Drip-fed economies die
There’s a tendency in the media and amongst Australians to get bored with a story. The world works in mysterious ways and governments respond when the media stirs up popular support for a cause. It’s our duty then to ensure the important stories remain front of mind. This story was first published in November however it is just as relevant now… C’mon Joe Australia needs you!
It’s a bloody disgrace! It’s un-Australian and it’s nothing more than stealing from your own neighbour.
Finally, The Australian Financial Review, who received 28,000 pages of leaked tax information, forwarded it to ATO Commissioner Chris Jordan. The information reveals how 343 local and foreign companies used accounting firm PwC to slash their tax bills through total swap returns, royalty payments, hybrid debt structures and secret deals with tax havens like Luxembourg.
Neither the AFR nor Montgomery implies that any illegal activity has occurred, but these companies and their advisers should hang their heads in shame for ripping off the Australian economy and its constituents by reducing the funding available for better health services, better schools for our children and better infrastructure for our economy.
According to the AFR, “the ability to move profits around the world purely by paperwork in return for what seems a minor fee to Luxembourg is a recurrent feature in the leaked tax agreements.”
Well, if chasing profits around the world is too hard and complicated to police, simply tax the revenue of these companies and don’t rely on them to tell you what their revenue was, and co-opt the data of the companies that facilitate the payments for their products and services – the banks, credit card and online payment facilitators.
A move to taxing revenue would also result in a better overall allocation of capital to those ventures that produce the highest returns.
It’s pretty simple; if you receive revenue from selling a product in Australia and/or selling it to an Australian, a portion of that revenue must be retained in Australia as tax. One suspects it would render profit shifting and transfer pricing impotent.
And, of course; the same intense spotlight now being applied to profit shifting and tax havens needs to be directed to those operators who start companies, rack them up with debts owed to suppliers for services rendered and then put them into receivership or liquidation, only to re-emerge under another entity to do it all again. In other countries such operators would be taken out the back and shot. To these people I say; Ripping off your neighbour denies them the liberties you yourself abuse. If you engage in such activities, your liberties should be taken away just as you have taken them from those who served you.
Australia is struggling competitively; we need to ensure there are no more leaks. Clean it up Joe, even if some of the people you thought were your mates are involved!
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Nicholas Christian
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My lord Xiao
Who’s going to read all that?
Lets just simply say that we are going to be suffering long term from retortic of short term politics from both sides.
xiao fang xu
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every tax punishes productivity in both seen and unseen ways. It should be obvious that the money individuals pay to Washington could be put to better use in the household budget, whether it is to save or spend or some combination thereof. The double taxation that comes from corporate taxes constitutes a direct hit on production.
Murray Rothbard’s book Man, Economy, and State undertakes an analysis of every conceivable form of taxation to demonstrate every way in which this occurs. I won’t march through his detailed and sweeping argument, but suffice it to say that he covers: income taxes, corporate taxes, sales taxes, excise taxes, property taxes, capital gains taxes, withholding taxes, inheritance taxes, and every other form you can imagine. There are many books I would recommend, but I would put this section of Rothbard’s treatise at the top of the list for the political class. If they are going to plunder us, they should at least be denied the luxury of believing that it is for our own good.
The point is that that there is no such thing as a neutral tax, and no such thing as a tax that is non-destructive to the production process. They all harm the ability of individuals to create wealth, trade, and produce. This means fewer resources available for investing in the future, for donating to charity, for spending on leisure, and cultivating the garden of civilization itself.
At the Internal Revenue Service’s main entrance in DC, you will see a sign that says: Taxes are the price we pay for civilization. It is based on a Hobbesian theory that in the absence of taxes, there would be a war of all against all. Actually, all of history shows that taxes are a leading cause of the breakdown of civilization. The higher the tax, the less wealth there is to create and sustain civilization. We have civilization despite taxes, and it is this fact which is the most notable.
The Just Tax and the Just Price
For centuries before the science of economics was developed, men searched for criteria of the “just price.” Of all the innumerable, almost infinite possibilities among the myriads of prices daily determined, what pattern should be considered as “just”? Gradually it came to be realized that there is no quantitative criterion of justice that can be objectively determined.
The best tax is always the lightest. ~ Jean-Baptiste Say
There cannot be a good tax nor a just one; every tax rests its case on compulsion. ~ Frank Chodorov
Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. ~ Murray Rothbard
There can be no such thing as “fairness in taxation.” Taxation is nothing but organized theft, and the concept of a “fair tax” is therefore every bit as absurd as that of “fair theft.” ~ Murray Rothbard
Since the very fact of taxation is an interference with the free market, it is particularly incongruous and incorrect for advocates of a free market to advocate uniformity of taxation. ~ Murray Rothbard
A deduction or exemption is only a “loophole” if you assume that the government owns 100% of everyone’s income and that allowing some of that income to remain untaxed constitutes an irritating “loophole.” Murray Rothbard
the State separate society into two classes, or castes: the taxpaying caste and the tax-consuming caste. The tax consumers consist of the full-time bureaucracy and politicians in power, as well as the groups which receive net subsidies, i.e., which receive more from the government than they pay to the government.
Bureaucrats are net tax consumers.
bureaucrats cannot pay taxes.
We repeat that the bureaucrat who receives $8,000 a year income and then hands $1,500 back to the government is engaging in a mere bookkeeping transaction of no economic importance (aside from the waste of paper and records involved). For he does not and cannot pay taxes; he simply receives $6,500 a year from the tax fund.
“we” are not the government; the government is not “us.” The government does not in any accurate sense “represent” the majority of the people.
If, then, the State is not “us,” if it is not “the human family” getting together to decide mutual problems, if it is not a lodge meeting or country club, what is it? Briefly, the State is that organization in society which attempts to maintain a monopoly of the use of force and violence in a given territorial area; in particular, it is the only organization in society that obtains its revenue not by voluntary contribution or payment for services rendered but by coercion. While other individuals or institutions obtain their income by production of goods and services and by the peaceful and voluntary sale of these goods and services to others, the State obtains its revenue by the use of compulsion; that is, by the use and the threat of the jailhouse and the bayonet.Having used force and violence to obtain its revenue, the State generally goes on to regulate and dictate the other actions of its individual subjects.
“The theory which construes taxes on the analogy of club dues or of the purchase of the services of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.” Joseph Schumpeter
There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others.
What is a loophole? If the law does not punish a definite action or does not tax a definite thing, this is not a loophole. It is simply the law. . . . The income-tax exemptions in our income tax are not loopholes. The gentleman who complained about loopholes in our income tax . . . implicitly starts from the assumption that all income over fifteen or twenty thousand dollars ought to be confiscated and calls therefore a loophole the fact that his ideal is not yet attained. Let us be grateful for the fact that there are still such things as those the honorable gentleman calls loopholes. Thanks to these loopholes this country is still a free country . . . .
A loophole is nothing more or less than a chance to keep your own money. It is not a subsidy. It is not tax spending. It is not corporate welfare. It is not a special privilege. It is just a window of freedom. Loopholes should be expanded as much as possible. There should be ever more of them. A completely loopholed economy, where there were maximum opportunities for not paying tax, would finally arrive at the idea of freedom.