Politics

Counting the cost of the Coalition (Part 2): Where has Australia’s wealth gone?

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(Cartoon by Mark David / @mdavidcartoons)

The first four Coalition Federal budgets have all left Australia much poorer. The fifth, last week, continues that trajectory. In the concluding part of his series, Alan Austin examines how the treasure was lost and strategies for its recovery.

[Read Part One HERE]

THE DAMAGE to Australia’s economic health over the last four years can barely be overstated.

We know from last week’s Budget that Government debt has ballooned and the nation’s net worth has plummeted since the Coalition was elected in 2013. Total budget deficits have been more than three times deeper than the heads of Treasury and Finance forecast under Labor’s pre-2013 settings.

Comparisons with other countries show global rankings have tumbled disastrously. On most indicators, Australia was close to the top of the world in 2013. Australia now ranks 72nd on the jobless rate, equal 63rd on budget deficits as a percentage of GDP (equal with Ethiopia), 80th on government debt to GDP and equal 124th on annual GDP growth (equal with Somalia).

So, what specifically has the Coalition done to destroy so much of Australia’s wealth and can it be recovered?

Minerals and energy extraction

The centrepiece of the 2010 review into Australia’s tax system headed by Dr Ken Henry was a resources super profits tax. This recognised the reality that vast billions worth of minerals were being shipped out of Australia with little or no net contribution to the economy – or the people – of Australia. This remains the situation today.

The Gillard Labor Government introduced a limited resources tax in 2012 with a surprising level of mining industry support. The Coalition abolished it in 2014.

How much revenue is being lost is impossible to measure accurately. But we know volumes shipped in recent years have been at all-time highs and prices have been strong for most minerals.

Top end tax evasion

We know from the Australian Taxation Office (ATO) annual reportstransparency reports and former ATO executives that tax evasion has escalated in Australia over the last four years.

Methods used are many and varied. They include phoenix schemes, diverting profits offshore, posting artificial losses, rorting trusts and straight fraudulent misreporting.

Earlier this month, Independent Australia showed from Bureau of Statistics data that the Coalition in its first four years failed to collect $32.6 billion in company tax. With the latest Budget figures, we can add another $11 billion for 2017-18.

That is just company tax. We can also estimate taxes uncollected from high income individuals, trusts, partnerships, non-residents, fringe benefits, excises, levies and other sources.

If we make the generous assumption that only 10% has been uncollected, then these are the amounts the budget – and the citizens of Australia – have lost over the last five years:

  • High income individuals: $93.1 billion
  • Non-residents’ income $0.9 billion
  • Oil and petroleum excises: $9.1 billion
  • Other excises and levies: $2.8 billion
  • Fringe benefits: $2.1 billion
  • Taxes on international trade: $6.3 billion
  • Other taxes: $7.2 billion
  • Grand total: $165.1 billion

That is 62.8% of the total gross debt the Coalition has stacked on since its arrival; it is 82.0% of the loss of the nation’s net worth; and 93.1% of the accumulated deficits.

Interest payments abroad

The Turnbull administration now pays foreign governments $13.1 billion Aussie dollars each year – or $35.8 million every day – in interest on the debt. Much of this appears to be applied to buying up agricultural land as it comes to auction. Those foreign governments can easily send produce straight back to their homelands – via ports they also control – and bypass Australia’s economy completely.

Just one foreign country increased its land holdings by a factor of almost ten last financial year — up from 1.46 to 14.42 million hectares.

Where has the wealth gone?

Tracing the losses is difficult, but we have discovered quite a lot from the Senate Inquiry into Tax Avoidance, court cases and the leaked documents known as the Panama Papers and the Paradise Papers.

Much of it has been sent offshore to tax havens used by the parent companies of businesses operating in Australia. BHP, for example, shifts its profits to Singapore, where the company tax rate is just 17%. From there the proceeds are sent on to the UK and elsewhere.

Local Australian corporations and wealthy individuals also send profits offshore via various schemes.

How can this be reversed?

Several steps are required.

  1. Implement an effective resources profits tax.
  2. Restore the rates of taxation to optimum levels. The rate changes announced in the budget will almost certainly exacerbate the problem, so should be reversed. The optimum company tax rate, as shown here, is 30%.
  3. Tighten the laws to ensure profits generated in Australia are taxed in Australia.
  4. Engage constructively – taking the lead, if necessary – in international efforts to stop brazen profit-shifting to tax havens .
  5. Equip the ATO with the resources necessary to enforce the law. This means restoring many of the 4,600 staff the Coalition has cut.
  6. Beef up the resources of the Australian Federal Police and Australian Criminal Intelligence Commission so they can bring more rorters to justice.
  7. Take to court the corporations who have avoided their tax obligations via schemes they claim are technically legal but which clearly violate the intent of the laws. Use retrospective legislation, if necessary. The classic example here was a Murdoch subsidiary avoiding tax by raising fake inter-company loans and creating fake interest payments between subsidiaries.
  8. Increase penalties for serious tax evasion beyond good behaviour bonds and minor fines to include significant gaol time.

The first move, of course, before any of these can be achieved, is to replace the current Government with one genuinely committed to managing the economy in the interests of the majority of Australians.

You can follow Alan Austin on Twitter @AlanAustin001.

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