Tax and wealth redistribution

[David]

Nah, I think they had wealth redistribution then too.

[Mugwump]

^ Tannin, there's a slew of stuff in your post, some very sensible, some less so, in my view.

I agree with you completely on "Overseas tax haves, family trusts, transfer pricing scams". All of these avoid the intent of tax legislation. They should be rounded up and penalised, and/or the law changed to block them. A well-drafted "General anti avoidance rule" would be a good idea. I've long felt that corporate taxes should be charged on total earnings reported to the global stock exchanges, proportioned according to the % of revenue arising in Australia.

Tax breaks, however, are not "wealthy cnuts failing to pay the tax they are supposed to"... because there is no "supposed to" other than expressed through legislation. Things like Super, Gearing, etc are all using the tax regime to promote some policy objective (or buy some votes). Do I agree with them ? No, mostly not - especially not with negative gearing, whcih has no defensible policy objective and is an absolute disgrace. But the "wealthy cnut" is no more "supposed to" pay 47% than 48% or 40%. It's just a political choice, including the tax breaks.

CGT is a different issue. Capital taxes are not like labour taxes, because capital is far more mobile than labour, so you have to keep the CGT rates competitive if you are to avoid chasing away investment. The Uk learned this in the 1960s and 1970s and it decimated its industries with 90% CGT rates. It's one reason among a several why shipbuilding went to Korea rather than Scotland. 22.5% feels roughly right, with a higher rate on residential property.

[David]

While it's probably a mistake to see company tax rates as a purely moral issue, I do have a problem with the mentality of "you have to keep the rates down or they'll run away". That's the pure neo-liberal, "market is god" approach. I think there are alternatives.

As a side note, it seems like we're happy to mock a traitor like Gerard Depardieu for slinking off to Putin's dystopia with his Ferraris and gold-plated statues, so why should we grovel before the (let's face it, often outrageous) tax rate demands of multinationals?

The trouble is, there will always be another country willing to offer bargain rates, and by not taking a tougher stand ourselves, we help perpetuate that system. At some point, a citizenry has to demand that companies pay their fair share, and accept the consequences.

[Mugwump]

[pietillidie]

[Tannin]

Mugwamp, it is extraordinarily illogical to argue that evading tax by perfectly legal use of "overseas tax havens, family trusts, and transfer pricing scams" avoids the intent of tax legislation while at the same time claiming that evading tax by perfectly legal use of super lurks and CGT dodges and negative gearing does not.

Super lurks and GCT discounts and negative gearing were indeed all brought in ostensibly to "further some policy objective", but so were the arcane laws allowing equally rampant abuse of overseas tax havens, family trusts, and transfer pricing. In every case mentioned, we see the exact same process: the wealthy (and only the wealthy) are able to avoid their obligations and the rest of Australia has to make up the difference.

By the way, we already have quite strong general anti-avoidance provisions in Australian taxation law. The problem is that they are not enforced, largely because of three reasons: (a) the biggest tax avoiders always have more money to spend on lawyers than the ATO does; (b) the ATO has been horribly emasculated by ill-judged (Labor) and frankly insane (Liberal) budget cuts; and (c) - worst of all - the ATO has been invaded and captured by the tax-minimisation industry. Staff job-hop between the ATO and the big four accounting firms regularly and there is no longer any sense of mission within the organisation. It's all about making contacts and getting that career-boosting next appointment. You might as well fill all your police force vacancies with crims fresh out of Long Bay or Pentridge. Oh, and we should also mention the disgraceful laxity of governments as regards amendmeding tax law whenever a loophole is discovered. But with three well-paid full-time Canberra lobbyists for every single member of parliament, and practically every one of them pushing to delay or defeat needed reforms, and pushing even harder over the $3000 after-dinner wines to bring in yet further scams, it's pretty hopeless looking for much help there.

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I'm reluctant to run away on a sidetrack here, but I don't agree with your more detailed defence of CGT exemptions either. Capital is indeed more mobile than labour, but that is of no consequence to the economy insofar as the assets on which CGT is (or should be) payable are generally not mobile. Investment which seeks only to make a capital gain - land speculation is the outstanding example - does little or nothing to benefit the nation. If it wasn't there, no-one would miss it. Worthwhile investments result in productive activity and nearly always pay of by generating income. Investments which result in little or no income but a large capital gain are as a general rule either (a) mere speculation, or (b) the result of creative accounting designed to mask income as capital gain to evade tax. I'm sure that you could think of exceptions but they would be just that: exceptions.

Having said that, I do think we need to reconsider the way we treat capital gain. As a first approximation we could start by considering the way we treat capital expenditure: it is (quite rightly) amortised over a period of several years so that one large lump sum expense occurs, for accounting and tax purposes over something approximating to the lifespan of the investment. It seems to me that there is every reason to treat capital gain the same way.

[pietillidie]

^And to add to that, the usual ideological voices posing as economists were dead wrong as always during the GFC.

They jumped up and down like rabid baboons, predicting massive inflation and the attack of the invisible bond vigilantes (a shout out to Krugman for that term) if countries didn't accept huge budget reductions to bring things back to their imaginary equilibrium.

But, instead, the commonsense risk in massive recession is obviously deflation, and so it proved to be in the after-the-event data and analysis.

Some countries are vulnerable for certain reasons (such as those trapped on the periphery of the Euro), but the generalisations again proved BS political opportunism to reduce pressure on the assets of the super wealthy.

[Mugwump]

[HAL]

Good gossip: you are wrong as he or she'm not an expert of tax law history but if they did he or she think it's a logical distinction to make.

[think positive]

[think positive]

[Wokko]

[Nick - Pie Man]

[Mugwump]

[Wokko]

You know the answer, Mug.