will need to look at both revenue and expenditure. We need to fund vital health, education, social security, housing and infrastructure that we need to ensure that our population thrives.
The Government plans to develop policy options on taxation reform that it will take to take to the next election, due in late 2016. As expected, much of the initial debate has centred on the contentious issue of the Goods and Services Tax (GST) introduced by the Howard Government in 2000. Two issues of importance here are the rate of the GST and the breadth. GST has remained at 10 per cent, making it the lowest in the developed world, and well below the OECD average for consumption taxes which average, which stands at around 20 per cent.
NWRN argues that the GST, like all flat rate taxes, is regressive hurting the poorest in the community who need to spend a greater share of their income just to survive. According to Treasury, the poorest 20 per cent of the population spend almost 60 per cent of their income on goods and services that are currently exempt, compared to little more than 25 per cent of those people in the highest earning quintile. This is mainly because high income earners save more of their income. Regardless of income, around 40 per cent of total household spending goes on GST exempt items.
Supporters of raising and broadening the base of the GST argue that the unfairness that are inherent in the GST can be addressed by careful crafting of a compensation package. The problem is, it is difficult to design compensation for low income working people whose wages are so low that they don’t pay much income tax. It’s hard to avoid losers, and then there is the experience in New Zealand recently, when a few years after the GST was increased, the compensation was whittled away. The big risk for those on fixed and low incomes is that compensation will be both inadequate and short-term.
The Federal Government says that bipartisan support will be needed before it would propose changes to the GST. In addition all states and territories would need to be onside. So with the Opposition ruling out any changes, there appears to be no consensus about increasing or broadening the GST.
In the area of superannuation, the Government estimates that tax concessions on super contributions and earnings foregone revenue is $29.7 billion this year. The top 10 per cent of earners receive a third of the tax benefits under current rules. The 2006 Howard Government decision to provide generous tax breaks for people over 60 is also being questioned. This questioning has been invigorated in light of new figures that reveal that 24,000 of the richest superannuation holders each have more than $2 million in their superannuation accounts – receiving about $5.2 billion in tax-free income every year.
The Government’s tax paper puts all state and federal taxes on the table but makes no recommendations. Contentious issues like negative gearing and the dividend imputation system are on the table. Currently, more than one million people claim losses against their investment properties. Other state taxes including stamp duty, gambling taxes and land taxes are also up for discussion.
One area under active consideration is the taxation of GST purchases online which the NWRN has supported subject to consideration of the cost of administration. Another is steps to address profit shifting by multinationals – the so-called Google tax. The Opposition has proposed amending the current thin capitalisation rules to reduce the amount of debt that multinational companies can claim deductions for in Australia. The Opposition also plans to increase compliance resources at the ATO to allow it to investigate and pursue multinational profit shifting. These measures are expected to raise nearly $2 billion in revenue.
A copy of Re:think Tax Discussion Paper, can be found at: http://bettertax.gov.au/publications/discussion-paper/
To join the ‘tax conversation’, visit the Better Tax website www.bettertax.gov.au
Submissions to the Tax White Paper Task Force are due by 1 June 2015, at: email@example.com