Tough in public, Soft in Private. It’s a particular brand of political spin that’s vaguely reminiscent of a toilet paper commercial. But that’s the new corporate tax position heralded by the Australian Treasurer, Scott Morrison. Actually it’s not new. It’s the same policy, just with thicker eyeliner to make it look tougher.
We already know that in 2013 and 2014 Australia saw $5.36bn lost in corporate tax revenue from 76 multinational corporations through aggressive tax avoidance measures. The other 24 weren’t model citizens, they just didn’t declare a profit to the tax office.
- Australia is haemorrhaging an estimated $5.36bn over two years in multinational tax evasion
- Measures announced would see $3.7bn recouped over four years
- Redefining small business and reducing the corporate tax rate will, in the first four years, reduce revenue by $2bn and $2.65bn respectively
- So we’re losing an estimated $1.34bn per year in avoidance, gaining $0.95bn per year in tougher measures and losing 1.16bn per year in tax cuts.
Correct me if I’m wrong, but $0.95bn in gains is a smaller number than $1.35bn + $1.16bn in losses, right? By 4pm this afternoon we were worse off by $1.55bn in with respect to corporate tax than we were at 9am this morning.
No one left to blame
Currently Australia has a corporate tax rate of 30% (for large companies), which is higher than the world average of around 24%. Australia is lowering its corporate tax rate to 25%, to make it more competitive with the rest of the world. This will reduce revenue by $2.65bn over four years.
Currently the government argues the reason multinationals don’t pay tax is because we’re being really mean and making them pay too much. So they have no choice but to shift their profits offshore so that they can remain, well, profitable (in a tax haven). By reducing our tax rate politicians have removed their ability to blame poor compliance on our uncompetitive tax regime. Over the next four years the tax office will be put under even more pressure to investigate and prosecute tax avoidance to magically create the anticipated revenue increases. Shame over 4700 jobs will be shed from their workforce by 2018.
When Size Matters
Australia is lowering its effective tax rate for small businesses as well. But by 2020 any company turning over $10m will be defined as a small business. As a handy guide, the Australian Bureau of Statistics tells us there were 2.1 million active small businesses in 2012 in Australia. More than half of those had a turnover of less than $200,000 per year, while only 6.5% had a turnover of more than $2m. What sort of business would be turning over more than $2m a year and still be considered ‘small’? To generate that sort of turnover they would either need huge numbers of staff, huge capital investment, or be the ShamWow guy. This redefinition of small business will reduce revenue by $2bn over four years.
And the impact of all this reshaped corporate tax policy? Lenore Taylor over at the Guardian tells us that ‘…in 2014 Treasury modelled the impact of a 1 percentage point cut in company tax and, under the most real world scenario, found that in the short term the biggest benefits went to the profits of the companies themselves, and in the longer term the improvement in GDP would be small and the growth in jobs less than 1%.’
Hard in Public
Team ScoMo announced the crappiest superhero mashup to date, the Tax Avoidance Taskforce, targeting multinationals (estimated revenue $3.7bn). They’ve also announced a Diverted Profits Tax which will see multinationals charged 40% of profits found to have been shifted offshore (estimated revenue $650m).
The operative word there? Found.
While tax avoidance measures are essential, companies can still shift their profits offshore using any one of these measures. And once the money gets there companies and individuals are able to hide who really owns the cash by using Nominee Services. If you don’t target the ownership of anonymous shell companies at a global level then there’s a gaping hole in the global fight against multinational tax avoidance policy.
Allegedly 1000 specialist staff in the tax office will be working to ‘police and prosecute companies, multinationals and high net worth individuals not paying the tax they should’, according to ScoMo. Hey, you 4700 sacked workers from earlier! Look out for those 1000 new jobs on a seek.com page near you. Or, more likely, if you already work for the tax office, look out for a huge, additional burden to be added to your already critically underfunded and overworked office.
Making ourselves more attractive on a global market is sensible, making it harder for tax avoiders to use strategies to reduce their tax is also sensible. But you have to have the legislative framework and the resources in the tax office for that strategy to work.
Let’s all sit down and do the maths
Let’s just repeat our maths lesson from earlier
- Australia loses an estimated 5.36bn every two years in multinational tax evasion
- Newly announced measures should/might/could/maybe/’let’s not lock anything in’ see $3.7bn recouped over four years
- Redefining small business and reducing the corporate tax rate will reduce revenue by $4.65bn over four years
We lose an estimated $1.34bn per year in avoidance, gain $0.95bn per year in tougher measures and lose 1.16bn per year in tax cuts.
Those figures wash up to show we’re still worse off by $1.55bn by the announcement of this policy.
By comparison if you’re a smoker you’re going to be hit with a 12.5% increase in tobacco excise from 2017 netting the government $4.7bn over four years. Interesting that you can net $4.7bn from the 23% of Australian’s who are smokers, but only nominally raise $3.7bn from huge multinational corporations who, according to the government, drive jobs, economic growth and innovation. Rest easy smokers. I’m sure the companies selling it to you will still be able to avoid their tax obligations.
Top work, ScoMo. Top work ‘Straya.