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Governments must do more to tackle tax avoidance and move towards equality

February 05, 2017

Governments must do more to tackle tax avoidance and move towards equality

Paul Malone, The Sydney Morning Herald, 5 February 2017

Just before Christmas the government released its response to the Senate Committee report on inequality in Australia.
From a short-term perspective it was perfect timing. Media coverage of the response was negligible.
But the issue will not go away.
ANU polling research released late last year showed that inequality is a matter of increasing interest. In 1987 46 per cent of those polled thought income and wealth should be redistributed but last year’s poll found that 55 per cent favoured redistribution.
And the percentage of those opposed to redistribution has fallen from 34 to 19 per cent over the three decades.
Public opinion was undoubtedly influenced by studies such as the one conducted by Oxfam that found that just eight men own as much wealth as the 3.6 billion poorest people in the world.
Interest in the issue would also have been heightened by the report from the Australian Tax Office that revealed that 294 of 300 Australian-owned resident private companies with an income of $200 million or more, paid no tax at all. (The ATO stressed that this did not necessarily indicate that the companies had done anything wrong.)
But it was the Panama Papers and other leaks that exposed the lengths to which some people will go to avoid and evade tax that really fired up public opinion around the world.
Prime ministers and presidents promised action.
With President Obama leading the US government it seemed that something might be done.
But with billionaire Donald Trump now in the White House and the United Kingdom consumed by its Brexit processes, action on wealth redistribution and tax evasion and avoidance has slipped down the political agenda.
At present it’s hard to see President Trump giving the issue priority.
But he will ignore it at his peril.
Once the disadvantaged who voted for him discover that he cannot reincarnate manufacturing plants, they might consider the reality of the United States of America and find that the American dream is just that – a dream.
The reality is a grossly inequitable society.
It’s estimated that the top wealthiest one per cent own 40 per cent of the nation’s wealth while the bottom 80 per cent own just 7 per cent.
And Americans are not in the process of earning their way out of this with the top one per cent of income earners averaging $1.3 million a year while the bottom 50 per cent earns an average of just $16,000.
The days when American children could look forward to earning more than their parents are gone.
When this reality sinks home there’s always the possibility (likelihood?) that to maintain his popularity Donald Trump will manufacture a war or a national crisis to rally the disaffected behind him.
If anti-Muslim hysteria isn’t enough, then there’s always China and the chance to provoke a war over the US “right” to sail its warships though the South China Sea.
It is to be hoped that other governments will not let the tax evasion issue drop.
The solution is not a race to the bottom, with lower and lower company and personal tax rates.
Governments need to raise revenue and at some point the rich must be required to pay their fair share.
Lower tax rates will not generate the needed additional revenue. Closing loopholes and increasing taxes on those who can afford to pay is the only option.
In Australia the government argues that income inequality has increased by substantially less than in many comparable OECD countries over the past 30 years.
But think about this statement. It says in effect: our rich are getting relatively richer; our poor relatively poorer. But don’t you worry about that. Overseas the gap is worse.
This response isn’t good enough for a number of reasons.
Firstly unemployment is set to rise.
Last week Toyota announced that it would close its Altona plant in October, with the loss of 2600 direct jobs. Ford has already closed its plants and Holden is to follow.
The number of job losses from the flow-on impact on suppliers can only be guessed.
So too the number of small businesses that will lose sales because the now unemployed workers will cut their expenditure.
No matter what the theorists say, the technological revolution will also cost jobs.
New industries will emerge, but that will take time.
And it does not follow that the new industries will employ the same number of people as in the past.
It is the rich – the owners of capital — who determine the shape of the economy. It is they who choose to invest in a coal mine or a wind turbine, a robot-driven capital intensive plant or a labour intensive operation. It’s not simply a technological issue. The driverless trucks in the Pilbara are not simply the result of technological progress, they are the result of a decision by management to employ this sort of technology instead of trucks with drivers.
If owners continue to believe that all that matters is achieving the highest rate of return on their capital, they will drive people out of jobs.
The aristocrats in the eighteenth and nineteenth century may have gotten away with the Highland clearances but capitalists in twenty-first century democracies will pay a price if they ignore the creative destruction of new technology.
(There’s a tendency today to use the coy term “disruption” rather than the blunt word “destruction” coined by early twentieth century economist, Joseph Schumpeter, to describe the economy’s evolutionary processes of innovation and destruction.)
Governments will have to act to temper the process with legislation and regulation.
Operations such as Uber, which enriches the developer but in the long term will impoverish drivers, must be regulated.
To maximise employment, governments might choose to shorten working hours, while maintaining the minimum wage.
Yes this will reduce the return on capital. And yes it will make any single country that implements such laws less competitive. But without such action there will be a few “haves” with jobs and many, many “have nots” who will not rest easy.
The middle class, brought up to believe that they have a right to a job, will have their voices heard. They will not go gentle into that good night.