Jan 9, 2017

Why Australia’s economy is failing

Why is Australia's economy in such a bad way? Could be because the richest companies are not paying their fair share of tax, writes economics reporter Alan Austin.

What better way to spend lazy holiday afternoons than comparing last month’s tax transparency report from the Australian Tax Office (ATO) with the one a year earlier? Everyone wanted to do this. Crikey actually did it. This gives us a pretty good estimate of the company tax revenue now bleeding from the federal budget. Fortunately some brandy was left over from the Christmas pudding, as the outcome might otherwise have dampened the season’s cheer. The ATO has revealed gross income, taxable profit and tax paid for more than 1850 companies in 2013-14 and 2014-15. From this we can see whether revenue and tax paid went up or down. Crikey examined all 133 corporations with gross earnings above $2 billion. With enough brandy, of course, we could have scrutinised all corporations, but these are enough for our purposes. The first observation is that gross profits increased significantly in 2014-15 over the previous year. Big winners included Apple, Burrup Train, Scentre Group and Woodside. All enjoyed a lift of more than 34%. Revenue at BHP Aluminium, CBI Constructors, Newcrest and SABMiller was up more than 50%. Revenue at CNPR Ltd, Glencore and Samsung C&T was up 500%. Gross earnings overall for the 133 biggest corporations were up by $7.72 billion. So it was a pretty good year. Naturally, we would expect taxable profit to be a much higher proportion of the gross earnings in 2014-15 than the year before, given lower interest rates, depressed wages and dramatically lower fuel costs. But nope. The opposite, in fact. In 2013-14, the 133 companies declared 12.03% of gross earnings as taxable profit. This fell to 11.90% in 2014-15. It’s not much of a drop, but it’s a fair slice of the budget deficit -- as we shall see. Of particular concern are the enterprises that reported huge profit rises but paid less tax -- or none at all. [Company profits soar, but taxes MIA] Anglo American Australia increased its gross earnings by $63.9 million to more than $3.6 billion. But it somehow reduced its taxable income from $158.4 million to just $32.4 million. For the second year in a row it paid no company tax in Australia, but the UK parent continued shareholder dividends. Chevron Australia increased gross profit from $3031.7 million to $3088.4 million but still paid no tax. The US parent increased dividends from $3.90 to $4.21 per share. ERM Power increased its revenue by 14% to $2.3 billion but turned a taxable profit into a loss. Glencore Investment Holdings, registered in Bermuda, recorded a staggering rise in gross earnings from $1074.9 million to $7787.9 million. Still paid no tax. Crikey accepts the ATO’s assurances that paying no tax is not necessarily evidence of evasion. We note, however, that rorts have already been proved by the Senate inquiry, ATO annual reports and the national audit office’s review of the ATO in September. We know also that gross debt is now increasing by an alarming $7395 million each month. [Australian tech darling Atlassian boasts of paying tax, pays zero tax] The top 133 companies really should have reported gross earnings much higher than the $990.5 billion declared, given the steady global recovery and the benign local regulatory regime. Between 6% and 12% more seems conservative, on all the evidence. Taking the lower rate, earnings of $1049.93 billion should have been reported, as a minimum. Of this, the same percentage should have been shown as taxable profit as in 2013-14, which is 14%. This would have brought the total taxable profit to $1049.93 billion x .14 = $146.99 billion. If tax had been paid on this at the required rate of 30%, then the federal budget would have received $44.10 billion. Instead, the ATO collected just $29.39 billion. That’s a shortfall of $14.71 billion. So in percentage terms, the ATO in 2014-15 collected just 66.65% of the company tax actually due. That’s just from these 133 companies. Can we extrapolate this to all Australia’s 1.1 million corporations? Almost certainly. The total company tax take in 2014-15 was $68,000 million. If that is 66.65% of the company tax actually payable, the total should have been $102,026 million. The shortfall was $34,026 million. That is consistent with the findings of the Senate inquiry. And it is the greater part of the 2015 total budget deficit of $37,867 million. If this seems a stretch -- claiming companies should have paid $102,026 million instead of 68,000 million -- remember they paid $64,790 back in 2007-08. That’s only a 6.7% annual increase over that period. The conclusion is pretty clear. Australia does not have a spending problem. It has a problem collecting taxes from the top end of town. Now, where’s that brandy?

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24 thoughts on “Why Australia’s economy is failing

  1. Flynn

    The Chevron situation is absolute farce, Michael West has a good account of that on his website.

    All this money extracted from the Australian population simply leaving our shores and our leaders swan about decrying the low-growth economic environment. How will we achieve action on this, what is the way forward?

    1. David Coles

      Perhaps the system of company tax should be turned on its head. All businesses pay a specified base percentage with additional payment falling due if they don’t engage in research and development, don’t have headquarters in other countries etc, etc.

  2. Graeski

    It’s time to start kicking the tax bludgers rather than the dole bludgers. It’s simple business sense. Kick a dole bludger (assuming for the moment that he or she actually is a ‘bludger’) and at best you’ll claw back a few hundred a week. Kick a tax bludger and can claw back millions.

  3. Dog's Breakfast

    True dat! So much easier to kick a pensioner or an invalid than a multi-national corporation.

    That would take courage!

    1. zut alors

      Exactly, Dog’s. The bully’s modus operandi is to make a public display by targeting the weak, never anyone with true muscle & might.

      While government supporters congratulate each other on how ‘tough’ their LNP is on the low- income/below the poverty line demographics, they ignore the rivers of gold being squirrelled away by corporations. Instead, they are gleaning peanuts.

      1. Chris ConnorTH

        Yes – Bastars!

    2. Chris ConnorTH

      Sorrow about the “d” omitted from the next “reply”.

  4. John Hall

    I am naive on fininacial matters – but I assume that at the transfer point to a financial instituting that a relatively modest government service tax could be unilaterally imposed. Leave it up to big business to justify its return AFTER the event. This puts them on the same footing as the poorer PAYE wage & salary earners. By the way why can’t Australia go completely cashless, so closing the black economy? No need for a Mint & stopping money laundering at the Casinos.

    1. Will

      Sound’s great. How about a 15% tax on all company net cash flows to start with? Any tax paid here could be deducted from current payable annual company tax, but at least a minimum 15% would be collected from the rat f***ers.

  5. CML

    Thank you Alan…good article (with facts!) as usual.
    The tax NOT collected from the top-end-of-town is simply outrageous.
    How can the government justify its on-going attacks on Centrelink customers…while allowing this scandalous situation to continue?

  6. klewso

    Ah Woodside … Timor-Leste of course.

  7. AR

    Thank you for a lucid exegesis – you deserve the bigbuck$ for ploughing through that and garnering the yield. Brilliantly comprehensible.
    My personal, stroke of the legislative pen, favourite is simple turnover tax, as fellow financial naif John Hall above, at the point of money movement. Each and every transaction.
    Pay first, argue costs afterwards and while we are dreaming of reform, how about simply not accepting “advertising” as a tax deductible input. Think of all those brilliant minds currently wasted on such frippery.
    And tax lawyers, suddenly utterly redundant, superfluous, otiose, devoid of function or reason to exist. Good riddance.

    1. Charlie Chaplin

      Totally agree about the advertising, AR. You wanna be a capitalist and flog product, advertising’s the name of the game. Why should the public purse subsidise you?

  8. Steve Caddas

    Don’t worry folks, the GST on imported books and nick nacks will kick in soon. That’l fix it.

  9. Walter KOMARNICKI

    thanks Crikey for doing the hard yards and actually going through and comparing last year’s and this year’s tax transparency reports.
    I used to be a low-level worker at the ATO but I noticed the high stress and burnout rate from workers in the debt collection area, and how little negotiation there was with taxpayers who owed a few hundred or thousand as compared to those who owed tens of millions or hundreds of millions: the former were given deadlines and ultimatums to pay or else…, the latter could have negotiations at their convenience and have their debts settled amicably…

    a metaphor of the inequality that obtains in our society as a whole, and why nobody is game to change the system and level the playing field, even if it means that ultimately the budget could one day be balanced, or better still, get into the black again…


    1. Chris ConnorTH

      Good comment – it seems the sponsorship paid by the big profit earners to our political parties gives them the right to pay little or no tax. One law for the wealthy & an other for the rest – just look at Centrelink.

  10. Kirsty

    So sad. A great article.

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