En Passant

Tax Office staff are in shock over the Labor Government’s axing of the Commissioner of Taxation, Michael D’Ascenzo. More shocks are in store. 

D’Ascenzo’s seven year statutory appointment ends later this year and the Government won’t be renewing it. His last day as Commissioner is 31 December.

The Treasurer said that a new Commissioner would be announced in a few weeks. The odds are it won’t be anyone in the ATO.  The Second Commissioner ranks – the usual group from which the Commissioner is drawn – are in disarray. 

Jennie Granger, one of the three Second Commissioners and for a long time the favourite  to succeed D’Ascenzo,  bailed earlier this year and now works in the UK Inland Revenue. Another Second Commissioner retired in July, and the third one will probably retire next year if not sooner.  A new Second Commissioner, from another Government Department, took up his role just this month.

What is going on? As Jean Baptiste Colbert, Louis XIV’s Minister of Finance, said: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

Under D’Ascenzo’s reign there has been a lot of hissing from business. They don’t like paying tax. With the GFC impacting on their income, and the global economy heading into deep trouble,  they like it even less.

On the other hand the Government wants more tax, to paint itself as fiscally responsible and to deliver a budget surplus. It also wants and needs a happy business class.

This balancing act between the Government’s need for revenue and the need to keep business happy is what drove the Labor Government’s pathetic compromise over the Minerals Resource Rent Tax, the tax that isn’t.

D’Ascenzo could not pull off the same balancing act as Swan did on the MRRT. If he’d followed the sort of leadership Swan and Gillard provided over that tax, there’d be no company tax collected at all.

In my opinion D’Ascenzo was soft on big business but he wasn’t soft enough from their point of view.

Business has essentially captured tax policy making. However it hasn’t, until now, been able to capture tax administration.

The global financial crisis, the economic crises in Europe and North America, the slowdown in China and the decline in global profit rates has turned the attention of business even more to the ATO and its ‘outrageous’ demands that big business pay tax and to complain even more about the audits it conducts.

Sidelining D’Ascenzo, and appointing a new Commissioner, who I strongly suspect will come from outside the ATO, and possibly from private enterprise, is the Labor Government’s way of responding to business criticism of the already fairly softly softly ATO approach to business as it is.

But since big business is Oliver Twist writ large – please sir, I want some more –  the status quo is never enough. They want to pay less and less tax, and they want less and less ATO ‘interference’ in their affairs. What better way to gut the Tax Office than for business to appoint one of their own to lead it?

D’Ascenzo will go and it is likely an even more business friendly Commissioner will take the reins. This means a couple of things.

Tax policy is already moving in the direction of taxing labour more and more and capital less and less. Tax administration will follow. The focus of the ATO will shift even further away from big business to the little taxpayer, that is to workers and small business.

Now it is true the Government as part of the MYEFO announcements this week gave the ATO an extra $390 million to pursue transfer pricing – where multinationals manipulate pricing to shift profits from Australia to other often low tax jurisdictions – and tax avoidance more generally. This will, the government estimates, raise an extra $2.5 bn.

Why limit it to $390 million if it is going to bring in six times that amount of revenue, an amount I suspect is an under-estimate? Years of chronic underfunding of the ATO and the destruction wreaked by Labor’s efficiency dividend have undermined the ATO’s capacity to pursue the big end of town fully. There is a gold mine out there.

On top of that, the courts are destroying the general anti-avoidance provision with neoliberal interpretations (much as they did in the 70s with its predecessor) so without a more effective and re-written anti-avoidance provision the extra money may not produce the hoped for results.  Or alternatively an effective anti avoidance provision, instead of the currently hamstrung one, might bring in billions more if the ATO were to be more adequately resourced.

As tax revenue from business continues to fall, in part because of tax avoidance, and the Government finds it harder and harder to squeeze more money out of ordinary workers, Gillard and Swan or Abbott and Hockey will further cut social welfare, health and education spending.

For tax officers it will mean trying to collect tax under a new regime whose raison d’etre is profit, not tax.  This fundamentally misunderstands the role of the State and its revenue collector under capitalism. Should the defence forces also be run along business lines?

The Henry Tax Review recommended setting up a board to advise the Commissioner ‘on the general organisation and management of the ATO.’ I suspect Labor will go further and not only appoint an outsider to run the ATO but set up an ‘independent’ Board of business men and women and other pro-business figures to manage the ATO, not just advise it.  

This Grundnorm of profit, profit, profit, rather than tax as the price we pay for civilised society, could destroy the culture and ethics of the ATO.  With a potential fox in charge of the hen house, revenue from companies could well dry up and ordinary workers would pay – either through more tax or savage cuts to government spending and services.

Is there an alternative? Yes. Tax the rich and give the ATO enough funding for it to do its job as the collector of tax rather than the handmaiden of business. Make the rich pay. That is something Labor won’t do.

John is a former Assistant Commissioner of Taxation.