Paul Bongiorno
Big business, economic reforms and fair taxation

Political discourse in Australia has taken a bizarre twist. The nation of the fair go is being chided for thinking fairness a founding value. Who would have thought that a joint statement from nine of Australia’s peak business groups would attack a political leader for “continuing to focus almost exclusively on budget fairness”?

There it was in the first paragraph of the statement that was desperately trying to be even-handed. Tony Abbott copped it for promising a “dull” budget. Bill Shorten for insisting on equity. Both comments apparently evidence these men thought there was no significant problem with the state of the nation’s finances.

There was a sober warning that the nation is on a “path to economic despair” if politicians, and for that matter the rest of us, think that economic growth is somehow automatic. Generations of courageous business and political leaders are praised for embracing tough reforms that have built our prosperity.

The piece rightly observes that there is “no escaping that reform is hard and often unpopular in the short term”. But in pointing the finger at politicians, the economic jeremiahs from the top end of town fail to see their contribution to the malaise they are bemoaning.

One of the signatories is the Minerals Council of Australia. It put together a $20 million slush fund to fight tooth and nail against a minerals super profits tax. Note the word “super”: a tax that would apply when they were making exponential profits from the nation’s mineral wealth. Billionaires Twiggy Forrest and Gina Rinehart yelled themselves hoarse on the back of a truck warning the end of the world, or at least their world, was nigh.

Resource rent taxes are a more efficient and indeed fairer way for governments to raise revenue than royalties. The minerals council itself had argued that way to the Henry tax review. In fact the treasurer at the time, Wayne Swan, marks that episode and the relentless, populist attacks on the carbon price as the end of the possibility of long-term reform in this country.

The carbon price was a major economic reform: pricing pollution in a way to achieve a cost-effective market mechanism that would contribute to containing global warming. Former chairman of the Australian Coal Association, Ian Dunlop, said in the Fairfax papers that the Abbott government remains in total denial about climate change having any material impact on Australia’s future. There was a stark example of that with the release of the energy white paper. This was billed as a forward-looking document to give consumers certainty and confidence in energy policy. Renewable energy hardly rated a mention. Fossil fuels are the future. Pity the rest of the world doesn’t see it that way.

This federal government is in the pockets of preferred vested interests. Dunlop nabs the rent-seekers: “Industry bodies such as the minerals council and business council [another signatory] continue spreading deceptive and misleading information to downplay the issue and undermine sensible policy development.” 

It took 24 hours before Kate Carnell, CEO of the Australian Chamber of Commerce and Industry, clarified the attack on fairness. She told the ABC: “If fairness means no one will be a loser, no one will be even slightly worse off than they thought they might have been, then we’ve got a bit of a problem.” She cited the tariff reforms in the ’80s. There were definitely losers there in the short term. In the long term, the nation’s productivity and economic performance were the winners.

The fact is, in creating “losers” with some economic reforms, “fairness” is better served. This is something the Abbott government is struggling to face. The prime minister is promising “lower, simpler and fairer taxes”. It’s a slogan that doesn’t stack up if it’s going to be applied to superannuation.

There is a consensus that the current concessions to wealthier retirees are unsustainable and unfair. Unfair because poorer retirees are being asked to pay for them. Assistant treasurer Josh Frydenberg is flagging an inquiry into retirement income arrangements across the board. Abbott himself says he’s up for a discussion about it.

According to Labor, Social Services Minister Scott Morrison has floated his fifth thought bubble on how he will get some savings through the senate. The original idea wasn’t his; it was in Joe Hockey’s first disastrous budget. That was to hit the nation’s 2.3 million pensioners with a new indexation arrangement that would leave them $80 a week worse off within a decade. His latest thinking is to unwind $1 billion worth of largesse that allows people to have $1.1 million worth of assets plus their family home while still getting access to the pension and health card.

The government’s cunning plan last year was to get all the nasties through the senate this term but to have them apply after the next election. The thinking was that this did not amount to a broken promise. It’s a dubious proposition at best, which the electorate isn’t buying if the polls are right. 

Part of the attraction, of course, was to have the changes locked away and to dare Labor to make them an election issue. So far, it’s not quite playing as envisioned. One senior Liberal fears the hash made of the first budget has destroyed the messaging for the next two.

The toll has been considerable. Research for the Business Council of Australia (BCA) has found 62 per cent of voters don’t trust the government to manage tax reform well enough to create a better system overall. BCA president Catherine Livingstone told The Australian that the Crosby Textor findings show an overwhelming majority of Australians believe the country needs a better plan. 

The BCA was the organisation Abbott used extensively to conduct a commission of audit that was supposed to set the scene for tough but needed “reforms”. It was a squandered exercise, short on political nous. Hockey has ignored many of its proposed fixes.

On business taxes, the government has been missing in action. It is no accident that Labor’s first policy announcement this year was to have big multinational companies pay their fair share. The plan, costed by the Parliamentary Budget Office, is to recoup $1.9 billion from companies that send their profits overseas. 

The treasurer initially dismissed Labor’s effort as unworkable. He then announced he would unveil a plan to make Google and other transnational giants pay tax on their Australian earnings. The details are expected in the budget. Tax commissioner Chris Jordan was lukewarm on the proposal at the senate inquiry. Maybe he, like the rest of us, is completely in the dark on what Hockey has up his sleeve.

The inquiry did hear that Google Australia siphons off profits to Singapore to avoid paying corporate tax. Apple paid an effective tax rate of 1.3 per cent in Australia, or $80 million on a revenue of $6 billion. Microsoft paid about 5 per cent.

Hockey made his own foray into print, arguing our tax system is an anachronism in urgent need of an update. He made the completely spurious claim that “we have almost exactly the same tax system” as 65 years ago. He is stretching the word “almost”. If he is depending on this argument to shift the tax burden from profits to wages, or from incomes to direct taxes, he is suffering more from the “blindness of affluence” than his opponents think.

For starters, in the ’50s the Goods and Services Tax didn’t exist. The top tax rate was about 60 per cent. Capital gains and fringe benefits taxes were still a glint in Paul Keating’s eye. And besides all that, there is plenty of evidence voters would like to see tax reform go in the opposite direction to that pushed by the government’s business mates.

The Essential poll has been tracking community attitudes. It has found a convincing majority of voters think large businesses and mining companies don’t pay enough tax. Equally, they believe small business, low income earners and people on average incomes pay too much.

Undermining the treasurer’s case is the perception that he is too protective of big multinational companies. The tax commissioner told the senate inquiry that Hockey supported his decision not to name the biggest tax-dodging companies. There was evidence corporations had moved about $60 billion from Australia to related parties in offshore tax havens. Ten of the unnamed companies transferred $31.4 billion to Singapore in the 2011-12 financial year. Singapore has a lower corporate tax rate than Australia. But that’s not enough reason, according to Essential, for our rate to be lowered.

The poll found 60 per cent think making big transnational corporations pay more tax would be good for the economy because it would increase government revenue. Only 13 per cent think it would be bad for the economy because these corporations would stop investing here.

Wayne Swan’s bruising encounters with business have convinced him that the only reform in which it is collectively interested is business paying less tax while everyone else pays more. 

The incumbent treasurer is bemoaning the fact that business isn’t doing enough to support him. There’s no real backing for his prescriptions, unlike the backing that existed for the Howard government. He cites advertising campaigns pushing the GST and WorkChoices.

But Hockey should be careful what he wishes for. Despite the mythology, neither won over the voters. An advertising blitz pushing changes to aged pension indexation, for example, would only inflame further community hostility.

Putting lipstick on a pig fools no one. And it certainly doesn’t make it fair.

This article was first published in the print edition of The Saturday Paper on April 11, 2015 as "Funny business".

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