By Sue Boland
Despite the miles of newsprint and the hours of discussion on radio and television about the need for tax "reform" and the "need" for a goods and services tax (GST), there is deafening silence about the only genuinely equitable method for raising taxation revenue — taxing corporate profits. Instead, business is getting away with avoiding literally billions of dollars in taxes.
You can understand why big business isn't advocating taxing profits. The Coalition parties aren't talking about it, because they are the political representatives of big capital. The ALP isn't talking about it because it also represents big capital, and Labor cut the corporate tax rate in the first place. One Nation isn't talking about taxing profits because it seeks support of small businesspeople who aspire to making bigger profits and becoming bigger capitalists.
What is surprising is that parties and organisations which purport to represent a social justice agenda don't advocate taxing profits as a method of raising taxation revenue.
The Australian Democrats have declared that they "are keeping an open mind on both the coalition and Labor solutions to the [tax] problem, including a GST. We have not closed the door on a negotiated passage of the Coalition package through the senate."
The Democrats' leader, Meg Lees, told Green Left Weekly that their main concerns were that a GST needed to be "equitable" and that the tax mix (the proportions of revenue coming from indirect and direct taxes) not be changed.
To address the fact that many workers have been forced by inflation into higher income tax brackets, the Democrats advocate tax cuts for low and middle income earners. The cuts would be paid for by closing tax loopholes available to high income earners: taxing trusts in the same way as companies, introducing an interest withholding tax on savings to catch the $10 billion of undeclared interest, reducing the dividend imputation credits, reducing concessional treatment of motor vehicles under the fringe benefits tax, curbing income splitting and reducing the deductibility of interest on debt-financed speculation.
The Democrats call for a small increase in the top marginal rate of income tax, from the current 47% to 50%. (The federal ALP government cut the top marginal rate from 60% to 47%.) They have not proposed increasing corporate taxes.
The WA Greens say they have no problem with consumption taxes in principle. Senator Dee Margetts told Green Left Weekly that she sees consumption taxes as useful for taxing luxuries, inappropriate development and things "that harm people socially and environmentally". However, she said a broad-based consumption tax wouldn't allow imposition of a penalty for destruction of the environment.
Asked about the possibility of increasing taxes on corporate profits, Margetts responded that one of the proposals put up by the WA Greens is for "minimum corporate tax. That is, you say [to companies], 'You can have deductions, but you can't pay less than, say, 20% of your profits [the current company tax rate is 36%]'. So the reality is that there are deductions down to a certain level, and from there on you do pay your tax ...
"In terms of company tax, the problem is not so much what the level is but that people aren't paying that level. The bigger the corporation, the more they are successful in reducing or removing their tax obligations. So addressing the minimum corporate tax is probably going to have more success at bringing in revenue, because if you lift [the rate] higher, they'll just find more ways of getting around it."
Margetts also advocates closing tax loopholes for high income earners, such as dividend imputation.
In contrast, Australian Greens Senator Bob Brown has come out against a GST. The Greens' policy on tax and revenue calls for "more progressive taxation" based on the principle that "those who can afford it should pay higher tax while low income earners should contribute less".
However, the policy also calls for broadening the indirect tax base with a service tax and consumption taxes with an ecological component, and "making taxation more progressive through both goods and service taxes having differential rates for luxury items".
Other components of the Greens' taxation policy include a capital gains tax, an inheritance tax, an increase in the Medicare levy, a review of tax concessions for companies, addressing the inequities of the exemption of dividends from taxation, the introduction of eco-taxes such as a carbon tax and the recognition of household incomes rather than incomes of individuals. There is no mention about increasing taxes on company profits.
Of the parties standing in the coming election, the only one standing on a platform of increasing taxes on corporate profits and increasing the top marginal rate of tax are the Democratic Socialists. John Percy, Democratic Socialist Party national secretary and candidate for the federal seat of Sydney, told Green Left Weekly that government claims of a declining revenue base are easily solved without introducing a GST.
"All you need to do", Percy said, "is increase the company tax rate to the original rate of 46%, increase the top marginal tax rate to the original 60%, and eliminate the various tax avoidance methods of companies, and you won't need a GST to pay for government services. In fact, you could eliminate all indirect taxes, increase the tax-free threshold and adjust the income tax brackets so that ordinary workers aren't being pushed into the higher tax brackets.
"There is no way that an unfair and inequitable tax such as a GST can be transformed into a fair and equitable one. Any initial compensation measures are likely to be withdrawn later and most people won't receive any compensation. I can't see the government or big companies agreeing to a big wage increase as compensation, without workers fighting for it. And the rate can always be increased once the tax is introduced.
"It would be a lot better if we just rejected the government-business agenda for a GST and campaigned outright for an increase in corporate taxes. They're the ones who aren't paying their way. Workers and pensioners are fed up with subsidising the rich."
One organisation which has influenced the positions of the Greens, the Democrats, churches and organisations with a social justice orientation is the Australian Council of Social Service. ACOSS is a peak body representing a wide range of social welfare organisations, and therefore has considerable influence in any public debate.
However, in the current debate around tax reform and the GST, it is evident ACOSS has accepted some of the arguments of big business and government about methods of raising revenue. It opposed the GST in 1993.
This change of position has been evident since ACOSS co-hosted the National Tax Reform summit in October 1996 with the Australian Chamber of Commerce and Industry.
After decades of the welfare sector arguing for a more progressive taxation system — taxing the rich more and reducing taxes on the poor — ACOSS is now calling for a broadening of indirect taxes and refuses to oppose a GST outright.
The ACOSS "Agenda for Tax Reform" states: "The consumption tax base should be broadened to prevent future erosion of public revenue — as household consumption shifts from goods towards services — and to reduce the taxation of inputs to production, especially in the case of exports."
In a interview with Green Left Weekly in May, Raper justified broadening the existing consumption tax to include a tax on services: "The problem is that consumption taxes are on too narrow a base, goods only ... and not on services, which high income people tend to spend more of their income on".
While it is true that high income earners do spend proportionately more on services, people on low incomes also have to buy an increasing number of services as government services are privatised. People on low incomes still have to use the services of electricians and plumbers, post letters and get their hair cut.
The document acknowledges that the introduction of a "broadened consumption tax" could mean that "compensation measures may be needed to maintain the living standards of low income people, especially those (such as people with disabilities) with unusual consumption patterns".
The ACOSS agenda does acknowledge that "changes are needed in the business income tax system ... to improve compliance in areas where tax is being avoided", but then it says, "ACOSS does not have a fixed view on reform of business income tax".
When Green Left Weekly asked Raper about the possibility of increasing corporate tax, he replied, "I don't know how much scope there is for that. There are issues of competitiveness and international comparisons and limits that we can't ignore. Even if they're overplayed and overemphasised by the corporate sector, we are suffering from globalisation. We are living in a global economy and there are some limits to how far you can increase the [corporate tax] rate.
"Our preference would be to stop the concessions and increase the base and make sure that corporate taxes don't decline any further as a percentage of the overall tax take."
In fact, globalisation is not a recent phenomenon. The system of global capitalism has existed for the entire 20th century. That hasn't stopped workers struggling for a bigger share of the national wealth before, whether in the form of higher wages, shorter working hours, a social welfare system or progressive taxation.
To try to gain public acceptance for a GST, the federal government has already announced plans to "crack down" on tax avoidance, closing some of the same loopholes for high income individuals that are being targeted by ACOSS and the smaller parties in the Senate.
The government wants to be seen to be attacking tax avoidance by the rich (in reality just well-off professionals) without touching the profits of the real corporate rich. This tactic was also used by the Hawke Labor government.
Australia's overall wealth is not declining. Australia's gross domestic product increased from $307.8 billion in 1984-85 to $433.6 billion in 1995-96, measured in constant 1989-90 dollars.
There is no lack of wealth to devote to social welfare, government services and wage increases. The GDP increase should mean that the government could increase the amount spent in all of these areas.
However, the national wealth reflected in GDP goes in two different directions: wages and profits. Increases in wages, social welfare, government services and corporate taxes would mean that the a proportion of the national wealth would be directed away from profits and towards wages. Cuts in these areas do the opposite.
The big corporations and the government constantly advocate policies that will result in an increase the proportion of the GDP that goes towards profits.
The chart demonstrates how the share of GDP going to wages has changed since 1960-61. The highest recorded wages share was 63% of GDP in 1974-75. Since then it has fallen to 56.1% in 1995-96. The wages share of GDP fell dramatically in the late 1980s, when the federal Labor government cut the corporate and top marginal income tax rates and introduced the two tier wage system followed by enterprise bargaining.
Big business complains that it will be uncompetitive if workers win a wage rise, or corporate taxes are increased, or if more government revenue is spent on social welfare, as a mechanism to intimidate workers, and organisations like ACOSS, into accepting the big business agenda of increasing profits at the expense of workers and everyone else.
The reality is that big business is already ripping off the rest of us.
Aggregate figures from the Australian Taxation Office (ATO) show that companies paid 18.8% of their "taxable income" in 1995-96, despite the official company tax rate being 36%. If all companies had paid 36% tax, it would have brought in an extra $15 billion in government revenue.
In reality, the tax scam is much bigger than $15 billion, because "taxable income" itself is reduced by all sorts of other deductions — totalling a whopping $278 billion — and by a further $21 billion under overly generous depreciation provisions.
The deputy commissioner for large business and international tax, Jim Killaly, was quoted in the Financial Review of July 24 as saying that 200 multinational companies earned $34.2 billion in income but paid tax of only $40 million, or 0.12%.
ATO documents show that 100 multinational companies, each making more than $300 million a year in Australia, paid no tax in 1996.
The main method used by multinational companies to avoid tax is through transfer pricing. This involves charging inflated prices for goods and services between subsidiaries in different parts of the world, in order to minimise profits in high-tax countries and maximise profits in tax havens. Both foreign-owned and Australian-owned multinationals play this game.
A goods and services tax would fall heaviest on workers and the poor, leaving the corporate rich virtually untouched. It is a further step in the big business tax rip-off.
To redress the inequities in the current system, we should be taxing profits and relieving the burden on workers and pensioners by increasing the tax free threshold, altering the tax brackets to account for wage increases over the last 15 years and eliminating indirect taxes.
Let's increase the share of the nation's wealth those goes to workers and those on pensions by decreasing the amount going towards profits. It's been done before.