The announcement by Prime Minister Paul Keating earlier in the campaign that $800 million from tax dodgers could be recouped for the public purse appears to have been a self-denying prophesy. Once announced, the tax dodgers apparently have immediately begun to remove their money, rearrange their affairs, and started the task of creating new tax dodges.
Mr Keating’s announcement caused considerable ire among people in the Tax Office who had done a large amount of work towards trapping the dodgers only to see it wasted by his premature and public announcement. Some tax officials likened it to announcing this month that you had found a warehouse of stolen goods and that you would raid it in a month’s time. Not very bright from a tax-enforcer’s view, but if you need to pretend you have $800 million in the kitty very necessary.
In this instance, the investigators had only recently uncovered the network of trusts that were used for tax avoidance, using newer versions of the software that had been used in the Belganglo State Forest back-packer murder investigation. That software enabled the finding of connections between vast arrays of trusts which on their face looked isolated and innocent. The usual pattern has been to get very close to the avoiders and then make the public announcement coupled with a statement that legislative measures would be back-dated to the date of the announcement. Tax sources suggest that the Tax Office was not quite close enough to tighten the noose, and in any event the caretaker convention prevented a legislative announcement. But Mr Keating made his announcement anyway because he needed to say where he was going to get the money to fund his campaign promises. He gave the avoiders fore-warning. He should not have done so. Mr Keating said yesterday that his intention was to stop future avoidance, not to recoup past losses. None the less, his departure from previous practice raises the suspicion that he has put short-term political above the long-term public interest.
Tax enforcement is not easy, and it does not help to have political interference.
In general, the discovery of yet another tax-avoidance scheme after so much work has been done in the past 15 years to end all avoidance schemes shows the need for constant review of tax law. The Labor Government has effected two major reforms to stamp out avoidance: the capital-gains tax and the fringe-benefits tax. These have not been especially popular and they have caught little people as well as the major avoiders who converted what would otherwise be taxable income into capital or kind.
That said, Labor failed on a third major leg of tax reform which would have helped against avoidance as well have been of major economic benefit: a consumption tax. A least with a consumption tax, every time the very rich wanted to buy something, they would have to pay some tax. Moreover, a consumption tax … if offset by tax relief for ordinary wage earners … would discourage spending, encourage saving, hit imports and relieve exports.
But, no. Mr Keating opposed a consumption tax in 1993 for short-term political advantage. Nothing much has changed.