This section provides a selection of media items from September 2013.
In a smaller world, tax reform is overdue
David Uren, The Australian, 26 September 2013
AROUND the world, smaller economies that are more exposed to trade favour taxing spending over taxing income. They rely more on consumption taxes to finance their budgets than on company and personal income taxes.
This finding was established in a review of global tax systems conducted by leading US economists Larry Summers (President Barack Obama's first choice as the next governor of the US Federal Reserve) and James Hines. It makes intuitive sense.
The US can get away with having one of the highest company tax rates in the world, at 39c in the dollar (compared with a global average of 25.5 per cent) because global companies need access to the world's largest consumer market. They have no choice.
The US is almost the only country without a broad national consumption tax, although its states have various sales taxes. At the other extreme is Ireland, with a company tax rate of only 12.5 per cent, but a value added tax of 23 per cent.
With smaller economies, international companies can make a call. They will invest in those countries where conditions, including tax rates, are most advantageous. Economies closely linked to the world economy are under the greatest pressure to have tax systems that are competitive. Taxing spending provides smaller nations with a more secure revenue base.
Australia is the biggest exception to what has become known as the Summers-Hines hypothesis. We tax income, particularly company profits, much more heavily than most other countries and tax spending much less.
It was not always this way. When the last big round of tax reform in Australia was implemented, in 2000-01, the new 30c-in-the-dollar company tax rate was lower than most in the advanced world. There were 19 countries with higher rates and the advanced-world average was a little more than 33 per cent.
But 13 years later, Australia's company tax rate remains stuck at 30c in the dollar while the Organisation for Economic Co-operation and Development average has come down to 25.5 per cent. There are now only six countries with higher rates, four of them among the world's largest economies.
Our GST tax rate of 10 per cent, by contrast, is little more than half the average OECD rate.
When the then Treasury secretary Ken Henry embarked on his tax review, he made improving Australia's international competitiveness a central objective. Investors and the most highly skilled labour can locate themselves anywhere and tax rates will influence their choices. Reducing taxes on what he called these "mobile" factors of production was a high priority.
In the internet world, consumption can be similarly global, but tax authorities have a better chance of, for example, capturing spending on advertisements on Google, than they do of identifying where it makes its profits.
In the 1980s round of tax reform, Treasury's concern was that people had to pay tax on their dividends while companies also paid tax on the profits from which the dividends are paid. Dividend imputation has proven massively popular with Australian investors but, as it is not available to foreign investors (and is unknown in other countries), it is a further hurdle to global investment.
Australia has been able to maintain its peculiar mix of a high company tax rate and a low GST rate because of the resources boom. If global companies wanted to profit from China's appetite for resources, they had to do it from Australia. Like the US consumer market, if you're in the game, you've got to be on the field.
The mix of a high tax rate and big resource profits bankrolled the Howard government, with company taxes reaching a peak of 6.9 per cent of GDP, almost double the global average, in 2007.
Falling profits across the economy and the big investment deductions that the resource companies can now claim have eroded company tax receipts, which have fallen to 4.8 per cent of GDP. As new OECD research shows, this has delivered a bigger hit to total tax revenue in Australia than any other advanced country since the financial crisis. Even now, Australia is getting more tax from its companies than any other advanced country, with the exceptions of Norway and Korea.
As resource prices drift lower, the competitive standing of Australia's non-resource industries will come into sharper focus. Tax rates that are punitive by global standards will starve them of investment.
The Abbott government's planned company tax cut is of no benefit to Australia's competitiveness as it is entirely neutralised by the paid parental leave levy for all but the smallest businesses.
The government has promised no tax reform before the next election. The failure of Labor to effect any lasting change as a result of the Henry tax review means Australia's tax system will have been sealed in aspic for at least 16 years before there is any chance of change.
Australia will be approaching the 2020s with a tax system designed when the internet and globalisation were in their infancy. In 2000, China's economy was a quarter the size of Japan's.
Globalisation has transformed the nature of commerce in that time. Trade has risen from about 40 per cent of global production to about 55 per cent. Foreign investment has soared, including into Australia, where it has risen almost fivefold. Global investment is increasingly the driver of trade. Commerce in services and intellectual property is rising much more rapidly than trade in physical goods.
In their paper, Summers and Hines say globalisation is contributing to the problems that all advanced countries - large and small - are having in financing their government services, with capital shifting to the lowest cost centres of operation.
"Globalisation means that in some sense all countries are becoming smaller," they say, arguing that the model of less tax on companies and more tax on spending should be adopted by everyone.
The longer Australia waits to tackle tax reform, the greater will be the loss of competitiveness and the more radical the task must be.
ACOSS: PRIME MINISTER ABBOTT HAS A PROMISE TO KEEP ON POVERTY
Cassandra Goldie, CEO of the Australian Council of Social Service (ACOSS), New Matilda, 25 September 2013
Tony Abbott assured Australia in his acceptance speech that the Coalition “will not leave anyone behind”. The true test of his government will be the extent to which it provides today’s “forgotten” a hand-up to lift our nation’s fortunes.
Our new Prime Minister set an early tone for his Government with the pledge to govern for all people in Australia, including those who didn’t vote for him. In his acceptance speech he said:
“A good government is one with a duty to help everyone to maximise his or her potential … We will not leave anyone behind.”
It was a defining start to his prime ministership, drawing a distinct marker by which the ultimate success of his government can be judged.
Only a week earlier at the Coalition’s campaign launch he outlined his vision that:
“Our country will best flourish when all of our citizens, individually and collectively, have the best chance to be their best selves.”
Since 1956 ACOSS has been the voice for the needs of the forgotten people in our country – those experiencing poverty and inequality – with a vision for a fair, inclusive and sustainable Australia where all individuals and communities can participate in and benefit from social and economic life.
Although most people are better off today than they’ve ever been, the harsh reality is that despite two decades of unprecedented growth, an increasing number of people on the lowest incomes are falling behind.
Late last year we calculated that 2.2 million people were living below the poverty line, including nearly 600,000 children. Disturbingly, the recent annual report of the longitudinal study of households (HILDA) showed that child poverty has increased by 15 per cent since 2001. Clearly this is unacceptable for a country as wealthy as ours and will need the attention of the new government.
An accord on unemployment
An urgent priority to guard against worsening hardship and poverty is action to tackle rising unemployment, with the number of people reliant on unemployment payments long-term rising from 300,000 to 500,000 since the global financial crisis. Too many people are at risk of being left behind in the labour market permanently and denied the chance to be their “best selves”.
Governments cannot reduce unemployment by their own efforts alone. The incoming government will need to partner with others: with unemployed people to stay active in the labour market, with employers and unions to ensure that they are not frozen out of jobs by lack of skills, age or disability, and with employment and community services to invest in training and work experience.
ACOSS has been working with business and unions on solutions to unemployment and one of the important first steps of the new government should be to bring these key stakeholder groups together to forge a compact about growing job opportunities, particularly for people who are long term unemployed.
The Coalition has already made some positive announcements around incentives for employers to take on mature-age unemployed people. ACOSS has developed concrete proposals in this area, including expanding the proven wage subsidy scheme and paid work experience, and greater investment in case management. In addition, we will need to tailor training and support to better prepare long term unemployed people for the jobs of the future.
Repair the safety net
The new government will also have to repair the serious holes in the social safety net, including disability services, equitable access to quality schooling, health and aged care services for older people, the economic and social conditions in Aboriginal and Torres Strait Islander communities, and the $150 gap between weekly “allowance” and “pension” payments. There’s no getting away from the fact that each of these areas will require significant public investment over many years.
Ultimately, one of the biggest challenges for the incoming government is the growing gap between people’s expectations of governments and the revenue available to them. Clearly this problem will not be resolved in a single budget. It can only be resolved through a dialogue with the Australian community over what we can realistically expect from government and how the tax system can best be reformed to collect public revenue in a fairer and more efficient way.
It is time we had a mature national discussion about this, including much needed structural reform of Australia’s tax and transfer systems. Long term this will be the only way to meet the fiscal challenge that our nation faces. It’s the only way to move us towards a sustainable budget bottom line and finance the important social programs we all want – such as disability services, equitable school funding, adequate income support payments, dental and mental health, affordable housing, and meeting the future costs associated with population ageing.
Reform of tax and public expenditure is also a partnership between government and the community. Far reaching reform is more likely to happen if the government sets clear long-term goals and enters into a well structured dialogue where all interests are represented.
ACOSS welcomes the announcement of the new ministry. The government has sensibly avoided rushing into new policy announcements. To restore the budget, strengthen essential community services and ensure that no-one is left behind it will need to work steadily, patiently and collaboratively with the community.
For the Public Good? Nonprofits and Political Donations
Robert A. G. Monks, The Huffington Post, 25 September 2013
What is a charity? In general, we think of it as an organization that does something to further the public good, doesn't make a profit and is tax-exempt. We feel good about giving to them because they help people or do something good for society. But charities and nonprofits are a murky world these days. Big charities handle millions of dollars and the highest paid director of a charity makes over $2 million dollars. That's a far cry from the local food bank, little league team or crisis hotline, and not what most of us picture when we think of a charity. And while they may accept donations and be tax-exempt, not all non-profits are charities. Under the IRS code, there are 28 designations for tax-exempt status including charitable, educational and recreational so there is a wide-range of groups that fall under nonprofit or tax-exempt status.
What makes non-profit groups so much more difficult to judge these days is that they may play a role in politics. How can a charity, a hospital or even a church be political? We know, for example, that hospitals and nursing homes (both individual hospitals and trade groups) have spent nearly $23 million on lobbying so far this year. The Supreme Court, in the Citizens United decision, placed an absolute premium on freedom of political expression --monetized it. However they're categorized, these groups recognize their need for a voice in Washington -- and voices cost money.
The recent brouhaha about the IRS unfairly scrutinizing conservative groups applying for tax-exempt status illustrates just how sticky -- and political -- nonprofit and charitable status has become. That status is important because it allows organizations to take donations and it also allows them to craft an image that they are working for the public good. In particular, social welfare groups as designated by the IRS in the 501(c)3 rules are confusing because they may not look or act like charities and they can appear very political in nature. This designation provides "for the exemption from federal income taxation of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare." The IRS admits that there is no definition of a social welfare group but offers the lofty idea that these groups embody, "the ideas of citizens of a community cooperating to promote the common good and general welfare of the community."
Isn't this a problem? That nebulous and idealistic description is supposed to offer guidance on who gets tax exempt status? Even corporate p.r. departments could spin that -- I mean, aren't grocery company employees a community of people contributing to the public good? Vague, complicated definitions make tax status determinations difficult and in the end you wonder if applications are ever refused. The problem isn't what tax exempt organizations can do or not do, but the broad classification of these "social welfare" groups makes it easy for organizations to play politics with charity status. And they do.
Then there are the (501(c)6) organizations which includes business leagues and chambers of commerce. The U.S. Chamber of Commerce is a tax-exempt organization and according to their website, they advance the interests of business " through its nationally-recognized team of lobbyists and policy experts. Together, they help craft pro-business legislation and block excessive taxes and regulations." Their Wikipedia page calls them a "lobbying group representing the interests of many businesses and trade associations." The Chamber has spent a billion dollars on lobbying since 1998, more than any other organization whether corporate or nonprofit. Since they don't have to disclose their donors we don't know who they are representing when they wine and dine in Washington but a look at their spending gives you an idea.
I guess that it's to be expected that charities and nonprofits would have lobbyists and give to political campaigns in today's politicized world. If you're trying to affect change then you need to have influence with lawmakers. Clearly, savvy charities and nonprofits know that.
Here's my question though: if we give these groups a break on taxes to support their mission to serve the public good, why don't we get a full account of their donors and how they spend money on politics? Isn't a transparent political system also for the public good? And, if no one is breaking rules or doing bad why should it be a secret? Let's call for transparency in political spending across the spectrum -- profit or nonprofit. Let political spending be out in the open and then we, as citizens, donors and consumers, can make the choices we feel are best.
As for the tax code, there may be some help on the horizon. Public Citizen is trying to bring some intelligibility to the issue of political spending through a new initiative called Bright-Lines. They are proposing new guidelines that clearly define political activity so that nonprofit organizations can engage in our political process without gaming the system, without fear of audits and in a way that is clear to all stakeholders. Something has to be done and this is a start -- our tax code may need lots of work but clarity and transparency are an excellent place to start.
Infrastructure Bill is Actually Giant Corporate Tax Break
Jaimie Woo, The Huffington Post, 25 September 2013
Let's fund infrastructure by giving tax breaks to large corporations.
Wait, what?
Only in Washington would this make sense.
Currently, many large corporations avoid taxes by booking profits to sham shell companies in offshore tax havens like the Cayman Islands. This offshore tax dodging costs Americans a whopping $90 billion each year in tax revenue.
Now there's a new bill that would only exacerbate this problem. Introduced by Congressman Delaney (MD), it gives companies a temporary tax holiday, which rewards the worst offshore tax dodgers and encourages them to book even more profits offshore to avoid taxes in the future.
Rep. Delaney's Partnership to Build America Act purports to solve both our infrastructure problems and our tax dodging problems by requiring companies to invest, at most, $1 in infrastructure plans for every $6 they get in tax breaks. Unfortunately, the tax holiday that he proposes -- which would give corporations a window to bring the money they've been hiding offshore back into the U.S. without paying the usual taxes -- would encourage more tax dodging in the future, thereby contradicting his original goal and ultimately depriving America of long-term infrastructure funding.
What's more, the very companies that take greatest advantage of the holiday -- those who book the most cash to P.O. box shell companies in offshore tax havens -- actually get to appoint board members of the infrastructure bank created by the bill. Giving the biggest tax dodgers control over our infrastructure funds? That just doesn't seem right.
Besides, the last time corporations got a tax holiday back in 2004, it failed in its goals to create jobs or increase U.S. investments. Instead, the 15 companies that benefited most from the holiday shed 21,000 jobs while increasing executive pay by 60 percent in the following two years. The holiday ended up incentivizing companies to divert even more of their earnings overseas.
At least 82 of the 100 largest publicly traded U.S. companies use tax havens, according to a a U.S. PIRG report. Some glaring examples: Microsoft keeps about $60 billion offshore, on which it would owe nearly $20 billion in U.S. taxes; Pfizer uses accounting gimmicks to shift the location of taxable profits offshore, allowing them to report no federal taxable income in the U.S. in five years; and Google achieved an effective tax rate of just 2.4 percent on its overseas profits between 2008 and 2010.
Companies like these would get both the biggest tax breaks and the most influence over infrastructure funds in Rep. Delaney's bill. This legislation loses out on revenue in the long run, gives corporations tax breaks, and gets lost in contradictory logic.
As a recent college graduate who now works at a non-profit, I know firsthand the impact federal taxes put on my paycheck. But if hardworking Americans can pay the taxes that fund important public programs and infrastructure, so can big corporations. When corporations dodge taxes, every dollar they avoid paying must be covered by the public in the form of cuts to public programs, more debt, or higher taxes.
Let's leave destinations like the Cayman Islands for the tourists and the vacationers, not sham corporate headquarters. As Congress scrambles to cut the deficit, closing offshore tax loopholes for corporations should be the first step, and they should reject Rep. Delaney's harmful bill.
Either we pay the tax or we lose the service
Tim Colebatch, The Sydney Morning Herald, 24 September 2013
Prime Minister Tony Abbott
''I think the pressure that will come on Tony Abbott as Prime Minister is that all the states will say the GST is not growing sufficiently to fund basic services like health and education.
Do Australians really mind that much if the GST was 10 per cent or 12.5 per cent, if it means maintaining high-quality health and education, disability services and the like?
I suspect the Australian people are mature enough to say: 'We'll cop that'.''
WA Premier Colin Barnett
The GST will change: not in this three-year term, but change it will. We're a long way from the end of the story. The pressures for reform are mounting, and will keep mounting. And we need to understand why.
The GST story is essentially about three issues. The first, and most important, is the one Barnett raised: the states do not have the revenue they need to meet our expectations for schools, hospitals, transport infrastructure and the myriad other services state governments provide.
That gap will only widen as rapid population growth and an ageing society increase the demand for services.
The second issue is one Tony Abbott does not want to buy into, for good reason. The four biggest states, all now under Coalition governments, are demanding an end to the long-running system by which the better-resourced states are forced to subsidise services in states with fewer resources and/or higher costs. But it's a zero sum game, in which one state's win is another state's loss. Don't expect action here.
The third is a smaller issue: the campaign by retailers, backed by the states, to slash the $1000 threshold for exempting online purchases from the GST. With online purchases now making up 6 per cent of retail sales, former treasurer Wayne Swan asked Treasury to produce options for change, and his successor, Joe Hockey, says that work will continue.
But the first issue is the big one, and the one we must face up to.
Unlike Labor, the Coalition plans to allow its tax inquiry to weigh up the future of the GST, and judge it on its merits. It is likely that the report will propose either a higher GST rate, maybe 12.5 or 15 per cent, or an expansion of the GST base, to cover goods and services now exempt - food, healthcare, gambling, education - or both.
The GST is a constitutional mess - a tax the Commonwealth collects, but the states spend. It raises equity issues that will require an increase to be partly offset by tax cuts and increases in welfare benefits. Yet, with that caveat, it is a fair, efficient and non-discriminatory tax, which most Western countries charge at a much higher level than we do.
But that is not how we see it. Colin Barnett is an optimist if he thinks Australians will agree to a higher GST to keep up the standard of state services. The polls suggest they would not cop it, because many do not see that the services they get depend on the taxes they pay.
Yet that is the key issue. And if Barnett and other premiers want to win the argument, they will have to take risks, go out and lead the public debate, and explain to us why the services we want from them have to be paid for, and that the GST is the best option for the purpose.
It is always safer for the premiers to dodge that debate, and take refuge, as Victorian Premier Dennis Napthine did last Friday, in saying the problem was not the size of the GST, but the share their state gets. No one is criticised for saying that, but it gets us nowhere.
Take Melbourne. By the end of next year, it will have 30 per cent more people than it had 15 years earlier. You cannot pile 30 per cent more people into the same infrastructure without enormous strains. Your roads, your hospitals, your train and tram services become congested unless you build new ones. And if you want to build, you have to pay for it, either with higher taxes now, or with higher taxes down the track, or both.
If population growth continues at this rate, by 2050 Melbourne and Sydney will be approaching the size that London is now. To function efficiently, they will have to have metros. To build the metros, we will have to pay more tax.
Our population is ageing rapidly, as the baby boomers move out of work and into retirement - to be followed within 15 years by GenX. This will slow revenue growth and increase demands on hospitals and aged-care services. How will we pay for it?
That's what taxes do. They are the way we pay for the services that government provides for us. There are other ways, such as higher user-pays charges (hands up if you too think it's a scandal that taxpayers pay 70 per cent of the bill for Melbourne's public transport, and passengers just 30 per cent.) But asking people to pay for the services they use seems to be no more popular than getting them to pay taxes.
It's an old Australian tradition to be hostile to governments. Every tax is a ''slug'', every service inadequate. Yet we believe the government should always be in surplus.
It seems we don't understand how this body we call government works. Taxes go in, and services come out. Starve one, and you starve the other.
International Monetary Fund figures show that Australia has the second lowest level of government spending in the Western world. In the long run, that means we have the second lowest tax levels too. Yet we think we are highly taxed. If Barnett and his fellow premiers want to win this argument, they need to have the courage to get out and argue their case, again and again.
But that is risky.
The only Labor voice supporting Barnett was ACT Chief Minister Katy Gallagher. Realistically, no opposition can resist the opportunity to kick at tax increases, however strong the reasons for them, unless the government has made it part of the decision-making.
If tax reform were handled on a bipartisan basis, it would give business certainty for long-term investments, and enable both sides to introduce best-practice reforms, rather than having to look over their shoulder at the short-term political consequences.
In Europe, that is how they handle big decisions. It's not our style, but it should be.
Clamp down on tax avoidance to fight poverty says ActionAid
The Economic Voice, 24 September 2013
Clamping down on tax avoidance will be fundamental to fighting world poverty in the 21st century, ActionAid tells the United Nations.
Stamping out tax avoidance and unfair tax deals in the world’s poorest countries must be a key part of the plans to fight poverty after the Millennium Development Goals expire in 2015, ActionAid will tell the United Nations.
ActionAid has calculated that an estimated $300 billion is lost every year by developing countries through a combination of corporate tax avoidance and tax deals. That is equivalent to twice the amount spent on aid last year.
The money lost could instead help fund vitally needed education, health and sanitation programmes in some of the world’s poorest countries, a new ActionAid briefing paper – Post 2015: Business as Usual or Bending the Arc of History – has argued.
The paper is being launched today in New York in advance of the meeting of the United Nations General Assembly.
“At present the tax system is failing many developing countries. They are suffering because of bad international tax treaties and rampant tax avoidance and they face huge pressure from large corporations to give unnecessary tax breaks.
“Reforming the global tax system is one of the most powerful potential weapons in the international arsenal. The OECD have acted, the G8 have acted and the G20 have acted. Now it is time for the UN to do the same,” said ActionAid International Advocacy Co-ordinator Sameer Dossani.
In a report earlier this year, ActionAid revealed that a UK-based company’s tax avoidance and tax breaks cost Zambia an estimated $27 million which is enough money to put 48,000 children in school.
Former United Nations Secretary General Kofi Annan has also publicly condemned rampant tax avoidance saying it is one of the key challenges facing Africa in the 21st century.
ActionAid is arguing that cracking down on tax dodging and unfair tax deals must be part of a much more ambitious United Nations agenda for tackling inequality and poverty after 2015, and one that goes beyond the $1.25 extreme poverty line currently on the table.
“The United Nations now needs to be more ambitious. It needs to raise its game and raise its extreme poverty benchmark. And it needs to make tax justice a key part of its future work. Aid remains vital. But simultaneously clamping down on tax avoidance has the potential to lift millions of people out of poverty,” said Mr Dossani.
Post-GFC recovery slowed by tax system: OECD
David Uren, The Australian, 24 September 2013
TAX revenue has fallen further since the financial crisis in Australia than in almost any other advanced nation as a result of its excessive dependence on company taxes.
An OECD study reveals other countries that suffered much more than Australia from the economic downturn have enjoyed much more stable revenue because of their greater use of consumption taxes, such as the GST.
Business Council of Australia chief executive Jennifer Westacott said the OECD finding endorsed the council's call for a more competitive tax system. "Given Australia's over-reliance on company tax, it is not surprising that the OECD found that we've experienced the largest fall in tax revenue as a share of GDP in the five-year period following the GFC," she said.
The OECD research shows that Australia's tax revenue has fallen by four percentage points of GDP following the onset of the global financial crisis, against an average fall across the advanced world of only 1.2 percentage points. At its peak before the crisis, company tax was delivering 17.8 per cent of government revenue compared with an OECD average of 11.3 per cent, but this had fallen to 14.6 per cent.
The study says company taxes are particularly sensitive to the economic cycle.
About half of advanced countries have lowered their company tax rates since the GFC despite the pressure on their budgets. The study said the financial crisis had reduced business investment in almost all OECD countries. Australia was an exception because of the resources boom, but investment in non-resource industries had been very weak. "A recovery in business investment is widely seen as critical for restoring economic growth," the study said.
Although tax is not the most important determinant of investment, research shows it responds positively to rate cuts. While Australia's company tax rate has remained steady at 30 per cent, the average rate among advanced countries has come down from 26.9 per cent to 25.5 per cent. Many countries, including Britain, Denmark and Norway have further company tax cuts planned.
Ms Westacott said Australia's elevated company tax rate damaged its competitiveness. "Australia needs a tax system able to meet future revenue requirements, while fostering economic growth by ensuring our tax rates and tax bases keep us competitive."
The Coalition has promised to cut the company tax rate to 28.5 per cent, but the larger companies, which account for almost 80 per cent of total tax collections, will not get the benefit as the tax cut will be offset by a 1.5 per cent paid parental leave levy.
The Coalition has said it will revisit taxes, including the GST, in a white paper to be issued ahead of the 2016 election and is resisting calls from some states to reconsider the GST rate before then.
The rest of the advanced world has relied heavily on increasing their consumption tax rates to restore their budget health, with the average rate increasing by just over one percentage point to 18.9 per cent, or almost double Australia's 10 per cent rate.
The study noted that rising consumption tax rates had been offset by weak consumer spending, with households increasing savings rates in an effort to pay down debt.
Most countries have held personal income tax rates steady since the GFC, although some have increased top marginal tax rates and personal capital gains taxes. Australia is among a number of countries to have tightened retirement savings concessions in an effort to strengthen the budget.
More than half the advanced countries expect to have higher tax revenue next year than in 2007. However, Treasury's latest estimates show Australia's tax revenue will still be 1.3 percentage points of GDP below its level before the financial crisis.
The OECD said countries should seek to reduce their dependence on personal and company income taxes and make greater use of consumption, real estate, and environment taxes.
Exclusive: 50,000 people are now facing eviction after bedroom tax
Emily Dugan, The Independent, 19 September 2013
One council tenant in three has been pushed into rent arrears since April, while tens of thousands in housing association properties are also affected.
More than 50,000 people affected by the so-called bedroom tax have fallen behind on rent and face eviction, figures given to The Independent show.
The statistics reveal the scale of debt created by the Government’s under-occupancy charge, as one council house tenant in three has been pushed into rent arrears since it was introduced in April.
Figures provided by 114 local authorities across Britain after Freedom of Information (FoI) requests by the campaign group False Economy show the impact of the bedroom tax over its first four months. The total number of affected council tenants across Britain is likely to be much higher than the 50,000 recorded in the sample of local authorities that responded to the FoI.
At least another 30,000 people living in housing association properties have also fallen behind on rent payments since the bedroom tax came in, with potentially tens of thousands more also affected, according to separate research by the National Housing Federation.
Barrow in Cumbria was the worst-affected area, where more than three-quarters of all council-house tenants have fallen into arrears since the bedroom tax started. In Clackmannanshire, Tamworth and South Kesteven more than half of all affected households have fallen behind on their rent since the charge was introduced.
The shadow Work and Pensions Secretary, Liam Byrne, said: “These appalling figures prove that while this government stands up for a privileged few, a debt bombshell is exploding for a generation of people.
“While the nation’s millionaires get a huge tax cut, thousands more now confront arrears and eviction from which they’ll never recover. This is final proof that the hated tax must be dropped now.”
Responding to the figures highlighted by The Independent, Mr Byrne told the BBC that "thousands and thousands of our neighbours are being pushed into foodbanks and into the hands of loan sharks because of this vicious policy”.
"The vast majority of people living in these homes are people with a disability. Hitting largely disabled people with this horrific tax and plunging them into debt - surely the message and the conclusion is very clear - we need to drop this tax, and drop it now," he said.
He asked where people should move to, highlighting research published by the Labour party earlier in the year that suggested there were not suitable alternative homes for 90 per cent of those affected by the bedroom tax.
The bedroom tax penalises tenants if they have a “spare” bedroom by reducing their housing benefit by up to 25 per cent. As emergency funds from councils dry up, experts warn the situation is expected to deteriorate further over the coming months. The latest revelations are a further blow for the policy after a judge ruled last week that those with a smaller extra room would be exempt from the charge.
A smaller survey published last night found that one household in four hit by the bedroom tax has been pushed into rent arrears for the first time. Just over half of the 63,578 tenants of 51 housing associations were unable to meet their rent payments in the first months of the new system, according to research by the National Housing Federation.
The United Nations’ special rapporteur on housing Raquel Rolnik called for a rethink on the policy after finding the reform was causing “great stress and anxiety” to “very vulnerable” people.
Clifford Singer, campaign manager for False Economy, said: “Together with the raft of other benefits cuts the Government has forced through both this year and previously, the bedroom tax is driving tenants and families who were just making ends meet into arrears, and pushing those who were already struggling with the cost of living into a full-blown crisis.”
Only 16 of the 114 local authorities who responded to the FoI request have a “no-eviction” policy, meaning many thousands of families risk losing their homes as a result of the bedroom tax.
The TUC general secretary, Frances O’Grady, said: “The bedroom tax is not saving money. Instead it is pushing up rent arrears which will force councils to waste more cash on evictions, debt collection and emergency support for homeless families.
A Department for Work and Pensions spokesman said: “The removal of the spare-room subsidy is a necessary reform to return fairness to housing benefit. Even after the reform we pay over 80 per cent of most claimants’ housing benefit – but the taxpayer can no longer afford to pay for people to live in properties larger than they need. It is right that people contribute to these costs, just as private renters do.”
Case Study
Toni Bloomfield, 25, lives in Chipping Norton, Oxfordshire, with her partner, Paul Bolton, 42, and his four children.
“I have to pay £98 extra a month since the bedroom tax came in,” she said. “We’ve got a four-bedroom house and Paul’s four children, aged between two and eight, live with us. Before the school holidays we were struggling and now we’re nearly three months behind on rent.
“The children get free school meals and feeding them through the holidays was tough. Paul and I are only eating in the evenings two or three nights a week to make sure we can put enough food on the table. We're not working, but not out of choice. Trying to find a full-time job here is a nightmare.”
FBT back on track under new Coalition government
John Cadogan, Online Opinion, 18 September 2013
When Kevin Rudd announced sweeping changes to Australia’s Fringe Benefits Tax (FBT) system, it’s inconceivable the former Prime Minister fully appreciated the consequences of his actions.
On July 16, 2013 – within two months of the federal election – Kevin Rudd and his then treasurer Chris Bowen abolished the FBT concessions that had been freely available to vehicle purchasers for the past 27 years. This was done in an ill-fated and flawed attempt to be seen to be plugging a $1.8 billion hole in the budget, with Labor ‘under new management’ in the lead-up to the September 7 Federal election.
This dramatic and poorly conceived move on FBT policy had several immediate effects. There was a dramatic drop in the sale of cars manufactured locally. Holden sales dropped six per cent, while Ford’s plunged by more than 20 per cent (compared with August 2012). Both were near their lowest levels in two decades.
Ford Falcon sales dropped by almost 60 per cent, while Territory sales fell almost 40 per cent. As a result, Ford had no alternative but to halt production of both the Falcon and Territory at its Broadmeadows plant in Victoria. At least 750 workers were stood down in a series of rolling stoppages.
Holden fared somewhat better. Cruze sales fell substantially – down almost 10 per cent from 2628 in August 2012 to 2369 this year, despite a massive drop in the price. Commodore sales actually increased modestly – from 2435 in August 2012 to 2809 in August this year. (The jump in Commodore sales is probably more due to latent demand for the new VF model than anything else.)
Just two days after the FBT ‘bombshell’ announcement, industry bodies advised News Limited that 8500 new car orders had already been suspended. Three hundred jobs at specialist salary packaging financial services businesses were lost immediately, and 3000 more jobs were threatened as a result of the expected downturn in sales.
Fleet leasing companies, which are generally responsible for facilitating the purchase of one car in 10 – or about 100,000 cars each year – experienced a profound and immediate drop in orders. On average, that drop was 26 per cent – but on locally made cars, the drop was even higher, at 30 per cent. This downturn meant at least $160 million in lost economic activity in August alone.
Principally this policy was put in place not because of any intrinsic problem with FBT concessions, but as a convenient way to offset the drop in revenue from Kevin Rudd’s plan to float the price of carbon earlier than originally planned.
Shortly after the July 16 announcement, Anthony Albanese dismissed the 27-year-old FBT concession policy as a “rort”. The former Deputy Prime Minister, told ABC radio: “The chances are it’s not a Holden Commodore driver [rorting the system] it’s a BMW driver.”
However tasty this comment may have been as a soundbite, it stood up only briefly to scrutiny. Australian Salary Packaging Industry Association data showed 75 per cent of company car drivers were earning less than $100,000 per annum, and they drive vehicles typically costing less than $40,000 – in other words, much more likely to be driving a locally made car than an imported German premium brand.
Andrew Gardiner, who represents the National Tax and Accountants Association, told News Limited: “This is bad policy. Our members are concerned about the wider impact on jobs and the community.”
Under the previous system, the concession policy meant the government of the day assumed your private use of the vehicle was 20 per cent, and FBT was charged against that 20 per cent. The remaining 80 per cent of the vehicle’s use was FBT-free, which was a significant inducement for many to purchase a new vehicle under a ‘novated lease’ or ‘salary sacrifice’ arrangement.
These arrangements meant an employee could use pre-tax income to acquire a new car. That meant significantly increased buying power. Employers who facilitated the transaction were effectively rewarding their workers with a significant benefit at little or no cost to themselves. Thirdly, the struggling local carmakers were handed an ongoing increase in demand for their cars, because up to 80 per cent of locally made cars are either bought by fleets, or subject to a salary sacrifice arrangement.
This is perhaps the most perplexing aspect of the entire decision to axe FBT concessions. A succession of Federal Governments has given the local carmakers a total of $5.4 billion in taxpayer funded government grants over the past decade. It did not make sense to pump all these funds into the production side of the local car making equation, only to choke off the demand side by cutting the FBT concessions. Especially at a time when the local carmakers are under tremendous commercial pressure.
In addition, the Rudd Government’s policy added substantially to the administrative burden of many businesses. Instead of merely claiming the concession and being done with it, all businesses attempting to claim any vehicle deductions whatsoever would now be required to maintain vehicle log books.
Clearly, FBT concessions had played – and continue to play – a major role in local car manufacturing, and the health of the automotive sector, principally be being a major demand stimulus.
Just four days before the Federal election, Prime Ministerial aspirant Tony Abbott and his then shadow treasurer Joe Hockey made concrete their commitment to reinstating the FBT concessions, effectively reversing the Rudd Government’s changes. In an open letter, they said: “A Coalition Government will not proceed with the Labor Government’s poorly thought through changes to the Fringe Benefits Tax arrangements on cars.
“In particular, we want to acknowledge the role that the car leasing and salary packaging industry plays in assisting with new car sales, generating demand and, therefore, generating jobs.”
It didn’t take long for the Coalition to act, following the bloodbath of the Federal election. Just five days after Tony Abbott became Prime Minister-elect, Coalition Finance spokesman Andrew Robb declared Labor’s take on FBT policy “dead, buried and cremated” – to wide industry acclaim.
Bill Baker CEO at www.novatedleasing.com.au said, “This is a terrific result for the [Australian] economy... a real stimulus package with no downside. Increased demand will help secure jobs in the car industry, and at the same time businesses and employees will benefit as well".
Tax avoidance 'not a legal duty'
Terry Macalister, The Guardian, 9 September 2013
Britain's business leaders will be sent advice on Monday from a top law firm warning them they cannot claim it is their fiduciary duty to shareholders to avoid tax. Farrer & Co was commissioned to look at the issue by tax justice commissioners who fear executives are trying to justify tax avoidance on the grounds that their priority is to enhance shareholder returns.
The legal assessment from Farrer & Co, which numbers the Queen among its clients, states: "It is not possible to construe a director's duty to promote the success of the company as constituting a positive duty to avoid tax."
Farrer says company directors have a wide discretion when calculating the social impact of their decisions. If they choose to pay tax responsibly, they would in fact be protected by the applicable law rather than at risk of liability, it explains.
The Tax Justice Network will dispatch a copy of the legal opinion to the heads of every company in the FTSE-100 index.
"This opinion should make a real difference to company directors who are being told by their tax advisers that they have a duty to adopt anti-social tax measures," said John Christensen, director of the network.
"Legal risk in this area turns out to be a complete fiction, and company directors can stand firm and act according to their consciences rather than being swayed by what is effectively sales puff coming out of the tax avoidance industry."
The issue became a hot potato in political circles after rows over the amount of duty paid by companies such as Amazon and Google. Reuters news agency recently reported moves by G20 nations to tighten fiscal rules, saying, "analysts in the investment community say corporate executives have a duty to shareholders to minimise their companies' tax bills".
David Quentin, a tax barrister who was involved in drafting the legal opinion, said companies were sometimes pursuing self-interest. "Board-level executives often benefit from performance-related reward packages which are indirectly affected by the amount of tax the company pays. Corporate tax avoidance is presented as a matter of high-minded 'fiduciary' duty, but it is probably better understood as being about personal reward," he argued.
The advice from Farrer has been welcomed by corporate governance experts. Alan MacDougall, managing director of the pension investment adviser PIRC, said it was a very helpful clarification of directors' duties and confirmed his organisation's view that it was mistaken to argue that there is a legal obligation on directors to minimise the tax companies pay.
"Indeed in the current corporate environment aggressive tax avoidance has the potential to cause significant reputational brand damage, which could be detrimental …to companies and their shareholders over the long-term. We hope that directors, and their advisers, take careful note of this opinion. It is no longer acceptable for them to seek to justify tax avoidance through a misinterpretation of directors' duties," he added.
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Formal legal opinion: company directors have no fiduciary duty to avoid tax
The Tax Justice Network, 9 September 2013
This morning the Chief Executives of every company in the UK's FTSE100 index will be receiving a letter from Tax Justice Network drawing their attention to a legal opinion prepared for us by the prestigious law firm Farrer & Co.
The opinion provides an unequivocal and authoritative view on whether or not company directors have a duty to their shareholders to avoid tax: no such duty exists in English law. Although this legal opinion in itself only directly applies to the UK, it potentially has wide international relevance, as we have noted before.
The text of our letter to the Chief Executives is as follows:
9th September 2013
Dear (Chief Executive)
It is often asserted that UK company directors have a fiduciary duty to their shareholders to avoid tax. The Tax Justice Network has now obtained a firm legal opinion from prestigious law firm Farrer & Co that provides an unequivocal and authoritative answer to this question: no such duty exists in English law.
The legal opinion is attached . . . We are sending the opinion to a wide range of UK media organisations and to the leaders of every company in the FTSE100.
There is a duty, say the lawyers, to promote the success of the company, but this should not be misunderstood as requiring blinkered attention solely to maximising distributable profits. “It is not possible to construe a director’s duty to promote the success of the company", say the lawyers, "as constituting a positive duty to avoid tax”.
The opinion goes on to explain that company directors have a wide discretion to act with a view to the social impact of their decisions, and if they chose to pay tax responsibly rather than structure around tax they would in fact be protected by the applicable law rather than at risk of liability.
Tax justice campaigners, academics, legal experts and many mainstream commentators already know this, but a formal legal opinion is something more: it is authoritative and in this case unequivocal.
There is no fiduciary duty to avoid tax.
Yours sincerely
John Christensen
Director
Tax Justice Network
Federal election | Business winners and losers
Michael Smith, The Australian Financial Review, 7 September 2013
The mining, aviation and energy sectors are set to be the big winners from the Coalition’s election victory, with Prime Minister Tony Abbott promising to abolish the carbon and mining taxes installed under Labor.
Telstra also looks set to benefit from an alternative national broadband strategy, and while healthcare has not been a feature of the election campaign, healthcare companies hope an incoming government will abolish Labor’s super clinics and direct more money back into the private sector.
Woolworths and Wesfarmers-owned Coles may come under pressure if an Abbott government cracks down on the supermarket duopoly. Renewable energy companies like Infigen could also be losers if funding for renewable energy projects is withdrawn.
The key policy differentiators between Labor and the Coalition which will affect listed companies relate to abolishing the carbon tax, the Minerals Resource Rent Tax, the national broadband network and the paid parental leave scheme. Stockbrokers say most companies will be better off under a Coalition government but any impact in stock movements from Saturday’s election result has already been factored into the market.
Winners
Miners:BHP Billiton, Rio Tinto, Fortescue Metals.
The removal of the MRRT is a plus for miners although very little tax has been paid by the sector so far. More importantly, the change of government removes the threat of future tax increases and alleviates some of the sovereign risk hanging over the sector. Miners would also benefit from abolition of the carbon tax.
Airlines:Qantas and Virgin Australia have the most to gain from the abolition of the carbon tax. CIMB analysts say both airlines paid out $15 million as a result of the tax in the 2013 financial year.
Energy companies: Energy producers like Origin Energy, AGL Energy are expected to benefit from the abolition of the carbon tax. BlueScope Steel and manufacturers would also benefit.
Telstra: Telstra is largely protected from any change in policy around the NBN. Disconnection payments are expected to be accelerated under the Coalition and the telecommunications giant could benefit if additional copper infrastructure is required.
Vehicle leasing firms:McMillan Shakespeare became a barometer for the expected election outcome and was one of the few listed companies whose share price was directly affected by projects for a Coalition win. Shares in McMillan, which is the country’s largest salary packing provider, plunged after Labor announced changes to car fringe benefits tax but later recovered as the market bet on a Coalition win. Automotive Group Holdings was also affected.
Health:Primary Health Care, Sonic Health Care, Ramsay Health Care.
Domestic healthcare stocks are a marginal winner from the election outcome on expectations that Labor’s GP super clinics could be abolished and view private hospitals more favourably.
Infrastructure: Companies like toll-road operator Transurban, Leighton Holdings, Downer EDI and UGL could benefit if the Coalition redirects $10 billion into major road projects, according to Citi analysts.
Retail: A marginal plus for retailers like David Jones and Myer if political stability leads to a pick up in consumer spending. However, many analysts say this could take some time to filter through.
Losers
Renewable energy: Renewable energy companies like Infigen, wave energy company Carnegie Wave Energy and hot rock energy player Geodynamics will be losers under the new government. Tony Abbott is under pressure to dump the Renewable Energy Target and there are fears funding for large-scale renewable energy projects could be withdrawn.
Supermarkets: The change of government could be marginally negative for Woolworths and Wesfarmers-owned Coles. The Coalition is tipped to be open to a broad-based review of competition laws which would focus on the two supermarket groups and their relationships with suppliers The National Party has also called for market share caps and limits on private label shelf space.
Banks: No major policy shift is expected that would affect banks, although a financial services inquiry could put the focus back on the big four banks’ strong competitive position. The Coalition is in favour of boosting competition.
Brokers do not expect the election result to have a significant impact on individual stocks in the short-term. The market has been factoring in a Coalition win for the last month, which has already been accounted for in stock movements. A clear result is expected to be good for retail and business confidence.
G20 tax and transparency rules must work for everyone
Alex Prats, The Guardian, 7 September 2013
If we compare G20 leaders' latest statement on tax and transparency with what they were saying just two years ago, then the situation today looks encouraging.
G20 countries have finally accepted the need for major reforms on, which tax justice and anti-corruption groups have campaigned for years. They have endorsed the idea that countries should exchange information to catch evaders who hide their money outside the country where they owe tax.
This week's G20 summit in St Petersburg, Russia, also acknowledged that "developing countries must reap the benefits of the G20 tax agenda", including work to stop rampant tax dodging by multinationals.
So far, so good. The catch is that despite the warm words of the declaration, the reforms the G20 backed look likely to benefit only rich and emerging economies.
Despite their strong statements about the importance of developing countries getting their fair share of tax, when it comes to assigning decision-making power, political leaders suddenly develop amnesia.
International negotiations on how to stop multinationals systematically dodging tax are being led by the rich countries' club, the OECD, which published an action plan in July. So far, poor countries have, in effect, been excluded.
Yet they are haemorrhaging $160bn a year as a result of multinational companies dodging tax – far more than they receive in aid. This has devastating consequences for public services such as schools, hospitals and roads – and the millions of people who need them.
Nor has the G20 tried to strengthen the important but under-funded UN tax committee, which is expected to help developing countries participate in the OECD-led talks, but clearly lacks the resources to play that role effectively.
If the voices of developing countries are not heard, the risk is that the OECD project will only benefit more powerful economies. Poor countries, which have a far more unequal struggle against multinationals' destructive "tax planning", will be left out in the cold.
The same is true with plans to get countries to exchange tax information automatically. After years of resistance to demands from campaigners, including the Tax Justice Network and Christian Aid, the G20 seems committed to make this happen sooner rather than later.
It is welcome – but again, rich countries seem tempted to exclude developing countries from progress, with the excuse that they are unable to make effective use of the information they would get from other countries.
Of course many poor countries will need capacity building, but some are more than ready to reasonably comply with all the requirements – and thus also enjoy the benefits – from the outset. The G20 should urgently reconsider its approach here.
Tax and transparency campaigners are also disappointed on other matters. The St Petersburg summit could have built on the progress made at the G8 in June, with decisive steps to stop tax evaders hiding behind shell companies.
If we want to catch and deter tax evaders, and also corrupt officials and other criminals, then we must know who really owns companies, foundations and trusts. The near-silence from the G20 on this matter leaves it to the UK government to lead the way toward the public disclosure of beneficial owners.
If David Cameron was serious about his rousing statements on trade, tax and transparency when he chaired the G8 summit in Lough Erne, he now needs to deliver, knowing that what the UK does will influence the rest of the world. The UK's consultation on whether to make public its new register of beneficial (real) owners ends on 16 September.
The G20 has also done little to improve transparency around multinationals' finances. Getting companies to tell tax authorities about their profits earned and taxes paid in each country where they operate is welcome but insufficient. Many others, including investors and customers, also have the right to know whether companies are paying their fair share of tax.
Crucially, for this to happen, multinationals must be required to publish in their annual reports what profits they earn where and how much taxes they pay, separately for every country in which they work.
Sixty-five years after the Universal Declaration of Human Rights, we continue to see how millions of women, men and children in rich and poor countries are deprived of fundamental human rights, including those to food, health and education.
To end poverty and tackle inequality, tax and transparency rules must work for everyone. And as Kofi Annan has said recently, developing countries have lost their tolerance for being exploited by the rest of the world.
Alex Prats is principal economic justice adviser at Christian Aid.
G20 chiefs ready to slug multinationals with tough tax laws
Andrew Kramer, The Sydney Morning Herald, 7 September 2013
Leaders of the world's richest countries meeting at the Group of 20 summit in St Petersburg are set to sign a sweeping new set of tax rules for multinational companies.
They are expected to agree to enact new tax laws that would limit the ability of multinationals such as Apple and Starbucks to legally avoid paying taxes by operating subsidiary companies in some countries.
The practice came under fire during the global recession as national coffers were strained and leaders looked for new revenue sources.
The heads of state at the two-day meeting are expected to issue a communique to address the tax overhaul and other issues of economic policy.
Although the meeting is overshadowed by the Syrian crisis, and deep divisions between nations over possible US military action there, the heads of state are still expected to endorse an economic policy statement that will encourage continuing fiscal stimulus, or government spending, to help the global recovery.
Germany, in the driver's seat of European economic policy, objected at first but appeared ready to agree to a statement endorsing fiscal stimulus issued at a ministerial-level meeting in Moscow in July.
That meeting encouraged governments to co-ordinate tapering of monetary stimulus programs such as the US Federal Reserve's quantitative easing. The end of cheap credit has dampened growth in emerging markets as investors bring money back to the US to take advantage of rising interest rates there.
On Thursday, Russia's Deputy Finance Minister, Sergei Storchak, said the leaders were set to endorse a statement on Friday.
''It's not going to be more than the agreements that were reached in Moscow,'' Mr Storchak said.
In a reflection of the depth of concern about currency outflows caused by rising interest rates in the US - meaning investors can obtain similar returns as in emerging markets at far lower risk - the BRICS nations (Brazil, Russia, India and China) announced their intention to create a e fund of $US100 billion ($109.5 billion) to defend weakening local currencies. It was unclear when it would be operating and able to intervene in currency trading.
The effort at tax reform, if implemented, would squeeze more money from multinationals and shift a portion of the global tax burden from individuals and small businesses to large corporations. The proposal is for countries to co-ordinate tax treaties and act on loopholes that multinationals exploit by registering businesses in tax havens such as the Cayman Islands. Another tactic of concern is shifting profits to low-tax countries and costs to high-tax ones.
In one widely cited example, Starbucks last year paid no corporate tax in Britain despite generating sales of nearly $US630 million from more than 700 stores in that country. The company volunteered to pay more in coming years. Apple, despite being the most profitable US technology company, avoided billions in taxes around the world through a web of complex subsidiaries.
Even with the G20 agreement, it will take years to put legislation in place, and companies that have structured their business to comply with the present laws are likely to lobby to retain these advantages. The reforms would encourage all nations to adopt standardised tax treaties to replace the web of thousands of such agreements that exist now.
Big budget bucks down the property drainpipe
David Hetherington, Business Spectator, 6 September 2013
Let’s assume, despite the evidence, we do have a “budget emergency”. No one doubts the budget needs to be rebuilt over the economic cycle, but let’s assume for now we need urgent, drastic action to fix the crisis. Where to start?
Politicians have an array of tools at their disposal. Most of us agree that extensive borrowing right now is simply kicking the can down the road. So park that idea. Although public services are stretched, spending cuts would help the fiscal position. But even the strongest advocates of public service cuts in the Coalition are reluctant to be too specific about them for fear of political backlash.
That leaves tax increases, which are also a political no-go zone for both sides (excepting Tony Abbott’s parental leave levy which is offset with a company tax cut).
After that there’s just one tool to fix the budget, and that’s tightening up on tax concessions. For there are surprisingly few people or companies who pay their legislated marginal tax rate. In office, Labor has tightened access to some of these, notably the private health insurance rebate and the superannuation tax concession.
But there is one concession that remains inviolable, our most sacred of cows – negative gearing. In the face of a budget emergency, negative gearing has warranted barely a peep in the election campaign.
If there were truly a budget emergency, and governments were truly serious about fixing it, negative gearing would be amongst the best places to start. Bank of America economist Saul Eslake describes it as “a system that rewards people for losing money” and says that removing it would be close to the top of his policy agenda.
So what are the policy arguments for and against negative gearing? The argument for negative gearing can be simply summarised: we allow investors to deduct the carrying cost of investments for other asset classes, so why not for investment property? If we treat investment property differently, we distort the allocation of capital across the economy.
Unfortunately, the facts don’t bear this argument out. As Eslake’s quote suggests, most people use negative gearing to run property at a loss in order to reduce their recurrent tax liabilities. The primary objective is not to invest in a productive asset that will generate a positive cash flow, which is the intent of the tax credit, but to minimise an investor’s tax payable on other income sources.
According to Treasury, the cost of this concession is around $30 billion each year. This makes negative gearing the single biggest concession in the budget (superannuation is a close second). The size of this concession, or ‘tax expenditure’ is equivalent to the entire forecast budget deficit for 2013-14. In simple terms, if we removed negative gearing, our ‘budget emergency’ would rapidly disappear.
Another strong argument against negative gearing is that it is highly regressive – it disproportionately benefits richer households relative to poor ones. Nearly 40 per cent of households in the top income quintile access negative gearing, compared to less than 5 per cent in the bottom quintile. This means the average top-quintile household enjoys a concession of over $70 per week, while the average bottom-quintile household sees less than $10.
Finally, despite the incentive it offers property investors, negative gearing has been unable to remove a chronic shortage of housing supply. So it costs Treasury a proverbial bomb, encourages loss-making behaviour, is highly regressive, and has failed to dent housing shortages.
Given this, why are politicians so reluctant to tackle it? It’s because the use of negative gearing has become so widespread that attempts to tackle it unleash a storm of criticism in the electorate, particularly amongst wealthier voters who can exercise political voice.
When Paul Keating abolished negative gearing in 1985, he faced a concerted campaign of opposition that ultimately forced him to restore it two years later. As Ken Henry was preparing his tax review that chose not to oppose the concession, he told journalists he still bore the scars of that 1980s experience.
Is there another way? It’s certain we won’t see any action against negative gearing in a new Abbott government (or a returned Rudd one), but here’s an idea to put in the drawer.
Why not limit negative gearing to new-build housing only from now on? All current entitlements would be grandfathered, so no existing investors would be affected. But for any new investor to access the concession, they must be building new dwellings which address the country’s housing shortage, rather than flipping old apartments on the Gold Coast.
It mightn’t be the wholesale abolition of negative gearing that would be demanded by a budget emergency, but it’d be a start.
For G20 leaders, poverty is a taxing issue
Michael Jennings, The Conversation, 6 September 2013
The G20 has been dominated by Syria, tax reform, and playground infighting among world leaders. But where is the talk of ending hunger, eradicating diseases or cancelling debts?
Back in 2005, as the G8 prepared to meet in Edinburgh, the question of poverty appeared to dominate international and national debates. The issue of development and the responsibility of the global North to do more moved centre stage. It felt like a watershed moment as politicians, NGOs, campaigners and the general public all seemed to coalesce around a single goal of eliminating poverty.
In that year, the Africa Commission, launched by Tony Blair, published its report calling for more and better aid; a United Nations commission, headed by renowned economist Jeffrey Sachs, made similar recommendations; and the Make Poverty History campaign and Live8 made sure that development, poverty and aid were talking points in schools and in the media. By the time world leaders met in Scotland, aid and development was at the heart of the discussions.
Eight years on, as the G20 meet in St. Petersburg, one might ask whether that momentum, that optimism and belief that something should and could be done, has been lost. The Syrian crisis (inevitably) and global tax regulation have dominated. The main aid story from this year’s summit has been David Cameron’s announcement of £53m to assist Syrian refugees. So has development and efforts to eliminate poverty slipped off the agenda?
The short answer is no. While the language may not resemble the heady days of 2005, what is happening is a more mature and nuanced debate about the best ways to eliminate poverty and encourage pro-poor growth.
The idea that failed global tax regulation has impeded development in poor countries has finally started to get a hearing. With discoveries of major oil and gas deposits in east Africa and elsewhere, and prices for gold and other minerals still high, African governments have the potential to see sustained and substantial economic growth. But only if they are able to benefit from the revenues these industries will generate: and that means a fair, equitable and ironclad taxation regime that ensure revenue flows to the treasury.
Governments in Africa are losing out on billions of dollars of revenue as they are encouraged to offer tax holidays to promote investment in mining and other sectors. To pick one all too common example, according to an Africa Progress Panel report earlier this year, miners in Zambia’s copper mine industry paid a higher rate of taxation than the companies who owned the mines.
Analysis of tax concessions in Tanzania suggests they have led to a loss of around 6% of GDP. Last year’s UN Trade and Development Report criticised tax holidays and concessions, and called on governments to demand and take their fair share of revenues from the resources that exist in their countries. The International Monetary Fund, too, has sharply criticised such practices.
Corporations, as we have recently discovered in Europe and North America, are adept at navigating the maze of tax regulations to aggressively minimise their payments. The African Progress Panel report, for example, suggests trade mispricing (where corporations “trade” goods and services within their own companies) has cost African governments around $38 billion in tax revenues annually between 2008 and 2010.
And offshore tax regimes and havens cost the world trillions of dollars (some estimates suggest as much as $32 trillion) in tax revenues: revenues that could be used to roll out free treatment for the 15m people living with HIV who still have no access to life-saving drugs; to improve education and training to boost skills; to help improve transport and energy infrastructure, and so on.
Helping ensure governments in the global South collect and hold onto an increased share of the profits of businesses and industries in their own countries matters not just for the moral cause of ensuring corporations pay their fair share. It matters because increased aid is required to pick up the slack left by the taxation gap. It matters because tax revenues are essential for redistributive policies that can help the poorest access welfare, education, health and jobs.
It also matters because research tells us around 75% of the “bottom billion” – those living on less than $2 per day – live in officially designated Middle Income Countries (mostly in India, China, Pakistan, Nigeria and Indonesia). This suggests that in the long-term internal redistribution (through taxation) rather than international redistribution (through aid) will be of growing importance in addressing the needs of the world’s poorest.
What is missing now, and what was missing from the language of 2005, is the issue of equality. It is a subject politicians seem wary of addressing at the global or national level. It has not been heard, in a meaningful way, in the discussions on what will replace the Millennium Development Goals in two years time, for example.
Is there any leader brave enough to champion global equality as an aspiration at the next G8 or G20? Hello? Anyone?
Tax Office probes contentious Macquarie structures
Ben Butler, The Sydney Morning Herald, 6 September 2013
The Tax Office is conducting a full-scale audit of investment bank Macquarie Group over its use of a controversial tax deduction related to offshore subsidiaries, a court has heard.
News of the audit emerged in a Federal Court ruling throwing out a bid by Macquarie to stop the ATO issuing new tax bills for previous years over the group's use of offshore banking unit (OBU) deductions. ''Since 7 March 2011, the Macquarie Group has been the subject of a 'large business audit' by the ATO in respect of the 2006, 2007 and 2008 income years,'' Justice Richard Edmonds said in handing down his judgment.
A large business audit involves ''intensive case examination where material underpayment of income tax, GST or excise is a risk'', the ATO says on its website.
Macquarie's 2012-13 annual report, filed in May, disclosed that it had received amended assessments from the ATO and had ''paid some of the primary tax and interest covered by these amended assessments''.
The report shows the payment, which Macquarie claimed would eventually be returned by the ATO, could be as much as $295 million.
In a move designed to encourage Australian banks to expand overseas, profits generated by offshore banking units are taxed at 10 per cent rather than the usual corporate rate of 30 per cent.
But in the May budget the government restricted use of the deduction after becoming concerned that it was being used to shelter domestic activities from tax.
While it has cut back on use of the deduction in recent years, Macquarie's use of the OBU deduction once dwarfed that of the much larger big four banks.
In 2008-09, Macquarie claimed a $242 million tax reduction due to a ''rate differential on offshore income'' - 28 per cent of the total OBU deduction claimed by the finance industry as a whole.
The group's Federal Court dispute with the ATO centred on whether the group was claiming expenses in its local business that should have been claimed in the offshore banking unit.
The expenses attracted a larger tax deduction if they could be claimed locally because of the higher tax rate. At issue were 20 categories of expenses, including the profit shares of directors, executive remuneration, rent, sales commissions and the cost of issuing infrastructure bonds.
Macquarie said it should be allowed to use its management accounts to allocate the expenses between the onshore group and the OBU, but the ATO said it must instead use a formula set out in the Tax Act.
Justice Edmonds did not decide the issue, saying it could be raised as part of the normal tax dispute process. He dismissed Macquarie's application for an injunction stopping the ATO from issuing amended tax assessments for 2006, 2007 and 2008.
– Macquarie has closed its leveraged finance investment banking business in Canada, Bloomberg reports. The group's Canadian arm cut "a very small number" of jobs in areas that aren't considered essential, a source said.
Macquarie will instead focus on oil, gas, resources, infrastructure and related equity capital markets in Canada.
Bedroom tax investigated by UN housing official
Shiv Malik and Amelia Gentleman, The Guardian, 5 September 2013
A senior UN official is in the UK to scrutinise the impact of the bedroom tax on the human rights of people in low-income households. The special rapporteur on housing, Raquel Rolnik, is on a two-week tour of cities where she will meet tenants affected by the policy as well as officials, campaigners and academics.
Social tenants deemed to have more bedrooms than they need have had their housing benefit reduced under changes to the welfare system that came into affect in April.
Ministers say the change tackles an unfair spare room subsidy not available to private-sector renters and suggest it will save around £500m a year as part of the government's deficit-reduction strategy.
But the policy has triggered protests, with critics claiming it is forcing families into deprivation and that it will ultimately increase the benefit bill by pushing people into the private sector where rents are higher on average.
Rolnik, who will reveal the initial findings of the unprecedented inspection next Wednesday, said the UK faced a unique moment when the challenge of providing adequate housing was "on the agenda".
Rolnik asked the British government to allow her to make an inspection late last year. She makes two country investigations every year. Her decision to visit the UK was prompted in part, she said, by her sense that Britain was experiencing a housing crisis and by concern about the impact of welfare changes on the right to adequate housing.
"There is a housing crisis. This is very clear," she said. "The aim of the visit is to assess the current situation. Of course the bedroom tax and austerity measures and welfare reform as far as they impact on the right to adequate housing is part of our agenda."
Judging by her previously frank assessments of government's housing records, Rolnik is likely to be vocal in outlining her concerns at the end of reporting trip next week.
A spokesperson on the visit said Rolnik's investigation would not just focus on the bedroom tax but also on UK housing policy more widely.
Article 25 of the universal declaration of human rights includes housing as part of the "right to a standard of living adequate for the health and wellbeing of himself and of his family".
Rolnik said: "The UK has voiced its commitment to human rights on repeated occasions, and this mission will give me an opportunity to assess in-depth to what extent adequate housing, as one central aspect of the right to an adequate standard of living, is at the core of this commitment.
"The UK faces a unique moment, when the challenge to promote and protect the right to adequate housing for all is on the agenda.
"In doing so, special attention would need to be given to responding to the specific situations of various population groups, in particular low-income households and other marginalised individuals and groups."
The visit – at the invitation of the government – takes in London, Edinburgh, Glasgow, Belfast and Manchester and will include sessions in local communities.
A UN spokesman said the UK was the signatory to a number of international treaties that protect the right to adequate housing and non-discrimination.
The final report will be presented by Rolnik to the UN Human Rights Council in Geneva in March.
G20: how global tax reform could transform Africa's fortunes
Kofi Annan, The Guardian, 5 September 2013
Africa has lost its tolerance for being exploited. I urge G20 leaders to tackle issues such as transfer mispricing.
Global tax reform would seem an unlikely issue to excite and unite the world. Yet as public anger grows over the unconscionable scale of tax avoidance by multinational companies, such reform has become a low-hanging political fruit. Who could challenge the need?
When G20 leaders discuss global tax reform at their summit in St Petersburg this week, they will be building on excellent work, including an Action Plan by the OECD.
I urge them to take the sub-Saharan perspective into account.
Africa may have only one seat at the G20 table but it accounts for 14% of the global population. With a young and rapidly growing population, Africa represents not just the world's largest untapped source of oil, gas, and minerals, but also a high potential consumer market.
In May this year, the Africa Progress Panel, which I chair, published a report – Equity in Extractives – that shows how tax avoidance and evasion prevent Africa from enjoying its fair share of oil, gas, and mining revenues.
'Africa's people expect a fair share of the wealth beneath their soil and territorial waters.'
G20 leaders have a unique opportunity to help reform our global tax system. What they decide and implement will set the framework for global corporate activity for decades. From a sub-Saharan perspective, G20 tax reforms must include three crucial elements.
The first is to tackle transfer mispricing, including the undervaluation of exports by a company to understate its tax liability. Between 2008 and 2010, transfer mispricing cost Africa an average $38.4 billion every year, more than its inflows from either international aid or foreign direct investment.
Second, the G20 must enforce transparent beneficial ownership. Extensive use of tax havens, shell companies, and multi-layered company structures operating across tax jurisdictions, creates an impenetrable barrier of secrecy and actively facilitates corruption.
Many anonymous shell companies are registered in tax havens governed by G20 countries. The G20 should demand full disclosure of the beneficial ownership of registered companies on open public registers. In this way, citizen groups, journalists, and law enforcement authorities, can follow the money and help to root out corruption.
The third key reform is to link African tax authorities into global reforms. Tax authorities in all regions struggle to prevent the erosion of their tax bases, but Africa struggles more than most. Automatic information exchanges must extend to African tax authorities and Africa must be supported to build capacity for tackling tax avoidance, evasion, and the illicit transfers of wealth.
Properly designed and effectively implemented these global reforms will benefit Africa by making available a fairer share of revenues. Used wisely, the extra tax revenue could generate jobs and opportunities for millions of Africans. In this way, it could help reduce poverty, build stable democracies and eventually make development assistance redundant. Companies will also benefit from predictable business environments with clearer regulation. Reputational headaches will be avoided through the transparent management of tax obligations and the accountability that follows.
With increased connectivity and education, Africa has lost its tolerance for exploitation by the rest of the world. Africa's people expect a fair share of the wealth beneath their soil and territorial waters.
Governments, business, and citizens in G20 countries will all benefit from global tax reform. Indeed, mutually beneficial agreements are the only ones that will stand the test of time.
Abbott faces jam on carbon tax
Phillip Coorey, The Australian Financial Review, 4 September 2013
Tony Abbott’s post-election plans to abolish the carbon tax and measures associated with it have been further hamstrung by expert advice, which says he cannot order the $10 billion Clean Energy Finance Corporation to stop making loans for energy efficient projects.
Instead, the advice, prepared for the Greens by the Clerk of the Senate, says the opposition must legislate to stop the body operating or “risk serious legal consequences”.
This presents Mr Abbott with the same problem he already faces with trying to abolish the carbon price straight after the election – a hostile Senate ¬controlled by Labor and the Greens.
Mr Abbott warned Labor on ¬Tuesday it would be insane to reject his mandate to abolish the carbon tax and he again made clear his intention to hold a double dissolution election if thwarted, saying he would use all available constitutional options.
Coalition sources said that if Labor dug in, the intention was to have the bill twice rejected by the Senate, and hence a double dissolution trigger established, by July next year. However, the Coalition would not necessarily rush to a second poll but could establish other triggers first.
Labor was unmoved by the threat. Prime Minister Kevin Rudd, who is still trying to win the election, would not countenance the consequences of defeat but suggested Labor should not fold if it lost on Saturday.
“I’m saying our policies are right. They were right five years ago and they are right now. They will be right into the future. Because we actually believe ¬climate change is happening,” he said.
Labor MPs and senior figures who will be part of the post-election leadership group all locked in behind Climate Change Minister Mark Butler and vowed to block Mr Abbott, citing both policy principle and revenge for what they believe has been three years of wrecking tactics by the opposition.video
Abolish tax on same day as new Senate
Mr Abbott, if elected, wants the carbon tax abolished on July 1, 2014, the same date the new Senate would begin. This means he would have no option but to take on the current Senate. If the next Senate handed a balance of power role to South Australian Nick ¬Xenophon and the Victorian Democratic Labor Party’s John Madigan, Mr Abbott could avoid a double dissolution by waiting until after July 1, 2014, and legislating retrospectively to abolish the policy but this would be complicated.
Otherwise, Mr Abbott’s immediate challenge would be the current Senate and the Greens would never budge, making the decision Labor’s alone.
Greens leader Christine Milne will use her pre-election address to the National Press Club on Wednesday to release the advice from the Senate clerk, Rosemary Laing.
The CEFC is a $10 billion loan facility funded from the proceeds of the carbon price so it can lend money to help develop clean energy technologies.
It is a statutory body which the Coalition has vowed to abolish producing a $545 million budget saving. It has said that if elected, it would order the CEFC to stop lending money. It has also vowed to abolish another associated agency, the Australian Renewable Energy Agency, at a saving of $532 million.
“In theory, the nominated minister could decline to authorise payments from the special account to either body to starve them of funds,” the advice says.
“However, a minister who declined to carry out a statutory function, and whose action effectively prevented statutory bodies from carrying out their statutory functions, contrary to the will of the Parliament, would risk serious legal consequences, in addition to any legal action that could arise if lack of funding led to defaulting on specific contracts.
“A legislative response, therefore, would appear to be both more likely and necessary under a system of responsible government.”
Senator Milne will tell the Press Club: “Mr Abbott and [opposition finance spokesman] Andrew Robb are arrogantly assuming they can usurp the role of the Parliament to direct the CEFC to halt its legislative function. It can’t.”
Strong thirst for revenge
“Only the Parliament can repeal the carbon price and only the Parliament can stop the rollout of renewable energy by the CEFC.”
On Tuesday, The Australian Financial Review revealed Mr Butler saying Labor would not back down on its policy principle if it lost the election, saying an emission trading scheme had been Labor policy for many years.
He is backed internally by the likes of Anthony Albanese and Bill Shorten and other MPs such as Kelvin Thomson.
“I’ve got a mandate to support the policies on which I was elected,” he said.
Others who did not want to be named said there was also a strong thirst for revenge given Mr Abbott had gone to extraordinary lengths in opposition to strangle Labor’s ability to govern and deny its own mandate from the 2007 election to put a price on carbon.
One party figure distributed a quote from Mr Abbott from July 28, 2009, before he became leader.
“This is a democracy and we’ve got to respect the people’s mandate. Now, the people gave the Rudd government a mandate to deal with climate change, and I think that has to be respected,” Mr Abbott said then.
Another minister said he would never vote to abolish a price on carbon. “It would be like voting for whaling or abolishing trade unions or bringing back Work Choices,” he said.
Labor has promised that if re-elected, it would move the carbon tax to an emissions trading scheme a year ¬earlier, on July 1, 2014. This new policy position will enable it to argue in opposition that it supports an ETS as it always has.
Mr Abbott warned Labor was playing with fire saying: “If we win the election which is a referendum on the carbon tax, that last thing that the Labor Party will do is set itself up to lose a ¬second election by continuing to support a tax which has become electoral poison.”
“We will abolish the carbon tax, no ifs, no buts. We will do whatever is necessary to abolish the carbon tax.”
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