Taxing times

Friday, 01 August 2014

John M Green photo
John M Green

    John M Green reviews the two sides of the tax coin.

    August is when corporate Australia lays out a buffet of data with our year-end or half-year accounts. Keen investors will pick at our bottom lines, munch on their make-up and chew on the likely trends. But one line-item is increasingly getting stuck in the throats of governments and the public, and for a change it’s not profits. It’s the tax rate.

    Why is easy to grasp: governments see themselves on diet rations, forced to cut back, yet some big global companies feasting on fat margins don’t seem to be leaving enough tax on the table.

    The tax equity coin is not one-sided, of course. Media magnate Kerry Packer forcefully argued the “government takes too much” side before a federal parliamentary enquiry in 1991. “If anybody in this country doesn’t minimise their tax, they want their heads read,” he said. “As a government I can tell you that you’re not spending it that well that we should be donating extra.”

    Packer’s point has even greater punch today. When he was making that complaint, total government spending consumed 30 per cent of Australia’s GDP. But since then it’s blown out to nearly 35 per cent and, unless governments really start belt-tightening, it could get way higher. That prospect could turn you to drink, though as sci-fi writer Robert Heinlein said: “Be wary of strong drink. It can make you shoot at tax collectors ... and miss.”

    Expecting governments to cut back isn’t mean-spirited, although many might think so. Excessive government spending means holding out a hand for more tax and ringing up more debt to pay for it, combined with less economic growth to pay it back. Government overexpansion encourages some otherwise able individuals and businesses to get lazy. Why bother doing something for yourself if government’s doing it for you? At the same time, those who remain able and keen feel crowded out and will seek more fruitful locations for their funds and their energies, no matter how great our beaches are.

    Economist John Maynard Keynes, the intellectual icon usually hauled out by those favouring more government spending, might be astonished at even the current levels. He suggested “25 per cent [of GDP] as the maximum tolerable proportion of taxation may be exceedingly near the truth”.

    If one side of the tax equity coin is how much government should take from us, the other side is how much we should pay. The problem here is that some business people seem convinced that tax is for other people. Consequently, the growing public and government reaction is “Enough!” or rather “Not enough!”

    Companies can pack as many self-congratulatory pages of colourful photos about their “corporate responsibility” into their annual reports as they like, but people reading it all might be excused for their cynicism if they see those companies paying way less than what most would regard as a fair share of the tax burden.

    Even if you strongly believe that government spending and tax rates are way too high and should come down, is it reasonable for highly profitable global technology companies like Microsoft to pay 9.5 per cent on their overseas operations or Google to pay 2.5 per cent tax or Apple an even measlier 1.9 per cent, as claimed in the media? Or, as also alleged by reporters, for coal miner Glencore to pay almost no tax on its $15 billion of Australian revenue over the last three years? (Glencore has denied this.)

    No doubt all these companies are absolutely following the law. Thus, these very low tax rates are probably because they’re making low taxable profits or have high deductions. But the public might not see legal and legitimate as the same things. The speculation is that some companies might be shifting their profits to more tax-amenable jurisdictions via excessive transfer pricing or overly frothy intercompany loans. An uglier alternative for a low tax rate can be gleaned from Bond Corporation, a 1980s business empire that collapsed. Its tax rate was minuscule because, as journalist Terry McCrann reported back then, its high reported profits were illusory, as fictional perhaps as one of my novels.

    The companies mentioned in this column are not even remotely Bond Corporations, yet the public is starting to view them with unease. On the one hand, the public loves how their products make lives easier — using Google, Microsoft and Apple constantly — but that’s not enough. They also see high product prices and gouging margins yet tax bills so skinny they’d be great as tyres on a fleet of racing bikes.

    Personal incomes are squeezed by governments wanting too much and big companies charging a lot. The public perspective is that that if companies like these paid a more normal rate of tax, they as individuals would be asked to pay the government less.

    It’s little wonder that federal Treasurer Joe Hockey is working on changes to our tax system to stop what many people see as rorts and why he will be urging the G20 in Brisbane in November to make this an international cooperative effort.

    The trick for Hockey in all this is to recall Mark Twain: “The difference between a taxidermist and a tax collector is that the taxidermist takes only your skin”.
    Twitter: john_m_green


    Latest news

    This is of of your complimentary pieces of content

    This is exclusive content.

    You have reached your limit for guest contents. The content you are trying to access is exclusive for AICD members. Please become a member for unlimited access.