tag:theconversation.com,2011:/us/topics/australian-tax-office-4467/articlesAustralian Tax Office – The Conversation2024-02-22T19:20:51Ztag:theconversation.com,2011:article/2239622024-02-22T19:20:51Z2024-02-22T19:20:51Z‘Robotax’ is a symptom of a gap in Australia’s tax laws. Here’s how to fix it<figure><img src="https://images.theconversation.com/files/577221/original/file-20240222-26-1sl70z.png?ixlib=rb-1.1.0&rect=814%2C682%2C3107%2C1598&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/australian-tax-declaration-pen-on-wooden-1606848391">Shutterstock</a></span></figcaption></figure><p>Imagine believing you owed nothing to the Australian Tax Office, and then suddenly finding out decades later that you did, and that the Tax Office had been accruing interest and penalties on it for decades.</p>
<p>You might think it was like <a href="https://theconversation.com/victims-now-know-they-were-right-about-robodebt-all-along-let-the-royal-commission-change-the-way-we-talk-about-welfare-209216?notice=Article+has+been+updated.">Robodebt</a>, the disgraced scheme under which the government tried to extract money from welfare recipients that was eventually found to be unlawful by a <a href="https://theconversation.com/robodebt-royal-commissioner-makes-multiple-referrals-for-prosecution-condemning-scheme-as-crude-and-cruel-209318">Royal Commission</a>.</p>
<p>You might even call the scheme “<a href="https://www.theguardian.com/australia-news/2024/feb/21/ato-justification-for-robotax-expansion-plan-revealed-by-internal-documents">Robotax</a>”. This is how it is being referred to in reporting. It is eventually expected to collect debts on hold worth <a href="https://www.theguardian.com/australia-news/2024/feb/20/ato-eyeing-ramp-up-of-controversial-robotax-scheme-in-bid-to-recoup-15bn-in-on-hold-debts">A$15 billion</a>.</p>
<p>On Wednesday Tax Commissioner Chris Jordan said he hadn’t wanted to pursue these old (and in some cases very small) debts but had been forced to after the Australian National Audit Office told the Tax Office it had <a href="https://www.theguardian.com/australia-news/2024/feb/21/anthony-albanese-government-robotax-debts-wiped-ato-tax-commissioner-chris-jordan-national-press-club">no legal authority</a> not to chase them.</p>
<p>“As a regulator, we can’t purposely not conform with the law,” he told the National Press Club. “We have to, so we’re working our way through.”</p>
<h2>Small debts climb to tens of thousands</h2>
<p>Here’s an example, from our Tax and Business Advisory Clinic at the University of NSW.</p>
<p>One of our clients had previously been involved in a small business with her husband. When he tragically died she was left to look after their children on her own and told she didn’t owe the Tax Office any money.</p>
<p>But when she recently returned to work and lodged her tax return, a long-absent tax debt reappeared. It turns out that although she had been told it was “written off” at the time, it had only been classified as “non-pursuit”.</p>
<p>Non-pursuit meant it hadn’t appeared in her or her husband’s tax statements.</p>
<p>By the time it reappeared, she owed $37,000. The clinic was able to establish that most of this – about $29,000 – was interest and penalties.</p>
<p>We asked the Tax Office to waive the interest and penalties, which, to its credit, it did. It’s an option many financially vulnerable taxpayers won’t know they have and won’t know how to get without professional advice (which they can’t afford). </p>
<p>It gives government-funded tax clinics a valuable role. </p>
<h2>How it happened</h2>
<p>The Tax Office has for many years been classifying debts as “written off” or “not economical to pursue”, usually where the debts are small or it has lost contact with the taxpayer.</p>
<p>Commissioner Jordan told the Press Club his view had been it was “<a href="https://www.theguardian.com/australia-news/2024/feb/21/anthony-albanese-government-robotax-debts-wiped-ato-tax-commissioner-chris-jordan-national-press-club">ridiculous</a>” to spend money chasing debts as low as $2.</p>
<p>But a taxpayer might not realise this has happened, or might not have realised that “written off” doesn’t have its <a href="https://www.ombudsman.gov.au/__data/assets/pdf_file/0032/286628/investigation_2009_04.pdf">standard English meaning</a>. Debts written off continue to exist. Without a statute of limitations on them, they cannot expire. </p>
<p>The Tax Office merely decided not to pursue them. On their statements, these taxpayers saw no acknowledgement of these debts and often saw a balance of “nil” on their accounts.</p>
<p>New advice from the Australian Government Solicitor has forced the Tax Office to collect these debts where would have preferred not to, even where the clients are old or on <a href="https://www.theguardian.com/australia-news/2024/feb/20/ato-eyeing-ramp-up-of-controversial-robotax-scheme-in-bid-to-recoup-15bn-in-on-hold-debts">low incomes</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/robodebt-was-a-fiasco-with-a-cost-we-have-yet-to-fully-appreciate-150169">Robodebt was a fiasco with a cost we have yet to fully appreciate</a>
</strong>
</em>
</p>
<hr>
<h2>Temporary halt</h2>
<p>On Wednesday, the Tax Office said it had “heard the concerns raised by the community” and <a href="https://www.ato.gov.au/media-centre/statement-on-debts-on-hold-program">paused</a> all recovery action on debts placed on hold prior to 2017, a temporary solution whose legal basis is unclear.</p>
<p>In Australia, there is no statute of limitations on tax debts placed on hold, even though <a href="https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/09/ARC15_Volume2_2-CollectibilityCurve.pdf">US research</a> has found tax debts not collected within two years of assessment are unlikely to be collected at all.</p>
<p>Although Australia’s Finance Minister has the power to waive individual debts, it is unclear whether this could be used to waive an entire class of debts.</p>
<p>And there is one class of debts the minister has no power to waive, even in cases of extreme hardship – those from businesses that have collected the <a href="https://classic.austlii.edu.au/au/journals/SydLawRw/2021/1.html">goods and services tax</a>.</p>
<h2>The Tax Office was warned</h2>
<p>The Commonwealth Ombudsman warned the Tax Office of a problem back in 2009 in a report entitled <a href="https://www.ombudsman.gov.au/__data/assets/pdf_file/0032/286628/investigation_2009_04.pdf">Re-raising Written-off Debts</a>.</p>
<p>It said the Tax Office used the term “write-off” in a way that differed from the <a href="https://www.ombudsman.gov.au/__data/assets/pdf_file/0032/286628/investigation_2009_04.pdf">commonly understood commercial meaning</a></p>
<p>It made a number of recommendations, one of which was that the Tax Office:</p>
<blockquote>
<p>notify taxpayers about the decision to write off their debt, indicating that there is an amount owing which the Tax Office has decided not to pursue at that time but may seek to do so later.</p>
</blockquote>
<p>Another was that the Tax Office:</p>
<blockquote>
<p>provide further information to taxpayers when a debt is re-raised. This information should include the source of the debt (including how much interest has been charged), the circumstances which caused the debt to be re-raised and how to obtain further information.</p>
</blockquote>
<p>Something else that would help is a requirement to inform those affected that the Tax Office is able to remit interest and penalties – and to offer guidance about how to request this.</p>
<h2>Ultimately, it might require legislation</h2>
<p>Legislating to give the Tax Office permission to waive debts in certain circumstances would be the best fix, and could probably be done quickly if government ministers are willing.</p>
<p>As he prepared to step down after a decade as Tax Commissioner this month, Jordan pointed with pride to the Tax Office’s status as the <a href="https://www.afr.com/politics/federal/why-chris-jordan-wants-secrecy-laws-to-change-20240213-p5f4ox">third most trusted</a> arm of the Australian public service.</p>
<p>Unless the Tax Office is given the discretion to behave with compassion towards vulnerable Australians, it risks losing that status and perpetuating cycles of debt. </p>
<p>We need a legislative fix. The Tax Office needs in its armoury the ability to help – rather than hinder – people in serious financial hardship. The last thing it should want to do, and want to be seen to want to do, is to squeeze blood from stones.</p><img src="https://counter.theconversation.com/content/223962/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ann Kayis-Kumar receives funding from the Australian Government’s Australian Taxation Office National Tax Clinic Program and the Ecstra Foundation's Financial Capability Program.</span></em></p>The Tax Office has been writing off hard-to-collect debts for years, but it hasn’t had the power to do it. Unless we give it that power, it’ll be forced to push vulnerable Australians into debt.Ann Kayis-Kumar, Associate Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2110962023-08-06T08:44:56Z2023-08-06T08:44:56ZTax advisers who promote exploitation schemes to face $780 million penalty<p>An extensive federal government crackdown on misconduct will increase maximum penalties for advisers and firms promoting tax exploitation schemes from the present A$7.8 million to more than $780 million.</p>
<p>Sparked by the PwC scandal, which involved the consultancy’s use of confidential government information for commercial gain, the planned measures will also expand tax promoter penalty laws to make it easier for the Australian Taxation Office to apply them to advisers and firms who promote tax avoidance. </p>
<p>The time limit for the tax office to bring court action on promoter penalties will be increased from four to six years. </p>
<p>Announcing the measures on Sunday, the government said the present tax promoter penalty laws had remained largely untouched since being created in the 2000s and had only been applied half a dozen times.</p>
<p>It described its initiatives, involving multiple ministers, as the “biggest crackdown on tax adviser misconduct in Australian history”. </p>
<p>The reforms are designed to strengthen the integrity of the tax system, boost the powers of the regulators, and make the regulatory arrangements “fit for purpose”. </p>
<p>The government said the PwC scandal had exposed “severe shortcomings” in the regulatory framework, and it wanted to “rebuild people’s faith in the systems and structures that keep our tax system and capital markets strong”.</p>
<p>The legislation will be introduced this year, with consultations starting soon. </p>
<p>The changes will remove limitations in the tax secrecy laws that were a barrier to regulators responding to the PwC affair.</p>
<p>They will enable the tax office and the Tax Practitioners Board to refer ethical misconduct by advisers to professional associations for disciplinary action. </p>
<p>Whistleblowers will get protection when they report tax agent misconduct to the Tax Practitioners Board. </p>
<p>The board will have more time – up to two years – to complete complex investigations. Its public register of practitioners will be improved to give more transparency to misconduct by firms and agents. </p>
<p>The government is also homing in on the governance obligations of large consulting, accounting and auditing firms. </p>
<p>Treasury will co-ordinate a whole-of-government response to the PwC affair and the systemic issues raised. Options will be delivered to the government progressively over the coming two years. Consultations will begin in coming months.</p><img src="https://counter.theconversation.com/content/211096/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sparked by the PwC scandal, the measures will expand tax promoter penalty laws to make it easier for the Australian Taxation Office to apply them to advisers and firms who promote tax avoidance.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2104592023-07-27T02:10:28Z2023-07-27T02:10:28ZThe $500 million ATO fraud highlights flaws in the myGov ID system. Here’s how to keep your data safe<figure><img src="https://images.theconversation.com/files/539683/original/file-20230727-15-wdarm.jpeg?ixlib=rb-1.1.0&rect=46%2C0%2C5184%2C3453&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Australian Tax Office (ATO) paid out more than half a billion dollars to cyber criminals between July 2021 and February 2023, according to an <a href="https://www.abc.net.au/news/2023-07-26/ato-reveals-cost-of-mygov-tax-identity-crime-fraud/102632572">ABC report</a>. </p>
<p>Most of the payments were for small amounts (less than A$5,000) and were not flagged by the ATO’s own monitoring systems.</p>
<p>The fraudsters exploited a weakness in the identification system used by the myGov online portal to redirect other people’s tax refunds to their own bank accounts.</p>
<p>The good news is there’s plenty the federal government can do to crack down on this kind of fraud – and that you can do to keep your own payments secure. </p>
<h2>How these scams work</h2>
<p>Setting up a myGov account or a myGov ID requires proof of identity in the form of “<a href="https://www.afp.gov.au/sites/default/files/PDF/NPC-100PointChecklist-18042019.pdf">100 points of ID</a>”. It usually means either a passport and a driver’s licence or a driver’s licence, a Medicare card, and a bank statement. </p>
<p>Once a myGov account is created, linking it to your tax records requires two of the following: an ATO assessment, bank account details, a payslip, a Centrelink payment, or a super account.</p>
<p>These documents were precisely the ones targeted in three large data breaches in the past year: at <a href="https://theconversation.com/what-does-the-optus-data-breach-mean-for-you-and-how-can-you-protect-yourself-a-step-by-step-guide-191332">Optus</a>, at <a href="https://theconversation.com/medibank-hackers-are-now-releasing-stolen-data-on-the-dark-web-if-youre-affected-heres-what-you-need-to-know-194340">Medibank</a>, and at <a href="https://asic.gov.au/about-asic/news-centre/news-items/guidance-for-consumers-impacted-by-the-latitude-financial-services-data-breach/">Latitude Financial</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-are-there-so-many-data-breaches-a-growing-industry-of-criminals-is-brokering-in-stolen-data-193015">Why are there so many data breaches? A growing industry of criminals is brokering in stolen data</a>
</strong>
</em>
</p>
<hr>
<p>In this scam, the cyber criminal creates a fake myGov account using the stolen documents. If they can also get enough information to link to the ATO or your Tax File Number, they can then change bank account details to have your tax rebate paid to their account. </p>
<p>It is a sadly simple scam.</p>
<h2>How government can improve</h2>
<p>One of the issues here is quite astounding. The ATO knows where salaries are paid, via the “<a href="https://www.ato.gov.au/business/single-touch-payroll/what-is-stp-/">single touch</a>” payroll system. This ensures salaries, tax and superannuation contributions are all paid at once.</p>
<p>Most people who have received a tax refund will have provided bank account details where that payment can be made. Indeed, many people use precisely those bank account details to identify themselves to myGov.</p>
<p>At present, those bank details can be changed within myGov without any further ado. If the ATO simply checked with the individual via another channel when bank account details are changed, this fraud could be prevented. It might be sensible to check with the individual’s employer as well.</p>
<p>Part of the problem is the ATO has not been very transparent about the risks. If these risks were clearly set out, then calls for changes to ATO procedures would have been loud and clear from the cyber security community.</p>
<p>The ATO is usually good at identifying when a cyber security incident may lead to fraud. For example, when the recruitment software company <a href="https://www.abc.net.au/news/2018-06-06/australian-data-may-be-compromised-in-pageup-security-breach/9840048?itm_campaign=newsapp">PageUp was hacked in 2018</a>, the ATO required people who may have been affected to reconfirm their identities. This was done without public commentary and represents sound practice.</p>
<p>Sadly, the millions of records stolen in the Optus, Medibank and Latitude Financial breaches have not led to a similar level of vigilance.</p>
<p>Another action the ATO could take would be to check when a single set of bank account details is associated with more than one myGov account.</p>
<p>A national digital identity would also help. However, this system has been in development for years, is not universally popular, and may well be <a href="https://www.themandarin.com.au/226280-gallagher-warns-community-support-for-digital-identity-not-ubiquitous/">delayed</a> until after the federal election due in 2024. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-national-digital-id-is-here-but-the-governments-not-talking-about-it-130200">Australia's National Digital ID is here, but the government's not talking about it</a>
</strong>
</em>
</p>
<hr>
<h2>Protecting yourself</h2>
<p>The most important thing to do is make sure the ATO does not use a bank account number other than yours. As long as the ATO only has your bank account number to transfer your tax rebate, this scam does not work.</p>
<p>It also helps to protect your Tax File Number. There are only four groups that ever need this number. </p>
<p>The first is the ATO itself. The second is your employer. However, remember you do not need to give your TFN to a prospective employer, and your employer only needs your TFN <em>after</em> you have started work. </p>
<p>Your super fund and your bank may ask for your TFN. However, providing your TFN to your super fund or bank is optional – it just makes things easier, as otherwise they will withhold tax which you will need to claim back later.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-have-filed-a-case-under-your-name-beware-of-tax-scams-theyll-be-everywhere-this-eofy-162171">'We have filed a case under your name': beware of tax scams — they'll be everywhere this EOFY</a>
</strong>
</em>
</p>
<hr>
<p>Of course, all the usual data safety issues still apply. Don’t share your driver’s licence details without good reason. Take similar care with your passport. Your Medicare card is for health services and does not need to be shared widely. </p>
<p>Don’t open emails from people you do not know. Never click links in messages unless you are sure they are safe. Most importantly, know your bank will not send you emails containing links, nor will the ATO.</p><img src="https://counter.theconversation.com/content/210459/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Nicholls receives funding from each of Google, Meta, and the Australian Research Council.</span></em></p>Scammers have exploited a simple weakness in the myGov online portal to redirect hundreds of millions of dollars in tax refunds.Rob Nicholls, Associate professor of regulation and governance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2069872023-07-03T20:05:51Z2023-07-03T20:05:51ZWhat are we teaching our children when we use them as taxpayers of convenience?<figure><img src="https://images.theconversation.com/files/535407/original/file-20230703-274753-mwpfji.png?ixlib=rb-1.1.0&rect=311%2C325%2C2676%2C1487&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The start of the Australian tax year is an opportunity to reflect on the way in which children - some of them very young - are being used to minimise their parents and grandparents’ tax, and the message that will send them.</p>
<p>Children are mainly used as taxpayers of convenience by controllers of discretionary trusts (often called “family trusts”), although there are other means as well.</p>
<p>The way in which it is done is to take advantage of childrens’ tax-free thresholds.</p>
<p>Each Australian resident gets a tax-free threshold of <a href="https://www.ato.gov.au/Rates/Individual-income-tax-rates/#Residents">A$18,200</a> meaning the first $18,200 earned is untaxed. The <a href="https://www.superguide.com.au/how-super-works/low-income-tax-offset-lito">Low Income Tax Offset</a> boosts this threshold further for low income earners ensuring some can earn up to $21,884 tax-free.</p>
<p>Unused tax-free thresholds are valuable for taxpayers who want to avoid tax. They can divert income to the holder of an unused threshold thereby turning what would otherwise be a high marginal tax rate into a marginal tax rate of zero.</p>
<h2>Some taxpayers accumulate tax-free thresholds</h2>
<p>Probably the most high-profile example of using the tax-free thresholds of others was a case over three decades ago in 1989 known as <a href="https://jade.io/article/211725">East Finchley Pty Ltd</a> versus the Commissioner of Taxation.</p>
<p>It made use of the tax-free thresholds of foreigners who at the time were allowed to receive $585 tax-free.</p>
<p>What happened was that the trustee allocated the trust’s taxable income to 126 non-residents in India who were relatives of the people behind the trust.</p>
<p>Each non-resident was allocated $585, which was the exact amount of his or her tax-free threshold.</p>
<p>The court heard a director of the trustee company travelled to India to request that each beneficiary loan back the income they had received.</p>
<h2>Children are a source of tax-free thresholds</h2>
<p>It works much the same way for children.</p>
<p>Young people over the age of 18 get the full tax-free threshold, meaning that if they have no other income, a trust can purport to hand them up to $21,884 on which zero tax will be paid.</p>
<p>While young people under the age of 18 get the same tax-free threshold for income from <a href="https://www.ato.gov.au/Individuals/Income-deductions-offsets-and-records/Income-you-must-declare/Your-income-if-you-are-under-18-years-old/?anchor=Workoutifyoureceiveexceptedincome#Workoutifyoureceiveexceptedincome">employment and some other sources</a>, their tax-free threshold for distributions from trusts is limited to <a href="https://www.ato.gov.au/rates/Tax-rates-if-you-re-under-18-years-old/">$416</a> per year in an attempt to curtail their use as taxpayers of convenience.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=964&fit=crop&dpr=1 600w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=964&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=964&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/535220/original/file-20230703-213719-uix25f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Babies get distributions from trusts.</span>
</figcaption>
</figure>
<p>Yet Australia’s law reports are replete with examples of $416 per year being allocated to children under 18, some from when they are a few months old.</p>
<p>And there are exceptions that allow for children under 18 to receive up to $21,884 per year tax-free, including from a trust created by a grandparent’s will.</p>
<p>In many of these cases, the child never gets the money - it is used by the parents.</p>
<p>In many of these, the child doesn’t know they have been allocated the money.</p>
<p>The parents treat it as their own, with the “payment” to children being viewed as “just for tax purposes”.</p>
<p>When, and if, these children find out, it is likely to colour their views about the extent to which it is important to be truthful when complying with the tax law.</p>
<p>As it happens, it isn’t clear these parents are complying with the law.</p>
<h2>Some of the arrangements artificial and contrived</h2>
<p>Section <a href="https://www.ato.gov.au/General/Trusts/In-detail/Trust-reimbursement-agreements/Trust-taxation---reimbursement-agreement/">100A</a> of the Tax Act applies specifically to trusts.</p>
<p>It says where a beneficiary is allocated income but the benefit actually goes to someone else, the beneficiary is not taxed but a penalty rate of tax (45%) is imposed on the trustee.</p>
<p>There is an exception for an “ordinary family dealing”, but it does not extend to dealings that are “<a href="https://www.ato.gov.au/General/Trusts/In-detail/Trust-reimbursement-agreements/Trust-taxation---reimbursement-agreement/">artificial, contrived, or overly complex</a>”.</p>
<p>Some parents are testing the “ordinary family dealing” exception. Among the claims being made by parents is that children need not get the benefit of money allocated to them because they need to reimburse their parents for the costs of their upbringing. Yes, <a href="https://www.ato.gov.au/law/view/pdf/tpa/ta2022-001.pdf">you read that correctly</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/testamentary-trusts-are-one-of-the-last-outrageous-means-of-avoiding-tax-142035">Testamentary trusts are one of the last outrageous means of avoiding tax</a>
</strong>
</em>
</p>
<hr>
<p>A strong case can be made that the Australian Tax Office hasn’t been tough enough in using Section 100A against taxpayer-of-convenience arrangements.</p>
<p>A strong case can also be made that if young adults aren’t able to meet their own expenses because they don’t earn their own income, they should be viewed as a dependant. And in turn, the $21,884 tax-free threshold should not be available to them.</p>
<p>And a case can even be made that treating children as taxpayers of convenience breaches their rights and child welfare laws. It certainly isn’t good for them if it encourages them to adopt the ethics of their parents.</p>
<p>The best approach would be to review and strengthen tax laws in order to remove the temptation for parents to even think about using their children in this way.</p><img src="https://counter.theconversation.com/content/206987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dale Boccabella does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Purporting to distribute money to children to take advantage of their tax-free thresholds sends
a message about how important it is to be truthful when complying with the tax law.Dale Boccabella, Associate Professor of Taxation Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1622512021-06-08T04:47:02Z2021-06-08T04:47:02ZOther Australians don’t earn what you think. $59,538, is typical<figure><img src="https://images.theconversation.com/files/461939/original/file-20220509-26-g1sgw.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">taxret</span> </figcaption></figure><p>I’m guessing you earn less than A$200,000. </p>
<p>And I’m guessing you think you’re missing out. People keep telling you so.</p>
<p>On one side of politics Labor leader <a href="https://anthonyalbanese.com.au/media-centre/transcript-of-radio-interview-2-gb-money-news-monday-24-june-2019">Anthony Albanese</a> says anyone earning $200,000 dollars a year “can’t be described as being in the top end of town”.</p>
<p>On the other, Prime Minister <a href="https://www.pm.gov.au/media/doorstop-parkhurst-qld">Scott Morrison</a> parries with interviewers when asked whether people on $180,000 to $200,000 (the biggest beneficiaries of his planned 2024 Stage 3 tax cut) are “high income”.</p>
<p>“They’re hardworking people working out on mines and difficult parts of the country,” he says. “They deserve a tax cut.”</p>
<p>Hardworking or not, Australians on more than $200,000 are rare. And an awful lot of them don’t work at all.</p>
<h2>$200,000 is unusual</h2>
<p>I’ve never quite understood why politicians are so keen to tell us such incomes are normal. It might be because they are on them. Each backbencher gets <a href="https://www.remtribunal.gov.au/sites/default/files/2021-01/Remuneration%20Tribunal%20%28Members%20of%20Parliament%29%20Determination%202020%20DOE%2001-07-2020.pdf">$211,250</a> plus a $32,000 electorate allowance (boosted by $19,500 if they turn down the use of a private-plated vehicle) plus home internet and travel allowances.</p>
<p>Very detailed tax office figures (<a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2018-19/?page=2#Navigating_Taxation_statistics">updated on Monday</a>) tell us what the rest of us earn, all 14.3 million of us.</p>
<p>Only 2% of those required to pay tax earned more than $211,365. Only 3% earned more than $188,667.</p>
<p>Everyone else — the other 97% — earned less than $188,667, most of them a good deal less, and many more earned even less and weren’t required to pay tax.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404989/original/file-20210608-28202-o41jp1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">What you report to myGov, the ATO reports to us, with a lag.</span>
</figcaption>
</figure>
<p>The figures released on Monday are for 2018-19, because it takes a while for the tax office to receive and process all the forms. 2019 is when Albanese said $200,000 wasn’t the “top end of town”, 2018 is when Morrison unveiled Stage 3.</p>
<p>The typical taxable income (typical in the sense that half earned more than it, half less) was $59,538. If that’s what you’re on, you’re more likely to find people who earn close to what you do than anyone who earns more or less.</p>
<p>We can get an idea of how lonely it is at the top by examining the top 1%, those Australians with a taxable income of greater than $350,134.</p>
<p>There aren’t many of them, just 110,613 — 82,258 men and 28,355 women. </p>
<p>Only 39,209 have taxable incomes of more than $500,000, and of these only 14,467 have taxable incomes of more than $1 million.</p>
<h2>Life at the top needn’t be taxed</h2>
<p>You’re probably thinking there’s a difference between taxable incomes and actual incomes, and the tax office figures show you’re right. </p>
<p>15,358 Australians reported total incomes of more than $1 million. By the time they had applied legitimate tax deductions, the number had shrunk to 14,467.</p>
<p>Some of these million-dollar earners were able to shrink their taxable incomes very low indeed. 45 cut their taxable incomes to less than the tax-free threshold of $18,200 — meaning they didn’t have to pay anything, not even the Medicare levy.</p>
<p>Another eight managed to escape the Medicare levy even though their taxable incomes were above $18,200, and another 21 escaped income tax while paying the Medicare levy.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/yes-some-millionaires-pay-no-tax-but-crimping-deductions-mightnt-help-139279">Yes, some millionaires pay no tax, but crimping deductions mightn't help</a>
</strong>
</em>
</p>
<hr>
<p>Many of these millionaires weren’t “hardworking” in the sense Morrison meant. Only 9,144 of the 14,467 Australians on taxable incomes of more than $1 million worked. Only 172,305 of the 222,813 Australians on more than $250,000 worked.</p>
<p>Only nine of the 45 million-dollar earners who cut their taxable incomes to less than the tax-free threshold worked. 27 received so-called <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">franked dividends</a> from companies that had paid tax, enabling them to cut their own tax bills or receive rebates from the tax office. On average, each received dividends of $2.25 million.</p>
<h2>Many who aren’t taxed are generous</h2>
<p>Seventeen of the 45 million-dollar earners received capital gains, on average $6.4 million each. 38 received interest, averaging $290,000 each.</p>
<p>Against that were set expenses, small and large. Three claimed for work-related car expenses averaging $27,340 each, 13 claimed expenses averaging $57,200 for assistance with tax affairs, eight claimed for previous losses from farms averaging $684,000 each, and eight for losses from other businesses averaging $408,000.</p>
<p>But by far their biggest expense was donations. 14 gave away a total of $161 million in gifts or tax-deductible donations — an extraordinary average of $11.5 million each.</p>
<p>Most of us aren’t like these people. </p>
<h2>Most of us claim more modest deductions</h2>
<p>Three-quarters of Australians in the tax system earn less than $89,173. </p>
<p>Those on that income typically claim between $1,500 and $1,900 in deductions (men claim more than women) and, thanks to negative gearing, claim losses on properties of between $1,800 and $2,600 (again, men claim more than women). </p>
<p>Such Australians typically report between $1,200 and $2,100 in capital gains (more for women than for men).</p>
<p>If higher-earning Australians are unaware of how most of us live, it’s understandable. Surgeons mix with other surgeons. On average each of Australia’s 4150 surgeons earns $394,303, making surgery our highest-paying occupation.</p>
<h2>We mix with, and marry, people like us</h2>
<p>And they increasingly marry each other. In 2010 the Productivity Commission found that 68% of Australia’s high earners were <a href="https://www.pc.gov.au/research/supporting/income-distribution-trends/income-distribution-trends.pdf">married to other high earners</a>. A decade earlier it was 49%.</p>
<p>And high earners live near each other. The average income in Sydney’s Double Bay (Australia’s highest-earning suburb) is $202,598. The average income in Ruse in Sydney’s Campbelltown is $55,100.</p>
<p>People in Double Bay don’t drive through Ruse on their way to the city.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-low-and-middle-income-tax-offset-has-been-extended-yet-again-it-delivers-help-neither-when-nor-where-its-needed-160772">The Low and Middle Income Tax Offset has been extended yet again. It delivers help neither when nor where it's needed</a>
</strong>
</em>
</p>
<hr>
<p>In the United States it is often the other way around. There, low-income suburbs are more likely to be near the city, meaning that high-income Americans at least see them as they go in to town.</p>
<p>That most of us have little idea of what others earn suits those in charge when they propose tax cuts <a href="https://theconversation.com/the-low-and-middle-income-tax-offset-has-been-extended-yet-again-it-delivers-help-neither-when-nor-where-its-needed-160772">skewed to high earners</a>.</p>
<p>They can con us that most of us will be better off, and those on high incomes can con themselves they are not already better off.</p><img src="https://counter.theconversation.com/content/162251/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New tax office figures show only 2% of Australians earn more than $211,000 a year.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1501692020-11-16T10:57:56Z2020-11-16T10:57:56ZRobodebt was a fiasco with a cost we have yet to fully appreciate<figure><img src="https://images.theconversation.com/files/369519/original/file-20201116-19-xlt5vd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">DAVID MARIUZ/AAP</span></span></figcaption></figure><p>The Robodebt class action bought by Gordon Legal has been settled at a cost to the government of around $1.2 billion. According to federal Labor frontbencher Bill Shorten, this is the <a href="https://www.sbs.com.au/news/federal-government-settles-class-action-over-its-unlawful-robodebt-scheme-for-1-2-billion">biggest class action</a> in Australian legal history. </p>
<p>This <a href="https://www.smh.com.au/politics/federal/robodebt-class-action-settles-on-cusp-of-trial-20201116-p56f0u.html">comprised</a> refunds of $721 million to 373,000 people, $112 million in compensation and $398 million in cancelled debts.</p>
<p>As is well-known, “Robodebt” is the label commonly applied to the initiative starting in 2016 designed to increase recoveries by government of “overpayments” made to social security recipients, retrospectively dating back to 2010. </p>
<p>This table sets out a chronology of the major developments in Robodebt from 2016 up to this week.</p>
<p><iframe id="475NH" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/475NH/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>How Robodebt began</h2>
<p>The “Robodebt” story started with an announcement as part of the <a href="https://formerministers.dss.gov.au/15850/welfare-integrity-fairness-and-sustainability-for-all-australians/">2015-16 budget</a> that the government would save $1.7 billion over five years by enhancing the Department of Human Services (DHS) fraud prevention and debt recovery capability. </p>
<p>Data-matching with the Australian Tax Office had been started in 1991 by the then-Labor government, with the automation of the system being increased in 2011. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-problem-is-not-fixed-why-we-need-a-royal-commission-into-robodebt-141273">The 'problem' is not 'fixed'. Why we need a royal commission into robodebt</a>
</strong>
</em>
</p>
<hr>
<p>The 2015 measures reduced human oversight once discrepancies between income reported to the ATO and income reported to the DHS were identified. Previously, officers had scrutinised each discrepancy on a case by case basis before raising an over-payment. </p>
<p>In addition, where previously the DHS collected verifying information from employers, the new system shifted responsibility for providing information to the individuals concerned, reversing the “onus of proof”. </p>
<p>As the <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Community_Affairs/SocialWelfareSystem/Report">2017 Senate committee report</a> points out, </p>
<blockquote>
<p>the responsibility for checking and clarifying income information has shifted from the department to current and former recipients of Centrelink payments. … the significant reduction in workload for the department by this outsourcing, has allowed for a huge increase in the number of income discrepancy investigations that the department initiates </p>
</blockquote>
<p>As a result, the <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Community_Affairs/SocialWelfareSystem/Report">Senate report</a> pointed out the number of “debt interventions” increased from 20,000 in 2015-16 to nearly 800,000 in 2016-17. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/369523/original/file-20201116-15-11ltkjh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Scott Morrison has apologised for any hurt people suffered as a result of the Robodebt scheme.</span>
<span class="attribution"><span class="source">Mick Tsikas/AAP</span></span>
</figcaption>
</figure>
<h2>Concerns are raised</h2>
<p>In late 2016, members of the public raised concerns about letters from the DHS advising they owed the government significant debts for past income support payments they had received. </p>
<p>The controversy escalated, with the shadow human services minister requesting the auditor general to investigate, and an independent MP separately asking the Commonwealth ombudsman to look into the matter after receiving more than 100 complaints about the debts. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-to-repay-470-000-unlawful-robodebts-in-what-might-be-australias-biggest-ever-financial-backdown-139668">Government to repay 470,000 unlawful robodebts in what might be Australia's biggest-ever financial backdown</a>
</strong>
</em>
</p>
<hr>
<p>In January 2017, a <a href="https://www.notmydebt.com.au/">website</a> now sharing more than 1,200 personal accounts, a Facebook account and a Twitter account with the hashtag <a href="https://twitter.com/not_my_debt">#notmydebt</a> were all set up to record contested debts. </p>
<p>A number of <a href="https://twitter.com/Asher_Wolf">other</a> <a href="https://twitter.com/jpwarren">individuals</a>, <a href="https://twitter.com/lukehgomes">journalists</a> and <a href="https://law.blogs.latrobe.edu.au/2019/07/30/dial-1800-reverse-onus-coming-to-grips-with-robodebt/">legal academics</a> consistently highlighted the issue on social and mainstream media.</p>
<p>There have since been <a href="https://www.ombudsman.gov.au/__data/assets/pdf_file/0022/43528/Report-Centrelinks-automated-debt-raising-and-recovery-system-April-2017.pdf">two</a><a href="https://www.ombudsman.gov.au/__data/assets/pdf_file/0025/107836/Inquiry-into-Centrelinks-compliance-program.pdf">reports</a> by the Commonwealth ombudsman and two parliamentary committee inquiries (<a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Community_Affairs/Centrelinkcompliance">one ongoing</a>). </p>
<h2>The unravelling of the scheme</h2>
<p><a href="https://www.legalaid.vic.gov.au/about-us/news/centrelink-waives-another-robo-debt-legal-challenge-continues">Victoria Legal Aid</a> experienced a large spike in calls for legal help with Robodebt issues going back to 2016. In 2018, Centrelink raised a debt of over $3,700 against a former student, <a href="https://www.theguardian.com/australia-news/2019/may/05/centrelink-drops-womans-robodebt-after-she-mounts-court-challenge">Madeleine Masterton</a>, and in February 2019, VLA filed an application for judicial review. Within a week, the debt was reduced to around $600. </p>
<p>At the first case management hearing, Centrelink accepted Masterton’s original declared income, with the result that there was no debt, and no legal ruling on the issue. </p>
<p>The second case also involved a former student, <a href="https://www.theguardian.com/australia-news/2019/sep/06/centrelink-wipes-robodebt-in-second-case-set-to-challenge-legality-of-scheme">Deanna Amato</a>, who only became aware that a debt of just over $3,200 had been raised against her — plus a penalty of 10% for “not engaging” — when her income tax refund of around $1,700 was taken as repayment. </p>
<p>After the litigation began, Centrelink gathered information from her employers to determine the debt should be reduced to $1.48. A subsequent Freedom of Information request revealed she had actually been underpaid by $480.</p>
<p>In September 2019, the DHS completely dropped the Amato debt but refused to pay interest. Then in November, the Federal Court ruled that income averaging was unlawful – a conclusion the <a href="https://www.theguardian.com/australia-news/2019/nov/27/government-admits-robodebt-was-unlawful-as-it-settles-legal-challenge">government conceded</a> a week before the case came to trial. </p>
<p>It was this ruling that required the government to have more than 500,000 individual debts manually recalculated - at an unknown cost. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/369520/original/file-20201116-21-r2p8dc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lawyer Peter Gordon (right) led the class action against the government.</span>
<span class="attribution"><span class="source">James Ross/AAP</span></span>
</figcaption>
</figure>
<h2>What is a policy fiasco?</h2>
<p>There is an extensive literature on “<a href="https://journals.sagepub.com/doi/10.1177/0952076715593139">policy</a> <a href="https://doi.org/10.1177/095207679501000205">failure</a>”. Well-known examples range from cost overruns in constructing the <a href="https://www.couriermail.com.au/news/why-sydneys-opera-house-was-the-worlds-biggest-planning-disaster/news-story/9a596cab579a3b96bba516f425b3f1a6">Sydney Opera House</a> and the <a href="https://www.bart.gov/about/history/history3">Bay Area Rapid Transit</a> network in San Francisco, to the <a href="https://catalogue.nla.gov.au/Record/482750">poll tax</a> in Britain in the 1980s. </p>
<p>What separates a “fiasco” from other forms of policy failure is that it is commonly regarded as being reasonably foreseeable – that is, the failure should or could have been avoided with foresight. </p>
<p>The current situation was clearly foreseeable. The income reported to the ATO is what people receive in the financial year from July 1 to June 30. Social Security payments are made fortnightly and the level of entitlement is based on the financial and personal circumstances that apply during that reporting period. </p>
<p>In January 2017, <a href="https://theconversation.com/note-to-centrelink-australian-workers-lives-have-changed-70946">I pointed out on this website</a> that “this approach [averaging] will only work correctly if individuals receive exactly the same income each fortnight. For students, this is very unlikely.”</p>
<p>More significantly, in July 2017, Peter Hanks gave the <a href="http://www.austlii.edu.au/au/journals/AIAdminLawF/2017/15.pdf">National Lecture at the Australian Institute of Administrative Law National Conference</a> in which he criticised the Commonwealth for its new method of raising and recovering what “Centrelink chose to describe as ‘debts’”. </p>
<p>Professor Terry Carney – who served for nearly 40 years as a member of the Social Services and Child Support Division of the Administrative Appeals Tribunal and its predecessor the Social Security Appeals Tribunal – also <a href="https://www.theguardian.com/australia-news/2020/feb/12/coalition-warned-robodebt-scheme-was-unenforceable-three-years-before-it-acted">made five judgements</a> in 2017 that there was no debt where Centrelink calculated overpayments by applying averaged annual income to shorter periods. </p>
<p><a href="http://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2018/03/006-Carney.pdf">In an article in 2018</a>, Carney noted the Commonwealth had to prove that debts existed rather than requiring individuals to prove they did not. This was also pointed out by <a href="http://www.austlii.edu.au/au/journals/AIAdminLawF/2017/15.pdf">Hanks</a> in 2017, and was the conclusion reached by the Federal Court in the Amato case.</p>
<p>The department could have appealed these judgements to the next level of the AAT where rulings would have been published, but chose not to – suggesting it was not confident of its position. </p>
<p><a href="https://www.theguardian.com/australia-news/2020/sep/19/robodebt-court-documents-show-government-was-warned-76-times-debts-were-not-legally-enforceable">The Guardian</a> also revealed there were 76 other AAT cases where robodebts were set aside because the calculations used by Centrelink “could not lawfully support the existence of a debt”. In each case, the Commonwealth elected not to appeal. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/from-robodebt-to-racism-what-can-go-wrong-when-governments-let-algorithms-make-the-decisions-132594">From robodebt to racism: what can go wrong when governments let algorithms make the decisions</a>
</strong>
</em>
</p>
<hr>
<p>What is most striking about Robodebt is how it differs from earlier examples that focus on problems of implementation, or where outcomes do not match intended objectives. </p>
<p>Essentially, the Robodebt fiasco arises from the very formulation of the policy. From the beginning, a central feature of the program was unlawful. </p>
<p>The unlawfulness does not relate to a legal technicality or a mistake in drafting. In brief, the “overpayments” the government recovered using income averaging were not overpayments. No one who understood the social security system and its governing legislation could have realistically thought they were.</p>
<h2>What does the future hold?</h2>
<p>The Robodebt fiasco involves policy failures across numerous dimensions. The most obvious – and in many ways the least important failure – is it failed to achieve the budgetary savings that were its main objective. </p>
<p>More seriously, hundreds of thousands of people were adversely affected. This human cost is difficult to assess and involves much more than financial losses. </p>
<p>Just over 2,000 people who had received a Robodebt notice between July 2016 and October 2018 <a href="https://www.lexology.com/library/detail.aspx?g=b0cd6dc3-3373-45c7-b97a-a0692987e808">died</a> during that period, although in the absence of an official coroner’s report, no causes can be attributed. </p>
<p>However, it <a href="https://www.lexology.com/library/detail.aspx?g=b0cd6dc3-3373-45c7-b97a-a0692987e808">has been noted</a> that from January 2017, Centrelink began tweeting the contact number for Lifeline, the national charity providing 24-hour support and suicide prevention services.</p>
<p>This story is not yet finalised. The Federal Court has yet to approve the terms of the settlement. The second inquiry by the Senate Community Affairs is due to present its report in February 2021. </p>
<p>The opposition has indicated it would set up a royal commission into Robodebt if elected to office.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1328148534802010112"}"></div></p>
<p>Nevertheless, there are some reasons to be cheerful. While the checks on power that are built into the appeals processes in the Australian social security system were initially brushed aside, the combination of community activism, journalistic investigation, political scrutiny and the legal aid system appear to have ultimately provided a remedy to the victims of this major policy fiasco. </p>
<p>In future, there is clearly a need to strengthen these formal accountability and review structures.</p><img src="https://counter.theconversation.com/content/150169/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford has received funding from the Australian Research Council and the Department of Social Services. He is affiliated with the Centre for Policy Development and is a Policy Adviser to the Australian Council of Social Service.</span></em></p>The combination of community activism, journalistic investigation, political scrutiny and the legal aid system has ultimately provided a remedy to the victims.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1372322020-05-03T19:50:09Z2020-05-03T19:50:09ZPost-coronavirus, we’ll need a working tax system, not more taxes and not higher rates<figure><img src="https://images.theconversation.com/files/331672/original/file-20200430-42918-1bauua.jpg?ixlib=rb-1.1.0&rect=168%2C343%2C3585%2C2141&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Oliver Wendell Holmes Jr famously observed in 1927 that “taxes are what we pay for civilised society, <a href="http://www.worldlii.org/us/cases/federal/USSC/1927/178.html">including the chance to insure</a>”. </p>
<p>Whilst tax as a price for civilised society is well understood, less appreciated is the second part of his observation – that tax provides a chance to insure against a crisis. </p>
<p>As nations emerge from the COVID-19 crisis with policies unthinkable just six months ago, and associated debts previously unimaginable, it is becoming clear that while some were well insured and able to respond rapidly, most were underinsured, exposing their civilisations to previously unthinkable risks.</p>
<p>In many ways Australia is an exemplar in its use of taxation to provide the “chance to insure”. It funds Medicare; the Pharmaceuticals Benefit Scheme; the Higher Education Loan Program; the Superannuation Guarantee Charge and contingency-based welfare payments.</p>
<h2>COVID has exposed the weakness in our system</h2>
<p>COVID-19 has exposed how underinsured Australia is in other ways. It will have to borrow heavily to protect the economy, but for many years won’t be able to impose the extra taxes that will be needed to pay down the debt.</p>
<p>Introducing new taxes or increasing existing tax rates would threaten what will be a fragile recovery.</p>
<p>The only realistic option is to review what Australia gives away, such as <a href="https://treasury.gov.au/sites/default/files/2020-01/complete_tbvs_web.pdf">tax concessions,</a> and what it fails to collect, as measured by the so-called <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/">tax gap</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/did-you-cheat-on-your-taxes-heres-why-your-days-may-be-numbered-57622">Did you cheat on your taxes? Here's why your days may be numbered</a>
</strong>
</em>
</p>
<hr>
<p>The tax gap is the difference between the amount the Tax Office collects and what we would have collected if every taxpayer was fully compliant with tax law. </p>
<p>In 2016-17, the Commonwealth raised <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5506.0">A$389 billion</a> in taxes, intentionally gave away an estimated <a href="https://treasury.gov.au/publication/p2019-357183">$166 billion</a> and unintentionally failed to collect a further <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings#Summaryfindings">$30-35 billion</a> that the Tax Office knows of. </p>
<p>Mapping out a pathway to winding back government debt and funding programs to better insure our civilised society has to begin with ensuring those who are not currently carrying their fair share of the legislated tax burden do so through reforms to reduce non-compliance. </p>
<h2>Many of us aren’t paying the tax we should</h2>
<p>The Tax Office conservatively estimates that non-compliance for the taxes it has so far examined is equivalent to more than <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings#Summaryfindings">8%</a> of the tax revenue it collected in 2015-16.</p>
<p>The Treasury also estimates that tax concessions in 2017-18 were equivalent to <a href="https://treasury.gov.au/sites/default/files/2020-01/complete_tbvs_web.pdf">41%</a> of Commonwealth government revenue, or more than 9% of GDP (although it cautions against adding estimates together as reducing one concession can affect the use of others).</p>
<p>Given the scale of the Commonwealth response to COVID-19, the government will need additional tax revenues of around 2.5% of GDP (about $50 billion) for some years. </p>
<p>This should not prove insurmountable. In comparison with other advanced economies, Australia is a relative low taxer with a total tax burden of 28.6% of GDP in 2017-18, well below the OECD average of about 34.5%. </p>
<h2>There’s revenue going begging</h2>
<p>The tax gap estimates show billions can be raised from integrity measures such as addressing overclaimed work-related expenses ($3 billion), unreported cash wages ($1 billion) unreported rental property net income ($2 billion) and unreported business income ($2-3 billion). </p>
<p>There’s much more available from reducing tax concessions, removing the personal tax-free threshold, winding back retirement savings concessions, and broadening the goods and service tax (especially from fully taxing the food that is already partially taxed). </p>
<p>Lower income groups affected by the changes should be compensated by improved targeting of expenditure programs.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cabinet-papers-1998-99-how-the-gst-became-unstoppable-128844">Cabinet papers 1998-99: how the GST became unstoppable</a>
</strong>
</em>
</p>
<hr>
<p>Right now we’ve a near-universal welfare system and a targeted tax system.</p>
<p>The way out of our present problems is to make the tax system more universal and the welfare system more targeted.</p>
<p>New taxes and higher rates should be resisted, especially if made more palatable by more concessions.</p>
<p>What we are proposing would not only result in a tax system that was simpler and harder to escape – but one that was capable of funding the insurance we will need to preserve our society into the future</p>
<p>There’s no reason to think there won’t be another pandemic exposing the weaknesses in our tax system that remain.</p><img src="https://counter.theconversation.com/content/137232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We are failing to collect and giving away in tax concessions hundreds of billions.Neil Warren, Emeritus Professor of Taxation, UNSW SydneyRichard Highfield, Adjunct Professor of Taxation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1083472018-12-18T19:14:17Z2018-12-18T19:14:17ZHere’s a long-term budget fix that would boost investment: replace company tax with cashflow tax<figure><img src="https://images.theconversation.com/files/250768/original/file-20181215-185252-r6k5j4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A simpler company tax system would collect more and could fund a lower rate.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Rather than waiting for the world to reach an agreement to act against multinational corporations that shift profits to tax havens, Australia should consider adopting our proposal for a cashflow tax, which would increase both investment and government revenue.</p>
<p>Many market-dominating multinational corporations have been aggressively reducing their global tax burdens by shifting their profits to tax havens.</p>
<p>BHP and Rio have been setting up <a href="https://www.smh.com.au/business/bhp-and-rio-tinto-under-audit-for-singapore-hubs-used-to-lower-tax-bills-20150410-1mikkr.html">so-called marketing hubs in low-tax Singapore</a>.</p>
<p>Google bills Australians for advertisements on Australian websites in lower-tax Ireland, which itself pays fees to another subsidiary <a href="https://www.forbes.com/sites/abigailtracy/2016/02/19/google-moved-billions-of-dollars-to-bermuda-to-avoid-taxes-again/#2381a5c31cd2">in even lower-tax Bermuda</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/budget-policy-check-do-we-need-company-tax-cuts-94483">Budget policy check: do we need company tax cuts?</a>
</strong>
</em>
</p>
<hr>
<p>So big has the apparent flow of money into low-tax Ireland become that its national accounts data for 2015 showed a 26.3% real increase in gross domestic product.</p>
<p>Few think the Irish economy really improved by 26.3%.</p>
<h2>What if we taxed cashflow instead of income?</h2>
<p>In a <a href="https://www.industrysuper.com/assets/FileDownloadCTA/05de7e36ac/V.-2-181205-Cash-flow-tax-ISA.pdf">new paper</a> for the <a href="https://www.melbourneeconomicforum.com.au/forums/cash-flow-tax-proposal-special-forum">Melbourne Economic Forum</a>, we propose replacing the conventional corporate income tax with what we are calling a “cashflow tax” to mitigate these problems while encouraging new private capital investment in Australia.</p>
<p>It wouldn’t tax profit as it is normally defined, but money coming in minus money going out – or “cashflow” – with the exception of money going out to repay loans, to pay dividends to shareholders, and to make payments to related parties that aren’t at arm’s length.</p>
<p>It could be easily done, because we already have all the information we need to tax onshore what happens onshore.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-full-story-on-company-tax-cuts-and-your-hip-pocket-59458">The full story on company tax cuts and your hip pocket</a>
</strong>
</em>
</p>
<hr>
<p>It would eliminate the messy distinction between capital expenditures, which can’t be deducted straight away, and other expenditures which can be. Everything that went out, for any purpose not exempt, would be immediately subtracted from what came in, and what was left would be taxed at 30%, or 25% if that’s what the government of the day wanted.</p>
<h2>It would encourage investment…</h2>
<p>It would make new investment - on things such as buildings, equipment, mines and the like - much more attractive. By immediately creating a negative cash flow, it would usually cut the investor’s tax bill to zero straight away.</p>
<p>We would allow companies to trade tax losses with companies making taxable profits, perhaps on the Australian Securities Exchange. Or they could carry forward their losses at the long-term government bond rate to offset against future profits.</p>
<h2>…while levelling the financing playing field</h2>
<p>Financial institutions would be taxed slightly differently, but at the same rate. Their taxable income would be interest and fees received minus interest and fees paid and costs including capital expenditure. Like other firms, they would be able to deduct capital expenditure immediately, but unlike other firms, they could also deduct the cost of borrowing.</p>
<p>For non-financial firms, because neither interest payments nor dividends would be tax deductible, the tax system would no longer favour debt over equity. They would no longer face a tax incentive to borrow instead of seeking out shareholders.</p>
<p>Reduced indebtedness would have advantages for financial efficiency and stability. It might reduce total profits of banks, but by immediately writing off capital expenditures banks could make higher profits per dollar lent.</p>
<h2>It could be phased in over 10 years…</h2>
<p>We propose phasing in the cashflow tax over 10 years – cutting company tax and lifting the cash flow tax by 3% per year.</p>
<p>Businesses that wanted to could make an irrevocable choice at any time to switch earlier.</p>
<p>Companies with big new capital investment plans would be likely to take the option of an early switch in order to immediately write off their expenses, while those paying interest on large accumulated debts would be likely to switch later.</p>
<h2>…eventually raising an extra A$24 billion per year</h2>
<p>Our modelling suggests that if the switch was phased in, the government would take in an extra <a href="http://www.industrysuperaustralia.com/assets/Reports/V.-2-181205-Cash-flow-tax-ISA.pdf">A$24 billion per year</a> when the transition was complete.</p>
<p>Most of the extra income would come from firms finding there were no longer tax advantages in shifting profits offshore.</p>
<p>If irrevocable switches were allowed, the government could take in up to an extra A$39 billion per year.</p>
<p>These estimates are likely to be conservative: they take no account of the additional capital expenditure that a cashflow tax would stimulate, or of the efficiency gains from replacing the heavily distorting corporate income tax with a non-distorting cashflow tax.</p>
<h2>And securing the revenue base</h2>
<p>While the Tax Office has been more active recently in clamping down on corporate tax avoidance, Australia’s anti-avoidance measures been <a href="https://www.theguardian.com/australia-news/2018/dec/16/tax-office-suggests-labor-bills-were-essential-to-bhps-500m-settlement">ad hoc rather than systemic</a>.</p>
<p>Global digital corporations are adept at using technology fees, management fees and puffed up interest rates for loans to inflate the tax-deductible expenses of their affiliates while declaring the income from those payments in tax havens.</p>
<p>Our proposal would disallow those deductions while allowing immediate total deductions for spending in Australia. Tax obligations wouldn’t be avoided, merely transferred to the Australian entity that provided the goods or services.</p>
<h2>Early feedback</h2>
<p>Our proposal was presented to a group of economists for feedback and reactions at the <a href="https://www.melbourneeconomicforum.com.au/forums/cash-flow-tax-proposal-special-forum">Melbourne Economic Forum</a> on December 10.</p>
<p>They discussed the risk that multinational corporations such as digital companies and global fast-food chains would pull out of Australia if their opportunities for profit shifting to tax havens were closed down.</p>
<p>The general view was that they would stay in Australia because they could still earn rents (profits in excess of those necessary to encourage investment) from their Australian operations. The difference is that these rents would no longer be sheltered from Australian taxation. The Tax Office is already <a href="https://www.theguardian.com/australia-news/2018/dec/16/tax-office-suggests-labor-bills-were-essential-to-bhps-500m-settlement">challenging the use of marketing hubs used by resource companies</a>, which the cashflow tax would do in a more systematic way.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/these-private-companies-pay-less-tax-than-we-do-but-reasons-remain-unclear-56680">These private companies pay less tax than we do – but reasons remain unclear</a>
</strong>
</em>
</p>
<hr>
<p>The Forum also discussed the need to draw clear boundaries between financial institutions and other companies, to prevent those companies claiming interest deductions as if they were financial institutions.</p>
<p>Further design features requiring consideration include the treatment of unincorporated businesses and dividend imputation.</p>
<hr>
<p><em>We prepared the cashflow tax proposal with Stephen Anthony, chief economist, Industry Super Australia.</em></p><img src="https://counter.theconversation.com/content/108347/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Garnaut is President of SIMEC ZEN Energy, which has plans for large investments in renewable energy which would benefit from the shift to a cash flow tax. He first published on the themes of the Melbourne Economic Forum paper 42 years before accepting this position.</span></em></p><p class="fine-print"><em><span>Craig Emerson consults to various listed companies that could benefit from this proposal, depending on their investment intentions. However, he has been advocating cashflow taxation since 1983 when he completed his PhD dissertation under the supervision of Professor Ross Garnaut. He is a member of the ALP.</span></em></p><p class="fine-print"><em><span>Reuben Finighan is a recipient of PhD scholarships from the John Monash Foundation in Australia and the Leverhulme Trust in the UK. </span></em></p>The budget looks good, for now. But the surge in taxable profits will subside as companies find ways to shift profits offshore. We’ve come up a better way to tax onshore what happens onshore.Ross Garnaut, Professorial Research Fellow in Economics, The University of MelbourneCraig Emerson, Adjunct Professor, College of Business, Victoria UniversityReuben Finighan, Senior Research Officer at The Melbourne Institute and Fellow of the ARC Life Course Centre of Excellence, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/932802018-03-13T06:46:47Z2018-03-13T06:46:47ZViewpoints: could Labor’s tax changes make the system fairer or hurt investors?<p>The Australian Labor party <a href="http://www.abc.net.au/news/2018-03-13/labor-plan-scrap-5-billion-year-shareholder-refund-policy/9541016?section=business">will scrap</a> a system that refunds more than A$5 billion a year to low or zero tax paying investors, should they win government. </p>
<p>“<a href="https://www.investopedia.com/terms/f/frankingcredit.asp">Franking credits</a>” are designed to stop tax being paid twice on Australian corporate profits, allowing shareholders a credit for the tax paid by the company. But when shareholders don’t pay taxes at all they can claim a cash refund for unused credits from the tax office. </p>
<p>Scrapping cash refunds on unused franking credits could make the tax system fairer according to Danielle Wood, Brendan Coates and John Daley from the Grattan Institute. </p>
<p>But according to Gordon Mackenzie from UNSW, these cash refunds incentivise people to invest in Australian companies, and ending them could see super and self-managed super funds, in particular, pulling their investment from local companies. </p>
<p>Labor proposes to abolish cash refunds of unused franking credits for individuals and superannuation funds. Not for profits and universities, which do not pay income tax, will continue to receive cash refunds for franking credits.</p>
<hr>
<h2>A piecemeal move towards a fairer tax system</h2>
<p><strong>Danielle Wood, Brendan Coates and John Daley, Grattan Institute</strong></p>
<p>Labor’s proposal is not comprehensive tax reform. But in the absence of that holy grail, it is a piecemeal move towards a more equitable tax system. The change will primarily affect wealthy retirees. </p>
<p>The wealthiest 20% of retirees own 86% of shares held by older Australians outside of super. And among self-managed superannuation funds (primarily held by wealthier retirees), half of the refunds are currently going to people with balances over A$2.4 million.</p>
<p>Abolishing cash refunds for individuals and superannuation funds will raise about A$5 billion a year in extra revenue. About 33% will be paid by individuals (mostly in high wealth households), 60% will be paid by self-managed superannuation funds (typically held by wealthier retirees), and the remaining 7% will be paid by Australian Prudential Regulation Authority regulated superannuation funds.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=423&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=423&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=423&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=532&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=532&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210191/original/file-20180313-131591-43htj4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=532&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS Survey of Income and Housing 2015-16</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Cash refunds on franking credits were introduced in 2001 for shareholders who had more franking credits than the tax they owed. The theory was that people with no or low income should have the same incentives to invest in Australian companies as other investors. </p>
<p>At the time, the decision cost the budget little – around A$550 million a year – because very few people with low income also owned shares.</p>
<p>But <a href="https://grattan.edu.au/report/super-tax-targeting/">new superannuation rules in 2006</a> relieved retirees from paying any tax on their superannuation withdrawals. Retirees also pay no tax on their super fund earnings. As more people with significant super balances retire, an increasing number qualify for cash refunds on unused franking credits.</p>
<p>And a series of changes to the Seniors and Pensioners Tax Offset <a href="https://grattan.edu.au/report/age-of-entitlement/">increased the proportion</a> of over-65s paying no tax on earnings outside of super.</p>
<p>The cash refund system now costs the federal budget more than A$5 billion a year. But abolishing cash refunds on dividends won’t be costless. </p>
<p>The franking credit regime was set up for a <a href="https://australiancentre.com.au/wp-content/uploads/2016/04/FAF3-Imputation-paper.pdf">variety of good reasons</a>. It aimed to bias Australians towards investing in Australia. In practice this appears to have led to Australian companies being funded more through equity and less through debt, improving financial stability. </p>
<p>In theory it would also lead to more physical investment in Australia, although there is less evidence that this has happened. </p>
<p>In practice, franking credits also encourage Australian companies to pay dividends rather than inefficiently hoard cash or invest in low-return projects.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-the-government-can-pay-for-its-proposed-company-tax-cuts-92739">How the government can pay for its proposed company tax cuts</a>
</strong>
</em>
</p>
<hr>
<p>So abolishing cash refunds, but keeping franking credits for those who do pay income tax, is probably not the ideal policy. It abandons the principle that all company profits should be taxed at an investor’s marginal rate of income tax. And it reduces the incentive for retirees to invest in companies from Australia rather than overseas.</p>
<p>On the other hand, the decisions not to tax superannuation withdrawals and to increase the effective tax-free threshold for older Australians have led to wealthy retirees contributing very little to government revenues relative to younger households. </p>
<p>Even though the wealth of older generations has <a href="https://theconversation.com/three-charts-on-the-great-australian-wealth-gap-84515">jumped in line with asset prices</a>, the share of senior Australians who pay income tax <a href="https://theconversation.com/why-special-tax-breaks-for-seniors-should-go-69034">has nearly halved</a> – from 27% to 16% – in the past two decades. </p>
<p>In an ideal world the federal government would reintroduce a number of higher income and wealthy older Australians to the tax system by taxing superannuation earnings and abolishing age-based tax rates. But in the absence of the political will to make these changes, abolishing cash refunds provides a big boost to the budget bottom line from more or less the same group.</p>
<hr>
<h2>The changes could bring distortions to investors</h2>
<p><strong>Gordon Mackenzie, Senior Lecturer, University of New South Wales</strong></p>
<p>Chasing franking credits is one of the few tax issues that super fund investment managers take into account when investing, and is a significant consideration for self-managed super funds, according to <a href="https://search.informit.com.au/documentSummary;dn=424319838097596;res=IELBUS">my research</a> with Professor Margaret McKerchar. </p>
<p>As the previous authors mention, franking credits are intended as an incentive for certain investors to invest in Australian companies. Under the rules, super funds and self-managed super funds don’t pay tax when they are paying a retirement pension, if the account balance is below a certain level.</p>
<p>Since they pay no tax, it is worthwhile for these funds to invest in Australian companies that will pay franking credits. Doing so allows them to claim credits from the tax office. </p>
<p>But this also means that if cash refunds on franking credits are done away with, it is an implicit 30% tax increase on super and self-managed funds that invest in Australian companies. This creates an incentive for them to put their money elsewhere.</p>
<p>If these funds invest in something like a government bond then they will pay no tax on the profits. If they invest in an Australian company, the company will pay the corporate tax and there will be no way for super funds to claim the tax back. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/tax-reform-aside-theres-no-real-case-to-kill-off-dividend-imputation-49584">Tax reform aside, there's no real case to kill off dividend imputation</a>
</strong>
</em>
</p>
<hr>
<p>Many self-managed super funds have accounts for paying a pension to the member and another account for accumulating funds, but not paying out anything. Self-managed super funds will likely replace Australian shares in their pension accounts with assets such as bonds or managed funds. </p>
<p>This is important, as <a href="https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/Statistics/Quarterly-reports/Self-managed-super-fund-statistical-report---September-2017/?anchor=Assetallocationbyassetvalue#Assetallocationbyassetvalue">data shows</a> that Australian shares are one of the largest asset classes held by self-managed super funds, ranging between 21% and 30.8% of the entire portfolio, depending on the size of the fund. </p>
<p>The response of other types of superannuation funds will probably be more muted. While they do value imputation credits, they also care about diversifying their portfolios - there will still be benefits to holding some Australian shares.</p>
<p>Overall, then, imputation credits are important to superannuation funds, both big and small. The refund not only makes certain types of investment attractive, but also drives how much is invested in that type of investment.</p><img src="https://counter.theconversation.com/content/93280/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities as disclosed on its website.</span></em></p><p class="fine-print"><em><span>Gordon Mackenzie receives funding from CAANZ. </span></em></p>Scrapping cash refunds on dividends could make the tax system fairer. But super funds could invest less in Australian companies.Danielle Wood, Program Director, Budget Policy and Institutions, Grattan InstituteBrendan Coates, Fellow, Grattan InstituteGordon Mackenzie, Senior Lecturer, UNSW SydneyJohn Daley, Chief Executive Officer, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/845892017-09-25T10:29:10Z2017-09-25T10:29:10ZTax base eroded by backdoor deregulation of Australia’s labour market and jump in foreign contract workers<blockquote>
<p>The biggest failure of public administration since the formation of the Commonwealth of Australia in 1900. <strong>– Australian Tax Office insider</strong></p>
<p>The result of having the wrong system where taxes are too high and a labour market which is over-regulated. <strong>– Liberal Party insider</strong></p>
</blockquote>
<p>We are talking about the broad, state-sanctioned, backdoor deregulation of Australia’s labour market, which has gathered pace as employers increasingly sign up foreign workers, not as employees, but as contractors.</p>
<p>It is well documented that billions of dollars a year <a href="https://www.michaelwest.com.au/oligarchs-of-the-treasure-islands/">leak overseas</a> via multinational companies and their aggressive tax schemes.</p>
<p>There is, however, another “tax gap” that is not reported but is of national economic and social importance. That is, to coin a phrase, the ABN gap.</p>
<p>The Australian Tax Office (ATO) set up its Australian Business Register around the turn of the century at the instigation of John Howard’s government as a way to help with the registration of business entities.</p>
<p>It is an efficient system. Anybody wanting an ABN (Australian Business Number) can get one online within a few hours. This includes foreign visitors arriving to work in Australia. </p>
<p>The question is, is it too efficient? And to what extent is it eroding Australia’s tax base and affecting the existing labour market?</p>
<p>One insider at the Tax Office told me businesses were hiring tens of thousands of workers, instructing them to get an ABN, paying them less than the award – an estimated 40% less on average – than they would if they employed unionised labour on PAYG terms. Union sources confirm the rising numbers of foreign workers are <a href="https://www.tradeunionroyalcommission.gov.au/Hearings/Documents/2015/Evidence18June2015/V1-Tab015.pdf">undercutting awards, and the tax take</a>, in agriculture, construction and the meat industry. </p>
<p>By the time a foreign worker, often from China, has worked for two years and not paid tax (it is incumbent on the contractor with the ABN, rather than the employer, to pay income tax), the worker has often returned overseas and the Tax Office is compelled to write off the “tax debt”.</p>
<p>The interesting aspect of all this is the absence of political debate and media coverage. It is fair to say that many on the right would deem the deregulation of the workforce to be a good thing to keep wages competitive for business. But Labor and the Greens? There has been little in the way of outcry from the left. While people on the ground in the union movement are reporting <a href="http://www.smh.com.au/nsw/exploited-chicken-processing-workers-owed-thousands-20140819-105vy2.html">serial abuse of the ABN system</a>, the upper echelons of the Labor Party have not been vocal, despite the undeniable ramp-up of foreign contracted labour.</p>
<p>In the face of budget cuts over the past five years, the Tax Office too has been mute. So how big is this problem? </p>
<p>One source said:</p>
<blockquote>
<p>The ABN system has become a giant hole in the side of the Australian taxation system, allowing billions to escape taxation to the benefit of less ethical employers, criminals and other assorted tax evaders.</p>
</blockquote>
<p>Whether the tax gap from this ABN rort is in the “billions” or $1 billion is hard to tell. The Tax Office doesn’t calculate the number or, if it does, it is not saying. But the figure must be large.</p>
<p>According to the ATO’s deputy registrar of the Australian Business Register, Michelle Crosby, there are about 7.2 million active ABNs. She said: “Over 800,000 of these were cancelled (last year) after we received evidence that the ABN holder was no longer carrying on an enterprise or through an active review of their ABN entitlement.</p>
<p>"The ATO has an extensive review program for areas identified as high-risk. We pay close attention to new ABN registrants in high-risk industries such as building and construction, ABN holders who are on a student, working holiday or expired visa, and ABNs that have previously been cancelled and then reactivated soon after.”</p>
<p>Of the 855,000 ABNs issued in 2016/2017, around 16% were issued to visa-holders.</p>
<p>Crosby said:</p>
<blockquote>
<p>If a visa-holder is carrying on an enterprise in breach of their visa conditions they are still entitled to an ABN. The registrar’s powers to refer these breaches to the Department of Immigration and Border Protection are limited,.</p>
</blockquote>
<p>Since 2013, average annual growth in new ABN registrations ran at around 10% a year, with sole traders consistently accounting for around 60% of registrations.</p>
<p>The size of this market is mind-boggling: there are some 7.2 million active ABNs against a total workforce of 12.2 million. And some 2 million “redundant” ABNs have been removed from the system since 2014/2015, according to Tax Office data.</p>
<iframe id="datawrapper-chart-MU1Xs" src="https://datawrapper.dwcdn.net/MU1Xs/1/" scrolling="no" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" style="width: 0; min-width: 100% !important;" height="511" width="100%"></iframe>
<p>This is not the end of the story. As contractors, ABN holders <a href="https://theconversation.com/being-exploited-and-breaching-your-visa-the-limited-choices-of-the-food-delivery-worker-8258">do not get worker’s compensation, leave and other benefits</a>. They get whatever deal is struck with their employers and that can be $7 an hour.</p>
<p>Superannuation is an interesting aspect. Anecdotal evidence suggests many foreign workers may not even be aware of super entitlements. As the employer collects this super of behalf of the worker, there is a pool of money – who knows how large – that defaults to government in unpaid super.</p>
<p>Of the total Commonwealth tax base of $370 billion, corporate income tax contributes $75 billion versus $200 billion for individuals. So PAYG is the biggest component of the nation’s tax base and that tax base appears to be under threat.</p>
<hr>
<p><em>This column, co-published by The Conversation with <a href="http://www.michaelwest.com.au/">michaelwest.com.au</a>, is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p><img src="https://counter.theconversation.com/content/84589/count.gif" alt="The Conversation" width="1" height="1" />
Workers are getting ABNs and being employed as contractors responsible for their own tax payments. This is undercutting conditions and eroding the most important part of the nation’s tax base.Michael West, Adjunct Associate Professor, School of Social and Political Sciences, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/733412017-02-22T19:19:00Z2017-02-22T19:19:00ZPush for longer hours makes headlines, but more Australians want to work less<figure><img src="https://images.theconversation.com/files/157833/original/image-20170222-1364-gf3vud.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Despite the prominence given to underemployment, 'overemployment' is more pervasive in Australia.</span> <span class="attribution"><span class="source">AAP/Julian Smith</span></span></figcaption></figure><p>The Australian Tax Office (ATO) <a href="http://www.abc.net.au/news/2017-02-20/ato-admit-working-hours-are-below-community-standards/8284384">abandoned plans</a> requiring its staff to work 37.5 hours per week following an employee backlash. This would have been an increase of 45 minutes per week, or nine minutes per day, over what’s currently required.</p>
<p>At face value the notion that ATO workers in full-time positions should be expected to work a minimum of 37.5 hours per week seems entirely reasonable. But arguably a more interesting question is just how close this award standard is to the hours Australian workers actually devote to paid employment.</p>
<h2>What’s the norm?</h2>
<p>While a 37.5-hour work week is the norm in industry awards and agreements, most employed Australians typically work shorter or longer hours. Only a minority of Australians actually report working 37.5 hours per week. This is reflected in data the Australian Bureau of Statistics (ABS) collects from households as part of its monthly <a href="http://www.abs.gov.au/AUSSTATS/ABS@Archive.nsf/log?openagent&6291010.xls&6291.0.55.001&Time%20Series%20Spreadsheet&AA3CDBE574CC1B32CA2580B1001ED44E&0&Dec%202016&24.01.2017&Latest">Labour Force Survey</a>.</p>
<p>In the public service a 36.75-hour work week, as currently applies to ATO staff, is relatively unusual – 37.5 hours is more common.</p>
<p><a href="http://www.abs.gov.au/AUSSTATS/subscriber.nsf/log?openagent&63060do014_201605.xls&6306.0&Data%20Cubes&A7D63B1F6A5C2AFDCA2580AC001377CA&0&May%202016&19.01.2017&Latest">Data collected</a> from employers by the ABS indicate that, in May 2016, the average weekly hours of ordinary-time work (that is, not including overtime) for full-time non-managerial adult employees on award rates of pay was 37.4 hours.</p>
<p>This number rises to 37.8 hours for those on enterprise agreements, and to 38.5 for those whose pay is determined by individual agreements.</p>
<h2>There’s wide diversity</h2>
<p>A great many Australians are employed in part-time jobs. <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.001Dec%202016?OpenDocument">According to the ABS</a>, about 19% of men and 48% of women in paid employment report usually working less than 35 hours per week.</p>
<p>At the other end of the spectrum, a considerable proportion work long hours each week. Around 30% of employed men and 11% of employed women report usual working hours of 45 or more each week.</p>
<iframe src="https://datawrapper.dwcdn.net/TXO0x/3/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<iframe src="https://datawrapper.dwcdn.net/Aj3PH/2/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<p>The available evidence also suggests this diversity in working hours is more marked in Australia than in any other industrial nation. <a href="http://stats.oecd.org/">OECD data</a> suggests that the part-time employment share in Australia in 2015 was the third-highest among the 34 OECD member countries. </p>
<p>And, after adjusting for differences in definitions – in other countries part-time employment is based on hours worked in the main job, whereas in Australia it is based on hours worked in all jobs – Australia would almost certainly move to second, exceeded only by the Netherlands. </p>
<p>At the same time, Australia ranks ninth among OECD nations for its share of long-hours workers. This is defined as employees reporting that they usually work more than 50 hours each week.</p>
<h2>How many hours do Australians want to work?</h2>
<p>The long-term trend in average working hours, however, is downwards. While this trend was halted, if not reversed, in the 1980s and 1990s, the downward path was resumed in the 2000s. Mean usual weekly hours of work <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.001Dec%202016?OpenDocument">fell from</a> 36.9 in 2002 to 35.7 in 2016.</p>
<p>This has been driven by both continued growth in the share of part-time employment and a decline in the share of people working long hours. Very little if any of this decrease is due to any decline in agreed full-time ordinary hours of work.</p>
<p>Another important feature of working time is the extent to which hours worked are consistent with worker preferences. In recent years, for example, underemployment has increased. Underemployed workers, as measured by the ABS, <a href="http://www.abs.gov.au/ausstats/meisubs.NSF/log?openagent&6202022.xls&6202.0&Time%20Series%20Spreadsheet&6A4F6FC040B95DE3CA2580C80013FEB2&0&Jan%202017&16.02.2017&Latest">now represent</a> about 9% of all employed workers, compared to less than 3% in the late 1970s.</p>
<p>Similarly, concerns have long been expressed about the potential adverse consequences of the encroachment of work time on family and personal time.</p>
<p>According to data collected in 2015 in the <a href="http://www.melbourneinstitute.com/hilda/default.html">HILDA Survey</a>, about 16% of all employed persons would prefer to work more hours each week and about 26% would prefer to work fewer hours. As expected, the proportion seeking more hours is highest among the part-time employed (about 33%), while the proportion seeking fewer hours is highest among long-hours workers (about 50% of those reporting working 45 hours or more per week). </p>
<p>Thus, despite the prominence given to underemployment, “overemployment” is more pervasive in Australia.</p>
<p>But not all of those seeking more hours desire full-time work, nor do all of those seeking fewer hours desire a job offering that would traditionally be described as standard hours – a 35-to-40-hour work week. </p>
<p>The proportion of the employed workforce that prefers different working hours (either more or less) in the range of 35 to 40 is just 15%. </p>
<p>While the working hours of many Australians are not in line with their preferences, the proportion of workers who both prefer more or less hours and prefer a standard work week is not large. The Australian labour market thus appears to do a relatively good job of accommodating the preferences of the majority of workers.</p><img src="https://counter.theconversation.com/content/73341/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Wooden is Director of the HILDA Survey, which is funded by the Australian Government of Social Services. He is also a recipient of Australian Research Council funding. </span></em></p>Australia’s labour market does a relatively good job of accommodating the preferences of the majority of workers. But that’s not to say there’s no-one who wouldn’t prefer to work more – or less.Mark Wooden, Professorial Fellow, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/726662017-02-15T19:09:19Z2017-02-15T19:09:19ZAfter all the talk, what is the Turnbull government actually doing for small business?<figure><img src="https://images.theconversation.com/files/156498/original/image-20170213-23342-17ss52x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Scott Morrison is continuing to make the case for the government's company tax cut plan to be passed.</span> <span class="attribution"><span class="source">AAP/Mick Tsikas</span></span></figcaption></figure><p>Treasurer Scott Morrison <a href="http://www.theaustralian.com.au/national-affairs/listen-to-the-rba-on-tax-morrison-urges-crossbench/news-story/5f9a0e52d4f18c2bde4c82a66ff86ae7">continues to warn</a> about the decline of Australia’s global competitiveness if the centrepiece of the 2016–17 federal budget – a company tax rate cut – is not passed.</p>
<p>However, such tax cuts are not necessarily the best approach for the government to support small business. They need other – more immediate – forms of support, <a href="https://www.qld.gov.au/dsiti/assets/documents/qld-business-innovation-report-2014.pdf">our research shows</a>.</p>
<h2>What’s being proposed?</h2>
<p>The <a href="http://www.budget.gov.au/2016-17/content/glossies/jobs-growth/downloads/FS/Small_Business.pdf">2016-17 budget</a> reflected the Turnbull government’s catchphrase of “jobs and growth”. From a small-business perspective, the budget wanted to: </p>
<blockquote>
<p>… boost new investment, create and support jobs and increase real wages, starting with tax cuts for small and medium-sized enterprises, that will permanently increase the size of the economy by just over 1% in the long term.</p>
</blockquote>
<p>In 2014, Australia had the <a href="https://theconversation.com/factcheck-is-australias-corporate-tax-rate-not-competitive-with-the-rest-of-the-region-37226">fifth-highest company tax rate</a> among OECD countries, albeit average in the Asia-Pacific region. Local investors benefit from lower taxes on dividends through Australia’s dividend imputation system, which passes credits onto them for corporate taxes already paid.</p>
<p>The Abbott government later succeeded in <a href="http://www.abc.net.au/news/2015-05-13/budget-2015-small-business-tax-break-explained/6466066">lowering the tax rate</a> for small businesses with a turnover of less than A$2 million from 30% to 28.5%. The Turnbull government’s plan would eventually reduce the rate for all companies to 25% by 2026-27. It’s a phased implementation over the next ten years, starting with an immediate cut for small companies to 27.5%.</p>
<p>However, 70% of small businesses are <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr5684_ems_42c172ff-6eb3-49d0-b310-7c6016682033%22">unincorporated</a>. This means their owners add profits to their personal income for tax purposes. While the government has promised an increase in their tax offset percentage, it plans to retain the cap of A$1,000.</p>
<p>All small businesses will benefit from the simplification of tax rules for stock, GST and depreciation. But the government’s plan introduces three levels of concessions for small businesses. This complicates the definition of what these small businesses are.</p>
<h2>Definition disputes</h2>
<p>Defining small business goes beyond an academic debate.</p>
<p>With little consensus on typical turnover numbers – these <a href="http://asic.gov.au/for-business/your-business/small-business/small-business-overview/small-business-what-is-small-business/">range</a> from A$2 million to A$25 million – a better indicator could be the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/8165.0Main%20Features1Jun%202011%20to%20Jun%202015?opendocument&tabname=Summary&prodno=8165.0&issue=Jun%202011%20to%20Jun%202015&num=&view">Australian Bureau of Statistics</a> definition of small businesses as those with fewer than 20 employees. And 97% of the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/8165.0Main%20Features1Jun%202011%20to%20Jun%202015?opendocument&tabname=Summary&prodno=8165.0&issue=Jun%202011%20to%20Jun%202015&num=&view">2.1 million businesses trading in Australia</a> fit this definition.</p>
<p>It is risky, though, to simplify the definition into one blunt instrument that ignores differences in industry, life cycle and high-volume versus high-worth sales. A more nuanced approach is needed to ensure relief for the businesses that need it most.</p>
<p>However, the major political parties seemingly remain focused on turnover as a measure of what is and isn’t a small business. The government’s <a href="http://www.budget.gov.au/2016-17/content/glossies/jobs-growth/downloads/FS/Small_Business.pdf">plan</a> extends the upper limit for the turnover of small businesses to A$10 million by 2016–17, which covers some of the 3% of Australia’s non-small businesses.</p>
<p>Meanwhile, Labor <a href="http://www.alp.org.au/bill_shorten_budget_reply_2016">has argued for</a> immediate support for tax cuts to small businesses with a turnover of less than A$2 million.</p>
<p>Lifting the turnover threshold for all small businesses from A$2 million to A$10 million in the short term will increase the number of businesses that can access some tax concessions by 90,000. And it may improve economic growth as larger firms <a href="https://theconversation.com/is-small-business-really-the-engine-room-of-australias-economy-60447">receive some relief</a>.</p>
<h2>What small businesses actually need</h2>
<p>Small businesses need immediate and certain tax relief in the short term. They struggle with an uncertain business environment. </p>
<p>But, in the longer term, <a href="https://www.qld.gov.au/dsiti/assets/documents/qld-business-innovation-report-2014.pdf">our research</a> shows increased competition, a lack of market demand and red tape are but a few of the issues small businesses deal with. They highlighted statutory and regulatory compliance, as well as tax planning and compliance, as major issues for them. </p>
<p>More than tax rates, complex tax requirements and regulations are issues causing small businesses substantial distress. The <a href="https://www.ato.gov.au/uploadedFiles/Content/CR/downloads/SMEPS%2013108_Main%20Report%2021_10_13_FINAL.pdf">Australian Tax Office’s research</a> supports this: more than 70% of surveyed clients viewed their tax affairs as complex. And the World Bank’s <a href="http://www.doingbusiness.org/rankings">ease of doing business</a> index ranks Australia 25th in terms of ease of paying taxes.</p>
<p>The immediate tax relief for small businesses is tied up in proposed legislation surrounding the government’s ten-year tax plan, which is unlikely to find enough support to pass the parliament in its current form. The uncertainty and complexity that have ensued from the political conflict over tax have negative effects on the small business landscape.</p>
<p>Innovation is likely to suffer under such uncertain conditions. The government’s <a href="http://www.budget.gov.au/2016-17/content/glossies/jobs-growth/downloads/FS/Small_Business.pdf">plan</a> recognises that: </p>
<blockquote>
<p>Small businesses are the home of Australian enterprise and opportunity and they are where many big ideas begin.</p>
</blockquote>
<p>In addition to ideas and passion, small businesses need resource availability, appropriate capabilities and market access to innovate. The plan proposes measures that satisfy some of these criteria, but more focus on finding ways to minimise bureaucracy to provide time to focus on innovation is needed. </p>
<p>The role of government is undeniable in such initiatives. Even if one argues that tax relief is a temporary reprieve, this cash injection can jump-start small business innovation and growth. </p>
<p>Should the two major parties fail to find common ground on the government’s company tax cut, the stalemate will continue – and leave small businesses in the lurch.</p><img src="https://counter.theconversation.com/content/72666/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martie-Louise Verreynne receives funding from the ARC.</span></em></p><p class="fine-print"><em><span>Thea Voogt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The volatile political debate between the two major parties about the long-term vision for tax has left small businesses in the lurch.Martie-Louise Verreynne, Associate Professor in Innovation, The University of QueenslandThea Voogt, Lecturer in Tax Law, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/334622014-11-05T05:31:04Z2014-11-05T05:31:04ZTax haven crackdown still to deliver missing billions<figure><img src="https://images.theconversation.com/files/63687/original/4jbxgw6j-1415160177.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Oxfam estimates that at least A$21 trillion is hidden in tax havens.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Tax avoidance, or the use of legal arrangements to reduce tax, is rife. According to the Australian Tax Office (ATO), Australian companies in 2012 sent almost <a href="http://www.smh.com.au/business/singapore-ireland-top-havens-for-multinational-tax-dodgers-20140430-37hzi.html">A$60 billion</a> to related parties in tax havens. Singapore and Ireland topped the list of countries where businesses send their money.</p>
<p>A recent <a href="http://www.unitedvoice.org.au/news/who-pays-our-common-wealth">report</a> by the Tax Justice Network and United Voice shows “the effective tax rate of ASX 200 companies over the last decade is 23%, below the statutory rate of 30%”. </p>
<p>The report says that of the top 200 ASX companies, nearly one third have an average effective tax rate of 10% or less. </p>
<p>This low effective tax rate is achieved due to tax avoidance. For example, according to the Tax Justice Network, 57% of the top 200 ASX-listed companies have subsidiaries in tax havens. </p>
<p>However, low effective corporate tax rates are also achieved because of the legitimate use by business of loopholes within our tax laws. Business tax concessions result in the government forgoing around A$20 billion in revenue. </p>
<p>Labor had planned to repeal tax laws allowing businesses to deduct interest against non-taxable income in some circumstances. These provisions contravene basic tax principles and form a key part of some tax avoidance arrangements. However, Treasurer Joe Hockey dumped the proposed change while the <a href="http://bca.com.au/newsroom/clearing-the-tax-backlog-a-boost-for-business-certainty">Business Council of Australia</a> applauded the move.</p>
<p>It is on Hockey’s watch too that former KPMG tax partner and current Commissioner of Taxation Chris Jordan has cut the number of ATO staff by about 12% or 3000 people. There are plans to cut staff numbers by another 2000 people over the next few years. </p>
<p>This will eventually save the government up to $400 million a year. However, on my conservative estimates of a one-to-five ratio between ATO expenditure and revenue collected at the margins, these staff cuts will reduce revenue collection by A$2 billion. </p>
<h2>Action again tax avoidance</h2>
<p>Perhaps to counter the impression the ATO isn’t doing that much about tax avoidance, it recently <a href="http://www.afr.com/p/national/tax_structures_of_the_rich_under_qoR8tDWuF3XfhJZuI0eNb">announced</a> that some individuals with a net worth of more than A$30 million will receive letters this month asking for details about their tax structures. However, these letters are not the same as audits. Rather they are a simple request for further information and can be ignored.</p>
<p>These letters are just another step by the ATO to collect more offshore tax from the wealthy. First there was <a href="https://www.ato.gov.au/General/The-fight-against-tax-crime/In-detail/Tax-crime/Project-Wickenby/?page=2">Project Wickenby</a>, then the tax amnesty of <a href="https://www.ato.gov.au/General/Correct-a-mistake-or-dispute-a-decision/In-detail/Project-DO-IT/Project-DO-IT/">Project Do It</a>, which is set to finish in December. Now there is also the <a href="https://www.ato.gov.au/General/New-legislation/In-detail/Other-topics/International/Revised-treaty-between-Australia-and-Switzerland/">new tax treaty</a> and information exchanges with Switzerland. Yet even if all these projects do result in more tax being collected, it hardly spells the end of tax havens.</p>
<p>Oxfam estimates that at least <a href="http://www.oxfam.org/en/pressroom/pressreleases/2013-05-22/tax-private-billions-now-stashed-away-havens-enough-end-extreme">A$21 trillion is hidden in tax havens globally</a>. To date the current ATO amnesty has brought in just <a href="http://www.afr.com/p/national/tax_structures_of_the_rich_under_qoR8tDWuF3XfhJZuI0eNbP">A$1 billion in assets, and about A$180 million in income</a>. </p>
<p>A <a href="https://www.g20.org/g20_priorities/g20_2014_agenda/strengthening_tax_systems">G20 priority</a> this year is to take a global coordinated approach to tax avoidance. The OECD has also set out its <a href="http://www.oecd.org/ctp/BEPSActionPlan.pdf">Action Plan</a> on base erosion and profit shifting. </p>
<h2>Challenges to a global crackdown on tax havens</h2>
<p>Yet there are pressures within the United States and United Kingdom from big business against any change. Countries like Singapore and Ireland, which have benefited from favourable international tax arrangements in a digital world, are also likely to resist change. </p>
<p>Digital companies challenge the old ways of thinking about tax and sovereignty and attempts to address this to date have shown little real progress. As the internationalisation of Australia’s economy and globalisation of production continues, the opportunity for cross-border use of differing tax rules will increase.</p>
<p>International cooperation and exchange of information will not fix this. The relations between states are anarchic and the business drive to avoid tax is systemic. </p>
<p>For example, Google chairman Eric Schmidt <a href="http://www.smh.com.au/business/world-business/google-on-tax-schemes--its-called-capitalism-20121213-2batw.html">defended</a> his company’s tax avoidance activities around the globe. “We are proudly capitalistic. I’m not confused about this,” he said.</p>
<p>These activities have resulted in Google funnelling almost US$10 billion into Bermuda, saving US$2 billion in taxes. Schmidt says the company will not turn down big tax savings. </p>
<p>This is the key to tax avoidance. Competition forces business to seek legal and sometimes not-so-legal ways to reduce tax. If one company is doing it, all of its competitors will be forced to cut their costs too and one way is through tax avoidance.</p>
<p>Company tax avoidance is not a failing of capitalism: it is one of its logical expressions. It is up to citizens to push governments to really tax big business.</p><img src="https://counter.theconversation.com/content/33462/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Passant's wife works for the ATO. He has not discussed these issues with her.</span></em></p>Tax avoidance, or the use of legal arrangements to reduce tax, is rife. According to the Australian Tax Office (ATO), Australian companies in 2012 sent almost A$60 billion to related parties in tax havens…John Passant, Tutor, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/113382012-12-18T03:24:24Z2012-12-18T03:24:24ZShould Australians follow the British lead and boycott tax avoiders?<figure><img src="https://images.theconversation.com/files/18766/original/59qj5thh-1355716371.jpg?ixlib=rb-1.1.0&rect=14%2C14%2C971%2C588&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Starbucks promised to pay more tax after a consumer boycott: Australians would be appalled at how little tax some transnational companies here pay.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>In the UK the recent boycott of Starbucks by consumers has helped elicit a pledge from the coffee giant to pay £20 million in taxes over the next two years. In Australia, consumers would be appalled to realise how little tax is paid by some of the transnational corporations operating here. Australian consumers have the financial clout to moderate corporate behaviour and they should use it.</p>
<p>If Australian consumers were made aware of which corporations were paying little or no tax here, they could choose which firms’ goods and services they should buy. The Australian Tax Office could publish a list of corporations and the tax they pay. The consumers could then make an informed choice about which companies to support. The Australian Tax Office has high standards of privacy and publishing information such as I suggest is not a thing they have done before. </p>
<p>However, if the list were confined to publicly listed companies, I see no problem with privacy. These companies must submit their financial statements to audits and must release them to the public. All the Tax Office would be doing is to take a couple of lines from the financial accounts - that is, the turnover, the profit and the tax paid - and publish.</p>
<p>Transnational corporations have the ability to move profits around the globe at will, and so, make managerial decisions as to where profits will be declared and how much tax will be paid. </p>
<p>I am not suggesting that transnational corporations are engaging in tax evasion. Tax evasion is illegal and involves cheating tax by not declaring income or overstating deductions. Tax avoidance on the other hand is the legal exploitation of tax loopholes in order to minimise tax.</p>
<p>Unsurprisingly, the corporations aim to minimise their taxes. They have a duty to shareholders, after all, to maximise profits. The way companies move profits is by using “transfer pricing”. </p>
<p>Transfer pricing is a way of moving costs and income between companies in a group of companies to ensure that profits get declared in low taxing jurisdictions and little or no profits are declared in high taxing jurisdictions. The transfer pricing industry has been so successful that now, arguably, they are threatening the viability of nations to operate. </p>
<p>The global financial crisis and the problems in Greece are, at least partially arguably, due to corporate tax minimisation. (This is not to ignore the high rates of Greek public spending.) In 2000 the former International Monetary Fund tax policy chief, Vito Tanzi, warned that “the fiscal house of nation states was being undermined by ‘fiscal termites’ busily gnawing at the foundations of the tax systems”.</p>
<p>In the UK, anti-poverty campaigner Richard Murphy who writes the <a href="http://www.taxresearch.org.uk/Blog/">Tax Research UK</a> blog estimates the government is owed £120 billion more than was actually paid. According to the Guardian, this represents the entire UK health budget. The situation in Australia would not be very much different than in the UK. What this means is our governments - under pressure to deliver their promised budget surplus - don’t have the funds they need to provide the services that we expect.</p>
<p>Starbucks agreed to pay more taxes in the UK as a direct response to the bad publicity the consumer boycott was generating. But the fact that Starbucks volunteered to pay more tax is also compelling evidence that taxes are considered merely another expense to manage. </p>
<p>Taxes are not an expense, they are an obligation to the nation that provides the taxpayer with a healthy, educated workforce, roads, ports, power, broadband and all the other infrastructure necessary to support a healthy economy. </p>
<p>The Australian Tax Office is proposing to rewrite the rules which govern transfer pricing. The ATO had lost a couple of high profile court cases in trying to apply the current transfer pricing rules. In response they are trying to strengthen those rules dealing with related parties and find appropriate “arms length prices” for dealings between those related parties. </p>
<p>However, the corporations pay enormous fees to the best tax advisers money can buy in order to legally avoid the rules and I don’t see that any tinkering with the rules will change this. </p>
<p>One way to change the corporate culture of tax minimisation is to threaten the profits. One way to threaten the corporate profits is by informed consumer boycotts.
Consumer boycotts have worked in the UK and Australian companies are just as protective of their profits as are companies in the UK. </p>
<p>Even though consumer boycotts can only be applied to companies supplying consumer goods, other companies, such as mining companies, will be impacted by public opprobrium. If companies are named, and the consumer culture finds tax avoidance unacceptable, all companies will be impacted. </p>
<p>When Australian mining companies recently lobbied against the imposition of a mining tax, they garnered widespread popular support for their cause. If the general public believed that those same mining companies were not paying their fair share of company tax, would they have been able to garner the same level of support against another type of tax?</p>
<p>The most important impact of consumer boycotts will be to put corporate Australia on notice that tax minimisation is not acceptable, economically or by society.</p><img src="https://counter.theconversation.com/content/11338/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elfriede Sangkuhl does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the UK the recent boycott of Starbucks by consumers has helped elicit a pledge from the coffee giant to pay £20 million in taxes over the next two years. In Australia, consumers would be appalled to…Elfriede Sangkuhl, Lecturer, School of Law, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.