FactCheck: do 679 of Australia’s biggest corporations pay ‘not one cent’ of tax?


Fabrizio Carmignani, Griffith University

… 679 of our biggest corporations pay not one cent of tax. – Australian Council of Trade Unions (ACTU) Secretary Sally McManus, address to the National Press Club, Canberra, March 29, 2017. The Conversation

Speaking at the National Press Club in Canberra, Australian Council of Trade Unions (ACTU) Secretary Sally McManus called for an increase to Australia’s minimum wage and criticised the Fair Work Commission’s recommendation to cut Sunday and public holiday penalty rates.

McManus said that “679 of our biggest corporations pay not one cent of tax”.

Was that claim correct?

Checking the source

When asked for sources to support McManus’ statement, a spokesman for the ACTU pointed The Conversation to a media report and to the Australian Taxation Office (ATO) Report of Entity Tax Information for 2014-15, and provided this response from McManus:

According to the most recent ATO Tax Transparency Report, 679 companies with more than $100 million in income paid no tax in Australia in 2014-15.

The list includes such household names as Walt Disney, Sydney Airport, Qantas, Origin Energy and News Australia.

These companies can collectively be considered to be amongst the biggest operating in Australia – both in terms of income, and the prominent position they enjoy in the public eye.

Some of them are not Australian owned, and they may pay tax in other jurisdictions. However, they all operate in Australia, generate revenue from the spending of Australians and utilise existing infrastructure – like roads and ports – that were paid for by Australians.

So there’s something deeply unfair about a system which allows them to not pay any tax in Australia.

The ACTU also provided The Conversation with a spreadsheet listing the corporations it said had paid no tax.

Is that figure right?

The best source for information on how much tax Australia’s biggest corporations pay every financial year is the ATO. The ATO’s Report of Entity Tax Information – the same report the ACTU referred to in their response – is produced annually and shares information taken from the tax returns of:

  • Australian public and foreign-owned corporate entities with total income of A$100 million or more
  • Australian-owned resident private companies with total income of A$200 million or more
  • entities with tax payable under the petroleum resource rent tax, and
  • entities with tax payable under the minerals resource rent tax.

The report includes each company’s name, total income, taxable income, and tax payable.

For the purpose of this FactCheck, the relevant information is the tax payable by each of these companies. By looking at this data, we can see which companies didn’t pay tax in 2014-15, the most recent financial year for which this information is available.

How many companies don’t pay tax?

There are 1,904 companies included in the ATO’s 2014-15 report. Of those, 678 – or 36% of the companies listed – had no tax payable.

My count – 678 – is slightly different to McManus’s count of 679, and to the figure the ATO quoted on its pie chart here (the ATO has since corrected its report to reduce the number of nil tax payable taxpayers by one to 678).

The ACTU provided The Conversation with a spreadsheet listing the 679 companies that, in their view, paid no taxes. When I compared my count with the ACTU’s, I noted the ACTU included a company that I did not, a company named Tal Dai-Ichi Life Australia.

In the report I downloaded from the ATO website, Tal Dai-Ichi Life Australia is recorded as having total tax payable of A$56,171,148 for the 2014-15 financial year, so it shouldn’t be included in the count of companies that paid no tax.

Nevertheless, the difference is obviously minor. McManus was essentially correct.

Why do some companies pay no tax?

In general, there are two reasons why corporate companies pay no tax in Australia.

The first is that some companies are not making any profit. The concept of “total income”, which is used to identify the companies included in the ATO report, relates to revenue – not profit.

So, a company can have income (or revenue) of more than A$200 million, but that doesn’t automatically mean it has made a profit. Its losses or outgoings may outweigh its income. Only companies making a profit have to pay taxes.

Many of the companies that didn’t pay tax in 2014-15 were those in the energy/natural resources and manufacturing sectors – two sectors that were experiencing a downturn in that year and where profit margins were shrinking.

Proportion of entities with nil tax payable, by industry segment, 2013–14 and 2014–15.
ATO corporate tax transparency report for 2014-15

The second reason could be tax avoidance or profit shifting. These situations arise when companies take advantage of the international tax system to reduce the amount of tax to be paid. For instance, companies may set up complex ownership arrangements that allow them to redirect profit to countries with lower tax rates.

While not necessarily illegal, these situations are closely monitored by the ATO to ensure that Australia receives its correct share of tax under international tax rules.

Verdict

Sally McManus’ claim that “679 of our biggest corporations pay not one cent of tax” was essentially correct. According to ATO records, 678 of Australia’s biggest corporations didn’t pay tax in Australia in 2014-15.

McManus’s figure of 679 included one company that did have tax payable in that financial year. But in percentage terms, the difference between 678 and 679 is negligible.

It’s important to note that when a company doesn’t pay tax, it doesn’t necessarily imply tax avoidance or profit shifting. A company might not be paying tax because it isn’t making a profit, even if its total income (that is, revenue) amounts to more than A$100 million or A$200 million. – Fabrizio Carmignani


Review

This is a sound FactCheck.

The ATO’s annual corporate tax transparency reports can provide useful insights to inform public debate regarding how effectively our tax system is working.

As the author rightly points out, the information must be used with caution. There are legitimate reasons why a company with substantial income does not have to pay income tax. For instance, it may make a loss in that particular year, or has substantial carried forward losses from previous years.

Or, as the author has also rightly noted, tax avoidance may be the reason why a large company is not paying any income tax. – Antony Ting


Have you ever seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Fabrizio Carmignani, Professor, Griffith Business School, Griffith University

This article was originally published on The Conversation. Read the original article.

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What economists and tax experts think of the company tax cut


Jenni Henderson, The Conversation

Prime Minister Malcolm Turnbull and the Treasurer Scott Morrison are still trying to sell their plan to cut the company tax rate to 25% by 2026-27. The current rate is 30% and has been since 2001.

The tax cut was introduced in the 2016 federal budget. The government indicated small to medium businesses turning over less than A$10 million would pay a company tax of 27.5% initially. The company turnover threshold for the tax cut would then increase over time from A$10 to $25 million in 2017-18 to A$50 million in 2018-19 and finally A$100 million in 2019-20.

But before any of this happens, the government needs to convince the senate crossbenchers to pass the legislation. It seems the government hasn’t won over tax experts and economists with this policy, here’s some articles that explain why.

Don’t expect an instant wage increase

In a national press club address Malcolm Turnbull justified the tax cut by saying, “company tax is overwhelmingly a tax on workers and their salaries.” It follows that cutting it would increase salaries right?

However there’s a whole lot of decisions businesses need to make before they even consider raising wages. It’s not just as simple as the government makes out, as professor John Freebairn from the University of Melbourne notes:

Individuals benefit from lower corporate tax rates with higher market wages. But the higher wage rates will take some years to materialise, and the magnitude of increase attributed to the lower corporate tax rate, versus other factors, is open to debate.

Businesses would need to consider the savings of international investors, what resources the business might need, what the return for investors would be on these. All of this before it would consider a wage increase for its workers.

The enlarged stock of capital, technology and expertise per worker becomes a key driver of increased worker productivity. In time, more productive workers are able to negotiate higher wages. Via this chain of decision changes, employees benefit from the lower corporate tax rate.

Any modelling on how much a tax cut could be worth to our economy is up for debate

Modelling is sensitive to whatever assumptions the government makes and these assumptions can be oversimplified. ANU principal research fellow Ben Phillips points out that tax reform like this inevitably has winners and losers and is influenced by powerful lobby groups.

In thinking about tax reform it is important to keep in mind that the gains from modest tax reform are not likely to be a revolution in Australia. The models themselves only estimate relatively small gains from tax reform.

Here’s a little something to bear in mind when hearing any figures thrown around on how much a company tax cut could be worth:

Over the past 25 years Australia’s living standards have increased by around 60% whereas the sorts of gains estimated from tax reform are expected to be little more than 1 or 2%. It remains important that in securing such modest gains we don’t ignore fairness.

The benefit to the domestic economy won’t be that big

The idea behind the cut is that companies will be motivated to provide jobs and other economic benefits because they are receiving a tax break. In theory this kind of tax should boost the economy in the long term, but as John Daley and Brendan Coates from the Grattan Institute explain it’s not that simple.

In Australia, the shares of Australian residents in company profits are effectively only taxed once. Investors get franking credits for whatever tax a company has paid, and these credits reduce their personal income tax. Consequently, for Australian investors, the company tax rate doesn’t matter much: they effectively pay tax on corporate profits at their personal rate of income tax.

The Grattan researchers point out that if companies pay less tax then they might reinvest what they save, but in practise most profits are paid out to shareholders. So the tax cut won’t have much of an impact on domestic investment.

They also pick holes in the Treasury’s modelling on the tax cut’s boost to Gross National Income (GNI).

Treasury expects that cutting corporate tax rates to 25% will only increase the incomes of Australians – GNI – by 0.8%. In other words, about a third of the increase in GDP flows out of the country to foreigners as they pay less tax in Australia. And because most of the additional economic activity is financed by foreigners, the profits on much of the additional activity will also tend to flow out of Australia.

It doesn’t make much of a difference

Another argument for cutting Australia’s company tax rate is to deter companies from shifting their profits to other countries where the tax rate is lower. Recently President Trump promised to cut the United States federal corporate tax rate from 35% to 15%.

Antony Ting, associate professor at the University of Sydney notes most countries have been reducing their company tax rates over the past two decades. This hasn’t changed the incentive for multinationals to avoid taxes.

The tax-avoidance “success” stories of multinational enterprises such as Apple, Google and Microsoft suggest this argument is weak. The fact is that the profits these multinationals shift offshore often end up totally tax-free.

A FactCheck by Kevin Davis, research director at the Australian Centre for Financial Studies, reviewed by economist Warwick Smith, says there’s no point to comparing Australia’s company tax rate with other countries anyway.

Australia’s dividend imputation tax system means that any comparison of our current 30% rate with statutory corporate tax rates elsewhere is like comparing apples and oranges.

Small and medium businesses actually lose out

Due to the way the proposed company tax cut is structured, foreign investors get a windfall while local employers including small and medium businesses cop a cost because they remain uncompensated.

Economist Janine Dixon from Victoria University modelled how the cut would play out.

Local owners of unincorporated businesses are taxed at their personal tax rate. Because of Australia’s dividend imputation system, Australian shareholders in incorporated business are also taxed at their personal rate, not the company tax rate.

She explains that 98% of small businesses (employing four or fewer people) are wholly Australian owned and because of this are indifferent to the cut, but 30% of large businesses (employing more than 200 people) have some component of foreign ownership.

An increase in foreign investment is generally understood to be a driver of wage growth. This is the basis for the argument that at least half of the benefit of a cut to company tax flows to workers… We find that benefit to foreign investors will exceed the total increase in GDP. In the domestic economy, benefits to workers will be more than offset with a negative impact on domestic investors and the need to address additional government deficit.

Other things are just as important

Even if some businesses are keen for a tax cut, meaning more money in the kitty, it’s how these businesses spend this money that counts.

Jana Matthews from the Centre for Business Growth at the University of South Australia says many CEOs are uncertain about what to do in order to grow their business and are fearful of making the wrong decisions.

We need to focus as much attention on the management education of founders, CEOs and MDs [managing directors] of medium-sized companies as we do on providing them with more money. Once they learn how to grow their companies, they will definitely need money to become the engines of growth, and they will certainly hire more people, creating the jobs we all want.

The Conversation

Jenni Henderson, Editor, Business and Economy, The Conversation

This article was originally published on The Conversation. Read the original article.

Australian Politics: 23 December 2014 – Terrorism Claims Political Leader


Australian Politics: 15 October 2013 – Denial Defiance


Australian Politics: 16 July 2013


Today in Australian politics there was a stoush over butlers and pillows between the Queensland Premier Campbell Newman and Kevin Rudd. It all seems a bit too much Campbell (he started it), trying to deflect attention from his own pay rise issues I’d suggest.

For more visit:
http://www.dailytelegraph.com.au/news/breaking-news/rudd-has-a-cushion-carrier-qld-premier/story-fni0xqi3-1226680183388

Kevin Rudd also announced the end of the carbon tax and a move towards an emissions trading scheme from July 1, 2014. Measures to cover the lost revenue were also announced.


Australian Politics: 14 July 2013


With the return of Kevin Rudd as Prime Minister in Australia, things have been moving along fairly quickly in Australian politics. Time of course is running out as an election looms, so time is necessarily of the essence. One of the areas that the ALP has moved to address is the carbon tax, with Kevin Rudd’s government moving toward an emissions trading scheme. This has brought the typical and expected responses from the opposition, as well as charges of hypocrisy from the Greens. For more visit the following links:

http://www.smh.com.au/federal-politics/political-news/kevin-rudd-confirms-government-to-scrap-fixed-carbon-price-20130714-2pxqi.html

The link below is to an article that pretty much sums up the situation currently in Australian politics I think – well worth a read.

For more visit:
http://www.guardian.co.uk/world/2013/jul/12/tony-abbott-fall-stunt-men

Also causing continuing angst in Australia is the issue of asylum seekers and boat people. There has been even more terrible news from the seas surrounding Christmas Island, with yet another asylum seeker tragedy involving a boat from Indonesia.

Around the edges of the mainstream parties are those of Bob Katter and Clive Palmer. There are stories of an alleged financial offer from Clive Palmer’s ‘Palmer United Party’ to join with ‘Katter’s Australian Party’ for $20 million dollars and form the combined ‘Katter United Australian Party.’ For more visit the links below:

http://www.news.com.au/breaking-news/national/palmer-denies-deal-with-katters-party/story-e6frfku9-1226679175607
http://www.abc.net.au/news/2013-07-14/katter2c-palmer-at-odds-over-claims-mining-magnate-offered-fin/4819098

And finally, for just a bit of a chuckle – not much of one – just a small chuckle, have a read of the following article linked to at:

http://www.perthnow.com.au/news/turnbull-still-not-laughing-at-tonys-internet-humour/story-fnii5s3z-1226679169349

Taliban in Pakistan warns Christian leaders to convert to Islam


International Christian Concern (ICC) has learned that on October 6, members of the Taliban sent threatening letters in Sargodha, Pakistan warning Christian leaders to convert to Islam or face dire consequences, reports Dan Wooding, founder of ASSIST Ministries.

A copy of the letter obtained by ICC warns Christians to convert to Islam, pay Jizya tax (an Islamic tax imposed on religious minorities) or leave the country. If Christians refuse to accept the choices given to them, the letter explains that they “would be killed, their property and homes would be burnt to ashes and their women would be treated as sex slaves. And they themselves would be responsible for this.”

Rev. Zaheer Khan, pastor of Maghoo Memorial Church, Rev. Aamir Azeem, pastor of United Christians Church and Rev. Zafar Akhter, pastor of United Presbyterian Church each received a copy of threatening letter.

“The Islamists sent the letters to the following Christian institutions: St Peter’s Middle School, Sargodha Institute of Technology, Sargodha Catholic High School, St John’s Primary School and Fatima Hospital,” said an ICC spokesperson.

“Besides the Christian institutions, the letter was also sent to the main Immam-Bar-Gha (Shiite Muslim’s gathering hall). Shiites are a minority Muslim group in Pakistan where the majority of the population is Sunni Muslim.”

ICC’s Jonathan Racho said, “Christians in Pakistan are soft targets for attacks by Islamic extremists. Over the past four months alone, 12 Christians have been killed by Muslims due to their faith. We are alarmed by the increase in attacks against Christians in Pakistan. We urge Pakistani officials to take the threatening letters seriously and take measures to protect the Christians and their institutions from attacks.”

Note: ICC is a Washington-DC based human rights organization that exists to help persecuted Christians worldwide. ICC provides Awareness, Advocacy, and Assistance to the worldwide persecuted Church.

Report from the Christian Telegraph 

TALIBAN EXTORTS PROTECTION ‘TAX’ FROM CHRISTIANS IN SWAT VALLEY


International Christian Concern (ICC) has learned that hundreds of religious minorities, including Sikhs and Christians, fled Swat Valley because the Taliban had imposed the “jizya tax” required by Islamic law on religious minorities, reports Dan Wooding, founder of ASSIST Ministries.

A spokesperson for ICC explained, “The jizya tax is imposed by fundamentalist Muslims on members of other religions who refuse to convert to Islam and has been used by Muslim governments for centuries. The aim of the jizya tax and other similar restrictions is punishment and slow strangulation. It aims to humiliate non-Muslims and impoverish them so that they are forced to convert to Islam.”

ICC said that Christian and Sikh families living in an area similar to the Swat Valley, the Orakzai Agency, left their homes after the Taliban demanded 50 million rupees [$622,200]. The Taliban announced that they would provide protection for religious minorities if they paid the amount, but the tax is so financially debilitating that minorities had to flee.

It added that religious minorities living in another tribal area have already paid 20 million rupees [$248,860] as ‘tax to the Taliban after militants forcibly occupied some of their homes and kidnapped a Sikh leader last month.

The spokesperson said, “News of a planned assault on the Taliban in Swat Valley by the Pakistani Army is a welcome breakthrough in the face of this extreme violation of the rights of religious minorities.”

Jeremy Sewall, ICC’s Advocacy Director, said, “We urge the Pakistani Army to completely root the Taliban out of Swat Valley. Only the total defeat of the Taliban can ensure protection of the fundamental right to religious freedom that the Christians and Sikhs of the Swat Valley deserve.”

Report from the Christian Telegraph