Yesterday’s Mid-Year Economic and Fiscal Outlook (MYEFO) confirms the two realities evident in virtually all reports on Australia’s economy this year:
First, the Turnbull government has failed completely to control the federal budget.
Second, its principal specific failure is allowing corporations and high-income earners to decide how much tax to pay, if any.
Let’s go though the documents.
1. The Australian Tax Office’s (ATO) annual report shows strong tax receipts in all areas except from companies. Individual taxpayers paid 5.2% more in 2015-16 than in 2014-15. GST receipts were up 5.4%. Super funds paid a whopping 16.4% more, confirming it was a great year for corporate dividends. Yet company tax collected was down 6.4% on last year. That was down significantly on the year before.The ATO failed to collect the amounts forecast in the May 2015 budget in all areas except GST. The shortfall was greatest in company tax collections — down by $5552 million, or 8.1%.
2. A critical review of the ATO by the national audit office in September found several problems. Base funding for compliance — getting the dodgers to pay their share — was cut in the Coalition’s first year to $837 million, then down to $673 million in 2014-15, and trimmed further to $654 million last financial year. These cuts — 25% in three years — were despite clear evidence of rampant evasion at the Senate inquiry and elsewhere.
3. The Finance Department issues 10 monthly reports each year, most of which have shown net debt worsening and interest on that debt increasing through 2016. The latest, for October, shows net debt at $313,971 million, up from $267,822 million a year earlier. Interest this year will be $16,644 million — if it doesn’t blow out again.
4. The Office of Financial Management issues weekly updates of the gross debt — on which interest must be paid. This is currently $464,790 million, up a staggering $66,102 million from $398,688 million a year ago.
5. The ATO’s corporate tax transparency report for 2014-15 is frustratingly short on summary data. It does state, however, that an extra 45 big companies were added to the 2014-15 corporate transparency population, bringing the total to “1,904 corporate entities with total income tax payable of nearly $42 billion”.
Naturally, with more companies enjoying the current steady global recovery we would expect that tax to be substantially higher than the year before. Not so. The tax collected fell by $59 million.
6. A damning report into collection of North West Shelf royalty revenue by the national audit office published last month shows billions are being lost by dodgy deductions and shonky accounting tricks. It also found there have no external audits of the royalties regime for 17 years.
7. If Australia’s tax-to-GDP ratio of 23.9% — achieved by former treasurers Peter Costello in 1998 and Wayne Swan (almost) in 2009 — had been maintained over recent years, Australia would have no net debt today. That’s according to an Australia Institute report discussed in Crikey on Monday.
It concluded that, “the main cause of the current budget outcome is the fall in revenue.”
8. The extraordinary decline in company tax paid is plainly revealed — but only to those with too much time on their hands — in company annual reports. It is clear that revenues and profits are steadily increasing with the global economic upsurge, but taxes paid are declining or, in many cases, disappearing altogether.
The main area of profound loss to the economy – or, more accurately, to the people of Australia — is in the mining sector which is enjoying the triple bonanza of surging minerals prices, strong demand and a virtual tax holiday.
Rio Tinto Australia, for example, in its August interim report, announced:
- net earnings more than doubled over the previous year to US$1713 million,
- basic earnings per share more than doubled to 95.3 US cents,
- profit before taxation up from US$1745 to $2098 million, up more than 20%.
But the tax paid was down from $946 million last year to $357 million this year.
As Crikey revealed recently, Fortescue Metals, Transurban, Stockland, Wesfarmers, Woolworths, Mirvac, Boral and others all generated excellent revenue, gross profits and net profits this year but paid a much lower rate of tax than in previous years.
9. Which brings us back to the MYEFO. As Crikey reported yesterday, this shows deficits have increased over the forward estimates by $10.3 billion just since the May budget. It shows steadily increasing spending but no commitment to halting the rampant avoidance and evasion of corporate taxes.
The MYEFOs in 2012, 2013 and 2015 all included measures to tweak the revenue side of the budget. Yesterday, no such luck.
The ways in which haemorrhaging corporate tax revenue is wrecking the economy include, but are not restricted to, these four:
- Inadequate revenue to reduce the debt which has accumulated gradually in recent decades and more rapidly during and since the GFC;
- It prevents tax relief and/or increased benefits for the bottom end — the sector which spends most of its income and thus sustains the highly-vulnerable retail economy. When the poor do not spend, it is not only retailers who suffer, but all connected sectors – growers, manufacturers, wholesalers, importers, transport, financial services and others;
- Inadequate revenue for much-needed stimulatory infrastructure projects; and
- It prevents the corporate sector from developing long-term investment strategies. The corporations well know this regime, which gives the predators free rein, cannot last. So they are milking it for all it’s worth while it continues. When the party is over and a viable long-term fiscal regime is restored, they can then look at sustainable business models.
With the government flagging further tax cuts for the rich, that seems a fair way off yet.