TAX THE RICH The following article was published in "The Guardian", newspaper of the Communist Party of Australia in its issue of Wednesday, September 29th, 1999. Contact address: 65 Campbell Street, Surry Hills. Sydney. 2010 Australia. Phone: (612) 9212 6855 Fax: (612) 9281 5795. Email: <[EMAIL PROTECTED]> Webpage: http://www.zipworld.com.au/~cpa Subscription rates on request. ****************************** Designed by big business for big business, the purpose of the Federal Government's tax package is to reduce the amount of taxes paid by the rich and the big corporations and shift the burden onto workers. Treasurer Peter Costello plans to slash the taxation of company profits and halve the rate of capital gains tax rate for high flying speculators. There is absolutely nothing in the package for workers, many of whom would end up paying a higher rate in the dollar than multi-millionaires. As for all the talk about closing tax loopholes, most of these measures have been deferred, while the rich are being offered new loopholes for tax evasion. The Ralph "business tax package", announced by Treasurer Peter Costello last week, is based on the outcomes of a long consultation with business by John Ralph and two other business leaders. (John Ralph is on the boards of BHP, Telstra and the Commonwealth Bank.) The tax on company profits will be reduced from 36 percent to 30 percent over the next two years. This amounts to a reduction of almost 17 percent in the tax paid by companies - for those who actually pay tax on their profits. There are two important changes to capital gains tax. (Capital gains tax is a tax on the increase in the value of assets held by an individual or company. At present it is only paid when an asset is sold). 1) The 48.5 percent capital gains tax will be halved to 24.25 percent for individuals. 2) At the same time, the present system of adjusting the increase in value of an asset to take inflation into consideration (indexation) will be abolished. The net outcome is that those who hold their investments for longer, such as the "mums and dads" who bought Telstra or the Commonwealth Bank shares, or workers with shares in their employer's company, are likely to be worse off - particularly if inflation rises. The big winners will be the financial institutions and high flying speculators with rapid turnovers of their investments. (See below for details of how this would operate.) Basically it halves the tax rate on purely speculative, unearned income, while workers go on paying rates of 30, 42 or even 47 cents in the dollar on their hard earned wages. The capital gains tax changes are a gift for the rich, as are the corporate tax cuts. At present half of all capital gains tax is paid by the 1.6 percent at the top of the income scale of taxpayers. The likes of Kerry Packer, who pay little income tax on their billions, will at most pay 24.25 percent on the gain in value of assets (companies, paintings, etc) as they sell them off compared with marginal rates of 30 percent or more paid by workers. The package throws out a few crumbs to small business, and purports to make their book keeping simpler. But none of this in any way compensates for the heavy burden and costs imposed on small businesses by the GST. Workers to fund cuts As for the funding of these business tax cuts, the Government talks of closing tax loopholes and using the cuts as an excuse to continue the criminal sell-off of public assets. The fact is it has no intention of closing all of the loopholes - this question has basically been deferred. In other words this business package is not "revenue neutral" as the Government claims; the business tax cuts will be funded by the working people who will end up paying for them through budget cuts to spending on education, health, social security and other essential services. Further down the track there will be moves to increase the 10 per cent GST and to remove some of the GST exemptions on food and health products. Although the "business tax package" has been presented as a stand-alone "reform", it is an integral part of a larger program, of which the GST and the large reduction in personal income tax for high income earners are integral components. More business tax cuts will follow. The longer-term objective is to remove all taxes on income and rely on a consumption tax like the GST, paid by people. The Government hopes to attract investment by foreign transnational corporations by making the Australian tax regime a low tax haven for them. The proposed 30 percent corporate tax brings us into line with Singapore, Germany and the UK; it makes Australia more competitive than the US and Japan on 42 percent; it still has some way to go to match Hong Kong on 16 percent. Eventually the Government (and its big business patrons) would like to see Australia become a tax-free haven for big business. The Government has decided to abolish income and capital gains taxes on multinationals investing in venture capital (new, high risk projects) from countries like the USA, Germany, Japan, France and Canada, where they pay no tax. If this legislation is passed, then the Government will begin preparations for the next round of reductions in corporate taxes, the further winding back of the capital gains tax and income tax for high earners. Both the Australian Democrats and the Labor Party are lining up to negotiate the fine details of the package. Neither party is challenging the main, regressive, anti-people thrust of these latest proposals. People's tax package As a priority, a responsible Government would be closing the various income tax loopholes, tightening the capital gains tax base, abandoning the GST, and restructuring the corporate and income tax scales so that the wealthy and big business pay at a higher rate in the dollar. Through such reforms to the tax system the rich and the big wealthy corporations could be made to pay their share. The necessary money would be raised to fund essential services. Capital gains tax changes The present capital gains tax system was introduced by the former Keating/Hawke Labor Government. The tax is charged at a person's highest marginal personal income tax rate (48.5 percent for those on more than $50,000 per annum) on the real increase in the value of an asset at the time when the asset is sold. Assets include such things as shares, property, antique clocks, stamps, painting. (Certain assets such as the family home and deceased estates are exempted.) The real increase is calculated by allowing for inflation. Take for example, a person buying a property for $100,000 and then selling it for $150,000 six years later. The nominal increase in value is $50,000. Suppose the consumer price index has risen 30 percent over that period. Then, adjusting the increase for inflation, the real increase in value is $20,0000. Under the present capital gains tax system, the real increase, $20,000, is taxed at 48.5 percent*. That means a tax of $9,700. Under the new scheme, there would be no adjustment for inflation (indexation), but the rate of the tax would be halved. So taking the same example, the full $50,000 increase in value would be taxed at 24.25 per cent - resulting in a tax of $12,125. In this case the investor would be worse off under the new system, even though the tax rate in the dollar had been halved. But not everyone would be worse off. The outcome would depend on the rate of inflation and how long the investment was held. The new rates are designed to benefit (and will encourage) big investors, with quick turnovers, and the more speculative types of investments where the prices can rise rapidly and the value of the asset is not so easily eroded by inflation. They will benefit from the halving of the tax rate. Big corporate investors, who already pay little income tax, will pay 24.5 cents in the dollar on gains in the value of their assets while workers go on paying marginal rates of 30 or more cents in the dollar. This regressive tax could also encourage the "mums and dads" investors to sell their shares in privatised public assets, some of which have increased considerably in value. Some have refused to cash in their shares because half of their profit would be wiped out by the capital gains tax. This has frustrated would-be buyers from the finance sector who want to take over the privatised banks and other institutions. The new capital gains tax will also encourage what is known as negative gearing - borrowing money to buy assets and using the interest payments as tax deductions to offset income from the investment. Under the proposed package, negative gearing brings a tax deduction of 48.5 percent on interest paid, as against a tax of 24.5 percent on any gain in the value of the investment. It also works in favour of short-term, speculative investments as against long-term investments, such as in shares or property. * The tax could be at a lower rate if the person is on an income below $50,000 p.a. -- Leftlink - Australia's Broad Left Mailing List mailto:[EMAIL PROTECTED] http://www.alexia.net.au/~www/mhutton/index.html Sponsored by Melbourne's New International Bookshop Subscribe: mailto:[EMAIL PROTECTED]?Body=subscribe%20leftlink Unsubscribe: mailto:[EMAIL PROTECTED]?Body=unsubscribe%20leftlink
