Australia's uncollected corporate tax revenue almost exactly equals Australia's annual budget deficit. Alan Austin reports.
THE FACT THAT the Abbott-Turnbull Government has allowed extensive tax avoidance is now widely accepted.
But how much tax revenue is bleeding? The answer is: almost exactly the same quantum as the $30-40 billion annual deficit.
How do we know this? Thanks to former Prime Minister Julia Gillard and former Treasurer Wayne Swan, each December, the Australian Tax Office (ATO) releases a tax transparency report with extremely useful information. Here’s how we get from there to our answer.
The ATO’s Report of Entity Tax Information reveals gross income, taxable profit and tax paid for Australian private companies with incomes above $200 million. It adds this information from public and foreign corporations with incomes above $100 million.
The first transparency report in 2013-14 (with later updates) shows data for 1,909 companies. For 2014-15, we have data on 1,963 companies and for 2015-16, a total of 2,043. Using 2013-14 as a base year, we can readily see what has happened to gross revenue, taxable income and taxes paid — up or down and by how much.
It is simply a matter of comparing revenue, taxable income and tax paid from year to year to confirm what several other reports have told us: revenue is well up, profits are booming but company tax collected keeps falling. What Independent Australia can do here is estimate the quantum of tax not collected. And hence quantify the damage being done to the economy.
We will do this by examining all corporations with gross revenue above $2 billion.
The first confirmation that the current corporate profits boom was accelerating in 2015-16 is the raw number of companies in this category. In 2013-14, there were 133 and a year later, 146. This month’s report shows 151 companies in the $2 billion club.
The second observation is that gross revenue increased substantially for most companies in 2015-16 over two years earlier. AGL Energy, Amcor, Australian Pipeline Trust, Burrup Train (Woodside) and Transurban all reported earnings more than 50% above 2013-14 levels.
Revenue at Brambles, BG International, Meriton Properties, Tal Dai-Ichi Life and TPG Telecom more than doubled. Alinta Energy's revenue was up 193%, Glencore’s up 298% and Samsung C&T’s up 491%.
Gross earnings overall for the 133 biggest corporations increased over the two years by $15.1 billion. That’s a rise of 1.6%. Not a big percentage lift but we should remember 2013-14 was the best year for gross operating profits ever, according to the Bureau of Statistics (ABS). It was definitely a good year.
Naturally, we would expect 2015-16 taxable profit to be a higher proportion of the gross earnings than two years earlier, given lower interest rates, depressed wages and lower fuel and other costs.
In fact, we find the opposite. In 2013-14, the top 133 companies declared 13.26% of gross earnings as taxable profit. This fell to 11.96% in 2015-16. That’s down 10.5 billion in dollars. How come?
Clearly, given the strong global recovery and the benign local regulatory regime, declared profits of just $960.7 billion signals significant under-reporting.
Instead of an increase of just 1.6% over the two years, a lift between 5% and 9% seems a conservative expectation, on the evidence. Taking the lower rate, earnings of $992.9 billion should have been reported — as a minimum. Of this, the same percentage should have been shown as taxable profit as in 2013-14 — 13.26%.
This would have brought the total taxable profit to:
$992.9 billion x 0.1326 = $131.7 billion
Had tax been paid on this at the nominal rate of 30%, then the 2016 Federal Budget would have received from these firms $39,498 million. Instead, the ATO collected just $24,242 million. That’s a shortfall of $15,256 million.
So, in percentage terms, the ATO in 2015-16 collected only 61.37% of the company tax actually due had these corporations reported accurately. That’s just from these 133 companies.
Now we simply extrapolate this to all Australia’s corporations. The total company tax take in 2015-16 was $63,529 million. If that is 61.37% of the company tax actually payable, the total should have been $103,518 million — hence the shortfall was $39,989 million.
That is entirely consistent with the findings of the Senate Inquiry into Corporate Tax Avoidance, comments by Tax commissioners, the National Audit Office’s review of the ATO and recent court case outcomes.
And it is close as dammit to the actual 2016 Budget deficit of $39,606 million.
Remember the Coalition in Opposition promised budget surpluses every year? By fixing just this one glaring problem they could have achieved it.
You can follow Alan Austin on Twitter @AlanAustin001.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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