Wayne's defence: we have a dud tax system

by Michael Pascoe, 25 May 2010 -- What a curious PR straw to clutch in the resources rent tax battle – Wayne Swan's latest defence is that he's in charge of a dud tax system where corporate rorting is endemic, leaving mug PAYG wage slaves to carry the nation's burden.

That's the implication of the attempt by the Treasurer and Deputy PM Gillard on Sunday to brand mining companies as tax dodgers who exploit the system to such an extent that their effective tax rate is only 17 per cent for locals and just a tiny 13 per cent for multinationals.

Unfortunately, the real argument for a resources rent tax has nothing to do with company tax rates, what Ken Henry might call "in theory". (In the derided real world of course, company tax and resources rent tax will inevitably be bundled up with any other taxes and charges to make a "government take" – that's the way most of us think "in practice".)

The implication of seizing as gospel truth lines out of an American university study on multinational tax rates is that it means our tax system is shot and needs massive reform. Maybe they should commission Ken Henry to review it.

The same study finds the members of the domestic information industry are worse tax dodgers than the domestic miners. The IT brigade exploit whatever is to be exploited to end up with an effective tax rate of just 14 per cent. Multinational information companies operating here have an effective tax rate only slightly higher – 17 per cent. To be consistent, Wayne and Julia had better come up with an Information Industry Tax Lurk Super Tax to make up for this outrageous behaviour.

And what about the "professional" industry? The Australian corporates rorting away in that sector have an effective tax rate of 19 per cent while we're assured Kevin's working families assiduously pay 30 per cent. Heads must roll.

If that American study is to be believed, it seems no Australian companies actually pay the nominal corporate tax rate of 30 per cent. How long has the Federal Treasurer known about this and why hasn't he done something?

On the other hand, if the study is correct, we must expect the Australian Securities and Investments Commission to swiftly take action against the companies misleading the market be routinely reporting tax rates around the 30 per cent mark. BHP and Rio, just for a start, have concocted company tax rates around that in their most recent results. More cause for outrage.

But save the most outrage for what seems to be consensus political commentary that Kevin Rudd can't be seen to back down from consultation-free resources rent tax he's imposed because it would further weaken his standing in the popularity polls – not because it would be the wrong thing to do.

There is nothing particularly magical about the 40 per cent rate just because royalty payments once worked out to be something like that when prices were low. The government "partnership" aspect whereby marginal mines are supported by tax payers may well be disposable. It would be nice to think the government was capable of negotiating the best outcome if it is indeed being faced by a capital strike, not just doing what pollsters dictate.