Latham and mental illness
Niall Clugston writes: Re. “Rundle: Latham’s twisted fantasy echoes Labor’s disconnect” (yesterday). I don’t understand why Crikey needs two articles bagging out Mark Latham. And I don’t understand how calling him an “headcase” promotes sensitivity about mental illness. But maybe that’s because I’m a fruitloop.
Why tax reform is well overdue
Martin Gordon writes: Re. “Voters agree: tax big companies more, not less” (yesterday). Bernard Keane must have wondered how to present voter perceptions about taxation. He gave a rather low key commentary, when he could have put a few facts in about Australia’s tax levels, and a bit about tax incidence which clearly escapes most taxpayers understanding. Typically prejudice is a big driver about views. Australia is a low tax country, in large part because we don’t have a contributory social security system. We tend to be a bit more reliant on income tax (both personal and corporate than many developed countries) and a bit light on for indirect taxes. Our system is very progressive, and many people pay little net tax (if social payments of all kinds are taken into account) that is why I wondered how some people imagined low and middle income earners paid a lot of tax.
Bank bashing used to be popular, as is TNC bashing it seems. We go through cycles in these things. Thirty odd years ago it was bottom of the harbour tax avoidance, and the revenue at the end was nothing like people assumed it would be. Obama claimed that a crackdown in the US on avoidance would yield a lot (the headline amount was big, but not in relative terms to revenue collected, or spending. Actual collections have been less than expected too). Yes, pursue avoidance, but given we police transfer pricing, and other transactions, the revenue may not be what we think it will be. The ALP plan relating to ‘thin capitalisation’ rules is a marginally positive action, but it only hurts you if you are highly geared.
The standout misconceptions were the belief that small business paid its fair share of tax. The ATO would be astonished to hear that. The relative revenue loss as a percentage of business turnover would be higher than for larger businesses. Tax incidence can be a bit eye-glazing, but surprising amounts of corporate taxation fall on consumers, so hitting ‘the big end of town’ does not quite make sense either. The impact of taxes is often overstated (and which vested interest group does not claim the sky will fall in in its sphere be it tax or outlay focused?). But given the level of public ignorance about even basic aspects of financial issues, taxation and many other issues, it is surprising how ill-informed public opinion is?
Les Heimann writes: The survey of Australians that highlighted — regardless of political persuasion — the desire for more tax from big companies, proved the obvious. Thing is that the overwhelming majority of multinationals don’t pay tax; at least not in Australia. Equally the Australian mega companies are in on the act as well. As Crikey points to; it’s all about “tax avoision”. What is “tax avoision?” When I worked in the ATO it was the expression used to cover the murky world between tax avoidance and tax evasion. Tax evasion is illegal and can create much grief to those taxpayers caught evading tax; whereas tax avoidance is the legitimate practice of arranging ones business so as to legally minimise tax liability.
The more diverse and complicated ones business is (or is arranged to be) the more opportunity to take advantage of tax law and ultimately to enter the world of “avoision”. “Avoision” occurs when business practices become “tax questionable” and the easiest examples of this includes the practice/ process of allegedly borrowing for revenue purposes and “internal” charging of fees for services. One can easily argue that a company creates a tax deductible figure that is simply a myth by doing this sort of stuff — and if it is a myth it is evading tax by artificially reducing taxable income through the use of a false deduction.
Of course where the law allows this sort of behaviour the same transaction is smart tax planning. But the law only allows what is genuine. Proving it isn’t genuine … that’s the problem. Add to this our double Tax Agreements with other countries and the whole world is at the mercy of this shadow world. Solution. Tax entities should be charged tax on their gross income in the country of origin. It’s that easy and the sooner we get an honest government that will admit to this truism and abolish our tax system and replace it with a genuine gross income tax all our problems will disappear; including our so called “debt and deficit”.
Dr. John Nightingale writes: While I don’t think that economic theory of the neoclassical/neo-liberal kind has lots of answers to our problems, something that should be tested is the argument that because profits tax is dependent on profit and not on output, employment or other size metric. It doesn’t shift cost relationships at all, therefore, increasing profits tax has no effect on a company’s choices of pricing, outputs, etc etc. The Business Council argument that the rate of profits tax changes decisions about companies’ activity should therefore be treated by our neoliberal friends as nonsense. Why do we not see this argument advanced in the public discussion?