In the 2022 federal budget, we see two sides of the Australian Taxation Office – one where they are appallingly bad and one where they are the potential heroes.
In the “hero” category, they are chasing revenue from the potential massive tax avoidance strategy called “the cloud” plus other international technology avoidance areas.
In the “bad” category, as a new boy in the blocks, Treasurer Jim Chalmers has been led astray in the same way as his predecessor Josh Frydenbergb – it was one of the few blots on the Frydenberg reign.
By the time Josh woke up to the ATO “con” it was too late. Hopefully Chalmers will wake up faster.
But let’s start with the ATO as the “hero”.
When Australians use the cloud for message storage, they vaguely think that somewhere up in the sky is their material. In fact, it is stored in massive, highly secure sheds dotted around Australia and the world and operated by giant US multinationals. Along with other technology activities, many (but not all) of these companies have the world’s best tax lawyers to make sure the minimum tax is paid.
It’s a major threat to nations because more and more of their business activities are not attracting tax revenue and this threatens their tax base. Australia has been helped by the offset of minerals tax revenues, but other countries do not have that advantage.
ATO tax commissioner Chris Jordan played an important role in securing an international agreement that should help reduce technology tax avoidance. In the budget, we are adding to that agreement with further measures.
I believe that we should give these efforts the time to succeed, But if they fail, then a totally new way of taxing corporate revenue will need to be embraced. There are some excellent alternatives if the cloud and other technologies remains a tax avoidance schemes.
If the current efforts fail, then the government that emerges from the next election must consider a new system.
On the dark side, instead of boosting revenue via a fair tax collection system, the ATO will use its blatantly unfair system to smash many Australian family businesses and reduce Australian productivity.
Under a fair system, the goodwill so created causes a high degree of compliance, enabling tax authorities to collect the right tax from millions of Australians.
As the Inspector General of Taxation and the Jason Falinski/Julie Owens Parliamentary committee showed, the current system has major areas of unfairness. They confirmed some of my commentaries and the Inspector General, validated the whistleblower revelations of Richard Boyle.
The way to boost tax revenues is to have a fair tax collection system, and many in the ATO understand this. But deep in parts of the ATO is an entrenched belief that most Australian enterprises are basically dishonest, and therefore unfair tax collection methods are justified.
The truth is that some enterprises are dishonest when it comes to tax, but the vast majority are not. But unfairness erodes confidence in the system and increases disobedience
The budget allocates $1 billion to chase honest and dishonest taxpayers Massive concocted assessments will be generated, which many in the ATO will class as “receipts”.
But all too often assessments are grabbed out of the air and, unfairly, the bashed taxpayer must prove that the ATO is wrong. Naturally, interest and penalties are added.
Instead of boosting revenue via a fair tax collection system, the Chalmers money pool will encourage using the unfair system to smash family business and continue the blows they have been delivering to Australian productivity.
Some taxpayers will pay incorrect tax to avoid potential bankruptcy. But many can’t pay, so there is a huge difference between “receipts” and cash raised. When Frydenberg left office, there was about $3bn in uncollected tax, most in the decaying building industry. The rage at the unfairness has become a big factor in skills leaving the building and other industries
According to Treasury, Australia’s growth rate will slump in the next two years, so once again the sickening tax charade will take place.
The US has shown that modern nations don’t need to spend billions on ineffective tax raids. Whistleblowers will undertake the task far more effectively, and they make people obey the rules.
We are on the brink of revolutionising the financing of family business via cash flow loans. The government’s actions to block unfair contracts will boost the loans. A tax collection system that includes assessments without detailed justification will curb these loans and damage productivity. I am hopeful that Jim Chalmers will learn from his predecessor’s mistake. Meanwhile, I will keep reminding him.
Footnote: Those families caught in the assessments without justification jungle naturally need to check with their accountants, but they also need to consider asking the Inspector General for help. The IG often has better knowledge of the ATO unfair antics than family accountants.