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If you want to keep a blog that makes the arguments every day against the ravages of capitalism going and keeps alive the flame of democracy and community, make a donation to help cover my costs. And of course keep reading the blog. To donate click here. Keep socialist blog En Passant going. More... (4)

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My interview Razor Sharp 18 February
Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. http://sharonfirebrace.files.wordpress.com/2014/02/18-2-14-john-passant-aust-national-university-g20-meeting-age-of-enttilement-engineers-attack-of-austerity-hardship-on-civilians.mp3 (0)

My interview Razor Sharp 11 February 2014
Me interviewed by Sharon Firebrace on Razor Sharp this morning. The Royal Commission, car industry and age of entitlement get a lot of the coverage. http://sharonfirebrace.com/2014/02/11/john-passant-aust-national-university-canberra-2/ (0)

Razor Sharp 4 February 2014
Me on 4 February 2014 on Razor Sharp with Sharon Firebrace. http://sharonfirebrace.files.wordpress.com/2014/02/4-2-14-john-passant-aust-national-university-canberra-end-of-the-age-of-entitlement-for-the-needy-but-pandering-to-the-lusts-of-the-greedy.mp3 (0)

Time for a House Un-Australian Activities Committee?
Tony Abbott thinks the Australian Broadcasting Corporation is Un-Australian. I am looking forward to his government setting up the House Un-Australian Activities Committee. (1)

Make Gina Rinehart work for her dole
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Sick kids and paying upfront

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Demonstrate in defence of Medicare at Sydney Town Hall 1 pm Saturday 4 January (0)

Me on Razor Sharp this morning
Me interviewed by Sharon Firebrace this morning for Razor Sharp. It happens every Tuesday. http://sharonfirebrace.com/2013/12/03/john-passant-australian-national-university-8/ (0)

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$73 billion in hidden tax grants down the drain?

Last financial year the Australian tax system gave hidden grants of at least $73 billion to people and companies, many of whom are (or at least were) rolling in money.

Every year, Treasury helpfully puts out a Tax Expenditures Statement.  This tells us the estimated amount of disguised grants we as taxpayers make to others through the tax system.  In other words Treasury analyses many of the exemptions, concessions and so on in our tax system, and where they deviate from benchmark taxation (how they should be taxed) estimates the cost in terms of revenue foregone.

These tax expenditures are like grants.  except they aren’t subject to the scrutiny grants receive.  There are no limits in most cases to the amount to be given away.  If someone satisfies the tax criteria they get the grant.

Now there may be perfectly legitimate reasons for supporting a grant.  The question is whether it should be open and transparent and subject to rigorous scrutiny and defined limits, or hidden in the tax system, and going in the main to business and the well off, or going disproportionately to them.

The upside down effect of  many tax grants comes about because those on higher incomes receive in many cases a greater benefit than those on lower incomes.  This is because they often benefit to the extent of their marginal tax rate, and the higher the MTR the greater the benefit.

And who administers these grants?  Not the experts in say superannuation, or health insurance or baby bonuses or whatever.  It is the Tax Office, whose expertise traditionally has been in gathering revenue, not giving away money.

The ATO collects about $300 billion a year (although this will fall this year by about $30 billion because of the economic crisis). according to the Treasury Tax Expenditures Statement 2008 it gives away at least $73 billion, although that figure is likely to be closer to $100 billion since Treasury has a number of tax grants listed as unquantifiable and admits it hasn’t identified all of these hidden grants.

But get this.  The ATO has a self-assessment approach.  So this means tax grants or giveaways are treated the same way as tax collecting.  It is up to the taxpayer to “be honest”.  The ATO will then apply some sort of risk assessment approach to its collecting and grants responsibilities.  So your chances of being audited depend on the stretched resources of the ATO assessing you as a high risk.  You can normally sleep tight.

Yet direct grants (anyone been to Centrelink lately?) are obsessively scrutinised.  There is a whole bureaucracy out there to make sure the dole, pensions, and the myriad other support  payments (normally a pittance anyway) only go to the “right” people and at the right amount.

Why the difference between tax grants and  direct government payments?  Class.  Most of the tax grants go to business or the well off.  Most direct payments go to workers or former workers in need of assistance. Ruthlessly police the poor and working class.  Risk assess (ie treat leniently) business and the well off.

And the beauty is governments can avoid close scrutiny of these expenditures to their well off mates.  There is no real examination of the worthiness or otherwise of many of these grants.  Do they actually encourage the activity claimed?  The ATO is hardly in a position to judge that.

Let’s take superannuation as an example. Tresaury estimates that tax grants in this area for this financial year to total almost $25 billion. (That’s down on previous years because of the economic crisis.)   Where does this largess go?

The concessional taxation of superannuation entity earnings means that super funds will get an estimated grant of $12.15 billion this financial year.  For employer contributions the figure is about $10.15 billion.

So it is superannuation funds and superannuants who benefit from these grants.  Why?

$25 billion is just under what we spend on the aged pension.  Now there might be some reason for spending almost as much on superannuation funds and self-funded retirees as on aged pensioners, but let’s hear the arguments and see the figures as part of that debate.

If we decide that it is a good thing to give money to super funds and self-funded retirees, why do it through the tax system where the chances of being audited or checked are next to zero?  Why not set up a Centrelink equivalent to pay out this $25 billion to super funds and self-funded retirees and make sure that like Centrelink, every dollar is viewed through a magnifying glass and justified to the nth degree?

Superannuation is not part of the Henry Review of Taxation.

Instead of using the tax system  to provide hidden and uncosted and unchecked grants, maybe we should let the ATO collect revenue and have a draconian Centrelink like bureaucracy keep tabs on doling out this tax grants money under strict spending limits and with clear admissibility guidelines. It won’t happen because the bourgeoisie benefit from the disguised grants system.  And the Rudd Labor Government is too gutless to take them on.

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Comments

Comment from John
Time February 3, 2009 at 9:03 am

Juan

Thanks for the comments.

You ask what I mean by the comment:

“there was an increasing transfer of value to capital”.

Here is the wider context in which I say that:

“Of necessity addressing the low rate of profit will involve government and employer attacks on the working class in an attempt to to restore profit rates. So Rudd’s talk about a balance between wages and profits (when the wages share of national income is at its lowest in 40 years, and the profits share at its highest ever) is spin. It is designed to give the impression of support for workers while attacking their living standards. It is what Hawke and Keating did so well, and ultimately paid the electoral price for.

“Yet Hawke and Keating (and Howard, continuing Labor’s legacy) could do it because (except in the early 90s) the economy was growing. So while living standards improved, there was an increasing transfer of value to capital. Now that the national cake is shrinking, Rudd has no such room in which to manoeuvre, and must attack our living standards (or allow the bosses to do so) if he wants to save capitalism.”

So what I am talking about is that during the 17 year boom the national cake grew, and so did workers’ living standards, but that the labour share of the expanding cake actually declined as a percentage of the cake while that of profit increased.

What is value? A worker is paid a wage (basically the amount needed to enable the worker to live and reproduce themselves) yet produces more than that in the value they create. The bosses expropriate this surplus value as theirs. This surplus value is the basis of profit, rent, interest, dividends and what is taxed.

In other words the last 17 years have seen more and more of this surplus value being extracted from workers and going to capital even while wages have been increasing.

Now that the low profit rate is destroying vast swathes of capital, the pressure to restore profit rates will be on from the bosses, who will look to increase the rate of exploitation, ie extract more surplus value from workers. One obvious way to do this is to drive down workers’ living standards, although this then cuts overall aggregate demand and hence consumption, and thus impacts adversely on areas like retail, tourism, entertainment etc.

Since taxation is basically the taxation of the surplus workers produce, and that surplus is declining as unemployment increases, and the budget surplus depends on the ability to create more surplus value, we will be in budget deficit for some time.

A stimulus package of the kind Rudd announced for December last year (ie from the Budget surplus) merely uses that budget surplus (built from previous taxed surplus value and cuts to government spending) but itself creates no new value. That means they don’t work and in any event in the long run are unsustainable.

So then the Budget goes into deficit (as it has now done) and the Government borrows (assuming it can) from the private sector. Low interest rates mean that is going to be difficult, especially given the reluctance of banks to lend at all. And the alternative is to print money.

Both borrowing and printing money have economic consequences, including possible stagflation (ie a stagnant economy and inflation.)

Juan, sorry, I got a bit off point, but my basic point is that workers create the value in society and that value is taken from them by the bosses. The last 17 years have seen more and more of this value going to the bosses yet profit rates (not profit amounts) have declined. This is because the amount invested in machinery etc is increasing at a greater rate than that invested in labour, and since labour is the source of value, of necessity (unless the bosses can increase the rate of exploitation of workers, ie screw more out of us for less) the rate of profit falls.

Anyway. Too much jargon I know,. If this doesn’t help, or raises new questions, let me know and I’ll try, I promise, to give a simple answer.

Comment from juan
Time February 3, 2009 at 9:50 am

John, thanks for that explanation. The last paragraph said it the way I can understand. I look forward to your next instalment on this particular issue. I also happen to believe that Rudd is revealing himself as just another opportunistic, third way ( a la Blair) “social democrat” which will leave us “the workers” totally disilusioned with the soft left. The problem is that I don’t think “the workers” in the western world are quite ready for the hard left. So, where to from here?

Comment from John
Time February 3, 2009 at 8:46 pm

Thanks Juan.

One point of clarification. A stimulus package can create value if the Government uses it to take over a productive industry or set one up. however whether it creates extra value is the question, since the taxation it imposes to provide the surplus is like deferred consumption – i stops the creation of value on day one but provides for it on day 1 and 1.

It also depends on what government invests in, and the extent of that investment. Having pink batt cooler houses full of unemployed people doesn’t seem to fit the bill of sensible social spending.

The $42 billion stimulus package represents about 4 per cent of GDP. Given that unemployment is likely to rise from 4.5% to 7% (and I believe these are conservative figures) and tax revenue will drop by about ten per cent this financial year, my guess is that the level of lost production in Australia becuase of the recession will be around $100 billion this year. (These are back of the envelope calculations, and hopefully some economists out there are crunching the numbers now.) So that means that the stimulus so far of $42 billion plus $10 billion is abut half what is needed to replace lost production let alone produce growth. And that of course is only for one year. As the world recessions destroys more capital and jobs int eh years to come, the ability to increase teh stimulus to match the loss of productive capacity becomes less and less.

As to the way forward, clearly the hard left is not attracting workers in droves. it i still a case of the ones and twos. But my experience is that the ones and twos are becoming more numerous – and there are more people at least prepared to listen to our ideas. If serious class struggles were to break out in Australia, that might open up more possibilities for us.

But we also need to look globally. From South America to the Middle East Europe (Greece, Iceland, France, Egypt, Bolivia, Venezuela) class antagonisms are rising and there could be an explosion of pent up anger and a move by the class of one or more countries to the hard left. Let’s see.