Archive: April 2013

This section provides a selection of media items from April 2013.

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MEDICARE RISE TO FUND DISABILITY SCHEME

Phillip Coorey, The Australian Financial Review, 30 April 2013

The federal government has settled on a $3.2 billion, 0.5 percentage point increase to the Medicare levy to help fund its National Disability Insurance Scheme and is expected to make an announcement on Wednesday.
The Australian Financial Review understands the government’s expenditure review committee, and then cabinet, considered several options on Monday, including an increased Medicare levy, a separate NDIS levy and a straightforward incremental increase to marginal income tax rates.
Sources on Tuesday said the favoured option was to increase the 1.5 per cent Medicare levy to 2 per cent.
Based on present numbers, the increase would raise $3.2 billion a year, or about 40 per cent of the estimated $8 billion in extra annual funding the NDIS would require by the end of the decade when it is fully operational.
A 0.5 percentage point increase would mean an extra $750 a year for someone on an income of $150,000.
The remainder of the extra $8 billion will be found by structural savings to the budget, including cuts to the disability support pension. Industry speculation was rife that Prime Minister Julia Gillard would make the announcement in Melbourne on Wednesday.
Pre-election brawl with opposition
Any tax increase will spark an immediate pre-election brawl with the federal opposition, which on Tuesday reiterated its support for an NDIS but not a new tax to fund it. Opposition Leader Tony Abbott said a Coalition government intended to fund the scheme from consolidated revenue.
But the government is expected to legislate the tax increase before the September 14 election and introduce it on July 1, 2014, forcing the opposition to go to the election promising repeal it if it wins government. This timetable is despite the fact that the increased funding raised by the tax increase is not strictly needed until the 2017-18 financial year, after the expiration of the three-year NDIS trial period, funded in last year’s budget with $1 billion.
Speaking during his annual charity bicycle ride, Pollie Pedal, which is ¬raising money for Carers Australia, Mr Abbott said a strong economy, not a new tax, was needed to “make the NDIS a reality’’.
“With a strong economy, we can ensure that government revenues are in a position to sustain over the long term an NDIS,’’ he said. It was “just not good enough’’ that the government was contemplating a tax rise.
“Now the government is coming after you, the people, for more money, because it can’t get its finances under control,’’ Mr Abbott said.
The existing 1.5 per cent Medicare levy is budgeted to raise $9.7 billion this financial year.
Most people pay the full 1.5 per cent. Those earning below $19,404 do not pay the levy and those earning up to $22,828 pay only some of the levy.
Take a Labor approach: PM
Seniors and pensioners generally have to earn more than $30,000 before they start paying the levy and do not pay the full levy until their earnings hit about $36,000.
Figures released by the Australian Taxation Office on Tuesday show 8.6 million people paid $8.6 billion in Medicare levies in 2010-11.
On Monday, when flagging the levy and other budget cuts, Ms Gillard indicated the thresholds would apply to any NDIS-related increase and those on higher incomes would bear the brunt.
“We will take a Labor approach to the burden sharing that I have described,’’ she said.
“A Labor approach which understands that people come with different capacities to the task, but also a Labor approach that understands that if we look right across our society and ask everyone to make some contribution, then it lightens the load for everyone.’’
The government fell largely silent on Tuesday, hoping disability support groups would drive public support for the pre-election tax increase.
But with the political parties divided over funding, the disability support community, which wants the NDIS delivered by whoever is in power, was also split.
People with Disability Australia spokesman Craig Wallace supported a levy as the best way to give long-term security to disabled people.
Even partial levy important
“The fact is we’re heading into a really tight fiscal environment,” he said.
“What a levy does is provide a sustainable way to pay for reform.”
Mr Wallace said even a partial levy, such as that to be announced on Wednesday, was important to provide a guaranteed funding base.
But former NSW Labor minister, John Della Bosca, now the national campaign director for NDIS advocacy group Every Australian Counts, said the funding decision was one for government and his group was agnostic on the issue. But he said a properly and securely funded scheme would save everyone money over the long term.
Australian Lawyers Alliance president, Tony Kerin, supported a levy and believed most Australians would be prepared to fund the NDIS either through a levy or an increased GST.
Ms Gillard flatly ruled out touching the goods and services tax on Monday.
Finance Minister Penny Wong furthered the case for a hypothecated levy, saying: “You have to look at what will give security to people with a disability, what will ensure a strong scheme, not just for a couple of years but for the decades ahead.’’
A 2 per cent Medicare levy effectively increases marginal tax rates by the same amount, giving Australia a top tax rate of 47 per cent and a bottom rate of 21 per cent.
Newman offer rejected
Such increases will be a significant departure from Labor’s now-discarded 2007 election “aspiration’’ to reduce and refine tax rates from four to three.
Back then, it said that by 2013, if affordable, it would reduce the tax rates to 15, 30 and 40 per cent. The 30 per cent rate would apply to incomes between $37,000 and $180,000.
In July last year, the premiers, in Canberra for a Council of Australian Governments meeting, offered to back Ms Gillard unconditionally and on a bipartisan basis if she imposed a levy for the NDIS.
But she rejected the offer led by Queensland Premier Campbell Newman, fearing a scare campaign from Mr Abbott about a “great big new tax”.
“We will make the appropriate arrangements out of the Commonwealth’s budget without a new tax, income tax, to fund the National Disability Insurance Scheme,’’ she said at the time.
Former Liberal treasurer Peter Costello told the ABC’s 7.30 program on Tuesday both sides of politics should be shelving new spending promises because of the budget situation. This included the NDIS.
“I wouldn’t be introducing it in this form at this time,’’ he said. “The budget’s in deficit. To fund it, you’ll have to borrow more money.’’
South Australian Labor Premier Jay Weatherill, one of the first premiers to sign up to the NDIS, said it was up to the federal government how it funded its share.
The total cost of the NDIS is expected to be about $15 billion a year when it is fully operational. Of this, $8 billion is new money while the other $7 billion is the current annual contribution of the states and the Commonwealth towards disability services.
The states will hand over the money and the sole funding responsibility to Canberra.

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FATCA SETS STAGE FOR EU CLAMP DOWN ON TAX EVASION

William Amofah, CFO Insight, 29 April 2013

The enactment of FATCA has ramped up negotiations at the EU and OECD level on how to improve the implementation of taxing cross-border investment income.
FATCA paves the way for international clamp down on tax havens and tax evasion.
The attention paid to the elimination of tax havens by policymakers and the media has increased in recent times. One of the main reasons for this, according to Deutsche Bank Research, is the implementation of FATCA by the United States.
The law, passed in 2010, is aimed at foiling tax evasion by US citizens. Faced with the threat of being sanctioned with a 30% withholding tax, banks are now being squeezed by authorities to provide information about accounts outside of the US held by American citizens. The law, however, has not been well received by the public. Last year, Herman B. Bouma, a lawyer at Buchanan Ingersoll & Rooney PC, described the law as “sheer idiocy.”
Nevertheless, the legislation has spurred negotiations at the EU and OECD levels on how to improve the taxation of cross-border investment income. At the European level this includes the expansion of the Savings Taxation Directive – an agreement between EU member states to automatically exchange information with each other about customers who earn income abroad.
The dire fiscal outlook in many countries in the euro zone means that more than ever, governments are looking for ways boost tax revenues. Earlier this month, Germany, France, Italy, Spain and the UK seized on the FATCA agreement as a way to speed up the implementation of an improving the exchange of information for tax purposes within the EU.
That governments want to clamp down on tax evasion is nothing new: since the mid-1990’s the topic has been one of the long-term objectives of the OECD. However, the passing the FATCA legislation, should increase the initiatives designed to advance the exchange of tax information.

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STRATEGIES TO FIX THE SUPER SHORTFALL

Mark Bouris, The Sydney Morning Herald, 28 April 2013

I guess my column struck a nerve last week. I made the point that superannuation favours men over women. Not because of sexism but because our lives are different: women spend more time out of the full-time workforce because they have children, raise them and are often the ones who respond to family emergencies such as serious illness.

This means women’s average super balances end up being a little more than half of their male counterparts. Their retirement savings, on average, are inadequate to fund a comfortable retirement, yet women retiring at 65 today can easily live into their 90s.
The response to last week’s column was huge, the Money website was inundated with comments and I received personal messages from many of you via Twitter. Many people noted that I identified the problem but didn’t offer a solution. So here are a few suggestions to think about:
Contributions
The superannuation guarantee is about to start rising, to 12 per cent of wages by 2019. We could look at this being struck at 15 per cent of wages for women. The actuary firm Rice Warner now has an application before the Human Rights Commission to be allowed to pay 15 per cent super to female employees.
Taxes
Superannuation is taxed at contribution and on earnings. We could drop one of these taxes to allow new mums’ contributions to grow faster.
Maternity cover
Employers may have generous maternity leave schemes, however, the employees’ super is not added to while they’re on leave. Some employers are paying the full super guarantee while the female employee is on maternity leave.
Government matching
To encourage women to stash money into super while they’re working, the government could look at matching female voluntary contributions dollar for dollar. Make them tax free.
Spouse concession
While a mum is out of the workforce raising a family, her spouse should be allowed to make contributions to her account tax free.
Advice rebate
Along with women’s lower lifetime contribution levels, there is a widespread lack of understanding and comfort with the superannuation system. All financial services providers know this and don’t know what to do about it. We could look at fully tax-deductible financial advice for women, or allow fund managers and adviser groups to provide ”free” advice and claim the deductions themselves. Either way, women who are confident and informed will be more engaged with super and will be more likely to make good decisions.
Education
We have to start early, in our schools. Teaching the basics of investment and financial adequacy will empower young women with information.
Finally, the purpose of superannuation was to create an actuarial income in retirement: to have a lump sum large enough that you can live off the interest.
Half of our population is going to struggle to achieve this, and it saddens me to see so many women feeling guilty and embarrassed about their lack of retirement savings, when they should be engaging and forming a strategy.
So I’d like to end by saying to my female readers that you are not to blame.
This is a problem of the system, not of gender.
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WHY BUSINESS WANTS THE CARBON PRICE TO STAY

Tristan Edis, Crikey, 26 April 2013

With questions hanging over the Coalition’s climate policy, it’s becoming obvious the business community wants the carbon price to stay. Here’s four reasons why …
With the collapse in the price of European carbon allowances, the big end of town in business would prefer the Coalition not rescind the carbon price.
The Australian Industry Group has already come out publicly stating it believes the carbon price should stay, but move immediately to international trading. Tony Shepherd, the chairman of the Business Council of Australia, has been strident in his criticism of the current fixed $23 carbon price, but when asked about whether he’d like the emissions trading scheme abolished, stated the BCA membership wanted a market-based mechanism. In other words, the group wants an emissions trading scheme.
Why on earth would big business and its industry associations, which have been complaining incessantly for the past four years about carbon pricing, actually prefer this to the Coalition’s plan for taxpayers to pay polluters to reduce their pollution? Here are four good reasons why …
1. The carbon price won’t actually cost business that much money
Unless something miraculous happens in Brussels, once trading in carbon permits commences businesses will be paying a carbon price likely to be around $5, at worst maybe $10. Electricity generators would be able to pass much of this on and so would suffer little loss in profit. Also big industry, such as chemicals, metal smelting and cement, will get over 90% of their permits for free in most cases and at worst 60%, so the end cost per tonne of carbon is 50 cents and at worst $4.
This equates to a cost in almost all cases comfortably less than 1% of revenue and less than 2% of industry value-add (a proxy for profit).
However, if restrictions were removed over the use of carbon credits from developing countries known as CERs, it would result in a carbon price before free permits of less than 50 cents. This makes the carbon price a rounding error in the accounts of just about every business, no matter how polluting.
2. Direct Action is an unknown quantity
It doesn’t seem to matter who you talk to — big carbon emitter, carbon abatement project developer, banker, journalist, public servant — all of them just scratch their heads when you ask how they think Direct Action will work. There is an incredible amount of confusion and doubt about how it will be implemented. The fact Coalition party members have put out contradictory statements on the policy just adds to the confusion; Shepherd seemed to think the Coalition hadn’t even released its policy yet.
While Direct Action might seem like a get-out-of-jail-free card for polluters, there are all sorts of things that might happen in terms of how it is implemented that could cause difficulties and challenges for some major emitters. What about the penalties for those firms that go above their baseline? Also, if it funds a lot of energy efficiency, this could hurt electricity generators far more than the carbon price.
Plus, for other businesses it’s clear if the Coalition is serious about reaching its 2020 emission cuts, this will cost the budget a lot of money. That money has to come from somewhere, and that could hurt businesses that don’t emit that much.
3. Direct Action will struggle to last, and who knows what might replace it/supplement it
Businesses with professional and experienced government affairs staff realise how incredibly complicated the implementation of a baseline and credit emissions reduction auction scheme would be. How do you work out what should be the baselines for new facilities or expansions, how do you prevent businesses from gaming it, how do you work out what abatement activities go beyond business as usual and how much credit should you give them? There are a myriad questions that get thrown up. These businesses also know that politicians have a habit of raiding the budget allocation for such types of schemes.
Consequently there is real scepticism about whether the Direct Action policy will last. That then poses a serious worry for business about what might replace it, or what regulatory measures might be imposed to make up for its weaknesses. The imagination can run wild with possibilities. Especially if the current conservative state governments are replaced with Labor governments, or if deals need to be made with the Greens in the Senate.
4. Direct Action fails to resolve long-term investment uncertainty
It has to be said that neither the government’s carbon price nor Direct Action effectively resolve the huge uncertainty that afflicts investment in carbon and energy-intensive sectors. If the Coalition were to miraculously return to its Howard government 2007 position in favour of an ETS it would still leave the uncertainty that comes with linking our scheme to international carbon markets.
But it would at least mean we would have a bi-partisan approach on the main mechanism for controlling greenhouse gas emissions. This would represent a major improvement in the investment environment for the power sector in particular, as well as other carbon and energy intensive areas of the economy.
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DEVELOPING COUNTRIES HAVE BEEN SUFFERING THE EFFECTS OF AGGRESSIVE TAX AVOIDANCE FOR DECADES

Alex Prats, This Is Money, 26 April 2013

Over the last few years, it has been painfully clear that we have a problem – courtesy of Starbucks, Amazon, Google, Ikea and all the other multinationals which pay laughably little tax in the countries where they are so successful, including the UK.
The situation is now so serious that even normally conservative world leaders have joined the growing chorus for reform. Only this week, David Cameron wrote to his European counterparts, declaring that ‘tax evasion and aggressive avoidance are global problems that require truly global solutions’ and promising a ‘turning point’ against tax evasion when the UK hosts a meeting of G8 leaders in June.
Two days later, MPs on Parliament’s influential Public Accounts Committee warned that multinational companies – aided and abetted by the Big Four accountancy firms – are exploiting loopholes in global rules in order to avoid tax in the countries where they actually do business. ‘The UK must take the lead in demanding the urgent reform of international tax law,’ they insisted.
Even rich countries’ club the OECD (Organisation for Economic Cooperation and Development) is speaking out against multinationals’ abuses. In February, it cautioned that if ordinary people believe multinationals can legally avoid paying tax, then they themselves will be less likely to do so, threatening the very basis of modern tax systems.
In essence, the problem is very simple. Multinationals are taxed according to international rules drawn up 80 years ago. They are now wildly outdated – and companies have found plenty of ways to get around them, often legally.
Multinationals’ trick is to claim that while they have lots of staff, customers and buildings in, say, the UK, their profits actually belong to sister companies that just happen to be in tax havens. These places – the Cayman Islands, Switzerland, Bermuda and so on – charge little or no tax on companies’ income, so multinationals end up not paying taxes anywhere.
For the companies, such profit-shifting works well. Christian Aid research on 1,500 multinationals in India, for instance, has found that those with links to tax havens pay 30 per cent less in taxes than those without such links.
So perhaps it is no wonder public finances and public services are suffering in so many countries. In the UK, the Prime Minister and the Chancellor have denounced aggressive tax avoidance (legal but immoral) and evasion (illegal and immoral). Their rhetoric is welcome – now we want them to follow up with determined action. And as Mr Cameron says, much of this will need to be in partnership with other countries.
One reform that’s urgently needed is to bring the world’s creaking tax rules up to date, to reflect how multinationals really operate these days. The old rules are based on a fiction: that multinationals’ subsidiaries operate independently of each other. In fact, they are carefully co-ordinated from the centre of each multinational, so as to minimise costs and maximise profits.
When the world’s tax rules are updated, they should enable every country obtain its fair share of tax from multinationals, based on where they are actually earning their profits.
Governments should also be forcing multinationals to reveal more about their activities and their finances around the world, because the extra information will help detect aggressive tax avoidance and evasion which tax authorities could investigate. At the very least, corporations should have to give details such as their profits made and taxes paid in every country in which they operate.
It is only now that the effects of the economic and financial crisis are being strongly felt in rich countries that our political leaders are paying attention to aggressive tax avoidance. But women, men and children in developing countries have been suffering it for decades.
Christian Aid estimates that developing countries lose US 160 billion every year as a result of multinationals tax dodging – far more than what they receive in aid. The money could have funded schools, health centres and food for hungry families.
Rich countries are now seeking solutions, but so far, they have excluded developing countries from negotiations and decision-making. This is not acceptable, because everyone needs tax fairness, not just the rich. Furthermore, catching up with tax-shy multinationals will take global cooperation.
The UK Government is Chair of the G8 rich countries in 2013, so it is perfectly-placed to lead global action against tax dodging. An excellent start would be for the G8 to create a new international agreement that forces tax havens to reveal who has money and who owns companies within their borders.
Tax haven secrecy is a major problem for anyone who pays their taxes. It’s time the UK became part of the solution.

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PROTESTERS COULD HIT US ON TAX BILLS: BUSINESS

Katie Walsh, The Australian Financial Review, 25 April 2013

The Corporate Tax Association claims Australian activists could incorrectly protest against multinationals and large businesses if the Australian Treasury proceeds with a plan to publicly release tax information. Treasury’s proposal is part of a Federal Government push to try to halt multinationals minimising tax in Australia. Assistant Treasurer David Bradbury cited Google and Apple as users of offshore tax arrangements when announcing the plans in November 2012.

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THE SO-CALLED ‘INTERNET SALES TAX’ EXPLAINED

Sarah Parnass, abc News, April 25, 2013

That 1990s Super Nintendo System you’ve been eying on eBay for $79.97 might soon include an extra fee for sales tax, thanks to a bill up for consideration in the Senate this week.
Senators are wrapping up discussions about the Marketplace Fairness Act, better known by its nickname, the Internet Sales Tax. A vote to advance the bill is expected Friday morning.
The proposed legislation would force many online retailers to begin collecting taxes on their wares in all states, not just where they have offices.
Any online store that makes more than $1 million annually in online sales would have to send taxes back to the states where their goods are delivered, based on the rates required in those jurisdictions.
In a time when states and towns are struggling to make ends meet, this bill would mean extra revenue to make up for federal dollars lost to sequester cuts. It’s no wonder some lawmakers are looking to cash in on what has become a sizeable chunk of American commerce.
Revenue from purchases made on the Internet in the United States has grown steadily since 2003. That year, they made up about 1.6 percent of total retail sales in the U.S. By 2012 they had risen more than three-fold to 5.2 percent, bringing in $225.5 billion.
The bill can find support on the right despite many Republicans’ pledges not to raise taxes, because it does not subject any new items to taxation. Online buyers legally should be paying these fees already, but they rarely do. There is even a section in the bill called “No New Taxes,” that explains this.
Some big name retailers, like Amazon, have come out in favor of the bill.
But opponents say the act would impose a burdensome system on small businesses that don’t have the administrative resources to keep such complex books. Retailers would have to determine how much to pay in taxes on an item based on the thousands of tax jurisdictions in the United States.
As an example of how that could get complicated, five states do not have state-wide sales tax, but two of those states – Montana and Alaska – allow localities to charge a sales tax. So a business owner in New Hampshire – which has no sales tax – sending a fishing pole to a customer in Juneau, Alaska, would have to collect a 5 percent sales tax, but would charge no sales tax to the buyer in Denali Borough.
Althea Erickson, director of public policy for Etsy, an online marketplace where crafters can sell their creative goods, wrote an op-ed this week urging lawmakers to raise the revenue rate that differentiates between small and big businesses in the act.
“If you’re thinking, ‘$1 million, phew, that excludes me,’ that’s understandable,” Erickson wrote of the threshold for businesses affected by the bill. “$1 million in sales, however, is well below other federal definitions of small business. And the top 500 largest internet retailers make up 93 percent of lost state revenues. A lower exception hurts small businesses more than it helps states.”
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INFLATION AT MERCY OF TAXES AND CHARGES

Tim Colebatch, The Guardian AU, 24 April 2013

Taxes and government-regulated charges have played a key part in pushing up inflation over the past decade, indirectly increasing interest rates and making Australia less competitive, a Fairfax Media analysis shows.
On the eve of new figures on Wednesday, which are expected to show inflation remains low, a breakdown of inflation data over the past 10 years reveals that the biggest price rises have come mostly in areas in which governments either regulate prices or impose special taxes.
This implies that poor regulation or tax grabs by governments have materially lifted Australia’s rate of inflation. This in turn has led the Reserve Bank to set interest rates higher than they would otherwise be – and, where the rising prices feed into business costs, has made Australia less competitive with other countries.
Overall, annual inflation averaged 2.8 per cent. Over the decade, prices rose 31 per cent, whereas average wages rose between 45 per cent and 57.5 per cent, depending on which measure you use. On all counts, Australians became significantly better off.
But there was a sharp divide between inflation in goods and services that can be traded, where prices rose just 1.3 per cent on average, and those enjoying natural protection from import competition, where prices on average rose 3.8 per cent – imposing higher costs on the firms vulnerable to global competition.
The 10 fastest-rising prices in the past decade are headed by three utility services either owned or regulated by governments: electricity (up 129 per cent), water (110 per cent) and gas (109 per cent).
While much of this was inevitable, many argue that these price rises have been inflated by a poorly-designed framework of price control. All clearly feed into business costs.
Other items in the top 10 include cigarettes (91 per cent), where repeated tax increases almost doubled their price; local council rates (72 per cent), and motoring taxes and charges (62 per cent). These prices rose much faster than average because governments used them to prop up their weakened tax base.
But it was not only governments pushing up prices. Despite increasing subsidies from taxpayers to keep prices down, private schools were pacesetters in pushing prices up, as they sought to improve their positioning in an aspirational market. Their secondary school fees rose 95 per cent over the decade, while primary school fees shot up 76 per cent.
Medical and hospital fees rose 86 per cent, as health is everyone’s priority and most fee rises end up being paid by taxpayers. Petrol and diesel prices rose 64 per cent in the decade, as China pushed up global prices. Insurance bills shot up 62 per cent to pay for record damage from natural disasters.
Some of the biggest items of household spending also saw the biggest price rises, and not just for electricity, medical bills and petrol. Rents rose 53 per cent in an under-supplied housing market. Home purchase and/or major renovation costs, the single biggest item in the household budget, rose 40 per cent.
Take-away food outlets lifted their prices 45 per cents, while tax hikes helped beer prices rise 53 per cent.
But there were also price falls, in roughly one in 10 of the Bureau’s price categories. Computers and audio-visual equipment became spectacularly cheaper. By 2012, you could buy roughly five times as much TV screen or computer power as you could back in 2002.
All the price falls were in fields dominated by imports, which became much cheaper the more the dollar rose. Cars, household appliances, kitchenware, clothing, games and sporting and camping equipment were all between 10 and 20 per cent cheaper in 2012 than in 2002.
Others saw prices barely rise. Phone costs, including handsets and calls, rose just 5 per cent over the decade. Furniture was the same price in 2012 as it had been in 2002. Overseas holidays, now one of our biggest spending items, cost only 7 per cent more a decade later.
The risk is that all these import-derived prices will soar if and when the dollar ultimately falls back to its previous range of between 50 and 90 US cents. That’s when the Reserve Bank will have some real work to do.
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TAX RISE WON’T HURT COMPANIES: ABBOTT

Phillip Coorey, The Australian Financial Review, 23 April 2013

Many big businesses will benefit from a small increase in company tax under a Coalition government because they will be able to abandon their own in-house paid parental leave schemes, federal Opposition Leader Tony Abbott says.
All but confirming the Coalition would impose a tax increase on the nation’s 3200 largest companies to fund his scheme, Mr Abbott also urged business to consider the broader economic argument.
“This is not just a family policy, this is an economic policy, this is a productivity policy, this is a participation policy,’’ he said.
As revealed last week by The Australian Financial Review, Mr Abbott intends to go ahead with a promised 1.5 percentage point increase to company tax for the largest 3200 companies, as judged by their taxable income, to fund his scheme, estimated to cost $3.3 billion a year. But, simultaneously, the Coalition has shelved a pledge made at the last election to cut company tax by 1.5 points for all companies.
Originally, the net effect of both measures would have meant that larger companies would pay no increase on the 30 per cent rate, while smaller ones would have paid a reduced rate of 28.5 per cent.
Due to the deteriorating budget position, however, the Coalition can no longer afford to promise the full 1.5 point cut, meaning the net effect now is that bigger businesses face an overall increase, the size of which is yet to be finalised.
“We are committed to a modest ¬reduction in company tax. The precise quantum and the precise timing will be revealed close to the election,’’ Mr Abbott said on Monday.
Not all worse off
He described the increase in company tax to fund the scheme as “a modest levy on larger business’’ and said not all would be worse off.
“Many of those larger businesses will actually save some money as well because many of them already have a form of paid parental leave,’’ he said.
Labor introduced Australia’s first national paid parental leave scheme in 2010. It pays all stay-at-home carers the minimum wage for 18 weeks.
Mr Abbott argues that out of almost 40 government-funded schemes in the world, only Australia’s did not offer full wage replacement. His scheme will pay people their full salary for six months, capped at $150,000. This means a person can receive a maximum of $75,000 in six months.
The largest companies, such as banks, have generous schemes. Westpac Banking Corp, for example, offers either 13 weeks’ leave on full pay or six months on half pay. It paid $2.8 billion in company tax last year and made a profit of just under $6.6 billion.
Several corporate spokespeople, none of whom wanted to be identified, were wary of Mr Abbott’s claims about them being better off.
They felt individual schemes gave their respective companies a competitive advantage over rivals.
One executive with experience in both retail and finance said it was irrelevant whether a company had a better or worse scheme than what the Coalition was offering.
Some companies may have to pay twice
He said all companies would dump their own schemes because otherwise, they would be paying twice – through increased tax and by funding their own scheme.
However, in some cases this would be difficult because paid parental leave schemes were negotiated as part of enterprise bargaining agreements and these agreements, which usually ran for three years, had to be honoured. This meant some companies would have to pay twice for at least two or three years.
All said it was impossible to evaluate Mr Abbott’s claim without knowing how big the net company tax increase would be. “Until he tells us what the exact rate is going to be, we won’t know,’’ one said.
There has been a lot of internal ¬resistance to the policy over recent years on the grounds of funding and its generosity. Shadow treasurer Joe Hockey said small businesses would be a big winner because it would no longer lose female employees to large companies and the government.
“All of a sudden they’ll be competing on a level playing field with the Coles and the Woolies and the BHPs.’’
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SINGAPORE THE NEW SWITZERLAND? RICH TURN TO ASIAN HAVENS

Myriam Robin, Crikey, 23 April 2013

For years, the rich and their money have flocked to Zurich. Not any more. Asian tax havens are now in vogue, led by the friendliest of all in Singapore.
Switzerland: home of good cheese and better chocolate, accurate watches and, for as long as anyone can remember, the place the wealthy parked their money, with no one asking where it came from.
But with the rise of Asia and with a new cohort of rich-listers, that’s all changing, according to a report released last week by private banking research group WealthInsight.
The Family Office briefing is a yearly report the research group produces looking at where the world’s most exclusive wealth management firms — who control US$19.3 trillion — are putting their money. In 2011, the report said, Switzerland had 34% of that pie, but that share is shrinking.
Singapore is one of the main beneficiaries. In 2000, the city-state had just $50 billion of the money of the world’s top wealth managers. In 2011, the figure was $550 billion, and WealthInsight expects it will continue to grow.
For Australians it’s no surprise — rich-listers have been moving to Singapore for years; it makes sense the money would follow. Mining speculator Nathan Tinkler moved to Singapore last year. He joined Facebook co-founder Eduardo Saverin, and the 17% of Singapore’s population that have a net worth over $1 million (the highest rate in the world).
Saverin said his move wasn’t about tax. Tinkler’s PR guy said something similar. But as SmartCompany reported at the time, that’s all a bit rich.
Singapore’s income tax rate is capped at 20% for those earning income over $250,000. Corporate tax is capped at 17%. There’s no capital gains tax, no estate (“death”) taxes for passing on wealth to the next generation, and that’s before you count all the tax incentives given to “angel investors” and the like. Switzerland, on the other hand, will raise taxes on foreigners from 2016.
Rich-listers usually have to live most of the year somewhere to be able to claim they should be taxed under its laws. For many of the world’s rising billionaires, Singapore is simply closer to home.
It’s a nice place too, the millionaires said when the Economist Intelligence Unit asked them last year where they liked to be when abroad. It was the most popular destination in Asia, chosen by almost a third (31%) of the millionaires surveyed, eclipsing Hong Kong which was chosen by 24%.
In February, the Hurun Report, a Chinese luxury magazine started by ex-Forbes researcher Rupert Hoogewerf, wrote that of the world’s 1453 billionaires, 608 of them were Asia. Only 324 were from Europe, while America can boast 440.
Proximity with Singapore is a bonus for Australia’s rich-listers too. With a few exceptions like Swiss-based Ivan Glasenberg, our 32 billionaires travel more to Asia than they do to Europe.
Switzerland’s reputation as a safe place to park your money can’t have been helped by the spate of arrests by US authorities of those who use it for tax evasion. A few years back, Swiss financial adviser Beda Singenberger accidentally mailed a list of US clients he’d helped avoid their taxes to someone who passed the list onto US authorities. Those authorities now seem to be systematically going after the people on the list one by one. And from 2009, fearing lawsuits, Swiss banks began agreeing to open their books to authorities investigating laundering and tax evasion, eroding their reputation for privacy.
Coupled with recent crackdowns in places like Luxembourg and the Caribbean, this all makes Singapore look even more attractive as a home for the wealthy and their millions. It must make the money-movers in Zurich very nervous.

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MEANINGFUL TAX REFORM? ONLY IF EVERYTHING IS ON THE TABLE

Dale Boccabella, The Conversation, 22 April 2013

There can be no dispute with last week’s call from the Business Council of Australia for meaningful tax reform. This is a larger issue than both the looming budget and September’s election. However, it is harder to reach agreement on precisely what areas need reforming, and what that reform should be…
The kind of tax reform being called for by groups such as the Business Council of Australia can only come about if politics and vested interests are put aside.
There can be no dispute with last week’s call from the Business Council of Australia for meaningful tax reform. This is a larger issue than both the looming budget and September’s election.
However, it is harder to reach agreement on precisely what areas need reforming, and what that reform should be.
The reason for dispute comes back to two basic things; namely, what is a fair allocation of the tax burden and how should the tax system promote economic growth? It’s which of these goals should be the top priority that is at the centre of substantial tension.
If economic growth is the main criterion, most observers accept the continued presence of a number of inefficient and highly distortionary state and territory taxes is unacceptable.
The Henry Review was scathing of many of these. Stamp duties on real estate are the most damaging, mainly because of their magnitude. But removing these or reducing their current levels will prove very difficult because the revenue raised is badly needed by the states.
It needs to be remembered that the poor state of federal-state financial relations will continue to influence the states’ approach to their revenue raising. The fiasco around some states increasing their mining royalties in light of the credit mechanism under the mining tax, is a recent example.
Addressing this poor relationship is not just about getting a fair division of the GST revenue between the states. Finding a long-term solution also requires a fair way of sharing income tax between the states and the federal government. It should also be remembered that the parlous financial position of local councils is also a sub-theme of federal-state financial relations.
A relatively high corporate tax rate is also said to make Australia a less desirable place for foreign investment, thereby dampening economic growth. And relatively high personal tax rates are said to discourage work and effort, and in some cases, lead to a “brain drain”.
Fairness in the tax system is a major area of focus for many. The “tax mix” switch is probably the major point of dispute. The GST rate is set at 10%, and changing this requires rare political consensus across party lines.
By international standards, the GST rate is relatively low. This means that Australia’s main consumption tax has reduced capacity for revenue raising, which in turn means that the income tax has to shoulder more of the revenue raising burden. The tax base of the GST is also less than comprehensive, as basic food is excluded.
But many argue we need to keep income taxes down to promote overseas investment in Australia and provide incentives to work. Our corporate tax rate is much higher than that of many other countries in our region.
Increasing the GST rate and thereby allowing income taxes to fall would partly address this. At the same time though, increasing the rate of the GST compounds the unfairness of the flat consumption tax, and one can never be certain of the sustainability of compensation measures.
Within our income tax, there are a number of areas that can be seen as an affront to fairness. The main ones are largely open-ended tax concessions for superannuation; open-ended exemption for gains on the family home and the 50% discount for capital gains of individuals.
Also, I would argue you could include in this list the income splitting of property and business income that is readily available through the use of family discretionary trusts, and to a lesser extent through family partnerships and companies.
I welcome the BCA’s call to start with “everything on the table”. This is the only way to subject all tax measures to scrutiny so that tax preferences are justified. I am not so sure though that we need another “tax review process”; there is sufficient data available through the numerous tax reviews and other commissioned work to support a genuine and honest community debate and discussion about our tax system.
The obvious problem is that the “everything on the table” debate does not start with a clean tax slate (with the tax system being designed from scratch). Instead, we have had, and need, a functioning tax regime in place.
This means we all come to the debate “with baggage”, and in particular, aspirations for the continued preferential treatment of an area and/or removal of preferences in some areas.
The history of tax reform in Australia is that sectors do not readily come to an “everything on the table” debate, and in particular, giving up preferences previously won.
We do not have to look too hard for examples of this (such as the unwillingness of the mining and forestry sector to give up accelerated depreciation for a lower corporate tax rate, or the hysteria whenever tax on the family home – or death duties – are raised).
If organisations like the BCA really want an all-inclusive, open and honest debate about tax reform, their focus should really be on bringing divergent sectors to an “everything on the table” debate.
Part of this is thinking of a way or ways of taking the politics out of tax, or at least reducing the effect of political operatives on the debate. This may be asking too much.
But, taking the misinformation and some of the emotion that seems to necessarily go with taxes out, would increase the chances of an all-inclusive, open and informed debate on tax reform. This is necessary for a long-term sustainable and stable tax system.
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OSBORNE IN LEGAL CHALLENGE TO EUROPEAN COMMISSION OVER FINANCIAL TRANSACTION TAX

David Hughes, The Independent, 20 April 2013

Chancellor George Osborne said an application had been lodged at the European Court of Justice to challenge the decision allowing 11 members of the European Union to press ahead with the plans.
The UK has no intention of signing up, but is concerned that the FTT could be imposed on British firms trading with businesses based in countries which adopt the tax.
Mr Osborne said: “Yesterday the UK launched a legal challenge to the European Commission’s proposal for a financial transaction tax which a number of EU member states wish to take forward through enhanced EU cooperation.
“We’re not against financial transaction taxes in principal but we are concerned about the extra-territorial aspects of the Commission’s proposal and I think that concern is shared by some other countries.
“So we have launched a legal challenge against the authorising decision.”
Ministers are not seeking to block the FTT entirely but have consistently called for safeguards to ensure the tax would not damage the European single market and would protect the rights of countries, such as the UK, which are not taking part.
The launch of the legal challenge indicates these concerns have not yet been met, although negotiations on the final form of the tax have not yet concluded.
The 11 countries going ahead with the tax are Germany, France, Italy, Spain, Belgium, Austria, Portugal, Greece, Slovenia, Slovakia and Estonia.
A Treasury spokesman said: “We have always said that we are not against the principle of a global financial transactions tax, but think that a European-only tax would hit people’s savings and pensions and hit jobs and growth.
“While we will not participate in a Europe-only tax, we have also said we will not stand in the way of other countries, but only if the rights of countries not taking part are respected.
“The proposal currently on the table from the European Commission does not meet these requirements, which is why we have lodged the legal challenge.”

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TAX INCENTIVE FOR MAJOR AUSTRALIAN INFRASTRUCTURE PROJECTS

Mary Swire, Tax-News.com – Hong Kong, 19 April 2013

The Australian Government is consulting on draft legislation for the introduction of a new tax loss incentive for major infrastructure projects.
The consultation document sets out the impetus for reform: “Infrastructure projects often experience long leads between incurring deductible expenditure in the construction phase and earning assessable income in the operational phase. Tax losses are therefore accumulated and carried forward to later years awaiting the receipt of income. As such, the real value of losses may be eroded over time, disadvantaging infrastructure investment compared to other types of investment.”
Under the proposed changes, projects will be designated as eligible by the Infrastructure Coordinator, and will need to be included on Infrastructure Australia’s Infrastructure Priority List and assessed as “Ready to Proceed.” At least a part of the project must be privately owned or financed, and construction of the project can not have commenced. The value of carry forward tax losses will be uplifted by the 10-year Government bond rate. Company losses will be exempt from the continuity of ownership test and the same business test, while fixed trusts will be exempt from the trust loss and bad debt deduction tests.
Announcing the consultation, Assistant Treasurer David Bradbury said: “We are removing tax disincentives to encourage more private sector investment in infrastructure projects. The measure will support up to AUD25bn (USD25.9bn) in new private sector infrastructure spending, including major transport projects that will help transform our cities and make our international gateways more competitive.”
The consultation is open until April 30.
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AUSTRALIA PUFFS BUSINESS TAX RELIEFS

Mary Swire, Tax-News.com – Hong Kong, 19 April 2013

Australian Assistant Treasurer David Bradbury has been promoting the tax relief measures available to those businesses “not in the fast lane of the mining boom.”
Bradbury was speaking at events in Torquay and Geelong, where he highlighted the “extra assistance” provided to small businesses in particular. He stressed that while the transitional nature of Australia’s economy is presenting numerous challenges, the Government’s tax initiatives mean that more businesses are able to take the opportunity to invest and grow.
Among the reforms noted by Bradbury is an instant asset write off, which allows companies to immediately deduct the cost of any new business assets costing less than AUD6,500 (USD6,700). Another new scheme enables entities to carry back up to AUD1m of losses against tax paid in the previous year, while the tax free threshold for many unincorporated small businesses has been tripled from this financial year.
Bradbury said that it was good to hear from people “on the ground” about “the challenges they face and how they are looking for opportunities to grow and prosper.”
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BUSINESS FEARS POOR REVENUE OUTLOOK WILL HIT TAX BREAKS

Tim Colebatch, The Age, 18 April 2013

A sharp slump in revenue has left the federal budget looking at a potential shortfall of $17.5 billion, raising fears in business circles that the Gillard government will shut down a range of business tax breaks in the May budget to help fill the hole.
Updated figures released by Finance Minister Penny Wong show that in the three months to February, tax revenue fell 0.5 per cent year on year. The budget had forecast annual growth of 10.8 per cent.
Company tax was projected to grow 8.9 per cent, but with the financial year two-thirds gone, it instead rose just 0.8 per cent. The mining and petroleum resource rent taxes were projected to raise 390 per cent more revenue this year, but in fact they have raised just 30 per cent more.
By the end of February, the budget deficit for 2012-13 was already $24 billion, with tax revenue on track to end up a massive $17.5 billion short of the budget estimate of $343 billion.
Most of the shortfall is in company tax and the mining tax. Senior officials say mining companies will be able to reduce their tax payments for years ahead as they write off their record $285 billion investments over the past decade. The weakness of the rest of the economy has also punched a hole in company tax revenue.
As this implies a much lower revenue base for 2013-14, tax experts and business groups are worried that the May 14 budget will now seize on a range of options originally floated in a report last year as potential offsets for a cut in company tax.
The cut to company tax rates was abandoned after business failed to agree on how to offset the revenue loss. But in February the government slashed R&D incentives for big business, which had been one of the options, and there is widespread speculation that it will now go ahead with the others.
They include abolishing tax breaks unique to the mining exploration industry, which allow them to write off certain investments immediately. Last year’s report by the Business Tax Working Group estimated that scrapping these tax breaks could raise $2 billion a year.
It could also tighten “thin capitalisation” rules to try to stop multinationals from avoiding tax on their Australian earnings by loading Australian subsidiaries with debt, and then using the interest bills to reduce taxable income. When Treasury estimated this could save $300 million a year, it was told by the industry that this was far too low.
Another option could be tightening depreciation rules more generally, by reducing the pace at which assets can be depreciated, and by abolishing the “statutory effective life caps” through which certain assets can be written off quickly against tax.
A spokeswoman for Treasurer Wayne Swan declined to comment on the government’s options. “We won’t be getting into a running commentary on speculation like this,” she said.
But Paul Stacey, tax counsel for the Institute of Chartered Accountants, said it was “a racing certainty” that the budget will tighten the “thin capitalisation” rules to hit multinationals seen as using excessively high debt (usually to their parent company) to reduce their tax bills. Mr Swan will take part in a G20 forum in Washington on Saturday on how to stop multinationals such as Apple and Google shifting money around to avoid tax.
“We are concerned that the government does not take into account how tax changes impact on Australia’s attraction as an investment destination,” Mr Stacey said. “When firms are feeling confident, they take tax changes in their stride. But when they’re not, they worry about changes like this, because it changes their bottom line.”
Vik Khanna, international tax partner at Deloittes, said there was genuine concern in the tax industry that next month’s budget could swoop on these areas, reducing Australia’s global competitiveness.
“Changing thin capitalisation rules can have fairly significant impacts on the companies affected – household names that manufacture in Australia”, Mr Khanna said. “They have the potential to affect any publicly listed company that operates overseas.”
Deepti Paton, tax counsel for the Tax Institute, said any changes should be introduced as part of overall tax reforms. “We should make changes once only, make them sensibly, and for the long term”, she said.
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TIME FOR A SALES TAX ON WALL STREET FINANCIAL TRANSACTIONS

Ralph Nader, The Huffington Post, 18 April 2013

Here are some questions to consider: What do the Wall Street firms do that is so vital for the national interest? How does speculation contribute to our society? It’s time for Wall Street to step up and provide some answers.
The reckless actions of Wall Street institutions led to the collapse of the the U.S. economy and the deep recession of 2008-09. The Wall Street firms looted and gambled trillions in worker pensions and mutual fund savings. The Wall Street traders made billions of dollars in speculative money — bets on bets — holding hostage the real economy where money is made by providing goods and services. And the actions of Wall Street resulted in the loss of more than 8 million jobs.
Despite all the lasting harm caused by the casino capitalists, the big banks are now bigger, richer and more powerful than they were when they were bailed out in late 2008. The only ones who were punished were the U.S. taxpayers, who footed the $600 billion bill for the excesses of Wall Street. Brazenly, many firms still continue to gamble with other people’s money.
Something needs to change. One necessary change lies in a financial transaction tax — often referred to as the “Robin Hood Tax.” The Robin Hood Tax movement began in the United Kingdom in 2010 with the support of hundreds of economists, prominent public figures and social justice organizations.
Yesterday, Rep. Keith Ellison (D-Minn.) reintroduced “The Inclusive Prosperity Act” — inspired by the Robin Hood Tax. If passed, the bill (H.R. 1579) would create a minuscule tax on the purchase and sale of derivatives, options and stocks. The tax would be small, half a percent or less of the transaction value, depending on the product. This amounts to half a penny or less per dollar.
Consider this fact: American consumers in most states pay sales taxes on the necessities they purchase — cars, appliances, clothes, etc. The rate of such sales tax is, in some areas, as high as 7 percent. For example, a schoolteacher or police officer who buys a $100 pair of shoes pays up to $7 in sales taxes. Most people accept the idea of paying such a tax. But what about the folks on Wall Street? A trader can buy and sell millions of dollars of financial products each day without paying a cent in sales taxes. Why should financial transactions be exempt from a small sales tax?
A financial transaction tax could raise $350 billion annually — money that could be used to repair critical infrastructure, create decent paying jobs, reduce the tax burden on individuals and start to rein in frivolous high-volume trading.
At the news conference announcing the legislation, Rep. Ellison said: “This is a small tax on financial transactions that will allow us to meet the needs of our nation. And didn’t America step up, on very short notice, for Wall Street when it needed help? Well, now the American people need help.”
Critics of a financial transaction tax have all sorts of excuses. They argue it would harm ordinary investors; it wouldn’t, there are protections in place for small investors. Some say it would drive trading to offshore tax havens; but forty countries already have such a tax in place with little compelling evidence showing an adverse effect.
It’s obvious that the casino capitalists won’t give an ounce of their moral obligation without a fight. However, the endorsement of more than a thousand economists speaks volumes. One supporter, the Capital Institute’s John Fullerton (a former managing director at JPMorgan), has stated that a financial transaction tax could have significant impact in lessening the use of high-frequency trading. He has estimated that nearly 70 percent of equity-trading volume falls under this category of highly speculative trading. In June 2012, Fullerton and over 50 other financial industry professionals wrote a letter to the G20 and European leaders advocating for small financial transaction taxes.

The United States had a financial transaction tax from 1914 until 1966. It imposed a tax of 2 cents on every $100 sale or transfer of stock.

The question I posed at the outset was: What does Wall Street do that is so vital for the national interest? To begin to answer it, they can start paying this small tax. As the Robin Hood tax website succinctly puts it with their slogan, it would be “small change for the banks and big change for the people.” The $350 billion raised annually with a financial transaction tax would go a long way in helping American workers and bolstering the economy.

If you agree, stop practicing futility. Show a civic pulse. Write and call your Congressional Representative. Tell them you support “The Inclusive Prosperity Act” and they should support it as well. National Nurses United, the largest union and professional association of registered nurses in the United States, has already done this and much more with their national Robin Hood Tax campaign. Visit robinhoodtax.org to learn more.
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A TAX SYSTEM STACKED AGAINST THE 99 PERCENT

JOSEPH E. STIGLITZ, The New York Times, 14 April 2013

LEONA HELMSLEY, the hotel chain executive who was convicted of federal tax evasion in 1989, was notorious for, among other things, reportedly having said that “only the little people pay taxes.”
As a statement of principle, the quotation may well have earned Mrs. Helmsley, who died in 2007, the title Queen of Mean. But as a prediction about the fairness of American tax policy, Mrs. Helmsley’s remark might actually have been prescient.
Today, the deadline for filing individual income-tax returns, is a day when Americans would do well to pause and reflect on our tax system and the society it creates. No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes — far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners — almost a third — paid less than 15 percent of their income in taxes.
Conservatives like to point out that the richest Americans’ tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.
What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan “revolution” of the 1980s.
Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010 — about the same as the share of income they took home, an outcome that is not progressive at all.
With such low effective tax rates — and, importantly, the low tax rate of 20 percent on income from capital gains — it’s not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation’s wealth, and the picture becomes even more disturbing.
If these numbers still don’t impress you as being unfair, consider them in comparison with other wealthy countries.
The United States stands out among the countries of the Organization for Economic Cooperation and Development, the world’s club of rich nations, for its low top marginal income tax rate. These low rates are not essential for growth — consider Germany, for instance, which has managed to maintain its status as a center of advanced manufacturing, even though its top income-tax rate exceeds America’s by a considerable margin. And in general, our top tax rate kicks in at much higher incomes. Denmark, for example, has a top tax rate of more than 60 percent, but that applies to anyone making more than $54,900. The top rate in the United States, 39.6 percent, doesn’t kick in until individual income reaches $400,000 (or $450,000 for a couple). Only three O.E.C.D. countries — South Korea, Canada and Spain — have higher thresholds.
Most of the Western world has experienced an increase in inequality in recent decades, though not as much as the United States has. But among most economists there is a general understanding that a country with excessive inequality can’t function well; many countries have used their tax codes to help “correct” the market’s distribution of wealth and income. The United States hasn’t — or at least not very much. Indeed, the low rates at the top serve to exacerbate and perpetuate the inequality — so much so that among the advanced industrial countries, America now has the highest income inequality and the least equality of opportunity. This is a gross inversion of America’s traditional meritocratic ideals — ideals that our leaders, across the spectrum, continue to profess.
Over the years, some of the wealthy have been enormously successful in getting special treatment, shifting an ever greater share of the burden of financing the country’s expenditures — defense, education, social programs — onto others. Ironically, this is especially true of some of our multinational corporations, which call on the federal government to negotiate favorable trade treaties that allow them easy entry into foreign markets and to defend their commercial interests around the world, but then use these foreign bases to avoid paying taxes.
General Electric has become the symbol for multinational corporations that have their headquarters in the United States but pay almost no taxes — its effective corporate-tax rate averaged less than 2 percent from 2002 to 2012 — just as Mitt Romney, the Republican presidential nominee last year, became the symbol for the wealthy who don’t pay their fair share when he admitted that he paid only 14 percent of his income in taxes in 2011, even as he notoriously complained that 47 percent of Americans were freeloaders. Neither G.E. nor Mr. Romney has, to my knowledge, broken any tax laws, but the sparse taxes they’ve paid violate most Americans’ basic sense of fairness.
In looking at such statistics, one has to be careful: they typically reflect taxes as a percentage of reported income. And the tax laws don’t require the reporting of all kinds of income. For the rich, hiding such assets has become an elite sport. Many avail themselves of the Cayman Islands or other offshore tax shelters to avoid taxes (and not, you can safely assume, because of the sunny weather). They don’t have to report income until it is brought back (“repatriated”) to the United States. So, too, capital gains have to be reported as income only when they are realized.
And if the assets are passed on to one’s children or grandchildren at death, no taxes are ever paid, in a peculiar loophole called the “step-up in cost basis at death.” Yes, the tax privileges of being rich in America extend into the afterlife.
As Americans look at some of the special provisions in the tax code — for vacation homes, racetracks, beer breweries, oil refineries, hedge funds and movie studios, among many other favored assets or industries — it is no wonder that they feel disillusioned with a tax system that is so riddled with special rewards. Most of these tax-code loopholes and giveaways did not materialize from thin air, of course — usually, they were enacted in pursuit of, or at least in response to, campaign contributions from influential donors. It is estimated that these kinds of special tax provisions amount to some $123 billion a year, and that the price tag for offshore tax loopholes is not far behind. Eliminating these provisions alone would go a long way toward meeting deficit-reduction targets called for by fiscal conservatives who worry about the size of the public debt.
Yet another source of unfairness is the tax treatment on so-called carried interest. Some Wall Street financiers are able to pay taxes at lower capital gains tax rates on income that comes from managing assets for private equity funds or hedge funds. But why should managing financial assets be treated any differently from managing people, or making discoveries? Of course, those in finance say they are essential. But so are doctors, lawyers, teachers and everyone else who contributes to making our complex society work. They say they are necessary for job creation. But in fact, many of the private equity firms that have excelled in exploiting the carried interest loophole are actually job destroyers; they excel in restructuring firms to “save” on labor costs, often by moving jobs abroad.
Economists often eschew the word “fair” — fairness, like beauty, is in the eye of the beholder. But the unfairness of the American tax system has gotten so great that it’s dishonest to apply any other label to it.
Traditionally, economists have focused less on issues of equality than on the more mundane issues of growth and efficiency. But here again, our tax system comes in with low marks. Our growth was higher in the era of high top marginal tax rates than it has been since 1980. Economists — even at traditional, conservative international institutions like the International Monetary Fund — have come to realize that excessive inequality is bad for growth and stability. The tax system can play an important role in moderating the degree of inequality. Ours, however, does remarkably little about it.
One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.
Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.
Aside from the evidence, there is a strong intuitive case to be made for the idea that tax rates have encouraged rent-seeking at the expense of wealth creation. There is an intrinsic satisfaction in creating a new business, in expanding the horizons of our knowledge, and in helping others. By contrast, it is unpleasant to spend one’s days fine-tuning dishonest and deceptive practices that siphon money off the poor, as was common in the financial sector before the 2007-8 financial crisis. I believe that a vast majority of Americans would, all things being equal, choose the former over the latter. But our tax system tilts the field. It increases the net returns from engaging in some of these intrinsically distasteful activities, and it has helped us become a rent-seeking society.
It doesn’t have to be this way. We could have a much simpler tax system without all the distortions — a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one — we wouldn’t have to go through all the wrangling we’ve been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.
The consequences of our broken tax system are not just economic. Our tax system relies heavily on voluntary compliance. But if citizens believe that the tax system is unfair, this voluntary compliance will not be forthcoming. More broadly, government plays an important role not just in social protection, but in making investments in infrastructure, technology, education and health. Without such investments, our economy will be weaker, and our economic growth slower.
Society can’t function well without a minimal sense of national solidarity and cohesion, and that sense of shared purpose also rests on a fair tax system. If Americans believe that government is unfair — that ours is a government of the 1 percent, for the 1 percent, and by the 1 percent — then faith in our democracy will surely perish.
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LEAKY DEVILS: TAX HAVENS START TO REASSESS THEIR BUSINESS MODELS

The Economist – Zurich, 13 April 2013

Will 2013 turn out to be an annus horribilis for the offshore financial world? Less than a month after the humiliation of Cyprus, a popular bolthole for Russia’s financial ne’er-do-wells, tax havens have been hit with their own version of the WikiLeaks diplomatic-cables scandal. Armed with a cache of more than 2m documents, leaked from two offshore service providers, a group of investigative journalists has spent the past week publishing articles that lift the lid on thousands of companies and trusts set up in the British Virgin Islands and Cook Islands. The vast client list ranges from Asian politicians to Canadian lawyers—and no fewer than 4,000 Americans. For an industry that peddles secrecy and likes to operate in the shadows it is all rather embarrassing.
Opinions vary on the impact of the leaks. Tax campaigners have cheered it as a “game changer”. Offshore operators counter that most of the activity uncovered is legal. So what if President François Hollande’s former campaign treasurer has a Cayman Islands company? So do thousands of banks and hedge funds. Nevertheless, the affair will add to international scrutiny of tax havens. The pressure on them has grown as governments scramble to plug fiscal holes and push for the systematic exchange of tax information across borders. Germany’s finance minister welcomed the leak, hopeful that it would provide leverage to force more co-operation from “those who have been more reticent” to rein in the havens.
Faced with an end to the days of easy money, offshore jurisdictions are being forced to rethink their strategies. One of the more proactive has been Liechtenstein, nestled between Switzerland and Austria. The principality has long been popular with European tax dodgers, but growth accelerated when Swiss banks hawked Liechtenstein foundations to clients worldwide. This lucrative niche was damaged in 2008 when the former head of Germany’s postal service and many others were caught hiding money in the principality.
Under pressure from Germany and America, Liechtenstein buckled, agreeing to dilute bank secrecy and to exchange tax information. It has since signed many bilateral tax agreements and clamped down on money-laundering. The local financial industry has paid a high price for this. Liechtenstein banks’ client assets declined by almost 30% in the five years to 2011, to SFr110 billion ($118 billion).
They are trying to regain the initiative. In a confidential “position paper” seen by The Economist, the banks and the government jointly set out a two-pronged strategy designed to help Liechtenstein thrive again, this time without tainted money. First, it will sign as many tax treaties as possible—quite a U-turn for a place that once refused to sign any. Second, it will look to market itself as a “triple hub” that benefits from having the stable Swiss franc as its currency; being a member of the European Economic Area (giving it access to the European single market without being a member of the EU); and offering a tempting array of vehicles, including trusts.
Trouble is, clients can go to Switzerland for the franc, and the EEA is not the most alluring of clubs (Norway and Iceland being the only other non-EU members). Use of trusts has boomed, but as an English creation they work much better in common-law jurisdictions, such as Jersey and Singapore, than in Liechtenstein’s civil-law system.
So Liechtenstein has its work cut out trying to remain an attractive destination while complying with international rules. Other offshore centres must also attempt to square this circle. Next may be Luxembourg, a leader in offshore banking and tax avoidance. Bowing to greatly intensified pressure from its neighbours since the Cyprus debacle, the Grand Duchy has dropped its long-held opposition to swapping information about non-resident depositors with other EU countries. Jean-Claude Juncker, the prime minister, said the policy shift was about “following a global movement”, not caving in to German demands. Whether automatic information exchange can be introduced “without great damage”, as he confidently declared, remains to be seen.
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ILLOGICAL TAX TINKERING WON’T LEAD TO A SUSTAINABLE SUPER SYSTEM

John Freebairn, The Conversation, 5 April 2013

Today, the Australian government announced additional taxation of high income funds in the decumulation or retirement stage of investments in superannuation. Arguably, the changes add more to complexity than they do to equity, and they leave open the need for further changes to achieve a sustainable…
The Gillard government’s changes to the tax treatment of superannuation make for a more complex system, rather than a more equitable one.
Today, the Australian government announced additional taxation of high income funds in the decumulation or retirement stage of investments in superannuation. Arguably, the changes add more to complexity than they do to equity, and they leave open the need for further changes to achieve a sustainable system.
In principle, funds invested into superannuation to provide income at retirement can be taxed at three levels. These levels are at the point of contribution, earnings during the accumulation phase, and at the phase of withdrawal for retirement. In addition to the current taxation of contributions and earnings, which are not to be changed, the government proposes to add a new tax on the withdrawals for the “fabulously wealthy” from July 1, 2014.
A progressive tax treatment is given to labour remuneration contributed to superannuation. For those with annual taxable incomes up to $37,000 a year, the effective contribution tax rate is zero; for those with incomes between $37,000 and $300,000 a year, a 15% marginal rate applies; and for those with an income above $300,000, a 30% rate applies. These rates are concessional relative to the progressive income tax rate schedule applied to wages and salaries, and to income invested in one’s own home, other property, bank deposits and shares.
Income earned on funds invested by the superannuation funds faces a flat tax rate of 10% on realised capital gains and 15% on interest, dividends and other capital income. This rate is concessional when compared with the taxation of personal investments in financial deposits and shares, for all but those with incomes below the effective tax free threshold of around $20,000 a year. These investments are taxed at the progressive personal income tax schedule. But, when compared against the effective tax rate on income earned on investments in one’s own home where the tax rate on imputed rent and capital gains is tax free, and for negatively geared property, the taxation of income earned on superannuation funds is higher.
Until the current policy announcement, funds withdrawn from superannuation for those aged 60 and over were tax free. This treatment applies to lump sums and to income streams, including annuities. Interestingly, the withdrawal of other personal investments in one’s own home, other property, shares, financial deposits and so forth are also tax free.
The proposed policy change is to add a new tax at a marginal rate of 15% on the income earned, or deemed to be earned, on superannuation funded pensions and annuities of more than $100,000 a year, or an accumulation asset of about $2 million. The new tax is to apply to defined benefit fund superannuation, including those of politicians, as well as to accumulation funds. The press release quotes Treasury calculations that in 2014-15 about 16,000 people or 0.4% of the projected retiree population will be affected.
Even against the criteria of equity, there has to be doubt about the sustainability of the new proposal and about other aspects of the taxation of superannuation. There is nothing magical — and very little logic — in the tax thresholds of $37,000 and $300,000 for higher tax rates on contributions to superannuation, or on the proposed $100,000 threshold for a retirement income stream. In particular, these thresholds seem unrelated to the progressive income tax rate schedule that applies to labour remuneration taken as wages, and to personal income taxation of savings placed in investments other than superannuation. It would be surprising if future governments, of any political persuasion, were not to fiddle with the thresholds.
There is a compelling case for a review of the taxation of superannuation, including the taxation of contributions, of income earned and of withdrawals, in a broad context of the taxation of labour remuneration and of different saving options, and the provision of retirement incomes. Ideally, a review would involve the community, and it would seek bipartisan support to achieve a stable and sustainable system to minimise opportunistic fiddles as has happened over the last decade. Yet such a comprehensive review clearly lies beyond the current election battle.
The Henry Review of 2010 provides one model. Other options include taxing superannuation similar to investment in one’s own home (namely tax contributions in the hands of the employee at the employee’s progressive personal income tax rate) with no further tax on earnings or on funds withdrawn for retirement income. Or, a consumption base tax treatment might be considered involving tax free on contributions and income, and tax withdrawals at the progressive personal rate. Consideration also should be given to caps on contributions and to aligning the ages of access to superannuation funds and the aged pension.
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THERE ARE ONLY THREE OPTIONS FOR THE US TO CUT CORPORATE TAX RATES

Bruce Bartlett, Business Insider Australia, 7 April 203

Wikimedia CommonsTax reform is one of the few things in Washington these days on which Republicans and Democrats both agree is worth doing. Especially at this time of year, when taxpayers are struggling to file their tax returns, it’s not hard to get applause for promises to make the tax system fairer and simpler. Converting this widespread bipartisan desire into legislation, however, is another matter.

People overwhelmingly desire a balanced federal budget; it is easy for politicians to support this goal but close to impossible for them to find the votes for any specific package of spending cuts or tax increases that would actually bring it about. The same is true of tax reform, especially one that is revenue-neutral, which by definition is a zero-sum game; one person’s or business’s tax cutting reform is necessarily offset by another’s tax increase.
The Holy Grail is the Tax Reform Act of 1986, which broadened the tax base and lowered rates enough that even the net losers supported it. But people forget that all of the net losers, those who paid more taxes as a result of reform, were on the business side. Individuals were net winners.
The problem today is that the driving force for tax reform is the corporate community, which very badly wants to lower the statutory corporate tax rate from 35 per cent to, hopefully, 25 per cent. But there aren’t enough corporate tax expenditures – special tax provisions unjustified by basic tax principles – to finance such a large rate reduction without losing revenue.
Therefore, to cut corporate taxes, as much as many people believe is necessary, there are really only three options.
• First, revenue neutrality could be abandoned and Congress could simply give corporations a big tax cut. Given the deficit and the opposition of Democrats to a reduction in revenues, this option would seem a nonstarter.
• Second, Congress could do the converse of what it did in 1986 and restrict individual tax expenditures to pay for a cut in corporate taxes. For example, tax rates on dividends and capital gains, which are well below the rates on ordinary income, could be raised. Those with dividends and capital gains are approximately the same people who would benefit from a cut in the corporate tax rate.
According to the Tax Policy centre, taxing dividends and capital gains as ordinary income would finance a reduction in the corporate tax rate to 26 per cent and only raise net taxes on the top 1 per cent of taxpayers. Nevertheless, I just don’t see this happening, politically.
• Third, Congress could look beyond tax expenditures to core corporate tax deductions such as for depreciation, the write-off for the wearing down of buildings and equipment, or interest on corporate debt. The latter idea, in particular, has garnered some support.
One of the basic problems with corporate taxation is that dividends paid to shareholders are in effect double taxed – first at the corporate level and again when paid out. By contrast, interest paid to bondholders is deductible at the corporate level, but fully taxed at the individual level.
Many economists believe that this disparate treatment has discouraged corporations from raising capital by issuing new stock and instead by selling bonds. This is the principal reason why corporate taxes have fallen from 30 per cent of federal revenues in the 1950s to about 12 per cent today. In the 1950s, corporate tax revenues equaled 6 per cent of the gross domestic product; today they are about 2 per cent.
When I worked at the Treasury Department, we called the shift to debt financing from equity financing the “privatization of the corporate income tax.”
One big problem with this shift is that dividend payments can be suspended when there is an economic downturn and corporate profits shrivel. But interest payments must be made regardless of economic circumstances. Many companies go years without paying dividends, but failure to make a single interest payment precisely on schedule can quickly lead to bankruptcy.
Thus many economists believe that corporate indebtedness intensifies economic downturns as companies with too much leverage are forced to sell assets at fire sale prices, lay off workers and close facilities that are only marginally unprofitable to preserve cash at all cost.
It would be better from a macroeconomic point of view if companies replaced at least some of their debt with equity. But the benefits of tax-deductible interest are too great. Thus something needs to be done with the tax code to get them to change their financial structures.
Ideally, we should fully integrate the corporate and individual income taxes. Under such a system, all corporate profits would be attributable to shareholders whether paid out as dividends or not. Net operating losses would also be attributable to shareholders and deductible on individual returns. This would completely eliminate distortions created by the corporate income tax. The present corporate tax could be retained as a withholding tax, with such tax payments also attributable to shareholders.
Some people suggest that we simply abolish the corporate income tax. This is not viable because we can’t afford to give up so much revenue and because incorporation would then become very easy way to avoid paying any income taxes at all.
A half-way measure supported by some economists would be to allow corporations to deduct dividend payments as they now deduct interest payments. The problem here is the same as for cutting the corporate rate – replacing the lost revenue.
As corporations become increasingly convinced that corporate tax reform is impossible without offsets that might make many worse off, their ardor for reform is waning. If corporations cease pushing for tax reform, however, it is highly unlikely that anything will happen.
Even under the best of circumstances, such as those in 1986, tax reform is a long and difficult process. Circumstances now are far less optimal, in part due to deep mistrust and philosophical differences between the White House and congressional Republicans. Therefore, the odds of tax reform are very long indeed.

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WEALTHY AUSTRALIANS WAGING CLASS WAR

Tim Dobson, Green Left, 6 April 2013

More money was stripped from single parent benefits than raised by taxing big mining companies.
It seems that everyone in Australia can now agree that a class war has erupted. Former Labor Party leader Simon Crean, recently sacked by Prime Minister Julia Gillard said: “The Labor Party has always operated most effectively when it has been inclusive, when it’s sought consensus, not when it has sought division, not when it has gone after class warfare.”
Former resources minister Martin Ferguson said, as he quit his position, “the class war rhetoric that started the mining dispute of 2010 must cease. It is doing the Labor Party no good and we must reclaim the legacy of Hawke and Keating.”
Crean and Ferguson, both former presidents of the Australian Council of Trade Unions, can clearly recognise a class war, but they can’t recognise its actual victims.
Ferguson, known for his complete subservience to the mining industry, wants us to believe that the rich are the victims of the class war.
One simple graph released by the Australian Greens on March 26 shows how absurd that is. The graph showed that the Minerals Resource Rent tax, introduced by the Gillard government to replace Kevin Rudd’s Resource Super Profit tax, raised $126 million dollars this year — far less than the recent $207 million cut from benefits paid to single parents.
There’s a class war is taking place but it’s the rich, and espcially the mining companies, who are winning.
This “class war” being waged by the Gillard government also explains why the wage share of the economy has declined since the Howard government was in office, while the profit share has risen.
According to the Australian Bureau of Statistics, from 2007 to 2012 wage share went from 54.6% of the economy to 53.8%, while profits increased from 27% to 27.8%.
Now, Labor wants to wage class war through superannuation.
Currently, contributions to super are taxed at a flat rate of 15% until a person earns $300,000, when the tax rate jumps to 30%.
All earnings on super are taxed at a flate rate of 15%, so currently the super tax system benefits the rich at the expense of the poor, who suffer the most when public spending declines.
The government flagged the possibility of changing the super earnings tax rate for the “fabulously wealthy” believed to be the top 1% or 2%.
Spooked by the initial reaction of the super industry, who promised to run a mining-industry style campaign against the changes, the “class warriors” in the Gillard government retreated before the war began.
The tax on super earnings will remain at a 15% flat rate. Instead, the government has now proposed a tax on withdrawals, which will affect those who withdraw more than $100,000 per year from their super.
It is believed that this will only affect those who have more than $2 million in their super accounts, which Treasury estimates to be around 16,000 people in 2014-15 or 0.07% of the population.
But for some of the class warriors, even this is too much to handle. Opposition leader Tony Abbott said the plan had “shades of Cyprus” in it — where the government planned to tax all savings accounts — and in a bizarre nod to the quote made famous by Martin Niemoller said, “if it comes for you today, it’ll come for your neighbour tomorrow”.
The super tax debate has revealed the strange tendency of politicians from Labor and Liberal, as well as the mainstream press, to identify the rich as the real battlers that need to be protected.
Joel Fitzgibbon, another recently sacked minister in the Gillard government, said in response to the super tax changes: “In Sydney’s west you can be on a quarter of a million dollars family income a year and you’re still struggling”.
In one sentence Fitzgibbon managed to single-handedly redefine the word “struggling”.
Even with all the inadequacies of the super tax, it does show the potential of what could happen if the rich and companies were taxed at a higher rate. The super tax will raise $900 million. Super tax breaks overall are worth $159 billion, of which the top 10% of earners receive $60 billion of tax breaks.
Even this just scratches the surface. The Australian Financial Review reported in February 2011 that the original Resource Super Profit Tax would have raised $20 billion a year. However, if the Australian government taxed mining companies at the rate that Norway taxes oil companies, it would raise $38 billion a year — enough to fund a 10-year transition to 100% renewable energy under the plan by Beyond Zero Emissions.
If the four big banks in Australia — the most profitable in the world according to The Bank of International Settlements — were taxed at 80%, it would have raised $20 billion last year. To put this in perspective, currently, federal government spending on education is $29 billion.
This illustrates how most Australians miss out on the wealth generated from our national resources, as it is hoarded by a small number of wealthy individuals.
A government committed to class struggle on behalf of ordinary people would implement a higher tax rate to fund social programs, and if companies refused to accept it, all their assets would be transferred to the public.
Instead, we have an entirely false debate about the class warfare of the Gillard government. Factional opponents of Gillard within the Labor Party are using this accusation to gain support of big business for themselves.
What do most Australians think about this class warfare rhetoric? A poll released by Essential Research on April 3 showed that 91% of Australians agree that class divisions in society exist, with 33% of respondents identifying themselves as working class and 53% as middle class.
The politics voiced by Crean and practiced by the Gillard government, the politics of “consensus”, has been a complete disaster for working people in this country.
It has led to a situation in which there is an awareness that class exists, but no widespread struggle against the rich by those who identify as working class. This can only benefit the wealthy.
The bitter truth is that the class struggle is constantly being waged and, at the moment, the rich are winning. Implementing higher taxes for the rich is a good way to start fighting back.

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WEALTHY TAKE A HIT, REST OF US UNSCATHED

John Collett, The Sydney Morning Herald, 5 April 2013

At last, the phoney battle on super is over. Now that the government has spelt out how it intends to reform retirement savings, the real political war will begin.
Opposition Leader Tony Abbott has come out with the opening blast saying reforms are ”shades of Cyprus” and a ”raid on people”.
But putting the political hyperbole to one side, the truth is that new tax imposts announced on Friday will not affect most people. They can go on saving for super in the knowledge that for them, nothing has changed. The reforms are targeted at limiting the tax deductions for those with incomes of more than $300,000 a year and those retirees with superannuation account balances of more than $2 million.
The biggest proposed reform is the limit to the tax-free earnings of those with very big superannuation balances once they are in retirement. Everyone accumulating their super pays a tax on earnings of 15 per cent. Once in retirement, however, there is no tax on earnings.
The government will allow those in retirement to have tax-free earnings on their superannuation investments of up to $100,000 a year. But each dollar of earnings over $100,000 will be taxed at 15 per cent. According to the government, the change will only affect those in retirement with a super balance of about $2 million or more, or about 16,000 people.
The government has also confirmed that those earning more than $300,000 a year will have to pay 30 per cent contributions tax instead of the 15 per cent paid by everyone else. That will affect about 128,000 people.
The big change that will be of interest to most people is that everyone over 50 will be able to salary sacrifice up to $35,000 a year in super instead of $25,000. The cap is not as generous as it appears, because it includes the 9 per cent superannuation guarantee. Someone on $100,000 a year in the current system, for example, receives $9000 a year in superannuation guarantee, leaving a real cap of $16,000 a year to make salary sacrifice contributions. With a cap of $35,000, the same person, assuming they’re over 50, would be able to make salary sacrifice contributions of $26,000 a year.
It allows those who have some spare money, perhaps after the children have finished school, to build their retirement account balances in the years they have left in the workforce until retirement. The start date for the new higher cap will be brought forward to July 1 this year.
There will also be a streaming of ”deemed” rate of earnings for social security benefits, such as the age pension. For calculation of the age pension, a retiree’s investments are ”deemed” to have earned a certain rate of interest on their money regardless of the actual interest rates earned.
The deemed earnings are important because the more the retiree is deemed to have earned the less their age pension payments could be under the social security income test. The deeming rates that are calculated on retirement saving are more generous than the deeming rates that apply to assets held outside of super.
The government will make the way deeming rates are calculated uniform, with the result that many of those drawing a private pension will be reporting a higher deemed income to CentreLink. This could result in a cut in their age pension.
Early indications are that there will be no change in pension payments for those with less than about $600,000 or $700,000 in super savings.

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LEAKED FILES EXPOSE GLOBAL USE OF TAX HAVENS

Ashley Hall, ABC News, 5 April 2013

Leaked documents containing information about secret offshore accounts and tax havens are causing headaches for business people and politicians from Canada to the Philippines.
A 15-month investigation by journalists in 46 countries has revealed valuable information about the users of secret offshore accounts.
Millions of leaked digital files reveal information on 120,000 offshore companies and nearly 130,000 individuals including Russian oligarchs, Canadian lawyers and Mongolian politicians.
There is so much information contained in the files that the journalists are releasing it in waves.
And the first wave is already causing wipe-outs.
Questions being asked include:
• Why were three companies set up in 2008 in the British Virgin Islands (BVI) in the names of two daughters of the president of Azerbaijan?
• Why is the eldest daughter of Ferdinand Marcos, the late dictator of the Philippines, the beneficiary of a secret offshore trust?
• How did the man in charge of the French president’s campaign finances come to hold shares in two companies registered in the Caymans?
French president Francois Hollande – who has campaigned against tax evasion – insists he does not know.
“I know nothing of these activities and if they don’t conform to the fiscal law, I ask the administration to take the necessary measures,” he said.
Earlier this week, his budget minister admitted he too has been hiding a Swiss bank account from tax authorities.
“Faced with these things it’s a considerable shock. That’s to say that a man who was in government could have lied like he did, not only to the head of state and prime minister, but also to the Parliament, to the National Assembly.”
The Guardian newspaper’s investigations editor, David Leigh, worked on the stories.
“There are going to be more names today coming out of politicians in the post-Soviet state, in India, in Pakistan,” he said.
“If these disclosures embarrass politicians, so much the better.
“What we’d like to see come out… is that countries like the BVI that trade in secrecy are put a stop to.
“We think it’s not good for the health of the planet and it’s not good for the health of democracy.”
Mysterious file
The investigation was coordinated by the Washington-based International Consortium of Investigative Journalists, after its head, Australian journalist Gerard Ryle, received a mysterious digital file in the post.
“It started with a hard drive containing 200 gigabytes of data from a couple of offshore incorporation agencies based in the BVI who make their money by incorporating hundreds of thousands of these companies – thousands of them every day,” Mr Leigh said.
To sort through the data, the journalists enlisted the help of Australian software company Nuix, which donated its data sorting program.
Chief executive Eddie Sheehy said Nuix structured the unstructured data.
“Unstructured is the human-generated stuff that we have on our hard drives. Once we have that structured, we give you a … search user interface that allows people to condense and delve into the data really quickly.
“We have a lot of visualisations that help people understand the data and they can put it up on a screen and say, ‘you know what, I’m interested in these people in those places so let’s look at that data’.”
In 2006 the Australian Government established the cross-agency taskforce Wickenby to crackdown on the use of offshore accounts for tax avoidance.
It has identified nearly $1.5 billion in liabilities stashed in tax havens and so far has collected about $675 million.
The taskforce has been criticised over its costly dogged pursuit of a number of high-profile cases.
But anti-corruption campaign organisation Global Witness says it is a fight worth having.
“Developing countries lose more money in illicit flows than they receive in aid donations from rich countries,” spokesman Stuart McWilliam said.
Global Witness has called for the ownership of companies to be registered and for the veil of secrecy to be removed from tax havens.

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OFFSHORE SECRETS: TIME IS RIPE FOR A EUROPEAN FATCA

The Tax Justice Network, 5 April 2013

Journalists from over 30 countries have published data of approximately 130,000 persons involved in tax haven companies or activities aiming at tax evasions or avoidance. This gave a new boost to the debate on tax justice and untransparent international financial transactions, which had last been triggered by the FATCA initiative in the US. FATCA forces practically every finance institution active in the US or offering US bonds to reveal information of US taxpayers to the American Internal Revenue Service. This applies also to activities outside of the US pursued e.g. by subsidiary or parent companies of American banks. Furthermore, to ensure that transmitted information is complete and exhausted, FACTA requires financial institutions to determine ownership structures of companies and trusts. This way, no income or asset of an American taxpayer remains opaque.

Green finance spokesperson Sven Giegold welcomes the revelation and requests appropriate consequences:

“Automatic exchange of information is the only measure to effectively put a stop on tax evasion in the international financial market. Journalists have introduced unique transparency to these dark spots. It is now up governments to put their rhetorics into practice.

Despite many promises, states have so far not been able to jointly solve the problem. Hardly any government has seriously taken up the fight against tax evasions. Tax justice and equal rights And responsibilities for all fall by the wayside, even though they are essential elements of social market economies and democracy.

Income from capital has to be equally considered for tax as income from labor. FATCA is the right instrument to call off avoidance strategies and criminal activities. The fine of 30% for all payments from the US to non-cooperative institutions FATCA imposes, will lead to the automatic transmission of relevant data.

All European governments are now under obligation to act. The UK and Germany pursued the wrong path, trying to introduce agreements based on anonymity with Switzerland. European ministers of finance have stabbed the US in the back and lost valuable time in the global fight for tax justice. For a financial system which meets national taxation requirements we need a European FATCA now. Germany and France should take the initiative of a coalition of the willing. Of course, there is no sense in waiting for countries which have blocked progress towards tax transparency in the EU such as Luxembourg and Austria. Additionally, the Greens drafted a European tax package for tax justice in Europe.”

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WE MUST CHANGE TAX SYSTEM TO ENSURE POOR COUNTRIES GET FAIR SHARE – OECD

Mark Tran, The Guardian, 5 April 2013

OECD official says rich countries should demand transparency from multinationals and stop cash passing through tax havens
The global tax structure must change as it is unacceptable that a large part of the world economy is passing through tax havens, a senior official from the Organisation for Economic Co-operation and Development (OECD) said on Friday.
But Erik Solheim, chair of the OECD’s development assistance committee – the club of rich aid donor countries – told the Guardian that the world cannot wait for wholesale changes and needs to act now, particularly to ensure that developing countries receive their fair share of taxes from multinational companies.
Solheim spoke amid the latest revelations on offshore tax havens, including the British Virgin Islands.
“Obviously we have to aim for heaven, but we cannot wait, there are enormous opportunities now, by for example setting the right tax rate,” said Solheim, referring to his native Norway.
“We set a 78% flat tax rate for oil companies to ensure there was enough money for future generations. A number of companies threatened to leave, but none have because at the end of the day, they are interested in sound long-term profits and not super profits.”
At a time when official development assistance from rich countries is dropping – it fell for the second successive year in 2012 – the buzz phrase in development circles is domestic resource mobilisation, or tax, not only from foreign companies but from domestic elites too, Pakistan being a case in point. UK MPs this week said Pakistan needs to recoup more in taxes before it receives any aid boost. Solhim said there are efforts to improve tax collection in developing countries, but they need to be scaled up.
“In general, transparency is the key,” said Solheim. “We should demand transparency when people are transferring money – normally they want to hide this.”
The OECD in Paris is doing much of the research and data collection on tax evasion, tax avoidance and illicit transfers at the behest of political leaders in the G8 and G20 countries as they seek to recoup missing billions at a time of austerity. David Cameron is pushing the topic at June’s G8 summit in Northern Ireland, but has been embarrassed by the flood of revelations on the UK’s own offshore tax industry.
Angel Gurría, the OECD secretary general, however, praised Cameron – and his predecessor Gordon Brown – for pushing hard on tax. “To be fair to the likes of Cameron, if it had not been for the political will of the G20, we would not have a global forum where 120 jurisdictions deliver tax information to each other on request,” he said.
Set up by the G20 in 2000, the global forum on transparency and exchange of information on tax purposes lays down international standards for the exchange of information. Gurría described the global forum as a game changer, although it clearly has some way to go in light of the latest disclosures on tax havens.
The issue of illicit financial flows is crucial in developing countries, which are in a much weaker position than rich countries to deal with powerful companies, even when it comes to legitimate flows, particularly transfer pricing.
Transfer prices are used to calculate how profits should be allocated among different parts of a company in different countries and are used to decide how much tax a multinational pays and to which administration. Around 60% of the world’s trade takes place within multinationals.
“Transfer pricing is more of a negotiation between two parties and their lawyers and accountants,” said an OECD official. “The multinational is going to have more and better-trained lawyers and accountants.”
An OECD issue paper, seen by the Guardian, spelt out the mismatch in bargaining power. “Many developing countries have weak or incomplete transfer pricing regimes,” it said.
“Some have problems in enforcing their transfer pricing regimes due to gaps in the law, weak or no regulations and guidelines for companies, and limited technical capacity to carry out transfer pricing risk assessment and transfer pricing audits, and to negotiate transfer pricing adjustments with multinational companies.”
The OECD paper, however, faults member countries for not doing enough to combat illicit flows. On money laundering, the OECD found many of its members deficient on identifying the beneficial – or real – owners of companies. In order to prevent, uncover or prosecute people engaged in money laundering, authorities must be able to identify those who ultimately control or benefit from corporate entities – the beneficial owner.
“Overall OECD performance on this sub-category is particularly weak,” said the paper.
The OECD suggests that donors should invest more in anti-corruption and tax systems in developing countries as the payoff can be high. Donor support worth $5.3m in 2004-10 to improve tax collection in El Salvador led to increased revenue of $350m a year. Support for transfer pricing in Colombia at a cost of $15,000 led to a 76% increase in revenues from $3.3m in 2011 to $5.83m last year.
“Now that the political momentum has been built, the next step is to move from analysis to action by implementing the illicit financial flows agenda,” said the OECD. “This will require action by both OECD and developing countries. Developing countries must take the lead – by undertaking structural reforms and increasing their efforts to combat corruption and financial crime – but OECD countries must also strengthen their own systems to avoid becoming safe havens for illicit flows.”

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SUPER TAX NIBBLE FAILS TO TACKLE GROSS INEQUITY

Tim Colebatch, The Sydney Morning Herald, 5 April 2013

From little things, big things grow. But from big things, even bigger things grow. And yes, that will remain true – even if Labor’s new plan to take a small nibble at superannuation tax breaks ever becomes law, which is unlikely.
Despite – or maybe, because of – the Coalition’s scare campaign of the past two weeks, Treasurer Wayne Swan and Superannuation Minister Bill Shorten have proposed an extremely  modest tinkering with the generosity of those tax breaks.
There will be no raid on your superannuation savings. There will be no new tax on your superannuation payouts. The biggest nibble would impose a tax on earnings by fewer than 20,000 retirees whose superannuation accounts earn more than $100,000 a year.
A second nibble would have a much wider but shallower cost: Labor will scrap its plan to allow people with less than $500,000 in their account to put in $50,000 a year at the concessional 15 per cent tax rate, instead of the $25,000 cap now applying.
A third nibble would target people who have large savings in their accounts but are still able to qualify for the pension. The rules for the pension income test would be changed so that they are deemed to have earned a certain income from those savings, just as you are when you have money in bank deposits or stocks.
It’s hard to argue with any of those. The initial response from the industry was one of relief. John Brogden, chief executive of the Financial Services Council, said it would drop any thought of running a media campaign against the changes.
And there are even some goodies. Those over 60 (and from next year, over 50) would have the cap on their low-tax superannuation contributions lifted from $25,000 a year to $35,000. The Tax Office will start paying interest on the ”lost” superannuation accounts it is minding for their missing owners.
This is very mild stuff. And while it might hurt the plans of some who set up a self-managed superannuation fund as their vehicle to minimise tax, there are so many loopholes in the tax system that they have plenty of other choices.
Under existing law, Treasury estimates that Australians will receive a staggering $159.1 billion in tax breaks for superannuation over the next four years. Under the proposed changes, that would be reduced to $158.4 billion. Wow.
But these are only proposals. Swan made it clear they will not be legislated before the September 14 election. Rather, assuming the Coalition wins the election, the whole issue of making superannuation sustainable will be left for the new government to fix.
In a way, it’s fitting that the next Coalition government should be left to fix up the damage done by the last Coalition government. The Howard government made the superannuation system unsustainable by removing the reasonable benefit limits, which put a cap on the tax breaks, and by then allowing anyone over-60 to withdraw their superannuation savings tax free.
Treasury estimates that the 50 per cent of Australians in the bottom half receive only 13 per cent of those tax breaks. But the 10 per cent at the top receive 38 per cent of them, and the top 5 per cent of us get 26 per cent of the breaks.

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GILLARD’S SUPER TAX CONCESSIONS ARGUMENT A BIT RICH

ADAM CREIGHTON, The Australian, 5 April 2013

LOW income earners are not paying enough tax. It is patently unfair that the bottom third of taxpayers chip in a mere 5 per cent of income tax in this country. The “fabulously stingy” must be made to pay more, perhaps?
The top 10 per cent of taxpayers are paying 45 per cent of all income tax, according to ATO data from the 2009-10 financial year. It is a little known fact that the top 1 per cent of taxpayers — the 91,000-odd people with taxable incomes around $270,000 a year or more — are stumping up a whopping 17 per cent of Australia’s $120 billion income tax bill.
The Gillard government’s argument that higher-income earners should pay more tax because they enjoy the bulk of superannuation tax concessions is as ignorant and fatuous as the argument that the poor should pay more tax because they don’t pay much in absolute terms.
The government says the bottom third of taxpayers receives only 1.2 per cent of the total value of super concessions while the top 1 per cent enjoy 9 per cent. So what? Higher-income earners enjoy greater superannuation tax concessions because they earn more and therefore pay vastly more in tax.
Australia has one of the most progressive tax systems in the world, with one of the highest top marginal tax rates at 46.5 per cent.
In fact, separate data from the Australian Bureau of Statistics shows only the top fifth of taxpaying households are net contributors to Australia’s vast and complex government apparatus, once use of government services and cash transfer payments are factored in. The so-called “rich” bankroll this country.
The government’s cheap attempts to whip up resentment among lower-income households not only fans social discord but it undermines government revenue in the longer term.
Higher-income earners have more investment options than they once did. Housing is more tax-favoured than superannuation, for instance.
The shrill plan to gouge a few more billion from the “wealthy” — not to invest constructively in public infrastructure but to expand the welfare state further — will have damaging consequences for Australia’s longer-run prosperity. Super contributions are simply another form of saving. And economic theory and evidence are clear that high rates of saving are linked to economic growth and prosperity.
It also undermines the “rule of law”, a quaint idea in our Westminster tradition, which says laws should be very stable and individuals should not be subject to arbitrary taxes, especially retrospective ones. In that sense any increase in superannuation earnings taxation deserves more condemnation than changes to contributions taxation.
Moreover, punishing people on higher incomes simplistically assumes they are always on high incomes. Life is more complicated: individual incomes typically rise and fall throughout people’s working lives. Why ratchet up the tax rate when people’s earning potential is at their greatest?
The notion that Australia’s superannuation system is somehow “unsustainable” is ridiculous. Its broad architecture has been unchanged since Paul Keating introduced flat 15 per cent taxes on contributions and earnings in 1988. Few were complaining about the “unsustainable” tax concession back then.
The most unsustainable aspect of public finance is the relentless rise of commonwealth spending, which is projected to outstrip population growth, inflation, and certainly tax revenue. The Gillard government wants to make the super tax system look more like the personal income tax system. On the contrary, Australia would be better off to try the reverse — simple, flat rates of tax on income and investment earnings, applied equally to all, would underpin a surge in economic growth.
That’s probably a little ambitious for this prime minister. But Europe shows what happens to countries whose governments tax and spend too much. And Australia, still a provincial country isolated from the West’s power centres, must always hold its public finances to a much higher standard than Britain or the US do.
Australia’s superannuation system is flawed, but to base changes to it on the notion that the supposed “rich” are being given excessive concessions or not paying enough tax is ludicrous.

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U.S. TAX AND SECURITIES LAWS IMPEDE SOLAR REVOLUTION

Nathan Homan, The Huffington Post, 5 April 2013

There is a transformative wave of solar energy investments on the horizon, with an untapped class of wealthy investors ready to finance installations that could lead to a new world of sustainable energy, job creation and economic growth. But that evolution is not likely to happen if the U.S. continues to favor a tax policy that encourages the proliferation of fossil fuel investments, granting the most lucrative tax benefits to pollution-generating projects.
According to a recent Brookings study, the clean energy market is valued at $2.3 trillion globally over the next 10 years and already employs close to three million people in the U.S. alone. And the market only continues to grow. However, the study finds that it will require intense work for the U.S. to keep pace in the global race for clean energy. It took $48 billion of clean energy investments in 2011 for the U.S. to reclaim the lead from China at $45.5 billion. Much of that money came from the 2009 American Recovery and Reconstruction Act’s stimulus funding, and those funds are running out. A new and consistent source of private investment must be enabled to continue the acceleration of this market.
It is the small to mid-scale commercial photovoltaic projects – those that use a method of generating electrical power by converting solar radiation – that harbor the largest growth potential for the solar industry right now, spurred by falling system prices and installation costs, along with an array of federal, state and local tax incentives and financing opportunities from corporate giants such as Google. But any astute investor conducting a minimum of due diligence will quickly learn that although these solar investments qualify for some tax benefits, they are unable to use standard tax-advantaged corporate forms, restricting the ability to raise capital and enable widespread participation in the market, unlike those benefits given to investors in energy portfolios for oil, natural gas, coal extraction and pipeline projects.
Under current regulations, direct participation in sustainable energy investments is restricted unless it’s for “qualified” or “accredited” investors – defined as those with a net worth of at least $1 million, not counting the value of their home, or an annual salary of $200,000. Fossil fuel developers, on the other hand, can use corporate structures that allow virtually anyone to invest directly.
The tax benefits of fossil fuel energy projects come largely through vehicles called master limited partnerships (MLPs), a business structure that is taxed as a partnership, but with ownership interest traded as corporate stock on a market. A provision in the federal tax code authorizes the creation of MLPs for fossil fuel exploitation, providing access to capital that creates jobs and economic activity through construction and energy development. MLPs are instrumental in attracting private investment, and fossil fuel projects that use them enjoy access to capital at a lower cost and with greater liquidity than traditional forms of financing.
But while investments in sustainable sources of energy can provide equal, if not more, economic and job creation benefits – not to mention national security safeguards and environmental soundness – they have long been arbitrarily excluded from using the MLP structure. Similarly, real estate investment trusts, or REITs, traded publicly like stocks, offer another valuable vehicle for these projects yet are very difficult for investors in sustainable energy to use under current law.
There is one effort underway in Washington to address at least part of this tax inequity, with legislation proposed by U.S. Sen. Chris Coons, D-Delaware, to give investors in renewable energy projects invaluable access to MLPs. The Master Limited Partnerships Parity Act seeks to level the playing field between traditional and new energy businesses with a simple tweak to the tax code that would open up these vehicles to energy-generation and transmission companies.
But, with unfounded fears looming that the MLPs would be abused as tax shelters, passage is not a given, and more needs to be done to wage this battle on the political front. With the spirit of the legislation and those tax parity objectives in mind, we launched a White House petition to push for equal treatment for sustainable energy investments, allowing them to raise capital using the same structures and corporate forms as the fossil fuel industry. With 100,000 signatures, the White House will review the issue, ensuring it’s sent to the appropriate policy experts, and give an official response.
Imagine a world, not too far off, where sustainable energy and fossil fuel energy investments compete for capital as equals. The end result would be staggering: It would not only open up a whole new class of investors and money in the marketplace, but stimulate job growth, provide clean energy without fuel price spikes, and enhance national security by lessening our dependence on foreign oil. With this transformation would also come new innovation and investment in critical technologies, along with a better environment for future generations.
Our energy investment landscape is changing dramatically. New business models are emerging. Traditional players are shrinking away and new players, such as insurance companies, pension funds and other institutional investors, are entering the scene. Our antiquated tax code, however, is serving as the biggest impediment to welcoming their arrival. There is an implicit danger in letting Wall Street and the government play a role in setting double standards and creating inherently weaker classes of investors. They need to let this transformation take its natural course.
We are not living in a world with a bottomless energy supply, or an endless capacity to absorb pollution, and cannot afford to discourage investments when there is such a critical need and a straightforward way to increase clean domestic energy production. If not for the investor, it is a cause worth championing for the American people.

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CLICK AND PAY
BOTH PARTIES ARE GETTING KEENER TO TAX SALES ON THE INTERNET

The Economist – Washington DC, 6 April 2013

THE past few years have brought little relief for pinched state finances. But on March 22nd 75 senators, including majorities of both parties, approved an amendment to a proposed federal budget which, if enacted, would allow states to collect taxes on sales by internet retailers based in other states.
It makes no economic sense to tax sales in shops and over the internet differently. The prohibition is constitutional. In 1992 the Supreme Court ruled that states could not force out-of-state retailers to collect tax on sales to residents unless Congress, which oversees interstate commerce, said so. Only retailers with a physical presence—a “nexus”, in the legal jargon—in the state could be taxed.
The economic consequences were relatively minor before Amazon and eBay appeared. Not any more. Since 1994, mail-order and internet sellers have grown from 2% of total retail sales to 7%. In the past five years, while retail sales have risen by 10% and total state and local taxes by 9%, sales-tax revenue is up just 2%. The National Conference of State Legislatures reckons that the court’s prohibition cost states $23 billion in lost taxes last year.
In theory, online customers are required to pay sales tax themselves. Unsurprisingly—since there are no means of enforcement, and no customs stations on state lines—few do. This galls traditional retailers like Best Buy and Target, who must charge tax not only in shops but also online in states where they have stores.
States have tried to find ways round the court’s ruling. Illinois redefined “nexus” to include local third-party affiliates who sell through larger web outfits, such as Amazon. Colorado ordered retailers to send customers a tax bill and report them to the tax collector. New York has defined “nexus” to include any shop that can be reached by clicking through on a New York-based website. All have faced legal challenges: Illinois and Colorado have lost in court, although New York’s tactic has recently been upheld.
Retailers and state and local governments have long recognised that the ideal solution would be for Congress to allow states to tax the internet. But previous legislative efforts have stirred furious opposition from anti-tax activists and discomfort among many Republicans, who think this sounds like a new tax. Although the activists remain opposed, Republicans are increasingly sympathising with retailers and with local governments that are trying to build public works, such as sewers, while their tax base migrates into cyberspace. “You can’t flush your toilet over the internet,” says Mike Enzi, a Republican senator from Wyoming who spearheaded the amendment with Dick Durbin, a Democrat from Illinois.
The Marketplace Fairness Act, as the proposal is called, allows states that simplify their sales-tax laws to compel online retailers to collect taxes. In preparation for passage, 24 states have joined a coalition that harmonises and simplifies sales-tax collection, for example by using common definitions of goods that are subject to tax. That would soothe e-tailers’ worries about collecting different taxes in thousands of state and local jurisdictions. Amazon, one of the fiercest opponents of state-level efforts to collect internet taxes, backs the federal law, while warning against too high a threshold for exempting small sellers, now set at $1m. EBay, on the other hand, opposes any bill without a “robust” exemption. The law would not overturn the federal prohibition on taxing purely digital goods, such as internet access and e-mail.
Although a similar bill has bipartisan support in the House of Representatives, House leaders have yet to get behind it. Even the Senate must find another way to pass the legislation, since the March budget resolution is non-binding. Advocates believe that the best hope may lie in comprehensive tax reform. Buried in a slew of more sweeping changes, a heavier touch on e-commerce might go unnoticed.

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BOOZE TAX ISN’T MEETING COSTS OF ABUSE

The Sydney Morning Herald, 2 April 2013

Alcohol abuse cost the community more than $14 billion in lost productivity, costs on the health and criminal justice systems, and traffic accidents.
That’s double the revenue raised from taxes on alcoholic products, says a new study that looked at the costs for 2010.
The paper, released by the Australian Institute of Criminology, says that figure doesn’t take into account the cost of pain and suffering arising from alcohol abuse – which could conceivably be more than double the cost estimates.
In the study, researchers from Griffith University collated data from various agencies including police and the Australian Bureau of Statistics.
They concluded the commonwealth raised $7.057 billion in revenue from excise and consumption tax on alcoholic products.
But alcohol-related problems cost the community $14.352 billion on conservative estimates.
The greatest cost was more than $6 billion in lost productivity, followed by $3.66 billion from traffic accidents, $2.95 billion for policing, courts and prisons, and $1.68 billion for the health system.
Lost productivity was calculated as the sum of reduced workforce and household labour from premature death, sickness and absenteeism.
The study said more alcohol revenue should be directed to diversion and prevention strategies, rather than relying on charitable organisations such as Lifeline, the Salvation Army and Mission Australian to deal with a significant proportion of the effects of alcohol abuse.

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ATO COULD MAKE MINERS’ TAX DETAILS PUBLIC

Malavika Santhebennur, Australian Mining, 4 April 2013

Mining companies may have their tax details made public by the Australian Tax Office, if a Treasury proposal released on Wednesday goes through.
The proposal is part of the federal government’s effort to expose multinational companies with complex tax minimisation structures and force them to pay their ‘fair share’ of tax.
“Transparency in taxation would go a long way to improving not only government’s understanding of which taxpayers are pulling their weight but give the community the capacity to engage in an informed debate,” assistant treasurer David Bradbury told The Australian Financial Review.
The ATO would release data of companies with a mining or petroleum tax liability or those with $100 million plus annual income.
Other proposals include publishing cumulative collections for each federal tax and increasing information sharing between government agencies.
PwC partner Michael Bersten, a member of a specialist grouping assisting Treasury said there should be no opposition if data released is the type that is already published by listed companies. He believes this would encourage companies to publish more details.
“Where the concerns lie is in the publication of material that may be open to being severely misunderstood,” Bersten said.
The Treasury proposal aims to find out why it collected only $126 million in mining tax, well short of the estimated $2 billion the government forecast.
It also seeks to establish transparency in solving the issue of multinationals paying little tax.

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OBAMA TO TARGET MILLIONAIRES IN BUDGET BLUEPRINT

ABC News, 13 April 2013

US president Barack Obama has proposed a budget that would trim the US deficit through tax increases on millionaires and cuts to social security.
His 2014 budget blueprint ensures that those making $US1 million a year or more would have to pay at least 30 per cent of their income, after gifts to charity, in taxes.
Officials say that increase, along with spending cuts and a 28 per cent cap on tax deductions for high earners, would bring the US budget deficit down to 2.8 per cent of GDP by 2016.
In February, the non-partisan Congressional Budget Office projected the deficit to be 5.3 per cent of GDP this year.
“For years, the debate in this town has raged between reducing our deficits at all costs and making the investments necessary to grow our economy,” Mr Obama told reporters at the White House.
“This budget answers that argument, because we can do both. We can grow our economy, and shrink our deficits.”
As expected, Republicans immediately rejected Mr Obama’s plans, which stand little chance of being enacted into law.
Senate minority leader Mitch McConnell branded them as a “left-wing wish list”.
House speaker John Boehner, who has already passed a Republican budget that slashes spending, warned that Mr Obama had already made life tough enough on the rich, adding: “We don’t need to be raising taxes on the American people.”
Mr Obama’s spending plan for 2014 is in many ways an academic exercise, given that it has no chance of being fully enacted in stalemated Washington.
But it will stand as his entry in the latest fast-building showdown pitching the president’s plan to hike taxes on the most well off against Republican plans to slash government spending with no new revenues.
The president is breaking from the tradition of using the largely symbolic budget release to outline his ideal tax and spending proposals.
Instead, he is trying to relaunch talks to resolve a long-running fiscal battle with his Capitol Hill adversaries.
To do so, Mr Obama is offering a concession that has enraged many of his supporters – adopting a less generous measure of inflation to calculate cost-of-living increases for the beneficiaries of many federal programs.
One result would be diminished benefits for most recipients of the popular social security retirement program.
Although the president has pledged to shield some of the most vulnerable beneficiaries, the proposal has drawn strong opposition from Democrats and groups representing labor and the elderly.
Unlikely compromise
The budget mirrors a proposal Mr Obama announced last year that was rejected by Republican leaders, who reject any new tax revenues.
While there is little chance of it passing this time, it is meant to serve as a negotiating tool.
Mr Obama’s hope is to build a coalition of politicians willing to compromise, although most observers see that as unlikely.
He has invited 12 Republicans to dinner at the White House on Wednesday in an effort to soften resistance.
Both sides are so dug in that they were unable to prevent some $US85 billion in across-the-board “sequestration cuts” from going into effect March 1.
Mr Obama’s budget proposal would replace those cuts with his original deficit reduction proposal from December.
That offer included $US930 billion in spending reductions and some $US580 billion in tax revenues.
The president’s budget includes spending on policy priorities such as infrastructure and early childhood education.
He would pay for those programs with additional new taxes and the elimination of some tax breaks for the well-off.
The budget also includes a 10 per cent tax credit for small businesses that raise wages or hire new workers.
The president’s advisers said the budget proposal would achieve $US1.8 trillion in deficit reduction over 10 years.
Added to the $US2.5 trillion in deficit cuts from past efforts, the total would be above the $US4 trillion reduction both Republicans and the White House have said would be an acceptable goal.
The proposed budget is a clear contrast with a rival blueprint put forward by Paul Ryan, the 2012 Republican vice-presidential nominee and potential 2016 presidential candidate.

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WELFARE MYTH THREE – THE POOR DON’T PAY TAXES

Dr Simon Duffy, The Huffington Post UK, 12 April 2013

Iain Duncan Smith thinks he can live on £53 per week, but does he know how much of this he will have to pay in taxes? This blog explores the myth that the poor don’t pay tax.
A common rhetorical trick for politicians is to talk about ‘looking after the tax payer’. However the reality is that they are often only really concerned with particular tax payers – the electoral groups that determine the outcomes of elections – often people on middle-incomes. They talk as if tax payers are some hard-pressed group who are burdened by the poor and that the rest of us don’t pay taxes.
But the reality is that there are many different taxes (the Institute of Fiscal Studies counted at least 25). Also the poorest people don’t just pay tax, they often pay the most tax. But, as our incomes change, so do the different kinds of taxes we pay.
One useful source of data is the Office of National Statistics who calculate all the taxes that we pay and all the benefits we receive. The latest statistics (for 2010 to 2011) allow us to compare the different taxes paid by different groups.
It is very clear that, for the poorest, the most biggest taxes are VAT, council tax and income tax. For the richest 10% it is Income tax that is by far and away the biggest tax.

So, it’s absolutely clear that the poor do pay taxes. Not just indirect taxes, like VAT, but also income tax and council tax. Many other taxes are hidden from view in duties or other background taxes like Employer’s National Insurance. This is why it’s very important to pay attention to the detail of what Chancellors say in their budgets.
Despite this you might naturally suppose that the rich must pay a much higher rate of tax than the poor. After all the income tax system is meant to place progressively higher burdens on people with higher incomes. However, when you look at the rates of tax paid by each household you discover something very surprising.
The highest rate of tax, that is the share of income lost in tax, is paid by the poorest 10% of households (or families). The poorest 10% of families pay 45% of their income in tax. The other 90% of families pay quite a similar rates of tax, varying between 31% and 35%. As your income increases you naturally pay a bigger amount of tax – but the rate (the percentage) of tax hardly changes.

Curiously this all means that, except for the very poor, the UK has what is called a ‘flat tax system’ – everybody pays the same rate of tax as each other. But this flat tax system is achieved by combining a progressive income tax system with a system of very high indirect or hidden taxes – what are called ‘regressive’ taxes that target the poorest.
Arguably this even understates the problem. If you have a disability or are becoming frail in old age, and therefore need social care, you will find yourself subject to a further vicious tax – called social care charging – a tax that only targets disabled people. People on benefits are also subject to other vicious taxes hidden within the ‘benefit reduction rates’. But I’ll explore these problems some other time.
The three things to remember when politicians talk about tax:
1. Tax payers are not a special class of people – we are all tax payers
2. Tax payers are not burdened by the poor – the poor are super tax payers
3. Tax cuts come in many different shapes and sizes – not everybody benefits equally
So, if Iain Duncan Smith (and his family) does choose to live on £53 per week, then perhaps he will be more sensitive to the fact that much of this money will be handed straight back to the government.
If you want to find out more about the paradoxes of our tax-benefit system you might want to read A Fair Income which is published by The Centre for Welfare Reform and the University of Birmingham.

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SENATE INQUIRY TOLD EXPLORATION CREDIT TAX NEEDED

Kathryn Diss, ABC News, 8 April 2013

A Senate inquiry examining the Federal Government’s mining tax has been told the legislation is a major threat to overseas investment in future projects.
The inquiry is looking at the design of the Mineral Resource Rent Tax and the reasons why it collected a revenue well short of government projections.
In the first six months, the tax delivered just $126 million to the government’s coffers.
Simon Bennison from the Association of Mining and Exploration Companies says the tax is a major threat to gaining the capital needed to fund future greenfield developments.
“We need far more certainty and confidence brought back into the market,” he said.
“We ourselves have been very keen on getting the government to develop a minerals exploration tax credit arrangement which is very similar to the Canadian scheme.
“We think these sort of programmes are going to be needed to help start up the exploration sector again.”
The inquiry has also been told the legislation unfairly targets small and emerging miners.
Mr Bennison says emerging companies will be burdened with administration costs and small producers will be hit with a higher tax rate.
“They’re just going to pay a higher effective tax rate ultimately than the bigger companies – where they’ll be up around 46 to 48 per cent while other companies will be paying five to six per cent rate less than that,” he said.
“So, it discriminates against those mid-tiers.
“You haven’t got the starting base and the other aspects the larger companies have that they can bring into the calculation of their tax liability.”

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OSBORNE URGED TO IMPROVE TAX TRANSPARENCY IN DEPENDENT TERRITORIES

Patrick Wintour, The Guardian, 7 April 2013

David Cameron and George Osborne were warned on Sunday they are in danger of losing credibility on their central agenda for their G8 chairmanship this year if they do not unilaterally introduce greater tax transparency in British dependent territories such as the British Virgin Islands.
In a letter to Osborne on Sunday, the leading aid charity Save the Children told the chancellor he has the powers to impose tax transparency on the British Virgin Islands.
The charity said there are fears that fresh exposures – including in the Guardian – about the scale of tax avoidance mean Cameron’s credibility on the issue needs shoring up.
In a speech in Davos in January, Cameron promised to make tax transparency his number one goal for his G8 chairmanship.
The sherpas, or key advisers, for the G8 leading industrialised nationsmet on Sundayon Sunday in London, ahead of the summit in Northern Ireland in June.
Both the Japanese and Russians are looking for any excuse to block the calls for greater transparency, including a new standard on public beneficial ownership.
In his letter Save the Children chief executive Justin Forsyth urged the government to “consider hosting a meeting of crown dependencies and overseas territories ahead of the G8 to encourage these jurisdictions to implement the new gold standard of beneficial ownership transparency in their own interests
“To ensure that that is a success we’d urge the UK to signal now that if necessary, it is willing to force through these policy changes”..
The charity also claimed previous work by the Kilbrandon commission on the UK constitution shows the UK government has, in exceptional circumstances, powers to intervene in the dependent territories.
Forsyth says said he knows the issue of beneficial ownership register is on Osborne’s agenda for G8, but added “as the current Guardian investigation has shown, some of the UK’s own overseas territories are some of the worst offenders. If not addressed this could undermine the credibility of the UK to lead international action in this regard. To this end we would urge you to consider what action the UK can take.
“Your commitment to pursue new transparency standards could be transformative, not only in recovering revenues to deal with the UK’s fiscal deficit, but in boosting revenues in developing countries, which are estimated to have lost as much as $859bn (£564bn) to illicit financial flows in 2010.
“Tax haven secrecy facilitates tax evasion, corruption and undermines the ability of governments to mobilise revenue to invest in lifesaving essential services. This can be a life or death issue for the poorest children in the poorest countries”.
In the past, government ministers, including the former Labour home secretary Jack Straw, have made clear that the overseas territories and crown dependencies are sovereign jurisdictions and that the UK government does not have power to change their policies.
But the Kilbrandon commission on the UK constitution set up by Harold Wilson found in 1973 that the UK government was not a helpless bystander.
It ruled: “The United Kingdom parliament has the power to legislate for the islands, but it would exercise that power without their agreement in relation to domestic matters only in the most exceptional circumstances”.
Forsyth argued “corruption, money laundering and illicit capital flight from the poorest countries would meet that bar of exceptionalism. We obviously hope that this isn’t necessary but a strong signal that it’s a possibility could actually make following through on the threat less likely.”
The commission ruled the UK ultimately had responsibility for the good government of the islands.
There is also a precedent for intervention. In the case of the Turks and Caicos Islands, due to endemic corruption on the islands the UK parliament passed new legislation in 2009 that suspended ministerial government and the house of assembly.
The key G8 demand for aid charities and tax justice campaigners is for a “new standard on beneficial ownership transparency requiring G8 governments to implement a public register of the beneficial owners of companies”.
The claim is that this would assist countries, rich and poor, to mobilise tax revenue to invest in life-saving interventions such as vaccines as well as the kind of infrastructure that will attract investment and promote prosperity in the long term.

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EUROPEAN UNION LOSES 1 TRILLION EUROS EACH YEAR TO TAX DODGING 

Luke Baker, The Huffington Post, 4 April 2013

* EU tax evasion, avoidance comparable to total output of Spain

* Issue to be discussed at next EU summit in May

* Pressure on Austria to conform to EU rules on transparency

* Switzerland, Liechtenstein fear they next in line

BRUSSELS, April 12 (Reuters) – Tax dodging causes the European Union to lose around 1 trillion euros of income each year, the president of the European Council said on Friday as he announced that EU leaders would discuss the issue at a summit next month.

This haemorrhage of tax revenues is equivalent to the entire annual economic output of Spain, and far exceeds the total of about 400 billion euros committed to the bailouts of euro zone member states Greece, Ireland, Portugal and Cyprus.

“We must seize the increased political momentum to address this critical problem,” Herman Van Rompuy, who chairs meetings of EU leaders, said in a statement broadcast on the Internet.

“Tax evasion is unfair to citizens who work hard and pay their share of taxes for society to work. It is unfair to companies that pay their taxes – but find it hard to compete because others don’t.”

Van Rompuy’s message, and the addition of the issue to the agenda of the summit in Brussels on May 22, will add to pressure on Austria to conform with the rest of the EU on sharing information about bank depositors.

Austria is the only one of the EU’s 27 member states unwilling to sign up to EU rules on the automatic exchange of depositor data, with the finance minister intent on protecting Austria’s long history of banking secrecy.

EU policymakers say having all EU countries signed up to the EU savings directive, the piece of legislation that calls for sharing of depositor data, will help to combat tax evasion.

Luxembourg, which has the biggest banking sector in the EU relative to its gross domestic product, announced this week it was willing to sign up to the directive from January 2015, leaving Austria as the only EU stand-out.
CLOSING LOOPHOLES

The shifting tide has raised alarm in Switzerland, the world’s biggest offshore banking centre with $2 trillion in assets, as well as in neighbouring Liechtenstein.

The Swiss Bankers Association said on Wednesday it did not see automatic exchange of information as an option for Switzerland because it is not part of the EU, noting there is currently no EU mandate for negotiations on the subject.

Liechtenstein Prime Minister Adrian Hasler told Swiss television on Thursday his country was well aware of mounting pressure over the issue. “The financial centre knows that at some point it may go in this direction now that there is a certain momentum in the question,” he said.

EU finance ministers, meeting in Dublin on Friday, discussed the problem, which Germany and the European Commission have said they are determined to tackle so as to close tax avoidance loopholes.

Van Rompuy said around one trillion euros was being lost across the EU each year because of tax evasion and avoidance.

“To give you an idea, one trillion euros is about the same as the entire GDP or total income of Spain, the fifth biggest economy of the European Union,” he said in his video message.

“It is about the same as the Union’s budget for the full seven years ahead. And it is one hundred times more than the loan that was recently agreed for Cyprus.”

With taxpayers providing the backstop for the 500 billion euro rescue fund the euro zone has created to tackle the debt crisis, ensuring that tax revenue does not leak out of the system through evasion is all the more pressing.

“Tax evasion is a serious problem for countries that need resources to restore sound public finances,” Van Rompuy said.

“The current economic crisis only helps to stress the urgent need for fair and effective tax systems. We simply cannot afford nor tolerate tax complacency.”

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THE DAY BRITAIN CHANGES: WELFARE REFORMS AND COALITION CUTS TAKE EFFECT

A NEW WORLD HEAVES INTO VIEW THIS WEEK WITH SWEEPING CHANGES IN THE FIELDS OF WELFARE, JUSTICE, HEALTH AND TAX

Patrick Wintour, The Guardian, 1 April 2013

Monday 1 April
Bedroom tax introduced
The aim is to tackle overcrowding and encourage a more efficient use of social housing. Working age housing benefit and unemployment claimants deemed to have one spare bedroom in social housing will lose 14% of their housing benefit and those with two or more spare bedrooms will lose 25%. An estimated 1m households with extra bedrooms are paid housing benefit. Critics say it is an inefficient policy as in the north of England, families with a spare rooms outnumber overcrowded families by three to one, so thousands will be hit with the tax when there is no local need for them to move. Two-thirds of the people hit by the bedroom tax are disabled.
Savings: £465m a year. As many as 660,000 people in social housing will lose an average of £728 a year.
Monday 1 April
Thousands lose access to legal aid
Branded by Labour a “day of shame” for the legal aid system, the cutoff to claim legal aid will be a household income of £32,000, and those earning between £14,000 and £32,000 will have to take a means test. Family law cases including divorce, child custody, immigration and employment cases will be badly affected.
Savings: a minimum £350m from £2.2bn legal aid bill.
Monday 1 April
Council tax benefit passes into local control
Council tax benefit, currently a single system administered by the Department for Work and Pensions, is being transferred to local councils with a reduction in funding of 10%. Council tax benefit is claimed by 5.9 million low-income families in the UK. The new onus on councils has come at a time when local government funding, according to the Institute for Fiscal Studies, has fallen by 26.8% in two years in real terms. A Guardian survey of 81 councils last week found many claiming they face difficult cuts, with almost half saying they were reducing spending on care services for adults. This also comes at a time when 2.4m households will see a council tax rise.
Savings: up to £480m a year, but depends on decisions of local councils.
Monday 1 April
NHS commissioning changes for ever
An NHS commissioning board and a total of 211 clinical commissioning groups made up of doctors, nurses and other professionals will take control of budgets to buy services for patients. They will buy from any service providers, including private ones so long as they meet NHS standards and costs. Strategic health authorities and primary care trusts disappear.
Costs: £1.4bn, mainly in redundancies, followed by savings as high as £5bn in 2015 owing to fall in staff numbers.
Monday 1 April
Regulation of financial industry changes
The Financial Conduct Authority and Prudential Regulation Authority, housed in the Bank of England, replace the Financial Services Authority. The Bank promises these changes do not represent the death and Easter resurrection of the same body. A new, proactive supervisory approach towards the City is promised, focused on outcomes rather than a tick-box culture. It has powers to prosecute, throw people out of the industry and withdraw a bank’s licence. Above all it monitors risk to the financial system as a whole.
Saturday 6 April
50p tax rate scrapped for high earners
Announced in the 2012 budget. George Osborne said the 50p rate, introduced in April 2010, caused massive distortions in 2010-11 and raised only £1bn, rather than the £2.5bn forecast by Labour back in 2009. HMRC found £16bn was deliberately shifted into the previous tax year, largely by owner/directors of companies taking dividends in the previous year when the highest rate was still 40p. Labour claims 13,000 millionaires will get a £100,000 tax cut.
Monday 8 April
Disability living allowance scrapped
The personal independence payment (PIP) replaces the disability living allowance and, according to the DWP, is not based on your condition, but on how your condition affects you, so narrowing the gateway to the PIP.
It will contain two elements: a daily living component and a mobility component. If you score sufficient points, a claim can be made. Assessments will be face-to-face rather than based on written submissions, starting in Bootle benefits centre, handling claims across the north-west and north-east.
Monday 8 April
Benefit uprating begins
For the first time in history welfare benefits and tax credits will not rise in line with inflation and will instead for the next three years rise by 1%. Had there been no change benefits would have risen by 2.2%. Disability benefits will continue to rise in line with inflation.
Savings: £505m in the first year, rising to £2.3bn in 2015-16. Nearly 9.5 million families will be affected, including 7 million in work, by £165 a year.
Monday 15 April
Welfare benefit cap
The most popular of the welfare reforms will begin on 15 April in the London boroughs of Bromley, Croydon, Enfield and Haringey. The intention is that no welfare claimants will receive in total more than the average annual household income after tax and national insurance – estimated at £26,000. Other councils will start to introduce it from 15 July and it will be fully up and running by the end of September. Some estimate 80,000 households will be made homeless. The DWP says around 7,000 people who would have been affected by the cap have moved into work and a further 22,000 have accepted employment support to move into work. Households where someone is entitled to working tax credits will not be affected.
Savings: £51m over three years.
28 April
Universal credit introduced
The new in- and out-of-work credit, which integrates six of the main out-of-work benefits, will start to be implemented this April in one jobcentre in Ashton-under-Lyne, Greater Manchester. The aim is to increase incentives to work for the unemployed and to encourage longer hours for those working part-time. It had been intended that four jobcentres would start the trial in April, but this has been delayed until July, and a national programme will start in September for new claimants. They will test the new sanctions regime and a new fortnightly job search trial, which aims to ensure all jobseeker’s allowance and unemployment claimants are automatically signed onto Job Match, an internet-based job-search mechanism. Suspicion remains that the software is not ready.

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