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Filed under: Auspoll, Business, Corporate Tax, Money, Society

33 comments

“In this world,” Benjamin Franklin famously declared, “nothing can be said to be certain, except death and taxes.” A few hundred years on, corporate Australia seems hell-bent on making a liar out of him.

Picture: Peter Nicholson.

Death is still holding out -so no need to fear a business-suited army of the undead just yet—but the taxman has well and truly been given the slip, with billions of dollars from the public purse funneled through loopholes, lurks and perks.

Treasury figures have revealed that over the last decade more than half of all companies paid less than five per cent of their total income in tax: a far cry from the hefty amount individual taxpayers are slugged.

And it’s a situation most ordinary Australian’s aren’t too happy about, if the Auspoll data released today is anything to go by. The survey of 1545 people found that three quarters want business to pay a greater proportion of tax while about half want fewer concessions and deductions for companies.

Of course big business will no doubt quickly come on the offensive, citing sensible facts like the fact that Australia’s official rate of corporate tax is 30 per cent, which puts us in the mid range of comparable countries.

Indeed, while that is true in theory, a recent study by think tank Percapita found that the generous array of lurks and perks ensure business taxes contribute just a quarter of government revenue, while individuals pay the lions share.

Monash University Taxation Law and Policy Research Institute director Professor Rick Krever believes the Australian government is losing massive amount of revenue due to this complicated system of tax concessions that can bring the effective rate of tax paid by companies down to almost zero.

In a new video produced by policy think tank Catalyst Australia, Professor Krever highlights just some of the extraordinary examples of concessions claimed by big business, including: “exemptions for Australian companies running operations in tax havens, research and development subsidies, subsidies to breed race horses, subsidies to buy company jets, subsidies to the oil and gas and mining sectors.

“The list of corporate welfare tax subsidies published annually by Treasury goes on and on,” Professor Krever says.

And while business groups claim that it is shareholders and investors that benefit from these concessions, Professor Krever argues that this money could be “better spent providing essential services for the benefit of all Australians.”

The latest Auspoll research would suggest that the bulk of Australians share Professor Krever’s assessment. Most taxpayers are reasonably comfortable with the 30 per cent corporate tax rate, but they want to see a tightening up of the system and an end to the loopholes that unfairly burden working Australian’s while most of the corporate sector is living the life of Riley.

Despite the broad public sentiment, getting business to pay their fair share of tax revenue is likely to be a lot tougher than it seems. Big business has been especially vocal in arguing for further cuts in the corporate tax rate, and is adept at using its extensive resources to lobby government and win over the public.

In fact, the Business Council of Australia has recommended not only that corporate tax rates be cut, but that the revenue shortfall be made up by increases in the goods and services tax, further shifting the tax burden from business to individuals.

It’s an unpopular position, supported by only 8 per cent of people according to the Auspoll report, but business groups have plenty of clout in Canberra, not to mention deep pockets to fund their cause.

Experts like Professor Krever challenge the argument that moves like this would encourage increased, pointing out that in the past decade the corporate tax rate hasn’t been a barrier to increasing investment in Australia in minerals, transport, airlines or even supermarkets. Rather, he concludes that cutting the corporate rate will instead result in funds being lost that would otherwise benefit us all.

As we await the release of the review into the tax system headed by Treasury Secretary Ken Henry, hopefully the insights of experts like Professor Krever, and the views of ordinary Australians, will help inject some reality into the public debate about corporate tax.

With over 1500 submissions, business groups vocally opposing any new taxes on resource rich companies and the need for the Rudd Government to turn the recommendations into action, the tussle for a fair tax system is far from over.

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33 comments

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- Craig Mc says:
  
  05:32am | 12/03/10
  
  “Treasury figures have revealed that over the last decade more than half of all companies paid less than five per cent of their total income in tax: a far cry from the hefty amount individual taxpayers are slugged.”
  Well, there’s your first mistake. Why should any business pay tax on gross turnover? It’s profit that gets taxed. Any survey based on fruity assertions like this are invalid. What you’re effectively saying is that half of all companies operate on low margins - and that you think they should be punished for it.
  
  Only someone who’s taken the safe option of employment all their lives could think this lamely. The other thing is that these same people are blissfully ignorant that their own jobs would be smashed if their idiotic ideas were actually implemented. Thinking this stupid could only come from a left-wing think tank.
  
  Now there’s an oxymoron.
  
  Reply
Zeta says:

08:12am | 12/03/10

Even right wing think tanks agree that corporations don’t pay enough tax.

‘Taxpayers’, plebians, or proles as they’re referred to by corporations pay tax on their gross turnover. We pay tax on every cent we ‘earn’, which includes what a corporation would call ‘overheads’ like housing, food, transport - items that for a company are tax deductions. We don’t just pay tax on our ‘profit’, or our dispossable income.

One of the big debates in the United States right now is wether or not corporations should be granted the constitutional rights of individuals - the Supreme Court has determined they do. Therefore, shouldn’t they pay tax like individuals, that is, tax on every dollar they make, not just the dollars they declare are surplus to operating expenses?

I’m not saying that the Government doesn’t tax too much, but if they absolutely have to tax someone, isn’t their fake economy better served by taxing the multi-billion corporations rather than the tens of thousands of dollars brought home by a median income family?
DocBud says:

08:36am | 12/03/10

You normally make such sense, Zeta, so I’m disappointed to see you write this comment.

If my company turnsover $6million with costs, including the cost of those we employ, of $4.8million, why would we do it if you want us to pay $2million in tax? We’d run at an $800000 loss so we’d either close down or try and charge our clients $7.5million who would then have to increase their income. Prices would go through the roof if companies had to make a margin in excess of 30% to cover tax. Unless the government cut corporate tax to, say, 5%.

Individual taxpayers are able to claim expenses involved in earning their income, they’re just not allowed to claim things not related to earning income. The same principle should apply to companies. I don’t doubt the tax law has loopholes, for companies and individuals, but, if we are to have an income tax, the basic notion that it is on actual earnings, i.e. profit not turnover, should hold.

In actual fact, companies do not pay any tax, tax liability is factored into pricing, numbers employed and employee’s pay, so one way or another, individuals bear the burden of all tax,
AdamC says:

08:43am | 12/03/10

Zeta, actually, individuals do get to make deductions on expenses used to produce personal income - ever heard of the infamous ‘negative gearing’? In fact, individuals who operate businesses get the same expense deductions that companies get. Personal expenses like housing, food, recreation, blue suede shoes, etc, are consumption, not ‘overheads’.
Craig Mc says:

08:53am | 12/03/10

“Even right wing think tanks agree that corporations don’t pay enough tax.”

Name one.
Zeta says:

09:23am | 12/03/10

@ DocBud - I’m not talking about small buisnesses turning over $6 million. A $6 million company calls itself a ‘corporation’ to feel important when they hand out buisness cards at their regional Chamber of Commerce meetings. That’s the reason we have tax brackets. I’m talking about $60 billion turnover conglomerates that shuffle their funds off shore and onto the merry go round of Wall Street. It’s criminal they should get away with paying only 5 per cent tax. Especially when they receive far in excess of 5 per cent value back from the Government.

Corporations get a better deal out of Government than anybody. Government gets their employees to and from work, keeps them healthy, educates them, and then regulates the market so other predatory corporations can’t swallow them up.

Let’s say your $6 million company gets to pay no tax - but - you have to not only pay your workers, you have to educate them, transport them, and pay for doctors to keep them from keeling over at their cubicles. And you have no safety net protecting you from hostile take over, and if you go bankrupt because no one wants to buy your plastic consumer items, no bail out.

The reality of that zero tax scenario for corporations is that you won’t educate your workers and you won’t look after them. You’ll let them die and replace them with new ones. You won’t transport them, they’ll have to live where ever you want them to work. Then to protect yourself from take over you’ll create syndicates with other corporations to ensure you’re protected. Eventually, there will only be one corporation, and we’ll all be working for it.

That’s not a sci-fi dystopia either. That’s reality for people in Mexico. Only difference there is that criminal gangs have stepped in where Government’s have failed. That’s the reality in post-reconstruction Iraq. The reality for foreign workers in Dubai.

That’s the natural evolution of the corporation, and Government’s are the only thing preventing it from happening. Corporate tax is the only thing protecting consumers from it.
Zeta says:

09:48am | 12/03/10

@ CraigMc - The Ludwig von Mises Institute, The Acton Institute, The National Centre for Policy Analysis, F.R.E.E America and those are just the ones whose journals I can see on my desk. But pretty much every Austrian School economic think tank agrees that the corporate banking sector does not pay enough tax and thus endangers the future of a diminished tax burden on individuals.
Craig Mc says:

10:51am | 12/03/10

Did all corporations suddenly become banks, or did the goalposts just move?

I’m yet to find a single link to support Zeta’s assertions that, for instance, NCPA, or Action Institute supports increased bank taxes, let alone increased business taxes.

Indeed, I find the assertion that The Ludwig von Mises Institute would favour increased business taxes utterly laughable. I call shenanigans.
DocBud says:

12:46pm | 12/03/10

Zeta,

According to the Corporations Act, a company is a corporation irrespective of its size (although I never actually call either of my companies a corporation). We all pay corporate tax. If the government did decide to tax turnover of the multinationals you wouldn’t be able to see their Australian offices move overseas for the dust they’d be gone so fast. Try googling “Laffer Curve”.
Zeta says:

01:36pm | 12/03/10

@ DocBud - Laffer Curves only work for modeling individual behaviour in a tax regime, not corporate. An individual can recognise value from Government services and accept a median tax range as being good value. But for companies, the concept is purely theoretical. Because no matter how far down the scale you go, even a taxation regime of 1 per cent will still encourage corporate tax evasion. Corporations will continue to reward behaviour by accountants that minimises tax debt.
- John A Neve says:
  
  06:10am | 12/03/10
  
  “For 44 years, Multi-Nationals have paid little or no tax” so said the assistant commisioner of the Australian Taxation Office in 1997.
  
  So what’s changed? I’d suggest nothing.
  
  AS I have stated here before, until we have an open debate on our taxation system. Until the people can obtain all the facts and all the time governments tinker around the edges of an unfair system, the people will be screwed.
  
  One tax for all, simple effective and fair, a Financial Debits Tax.
  
  As it is the PAYE taxpayer carries this country
  
  Reply
- Nigel Catchlove says:
  
  06:30am | 12/03/10
  
  An interesting argument that leaves out any factual information that is contrary to the authors premise.
  Arguing that ‘rich’ corporations only pay tax on their profits is a little like suggesting that taxpayers only pay income tax. What about GST, Medicare levy, stamp duty, land tax etc. Businesses are also liable to pay payroll tax, land tax, royalties, stamp duty, local government rates, capital gains tax, witholding tax on dividends and now I believe the Heny Review is proposing a resource rent tax similar to that already paid by the oil and gas sector. On top of that are the practices encouraged by the Rudd government that see businesses once again burdened with te prospect of paying ‘go-away money’ to lazy or dishonest employees who are ‘unfairly dismissed’ so they can avoid costly litigation.
  
  I’m not suggesting that corporate Australia doesn’t have too many tax concessions but the author needs to be honest about the total business tax burden or her argument carries no weight.
  
  Furthermore I am constantly amazed at the typical left-wing and deceptive practice of demonising businesses and driving a wedge between business owners/operators and ‘working Australians’. Having worked for large multi-nationals and now running my own micro-business I suggest that business operators are generally as hard working as most of your blue-collar heroes. Most small business owners not only put in horrendous working hours but also carry the financial risk associated with building and growing a business. The simple trick of personalising workers while de-humanising the corporate sector is simply dishonest; an example is your patently false statement calling for an ’ ... end to the loopholes that unfairly burden working Australian’s (sic) while most of the corporate sector is living the life of Riley’.
  
  All in all the article was little more than leftist white noise.
  
  Reply
Zeta says:

08:16am | 12/03/10

The biggest tax cheats aren’t consumer corporations providing goods and services, or smal buisness - the tax cheats are the banks and the corporate banking sector. If you read those Treasury figures, the biggest corporations in Australia are still miniscule compared to our smallest banks. They also deliver the biggest profit margins.
- Bob H says:
  
  06:59am | 12/03/10
  
  Its profit thats taxed not turnover - but I agree corporations have all the sway with government and do not pay as much as wage slaves. I’d like to see the breakdown of small / large business component of the 25% methinks the large corporations have romanced the pollies effectively and its small business that does more for tax revenus
  
  Reply
- WEENY says:
  
  07:11am | 12/03/10
  
  The last people on earth I would want to give more money to is the RUDD government. They would only waste it on pink batts and memorial halls and similiar schemes.
  
  Reply
Old Timer says:

08:31am | 12/03/10

Weeny If you work, you must pay taxes. The alternative is ending up in court being fined or going to jail. It doesn’t matter who is in Government and your taxes are not dependent on whom you voted for. You need to pay more attenion in class and Incidently why are you here you should be studying
matt says:

08:35am | 12/03/10

As opposed to pensioner bribes and detention centres for kiddies?
Zeta says:

09:37am | 12/03/10

@ Old Timer - who says you ‘must’ pay taxes? Tax originated in the ancient cities of Sumer and Babylon. The average individual owned around 10 square feet of land to grow grain. The City would tax a percentage of the grain you grew, but not the money from the grain you traded. The grain was kept by the City for emergency, with the surplus traded with other cities. This was the standard for millenia. Ancient Greece, Ancient Rome, none of them had ‘income’ tax, only a flat tax on producers. The first ever ‘income’ tax was imposed by China’s Emperor Wang Mang in the year 10. It didn’t catch on in the West until 1798 when Pitt the Younger instituted a universal tax to prepare for the Napoleonic invasion. Even the United States only created an income tax to pay for the Civil War.

What does that tell you about income tax? It’s the creation of people with stupid names? Or it was intended as an emergency measure in times of war, like a kind of financial conscription?

But instead the Governments of the world became addicted to the sudden influx of funds, and progressive income taxes have remained ever since. What started in the US as a 3 per cent war levy on all incomes over 800 dollars, is now in a country like Australia some 12-20 per cent at the median, and represents 66 per cent of all Australian Government revenue.

If you go to gaol for not paying tax, you should be considered a political prisoner. Tax is a recent creation by the same criminal minds who’ve eroded public democracy and created a corporate technocracy.
Random Greek says:

10:06am | 12/03/10

Of course you can’t NOT pay tax… but you definitely can minimise how much you pay. Get into contracting, start your own company and before you know it everything becomes an expense and a tax write off.

Instead of paying upwards of 45% personal income tax I can get away with something in the range of 10-20% by creatively filtering out the profits from the company.
- lo and behold says:
  
  08:23am | 12/03/10
  
  The irony of this research is twofold:
  
  1) The “working families” that it likes to tout that are hard done by because they supposedly pay so much tax get so much handed back to them in middle-class welfare that that they effectively PAY NO TAX.
  
  2) Whatever money is not taken by the taxman gets spent elsewhere - purchasing more products and services, paying wages, investment in the business etc
  
  Reply
- Gordon Freeman says:
  
  08:30am | 12/03/10
  
  Companies can only frank their dividends in respect of the corporate tax they have paid. I am not aware of shareholders bemoaning a signifcant shortfall in franked dividends. I rather suspect that the data set may be questionable (income not profits) and the total number of companies would extend from the very largest on the ASX through to small unlisted companies that may not be profitable.
  
  Reply
- AdamC says:
  
  08:55am | 12/03/10
  
  This is a pretty unhelpful article. Apparently, says Jo-Anne, big business doesn’t pay enough tax. (Incidentally, Jo-Anne, big business is not the same as ‘companies’. There are over 1million companies in Australia, many of which don’t operate a business at all. Most of the others operate small businesses like hairdressers, cafes, small building firms and the like. But why let that get in the way, huh?)
  
  Anyway, big business doesn’t pay enough tax: storm the barricades, steal the briefcase and all that sort of thing. In real life, you probably need to be more sophisticated than that. Why are big corporations not paying enough tax? Is it multinational transfer pricing? Can companies somehow manipulate their earning? Are they (mis)using tax havens? Would it help to name and shame some big companies? (I note you don’t do that, Jo-Anne; some actual examples may have been illuminating.)
  
  In any event, if you actually wanted to raise more revenue, you wouldn’t be going after big corporates or rich individuals, you would do something about the cash economy. That is clearly where most leakage occurs. That wouldn’t fir with the ideology, though, of course.
  
  Reply
- stephen says:
  
  11:56am | 12/03/10
  
  What are yer whining about ; the Liberals will soon be handing out business tax dollars to Ms McQew’s constituency, which may keep them occupied so they’re not whining about the ‘rabble’ moving into the neighbourhood as public-housing residents.
  
  Reply
- Kim says:
  
  11:59am | 12/03/10
  
  “Treasury figures have revealed that over the last decade more than half of all companies paid less than five per cent of their total income in tax: a far cry from the hefty amount individual taxpayers are slugged. “
  
  What? You mean they only worked this out now? hahahahahahahaha
  
  Reply
- G says:
  
  03:35pm | 12/03/10
  
  Every 50K of tas a company doesn’t have to pay is another person they can employ.
  
  So what if Individuals make up the lions share, I’d rather have a job than slug the hand that feeds me.
  
  Reply
John A Neve says:

04:02pm | 12/03/10

G,

Just what is wrong with you? It has taken the ordinary people (serfs), nearly 1,000 years to throw of the yoke of oppression. You want to sell you soul for a job !!
” I’d rather have a job than slug the hand that feeds me”. You sound like an animal in the zoo, what time of the day do they feed you?
If companies paid their fair share of tax, you could afford to feed yourself.
no porkies says:

03:48pm | 13/03/10

another bogus corporatist argument. companies employ only enough people to produce the amount of output they wish to sell. if you cut tax by 50k it goes into the owner’s skyrocket… don’t try to sell us some rubbish benevolence line.
- Davido says:
  
  04:03pm | 12/03/10
  
  The real trouble is the tax incentive creatives a massive incentive to avoid paying tax.
  
  So you get companies spending their time and effort in avoiding tax rather that earning revenue. As my father (a tax accountant) used to say… it is a lot easier to save 10% tax than produce 10% more sales.
  
  Reply
- Shane From Melbourne says:
  
  06:20pm | 12/03/10
  
  I still don’t understand why you can’t tax capital outfows from Australia to the rest of the world. This would cut down on some of the dodgy practices such as use of off-shore tax havens and price transfers by multinational corporations.
  
  Reply
- former snag & a swinging voter. says:
  
  12:49pm | 13/03/10
  
  Everybody other than John A Neve, is forgetting some things.
  
  1, We need a complete review.
  
  2, A company/corporation is an artificial construct or vehicle for accounting or legal purposes only. There are individual people behind them.
  
  When every single one of them, makes a net profit after expenses, there are only 3 uses for the money.
  
  #1, Plow it back into the company, for R&D, expansion, etc, or in other words, job creation. Any government curtailing, the “plow back” option is engaged in “reverse evolution” of the species.
  
  #2, pay dividends to shareholders.
  
  #3, pay bonuses & perks to employees on top of their base salary.
  
  It would be easier or more efficient to, stop taxing corporate profits, totally & increase personal income tax, for the high income earners, when they are receiving their pay, perks, bonuses & dividends.
  
  Reply
- acker says:
  
  01:22pm | 13/03/10
  
  Lets think about that shooting cartoon in your article and the following story…
  ““Kevin makes no apologies for being a long-standing supporter for shooters’ rights,” said that Shooters’ Journal of 2001.
  
  “He has participated in a number of celebrity events at the Belmont range through the years . . .
  
  “Kevin also officially opened the 2000 International Metallic Silhouette Shooting Championships hosted by the SSAA in Brisbane . . .”
  
  And he has taken up a weapon or two himself. Rudd “every now and then” improves his clay target skills but was modest about his abilities…”
  
  http://www.dailytelegraph.com.au/news/opinion/rudd-shoots-from-the-hip/story-e6frezz0-1111114921807
  
  There is comfort knowing your national leader likes a warm shotgun, kindred spirit of former US VP Dick Cheney
  
  Reply
- Matt says:
  
  01:39pm | 13/03/10
  
  Sounds like a good reason to add 1.7% to the corporate tax rate to pay for paid parental leave.
  
  Reply
- mark says:
  
  05:01pm | 14/03/10
  
  It is always entertaining to see the pro-business individuals, who cry “antibusiness!” when they detect even a hint of a suggestion that taxes should be better distributed.
  It is anti-taxpayer that the tax rates differ, despite the fact that both entities consumer community resources. Corporations need educated , healthy , mobile work-forces therefore they depend on government.
  I would also say that my house, car ( that gets me to work), food and health care, all contribute to my ability to undertake my work, but are not tax-deductable. If I were a corporation, equivalent expenditure would be tax deductable.
  The other aspect is the increasing drive for companies to pursue ethical and responsible activities, involving all stakeholders, not just shareholders. The absence of these measures has lead to corporate disasters , the GFC and enviromental vandalism such as Ok Tedi and lead poisoning in Esperence. Isn’t paying tax a fundamental responsibility.
  
  Reply