The great tax hypocrisy – Part II

There is a theoretical social contract in place between the people and the government, which enables civilised society to function, and prosper.

The social contract is a complex concept.

Many brilliant philosophers grappled with it over the centuries, and proffered their understanding of what it means.

At the risk of oversimplifying, in a modern liberal democratic context, that social contract is underpinned by the rule of law, equality before the law, and social justice.

If those underlying values are not upheld, one can’t but question the value of the social contract to the individual.

“They say that to do injustice is, by nature, good; to suffer injustice, evil, but that the evil is greater than the good. And so when men have both done and suffered injustice and have had experience of both, not being able to avoid the one and obtain the other, they think that they had better agree among themselves to have neither; hence there arise laws and mutual covenants, and that which is ordained by law is termed by them lawful and just. This they affirm to be the origin and nature of justice, it is a mean or compromise, between the best of all, which is to do injustice and not be punished, and the worst of all, which is to suffer injustice without the power of retaliation, and justice, being at a middle point between the two, is tolerated not as a good, but as the lesser evil, and honored by reason of the inability of me to do injustice. For no man who is worthy to be called a man would ever submit to such an agreement if he were able to resist; he would be mad if he did.”
The Republic, Book II, Plato

In the past I raised serious questions about proposed changes to taxation in Australia, particularly, proposals to raise the GST to help the government solve its ‘revenue problem’. I also questioned budget priorities that couldn’t afford a decent paid parental leave scheme, but finds billions for fossil fuel subsidies.

I won’t even mention governments’, including our own, utter failure to address climate change in a substantive way, and ignoring this clear and present danger to the habitability of Earth for decades now …

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The recent mid-year budget handed down by the Turnbull government raises serious question again about the status of the social contract in Australia, especially in the context of a recent release by the Australian Taxation Office (ATO).

The Mid-Year Economic and Fiscal Outlook was released this week by the government for 2015-16. It did not paint a pretty picture of Australia’s fiscal position. Arguably that position is the result of failed fiscal and taxation policies spanning at least two decades, implicating both Labor and Liberal governments in fiscal mismanagement meeting political incompetence.

And you can’t characterise a budget deficit blow out of $26 billion over four years since May this year anything less than fiscal mismanagement meeting political incompetence.

Our governments have been on notice for well over a decade that their continued reliance on a resources economy was not just unsustainable, but a direct threat to the nation’s future. Even as signals from China, and around the world, clearly indicated an increasingly serious intention to reduce reliance on coal, and other fossil fuels, and a move towards clean, renewable energy sources, our tone-deaf ex-Prime Minister refused to set aside his coal and mining-centric economic delusions.

As usual, the first casualties of the resulting budget cuts were health, education, welfare, aged care and the arts, facing combined cuts of close to $4 billion.

And of course there was the obligatory announcement of a crackdown on ‘welfare cheats’ …

Conversely, counter-terror measures and border protection received millions in further funding, and billions in fossil fuel subsidies remain untouched.

Two days after the announcement of the budget, and the resulting latest round of cuts, the ATO released data on tax payments by Australian corporations for the 2014 fiscal year, showing that while 1,539 large corporates had a combined turnover of $1.6 trillion, they produced only $169.9 billion in profit, and went on to pay $39.9 billion in corporate tax. That amount fell far short of the tax revenue that should have been derived from corporate Australia, by at least $11 billion, based on the 30% corporate tax rate, and presuming that profits are not underreported.

To put that $11 billion figure into context, it represents just over a third of the amount a 5% increase in the GST would raise in additional government revenue.

It would appear we have scores of companies in Australia that don’t know how to make a profit and don’t pay any tax, or pay so little it’s practically embarrassing. In fact 38% of the companies listed in the ATO’s tax transparency report paid … no tax.

Of course, as Commissioner of Taxation, Chris Jordan pointed out, companies not paying any, or paying negligible, tax is not a sign of illegal tax avoidance. It’s usually a sign of companies taking advantage of laws that allow them to legitimately reduce their tax obligations in Australia.

“No tax paid does not necessarily mean tax avoidance. Any companies with unusual financial or taxation numbers are closely investigated by the ATO. Over half of these 1500 companies have been subject to ATO review or audit over the past three years, with the ATO’s risk and intelligence systems working all the time to ensure that we can all have confidence in the tax system.”
Chris Jordan, Commissioner of Taxation

Even though billions are lost through these ‘tax loopholes’, and despite an ongoing budget crisis, addressing corporate tax loopholes are not on the government’s agenda.

Cutting health, education, welfare, aged care and the arts is, which reminds me of this Not The 9 O’Clock News conservative budget sketch …

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