These are the notes for a talk on the Panama Papers I gave for socialist group Solidarity at ANU on Thursday. None of the graphs or cartoons have come out so if I get time I will try to fix that up.
Panama Papers Solidarity talk.
I acknowledge and celebrate the first Australians on whose traditional lands we meet and pay my respects to the Ngunnawal people past and present.
Today I am going to talk about the Panama Papers, and then more generally about tax avoidance and then about equity and taxing the rich requiring not just a political but a social revolution.
Any discussion of taxing the rich, of attacking tax avoidance and tax havens, sees the conservatives squawk. Where’s the money coming from argue every conservative ever born? My comments in the next twenty five minutes or so will give you an idea – from the rich and capital. My talk will also explore growing inequality in our society and the limited nature of the democracy in which we live, highlighted by government failure to address tax havens and tax avoidance. The game is rigged.
Why can’t we tax the rich and capital? Because they government and capitalists are like a band of hostile brothers who agree that profit is the centre of everything they and business do and should do.
In fact Australia by OECD standards is a low tax country. Our average tax take as a percentage of GDP at 25.6% is about 8% lower than the OECD average and puts us on a par with Turkey, South Korea and just a bit above the US.
What are tax havens?
No or low income tax. Secrecy. TJN 21 trillion to 32 trillion. 50% world trade nominally through tax havens.
Mossack Fonseca. One of over 100 such companies ATO has identified. 11.5 million documetns (full release 9 May) 140,000 clients, 120,000 companies.
MF based in Panama. Uses 21 tax havens around the globe. Shell companies often to hide identities. Who has heard of Wilson’s security?
It runs the “security” on Australia’s asylum seeker and refugee gulags, Manus Island and Nauru. It is owned by Wilson Offshore Group Holdings (BVI) Limited, a British Virgin Islands company set up by Mossack Fonseca to protect the true identity of the owners from any governmental scrutiny.
Thomas Kwok, one of those true owners, is in jail for fraud in Hong Kong. The other, his brother Raymond Kwok, was acquitted of similar charges. They had resigned as the directors of Wilson Offshore Group Holdings (BVI) Limited shortly after the charges were laid. Two companies, Winsome Sky and Harmony Core, replaced them as directors. The Panama Papers show the brothers control those two companies.
The reason for these arrangements? Wilson Security would not have won Australian government contracts if it knew that one of the real owners was in jail for fraud.
By the way, Wilson Security also supplies the guards for various government bodies, including the Australian Tax Office (ATO).
It is not just Wilson Security. The ATO is investigating 800 Australian entities named in the leaked documents. The Panama Papers refer for example to Australian banks and BHP Billiton. Banks are involved because you have to get the money out of your jurisdiction and into the tax havens, often via more reputable tax haven countries that supposedly aren’t, like Singapore, Hong Kong, Switzerland, The Netherlands or Luxembourg.
Australia’s current Prime Minister Malcolm Turnbull, one of Australia’s richest men, has or had high earning investments in or through the Cayman Islands, a tax haven. The point here is not whether they are legitimate or not or that the investors pay their “correct” amount of tax. It is that they are part of the game the rich and powerful play to increase their individual wealth and that that game is rigged in their favour by governments too afraid to crack down on “legitimate” investments in tax havens. They run the democracy, they set the rules, and paying much tax isn’t really part of that.
So the problem is the tax havens is it? Before we get too carried away with colonial outrage, remember that many tax havens exist today as outposts or former outposts of empire set up to hide the money of British colonialists and capital. Some of them, like the British Virgin Islands, the Cayman Islands and Bermuda, are British Overseas Territories, still under some form of British control. At the centre of these tax havens is the City of London, one of the main financial hubs of British, and indeed, global capitalism.
The US has its own equivalent tax havens, in particular Delaware where half of all Wall Street companies are incorporated for the low state taxes and slack company regulation.
So the traditional view of tax havens as sunny places for shady people is actually not correct, unless climate change has turned the City of London into a tropical paradise. Tax havens are integral to global capitalism.
These revelations are not new. They are the latest in a range of leaked and other information about the dark underside of capitalism. We have had the Luxembourg leaks, the Tax Justice Network which estimated that between US $21 trillion and $32 trillion is held in havens (about twice US GDP and five times the wealth of Australia all up), the TJN/United Voice report into tax avoidance by Australian companies, and the ATO release recently of tax data of public and private big business companies which shows that well over one third pay no income tax and another 1/3 have an effective tax rate pay less than 10%.
Apart from a bit of huffing and puffing nothing has happened to address rampant tax avoidance by big business.
It is not just the parliament. The ATO has so far got rid of over 4400 staff with more to come. That is about 20% of all tax office staff, mainly from the middle to upper middle ranking levels, the people who used to chase tax avoiders. The union says 1000 of them dealt with international tax matters. The Commissioner is a former partner in tax and accounting big four firm KPMG. Who voted to gut the ATO? Not you, not me, not ATO staff, not ordinary working people paying their fair share.
Big business tax avoidance gives the lie to the Turnbull mantra that we have to live within our means. This mantra will be the justification for the ongoing cuts to public health and education, to public transport, CSIRO and to social welfare. There would be no budget crisis if we addressed big business tax avoidance. Our mantra in response to Turnbull should be to tax big business and the rich. Not cut services for the poor and working class.
The money is there but our elected politicians and unelected officials won’t attack tax havens or avoidance because they represent the interests of the 1%, not the 99%.
How can we address tax avoidance, at least in theory? Well, we could criminalise tax avoidance. We could impose a withholding tax on payments to and from tax havens but that is easy to avoid (just use an intermediary country) and would require global cooperation. The US in particular is not keen on global cooperation to fix up tax haven use and tax avoidance. It drags its feet on pressuring tax havens to enter tax information exchange agreements. One of the reasons for this reticence is that the US has its own tax havens and tax haven arrangements (tick the box, inversions etc.) It is also that the US thinks that the more US based companies avid tax overseas the more they pay in the US.
Apple example. Apple pays somewhere over $100 billion in tax in the US on its North American income, income which makes up 60% of its income in total. It pays almost exactly the US company tax rate, 35% on that income. On its overseas income (40% of its total income) it pays on average about 1% tax around the non-US globe. The US doesn’t want to upset that. Apple by the way was one example of the Double Irish Dutch sandwich which I can outline in the discussions.
Using tax havens and shell companies is part of a wider capitalist dynamic of hiding assets and arrangements from prying tax and other State body eyes. It reflects the business view that any profit is “theirs,” rather than the reality that it arises from the unpaid labour of workers.
Of course you can use tax havens for the secrecy, to hide your money from the ATO and other bodies. Or you can use them for ‘legitimate’ tax planning reasons. For example I mentioned 50% of global trade goes through tax havens. On top of that 57% of the ASX 200 top companies have subsidiaries in tax havens. So the game is rigged. It is legal to use tax havens because it is integral to global capitalism. The politicians of the 1% are not going to change that in any real way.
This may explain in part why 36% of big business in Australia paid no income tax in 2013-14 on gross revenue of $454 billion and why over 1/3 have an effective tax rate less than 10%. The statutory tax rate is 30%.
Business sees tax as a cost rather than a contribution to society. This is systemic, driven by competition.
As Google Chair Eric Schmidt said about his company’s tax avoidance activities around the globe, activities which have seen it funnel almost $10 billion into Bermuda, saving $2 billion in taxes:
“The company isn’t about to turn down big savings in taxes. It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”
He is not alone. This is from the ATO tax transparency report on big business, public (turnover greater than $100 m) and private (turnover greater than $200m). .
So can we address this? One option would be to impose tax on the gross revenue of untaxed income. That untaxed income comes to about $454 billion according to Get Up! A 3% levy on it – a sort of paying the rent for operating in Australia would raise almost 13 bn. The other side of the coin here to this is inequality. It has been growing and tax has been contributing to that. That does not include the low taxed companies, the one in three with an effective tax rate less than ten percent (ie those who paid a little bit of tax but nowhere near the statutory rate.) It won’t happen.
In a speech in 2013 Barack Obama labelled inequality “the defining challenge of our time”.
In terms of global inequality Oxfam have argued that 85 people own as much global wealth as the bottom 50% of the world’s population, i.e. about 3.5 billion people. They estimate too that based on trends over the last decade or so the top 1% will own as much as the bottom 99% some time this year.
In Australia, according to ACOSS, there are about 2.5 million Australians living in poverty, including over 660,000 children. One in three pensioners live below the poverty line.
Australia’s inequality is above the OECD average and has been growing above average over time. Two processes are in play. One is the growing income disparity between the top and the rest of us.
ACOSS says ‘over the 25 years to 2010, real wages increased by 50% on average, but by 14% for those in the bottom 10% compared with 72% for those in the top 10%. There was, apart from the top 0.1%, a bit of a slowdown in these income differential trends in Australia after the GFC, but recent numbers, including falls in real wages and wage increases at the lowest in over 25 years, suggest the trend has begun again.
Another way of looking at this is who gets what in terms of their share of total factor income.
Here are the ABS graphs showing a pretty clear trend over time of the wages shore going down and the profit share going up. Wages etc:
The second part of that process of growing inequality in Australia has been that our tax system has become less progressive. This is because the income tax system has become less progressive with for example reductions in top marginal rates, and we are relying on regressive consumption taxes. For example the top marginal rate in 1980 was 60%, and cut in at a lower relative level. The top marginal rate today is 45%.
- The richest 1% of Australians saw their share of total national income almost double, from 4.8% in 1980 to 8.8% in 2008 [Table9.1]. Moreover, that of the richest 0.1% rose from 1% to 3%. At the same time, top marginal income tax rates declined markedly, dropping from 60% in 1981 to 45% in 2010.
- Nonetheless, since the mid-1980s, taxes have become less redistributive. Both progressivity and average tax rates have declined.
Political response to growing inequality is playing out in places like the UK with Jeremy Corbyn and the US with Bernie Sanders. Rise of the radical left in Greece, Ireland, Spain, Portugal. Will there be a movement for political revolution which recognises we need a social revolution? Will Australia be immune? Underlying untapped anger could burst forth. Already some victories – GST increase from 10% to 15% and including fresh food, health and education, water etc off the agenda.
We could make the income tax system more progressive. EG new 50% tax rate cutting in at $130,000 – few workers earn more than that even in the mining industry at its boom – and then a higher rate of say 75% from 180,000 (top 3% of income earners) and say 100% for incomes greater than $250,000 (top 1% of income earners.) Jean-Luc Melenchon
The Greens yesterday announced a Buffet rule for the rich. Warren Buffet was surprised to learn that eh paid less tax as a percentage of his income than his secretary, mainly because business deductions reduced his taxable income. The rule he proposed was for a set rate to be applied the gross income of the rich taxpayer. So in Australia the example the Greens use is of 59 rich people with incomes in total of $129 million (i.e. about on average $2 million each). They paid no tax because their deductions reduced their income to below the taxable level (ie below $18,200.) Among those deductions was $47 million for tax advice.
A Buffet rule with apply a set rate, say 35% to the gross income, the $129 m, of these rich people, i.e. about $45 tax million from the 59, or around $700,000 each on average from their gross revenue of $2 m each. We could do the same for untaxed company revenue.
There is another element to inequality. It is not just that it has been increasing. It is that there is a concentration of ownership of wealth in Australia that sees the systemic inequality consolidate and increase.
This pie chart from the ACOSS 2015 report on inequality captures the amount of the wealth each part of society owns.
A refinement to the pie chart is that, as ACOSS and the OECD among others show, the top 10% of wealth holders in Australia own 45% of all the wealth.
So why not Impose a wealth tax? 10% own 45% of the wealth. Australia’s net wealth is about $6.7 trillion. So the top ten percent own $3 trillion. One percent annual net wealth tax would raise $30 billion. Or we could reintroduce estate and gift duties on the wealth transfers of the top ten percent.
Some examples of how the game is rigged.
We already have legislated tax havens in Australia. Get rid of 3 tax havens embedded in our system. Superannuation, capital gains discount, negative gearing.
Superannuation tax concessions.
Here is a graph from the financial system inquiry, the Murray Inquiry, about who gets what in terms of the tax concession for superannuation.
In other words the benefits flow overwhelmingly to the very well off. Abolishing all the superannuation tax concession for all taxpayers would improve the Budget bottom line by $30 billion according to Treasury. Abolishing the benefits for the top ten percent of income earners would free up a potential $12 billion in revenue a year. Some of that tax expenditure money would look for other low taxed treatment, such as negative gearing and capital gains tax concessions.
Explain NG? The main beneficiaries in terms of the size of the negative gearing benefits are the well off.
Grattan Institute analysis shows that the before rental deduction situation is even starker – the top decile gets 50% of the tax benefits that flow from negative gearing.
An important aspect of the thinking of negatively geared investors is the capital gains concessions that flow when the property is sold. Getting rid of negative gearing by limiting it to being offset against rental income would raise an extra $5 billion.
Capital gains tax discount
Unlike all other forms of gain taxed as income (wages, business profits, interest, rent etc) capital gains are taxed concessionally. If you hold an asset for greater than 12 months when you sell it you only include half the net capital gain in assessable income. Treasury estimates this tax expenditure forgoes a bit over $6 billion a year.
NATSEM estimates that after taking account of the impact of the capital gain on taxable income, the top decile gets 54% of the value of all the concessions. If that adjustment isn’t made the benefit the top decile gets is 74% of the total value.
Negative gearing, superannuation and capital gains all show that the richer you are the bigger benefit you get. This is a classic outcome of using the tax system to provide what are essentially in tax expenditure analysis disguised grants.
The revenue foregone from these 3 tax concessions is about $40 billion a year. Even if we did not abolish the concessions in their entirety but only reduced the concession for the top ten percent of income earners, we are looking at raising an extra $ 15 – $20 billion a year.
$50 bn in submarines; $24 bn for fighter jets. $57 billion in cuts for health.
However, the problems of tax avoidance and inequality are systemic. The game is rigged. They require a systemic solution, a democratic and socialist revolution to put the vast majority in control of the assets of the world and to organise production to satisfy human need, not to make a profit. In such a world we would not need tax havens and shell companies.
I know socialist revolution is not immediately on the agenda. However, there is I believe in Australia, just as there is in the US, the UK, much of Europe, an underlying working class anger. It is untapped in Australia.
In the interim ww on the left must continue to argue for taxing the rich and to build all the campaigns against the injustices social and economic that capitalism creates, including the austerity agenda which is about transferring wealth from labour to capital.
We could tax the rich to fund better services. None of the parties of neo-liberalism – the Liberals and Nationals and the Labor Party – are going to really do that. At best they will offer minor changes as part of a smokescreen to give the impression of doing something without actually doing anything major to upset the rich and powerful, the capitalists, whose system drives them to avoid tax and hide their affairs in secrecy jurisdictions.
Iceland, nuit debout, Sanders.
Now I know none of this tax the rich stuff will in reality get on the agenda willingly of the ALP. The answer is that when the current or future governments attack funding for workers or the poor, attack public schools, public hospitals and public universities, public transport, refugees, Aborigines, LGBTQI people, and do nothing about climate change, the fightback against those attacks has the potential to challenge the ruling class and its systemic tax avoidance and secrecy. To tax the rich we must build the fight against austerity.
In the fight against each injustice of capitalism, join with us.
Tomorrow for example there is a snap action to bring them her and let them stay at 12.30 in front of Immigration in Lonsdale Street in Braddon in Canberra.
In the fight against the injustice that is capitalism join us in Solidarity.