Ask yourself, do we really need man made complexity, and pay through the proverbial just to untangle what shouldn't exist!

And just hanging on to it as seems the want of the ATO and most tax practices, (powerful people) is all that allows avoidance on a hitherto unknown scale.

On average company tax is 1-4% of the gross, as paid by most corporations? With 40% of our guest transnationals paying no company tax to anyone, yet still apparently using taxpayer funded facilities to do business here?

And only possible because we remained welded to the present system and the money it generates for some very "clever" people.

When one considers that only around 3 taxes raise most of our revenue, and or that only around a dozen or so corporation pay all our corporate tax, then it's time to act!

I mean if off-shoring only ever increased your tax bill, what CEO in his or her right mind would chose that option!?

If our current tax take is as reported, just 4% of the GNP, and if the GNP is in fact a "fair" representation of our combined total spend?

Then a 5% stand alone and completely unavoidable expenditure tax of just 5%, would raise more NET revenue; somewhere between 75-100 billions more, than the current convoluted complexity!?

And collected via the banks and transferred electronically overnight, to deal out both the ATO, and all those patently unproductive and parasitical tax practices; as well as their considerable SERVICE COSTS?

And only necessary, due solely to man made complexity!

Time the 95% of corporate Australia, found that off-shoring not only didn't save them money, but cost more; whereas, those still operating as genuine Australian entities, could put their tax compliance money, [7% averaged,] back in their hip pocket.

Given under the proposed simplicity, there would no longer be necessary for genuinely Australian based entities to fork out any compliance money whatsoever!

And an expenditure tax is not a turnover tax as claimed, in as much it just doesn't tax deposits, or money as it is banked!
Rhrosty.

removing dividend imputation is not in the nation's interest.
1. companies maintain higher share prices through dividend imputation to australians, but to have the tax credits it means they have to pay the tax, so it acts as an incentive to reduce tax minimisation strategies
2. those in the business community pushing for the change are multinationals with foreign based institutional investors who do not benefit from imputation, but would benefit more from further tax minimisation strategies
3. removing dividend imputation may encourage firms to undertake activity overseas, hence less jobs for australians
4. dividend imputation forces discipline in capital spending
5. dividend imputation puts pressure on companies to bring profits back to Australia rather than implementing aggressive price transfer arrangements

Social Democrats should fight to keep dividend imputation for these reasons and not become lackeys for the wall street institutional investor who just want to plunder our economy

A few points:

a) I'm not suggesting we cut Company Tax with the revenue gained from cutting Dividend Imputation. In fact I'm saying lift Company Tax in line with either the US, Japan or France.

b) There's over $20 billion at stake

c) We have to weight the benefits and drawbacks to winding back Dividend Imputation; But $20 billion a year for infrastructures, services, welfare, social wage - seems pretty good to me

d) elsewhere I've argued for a *gradual* rescission of dividend imputation - and that might make sense so as we can respond to and gauge the effect on the economy.

these are the alternatives have superannuation taxed at three rates, 8%, 18% and 28%, not administratively hard those on 19% tax rate have super taxed at 8% (instead of 15%), those on 32.5% and 37% rate are taxed at 18% (instead of 15%) and those on 45% are taxed at 28% instead of 15%. All are taxed at a concessional rate, so very little incentive to change investment, tax gained will be more than what occurs , better than taxing at marginal tax rate because that could lead to changed behaviour and revenue loss elsewhere. The employer when sending the payments to the super fund advises the fund the highest tax rate applying to the employee.

move negative gearing to neutral gearing, so that expenses from the asset can be written off against income from the asset but not against other passive income. provide a 5 year transition period where a cap of $3000/yr of expenses can be written off against passive income.

tax super withdrawals above $50 000/yr at appropriate marginal tax rate, remove the Costello blunder

If we just removed the complexity and the costs that they incur, we wouldn't need negative gearing, nor special treatment of some super!

Why should someone paying the top level of tax, given a top level income, be able to effectively reduce their tax by around 33 cents in the dollar, to just 15 cents in the dollar!

Shouldn't a great big pay packet be enough without expecting working class families to somehow subsidize the fat cats tax liabilities?

If we just taxed expenditure, then those receiving a current tax minimization benefit, wouldn't need it, given we would have handed back the no longer necessary tax compliance money.

And given an unavoidable expenditure tax would be unavoidable, dividends would have already had a tax component leveled against them; and for all practical purposes, they would then be treated as fully franked, until you started to spend the money.

Which is what happens now, given the beneficiaries of your spending will have several taxes charged against their income!

And let's not forget, tax compliance costs are passed on wherever possible, and therefore become a cascading cost/economic brake throughout the supply chain!

One just doesn't need to be an Einstein to understand, that removing the treasured and costly complexity, removes the opportunities to avoid tax.

And sharp practice would simply bulk out the tax bill not minimize it, if all claimed expenditure resulted in some unavoidable tax!

5% may not seem much, but some economists are on the public record, (during the Hawke era) claiming that one third of one percent collected as a transaction tax, would replace PAYE.

Others suggest that a 2% transaction tax would replace all tax!

However, a transactions tax may be both regressive and or tax turnover?

However, an unavoidable expenditure tax couldn't be avoided, even by tax avoiding multinationals, and all those (95% of corporate Australia) who've off shored their operations to avoid tax; or those who've set up subsidiaries in so called tax havens!

Which would then work against them and the higher levels of expenditure that then mandates!
Rhrosty.

tristan there is not $20 billion at stake, once you remove dividend imputation those companies that had fully franked dividends will employ aggressive taxation minimisation strategies, with dividend imputation they have to pay sufficient tax in australia to flow the credits to the individuals who receive the dividends. the profile of the mix of investors will change, the proportion of overseas investors increase, those residual aussies with the capacity will either employ different taxation strategies themselves or alter their investment

If an expenditure tax was the only tax collected, we could use it and the tax rate to alone control all inflation or stagnation.

Simultaneously and region by region wherever necessary!

Meaning interest rates could come down to set and forget historical lows!

And given we would be able to jettison every other tax measure, turbocharge the non mining economy as never before; given most Australian based companies/firms would be around 30% better off, courtesy of foreign firms no longer able to duck shove their tax liabilities off on to those who still pay our tax.

And we need a better system that simply charges the nation's GNP, all of our tax (as outlined), so that a diminishing cohort of tax payers aren't lumbered with greater and greater charges, even as services disappear!

And given an expenditure tax was the only tax taken or needed, most Australian households would be around 25% better off and therefore able to finally afford a 15% non contributory super! Grow the economy (GNP) and you then automatically increase the tax base!

And the brand new surpluses we'd create, could be used in a brand new franchised Peoples'bank, used to distribute affordable venture capital, to finally commercialize our best ideas right here; via cooperative capitalism; and or family firms, or both!

And a natural home and natural fit for former tax practitioners, able to use their considerable number crunching skills for something genuinely productive.

And if the tax accountant doesn't know who has the business smarts in the community, who would?
Rhrosty.

Thanks Tristan. A lot of good ideas here. Australia is a low taxing low spending country in OECD terms and we could easily tax the rich and capital to provide for better public education, hospitals, transport and better benefits for the poor and less well off, including pensioners. Yours is a good contribution to Hockey's national conversation on tax reform, one that challenges the status quo of taxing ordinary working people for the bosses.

The worst taxes are the waste of Green vanity, failed solar and wind, yet to be a net provider of energy. The worst taxes are the regressive impositions in the Power bill to feather bed and bloat the ETU via poles and wires. The worst taxes is the runaway growth of political fiefdoms such as Triggs human rights debacle and the Federal / State bureaucracies.

As the highly productive Kerry Packer said "...Anybody in this country who does not minimise his tax wants his head read. I can tell you as a government that you are not spending it so well that we should be donating extra."

the other big issue is transfer pricing, where companies purchase goods and services from related companies operating in lower tax nations, the issue is relatively simple

allowable deductions are those where the goods and services that are purchased are done so at a market rate, so therefore for all goods and services above $50 000 purchased from a related company operating in a nation with a lower tax rate to be able to claim the purchase the company needs to demonstrate there was a commercial tender process, and to define the minimum reguirements for a commercial tender in legislation

for expenses related to loans from related companies, the tax act should have a commercial loan deeming rate which would put a cap on expenses associated with intercompany loans.

furthermore the cap should be calculated on the basis of the exchange rate when the loan is made, so that currency risks associated with the loan are fully with the company and not transferred to the taxpayer.

McCackie, where are these failed solar and wind schemes? In my state they're very much a success, and have long been net providers of energy. Here in SA they're responsible for about a third of our energy production. Right now it's double that as it's a windy day.

If an unavoidable expenditure tax were the only tax levied or needing to be levied, and it could be, if the missing political will were restored/or found; those companies chasing goods or services would make dam sure that a real tender process was applied, as the only means possible to minimize their own tax impost!

And a good thing given these costs are always passed on and cascade throughout the length and breadth of the supply chain, until they reach those who just can't pass them on!

And then we wonder why the average mug out there in mugsville pays a 30% premium at the checkout!?
Rhrosty.

Tristan, here we go again. Tax and spend. Tax concessions are in place to encourage behaviour. Increasing taxes means people stop building houses, etc.

The GST is the most efficient tax and while regressive collects more money without damaging the economy than any other tax.

May I ask a question please:

What do they mean by "removing dividend imputation"?

If one's company receives income on the 30th of June, so the owner was unaware of it on the day that it arrived or had no time yet to collect it as dividend, would it then be taxed twice - once in company-tax and once in the next financial-year when the owner actually takes that money?

Dividend imputation means your tax is cut on your dividends to avoid 'double taxation'; ie: first from Company Tax and then from tax on income from dividends. Australia is one of the only countries in the world to do it.

Dear Tristan,

So are you saying that tax should not be cut, so if I paid it already through my company I still need to pay it again in my private capacity?

Say my company received the money for its annual contract on the 30th of June and say I could not tell in advance what exact date that money would arrive, then because the ways the banks work I see that sum in my company's bank account only on July 1st (but dated June 30th) - so too late, it's been an income for the previous financial year, on which my company pays 30%, then when I take home the remaining 70% on the next day, I receive no refund for the tax I already paid and in the next financial year I must pay my full personal marginal rate on the remaining 70%.

Or say I was not quite sure whether my company would need that money for its expenses and future investments, then I find that it won't need it and take it home, but by then the financial-year line was crossed and I need to pay twice for the same income.

Do you consider it fair?

Tristan,

Dividend imputation is far more common than you make out. To avoid double taxation one either does not tax dividends with company tax, or you give credits to taxpayers. Dividend imputation avoids double tax and tax evasion.

Unless of course you simply prefer double taxing investors such as pensioners.

Its possible to avoid hitting pensioners unfairly by increasing pensions and easing means tests. And still hit the dividends of the rich.

Tristan,

The problem is that removing tax imputation hits everyone especially the middle class. Primarily because the lowest paid don't buy shares and the richest simply shift their payments etc to reduce tax.

Companies then reduce dividend payments rather allowing for value growth which hurts pensioners, managers take their payments in cash or benefits rather than dividends etc.

As for the rest of the effects, the companies are worth less since the returns determine the price, and thus find it harder to borrow money lessening the profits (and tax) while reducing employment. People then shift investments to property or overseas shares.

The end result is that the increased tax take is far lower than anticipated, and everyone loses.