Our wealth has only grown since the carbon tax

Stephen Koukoulas, The Drum, 26 July 2013 

Tax system at risk - Treasury

Georgia Wilkins, The Age, 24 July 2013

How big tech stays offline on tax

Tom Bergin, The Guardian, 24 July 2013 

Taxpayers Pick Up The Tab For Business

Sarah Lumley and Jim Crosthwaite, New Matilda, 24 July 2013

The truth about FBT on cars: meaningful tax reform is hard

Dale Boccabella, The Conversation, 23 July 2013  

Good Riddance To Bad Tax Rorts

Ian McAuley, New Matilda, 23 July 2013

G20 on warpath against tax dodging

Katie Walsh, The Australian Financial Review, 22 July 2013 

Plan to withhold welfare cash

Mark Kenny, The Sydney Morning Herald, 19 June 2013

OECD tax avoidance plan is no quick fix for EU

Prem Sikka, The Conversation, 19 July 2013
 

Manufacturing threatened by Rudd’s changes to car tax deductions

Anna Mortimore, The Conversation, 17 July 2013

PM Kevin Rudd reveals $3.8 billion price tag on decision to 'terminate' carbon tax

ABC News, 16 July 2013

Hamish McRae: Power balance shifts to the private sector and away from governments

Hamish McRae, The Independent (UK), 21 July 2013
 

Your tax incentive is my tax loophole. There is an obvious irony that Britain should be introducing a new corporate tax break at the very moment that we should be supporting an international effort to reduce corporate tax avoidance.
True, our tax break is to encourage fracking, which, by its very nature, takes place within our territory, while the G20 finance ministers are in Moscow this weekend discussing an Organisation for Economic Co-operation and Development (OECD) report aimed at stopping companies shuffling profits to offshore locations where they have little or no physical presence. But the basic point that countries are competing for business by creating attractive tax regimes is undeniable. Exploration for oil and gas is expensive and cut our tax rate because we want the giant companies that do this to explore and develop supplies here rather than somewhere else.
This is about power and in particular the power balance between governments and business. Governments are powerful within their own territory, though they have to operate within constitutional arrangements and comply with broadly accepted international norms. If they don't, they pay a price – revolution and/or poverty for their people. Outside their jurisdiction, however, they are not that powerful at all, and the smaller the country the less power it has.
Thus the US government has a fair degree of leverage because of the size of its market. Companies and countries want access to it. But that power has limits, and if it imposes conditions that are thought to be too onerous, then they withdraw. For example, Americans abroad are finding it harder to get wealth-management services from non-US advisers because extra-territorial regulations make them unattractive customers. China is similarly in a strong position (though less strong than the US) because companies want access to its market.
Europe is more complicated because it is not a country. Some of the power relationship applies. Europe has a fair degree of leverage over the UK because our companies want access there, but this is tempered because European companies want access here. Smaller European countries have rather more power within Europe than you might expected as they have political leverage. Ireland can give a US company access to the European market and combine that access with a very low corporation-tax rate. Luxembourg and the Netherlands have similarly "gamed" their EU membership cleverly to attract business.
Businesses are powerful because they employ people and governments are desperate for jobs. They also get things done. No government, however competent, can build an aircraft or develop an oil field. It can, as we are seeing, run a bank, but we also see how much it hates so doing.
So each need the other. But the relationship between companies and governments has changed over the years for two reasons. First, globalisation: a generation ago people mostly bought products that were made in their own country. Now you don't know where something is made.
Second, the added value of a product is not in its manufacture but rather in the intellectual capital that has gone into it: the patents, the design, the marketing, the brand.
The combination of these two features means the power balance between governments and companies has shifted – and towards companies. Their ability to shift profits around used to be limited by their physical business and by agreements on transfer pricing (the price at which companies charged other parts of the business in another country for components). You could also see what was physically transported where. But if the added value is in intellectual property then it is much harder to price – and track.
The result is that it is much harder to tax companies than it used to be, and inevitably, abuses have arisen. The purpose of these new rules is to try and curb that. The aim of the OECD plan is to stop companies avoiding tax by putting patent rights into shell companies, charging interest in one country without reporting taxable profit in another, and forcing them to disclose where they do report their income.
This makes a lot of sense. As the German finance minister, Wolfgang Schäuble, said in Moscow: "Without fair burden sharing, in the end we will destroy even a global, open economy."
But governments should not kid themselves that it will be easy to establish what is fair.
Actually we as individuals can help – simply by not buying goods and services from companies that abuse the system. But that only takes us so far: we can do without Starbucks coffee but not without a Google search.

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G20 deal opens way for developing countries to hunt down unpaid tax

Daniel Boffey, The Observer, 21 July 2013

G20 summit backs exchange of tax information between all countries, but critics fear reform may be a long time coming.
The G20 summit has backed the principle of automatic exchange of tax information between all countries, both developed and developing. Photograph: Xinhua/Landov /Barcroft Media
A global agreement to allow developing countries to hunt down tax owed by companies that operate in their territories but hold profits elsewhere appears to have moved a step closer.
The final joint communique of the summit of G20 nations, issued yesterday, backs the principle of automatic exchange of tax information between all countries, both developed and developing. Much of the developing world is left out of bilateral and multilateral treaties that require the exchange of information on the tax affairs of companies and individuals. Some developed countries fear corruption makes it dangerous to widen such agreements to poorer states.
The G20's supportive words give extra momentum for reform, although critics fear that genuine action will continue to be slow in coming.
At the end of the summit, chancellor George Osborne said he believed progress was being made and revealed that Australia had committed to taking on the agenda when it hosts the G8 next year. He said: "This weekend's agreement at the G20 to a new global tax standard for fighting evasion and addressing avoidance is an important step towards a global tax system that is fair and fit for purpose for the modern economy. The next step is to take these action plans and agreements and convert them into concrete reality."
The communique said: "We commend the progress recently achieved in the area of tax transparency and we fully endorse the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information. We are committed to making automatic exchange of information attainable by all countries, including low-income countries, and will seek to provide capacity-building support for them."
This year the Observer revealed how a sugar-producing subsidiary of Associated British Foods – the maker of Silver Spoon sugar, Twinings Tea and Kingsmill bread – was avoiding tax in Zambia. Zambia Sugar paid very little corporation tax in the African state between 2007 and 2012, and none at all for two of those years.
The company said it had taken advantage of tax relief and allowances, but an investigation by charity ActionAid revealed the existence of an additional array of transactions that reduce Zambia Sugar's taxable profits in the state, while the structure of others avoids Zambian taxes that are ordinarily levied on foreign payments.

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Government's welfare benefits and tax changes amount to 'speeded-up Thatcherism'

Jane Merrick, The Independent (UK), 21 July 2013 

The economy may be growing, but inequality is rising more quickly than in 1980s, report warns.
The Government's welfare benefits and tax changes will widen income inequality between rich and poor on a scale similar to that of Margaret Thatcher, new analysis will reveal this week.
Research for the Fabian Society claims cuts to benefits and tax credits, particularly for working-age families with children, will amount to a “speeded-up replay of Thatcherism”, with inequality increasing twice as fast by 2015 as it did under the former Conservative prime minister.
The analysis is published just as signs of optimism about the economy appear, with the latest GDP figures, published this week, expected to show a further quarter of modest growth. At the same time, a poll for the consumer organisation Which? has found that people are becoming increasingly optimistic about both the economy and their own spending power. But household incomes continue to be squeezed, with 1.5m more families feeling the pinch than a year ago.
The report, published tomorrow for the Fabian Review by the economist Howard Reed, sets out a projection of the impact of coalition policies on income equality. The poorest families will lose more than 12 per cent of their net income on average, compared to around 3 per cent of net income for households in the ninth decile (the second most wealthy income bracket), Mr Reed, director of Landman Economics, says. This underscores how regressive coalition tax and benefit changes have been. Council tax, for example, on average charges low- to middle-income families a much higher percentage of their disposable income than the richest households.
Mr Reed said it is “quite possible that the impact of the coalition’s tax and benefit measures would be as bad for inequality as the Thatcher government’s record, despite the fact that, by 2015, David Cameron will have been Prime Minister for less than half as long as Margaret Thatcher was. Looked at in this way, the coalition government’s tax and benefit reforms are like a speeded-up action replay of Thatcherism. This may come as a particular shock to Liberal Democrats in the government, many of whom spent the 1980s railing against [this] kind of increase in inequality.”
Andrew Harrop, general secretary of the Fabian Society, said: “This research reveals that income inequality is set to rise sharply in this parliament. But since 2010 barely a word has been heard from the Labour Party on equality, certainly compared to past generations.
“Faced with a Thatcher-style inequality boom, Labour must rediscover its egalitarian core and never forget that redistribution must be part of the answer.”
Mr Cameron and George Osborne are preparing to seize on this week’s GDP figures, which could show growth of 0.8 per cent for the quarter. But living standards remain constrained.
The Which? Consumer Insight Tracker shows a third of families – 9 million in total – are feeling squeezed, up from 7.5 million in July 2012; but 24 per cent of people think the economy will get better in the next year, up from 16 per cent who thought so a year ago, while consumers are less likely to cut back on non-essential spending such as major household purchases, home improvements and holidays.
However, only 25 per cent of people said their personal financial situation would improve, suggesting an increasing reliance on credit. Food prices have increased by 4.3 per cent on the year, while gas and electricity bills are up by 8 per cent.
Richard Lloyd, Which? executive director, said: “Consumers may be aiding our fragile economic recovery, but using savings and getting into debt is not sustainable, and more people are now feeling the squeeze. The Government must do more to keep spiralling housing, food and energy prices in check.”
Chris Leslie, shadow financial secretary to the Treasury, said: “To get the economy back to where George Osborne expected it to be in 2015-16, we need growth of 5.3 per cent a year, or 1.3 per cent a quarter, over the next two years.
“While this may feel like a recovery for those at the top, life is getting harder for middle- and low-income families. Wages after inflation are now down by an average of £1,300 since David Cameron got into Downing Street, yet bank bonuses soared to £4bn in April, as high earners took full advantage of the top rate tax cut.”

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Wealth Taxes: A Future Battleground

Tyler Cowen, The New York Times, 20 July 2013

IF you’d like to know where American political debates are headed, the data suggest a simple answer. The next major struggle — in economic terms at least — will be over whether taxes on personal wealth should rise — and by how much.
The mathematical reality is that wealth is becoming more important, relative to income. In a new paper, “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700-2010,” Professors Thomas Piketty and Gabriel Zucman of the Paris School of Economics have performed the heroic task of measuring wealth for eight leading economies: the United States, Canada, Britain, France, Italy, Germany, Japan and Australia.
Their estimates reveal some striking trends. For instance, wealth accumulation in these eight countries has risen relative to yearly production. Wealth-to-income ratios in these nations climbed from a range of 200 to 300 percent in 1970 to a range of 400 to 600 percent in 2010. Behind the changing ratios is some bad news, namely that slow productivity growth and slow population growth have depressed income growth, but also some good news — that relative peace and capital gains have preserved wealth.
Focusing on the wealth of economies lets us reframe our recent debates about government debt in useful ways. A look at the ratio of debt to gross national product, for example, can be scary, but the ratio of debt to wealth is far less forbidding. If, say, a nation’s debt-to-G.D.P. ratio is 100 percent — often considered a dangerous level — and national wealth is 10 times yearly national income, the debt-to-wealth ratio is thus 10 percent, which is comparable to owing $100,000 on a $1 million home. Not so scary.
Using the wealth numbers provided by Professors Piketty and Zucman, we can understand how Japan, despite a debt-to-G.D.P. ratio of more than 200 percent, can maintain low interest rates; Japan has a wealth-to-income ratio of about 600 percent. In essence, creditors think the Japanese political system will be able to drum up enough support for the requisite taxes, pulled out of national wealth if necessary, when the time comes.
But don’t relax too quickly, because fiscal problems remain very real for many countries. While virtually every government could pay off its debts by taxing wealth, such taxes are often politically unacceptable. In other words, fiscal problems are best regarded as problems of dysfunctional governance. In the recent elections in Italy, the incumbent government lost voter support partly because it addressed the nation’s revenue problems by levying a wealth tax on real estate; the policy remains contentious and may yet be repealed or limited.
And here is a related issue: If there is enough national wealth to pay off debts, it may be harder to arrange bailouts from outside.
In the European Union, countries like Germany may regard the union’s more troubled nations as shirking their fiscal duties, and that makes cooperation harder to achieve. Italy, for instance, is in a fiscal crisis, but it also has an especially high wealth-to-income ratio, at 650 percent, indicating that it could pay off its debt if more of that wealth were taxed. Germany, by contrast, has a much lower wealth-to-income ratio: 400 percent. And though the professors caution that the German data, in particular, may be incomplete, the figures do lend support or at least plausibility to the recent argument that Germany shouldn’t be viewed as the rich uncle of Europe.
Some forms of wealth taxation take hidden forms, such as financial repression. This occurs when a nation’s citizens are required to hold deposits in banks under unfavorable terms — meaning at low interest rates. The banks, in turn, may be required to buy government debt to help finance a budget deficit. For better or worse, this is likely part of a longer-run resolution of fiscal problems in the periphery of the euro zone.
In the United States, wealth taxes are currently limited to a few levies, such as property taxes and inheritance taxes. Capital gains taxes that aren’t indexed to inflation also serve as an implicit wealth tax, because they dig into the body of a person’s capital. Most likely those rates will rise. Like the bank robber Willie Sutton, revenue-hungry governments go “where the money is.”
The coming battles over wealth taxation may prove especially bitter and polarizing. Most wealth has already been subjected to income and other taxes, perhaps multiple times. It doesn’t seem fair to the holders of that wealth to suddenly pay additional taxes on assets that they thought were in the clear, and such taxes would signal that previous policy has failed.
Higher wealth in a nation means that there is more to take, and growing inequality means there are more problems that its government might seek to remedy. At the same time, however, this new economic configuration will mean greater political influence for the holders of that wealth, and that will make higher wealth taxes harder to achieve.
Historically, economists — including me — have generally favored taxes on consumption, on the grounds that they would do the least damage to long-term savings, investment and economic growth. Yet in some eyes, rising wealth will become a tempting target for short-term political gain. And note that while most Republicans currently oppose consumption taxes, they may dislike the relevant alternative, namely wealth taxes, even more.
Get ready to choose a side.
Tyler Cowen is a professor of economics at George Mason University.

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OECD tax proposals offer G20 'once in a century' chance to fix creaking system

Simon Bowers, The Guardian, 20 July 2013 

Tax reform plan shows G20 how to close loopholes, end 'race to the bottom' – but radical idea to take on digital giants rejected.
The G20 tax reform proposals have been heralded by the Organisation for Economic Co-operation and Development as a "once-in-a-century" opportunity to fix the creaking network of hundreds of bilateral tax treaties that have been laid down over almost 100 years, smoothing the way for international trade.
The system has been pushed to breaking point by new ways of structuring cross-border business – some due to advances in technology, but many others the product of what the OECD describes as "the increasing sophistication of tax planners in identifying and exploiting the legal artbitrage opportunities and the boundaries of acceptable tax planning".
Behind the scenes there are already growing whispers that parts of the reform project will prove unacceptable to certain nations. Meanwhile, several anti-poverty campaign groups claim the project is not radical enough.
The key issues targeted by the OECD action plan are:
• Requiring online multinationals with extensive warehouse operations in an overseas country, such as Amazon, to pay local tax on any profits arising from sales in that country.
• Forcing multinationals to disclose to every tax authority a country-by-country breakdown of profits, sales, tax and other measures of economic activity such as headcount.
• Tougher rules to block transfers of high-value and mobile "intangible" assets – such as brands and intellectual property rights – to tax havens where there is little or no associated business activity.
• A crackdown on tax regimes found to have too soft an approach to multinationals deploying overseas finance subsidiaries through establishing a new international benchmark for appropriate taxation of controlled foreign companies.
• Wider measures to combat predatory tax competition policies emerging in some financially stretched countries, risking a "race to the bottom" climate on tax. The UK's new so-called "patent box" tax break for intellectual property companies will come under scrutiny.
• A raft of treaty updates to neutralise the tax advantages of complex financial instruments, schemes and structures, including hybrid capital, interest payment deductions and over-capitalisation.
• A requirement on multinationals to disclose the most aggressive "tax planning" structures to the authorities otherwise often relying on limited, local data that does not show the impact of transnational schemes to lower tax.
• New ways to rapidly introduce the OECD recommendations around the world. And a new approach to measuring the extent to which national tax coffers are being drained by multinationals artificially shifting their profits internationally to lower their tax bills
The main areas that have not been addressed by the OECD action plan are:
• French proposals for new tax rules specifically targeting digital companies such as Google, Apple and Microsoft. In addition, France's finance minister, Pierre Moscovici, had called for a link between tax and the collection of commercially valuable personal data by digital firms.
• Calls from anti-poverty campaign groups to involved developing nations – often the biggest losers from sophisticated tax engineering by multinationals – on an equal footing with representatives from larger economies.
• Wholesale scrapping of existing tax treaty principles, as advocated by campaign groups such as Tax Justice Network. These groups argue that the current system is so open to abuse it should be replaced with a new model – known as unitary taxation – which they claim would better link the apportionment of taxable profits by multinationals to the territories in which economic activities occur. The OECD claimed there was international consensus at the G20 against such a radical approach. Pascal Saint-Amans, director of the OECD's Centre for Tax Policy, said he was "agnostic" but that member nations regarded such proposals as "unfeasible".

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Barristers' pursuit of tax cuts 'unethical'

Natasha Wallace, The Sydney Morning Herald, 20 July 2013

A group of influential Sydney barristers is pushing to be allowed to operate as companies, which could save them tens of thousands of tax dollars each year.
But the move has divided the legal fraternity with NSW Bar Association president Phillip Boulten, SC, describing any move to incorporate barristers' practices to limit tax liabilities as ''ethically questionable''.
After pressure from a petition of 100 signatures, the Bar Council agreed on Thursday night to hold an extraordinary general meeting to discuss changes to the Legal Profession Act and the Bar Rules to enable the move. A date is yet to be decided.
Companies are taxed at 30 per cent whereas most barristers earn enough to put them into the highest 46.5 per cent bracket.
Incorporating would also limit their liability, in the event they were sued for negligence, to assets held by the company - and not risk personal assets such as the family home.
Other tax advantages would include avoiding a $2000 cap on the tax deductibility of self-education expenses foreshadowed by the federal government.
In a bulletin to members, published on Tuesday, Mr Boulten said the advantages of incorporating barristers' practices were ''very limited at best''.
''There are important ethical considerations to be borne in mind. It is entirely misguided to pursue proposals that are singularly designed to minimise barristers' tax exposure. The Bar should seek to provide ethical leadership and set high standards wherever possible and the pursuit of legislative change in order to reduce tax exposure for barristers is, in my view, ethically questionable,'' he said. ''I will not support any change involving incorporation which would undermine the standing of the Bar in the eyes of the community which we serve.''
The barrister behind the push, John Hyde Page, sent a letter to members on Wednesday accusing Mr Boulten of obtaining legal advice on the issue from practitioners who were ''emphatically opposed'' to the idea.
''I am trying to obtain genuine consideration of my proposal for incorporated legal practice; not the sort of superficial consideration that permits members of the Bar Council to say, without elaboration, 'we looked at this and decided it was not worth doing','' Mr Hyde Page wrote.
He and other signatories to the petition want to operate as single-member corporations (where the barrister is director and sole shareholder).
''I believe it is fully compatible with the notions of independence and professionalism that are central to what we do. I also think the way in which individual barristers structure their affairs should be a matter of personal choice,'' Mr Hyde Page wrote.
He declined to discuss the issue with the Herald. He released a discussion paper last year that said a barrister earning $300,000 a year could save about $25,000 in tax breaks if incorporated.
Professor Richard Vann, of the law faculty at Sydney University, said professions were increasingly moving towards operating as companies and it was inevitable that barristers would follow.
The bigger issue was the subsequent tax dollars lost, he said.

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G20 backs radical tax reform plan

Simon Bowers, The Guardian, 19 July 2013 

Most ambitious programme of reform for almost a century seeks to cut tax avoidance by world's biggest multinationals.
Finance ministers from 20 of the world's largest economies have endorsed the first internationally co-ordinated attempt to roll back decades of ballooning tax avoidance by many of the biggest multinational corporations in the world.
Co-ordinated by the OECD, the Paris-based body representing large industrial nations, a new tax reform action plan has won the support of wider G20 members – including the increasingly influential China, India and Brazil.
Through the European Union, countries such as Luxembourg, the Netherlands and Ireland – all of whom have been accused of beggar-thy-neighbour tax policies – are also backing the project, details of which are due to be unveiled at a meeting of G20 finance ministers in Moscow on Friday.
It is the most ambitious programme of reform since the principles for bilateral tax treaties were first laid down by the League of Nations in the 1920s, laying the ground for the modern era of globalised trade.
The initiative follows a string of high-profile tax exposés by politicians, whistleblowers, anti-poverty campaigners and journalists, shining a light on byzantine corporate structures created by household name companies including Vodafone, Google, Amazon, Starbucks, Diageo, Cadbury and Apple.
Campaigning reports by the Guardian stretching back to its 2009 Tax Gap series have been cited by the OECD as contributing to unprecedented public awareness of the problem. "Unfortunately, the rules are now being abused," said the OECD secretary-general, Angel Gurría. "[Our] action plan aims to remedy this, so multinationals pay their fair share of taxes."
As well as responding to mounting public outcry, world leaders have also taken up the issue with renewed vigour hoping to repair some of the leaks in their strained national exchequers.
Among the countries driving the initiative have been Germany and the UK, with the British chancellor, George Osborne, and his finance minister counterpart, Wolfgang Schäuble, issuing a joint statement on the fringes of a G20 meeting in Berlin in November calling for radical reform.
"Britain and Germany want competitive corporate tax systems that attract global companies to our countries, but also want global companies to pay those taxes," they said.
The action plan sets out 15 initiatives for arming tax authorities around the world with the tools to crack down on some of areas international leaders agree are among the most widely exploited by multinational tax avoiders. These targeted initiatives are to produce a range of hard recommendations for changes to the tax treaty rulebook, with deadlines ranging from between 12 months and two-and-a-half years.
Among the highlights are additional disclosures multinationals must make to all tax authorities, helping officials know where to look for the worst avoidance. Proposals to require companies such as Amazon with extensive warehouse networks in a country to pay more local tax; multinationals posting high-value "intangible" assets, such as brands and intellectual property rights, to tax havens will also targeted; as will special tax break policies introduced by individual nations that are seen as predatory.
Despite the ambition of the G20 project – the scale and pace of which still risks breaking the consensus at a political level – some anti-poverty campaigners claim it does not go far enough.
"The OECD has done little to dispel its reputation as the 'rich men's club' by effectively ruling out the active participation of developing countries in shaping the tax reform agenda," said the Financial Transparency Coalition (FTC), an umbrella group including charities such as Christain Aid, Global Witness, Global Financial Integrity Tax Justice Network and Transparency International.
Some FTC member groups want to explore whether the many hundreds of existing bilateral tax treaties that facilitate global trade should be torn up and replaced with a new model – known as unitary taxation – which they claim would better link the apportionment of taxable profits by multinationals to the territories in which economic activities occur.
Elements of this country-by-country approach have been cherry picked for a narrow aspect of the OECD's reform agenda.
Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration who has been leading the reform project, said the long-standing debate in this contentious area had become "like a religion" for advocates on both sides, but insisted he remained "agnostic".
However, he added there was consensus among G20 members that unitary taxation was not a feasible solution.
Another area for which the action plan has already received criticism is its limited ambitions for targeting tax avoidance by a new generation of multinationals operating in a digital economy with business models never envisaged by those who first drafted tax treaty principles.
The Guardian revealed on Monday that the US had frustrated attempts by European politicians, particularly the French, for more radical action in this area.
The OECD has signaled that more analysis needs to be done on the new and varied ways business is conducted in the digital economy before a timetable for firm recommendations can be set. It is setting up a new OECD taskforce to carry out this research in the next 12 months.
The chair of this group is yet to be decided, but France, Germany, the UK and Australia are all understood to be keen to lead the debate. Winning support from the US, where many of the most successful digital economy firms are based, will be seen as the main challenge.

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A tax break story we've heard before and the sky did not fall in

Tim Colebatch, The Age, 19 July 2013

If you're older than you'd prefer, you might remember the tax that was going to shut down Australia's restaurants. In 1985 the Hawke government introduced sweeping tax reforms which, among other things, introduced the fringe benefits tax, and applied it to restaurant meals.
Restauranteurs went bananas. Many of their customers were businessmen taking clients, friends or colleagues to long lunches or dinners, and writing off the cost against tax as a business expense. No, it isn't, the government said; it's a fringe benefit of the job, and should be taxed as such.
We were told it would be a disaster: restaurants would shut down, waiters and kitchen hands would be thrown out of work, the economy would slump. Then opposition leader John Howard pledged that the Coalition would repeal the FBT ''lock, stock and barrel''.
Prime minister Bob Hawke and treasurer Paul Keating held firm. The tax came in. Restaurants did not shut down. People still went out to eat; the difference was that other taxpayers were no longer sharing the bill.
Activity at hotels and restaurants grew 21 per cent in the next four years, doubled in less than 20 years. John Howard became prime minister for 11 years; he never repealed the fringe benefits tax. A tax rort ended with no pain.
We're seeing it all again now. The Rudd government has decided to end the favoured tax treatment of company cars or cars bought through salary sacrifice. The industry and the opposition predict disaster. Opposition Leader Tony Abbott pledges that a Coalition government will abandon the reform.
What are the facts?
First, the change would not stop employees being given company cars, or buying them through salary sacrifice. What it would do is to ensure that they can no longer claim a business tax deduction for private travel.
After April 1, 2014, anyone receiving a new company car or buying one through salary sacrifice would have to keep a log, just for three months every five years, recording when the car was used for business and when it was used privately.
This option already exists, and is used by a third of employers offering company cars or salary sacrifice. What would change is that after an eight-month grace period, it would be the only option.
Opponents say it will mean endless red tape and record-keeping. No, says the government: there are now apps that connect to your GPS and mobile phone that keep the records for you, and transmit them to your pay office.
And, obviously, people will choose to use three-month period when they maximise their business use.
Would it hurt the leasing industry? Almost certainly: after April 2014, they would no longer have a tax break to give people an incentive to buy their product. They would have to offer the technology that makes records easy to keep, and find other edges to keep them ahead of car dealers.
But people would still buy cars. Maybe fewer people would buy new cars, and instead buy low-mileage used cars. Maybe some would buy cheaper new cars. Those who use their cars a lot for business would probably stick with company or salary-sacrificed cars and keep records once every five years.
Would it hurt local car manufacturing? Almost certainly: the industry says more than a third of vehicles sold to business or through salary sacrifice are Australian-made – as against fewer than one in 10 vehicles sold privately. Anything that shifts demand from business to individuals would hurt local manufacturers.
The truth is, no one knows what the impact would be, no more than they did in 1985. But the Victorian government's preliminary estimate that the tax change would cost local manufacturers 10,000 sales a year, cutting sales by about 8 per cent, sounds plausible. Should we therefore scuttle the reform?
Not if you believe Treasury's estimates. The total subsidies to the Australian car industry are just over $400 million a year. The average cost of the salary sacifice tax break is $800 million a year. If you want to help local car manufacturing, there are far better ways to do it to give a tax break to people to mostly buy foreign-made cars.
You can't blame anyone for taking up a tax break that's on offer. And you can't blame a government for recognising a bad tax break and shutting it down. Remember: those who pay for tax breaks are other taxpayers.

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G20 report warns of global tax chaos

Patrick Wintour and Simon Bowers, The Guardian, 19 July 2013
 

Governments risk "global tax chaos" as they chase dwindling revenues from multinational companies unless the international tax regime is radically overhauled, according to a report commissioned by the G20 group of nations.
On Friday, the chancellor, George Osborne, will hail a two-year action plan drawn up by the OECD thinktank to clamp down on questionable international corporate tax practices.
The long-awaited report, prepared for a meeting of the G20 finance ministers in Moscow this weekend, says a "bold move by policymakers" is necessary to prevent a worsening in the position. The OECD calls it "a turning point in the history of international co-operation on tax".
The action plan sets out 15 initiatives for arming tax authorities around the world with the tools to crack down on some of the areas international leaders agree are among the most widely exploited by multinational tax avoiders. These initiatives are to produce a range of recommendations for changes to the tax treaty rulebook, with deadlines ranging from 12 months to two and a half years.
Among the highlights are additional disclosures multinationals must make to all tax authorities, helping officials know where to look for the worst avoidance. There are proposals to require companies such as Amazon with extensive warehouse networks in a country to pay more local tax; multinationals posting high-value "intangible" assets, such as brands and intellectual property rights, to tax havens will also be targeted, as will tax breaks introduced by individual countries that are seen as predatory.
The report sets out 15 separate actions the international community needs to take to modernise a tax system established in the 1920s. It argues the tax system is outmoded and unequipped to deal with mobile multinational firms that have found innumerable ways of avoiding tax, often by shifting profits to low-tax countries.
The work follows the proposals set out by David Cameron at the G8 to attack tax havens and increase the sharing of information on companies' tax status between tax authorities. Responding to the report, the prime minister said: "This report shows how taxpayers, governments and businesses all suffer when some companies manipulate the tax system to avoid paying their fair share of taxes."
He added: "That's why I put the issue at the heart of our G8 agenda. I'm delighted that the OECD have risen to the challenge we set at Lough Erne: committing to set out by next September new rules for a common template that will require multinationals to disclose where they earn their profits and where they pay their taxes."
The OECD work, funded by the G20, is designed to look at the international changes to tax law and definitions that would be required to allow national governments to bring often legal corporate tax avoidance under control. It says corporations should pay more tax where the value of a product or service was created.
The report warns that "inaction in this area would likely result in some governments losing corporate tax revenue, the emergence of competing sets of international standards and the replacement of the current consensus-based framework by unilateral measures which could lead to global tax chaos". That in turn could see the large-scale re-emergence of double taxation, where two countries seek to tax the same corporate income.
The report lists the actions required, sometimes involving painstaking work to re-establish a measure of control over multinationals such as Google, Starbucks, Amazon and Apple which have found it relatively easy to exploit the current loose rules, and sometimes pay no tax on billions of revenue.
The OECD was asked by the G20 to undertake the work as the premier organisation responsible for international tax treaties.
It says that the "current weaknesses in the rules and the interaction of different tax rules leads to double non-taxation or less than single taxation". It also says the rise of the digital economy raises fundamental questions about where and how enterprises generate value.
It warns: "The way in which multinationals have greatly minimised their tax burden has led to a tense situation in which citizens have become more sensitive to tax fairness issues."
Critics of the OECD report are likely to argue that it is stronger on analysis than specific solutions, but the OECD says it has managed to create a framework in which to address the main issues confronting governments, including the critical need for greater international co-operation between tax authorities.
At its most ambitious, the report suggests countries should be willing to put most of their bilateral tax treaties into a multilateral framework, to block companies from getting round bilateral arrangements.
The report points out that "the involvement of third countries in the bilateral framework established by treaty partners puts a strain on the existing rules, in particular when done via shell companies that have little or no substance in terms of office space, tangible assets and employees".
The OECD says it wants to "examine how a company has a digital presence in the economy of another country without being liable to taxation due to lack of nexus under current international rules". It suggests "existing domestic and international tax rules should be modified in order to more closely align the allocation of income with the economic activity that generates that income".
It highlights loose rules on the definition of a company's "permanent establishments" that allow "contracts for the sale of goods belonging to a foreign enterprise to be negotiated and concluded in a country by the sales force of a local subsidiary of that foreign enterprise without the profits from their sales being taxable". It adds: "Multinationals have been able to use or misapply those rules to separate income from the economic activities that produce that income and to shift it to low tax environments. This most often results from transfers of intangibles and other mobile assets for less than full value."
The OECD says: "There is an increasing disconnect between the location where value-creating activities and investment take place and the location where profits are made."
Despite the ambition of the G20 project – the scale and pace of which risk breaking the political consensus – some anti-poverty campaigners claim it does not go far enough.
"The OECD has done little to dispel its reputation as the 'rich men's club' by effectively ruling out the active participation of developing countries in shaping the tax reform agenda," said the Financial Transparency Coalition (FTC), an umbrella group including charities such as Christian Aid, Global Witness, Global Financial Integrity, Tax Justice Network and Transparency International.
Some FTC member groups want to explore whether the many hundreds of existing bilateral tax treaties that facilitate global trade should be torn up and replaced with a new model – known as unitary taxation – which they claim would better link the apportionment of taxable profits by multinationals to the territories in which economic activities occur.
Elements of this country-by-country approach have been cherrypicked for a narrow aspect of the OECD's reform agenda. Pascal Saint-Amans, director of the OECD's centre for tax policy and administration, who has been leading the reform project, said the longstanding debate in this contentious area had become like a religion for advocates on both sides, but insisted he remained agnostic.
However, he added there was consensus among G20 members that unitary taxation was not a feasible solution.
The Guardian revealed on Monday that the US had frustrated attempts by European politicians, particularly the French, at more radical action in this area.
The OECD has indicated that more analysis is needed of how business is conducted in the digital economy before a timetable for firm recommendations can be set. It is setting up a taskforce to carry out this research in the next 12 months.
The chair of this group is yet to be decided, but France, Germany, the UK and Australia are all understood to be keen to lead the debate. Winning support from the US, where many of the most successful digital economy firms are based, will be seen as the main challenge.

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Corporate taxation
A call to action

The Economist, 19 July 2013
 

AS PUBLIC ire has grown over the aggressive tax planning that allows many multinationals, from Starbucks to Google, to pay rates of income tax far below the statutory level, pressure has grown on policymakers to move beyond rhetoric. The Group of 20 countries (the world’s most advanced economies plus some large developing countries) asked the Organisation for Economic Co-operation and Development (OECD), a rich-country think-tank, to draw up a roadmap for reforming the current patchwork of rules and tax treaties, which is so easily gamed by big business. The OECD unveiled its “Action Plan on Base Erosion and Profit Shifting” on July 19th. G20 ministers are expected to endorse it this weekend at a meeting in Moscow.
If implemented, the 15 proposals in the document would change the face of cross-border taxation by making it much harder for companies to exploit loopholes. Some of the proposals are highly technical, but the overall goal is to curb practices that artificially separate taxable income from the economic activities that generate it.
The plan seeks to tackle abuse of treaties that were originally designed to avoid double taxation but which can be used in combination to ensure double non-taxation. One target of the OECD is hybrid instruments that can be classified differently in different jurisdictions, thus enjoying multiple tax benefits. Another is the mispricing of intra-company transactions (transfer pricing), often involving intangible assets like intellectual property and royalties, in order to shift profits to tax havens. The “arm’s length” rules on these transfers are in desperate need of an overhaul, though the OECD rejects the idea of replacing them with a brand new approach, such as “formulary apportionment”, advocated by some NGOs (it would allocate profits according to a formula based on the location of sales, employees or other such metrics).
Thinking has come a long way in a short time. “A year ago, few of our proposals would have had a chance,” says Pascal Saint-Amans, head of tax at the OECD. An example is its embrace of country-by-country reporting of profits, revenues and taxes paid—an idea that none but a few radicals had any time for a few years ago.
The devil will be in the details, and many are yet to be worked out by committees of technocrats from countries that do not see eye to eye on some of the big issues. For instance, America, home to some of the largest technology firms, is much warier than France of throwing a spanner in the works of the digital economy. Meanwhile, smaller countries that have carved out niches as corporate tax havens, such as Ireland and the Netherlands, will do all they can to frustrate the reformers’ efforts. And a global accord will remain beyond reach unless large emerging markets such as India and China are brought on board. Even if ministers can find common ground, the technocrats will have a hard time turning the current tangle of national rules, international standards and bilateral treaties into a coherent, equitable framework.
Despite these challenges, Mr Saint-Amans is optimistic that meaningful reform can be achieved within two years—an ambitious timeline by the standards of tax diplomacy. The politicians are already on board, he says, providing “support from the top” that will offer cover for those engaged in the fiddly work to come. The golden years of corporate tax avoidance may be drawing to a close.

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Lax tax rule on cars same as restaurant rorts, says Bowen

Mark Kenny and Stephen Ottley, The Sydney Morning Herald, 19 July 2013

Treasurer Chris Bowen has defended this week's move to tighten fringe benefits tax rules on cars used partly for work purposes, likening it to former treasurer Paul Keating's crackdown on rorted restaurant meals in the 1980s.
The comparison came amid news of job losses in the fleet sector. Mr Bowen said the decision, which would return $1.8 billion over four years, was justified on the grounds of fairness, and would mainly affect high-income earners leasing luxury imported cars.
The Hawke government's move on restaurant meal deductions in the 1980s brought wild claims of imminent ruin for the hospitality sector, but it never occurred.
''It wasn't popular, it was controversial, [but] I don't hear people today clamouring for a policy change back, because it was the right thing to do to put the budget on a sustainable footing,'' Mr Bowen said.
The closure of the tax loophole on cars, which let motorists declare 20 per cent business use without documentation, was the main savings measure linked to a decision to call an early end to the carbon tax by starting the emissions trading scheme from July 1 next year.
Lease company NLC announced 74 redundancies from its 143-strong workforce on Thursday after the change.
Fleet companies said that, while the change applied only to new contracts and had a phase-in period, the costs of growing employee entitlements and the declining prospects for new sales meant staff were already being let go.

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FBT break a veiled car subsidy: academics

The Australian Financial Review, 18 July 2013

The fringe benefits tax concession for motor vehicles is an indirect subsidy for the car manufacturing industry, propping it up to the tune of $1.7 billion a year today, academics say.

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Top retailers call for online imports tax

Sue Mitchell, The Australian Financial Review, 17 July 2013 

The largest retailers have put aside competitive differences to lobby both sides of politics in a last-ditch bid to impose the GST on online imports, thwart calls to strengthen competition laws, and boost labour productivity.
Four of the most powerful retailers – Coles managing director Ian McLeod, Woolworths managing director Tjeerd Jegen, Bunnings managing director John Gillam and Harvey Norman managing director Katie Page – will kick off a campaign by the Australian National Retailers’ Association this week. Alarmed at what they see as increasing attacks on “big retail” by regulators, unions and government, they will highlight their role as the largest private employer and the billions of dollars it invests every year in stores, formats, supply chains and technology.
 “We are looking to walk the talk and roll our sleeves up on issues of real significance, not just preaching from a self-interested perspective and approaching things from a truly partisan perspective,” Mr Gillam told The Australian Financial Review. “We think partisanship is deeply unhelpful for the challenges that the wider Australian community and the business community face,” he said. “The issues we’ve raised are the ones we think are the most serious for ANRA – we could have a shopping list of stuff but that doesn’t do anything for anyone,” he said. “These are the issues of substance we think can make a positive contribution to.”
ANRA wants the government to reduce the $1000 GST-free threshold on overseas online purchases. They say it would raise $1 billion a year, although a government taskforce is still struggling to find ways to curb collection costs.
Lead set by the US
Mr Gillam said the government should follow the lead set by the US and introduce laws similar to the Marketplace Fairness Act. That legislation enables US states to collect sales taxes from online retailers. “The principles in that are very clearly the principles we think need to be adopted to ensure there’s taxation fairness,” Mr Gillam said.Similar calls are being made in the UK. Last week, the chief executive of Sainsbury urged the UK government to follow the US example, saying unfair tax regimes were ¬crippling high-street retailers.
“This is not in any way a bunch of Australian retailers whingeing, this is a common problem throughout the western world and other governments are leading the way, showing how it can be addressed,” Mr Gillam said. ANRA envisages a system where registered overseas online retailers would collect GST and duty from consumers at the time of purchase and remit it to the federal government.
Reports by the Productivity Commission, the low-value parcel processing taskforce and the review of GST distribution have all endorsed the case for the GST-free threshold to be reduced. The government is still struggling to find ways to ensure the cost of collection does not exceed the revenue collected.
Deliveries sent to Australia by unregistered overseas retailers would be stopped at customs and consumers would be forced to pay GST and duty as well as handling fees.
An Ernst & Young report commissioned by ANRA and released in April concluded that lowering the threshold to $20 would raise $997 million in the first year after set-up costs of $100 million and annual operating costs of $34 million. “There are plenty of examples now of exactly what the Australian government needs to do to properly equalise the tax burden on all participants in the economy from a retail perspective, wherever they are domiciled,” said Mr Gillam.
Warning against protectionism
But not all retailers support reducing the GST-free threshold. Online retail pioneer Paul Greenberg, co-founder of dealsdirect.com.au, has warned the government against protectionism in the form of import duties.
Last week, after a three-month campaign, Mr Greenberg, chief of the new National Online Retailers Association, was appointed to the Retail Council of Australia, which was established two years ago to help the sector better liaise with the government over issues such as the GST-free threshold and red tape.
Mr Greenberg, who replaced former eBAY Australia chief Deborah Sharkey on the council, says Australian retailers need to compete by being better than their overseas rivals.
Mr Greenberg said protectionism was a short-sighted strategy that will fail both retailers and consumers.
However, Mr Gillam said the GST loophole is a “mistake” – everyone recognizes it and it needs to be fixed.”
ANRA also wants to counter calls for a review of competition policy and tougher competition laws, which have escalated in the wake of allegations of misuse of market power by Woolworths and Coles.
Mr Gillam says retail competition has increased, pointing the arrival of US discount retailer Costco and European brands Zara and Topshop.
“This is a far more competitive landscape and when there are calls for regulatory action, [government] needs to recognize that consumers are benefiting greatly from the lower prices,” Mr Gillam said.
Overhaul of penalty rates
“If there are instances of bad behaviour then use the [existing] laws to address that bad behaviour,” he said.
Retailers are also seeking to improve labour productivity by working with unions to find common ground for changes to the Fair Work Act.
“We believe that by working quietly and effectively with the SDA [Shop Distributive and Allied Employees Union] that can help paint a clear path for government to make quick and effective changes that will be welcomed by all,” Mr Gillam said.
Retailers want an overhaul of penalty rates and a re-examination of the Better Off Overall Test, but Mr Gillam declined to be specific about ANRA’s priorities. “It’s best we be allowed to have these discussions in camera with the SDA,” he said.
“We should put forward joint solutions that guide government on areas where legislative efficiency can be achieved.”

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$4b of cuts to 'terminate' carbon tax

Jonathan Swan, The Sydney Morning Herald, 16 July 2013

Prime Minister Kevin Rudd has announced nearly $4 billion worth of cuts or deferrals to government spending, including to environment programs, to pay for his promise to bring forward by one year the move from a carbon tax to an emissions trading scheme.
Cuts to the public service sector - including 800 senior public servant positions in Canberra - will deliver $248 million in savings, while several environment programs have been targeted to help offset the cost of the early move to the ETS.
The car fringe benefits tax will be tightened, saving $1.8 billion over the forward estimates and expected to hit 320,000 car owners.
Mr Rudd's decision to move from a carbon tax to an ETS on July 1, 2014 will cost the budget about $3.8 billion over the next four years, the government says.
Under the previous arrangements, the carbon price was to be $25.40 per tonne next July. Under a floating price, the figure is expected to be around $6 a tonne.
''The government has decided to terminate the carbon tax, to help cost of living pressures for families and to reduce costs for small business,'' Mr Rudd said in a Townsville press conference on Tuesday morning with Treasurer Chris Bowen and Climate Change Minister Mark Butler.
Despite cuts to environmental and clean energy programs to fund his promise, Mr Rudd insisted that this was a ''good day for the environment''.
The claim angered Greens leader Christine Milne.
''Mr Rudd, you don't protect the environment by cutting environment programs,'' she said.
Treasury modelling shows that in the 2014-15 financial year an average family will be $380 a year better off due to the decision to move sooner from a carbon tax to an ETS, Mr Rudd said.
The government said the move would save the average household about $3 a week, or over $150 in the year, on its electricity bills and about $1.10 per week, or $57 over the year, on its gas bills.
The Prime Minister has promised his decision will be "budget neutral" – meaning his cabinet has been searching over the past weeks for spending cuts to fill the $3.8 billion gap.
The government's cuts include:
• Tightening the car fringe benefits tax with savings of $1.8 billion over the forward estimates;
• Reforms to Australian public service management structure and more efficient procurement of agency software ($248 million in savings for as many as 800 public service job cuts in Canberra).
• Ending the Energy Security Fund two years early with savings of $770 million over the forward estimates;
• Trimming the Coal Sector Jobs package allocation in 2014/15 ($186 million in savings);
• A deferral of $200 million of funding from the Carbon Capture and Storage program and the return of $24 million to the budget;
• Return of unallocated funding from the Biodiversity Fund to the budget ($213 million over the forward estimates);
• Return of $143 million of unallocated funding from the Carbon Farming Futures program to the budget;
• Savings of $200 million of funding from the Clean Technology Program and return of $162 million of unallocated funding to the budget.
Explaining the detail of the cuts, Mr Bowen said the household assistance package associated with the carbon tax would not be affected.
Car industry warns decision will have 'dire consequences'
Mr Bowen suggested the most difficult cut made by the government was the decision to abolish the formula that allows people to claim fringe benefits tax on cars they use for work.
The current formula allows people who are claiming fringe benefits on their cars to nominate a figure of 20 per cent and ''not justify that claim'', Mr Bowen said.
The Treasurer admitted that as many as 320,000 Australians would be affected by the $1.8 billion in ''savings'' on the car fringe benefits tax.
It will affect those on new contracts from April 2014. Those on existing contracts are not affected, unless their contract is substantially modified.
The car industry reacted immediately to the change, urging the government to reconsider its decision.
The Federal Chamber of Automotive Industries (FCAI) said removing the tax concession on vehicles will have dire consequences, affecting both imported and domestically manufactured car sales.
''The effects will flow right through the industry, including to dealerships and service centres,'' FCAI chief executive Tony Weber said in a statement.
Rudd challenges Abbott to carbon tax debate
In announcing the cuts, Mr Rudd on Tuesday morning challenged Opposition Leader Tony Abbott to a debate on the carbon tax at the National Press Club next week.
This comes after Mr Abbott last week refused to join Mr Rudd for a debate on the economy, with the Prime Minister attending the event alone.
''Mr Abbott, you didn't want to debate me on debt and deficit at the National Press Club, even though that forms a large part of your political ads on television at the moment,'' Mr Rudd said.
''Here is the challenge. You pick the day next week at the National Press Club to debate the carbon price. The emissions trading scheme under this government versus your scheme and let the people decide through that debate whether we have the facts supporting our case or yours.
''Any day next week.''
Mr Abbott, holding a press conference in Tasmania shortly after Mr Rudd's announcement, played down the significance of the Prime Minister's accelerated switch to an emissions trading scheme.
He also would not comment on the specific cuts Mr Rudd had announced to pay for the $3.8 billion hole left in the budget by the move to an ETS in July next year.
''What Mr Rudd has announced today is not the abolition of the carbon tax,'' Mr Abbott said.
''All he's done is simply brought forward Julia Gillard's carbon tax changes by 12 months.''
Responding to Mr Rudd's claims that he had ''terminated'' the carbon tax, Mr Abbott said: ''He's not the terminator; he's the exaggerator. He's not the terminator; he's the fabricator.
''He's changed its name but he hasn't abolished the tax.''
Senator Milne said by bringing emissions trading forward by one year, Mr Rudd was trying to ''make a political point'' and was ''making it cheaper for polluters to pollute''.
''What we're hearing from Prime Minister Rudd is a lot of talk about the environment but when it comes to action he's actually slashing environmental support programs," she said.
Australian Chamber of Commerce and Industry chief executive said the decision to move to an ETS earlier won't give business added certainty.
Mr Evans said the move to an ETS was a short term fix and the price could quickly rise to around $24.
''The government is heralding the benefits of a lower price in 2014 but this is far from locked in and it is reckless to make such predictions where historic prices have been so volatile,'' Mr Evans said.
Mr Evans was also concerned about the $1.8 billion of fringe benefit tax changes relating to motor vehicles because it would be a new and significant compliance burden for business.

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Carbonised: Rudd terminates the tax that never was

Bernard Keane, Crikey, 16 July 2013
 

Kevin Rudd has declared he has ‘terminated the carbon tax’ by moving to an ETS a year early, with a $3.8 billion price tag. Here’s how he’ll pay for his promise.
The government has confirmed it will move to a floating carbon price from July 1 next year, 12 months earlier than scheduled, in a move expected to cost the budget $3.8 billion a year.
Prime Minister Kevin Rudd announced the decision this morning, disingenuously describing it as “terminating the carbon tax”, and released a series of budget cuts to fund the shift.
The current European Union carbon price is just under A$6 a tonne of CO2, compared to next year’s Australian carbon price of $25.40. The Gillard government announced in 2012 that it would link to the EU trading scheme from 2015 (the European price is expected to rise when the European economy begins to recover).
The cost of Australia switching to an ETS earlier will be funded through a number of measures:
• $248 million saved from cutting public service senior management and improving IT procurement;
• An overhaul of fringe benefits tax arrangements for vehicles, to apply prospectively, saving $1.8 billion over four years;
• Bringing handouts to electricity generators from the Energy Security Fund to an early end, saving $770 million over the forward estimates;
• Cutting assistance to the coal mining sector ($186 million);
• A “deferral” of $200 million from the Carbon Capture and Storage (CCS) program;
• $213 million of unallocated funding returned from the Biodiversity Fund;
• $143 million of unallocated funding returned from the Carbon Farming Futures program; and
• Delaying $200 million from the Clean Technology Program and returning $162 million to the budget.
CCS was one of Rudd Mark I’s big commitments. Hundreds of millions were lavished on it, and an international institute was set up for developing technologies that, even if viable, were many years from commercial status — but which had the allure of potentially enabling the continued use of coal, one of the most emissions-intensive sources of electricity.
US President Barack Obama even singled out Rudd for his leadership on CCS. Since then, however, the funding allocated for it has proven an irresistible source of savings, first for the Gillard government, and now under Rudd again.
And another quarter of a billion dollars cut from Australian public service budgets will redouble the pressure on departments and agencies, with many having already cut into middle and senior management ranks and ceased functions to meet recurring efficiency dividends imposed by the Gillard government.
Changes like the FBT savings (which come on top of Wayne Swan’s 2011 FBT changes for vehicles) and deferring spending, as well as bringing forward the shift to an ETS by a year, will require legislation, although it can be introduced after the election given the unlikelihood of Parliament returning before the election. The Greens have already flagged opposition to bringing the floating price forward and concern about the cutting of environment programs to fund it. Gillard had secured the Greens’ support after the 2010 election with a commitment to establishing a carbon pricing scheme.

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Multinationals, wealthy on tax hit-list

Katie Walsh, The Australian Financial Review, 16 July 2013

Multinationals and big businesses that shift profit offshore to slash tax bills will receive more scrutiny than ever before, the Australian Taxation Office has revealed in its annual hit-list of targets.
More than 150 companies will face risk reviews and audits from the ATO in the coming year, as it scrutinises global transactions as part of the federal government’s crackdown on tax-avoiding multinationals and the broader global movement against the activity.
The ATO will team up with about six peer nations to conduct multilateral audits of global businesses in addition to its domestic efforts.
“Not only are revenue authorities aligned and signed up to taking an active role in this, you’ve got governments doing the same [and] the community [asking] ‘why do I pay tax, and large businesses are apparently not paying their fair share?’,” ATO second commissioner Bruce Quigley said on Monday.
“In the UK you’ve got protests on the streets, apparently, against big businesses not paying the right amount.”
The ATO has recruited economists to back its efforts to counter the excessive prices some companies attribute to offshore deals, particularly marketing and royalty payments. It is armed with beefed-up transfer pricing laws that it will use to try to impose different prices.
“We’re also interviewing and talking to the customers of these large corporates,” Mr Quigley said.
Crucially, that included asking customers – themselves corporations – whether they thought they were dealing with an Australian-based company or with one based elsewhere, such as Ireland.
Google and Apple have made headlines since it was reported last year that they were prominent users of a structure that channels profits to Ireland and the Netherlands and then to tax havens.
Tax havens targeted
In addition to its profit-shifting work, the ATO will review another 800 rich people and companies for activity undertaken in tax havens, as the ability to hide money offshore away from the tax man diminishes.
The ATO is eager to take a leadership role in addressing profit shifting, which is a focus of the Group of 20 and the Organisation for Economic Co-operation and Development.
On Friday, G20 finance ministers meet in Moscow, where Mr Quigley said he expected new Treasurer Chris Bowen would raise some of the issues.
Tax commissioner Chris Jordan was originally scheduled to attend.
Some other countries had shown an interest in undertaking multinational audits in conjunction with Australia and five or six had signed up to a pilot program, Mr Quigley said.
The ATO received a funding boost in the May budget to tackle profit shifting, given a target of raising $1.5 billion over the next four years. Although big businesses are well-resourced and advised, Mr Quigley expressed confidence it the ATO’s efforts which he said would involve more profit-shifting reviews than ever before.
“You’re never 100 per cent sure of course, [but] the mood globally has shifted.”
Including the profit-shifting reviews, about 521 audits and reviews of big businesses are planned for the year.
The ATO has moved towards real-time compliance in recent years. That had led to a shift in behaviour from corporations, Mr Quigley said, with around 12 moving down from the highest risk, most closely watched category by increasing transparency.
They have been willing to discuss mergers and other transactions with the ATO ahead of time rather than waiting for an audit down the track, he said.
Ernst and Young partner Glenn Williams said that some companies had made a lot of effort to improve transparency, backed by concerned boards.
On the movement against multinationals, he said companies were already turning their minds to their global structures and warned against moving too quickly, creating a risk of competitive disadvantage.
“The broader risk to the ATO in this area is to move too far ahead of the rest of the globe,” Mr Williams said.
“Whilst the ATO will always be able to generate some revenue in this area, there are sound commercial bases for having in place the structures that are in place.”
Other focuses in the big business area are on exploration expenses, resource rent taxes and research and development costs.
The ATO has recruited economists to help in the area of profit shifting and plans to hire experienced auditors from private accounting firms, targeting specialist areas including banking and finance, to help run reviews.

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Carbon tax decision puts voters' wallets before the environment

Stephanie Peatling, The Sydney Morning Herald, 16 July 2013

Prime Minister Kevin Rudd's decision to dump the fixed price on carbon was always going to be made based on politics rather than policy.
In that sense it is smart politics.
The policy - and politics - of carbon pricing have dogged the federal government since 2010 when Opposition Leader Tony Abbott demolished former prime minister Julia Gillard's credibility by constantly calling her a liar.
What was an electoral plus for Labor in 2007 was a big minus three years later.
As soon as Mr Rudd regained the prime ministership in late June he indicated the fixed price phase was as good as gone.
He wanted to neutralise the issue as soon as possible and this is what he has done.
Tuesday's announcement comes after the government had already coasted on 48 hours of media coverage confirming its decision (without providing any details).
All it said on Sunday - after leaking the story to select newspapers - was that the fixed price phase would be shorter than originally planned and that the household assistance package would stay.
That was confirmed on Tuesday, but it was also accompanied by the details about where the $3.8 billion would come from to keep the budget's equilibrium.
Such a big figure suggests the government would be scrambling to try and find further savings should it make good on its signals to fix other problematic policy areas.
It should certainly make people who want something done to increase the unemployment payment, Newstart, less optimistic.
It also raises the question of where the money would come from if the government does, as it has indicated it will, offer some kind of solution to the issue of the 84,000 sole parents whose payments were cut earlier this year.
The areas where the carbon policy savings are coming from are another indication that this is about politics not policy - scrapping of fringe benefit tax arrangements for cars and about $1 billion in practical environmental programs such as biodiversity and assistance for farmers.
Environment groups have been calling for years for the major parties to reconsider tax concessions for company cars.
The government has finally listened and done this but there is little mention in Mr Rudd's press conference about the contribution cars make to greenhouse gas emissions and the neat way the two decisions complemented one another.
Instead the government was at pains to point out that people who are already beneficiaries of the scheme would be okay - it's just new contracts that will be affected.
At one point Mr Rudd listed the importance of different groups in forming his decision - cash-strapped families were first, followed by small business and then the environment.
Mr Rudd then promptly issued a challenge to Opposition Leader Tony Abbott for another debate - this time on climate policy.
This is a challenge he knows full well Mr Abbott won't accept.
But it gets coverage and takes up space that might otherwise be devoted to coverage of other aspects of the announcement.
There is no benefit to Mr Abbott in accepting Mr Rudd's challenge any more than there would be in Mr Rudd deciding that Mr Abbott is right to demand he name the election date.
Greens leader Christine Milne said on Sunday that the carbon tax decision was ''all about politics and not policy''.
Despite Climate Change Minister Mark Butler's attempt to sell the decision ''from the environment's point of view'' the environment rated fewer mentions than the people worried about the cost of action on climate change.
After all, they are the voters.

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Tax reform in America
Simpler, fairer, possible

The Economist, 13 July 2013
 

An imperfect proposal could still improve America’s awful tax code: back it, Mr President.
NO ONE denies that America’s tax code is a mess. It is unintelligible, which is why 90% of taxpayers use an accountant or commercial software to file their returns. It is a labyrinth of loopholes, which is lovely for tax lawyers but bad for America. Public outrage tends to focus on specific abuses. How is it, people ask, that multinationals such as Apple can legally avoid billions of dollars of tax? Why is it, conservatives fume, that the Internal Revenue Service just so happened to select anti-tax groups for intrusive scrutiny? But the real problem is much broader. A tangled code is unfair and inefficient. Loopholes for some mean higher tax rates for everyone else. The 6.1 billion hours Americans waste each year complying with tax rules could have been spent inventing new products. Exemptions promote unproductive activities, such as buying big houses, while high rates penalise work and drive companies abroad.
America sorely needs tax reform. Two legislators are trying to deliver it. Max Baucus, the Democrat who heads the Senate’s tax-writing committee, and Dave Camp, his Republican counterpart in the House of Representatives, have been taking testimony and floating ideas for almost three years. They have yet to release a full plan, but their principles look sound: lower tax rates for both corporations and individuals, paid for by limiting or scrapping tax breaks.
Ideally, no tax break should be spared, even the popular ones for charity, housing, health insurance and research and development. (All these things are desirable, but their privileged treatment imposes a cost, in the form of higher taxes, on other desirable things.) The political reality is that some of these tax breaks will survive, just as there is no hope for a carbon tax, one of the more sensible ways to raise money. Yet Mr Camp and Mr Baucus have found enough common ground to build a more efficient tax system. Where they differ is on the crucial question of whether tax reform should raise more revenue. Mr Camp, being a Republican, says no. Mr Baucus, like the rest of his party, including Barack Obama, says yes. On this, the Democrats should concede, for two reasons.
First, tax reform is so important that lawmakers should not let the perfect be the enemy of the good. A revenue-neutral tax simplification would raise the same sums to pay for Leviathan, while imposing a lighter burden on taxpayers. A simpler code would create fewer distortions and spur faster growth. Getting rid of all loopholes would allow individual income-tax rates to fall a whopping 44% and still raise the same revenues.
One thing at a time
Second, although the Democrats are right that higher taxes will eventually be needed to stabilise America’s debts, this is a separate issue. By using tax reform as a bargaining chip for higher revenues, Democrats probably doom it to fail.
Better to pass it into law quickly. That would still allow Mr Obama to pursue a separate grand bargain, with the Republicans tolerating higher taxes in return for the president accepting curbs on the growth of entitlement programmes such as Social Security and Medicare (pensions and health care for the elderly), as suggested in his own budget. For the moment, the chances of the Republicans swallowing that are slim. That is a shame for a party that used to believe in balancing the books. But it is not a reason to let the Baucus-Camp reform die. A simpler tax system with lower rates and fewer loopholes is good for America. Push it, Mr Obama.

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OECD Action Plan Would Reduce Corporate Tax Avoidance But Fails to Propose Fundamental Reform
 

Citizens for Tax Justice, 22 July 2013
 

Labor under pressure to reverse welfare cuts

Chris Johnson, The Age, 7 July 2013

Kevin Rudd is coming under increasing early pressure from his own frontbench to reverse Labor's controversial cuts to single parents' welfare payments.
Fairfax Media understands some ministers have approached the Prime Minister directly, insisting the matter be given immediate priority.
The issue was discussed during the new-look government's first cabinet meeting since Mr Rudd returned to the leadership, and options are being pursued over how best to financially help those affected.
Cabinet is looking at how to reverse the cuts and recoup the the $728 million the tough measure was meant to save the budget's bottom line.
The representations, along with the Prime Minister's own public comments that he had thoughts on the subject, suggest a shift is imminent.
"Yes, he knows we need to look at this closely and move quickly on it," one cabinet minister said. "He knows that because I am one of them who have told him so. And we are looking at it."
A member of Mr Rudd's outer ministry has also confirmed approaches had been made to the PM.
This follows a host of backbench MPs publicly and privately expressing anger over the laws implemented by former prime minister Julia Gillard that moved about 84,000 people, mostly mothers, off the single parenting payments and onto the less generous Newstart allowance.
As a recent backbencher himself, Mr Rudd called on Ms Gillard's cabinet to have "a bit of heart" when dealing with the single mothers.
The new laws force single parents on to Newstart when their youngest child turns eight, makes the parent look for work, and gives them between $60 and $100 a week less in payments.
A spokeswoman for the Prime Minister would only say that Mr Rudd was "discussing the issue with colleagues".

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Levies Are The Taxes We Like

Ian McAuley, New Matilda, 6 May 2013
 

Australians don't want more taxes, but we're happy to cough up when we know where the money's going. It's no surprise that the Disability Care levy has been popular, writes Ian McAuley
Psychologists refer to the “Abilene Paradox” – a situation in which people hold false beliefs about the beliefs of everyone else in a group. We have all been at parties where we long to go home, but we hang on because we don’t want to be the party pooper – not realising that everyone else feels the same way.
So it is with taxation. There is a strong belief among politicians and their advisers, and among journalists that it is politically dangerous for a government to propose new taxes. That assumption needs checking against reality, because it is far from a valid generalisation about social behaviour.
It is true that if a social researcher goes doorknocking and asks people “would you like to pay more tax?”, the positive response rate would be around the same as the question “would you like a motorcycle gang to move next door?”
But when conditions are put around that question, the results are very different. There is a compilation of Australian surveys on attitudes to taxes and public expenditure in a 2011 research paper by James Whelan of the Centre for Policy Development. These surveys show that in certain conditions people are very willing to pay more in tax to support certain public services and benefits to those who fall on hard times.
The key point is about how people think their taxes will be spent. Those services with very high support, usually well above 80 per cent, invariably include health care and education. Environmental protection, roads and public transport generally get high ratings, with variations often reflecting local conditions. Support for defence tends to fluctuate in line with our shifting place on the comfort-paranoia spectrum. There is little support for “public administration”, partly because people consistently over-estimate the size and cost of the public bureaucracy (a perception into which Tony Abbott has successfully hooked).
Responses to questions about distributive welfare depend very much on framing. “Age pensions” get strong support, but there is little enthusiasm for “unemployment benefits”, unless the question is framed in terms which imply some form of social insurance (which is how we see the NDIS).  If we are employed, unemployment is something that has happened to someone else, but if we think about the risk of unemployment, then that is a risk we all share. Other wording is important. A “levy” has much more acceptability than a “tax”, for example.
A general conclusion from such research, particularly the contrast between responses to the general question “would you like to pay more tax?” and specific questions, is that people want public goods and are willing to pay for them. They are not, however, happy to leave that allocation decision to governments who they believe, rightly or wrongly, will waste their money or spend it on things they don’t want.
That contrast in responses has to do with trust in government. In most democracies where there are long time-series of surveys, evidence suggests that trust in government has been falling for more than 50 years. In the US, for example, loss of trust has been strongest for the federal government, less for state governments, and even less for local governments. In Australia we don’t have a “trust in government” time-series, but in a Morgan survey on people’s belief in “honesty and ethical standards” by profession, government shows up poorly. On a scale up to 100 per cent, where health care professionals score well above 80 per cent, public servants come in at 36 per cent and  members of Federal Parliament come in at 14 per cent – just behind union leaders and stockbrokers, and just ahead of insurance brokers. (Lest anyone thinks this to be a specific comment on the present Labor Federal Government, state government MPs score only 13 per cent.)
In such a climate, it is understandable that there should be support for a tax quarantined for a specific purpose. Economists call such taxes “hypothecated” taxes, and the NDIS levy falls into such a category.
Perhaps it was Bob Carr who convinced Julia Gillard to change her mind about a levy, because he had first-hand experience with such taxes. In 1989 he was NSW Opposition Leader when Premier Greiner introduced a levy of 3 cents a litre on gasoline to fund roads, which were in even worse condition than they are now. The program was originally intended to last three years: hence it was known as the “3 x 3” levy. In Sydney, and around the state, signs appeared at roadworks announcing “3 x 3, your levy at work”. A few stand to this day.
In the 1991 state election campaign the 3 x 3 levy came under questioning, and some in Greiner’s Liberal Party canvassed the idea of abolishing it, but it backed off once its internal polling found that the levy was quite popular. The levy lasted quite a lot longer than three years, and funded a significant improvement in the state’s roads.
Further afield, in the UK the BBC is funded in large part by an annual television licence fee. The conventional texts on tax policy would say it is a dreadful way to fund public broadcasting – as a virtual “poll tax” it’s highly regressive, and it’s expensive to collect. But it’s popular, for it quarantines the BBC against calls for its privatisation.
Another example comes from the USA, which we generally regard as having an entrenched opposition to taxes, but in November last year Californians voted in a referendum to support a specific proposition to raise state sales and income taxes with the funds specifically directed to school funding.
The general message is that taxes meet with more acceptance when they are linked to specific benefits.
Governments however are unenthusiastic about hypothecated taxes, partly because they rob politicians of the opportunity to direct funding to areas that may be politically important, such as special programs in marginal seats. Politicians on the far right dislike them because they negate the notion that all taxes are an intolerable burden: it is no good if people come to believe they get value for money from their taxes. Economists tend to oppose them because they mean that at the margin it becomes difficult to shift expenditure from programs with low benefits to programs with high benefits.
But that opposition contrasts with the tendency of economists to favour user charges over taxes to fund government services, on the basis that user charges tend to align with people’s choices. Are not hypothecated taxes and special levies similarly manifestations of specific choices to spend their taxes for some public goods and not for others?
Those on the “left” who often oppose user charges as a matter of principle may do well to re-examine their attitudes. Some user-charge proposals such as comprehensive road user charging as recommended by the Henry Review, if implemented well, could see significant improvements in urban transport and environmental outcomes, while improving equity in the way we fund roads and public transport. (Comprehensive road user charging is not to be confused with the present patchwork of toll roads in an otherwise uncharged system, which results in waste, inequities, monopoly profits and unnecessary levels of pollution.)
The more general lesson from last week is that we must face up to the fact that our public revenue base, be it through “taxes”, “levies”, “user charges” or whatever else we want to call them, is inadequate to fund the public services and social welfare transfers which we have come to expect and which are to be found in comparable prosperous countries.

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Greens to tax big business to fund reforms

SBS News, 14 July 2013