Following hot on the heels of 32-year veteran industry insider turned whistleblower, George Rozvany’s, claims that multinational tax avoidance is “out of control” and costing Australia up to $50 billion per year in lost revenue, the Australian Tax Office (ATO) has flagged that it will release its official estimate of the “tax gap”, which may be as low as $2 billion. From The AFR:
ATO public groups deputy commissioner Jeremy Hirschhorn said on Thursday that he was “not going to officially say” what the company tax gap was, ahead of the figure being published for the first time in October in the group’s annual report for 2015-16. At the Financial Services Council’s annual summit in Melbourne he tipped that when the figure was eventually revealed it was likely to be “significantly lower” than what the general public expected.
He hinted at “an implied range” of “about $2 billion to $3 billion”, based partly on comparisons between Australian data and analysis done in the Britain.
The estimated $2 to $3 billion dollar loss of tax revenue from avoidance measures could pose a problem for the Coalition’s company tax cut package, whose modelling used to support the package assumed that lowering the company tax rate to 25% from 30% would deliver around $4 billion to the income of Australians every year, in the long run, because multinational companies would somehow stop profit shifting overseas. This assumption made up for 55% of the $8.2 billion per year cost of the tax cuts, making the reform partly ‘self-funding’.
While there are very good reasons to denounce the ‘morality dividend’ assumption in its own right (see here), the ATO’s low tax loss figure does throw another spanner in the works of the Government’s company tax cut plan. That is, if the tax loss figure is low, then there is little money to be clawed back from cutting company taxes.
