It's the poor wot gets the blame

Centrelink Rorters versus Non Tax Paying Rich People.

The rich are winning by a mile...make that billions.

When I was a  student at Graylands Teachers College in the mid 1950s I enjoyed many camps at beautiful Point Peron. A song that we students sang lustily and with deep emotion at those camps was an old Cockney Music Hall classic, "Ain't it all a bloomin' shame." My mind grows dim but I fancy the last rousing chorus went something like this:

"It's the same the 'ole world over,

It's the poo-ah wot gets the blame.

It's the rich wot lives in clover,

Ain't it all a bloomin' shame."

It seems that nearly sixty years later nothing has changed. Recently, the West Australian newspaper published what it called the state’s Rich List. Over our morning coffee we learnt how many millions or billions some of our wealthiest citizens have acquired. Very enlightening.

Perhaps it would be even more enlightening for us to read about our state's Highest Tax Payers. It is possible that many of those on the Rich List would be nowhere to be seen on the Highest Taxpayer List. For the sad truth is that many of our richest people and corporations pay little or no income tax whatsoever.

Politicians and the media are generally quite outspoken about the perceived rorts being perpetrated by those in receipt of Centrelink welfare payments. Unemployed people on the dole are invariably referred to in the media as job snobs, dole bludgers and disability pension rorters.

 Our current Minister for Employment, The Honourable Eric Abetz, seems quite convinced that the unemployed are either malingering or not trying hard enough to find employment. Earlier this year, Mr Abetz announced that unemployed people would not receive any dole money until they had been unemployed for six months. He added that in order to get the dole, unemployed people would need to apply for forty jobs per month. That means applying for two jobs every working day. After a large public outcry Mt Abetz reduced this requirement to twenty job applications per month, or one per working day. 

As reported in The Australian newspaper at the time, Abetz also mooted the need for unemployed people to report to job agencies if they wanted to retain their benefits. A “reasonable excuse” would not now be acceptable. Only “extreme excuses” would be acceptable, like a bushfire or the very recent death of an immediate family member. Being mentally ill would not be an acceptable excuse, the Australian reported. Being assaulted was acceptable, but only if it happened within 24 hours of the appointment.

The fact is that unemployment in Australia is an unwanted and unhappy state that most employees have no control over. Most of those currently on the dole have worked before and will work again. The official jobless figure at present is around 800 000. Total job vacancies in August this year were 150 000. It doesn’t matter how hard you try or how often you apply, no one can overcome that mathematical imbalance between those seeking work and the number of jobs available.

Similarly, Centrelink’s official figures do not support the charge that their clients are all job snobs, bludgers and cheats. Between 2006 and 2010, Centrelink conducted 4 000 000 reviews in each of those years, covering 60% of its clients. As a result of this extensive investigation into people’s personal circumstances there were, on average, 3192 people referred for prosecution. That represents 0.04%. In 2012 the figure was less than 1500. So, yes, there are some rorters, but a very small percentage.

On the other hand  a great many rich people and highly profitable corporations have made an art form of rorting the income tax system. They are very rich people living in clover alright. These “Fat Cats” have been aided and abetted by the Federal government, which has sacked Australian Tax office workers,severely cut the ATO budget and closed down whole departments in order to save money. Upon taking office in 2013, Treasurer Joe Hockey, proposed laying off 4700 ATO staff over four years. He said this was part of his deficit reduction plan. He never thought to reduce the deficit by hitting the rich with higher taxes. Obviously, Joe knows that a lot of rich people don't pay any taxes.

Australian writer and broadcaster, Richard Cooke, in a recent article in The Monthly Magazine, said that Hockey’s explanation for running down the Australian Tax office was baffling. “Cutting funds to the tax collection arm of government may be the single most inefficient form of austerity there is - each dollar spent on enforcement brings around six in additional revenue.”

Richard Cooke also quoted American economist and Nobel Laureate, Joseph Stiglitz, who bluntly stated, “They are trying to give a free ride to rich people.”

Roman Lamis, a senior lecturer, and Ross McClure, a Ph.D. student, are two accountants at the University of Technology, Sydney. They strongly believe that Mr Hockey and the government are not doing enough to chase down serial tax avoiders. 

In an article in The Conversation magazine on October 2^nd this year, they point out that the recent report commissioned by the Tax Justice Network claimed that over 30% of companies listed on the Australian Stock Exchange have an effective income tax rate of 10% or less. Obviously, unprofitable companies will not pay any tax, but Lamis and McClure assert that some companies “use abnormal debt making devices to carry forward losses which produce future tax benefits.”

The Tax Network Report says that if “the largest Australian listed companies paid taxes at the statutory corporate rate of 30% it would produce an extra $8.4 billion in annual revenue.” However, as Lamis and McClure point out, the government has cut the ATO budget so that it lacks the resources to

*Monitor and audit corporations at risk

*advise government on tax policy issues, and more importantly

*litigate major cases.

They go on to say that the government is thinking of outsourcing the ATO’s tax audit function to private accounting firms. These are the very same accounting firms that are being paid huge amounts of money to advise companies how to avoid paying taxes to the ATO. A bit like asking the burglars to investigate their own robberies.

The Australian Securities and Investment Commission, the supposed watchdog for corporate fraud, has an appalling record in its pursuit of high flying tax avoiders and corporate cheats. During the Global Financial Crisis it did practically nothing. Richard Cooke points out that in the five year period to February, 2014, ASIC prosecuted just 32 insider trading cases. Cooke says, “It boasts failed or non-existent prosecutions in some of the biggest episodes of fraud and collapse in Australia’s corporate history, among them Securancy, Banksia Securities, LM Investment Management, Storm Financial, RAMS and the Australian Wheat Board scandal.”

Most recently, says Cooke, ASIC failed to press charges against former Trio Capital executive, Jack Flader. Flader is the mastermind behind the greatest superannuation fraud in Australia’s history. Trio collapsed in 2009 with its executives creaming $180 million dollars of the top for themselves. The government then paid out $54 million dollars in compensation to the jilted Trio investors. It took ASIC three years to interview Flader before deciding not to prosecute.

ASIC also did virtually nothing when financial advisors with the Commonwealth Bank caused thousands of Australians to lose their entire investments.

Cooke says that Gina Rhinehart’s Hancock Prospecting company failed to lodge its financial reports on time for seven years. If an unemployed person is late reporting they lose their entitlement. As Cooke points out, “With that attitude to filling in forms, Rhinehart could find herself in trouble if ever she is unemployed.”

We do not know how much personal income tax Mrs Rhinehart pays, but Peter Martin, Economics Editor for The Age newspaper, writing in the Sydney Morning Herald on May 13, this year, said that ATO statistics show that “75 ultra-high earning Australians pay NO INCOME TAX at all. Each of them earned more than one million dollars from investments or wages and between them they accumulated $195 million, an average of $2.6 million each. But they paid no tax whatsoever. They paid no Medicare levy, no Medicare surcharge, even though 60 of them had private health insurance.”

Why did these very rich people not pay any tax? The reason , says Martin, is that they all managed to cut their combined taxable incomes to $87.00. That’s a miserly $1.10 each of personal income.

Cutting your income to almost nothing does not come cheaply. Martin says that 45 of these very rich Australians claimed a total of $64.5 million for “the cost of managing their affairs. That is a staggering $1.4 million each.” And it is all tax deductible.

But, Martin points out, it is not only millionaires who avoid tax. He says ATO figures show 1095 Australians earning in excess of $150 000 each, also paid no income tax. However, they did pay an average of $223 000 each for tax avoidance advice, which is of course also tax deductible.

Most of these non-tax payers use Negative Gearing to reduce their tax liability. They lose large sums of money on properties that they rent out at a loss. These losses destroy their taxable incomes so that they pay no tax. Then they sell the property for a very handsome, but lightly taxed, profit.

The biggest corporate rorters of all are the international companies. They transfer funds from one tax haven to another tax haven and pay only minimal tax in the country where they amassed their huge profits. Richard Cooke gives several examples of massive corporate tax avoidance and quotes Joseph Stiglitz who points out that it is government legislation and inaction which enables such tax avoidance to flourish. 

Stiglitz says “there is an asymmetry between corporations taking benefits from the legislation, subsidy and other government actions, and their willingness to contribute.” That is, corporations use government laws and subsidies to make it possible for them to avoid paying any tax.

Stiglitz goes on to say, “You can see it across the board. Apple in the United States, its very existence almost depends on the internet…that was created by the government. The company uses American institutional infrastructure, the legal system, the courts – and it doesn’t pay any taxes.” Cooke points out that Apple now has greater cash reserves than the US government itself.

Cooke refers to the complicated profit shifting arrangements of these non-tax paying international corporations as “The Double Irish Dutch Sandwich” technique. He says Google, for example, earns billions of dollars from advertising in Australia, which are then paid on to a company called Google Ireland Limited which in turn pays them to a Dutch subsidiary which then pays them back to another Irish company. Cooke say, “Google is an Irish company, except when it is in Ireland, where it is a Bermudan company.” As a result, Google pays very little income tax in Australia, where the money was made.

The Chairman of Google, Eric Schmidt, told Bloomberg that he is very pleased with the way his company had set up this elaborate structure to avoid paying Australian income tax. “We did it based on the incentives that the governments have offered us to operate…it’s called capitalism. We are proudly capitalistic. I’m not confused about this.” He isn't confused but many taxpayers are.

Google also noted, quite rightly, that a lot of other upstanding companies pay even less tax than they do. The Tax Justice Network says one third of ASX 200 companies pay less than 10% tax while 575 operate subsidiaries in tax havens so as to minimise their income tax.

The recent G20 had on its agenda a proposal to make corporations pay tax to the country in which the money was acquired. Point 13 of the Final Communique stated in part, “Profits should be taxed where the economic activities deriving the profits were performed.” It went on to say that in order “To prevent cross border tax evasion, we endorse Global Common Reporting Standards for the automatic exchange of tax information”. The G20 hopes to have a tax avoidance regime in place by the end of 2015. Hard done by  PAYE taxpayers of the world will watch with interest how that all unfolds.

In the meantime, it is certain that highly paid tax avoidance accountants are already calculating the huge fees that they will require in order to steer their non-tax paying corporate clients into even more sophisticated tax havens.

Meanwhile, Rupert Murdoch, who controls 70% of Australia’s media, is continuing to focus on those greedy, job snob welfare cheats. News Corp doesn't devote a lot of space to corporate fraud...unless it involves a trade union.

Oh, yes, it is still the same the whole world over 

Ít's the poo-ah wot gets the blame.

It's the rich wot lives in clover,

Ain't it all a bloomin' shame?

References:

Richard Cooke. Writer and broadcaster. “Much obliged”, The Monthly Magazine November, 2014. Pp 26-33.

Roman Lamis, Senior Lecturer Accounting, University of Technology (UTS), Sydney and Ross McClure, Ph.D. candidate, UTS, “What’s needed for Australia to seriously tackle tax avoidance.” The Conversation, 2/10/2014.

Peter Martin, Economics Editor, The Age; “Budget pain? Not for millionaires who pay no tax.” The Sydney Morning Herald, May 13, 2014.