Posted by John, July 15th, 2014 - under Tax, Tax avoidance, Tax cuts, Tax evasion, Tax expenditures, Tax havens, Tax Office, Tax policy, Tax the rich.



Over 900 staff have left the Australian Tax Office on voluntary redundancies. This is only the beginning. Another 400 will be gone by the end of August.

An ATO spokeswoman has confirmed reports that the redundancy target is 3000 all up by the end of October and they will meet it. She told Phillip Thomson in the Fairfax papers (ATO shows no mercy on redundancy timeline, SMH July 14) :

“The ATO has received a sufficient number of expressions of interest through the second round to meet our commitment to government to reduce the overall size of the ATO workforce by 3000 by October 31, 2014.”

That figure of 3000 is about twelve percent of the ATO workforce, a workforce which collects over $300 billion a year in taxes. More job cuts are to come over the next few years.

According to the Commissioner’s Annual Report the cost of collection is about $0.91 cents per $100 of tax bought in. In other words for every dollar spent on a tax officer in salary and on-costs more than $100 is collected.

So to save perhaps $300 or $400 million in wage costs over time the Commissioner of Taxation is possibly putting at risk one-eighth of the revenue – about $40 billion.

Even if the marginal rate of return is ten to one rather than one hundred to one that is still a $4 billion hole in revenue for a saving of $400 million.

According to Gareth Hutchens in the Fairfax papers, the ATO argued in evidence before the Senate in February that every dollar spent on salaries the ATO bought in between $1 and $6. (“$1 bn ‘could be lost’ in ATO job cuts” The Canberra Times Tuesday July 15, page 4)

This one to six ratio is sophistry.

Because 96 percent of tax is paid voluntarily, the argument is that the cost of all ATO salaries (about $2 billion a year out of a Budget overall of $3 billion) brings in the other 4 percent. That other 4 percent totals about $12 billion in taxes, interest and penalties. So the ATO argue that the $2 billion spent on all of their staff brings in $12 billion, i.e. one dollar spent raises six in revenue.

This ignores the fact that over $300 billion comes in voluntarily. The ATO runs the systems that makes it possible for the 96 percent of voluntary taxpayers to pay their taxes. Without all of the ATO staff that voluntary flow would not continue and any cut in staff will hit not just those chasing the cheats and tax avoiders but also those servicing complying taxpayers and the systems that make compliance easy for so many.

But even accepting that one to six ratio, cutting 3000 staff at an average cost per job of, my guess, $150,000 salary, superannuation and on-costs saves over time $450 million per year but loses $2.7 billion per year in revenue collected.

The only way the job cuts could be cost effective is if those leaving collected less revenue than we paid them in salary, plus on-costs. They don’t.

Of course, the ATO may well have in place strategies (more likely to be platitudes than strategies) to address the potential revenue shortfall.

Will it make remaining staff work harder and longer (unpaid) hours? Of course it will. That has been the strategy of administrations past and present.

But my guess is that stressed out overworked tax officers collect less per dollar invested in them than relaxed and happy ones.

The ATO already has one of the highest sick leave and compensation bills per head of employee in the public service. The cuts will only worsen that.

What about new technology? That costs money.

It also doesn’t always improve productivity. And how will it address systemic issues like base erosion or help catch big business with their sophisticated avoidance arrangements and the rich who hide their wealth offshore?

Indeed the rich continue to hide their money offshore despite an amnesty offer from the ATO, presumably because they know the risk of detection is slight compared to the tax ‘saving’ of not declaring the income.

The current and future rounds of job cuts will only make offshore tax evasion by the rich even more difficult to detect.

Of course, tax officers will also be told to work smarter, just like they have been told and have been doing for the last 3 decades. It is a tired old and essentially meaningless mantra. The irony is that many of those leaving are pretty smart.

The ATO might outsource some activities to organisations here or overseas. It already does this but might do more of it.

One policy way of bringing in more revenue would be to abolish the handouts to the rich and business through the tax system, handouts that total up to $50 billion of the almost $120 billion in tax expenditures.

Another would be to tax the 50 percent of big businesses which currently pay no income tax. This is my estimate because the Commissioner no longer tells us those figures since the last update of the pre-GFC situation revealed the figure at 40 percent.

Taxing those big businesses which pay no income tax could be done perhaps through a minimum company tax or, in the case of base erosion companies like Google, billion dollar annual licence fees to operate in Australia.

The top ten percent own well over 60 percent of the wealth of Australia, about $4 trillion. A wealth tax of just one percent per annum on them would raise about $40 billion a year.

We could also address the steep decline in progressivity in our income tax system by soaking the rich till their pips squeak.

What about inheritance taxes? Why is Australia one of the few developed countries without estate and gift duties?

Of course none of these sensible tax policy changes are going to happen under Labor or the Liberals, the two parties of neoliberalism.

Rather than getting rid of 3000 staff, maybe they could have been used to collect taxes from the rich and powerful. Since that isn’t going to happenn, the ATO focus will shift even more to the little guy, ordianry working class taxpayers. They will try to squeeze more blood out of us to make up for the shortfall in revenue from the rich.

The government will use the shortfall to reinforce its cries for cuts to health, education, the pension, the disability pension, the dole, social welfare, foreign aid…

Given that the current Commissioner of Taxation is a former partner in the huge tax and accountancy firm KPMG, it is arguable that the one percent has captured not only Parliament and tax policy (which they have) but tax administration now too.

If that is true, the conclusion we might then reach is that the slaughter of Tax Office jobs currently under way is actually an attempt to administratively reduce taxes on capital by weakening the capacity of the ATO to tax the rich and powerful. Certainly that fits in neatly with the neoliberal cut taxes mantra of most politicians and the Treasury.

Over to you Commissioner of Taxation.

John is a former Assistant Commissioner of Taxation