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John Passant

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February 2010



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Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

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Tax – never boring

Some of my students have the heretical idea that tax is boring. So each class I begin by regaling them with a few tales about recent publicised events to help disabuse them of their egregious and erroneous thinking.

This week life will imitate art.

To grab my students’ attention we have been working through a completely fictitious example in the last two classes.

The great alcohol crisis (the GAC)  has seen beer and wine consumption across Australia slump dramatically.  Cafes, pubs and clubs, breweries, wineries – all have been laying staff off.

A great gloom has descended upon the nation.

So the Rudd Government acted quickly and decisively. It made the consumption of beer and wine tax deductible.

Rudd’s alcohol revolution will cost $52 billion in revenue foregone over four years.

The point of the silly example was to explain tax expenditure analysis (or massive grants often to business and the rich hidden in the tax system), and the possible unintended consequences of these tax incentives.

Then along came Fosters with its really bad profit result last week. And what’s to blame for the huge fall in people buying Fosters wines?

Apart from the strength of the Aussie dollar and the Global Financial Crisis, I mean.

The tax system.  Not high rates or complexity or uncertainty – but the tax advantages that people think flow from managed investment schemes.

The  agricultural version of these schemes has prompted people to put their hard earned into various forest, macadamia,olive, avocado and grape growing activities across Australia.

Put simply the perceived tax benefits have created agricultural over-production. With so many grapes being grown the price of wine in Australia has collapsed.  Profit rates are thin.

On top of that many of the schemes are about as viable as a roll in a pig pen. It is a classic example of a Government encouraging certain market activity and being surprised when it takes off and shonks move in.  (Sound familiar Mr Garrett?)

But that’s not all I’ll talk about.

I won’t bore you (or my students tomorrow) with a detailed explanation of unpaid present entitlements but a new interpretation of the law by the ATO could see up to 200,000 trusts with company beneficiaries taxed twice on the same income.

The driver for these arrangements looks pretty much to me like tax minimisation, so maybe there is a element of schadenfreude creeping in.

And then there are phoenix companies.

Shonks operate a business and then move the assets out, leaving the pay as you go tax they collected from their employees, and compulsory superannuation guarantee payments, among other employee entitlements, unpaid.

A few months later the same people have a new company with the old assets in it doing exactly the same thing.

The Government is thinking about making company directors personally liable for these tax payments.  While this probably doesn’t go far enough, business is screaming blue murder that it will catch all directors. And this is a bad thing?

And finally I am going to talk about Glenn Wheatley’s solicitor.

Some of my students will become solicitors.  So here is  salient lesson for them.

Wheatley got 15 months for a silly little tax scheme which involved invoices and tax deductions for services never rendered.

At his solicitor’s trail this last week, Wheatley sang and sang, saying he followed the adviser’s instructions to the letter.  The solicitor is awaiting sentencing.

Even the more structured parts of the course – like the discussion of tax avoidance – raise real questions about society and the battle between the seemingly de-classed individual and the capitalist state (often fought out in terms of the free market and the community.)

The recent kerfuffle about Texas Pacific Group and its almost $1.5 billion profit on the sale of Myer shares, and the tax issues that raises, especially around tax avoidance, are a timely reminder that the tax battles of the past come back time and time again to haunt the living.

Tax is the class struggle in rarefied form.

Tax boring? I don’t think so.



Comment from Arjay
Time February 24, 2010 at 9:32 pm

You have to realise John,that in our present Oligarchical system is that the large corporates love a big taxing Govt since they make even bigger profits eg socialised medicine.When the perception of anything being free,people over utilise it.So we have the big Pharma Corps paying our Doctors to prescribe unnecessary drugs.We now have drugs invented to combat the ills of past drugs.

Health is a wholistic system and the drug companies are solely pre-occupied with self interest.

Our pollies have been bought out by the large corporates.Kevin Rudd last yr jumped up and down about the RBA rates not being passed on,they ignored him and Kevin had no reply.

All our pollies are gutless wonders who cowtow to those who hold the purse strings.

More tax does not mean a better life for the masses.In fact it is quite the reverse.Those who earn the money,know best how to spend it.

Comment from Shane H
Time February 25, 2010 at 10:44 am

Hi John

Well I confess that when you first said ‘tax policy’ I had the same response. I wonder if there’s not some ideological thing afoot here. Things that people really should understand (and that have to be taught) are made as boring as possible (like economics/tax and history). Looks like it would be a great course.

As I live up here in the Bowen Basin – which is coal country – I have been meaning to look into the backhanded subsidies to the coal industry. Obviously the state provides infrastructure like ports and rail and charges royalties but things like diesel fuel rebate which is sold to farmers as being for them must amount to a great deal of revenue forgone given that diesel is a mines biggest expense.

Comment from Eli Cash
Time February 26, 2010 at 2:23 pm

I worked in factories down in the Barossa for a while. This was some years ago. Already there were layoffs associated with over production, as well large numbers of grape grower’s whose product was simply refused by the large wine producers. They had gone through what they always did each year, but that year their grapes suddenly contained no value. They had produced socially invalid grapes. I’m sure that was devastating. And then Fosters buys up the land just devalued, preparing the next round of devaluation. It is a very home grown demonstration of the law of value.

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