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09 April 2015
by John Passant

Stop the cuts: tax the rich – one socialist’s view

I am a former Assistant Commissioner of Taxation in charge of international tax reform in the ATO. I retired in 2008. I am currently a casual tutor in the School of Humanities and Social Inquiry at the University of Wollongong. I am also a unionist, activist and socialist.

I will be talking later this month at the University of Wollongong about stopping the government cuts and taxing the rich. Australia is a low tax and low spending OECD country. My view is that the money is there to fund better public health, education, transport, social welfare, pensions and Universities, and to take urgent action to address climate change (among other things.)

The question is who to tax and I will argue that the rich and capital are capable of paying much more in taxes to fund a fair and equitable society in Australia.

To take one simple example. Paul Wellings is the Vice-Chancellor of the University of Wollongong. According to the Illawarra Daily Mercury, in 2012 his salary was more than $650,000. Let’s assume after 3 years it is now around $700,000.

The top one percent of income earners earn more than $250,000. So why not tax any income greater than that at 100 percent? Paul Wellings would be contributing $450,000 in tax on the $450,000 above $250,000 he earns.

Sound far fetched? Left wing French presidential candidate Jean-Luc Melenchon argued for the same sort of tax. He won 11% of the vote (down from earlier polls showing up to 17%) and forced the Socialist Party’s ultimately successful candidate to adopt a watered down version.

And as I have written before we could argue for a wealth tax, abolition of all tax expenditures for the rich (think superannuation tax concessions) and capital. We could abolish tax concessions for the rich and capital and tax all super profits (think banks as well as mining companies during the mining boom). We could make the income tax system more progressive. We could, as Joe Hockey suggested in 2011, in Opposition, tax trusts as companies.

Prompted by a commentator on the blog, I have done a few back of the envelope calculations just to show the money is there in the hands of the rich to address the chronic under-spending on public health, education, transport, social services and addressing climate change.

Since only 1 percent earn income greater than $250,000 such a tax would raise some revenue. It would also send a signal to the rich and capital and to workers and the poor that the days of the rich bludging off the tax system are over. I would have thought a reader of my blog would understand that simple concept.

I don’t have a Treasury area to do the sums and analyse the impacts for me, so let’s make a few assumptions. Assume there are ten million individual taxpayers. One percent of that is 100,000. Assume th average income of this top 1% of income earners is $450,000 (skewed by the super rich to that figure.) That means we could raise in revenue about $200 bn.

To explain, $450,000 less $250,000 is $200000 all of which is taxed under my proposal at 100%. If there are 100,000 from whom we are on average raising this $200,000 in tax then that gives us $200,000 times 100,000 which is $200,000,000,000 or $200 billion.

Of course my assumptions could be way off and the average income of the top 1% of income earners might for example only be $300,000 in which case the tax figure would be $50 billion. And maybe there are not 100,000 individuals who earn more than $250,000 taxable income. Perhaps many of them would set up discretionary trusts to divert their income into lower-taxed hands, or the old bogey, flee overseas. Even if the figure is only 50,000, we’d still be talking about $25 billion.

The top 20% of wealth holders own about 45% of all the wealth in Australia. That wealth totals about $6.3 trillion, so the top 20% own about $3 trillion of Australia’s wealth. A 1% annual wealth tax on that wealth would yield according to my back of the envelope calculations about $30 billion a year. We could of course skew the wealth tax to the top ten percent, or even 1 percent since the wealth they hold is proportionately much higher, and then in recompense for the amounts lost from those rich but not super rich wealth holders, increase the wealth tax rate on them.

Given the effective tax rate (tax as a percentage of accounting income rather than taxable income) on the top companies is about 19 percent, and one third of the top 200 ASX listed companies pay an effective rate less than 10 percent, maybe the time has come for a minimum company tax, essentially a tax on accounting income rather than taxable income for low tax paying companies. We could also charge the likes of Google, Apple, etc a fee for operating in Australia, perhaps set at say 30% of turnover here. In Google’s case that would be a fee of about $600 million, (30% of the $2 billion in revenue its Singapore hub gets from Australia) just a little bit more than the $740,000 in tax it paid on that Australian sourced income a few years ago.

We could do the same with Apple whose tax arrangements according to tax academic Anthony Ting in the Australian Financial Review have seen it shift about $28 bn in income untaxed so far from Australia over the last decade.

However tax is a second order mechanism for addressing increasing inequality. I will argue that the shift in wealth from labour and the poor to capital and the rich over the last 3 decades in Australia (echoing trends globally) can only be addressed ultimately at the point of production, i.e. through higher real wages, defence of jobs, a 30 hour week without loss of pay etc.