Humans can be a strange bunch.
Over the weekend we had our first opportunity in decades to elect an opposition party that was prepared to lay out a suite of policies aimed at taking Australia in a fundamentally new direction, putting us on a firmer economic footing over the long term. There would have been short term pain, likely a recession, but the outcome could have been a more diversified, fair and prosperous Australia. Instead, we decided to kick the can further down the road and ignore the obvious problems that face the Australian economy, such as an over investment in residential property and an over reliance on our intimately linked immigration programme and construction industry.
One issue that has garnered much coverage in recent years is the amount of tax paid in Australia by large corporations. In a recent Vote Compass poll facilitated by the Australian Broadcasting Corporation (ABC), an overwhelming majority of respondents agreed that multi-national companies and large corporations should be paying more tax. Perhaps unsurprisingly however, when it was presented with a proposal aimed at retaining corporate tax receipts by eliminating personal tax refunds on declared dividend income, the country voted a resounding no. By retaining the status quo, we agree to a system where tax collected on large company profits is refunded to individuals purely because it is distributed as a dividend and declared as personal income. It currently equates to $6 billion of company tax per annum refunded, and is projected to increase markedly over the coming decades.
For those unfamiliar with how franking credits work, here is a simplistic and generalised overview. The company tax rate in Australia is set at 30% for businesses with a turn over in excess of $50 million. Each year a company declares a gross profit or loss and must pay tax at a rate of 30% on any profit. If a company chooses to they can pay out a portion of these taxed profits (net profit) to shareholders. These are known as franked dividends. Because the payments have already had tax paid on them they do not get taxed twice when declared on your personal income tax return; the franking credits can be deducted from your taxable income. For any individual who pays no tax, the current system permits the issuance of tax refunds for the tax already paid by the company (franking credits) before issuing the dividend payment. The anomaly being that the income is generated as company profit and not as personal wages or income, so the refunds essentially act to reduce the tax intake from certain corporations. The biggest beneficiaries are companies that pay out a large portion of their profits as franked dividends (the big banks, miners, supermarkets etc). When franking credits are deducted from personal taxable income it stops the profits being taxed twice, when they are used to obtain a refund by individuals with no taxable income it stops the company profits being taxed at all* (*not zero but a lot less than the 27.5% that all small businesses are expected to pay).
In his bestselling book, 12 Rules for Life, Dr Jordan Peterson observes that the overwhelming majority of Socialist regimes throughout history have been motivated by an ingrained hatred of the rich, rather than through genuine concern for the poor. When the overwhelming majority of Australians agree with the inherently anti-neoliberal notion that large companies should be paying more tax, perhaps it is not so much the less fortunate they are worried about, but instead are motivated by a distaste for the rich. Given an opportunity that required self-sacrifice on behalf of a few, in exchange for fixing one of the main tax loopholes benefiting the richest in our society, we chose the status quo. Perhaps Dr Peterson observation is still relevant to the human psyche in today’s world.