Tax avoidance by big business has been headline news in Australia recently. The slowing Chinese economy and the related collapse in iron ore prices has lowered tax revenue and widened the hole in the Federal government’s budget from a deficit of $30 billion last year to $45 billion now.
Voter opposition has temporarily pushed back the government from implementing some of the deep budget cuts they desire. For now they are looking at ways to increase revenue that make working people pay. Cuts to superannuation tax concessions and increasing the retrogressive Goods & Services Tax (GST) are being considered.
To get political support for these future tax hikes (and a return to deep spending cuts), the government and mass media have made noises about also dealing with corporate tax avoidance.
However, in a world of footloose capitalism, no government supporting this system can afford to hike up business taxes as they fear it would lead to a flood of capital outward bound. Therefore the recent highlighting of systematic and massive tax avoidance by big business is hollow and more of a political ploy, aiming to seem even-handed. Nevertheless the facts that are being exposed highlight the scope of the rort being carried out.
Google paid only 15% tax last year and Apple less than 2%. There is a whole array of legal tax avoidance methods employed by an army of tax accounts working for big business. This is despite the fact that the company tax rate has been slashed from 46% to 30% since 1983 by both Liberal and Labor governments.
So how do these companies pay even less than 30% tax? How do one third of ASX200 companies manage to pay 10% tax or less?
There are three ‘legal’ methods. One is ‘thin capitalisation’ where a company takes on high levels of debt to artificially lower their profit margin and by being able to claim interest repayments as a tax deduction, they reduce their tax obligations.
Another is by transfer pricing which involves fake transactions between different branches of the same company internationally to get (untaxed) money out of Australia. The third method is the use of offshore low tax havens, such as Singapore and Ireland, as fake headquarters of companies that mainly trade here. In 2012-13 financial year Australian companies sent over $100 billion to related parties in Singapore and $15.6 billion to hubs in Switzerland.
Other tax avoidance methods include the use of trusts, stapled securities and related party transactions, all ways of drastically reducing the tax paid to government. Welfare fraud pales into insignificance compared to the billions lost through corporate tax avoidance.
This problem is a worldwide one. Oxfam claims that under-developed countries lose US$114 billion in tax revenue every year due to business tax avoidance.
The only way to stop this corporate looting is to instigate capital controls on the movement of money in and out of Australia. This side by side with a clampdown on tax fraud plus the introduction of a progressive tax system could begin to address the problem. These measures however will not work unless they are underpinned by a state-run banking system under the democratic control of working people.
Despite the noises of Labor and the Greens on the issue of corporate tax avoidance, they have no real intention of supporting such policies. By sticking with capitalism, they are forced to play by its rules. This requires doing everything possible to make Australia attractive to the corporate crooks.
Real action on tax avoidance will therefore not be implemented by any of the pro-capitalist parties.
What is needed is a new force in Australian politics, one that will stand up to corporate looting. The Socialist Party campaigns for a movement that fights for radical socialist policies that genuinely stop corporate tax avoidance, end capitalist domination over the economy and our political process, and offer a rational way forward for society.
By Stephen Jolly