Has the time come to consider criminalising tax avoidance

Cross-posted from Independent Australia:

Has the time come to consider criminalising tax avoidance and making boards and senior officers liable for prison sentences, asks former ATO Assistant Commissioner, John Passant.

IN A SPEECH in 2013, Barack Obama labelled inequality “the defining challenge of our time”.

Oxfam has argued that 85 people own as much of the world’s wealth as the bottom 50%, i.e. about 3.5 billion people. In Australia, according to ACOSS, there are about 2.5 million Australians living in poverty, including over 660,000 children.

Australia’s inequality is above the OECD average and has been growing above average over time. Two processes are in play. One is the growing income disparity between the top and the rest of us. The increases in real wages and other income for example have gone disproportionately to those in the top ten percent of income earners, and even more so to those in the top 1%.

Our tax system has also become less progressive. This is because of reductions in top marginal rates, legislated tax havens for the rich like superannuation tax concessions and capital gains tax discount and our focus on regressive consumption taxes.

The revenue forgone from tax concessions such as superannuation and capital gains tax and the losses from negative gearing is about $40 billion a year. About $17 bn of that goes to the top ten percent.

So one task of tax reform would be to restrict these benefits to those in need, or to abolish them and use the extra revenue for socially useful purposes.

Another task should be to reverse the reductions in income tax progressivity by increasing income tax rates on higher income earners, those for example earning more than $130,000.

The top 10% of wealth holders in Australia own 45% of all the wealth, or about $3 trillion. A one percent annual wealth tax on them would raise by my back of the envelope calculations about $30 billion annually from them.

An alternative would be for the Commonwealth to tax net wealth transfers, for example, by reintroducing estate and gift duties.

The Panama Papers have re-ignited debate about the tax avoidance activities of high wealth individuals and big business. In two recent ATO tax transparency reports on big business, the Commissioner of Taxation revealed that 36% of those entities did not pay any income tax in 2013-2014.  On top of that one third of ASX 200 companies have an effective tax rate of less than ten percent. More than half those ASX companies also have subsidiaries in tax havens.

Maybe the time has come to consider criminalising tax avoidance and making Boards and senior officers liable for prison sentences for any tax avoidance their companies undertake.

More prosaically, it might be time to consider a minimum company tax, based not on actual taxable income but gross revenue. A tax of three percent on the $454 billion gross untaxed revenue of big public businesses alone would yield more than $13 billion. That is before we tax those companies whose effective tax rates are well below the company tax rate of 30%.

There are many other taxes we could consider that could reintroduce equity to the tax debates. Levying rent taxes on the monopolists and oligopolists making super profits, taxing the big greenhouse gas emitters, (while denying them the ability to pass on the costs to consumers,) investigating financial transaction taxes, considering land taxes, and urging the A.C.T. Labor/Greens government to do a Colorado and legalise the personal use of marijuana and tax the cultivation and sale, are but a few other options we could debate.

That no serious systemic progressive tax options are on the agenda is indicative of a wider political problem. The ruling elite and their major parties are keen to make the tax system less progressive. This is part of the wider 33 years to date neoliberal program in Australia of shifting wealth from labour to capital to address what Marx identified many years ago as the tendency inbuilt into capitalism of the rate of profit to fall.

That further regressive tax proposals such as increasing the GST are now off the table is a response to an untapped underlying anger with politics as usual that ordinary working people feel. Therein lies our hope. It is time to put progressive tax reform back on the agenda. Growing inequality threatens our democracy. It is time to tax the rich.

John Passant is a former Assistant Commissioner of Taxation, former tax academic and is currently a PhD candidate in the School of Politics and International Relations at the ANU. This is an edited version of a speech he gave at the National Law Reform Conference at the ANU on 15 April.

You can follow John on Twitter @JohnPassant

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Comments

    • Yes, Peachy.

      The better includes getting rid of regressive taxes like GST and Land Tax and having more progressive, but properly applied taxes like income tax.

      • Total bollocks. The opposite is true.

        The means of production should be relieved of taxation because to tax these is to directly inhibit progress. That includes labour being used in production, land being used in production, and capital goods being used in production.

        But when land is just sitting idle, held by some speculator looking for a capital gain, then it should be heavily taxed until the speculator is forced to put it to use or transfer ownership to someone else who can. You don’t need to tax labour or capital goods that are not at work, because Entropy takes care of that for you.

        You want to tax labour and give Capital a break. Your world is a Rentier’s paradise and a general hellhole of extreme inequality. It’s a reversion to the Dark Ages of Rent-seeking Lords and their Peasants from which nothing good comes. It’s a world in which those who work to bring about progress have the life sucked out of them by a bunch of useless parasites.

      • @Mediocritas

        What Communist Comrade Eisenhower progressive taxation killed the best years America ever had – ????

  1. drsmithyMEMBER

    A few more tax brackets and higher rates on the top end to capture that increasing income gap wouldn’t go astray either. The system has become far too flat.

    It’s absurd someone on $200k sits in the same tax bracket as someone pulling in a couple of million.

  2. IN A SPEECH in 2013, Barack Obama labelled inequality “the defining challenge of our time”. Obama is a bit late to the party,
    Back in the year zero, Deuteronomy 15:11 There will always be poor people in the land. Therefore I command you to be open handed toward your fellow Israelites who are poor and needy in your land.
    Nothing will alter the circumstances for the poor. That is just how it is.
    Business will argue that it is too difficult to do busness in Straya Mate, we are going to the Bahamas, Ireland,Jersey etc. CU later.
    What then?

    • And , should the climate not suit your clothing you can always go here:
      The U.S. National Bureau of Economic Research has suggested that roughly 15% of the countries in the world are tax havens, that these countries tend to be small and affluent, and that better governed and regulated countries are more likely to become tax havens, and are more likely to be successful if they become tax havens.
      Switzerland
      Luxembourg—primarily a conduit tax haven
      Netherlands— primarily a conduit tax haven
      United States— favoured for its tax secrecy
      Jersey (United Kingdom)
      Isle of Man
      Bermuda
      British Virgin Islands
      Cayman Islands
      Delaware, United States
      Puerto Rico
      https://en.wikipedia.org/wiki/Tax_haven#List_of_tax_havens_and_countries_of_financial_secrecy

  3. bolstroodMEMBER

    Now remind me again ;why 400 investigative jobs were cut by the ATO a while back?
    The laberals have nobbled the Tax Catcher, so who is going to implement a tougher taxing regime?

  4. kiwikarynMEMBER

    There is a difference between tax minimisation and tax avoidance – stucturing your affairs within the bounds of the law so as to achieve maximum financial advantage of which paying less tax is a byproduct, is a time honored practice and perfectly legal. Structuring your affairs for the sole purpose of avoiding tax is already illegal.

  5. I agree, criminalise tax collection.

    The idea of threatening to imprison people in rape factories for the crime of earning income is one of the most immoral and violent signs of our current society.

    • “I agree, criminalise tax collection.”

      Without taxes to fund law enforcement how would you enforce this (or any) law?

      • kiwikarynMEMBER

        Better yet, if we got rid of the Govt we wouldnt need to pay taxes. User pays system for everything.

      • You don’t think people would voluntarily sign up to private systems of law and order ?
        Strange how so many statists claim that things like law and order, and roads and police are so important to everyone, but there is no conceivable way to pay for these except through coercive taxation and monopoly provision by the government.

      • ” User pays system for everything.”

        That’s not very practical. A significant section of the community would not be able to afford healthcare, education or security. How long until such a society turns on itself? First serious depression and the nation would probably swing to some other wild extreme. As ugly and imperfect as it is, I think the pragmatic middle ground is the best way forward.

      • @Jono, a private system of law and order? Are you kidding me? We have a name for that, it’s called Mafia, Triad, Yakuza, etc. Are you so appallingly naive that you don’t understand how Protection, offered by the Muscle, operates in a competitive, for-profit environment?

        Here’s a little sci-fi vision of your “vision”: https://www.youtube.com/watch?v=z24rqrxlNPY

      • kiwikarynMEMBER

        By all accounts Sth Africa operates on a private system of law and order. Private security, gated communities, etc. You want to be safe, you pay for it.

      • drsmithyMEMBER

        You don’t think people would voluntarily sign up to private systems of law and order ?

        Sure. Then they’d get together with a bunch of like-minded individuals and go out “voluntarily signing up” other people into their “private systems of law and order”. Occasionally another group with a more… persuasive… “private system of law and order” would ask you to volunteer to sign up with them. Or die.

        Like they do in your typical dysfunctional country like, say, Somalia. Or on a smaller scale, the Mafia.

        But, regardless, what do we have at the end of that process ? Oh yeah, a bunch of people responsible for administration – or as most people call it, GOVERNMENT.

        Strange how so many statists claim that things like law and order, and roads and police are so important to everyone, […]

        Not nearly so strange as how many Libertarians claiming that they don’t believe in Government while arguing for their own version of (inevitably fascist and/or feudalist) Government.

        What Libertarians really mean is they don’t believe in _democracy_. They have no problems whatsoever with bureaucracy or government, just so long as its the rich and mighty telling the poor and weak what to do.

        […] but there is no conceivable way to pay for these except through coercive taxation and monopoly provision by the government.

        There are plenty of conceivable ways, just not many that work.

      • drsmithyMEMBER

        That’s not very practical. A significant section of the community would not be able to afford healthcare, education or security. How long until such a society turns on itself?

        People like Jono don’t care. They’ll be safely bundled up in their walled estate or community, protected by mercenaries, watching the bodies pile up outside.

        “Me want, fuck you.”

    • drsmithyMEMBER

      The idea of threatening to imprison people in rape factories for the crime of earning income is one of the most immoral and violent signs of our current society.

      Right. Because taxation is something that’s only been invented in the last half-century or so.

      • Yes well we seem to have abolished slavery, and we allow free speech, and the whole democracy thing to.

        Taxation is an ancient relic.. at least in the old days, people could hide their wealth from the kings tax collectors. And we didn’t have central banks to devalue the currency and rob people through inflation.

      • Jono…

        Taxation is the anchor to FRN and yes under MMT lots of taxes are redundant, at a fed level, but hangovers from the past are sticky, as well as antiquarian ideology.

        http://neweconomicperspectives.org/2013/04/modern-monetary-theory-overview-part-1.html

        Disheveled Marsupial…. you might consider your point of view extrapolated from an individual point to that of a multi-transnational corporation… are they the same wrt to bargaining power in a market place- ????

  6. As David Leyonhjelm tweeted today, “Avoidance is legal. Evasion is not”.

    How can you criminalize tax avoidance while allowing people to make legitimate deductions?

    Perhaps some of the ideas are worth exploring (or others ways of fairly raising revenue), but the answer to the title is a definite no (and it’s a really dumb way to introduce the discussion, though that’s no fault of MB obviously).

  7. OMG, you mean there is nothing in the Federal Crimes Act that covers tax avoidance, making it an indictable offence with a custodial sentences?

  8. kiwikarynMEMBER

    And why stop with companies. We can put all the settlors of family trusts in jail too for the crime of diverting asset income to lower tax rate beneficiaries like their kids.

  9. yes, all Labour needs to do is sell it like NG, i.e get the idea out there, then let the Libs lie their asses off, then the topic be picked up by the more astute media who then drives a strong general consensus on the issue….and again Mal will look……..dodgy

  10. Why has inequality been considered when discussing tax avoidance?

    Inequality is inevitable, as are people’s attempts to minimize their tax bill. If they’ve broken the law, yes sufficient punishment should be coming their way.

    “That no serious systemic progressive tax options are on the agenda is indicative of a wider political problem.”
    In other words, he’s asking for higher taxes on those who earn more… Given those in the top 1% pay a very very large portion of tax, I think this is a bad idea. Incentivize them to invest within the country, not to take capital out of the country.

    Socialism really isn’t a good idea, regardless of how great the theory sounds…

    • drsmithyMEMBER

      In other words, he’s asking for higher taxes on those who earn more… Given those in the top 1% pay a very very large portion of tax, I think this is a bad idea.

      Incentivize them to invest within the country, not to take capital out of the country.

      Good idea. 50% tax on any money you want to move out of the country !

      Socialism really isn’t a good idea, regardless of how great the theory sounds…

      It did an OK job of creating contemporary civilised society.

      • I’d say that was capitalism, not socialism.

        As Munger says, incentives matter. If you want the economy to chug along, you must incentivise people not tax them to no end…

      • drsmithyMEMBER

        I’d say that was capitalism, not socialism.

        Capitalism didn’t deliver national infrastructure like road, rail, electricity and clean water.
        Capitalism didn’t deliver healthcare and public education, and the consequent highly-skilled and capable workforce.
        Capitalism didn’t deliver well-paid working- and middle-classes.

        Capitalism fights against all of those things.

        As Munger says, incentives matter. If you want the economy to chug along, you must incentivise people not tax them to no end…

        The economy is driven from the bottom-up, not the top-down. People at the bottom pay little tax and consequently see little improvement from tax cuts.

  11. ‘it might be time to consider a minimum company tax, based not on actual taxable income but gross revenue. A tax of three percent on the $454 billion gross untaxed revenue of big public businesses alone would yield more than $13 billion.’

    This!

    • kiwikarynMEMBER

      And companies would just put their prices up, so the consumer would end up paying for it. And not just the rich ones.

      • Yet John Howard with the intro of GST threatened business about raising prices too high.

  12. “The increases in real wages and other income for example have gone disproportionately to those in the top ten percent of income earners, and even more so to those in the top 1%.”

    Has anyone got any stats to show this is the case in Australia? The ATO figures recently published in the Guardian for the last ten years don’t show this.

    While I agree with a lot of things in that article I would prefer to see the base arguments actually substantiated with facts rather than just repeated like gospel.

    • kiwikarynMEMBER

      Dont let the truth get in the way of a good story. Soon we’ll be bringing the guillotines out and having public beheadings of rich folks, while we peasants clap and cheer and knit. Viva la Revolution.

  13. Taxation is such a barbarous relic, especially when our masters just create more money by typing it into a keyboard. Such a f;ing joke, the above might apply if we are all on a hard currency. But were not, and they aren’t gonna take a haircut, the currency is.

  14. Don’t bother it will just clog up the criminal legal system which is at breaking point right now. It won’t stop the big end from doing what they are going to do anyway because they’ve got deep pockets. What it will do is prevent the battlers defending their taxation rights by imposing a high cost of defending charges brought by the ATO. Of course the ATO are mooting this because they don’t have to pay – we do.

  15. Aren’t we better off making better tax laws than making complying with existing laws illegal?

    There are currently criminal sanctions for evasion and other tax fraud. What the Panama Papers showed was more along those lines so let’s wait to see what comes out of it.

    • Jason I think the rub is making profit off the infrastructure of some place and not ponying up a fair bit back into the kitty…

  16. Putting people in prison doesn’t achieve anything; change the system of taxation. As I have said many times let’s just abolish the existing tax structure and start again. No income tax, no corporate tax, no fringe benefit tax, no exemptions of any sort, no stamp duty, no payroll tax, no GST. Nothing. Then put a financial transaction tax on all deposits, double the rate if the money is sent overseas – the rebuttable presumption being that it is done to avoid taxation. Then everybody, individual and company, would be contributing to the running of the country they either live in or in which a business is active. If a country elected a Government that put its people first then it would also have a progressive inequality tax on incomes over X times the average wage with an inflation adjustment for tax bracket plus a wealth tax. It could then work out a policy how to better the country as a whole with all that tax money. And it would be a lot and so easily administered because it would be collected by the Banks on behalf of the Government. But if the elected Government wasn’t interested in the welfare of its people then the Country would not have an inequality tax. Everything would be so very transparent.

    Surely anything is better than the nonsense we have now throughout the western world.