As I argued in a recent column, the Coalition has been a policy free zone for some time. Of course it’s been in government, so of necessity it’s had lots of policies. But it’s heart has not been in them – it’s jadedly presided over a jaded bureaucracy.
This spilled over into a campaign in which the Government’s inevitable scare campaign (I’m not blaming it – all Governments run scare campaigns against their opponents) was a kind of ‘cultural’ scare campaign. Labor’s shadow ministry was union dominated and they would ‘stuff’ our economy. But just as the Liberals took credit for the economy without saying much about what particular economic policy or policies of theirs were responsible for all the good times, so their scare campaign about how Labor would stuff the economy was free of policy content.
The result was that unlike elections in the 1980s and 90s, Labor wasn’t backed into the corner of promising not to do a whole lot of things – like change the tax system, end negative gearing, or introduce a wealth tax and so on. Now of course it will be cautious, but I think there are oodles of small things it could do with relatively little long term damage. For instance the tax code allows the companies I run to give gifts to employees and other business associates which are deductible. This used to be capped at $100 and this cap was recently increased to $300 – presumably tracking the price of a bottle of Grange (Ok – a glass of Grange).
Anyway, there’s no more justification for this than there is for the practice of deducting a boozy lunch. It’s personal consumption and it should occur after income and consumption tax is paid, not before. Labor put a stop to the boozy lunch rort in the 1980s. (And remember all that you hear about the way the Liberals provided the ALP with bipartisan support for reform in the 1980s. Well not on FBT and CGT they didn’t.) You can still deduct meal costs when you’re travelling, but you can’t deduct grog – a very sensible rule no doubt appreciated by tax-payers.
I hope Troppodillians can supply a good list of other small savings proposals so I can shamelessly pinch the best ideas. (They won’t be acknowledged in the column – there isn’t room – but they will be acknowledged here.) Why for the best proposal, if I use it, I’ll send you a gift in the mail – with GST duly claimed and costs deducted from Lateral Economics’ income at this end! Our own little party before that little tax dodge is over.
Crack down on the rorting of company cars. Some companies allow full 100% claims for motor vehicle expenses without tracking usage percentages. A lot of the vehicles are just family cars supplied with a fuel card, it’s extraordinarily unfair to those whose income doesn’t making leasing a company car effective for taxation, as those using this dodge are using pre-tax income to run their family car while others can’t.
Small beer when you think about that 10,000 pages of Income Tax Act at present, that no individual can understand any longer, which is why the ATO canvas taxpayers for ‘verbal rulings’. The hoary old private vs business expenditure, not to mention the problems of defining and measuring income for taxation purposes and the CGT exemptions impacting on housing affordability. The big problem in future will be an international raid on resource stocks and the inevitable transfer pricing problem, shrinking the tax base. Think about a private equity, Chinese Co(backdoor govt owned like a Singtel) owning a BHP Billiton/Rio conglomerate and transfer pricing resources offshore, with little or no residual Australian profitability. IMO that will be inevitable with the tsunami of Asian savings. The only way around it will be to introduce level playing field, carbon and resource taxing, ditching income tax altogether. Can’t see a Rudd Govt with the foresight to do that, so keep adding to those 10,000 pages and those compliance/accounting officers to keep sticking more fingers in the dyke.
And what David said, although carbon/resource taxing is ambivalent about private, business or charitable use. Presumably David wants public servants to sit in sales reps, RE agents, tradeys vehicles, etc to work out exactly what mileage they should be claiming for work use. Penny wise and pound foolish.
David’s point is really a bit silly, since he is complaining about the enforcement/compliance and not the actual law. In practice they are rarely as much better off, in total remuneration, than you think – companies can count, you know!
Also, given the amounts involved, Obs summed that up perfectly with his last sentence.
My idea is hardly new, or mine for that matter, and I don’t necessarily agree with it, but I think there is a lot to be said for simply scrapping all ‘work-related deductions’. I believe it is traditionally proposed to replace them with a uniform $300 tax break for everyone, but I suspect that really it would be better to replace them with nothing at all and just lower the actual tax rates.
This seems harsh on lawyers and the like, but deductions for self-education could be reasonably excluded. Pretty much nothing else should be excluded though.
It would end up being harshest on academics, since they would be forced to argue that they are in business (I’m sure some do anyway!).
But really the objective should be to push on with rewriting the tax law. Trusts are a famous mess, especially the trust losses provisions. Lots of taxation of overseas interests is all over the place as well – something that NG has noted , of course.
Observa
I think you are missing two main factors in your analysis. The first is that the shareholders have to actually sell. The second is the Foreign Investment Review Board.
Not to mention that the easiest way to avoid shifting profits offshore is to lower the tax rates onshore!
A company car crackdown might sound silly, but compliance issues can be big bickies and don’t necessarily require the co-operation of a hostile senate or setting up shop inside every enterprise. Just get the records from Fleetcard and match up the service stations used.
Besides which, if you’re nice to your restaurant, they won’t include the booze as a separate line item on your receipt, so you can in practice have an all-booze lunch and still deduct is as a travelling expense (there’s a steak in every glass!)
Well there are various sweeteners in the tax code for company cars. In addition at least from memory I don’t think the artificial inducement to turn over cars every two years has been fixed. I think it works by enabling departments to buy ex wholesale tax and then sell cars back into the market at prices which reflect the existence of the tax. So making departments pay tax on the vehicles would solve that and reduce the turnover of vehicles and the cost to the Govt. (But some of this may already have been cleaned up – I’ve not looked carefully.)
“I think you are missing two main factors in your analysis. The first is that the shareholders have to actually sell. The second is the Foreign Investment Review Board.”
I understand that David, but on that point shareholders sell if the price is right. If foreign owners don’t strictly have the profitability in mind then clearly they have a price advantage. Yes you can fight a rearguard action with a FIRB against the trend to globalisation and free capital flows but at what cost? The benefit of carbon/resource taxing is it removes the need for expensive FIRBs. Who cares who owns the entity or what sort of accounting they want to use?
“I think it works by enabling departments to buy ex wholesale tax and then sell cars back into the market at prices which reflect the existence of the tax.”
More so with the previous 20% WST on cars, but a private buyer only gets the benefit of 10% of the depreciation from the new price nowadays. The secondhand business buyer doesn’t, but they get the full 10% input tax credit on that secondhand price.(actually 1/11th of the purchase price) For the private buyer the GST saving can still be substantial when you look at the rapid front end depreciation on a typical Aussie six cylinder
http://www.redbookasiapacific.com/au/vehicle/prices.php?id=65883
OT, but by comparison you can see why the security firms, pathology couriers and the like are running about in small imports and why the Aussie car industry is doomed right here
http://www.redbookasiapacific.com/au/vehicle/prices.php?id=72305
Family trusts. More specifically, I think the ATO should be looking into the income tax returns of our high income earners in particular, and actively seeking ways of ensuring that people pay the levels of tax they ought to be paying.
As opposed to the levels of tax they can get away with paying by bending the rules of our taxation system.
I told you so
http://www.news.com.au/business/story/0,23636,22822375-31037,00.html
Ruddy’s got a bigger problem on his hands now as the race to tie up the world’s resources begins in earnest.
Observa,
Er, not David, but no matter. The price is never right if you can’t replace the asset.
Also, re your link, do you think shareholders would rather the cash, or shares in BHP Tinto? I’d take the shares, personally, especially given the past history of major resources takeovers.
Guy
The ATO has been doing that for some years now. Again, the best thing would be to lower the tax rates.
NG
Fixing non-resident CGT would be an option. At present, it is supposed to tax foreigners on Australian real property, basically. In practice, it effectively doesn’t tax anyone at all.
I would look at two things:
1) Eligibility criteria and withdrawal rates for Youth Allowance. Anecdotally I am aware of too many recipients of YA who would be able to support themselves (with parental assistance) without the allowance. Those students who genuinely need govt assistance find that the YA is insufficient, and the punitive EMTRs don’t enable them to earn enough to live on without working 25+ hours per week. This is less than desirable for full time students.
So, I would tighten the eligibility criteria and reduce the taper rates (it has already come down from 70% withdrawal rate to 60%; I would like to see that go to at least 50%).
2) Salary sacrificing arrangements. There are too many peculiarities with the salary sacrificing regulations. For example, one is able to purchase a laptop with pre-tax income, but not a desktop computer. Employees of some organisations can sacrifice mortgage or rent payments. The system feels ad hoc and distorts consumption choices.