With the election looming, the promises of the major parties can only be kept if enough tax is collected to pay for them, including from those big corporations that avoid paying. A new search tool will help to expose them, thanks to Mark Zimsak, Jason Ward, Roman Lanis and Mikhail Shashnov.

What do mega port operator DP World, coal mining giant Peabody, packaging behemoth Amcor, metals and mining wholesaler Citic Resources, and News Corp Australia have in common? For the last ten years, their Australian operations have paid no income tax. Zero, zilch, nada.

With a combined income (revenue) in FY 2023 of $8.997B, those five companies contributed no tax to Australia. The largest of them, Peabody, had $4.7B in revenue and reported $5.2m in taxable income, but still no tax to pay.

Over the past ten years, there have been a total of 98 corporations that have not paid any income tax.

Who pays the tax?

As Australia prepares for our upcoming federal election and its impact on future spending and revenue, it is time to put the question of corporate tax, who pays and who doesn’t, back on the kitchen table.

While some call for corporate tax cuts and slashing the public sector workforce – D.O.G.E. style – most Australians want more and better public services. One clear way to enhance our collective well-being is to ensure that corporations generating the highest returns in Australia, from Australians, are contributing fairly and appropriately and not scamming us all.

In order to help all Australians take a closer look at corporate tax payments, a coalition of researchers has developed a simple tool so anyone can look at who pays and who does not.

This tool, a collaboration by researchers from CICTAR (Centre for International Corporate Tax Accountability & Research), the UTS (University of Technology Sydney) Business School and the Tax Justice Network – Australia, has taken a full decade of Australian Taxation Office (ATO) corporate tax transparency data and combined it into one database with a drop-down menu for selecting a company name to pull up its tax history.

It is now possible for anyone to easily examine the history of revenues and tax payments over the last decade for over 1,000 of the largest corporations operating in Australia. If you need help analysing the data or want more information, reach out to the authors.

Australia collects a higher proportion of tax from corporate income tax than any other OECD country. However, there is plenty of multinational tax dodging that still needs to be tackled in Australia, not to mention globally. The less income tax paid by the largest multinationals, the more must be paid by the rest of us from personal income tax or through GST.

Additionally, if multinationals are not paying taxes on profits genuinely earned from our spending, then Australian companies, generally doing the right thing, are operating at a major competitive disadvantage. This also stifles genuine competition, exacerbates inequality, and increases monopoly power.

Foxtel: transactions you can’t trust, tax evasion you can’t ignore

Financing the lucky country

The majority of us want excellent public services where all people, businesses and communities can thrive. As highlighted by Ken Henry and others at Per Capita’s recent Community Tax Summit, many changes are long overdue to our overall tax and transfer system. However, a clear place to start is to check that the largest corporations pay tax like the rest of us. Transparency is the first step.

If the richest corporations get away with shirking obligations to society, it undermines the credibility of the overall tax system and broader faith in public institutions.

To maintain tax transparency by way of public scrutiny of corporate tax affairs the Infotax database contains data on 1028 companies. These are the companies that appear in all ten years of the ATO corporate tax transparency disclosures, from 2014 till the current release for 2023 (10,280 company/year observations). The following variables can be viewed using the Infotax tool:

• total income;
• taxable income; and 
• tax payable.

This data is directly obtained from ATO disclosures. Additionally, the Infotax tool calculates and presents:

• taxable income margin (taxable income/total income);
• tax revenue rate (tax payable/total income); and
• tax rate (tax payable/taxable income).

For each of the six variables, an average is calculated for each company over the 10 years, and bar graphs are provided for extra visual effect. While the tax rate typically and expectedly comes close to the 30% tax rate, most tax avoidance occurs to reduce the level of taxable income. The taxable income margin represents an estimated profit margin and a consistently low rate can be an indicator of tax avoidance (or a genuinely low margin business).

Of the 1028 companies in the Infotax database, all report total income in each of the ten years (2014-2023), Not all of them report taxable income; resulting in 7,983 taxable income observations out of the possible 10,280. Thus over 20% of taxable income observations over the ten years are likely to be losses. While most of these are likely legitimate losses, some may be artificially created for tax purposes and may be worthy of further investigation.

With respect to tax payable between 713 and 750 companies paid tax over the ten years and in total that comes to 7,303 tax payable observations out of a possible 10,280 for the same period.

Almost 30% of tax payable observations over the ten years represent zero tax paid.

Total income (revenue declared) collected from the 1028 companies increased from $1.342 trillion in 2014 to $1.947 trillion, or 45%.

Taxable income increased from $135.387 billion in 2014 to $295.732 billion in 2023, or 118%.

Finally, tax payable increased from $34.111 billion in 2014 to $75.422 billion in 2023 (121%). Tax collected from the 1028 companies currently included in the Infotax database has more than doubled in 2023 in comparison to 2014. That’s great news for the funding of our public services!

Stay tuned as we expand the list of corporations included in this database and add more data and analyses to inform broader debates related to corporate tax. Specific case studies of companies will be the subject of future articles as an example of how to apply the Infotax tool to study corporate tax behaviour using the ATO’s tax transparency data.

The Verdict: some progress on the looming multinational tax dodging reforms but “enormous” task ahead

This post was originally published on Michael West.

Fees garnered from household expenditure increased by 11% last financial year, mainly from personal loans and credit cards, according to the Reserve Bank. Bank fee gouging is ubiquitous, Andrew Gardiner reports.

Are you noticing more and more fees and charges popping up (or not popping up, as can be the case) on your bank statements? The ones many of us ignore because they’re a ‘pittance’, not worth chasing up?

It turns out they’re worth billions to big banks, with experts worried we’ll grudgingly accept them because they’ve crept up on us incrementally, have become ‘normal’ and – on a transaction-by-transaction basis – are just so damned trifling.

It’s not a bug, it’s a feature, they say: part of a deliberate movement towards ubiquitous micro-payments we barely notice in what’s fast becoming a cashless society. “Banks see revenue streams from fees as the way of the future,” bank victims advocate Geoff Shannon told MWM.

Smarting from the black eye they got on lending practices during the Global Financial Crisis (GFC, 2007-08) from the Banking Royal Commission (BRC), Australia’s banks have slowly ceded ground on their market dominance of finance. Loans, once a near-monopoly for the Big Four, are moving towards an ‘open slather’ situation for second and third-tier lenders like Pepper Money or FirstMac.

While not subject to any new rules and regulations following the BRC, big banks made an effort to ensure there wouldn’t be any changes to the law by self-regulating, abandoning cowboy lending practices and generally making it harder for them to do business. With those ultra-lucrative net interest margins now a diminishing component on their profit and loss reports, banks were desperate for an alternative revenue stream.

They appear to have found one: us.

The cashless society

As we’ve moved inexorably towards a cashless society, we’re seeing banks move to impose fees and charges on seemingly everything imaginable. “If the banks can clip the ticket, they’ll do it,” Shannon told MWM.

COVID, with its mandatory no-contact payments, was a fortuitous moment for the banks, rendering cashless payments a normal and accepted way of life that, for the most part, we haven’t sought to shake. “Many of these fees are hidden away in fine print or hard to discern on bank statements. When a transaction doesn’t involve cash in your hand, it’s that much easier to obfuscate,” Shannon pointed out.

For credit and debit cards, there are also monthly (or annual) fees, additional cardholder fees, cash advance fees, late payment fees, international transaction fees, over limit fees, replacement card fees, minimum balance fees, paper statement fees, online billing fees and my personal favourite, insufficient funds fees.

And let’s not forget the medley of fees Australians pay if they’re still taking out bank loans. It all adds up.

The most recent shift towards fees as a revenue raiser came from credit cards and personal loans.. An 11% per cent increase in credit card fees for 2023-24 mainly came from foreign currency conversion fees, but on a more rapacious note, the 34 per cent growth around personal loans came to a large extent from establishment fees imposed on people who, in a difficult year, may be taking out the loans as a quick fix against soaring inflation and mortgage interest rates.

Perhaps the banks’ most egregious imposition comes in the form of surcharges on small business operators at the point-of-sale. Passed on to consumers, you can simply not notice them because they’re not printed on price tags or, often, not clearly specified in statements.

Say you go to a kebab shop in Brunswick or Newtown, and the sign says $8.50 for Turkish bread. If a surcharge is applicable, you’ll actually have, say, $8.60 debited from your card, and chances are you won’t even notice it, either then or when your statement comes. “That kind of thing happens all the time, and people are often completely in the dark,” forensic accountant Jeff Knapp told MWM.

Surcharges on the falafels might seem insignificant, but here’s the kicker: across the economy, on transactions large and small, they cost us $4B a year. Labor MP Jerome Laxale told Parliament,

we’re each paying hundreds of dollars annually to use our own money.

“Paying for things used to be free, and for those of us who still use cash, it still is,” he said. But cash now accounts for only 13 per cent of transactions.

Cowboy loans

Big banks might be self-regulating these days, but the predatory lending practices that led to the BRC haven’t simply vanished. Instead, they’ve been eagerly embraced by some second and third-tier lenders, unburdened by either conscience or regulations (on business loans in particular) that the BRC was supposed to help spawn.

These days, the cowboys are simply smaller … as are their victims, in many cases. Family-run businesses in need of a ‘quick fix’ of cash in a tough economy are heavily represented among victims.

In a fix with creditors, they sign up for contracts they don’t understand, which lands them in worse debt than before. Shannon, who works with many such victims, says that in some cases, the interest rates and fees charged have been up to 200%.

“I had one client having to pay back $3,000 per day for $265,000 in loans. That’s $450,000 they had to repay, which simply isn’t viable,” he told MWM.

It’s nothing short of loan sharking.

Insolvency is often inevitable when taking out these cowboy loans, with the building and construction sector among the worst affected. In 2024, the Australian construction industry saw a significant increase in insolvencies compared to 2023, with 2832 construction companies undergoing insolvency appointments, a 28% rise from the previous year, according to the AFR ($).

Many of those are small businesses that are not protected under responsible lending laws, which only apply to individual consumers.

Shannon wants the law changed to ensure these smaller businesses and their guarantors fall within tighter consumer law protections. “Until that happens, they will keep getting devoured by these predators,” he said.

But extending the law to cover small businesses poses problems of its own. It could, in turn, mean lenders back away from offering finance to small businesses, just as banks recoiled from some forms of finance after their bruising by the BRC.

Assistant Treasurer Stephen Jones is reluctant to make changes for that very reason: “We don’t want to lock people out of credit”, he told the ABC.

Small business owners remain emotionally on the precipice, meaning Geoff Shannon’s role is as much a counsellor as an advocate. He founded Unhappy Banking, whose website provides a fair summary of his own personal feelings: “We’re mad as hell about banks treating ordinary Australians poorly, often instigating repossession of property to suit their hidden corporate agenda.”

“I’ve literally talked people down” from suicide, he told MWM.

And agendas are what this whole shift in our financial system is all about, Shannon says. He’s keen to disabuse the more naïve among us of the notion this viral spread of fees and surcharges, and banks ceding predatory lending practices to smaller operators, “just happened.”

It’s not happenstance, he says. “After the GFC, it was planned all along.”

CommBank’s Matt Comyn, ASIC face mal-prosecution claims from Unhappy Banking founder Shannon

This post was originally published on Michael West.

Former Lendlease lawyer Tony Watson saved the country $300m as whistleblower to the biggest tax fraud in Australian history. Now he’s lost his house. Michael West reports.

If you have a few bob spare, please tip in for Tony Watson’s legal fund. He is a victim of Australia’s flawed whistleblower laws and is seeking justice.

Apart from the crushing paradox that Watson, the man who has saved the government $300m by exposing the Lendlease tax rort has lost his home for doing Australia a service, for doing the right thing, the Australian Tax Office appears to have done a cosy backroom deal with the property group.

It’s a deal which no ordinary taxpayer could hope to get, and it enshrines the double standard in policing and regulation.

Lendlease, after arguing that it had no case to answer on ‘double dipping’ on tax deductions to the tune of $800m, finally conceded it was being audited last year and the Tax Office has already clawed back a payment of $112m. That’s the first of three tranches.

But here’s the thing. At the time the ATO issued this amended assessment they included primary tax and interest. But no penalties. As Lendlease is a ‘significant global entity’ penalties could have been applied at 150% of the tax avoided. It looks like special treatment, a cosy deal.

We have come to expect regulators shy away from pursuing company directors at the Big End of Town but no penalties? What were they told in 2018 when the deal was struck?

Whistleblower persecutions. The cost of ignoring those who dare speak out.

Lendlease has told the market it has paid $110m and they have $75m to come. That would appear based on the optimistic view that not only won’t they be accosted with penalties but that no interest is due either, even though the first sketchy tax return was seven years ago in 2018.

Even so, as the company is on track to make net profit after tax this year of $100m, these are considerable sums.

The magnitude of a penalty depends on whether the tax rort was “reckless” – in other words they really didn’t think about it much – or “intentional”. And it is hard to prove intent; but given they were warned about their tax chicanery as early as 2013, ignored multiple warnings from their own tax adviser, then argued the toss with the ATO while protesting innocence for six years, it seems more deliberate than reckless.

In any case, it’s not a deal available to ordinary taxpayers. Yet the scale of the scam is immense; the Plutus Payroll fraud was previously said to be the biggest tax con in Australian history, and Lendlease dwarfs that.

Elementary dear Watson

Tony Watson became aware of several tax scams Lendlease was staging in 2013.  He raised it with the relevant senior Lendlease executives, who were best placed to fix it.  They rebuffed him.

He was removed from the Lendlease account in 2014. His health declined and he was dismissed while on sick leave in 2016. He went to the Board in 2017 where they too rebuffed him. Then he told the ATO.

We ran the first story in May 2018.

Lend Lease: double dipping and Dutch tripping

Watson bought his claim for compensation, under the whistleblower laws, in 2022.  A trial is scheduled for June. He is just one man against the big law firms hired by Lendlease and PwC. And he has already run out of money to carry his claim.

Australia ought to collect $200m to $400m from his actions (depending on interest and penalties. And for his actions, he has lost his job, his home and his savings. 

What Lendlease did

Lendlease did two things wrong: it double-claimed over half a billion dollars’ worth of deductions in its retirement living business – the “double-dipping”. Primary tax avoided was $163m, of which ATO has issued an amended assessment for primary tax (excluding interest and penalties) for $88m.

But that was for the first 25% sale. Lendlease claims the subsequent sales of the two 25% tranches will cost it another $50m in primary tax, and a sale of the remaining 25% would be another $25m.  

How did Lendlease double-claim over $540m of deductions. They wrongly treated a revenue profit as a capital gain, so they could utilise otherwise worthless capital losses against it. Primary tax avoided $20m.

For Watson, the tricky legal issues are that, as a whistleblower, you must prove that you made a protected disclosure and secondly must prove that it cost you. Were you a victim? But of these are not easy for him to establish as the company and its lawyers have warned him he won’t get access to records.

How they did it

Year 1:  In simplified terms, Lendlease buys a Retirement Village (RV) for $1000. The RV is comprised of Land & Buildings $200 and Resident Liabilities (lease premiums repayable) $800. It then swapped out of the resident contracts, paying out the lease premiums repayable and receiving loans repayable. No money actually changes hands.

Year 4:  Lendlease sells the RV for $1000, selling the Land & Buildings for $200 and the Resident Liabilities (loans repayable) for $800. No commercial profit, and no other events occur.

Tax Deductions

Lendlease claimed $800 tax deductions when it swapped contracts.

Lendlease Calculation of gain on sale

Benefits Lendlease harvested

Under both scenarios, Lendlease makes no commercial profit or loss, and claims $800 in tax deductions. Under the Lendlease calculation method, the company has claimed tax deductions for the $800 lease premiums repayable, and included the same $800 in the cost base of the RV. Under the Correct calculation method, the $800 is not included in the cost for capital gains tax purposes.  

Lendlease harvested over $500m in tax deductions this way. And kept the same $500m in its tax cost base. This enabled Lendlease to avoid tax on $500m, worth $163m to its bottom line.

Editor’s Note: Counsel interested in taking Tony Watson’s case for a success fee, please touch base.

Lendlease whistleblower v Big End of Town: The West Report

This post was originally published on Michael West.

While Rupert Murdoch’s pundits at News Corporation decry welfare bludgers and ‘Their ABC’, Foxtel gets a free ride on tax. Michael West consults the (actually independent) experts.

Sky News presenters regularly fulminate about Australian taxpayers funding the “Their ABC”, that taxpayer funded hotbed of woke “leftists”. 

“What a hide!” thundered prominent Sky News commentator Prue MacSween at the government’s move last month to reinstate $83m in funding to the ABC which had been cut by the previous Coalition government.

“Middle class welfare!” thundered another who demanded the national broadcaster be sold off (while ignoring the rather obvious truth that privatising the ABC would crush the commercial broadcasters who are already struggling).

When it comes to the ABC, Rupert Murdoch’s desk-pounding pundits are all on the same page – they sing with one shrill voice about Their ABC and its lack of diversity of opinion.

Well here is one for their “News you can trust, opinions you can’t ignore” band of pundits to debate. Their own organisation is publicly funded by income tax evasion.

NXE level tax dodging

There are two things that Rupert Murdoch is renowned for not doing in Australia. One is delivering unbiased news; the other is paying corporate income tax.

In consultation with accounting and tax experts, MWM has peered into the shonky financial world of just one of media properties in this country controlled by the American billionaire. That is Foxtel, which owns Sky News Australia and which Rupert recently sold for $3.4B to British sports network DAZN.

On December 23, 2024, just as Santa Claus was conducting his last minute logistics for Christmas, News Corporation announced the DAZN transaction to sell Foxtel for an enterprise value which equated to more than 7x Foxtel’s earnings (EBITDA). The “T” for tax in this EBITDA calculation is … not really a thing.

The corporate entity which holds Foxtel, NXE Australia Pty Ltd (NXE), has been Foxtel’s head company since a corporate reorganisation during 2018 that folded in all Foxtel-related companies including Foxtel Sports Australia Pty Ltd. The sports rights is where the proverbial gold is in the Foxtel asset suite. Sky News not so much.

The financial statements of NXE for fiscal 2024 disclose a loss after tax of $96.3 million and net cash flow provided by operating activities of $247.7 million. The net cash flow was after interest and other costs of finance paid of $176 million.

Five years, zero tax

Foxtel appears to be good at generating operating cash flow and paying interest but not so good at making profit a taxable profit that is, a profit which is subject to income tax in Australia.

This may seem odd to the audiences of News Corporation in Australia who are subject to daily haranguing as to the ‘taxpayer funded ABC’ and assorted welfare bludging as it is not the income taxes of Sky or other Murdoch properties which fund these apparent legions of welfare bludgers.

According to Corporate Tax Transparency Data published by the Australian Taxation Office (ATO), NXE, or Foxtel, has paid no income tax in any of the five years from 2019 to 2023.

An analysis of the accounts of Foxtel prepared for MWM (which is unlikely to be covered by the learned pundits of Sky News despite their avid sermonising about Australia’s national interest) shows that NXE has generated $14B of total income across this five-year period.

The total tax payable across this period however is $0. The average total income is $2.8B per year for this government mandated monopoly media asset, while the average tax payable is $0 per year. For 2023 the numbers are: total income $2.8 billion and tax payable $0.

My, my.

They have form. They managed to cream off $4.5B a few years ago by creating a soufflé of ‘goodwill’ (which is not cash) which magically transmogrified into cash they siphoned overseas.

Rupert Murdoch’s US empire siphons $4.5b from Australian business virtually tax-free

 

Although unable to find it within themselves to pay tax, they were sufficiently liquid to be able to take on a lot of debt. A key plank of the sale deal to DAZN is the repayment of News Corp’s interest-bearing loans to Foxtel of $578 million.

Interest on loans, including shareholder loans, is a big-ticket item for how Their Foxtel manages to avoid, or evade, income tax. The financial statements of NXE show that Foxtel paid interest of $328.9 million for fiscal 2023 and presumably all that amount was claimed as an income tax deduction.

Foxtel’s claims for interest tax deductions appear to have ratcheted up significantly after the corporate reorganisation of 2018, a transaction by this country’s biggest media operator which regulator ACMA (Australian Communications and Media Authority) was apparently not told about.

Inside Rupert’s Big Aussie Sale: Murdoch smuggles Foxtel – and its government grants – out of the country

“On the face of it, the dominant purpose of the corporate reorganisation of 2018 was to shield Foxtel’s income from tax by increasing Foxtel’s deductions for interest including the interest on loans from News Corp,” said one expert who is familiar with the accounting.

Foxtel has previous form for manipulating interest tax deductions on loans from News Corp. Back in 2015, Foxtel was paying interest at the rate of 12% p.a. to News Corp when debt experts were suggesting that an interest rate approaching 4% p.a. would have been more appropriate.

A multinational’s wet dream

“Foxtel is a multinational’s (News Corp’s) wet dream,” one accounting expert told MWM. “It generates billions in income and cash receipts each year that can be, and have been, routinely funnelled overseas to low tax jurisdictions using interest on loans and other charges.

“Australia is the place where Foxtel is invoicing millions of Australians for subscription television services, but the Australian income tax base receives nothing from this inglorious arm of Rupert Murdoch’s business empire that is responsible for Sky News.”

Indeed, Foxtel seems to enjoy doing things back to front. Instead of engaging in the provision of news and the reporting of facts, Foxtel promotes thought bubbles and opinions. Instead of making an income tax contribution for using Australia as its place of business, Foxtel takes money from ordinary Australians by holding out its needy corporate hands for government grants then failing to be accountable in a disclosure sense for how the public funds are used.

Foxtel can afford to pay more for the likes of sporting rights – to keep national sports locked behind its paywalls –  because it is absolved from paying Australian income tax.

Effectively, its honchos at News Corp require the Australian taxpayer to pick up the tab for various monetary transfers to their friends and associates. Borrowing from the lingo of some presenters on Sky News (but absent the arm waving and unnatural eyeball/eyebrow movements) Foxtel has the corporate mindset of a bludger. It is a corporate welfare freeloader sucking on the public teat.

ATO … where are you?

But what can be done about Foxtel’s income tax chicanery? Surely, it is time for the ATO to take a deep dive into Foxtel’s income tax affairs over the last decade or so, and ASIC its accounting affairs?

This may mean diverting a fraction of the Tax Office’s resources that have been committed to punishing ex-employee Richard Boyle for blowing the whistle on maladministration at the ATO. Yet a reallocation of resources might prove to be worth it.

The Australian tax base would likely receive a significant boost if the ATO investigated, and acted, against Foxtel for income tax evasion.

Page 84 of the Senate Report into Corporate Tax Avoidance, Part 1, August 2015 refers to allegations that Rupert Murdoch’s News Corp is the ATO’s top-tax risk. There is no evidence however that the ATO has acted to immunise Australia against this risk.

On the contrary, the non-payment of income tax by NXE Australia over the period 2019 to 2023 indicates that nothing has been done.

Foxtel has a clear legal advantage over someone like Richard Boyle. Foxtel doesn’t act in the public interest or disclose inconvenient truths that ATO management and Attorney-General Mark Dreyfus might find annoying.

In Australia, snitches get stitches when they embarrass a government department or agency. It is much safer from a legal perspective to be a partner in a big accounting firm monetising the ATO’s confidential information by selling it to multinational clients than being a whistleblower who exposes the ATO’s egregious debt recovery practices against small businesses.

Corporate reorganisation with a dominant tax purpose

Paper shuffling to create new head companies that results in multinationals reducing their payment of income tax to zero, or near zero, should not sit right with the ATO. After all, the ATO does have at its disposal the general anti-avoidance rules and multinational anti-avoidance laws (Part 4A).

News Corp has a propensity to engage in corporate reorganisations that involve the issue of billions of dollars or new shares that, on the face of it, have a dominant tax purpose.

After a 2004 corporate reorganisation with paper shuffling and paying off a few tax advisors, Rupert Murdoch’s US empire siphoned $4.5b from its Australian business virtually tax-free.

In 2018, News Corp went back to its ‘multinational well of corporate reorganisations and new head companies to avoid income tax’ schtick and created NXE Australia to hold its interests in Foxtel-related companies. Rupert’s tax and accounting advisers were back for another round of the share capital creation game using internally generated goodwill.

NXE Australia issued 100 million new shares in exchange for shares in Foxtel related companies and recognised share capital of $3.4B in the process (funny how this was the sale price to DAZN). These new billions of dollars in share capital provided increased capacity for Foxtel to siphon interest on loans overseas while still claiming all the interest as a tax deduction.

Foxtel’s journey to paying no income tax

Paying no income tax was the dominant purpose of the corporate reorganisation of 2018.

The restructure meant that Foxtel’s subscription television business went from paying income tax of $97m on total income of $14.1B across 2014 to 2018 to paying no income tax on total income of $14B across 2019 to 2023, the analysis shows.

Prior to the Foxtel reorganisation in 2018, there were three Foxtel companies included in the corporate tax information published by the ATO: (1) Foxtel Cable Television Pty Limited; (2) Foxtel Holdings Pty Limited; and (3) Foxtel Management Pty Ltd.

The total income and income tax payable of these three companies over the five-year period from 2014 to 2018 is shown below.

Income tax of $97m on total income of $14.1bn is equivalent to 0.7%. But the creed of Rupert Murdoch is why pay any income tax in Australia if you can get away with paying 0%.

There is an awful lot not to like about how Foxtel goes about its financial and tax affairs in Australia. It is almost as if Foxtel is beyond Australian laws and beyond the scrutiny of regulators that are supposed to enforce those laws.

Where is the ATO action on dealing with Foxtel’s dodgy tax deductions for interest?

And what of Foxtel’s financial reports lodged with the Australian Securities and Investments Commission (ASIC)? Check out the statement of cash flows shown here.

This how a billion-dollar multinational company can disclose its cash flows in Australia, that is, not at all. When a multinational enterprise fails to disclose its cash flows the obvious question is what have they got to hide? What are they hiding?

The $3.4B company with no bank account

Foxtel Cable Television generated $1.9B of revenue from sending out invoices to millions of Australian customers during 2018 but claims it didn’t receive cash, or pay cash, for anything because “The company has no bank accounts”.

It provides the services. It sends out the invoices. Yet it doesn’t receive any cash.

Using this Foxtel logic, an employee in Australia should be allowed to inform the Tax Office that they don’t need to pay income tax on their salary and wages because they don’t have a bank account, and they didn’t receive anything.

The ATO would never accept that silly argument from a salary and wage earner, but it seems they may be prepared to accept the paper-shuffling that News Corp uses to avoid paying income taxes in Australia.

No bank accounts is one thing, another is no employees. Yes, here it is, the filing which shows that this $6B company has no employees.

Surely this is one for the Sky expert pundits. You know it makes sense. Andrew Bolt, Paul Murray, Rita Panahi and Sharri Markson could get together with their experts Prue MacSween and Rowan Dean and discuss how having employees, a bank account and paying tax are woke.

This post was originally published on Michael West.

After winning the Gold Walkley for the PwC tax leak scandal, the AFR’s Neil Chenoweth has produced another scorching tax story – one calling into question double standards in the treatment of tax fraud along with exposing the greed and venality of the extremely rich. Michael Pascoe reports.

With timing you couldn’t make up, Mineral Resources (ASX:MIN) has released its 2024 Corporate Governance Statement along with its annual report. If ever such a statement looked like a box-ticking exercise, this was it.

MinRes, as the company is best known, declared, “We’re honest, authentic and no-nonsense” and that the company was “committed to a high level of corporate governance that encourages a culture valuing safe, ethical behaviour, integrity and respect.”

Too bad the CEO established a decade-long tax evasion scheme to enrich himself and four other founding executives, in the process costing the mining company’s shareholders $7m, according to Neil Chenoweth’s report ($).

Billionaire CEO Chris Ellison

The AFR’s Rich List reckons the CEO, Chris Ellison, is worth a couple of billion dollars, keep the change.

He could also appear on any Euphemisms of the Year list by describing the tax evasion as a “serious lapse of judgement”. The version of the story Ellison told Reuters also is a little, er, euphemistic:

“Ellison said that prior to listing Mineral Resources in 2006, he and his business partners operated entities overseas that imported mining equipment into Australia. Some of that revenue was not disclosed to the tax office, he said.”

Well, you could put it that way, particularly if you wanted to skim over all the tacky details in the AFR, the stuff about inflated prices for second-hand equipment bought through a British Virgin Islands company, “children accounts” set up in Hong Kong, the use of credit cards to spend the rich profits that were kept hidden from the ATO, the full nature of the conspiracy to dud the Australian Commonwealth and that the evaders only stuck up their hands to cut a deal with the ATO when they feared they were about to be sprung.

In bad taste? Albanese wining and dining with Zionists and billionaires

ATO mates rates

There are serious questions to be asked about that deal – the ATO’s apparent mates rates for some blatant tax evaders – and about exactly what the MinRes board knew and when about their CEO’s character as displayed by evading his responsibility to pay his fair share of tax the way many millions of other Australians do.

The board’s immediate reaction when the scandal hit the fan in the AFR Weekend was to state that directors had “full confidence in Mr Ellison and his leadership of the MinRes executive team”. The chairman denied that Ellison’s actions were improper. However, by Monday, the board had engaged an external law firm to investigate the matter.

Making life more interesting for the board is Chenoweth’s further report that “in June 2022, the current MinRes board was alerted to Mr Ellison’s and Mr Wade’s involvement in the transfer pricing scheme through an anonymous whistleblower complaint that was forwarded to the new chairman, Mr McClements and to non-executive directors.”

Given the 14% dive in the MinRes share price on Monday, it’s a fair bet some ambulance-chasing class-action lawyers will be wondering if the board had kept the market fully informed.

As for the ATO – oh dear. As Neil Chenoweth’s original story put it:

“Fearing the scheme was about to catch up with him, he (Ellison) asked his lawyers to cut a deal with the ATO. He offered to share his secrets with the ATO, pay back any tax owing plus a multimillion dollar fine to avoid serious penalties.

“The deal he proposed to the ATO contained an important condition: the tax office would never reveal its existence or its investigation to anyone including the Australian Federal Police or the Australian Securities and Investments Commission.”

In a statement on Monday, Ellison said: “All outstanding tax, penalties and interest that should otherwise have been paid by me has been fully repaid, and the matter has been settled with the ATO.”

How neat.

Remembering Project Wickenby

Just by way of comparison, in 2007, Glenn Wheatley pleaded guilty to evading a much lower amount of tax, $318,092, as part of Project Wickenby.

“I’m ashamed of what I have done,” Wheatley told the court. “It was something that I have regretted for a long, long time and I’m ashamed of what I’ve brought on my family, who have had to suffer a lot.”

Wheatley was sentenced to 30 months jail with a minimum of 15 to serve. He spent ten months in jail and the remainder of his sentence in home detention.

Commonwealth prosecutor Richard Maidment SC said: “The fraud that was instigated (by Wheatley) can be described as sustained and sophisticated. Tax fraud is not to be seen as a victimless crime.”

But apparently, it can also merely be a “serious lapse of judgement” all tidied up by a billionaire paying a few million dollars in penalties, nowhere near enough to threaten his Rich List membership.

No victimless crime

What is tax evasion? In my opinion, it is theft from your fellow Australians, stealing money that rightfully belongs to the Commonwealth for the benefit of our commonwealth. It is all the more egregious when carried out by the rich – people who clearly don’t need their ill-gotten gains,

people who can afford all the very expensive tax lawyers and accountants and bankers and offshore paraphernalia that make it possible to dud the mere plebs.

P.S. There is nothing new in this story – it is effectively a report of the AFR reports. But a relatively small number of people are AFR subscribers and this is a story everyone should know about.

It also has long been a whinge of mine that, too often, media outlets are loathe to give credit for a story “not invented here”. The AFR broke the story on Saturday morning. As far as my Googling and scanning could tell, no other news organisation touched it over the weekend, many hadn’t on Monday morning and some still haven’t as I write.

That is a disservice to readers. Very few people subscribe to multiple news services, there’s not much crossover of readers or viewers. This is a story of genuine public interest on a number of levels – the public should be told.

The Big Four accountants and the $480 billion global tax evasion industry

This post was originally published on Michael West.

A new release by the Parliamentary Budget Office has shed further light on which taxpayers benefit most from negative gearing on residential property. Harry Chemay crunches the numbers.

The report runs counter to the popular media narrative that it is ‘mum and dad’ investors who would stand to lose most from any winding back of these tax concessions.

With a reputation for being fiercely independent and non-partisan, the PBO is a department of the Parliament, established in 2012, that provides policy costing analysis to politicians upon request and self-initiates work exploring budgetary information and fiscal analysis.

Following a request by Australian Greens leader Adam Bandt in late September, the PBO has just released its findings into his request for “budget analysis on the revenue forgone in relation to the cost of negative gearing and the capital gains tax discount applied to residential properties.”

Who gets the investment property tax breaks?

The request made by Bandt called for the data to be presented in percentage form, showing the proportion of tax revenue forgone that is associated with each taxable income decile, i.e. for ten bands of taxpayers, each representing one-tenth of taxpayers by increasing taxable income.

The PBO created two tables: one for the estimated annual value of tax revenue forgone due to the capital gains tax (CGT) discount and another for the estimated annual value of tax revenue forgone due to negative gearing deductions (i.e. from investors claiming deductions for expenses associated with holding one or more residential investment properties).

Each table provided a forecast for this financial year (2024-25) and for each subsequent year up to and including 2034-35.

I have taken the PBO data for 2024-25 and 2034-35 and plotted it on the chart below to provide a sense of which taxpayers receive the lion’s share of tax concessions from negative gearing.

The chart shows each taxpayer decile, rising from the lowest 10 per cent of taxable incomes (the 1st decile on the bottom) to the top 10 per cent of taxable incomes at the very top (10th decile).

For each of the two financial years in question (2024-25 and 2034-35), the chart breaks down the benefits received between CGT discount and negative gearing deductions.  The table at the bottom of the chart shows the numerical value of the benefit for each taxpaying band.

Looking first at the ‘average’ taxpayer, the 5th decile shows the middle or median result.

The PBO analysis suggests that in this financial year, just 1 per cent of estimated tax revenue forgone due to the CGT discount and 5 per cent due to negative gearing deductions will be captured by middle-income taxpayers.

This is forecast to increase only slightly over the next decade for CGT, to 2%, but to remain constant for negative gearing deductions.

By contrast, the PBO forecasts that in this financial year, 80 per cent of estimated tax revenue forgone due to the CGT discount will be captured by those in the top 10 per cent of taxpayers, with these individuals also responsible for 43 per cent of the revenue forgone due to negative gearing deductions.

The PBO forecasts that by 2034-35, the nation’s top 10 per cent of taxpayers will account for 73 per cent and 38 per cent of tax revenues forgone for residential property CGT and negative gearing deductions, respectively.

No surprises

None of this PBO analysis should be a surprise to anyone who follows the data.

In creating its forecasts, the PBO used inputs from both the ATO and the Treasury, the latter’s latest ‘Tax Expenditures and Insights Statement’ noting that rental deductions are most commonly claimed by those with higher taxable incomes, with individuals in the top 30 per cent of taxable income accruing 65 per cent of the total benefit.

Residential property investing, and the 50 per cent CGT discount plus negative gearing deductions that power it, is a strategy most often deployed by those higher up the income scales.

It is, to be fair, a perfectly legal way for high-income Australian taxpayers to reduce the amount of taxable income (what is earned less deductions claimed) they face, falling squarely in the tax avoidance bucket (which is legally permissible) and not the tax evasion one (which is not).

And so we should not be surprised that some of the most enthusiastic adherents of residential property investing are among the highest income earners, as a recent piece from the Australian Financial Review uncovered.

The AFR’s article noted that “while supporters of negative gearing have tended to paint the policy as a middle-class tax break,

the Tax Office figures show that high-income earners are disproportionately more likely to claim the tax concession.

The piece went on to note the top 5 occupations that are negatively geared as being surgeons, anaesthetists, internal medicine specialists, psychiatrists and school principals, with average total incomes ranging from $480,298 for surgeons to $147,180 for principals.

While one could conceivably label school principals as notionally part of ‘mum and dad’ middle-income Australia, their average incomes are in reality significantly higher than what ‘middle income’ genuinely means today.

Stage 3 tax cuts and the Battle for Middle Australia. But who is that exactly?

Economists have their say

That changes to negative gearing are being openly discussed, having been repudiated by the electorate at the 2016 and 2019 elections, is a measure of how dysfunctional Australia’s residential property market has become.

The ‘housing hunger games’ are creating pressure right across our society, from younger Australians locked out of home ownership and stuck potentially as ‘forever renters’ to older Australians still carrying large mortgages as retirement approaches.

Which is why some of the nation’s top economists are now saying that doing nothing about housing reform is no longer an option.

In a recent poll conducted by The Economic Society of Australia, of the 49 economists participating, none opted to ‘do nothing, the market will determine appropriate prices’.

Instead, given a choice of 14 measures to alleviate the housing crisis, the top 3 measures supported were:

• Easing planning restrictions (65 per cent support);
• Providing more public housing (61 per cent support); and
• Tightening negative gearing and CGT concessions (37 per cent support)

While the first two are logical and needed, supply-side measures, adjusting negative gearing and CGT concessions on residential investment property would seem to be an equitable demand-side measure.

Just ask the Parliamentary Budget Office.

The Hunger Games of renting. Most liveable cities in the world or dystopian nightmare?

This post was originally published on Michael West.

Do Australia’s live artists, venues and concert-goers benefit from the rising domination of Ticketek and its stealthy Cayman Island corporate privateers? Callum Foote, Josh Barnett and Michael West investigate. 

Few realise that when you buy a concert ticket, the money you pay for your night out meanders through a raft of furtive Australian entities to Singapore and thence California, to be ultimately controlled by unnamed directors in the Cayman Islands. That’s Ticketek. 

Why is this important? Two of the greatest threats posed to Australia’s economic future are industry monopolies squeezing consumers and multinational tax avoiders syphoning profits out of Australia. Ticketek is emblematic of both.

While politicians are publicly scrapping over a few street protestors waving flags and who’s tougher on terror, there is a quiet campaign going on behind the scenes in Parliament by the business lobby and Coalition to junk Labor’s multinational tax avoidance reforms. Already, the proposals have been already severely watered down due to intense lobbying.

Yes, Labor is tougher on corporate tax dodgers … tougher, not tough.

So it is timely to look merely at one corporate case and one industry because the dominance of Ticketek enshrines two of the great challenges to Australia’s future: high industry concentration and foreign corporate tax avoidance.

What is Ticketek?

On the face of it, Ticketek is a ticket distributor, focusing on live music, sport and concerts in both Australia and New Zealand. Much Like Live Nation in the US, Ticketek has a large market dominance when it comes to ticketing in Australia. But that is not all they do.

Peel back the layers of this ‘Australian company’, however, and we find the assorted entities behind Ticketek enjoyed a tripling in income growth on the way out of Covid lockdowns since 2021. They have been on a shopping spree, extending their empire by buying smaller ticketing companies, venues, shows, catering firms, and promoters.

The company which owns Ticketek is called Amplify Bidco. Amplify Bidco raked up $912 million in revenue last year – a staggering leap from $378 million the year before – but even so, they made no taxable profit because the money they took from Australian concert-goers was ploughed back into the entertainment industry to buy more assets.

As you do. The greater the industry domination, the better Ticketek’s control over the market, therefore, prices; and secondly, if you spend your revenues buying other assets, you can make a loss, and if you make a loss, you don’t pay tax.

There is nothing inherently wrong with this; it is normal corporate behaviour. The question for policymakers and industry types is, does this foreign domination benefit local artists, venues … Australians?

The Babushka Doll

The American private equity dudes who control the Ticketek maze surely go to great lengths to make themselves hard to track.

Amplify Bidco is itself buried under eight levels of corporate structure (that we could find) and by the time you get to the top, you’re in the Cayman Islands.

But first, TICKETEK PTY. LTD is owned by TEG PTY Limited, thence by a veritable babushka doll of corporates from LIVE ENTERTAINMENT INVESTMENTS III PTY LTD, to LIVE ENTERTAINMENT INVESTMENTS II PTY LTD, to LIVE ENTERTAINMENT INVESTMENTS I PTY LTD to LIVE ENTERTAINMENT HOLDINGS PTY LTD to AMPLIFY FINCO PTY LTD to AMPLIFY BIDCO PTY LTD.

So far, all of the primary addresses for all these businesses have been Level 3, 175 Liverpool Street, SYDNEY, NSW 2000, but suddenly, we are off to Singapore because the company that owns Amplify Bidco – and therefore the other seven concoctions – is AMPLIFY PLEDGECO PTE. LTD.

And Pledgeco’s address is 9 Raffles Plaza, #26-01 Republic Plaza, Singapore. And because it’s a business in Singapore, it does not have to register with ASIC – but the trail does not run cold here because, luckily, ASIC requires you to list your ultimate holding company (if not the other intermediate companies before you get there).

And the top entity in the Australian deck of companies, Bidco, is ultimately owned by SILVER LAKE (OFFSHORE) AIV GP V, LTD.

Which in summary is an American company which is owned in the Cayman Islands. Who’s steering this ship? The key figures on the ASIC register here are Stephen Evans, Geoffrey Jones, and Michael Widmann – directors based in California.

Cui bono?

Their job? Keeping the wheels turning on this complex operation, making sure that profits flow smoothly, just not into the ATO’s coffers or back to the Australian music industry and its performers, but out to their private equity investors in the US and elsewhere. 

If you expected a company pulling over half a billion dollars to be a significant taxpayer in the Australian economy, you were mistaken. Not so with Amplify Bidco. According to ATO data, this corporate giant has somehow managed to receive more in tax benefits and refunds than it’s paid in taxes.

Over the past few years, their tax bill has been a rounding error compared to their income. In fact, in 2022, they reported a tax refund of $20m. They paid just $2.5m tax in 2023 (despite revenue of $912m).

Checking the financial statements for Amplify Bidco, they raked out nearly half a billion dollars in interest payments to Singapore, made some acquisitions and bulked up their costs in Australia.

Ticketek is not free from controversy. In 2011, they were fined $2.5million by the ACCC ($) for using their monopolistic market share to cut out other competitors. 

More recently, they suffered a data breach, meaning the information of their customers has been compromised. Rival Ticketmaster’s parent company, Live Nation, is currently being sued in the US over anti-competitive behaviour and “suffocating” its competition.

The lawsuit claims Live Nation-Ticketmaster has been strong-arming venues into exclusive contracts, leaving rivals out in the cold and fans with sky-high ticket costs. Despite its near-monopoly, the company has managed to evade regulatory crackdowns while raking in billions.

The ACCC might do well to put Ticketek on its watchlist, too. 

This post was originally published on Michael West.

Opposition leader Peter Dutton is trying to kill off Labor’s multinational tax avoidance reforms, already watered down as they are. Mark Zirnsak with the state of play in the Senate. 

In the wake of the PwC scandal, it might be expected that measures to tackle multinational tax avoidance – and to rein in the tax advisors that facilitate this profit shifting – would sail through the Australian Parliament.

However, the Albanese government is facing strong headwinds in the Senate for its tax reform proposals, with the Peter Dutton-led Coalition putting significant effort into seeing them watered.

As a reminder, the PwC scandal is where a senior PwC tax adviser breached binding confidentiality agreements to share information about proposed tax reforms with his colleagues so they could market tax arrangements to beat the reforms to their corporate clients and potential clients. 

There are two measures before the Senate currently facing strong efforts to water them down:

• Legislation that would require greater public transparency of the tax and financial affairs of multinational corporations; and,
• Reforms to the mandatory Code that covers tax advisers that would require them to report evidence of tax evasion and avoidance to the Australian Taxation Office (ATO).   

On the first measure, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 would implement public country-by-country reporting for large multinational corporations.

Such reporting will increase the ability to detect tax avoidance and profit shifting by exposing if the location of profits matches with where the corporation has its actual business activities. The measure would be world-leading and set a standard for other governments to follow. Public country-by-country reporting by multinational corporations has been a key ask of the global Tax Justice Network movement.

The Verdict: some progress on the looming multinational tax dodging reforms but “enormous” task ahead

It is therefore hardly surprising that multinational corporations have lobbied hard to undermine the measure.

Dutton … weaken the laws by providing corporations with a self-assessment mechanism

The Dutton Opposition has jumped to support of the corporations and has sought to weaken the proposed laws by providing the corporations with a self-assessment mechanism where they can declare any information is “commercially sensitive information”.

PwC and the legal privilege scam

The concealed information would be revealed in five years. Such a clause is highly likely to be abused. For example, at the hearing of the Parliamentary Joint Committee on Corporations and Financial Services on August 2 2024, PwC admitted to falsely claiming Legal Professional Privilege over documents on the tax affairs of their multinational corporate clients to which the ATO was seeking access.

… they can’t be trusted

Legal Professional Privilege (LPP) denies the ATO the ability to access such documents. PwC has claimed LPP on over 44,000 documents and it is not clear on how many of these the LPP had been falsely asserted. The multinational corporations and their tax advisers have demonstrated they cannot be trusted to make self-assessments on blocking the publication of their financial affairs. 

In the Senate balance

At the moment, the Government is holding strong and can count on the Greens and Senators Lidia Thorpe and David Pocock to oppose the Coalition’s efforts to undermine the law. They will need one more Senator if the new law is to be protected from being gutted.

The second matter before the Senate relates to reforms to the mandatory Code of Professional Conduct for tax advisers.

The key battle is that the Code reforms would require that if a tax adviser becomes aware that a client has provided materially false or misleading information about their tax affairs to the ATO, the tax adviser must ask the client to correct the information.

If the client does not correct the information, the tax adviser will need to inform the ATO. Clients who deliberately provide false and misleading information to the ATO are usually involved in tax avoidance or tax evasion.

We have been informed by multiple sources that some tax advisers have been privately lobbying saying it is not the role of a tax adviser to act in the public interest to prevent tax avoidance and tax evasion, with their only loyalty being to their clients.

Understandably, that is not something any of them have been willing to say in public. 

Australian laws allow for inconsistency between businesses that detect signs of possible tax evasion. Businesses that are reporting entities under the Anti-Money Laundering Counter-Terrorism Financing Act 2006 are required to report to AUSTRAC suspicious activity that might indicate money laundering where tax evasion is the underlying predicate offence.

By contrast, registered tax agents have not been required to report to the ATO when they become aware that a client has made a materially false or misleading statement that may indicate a tax evasion predicate offence. The UK Chartered Institute of Taxation has stated that “returns with deliberately incorrect statements or deliberately omitted income” are indicators of possible tax evasion.

The Coalition Opposition moved a motion in the Senate that would have killed off the Code reforms altogether.

The government only just defeated the motion, after it agreed to clarify some aspects of the reforms in the Code changes through further regulation and to water down the obligation to report clients that have provided materially false and misleading information to the ATO.

Treasury is currently consulting on the changes called for by some cross-bench senators.

Until October 9, it will still be possible for the Coalition, with the support of enough of the Senate cross-bench, to kill off the reforms to the Code. Several peak bodies for tax advisers are lobbying hard to either kill off the reforms or ensure they are weakened. 

This post was originally published on Michael West.

Could it happen here? The Coalition claims it’s concerned about Labor stacking the proposed new RBA monetary policy board, but Michael Pascoe doesn’t believe them.

The LNP is pretending to be worried about Labor stacking the proposed new RBA board. (Nah, Dutton just wants to force Labor to deal with the Greens so he can say, “Look! Labor does deals with the Greens!”)

Having watched the LNP establish itself as a jobs-for-the-boys-and-girls stacker on an industrial scale at the Administrative Appeals Tribunal (AAT) and elsewhere, it is frankly hilarious to see Angus Taylor try to keep a straight face when suggesting Labor would be as bad as his own party.

And now, smack into the middle of what passes for debate, falls a prime example of a central bank appointment ‘stackee’.

Trump’s Federal Reserve appointee

If you’re prepared to stack the Supreme Court with useful idiots and worse, it’s no surprise you’ll try to do the same with your central bank board. Here’s Exhibit A – Trump-appointed Federal Reserve governor Michelle Bowman.

Understandably overlooked in the coverage of the Fed cutting US interest rates by 50 points overnight was the nature of the single vote on the board against the move – Michelle Bowman’s.

University of California economic historian Brad DeLong noticed. He has pointed out in some detail that Ms Bowman became the first governor to vote against a Federal Open Market Committee decision since 2005.

And what superior experience and intellect did Ms Bowman bring to her decision? For two decades, from the age of 24, she was on a Republican meal ticket of one sort before a fling as a London-based government and public affairs consultant and getting into banking in 2010 as vice-president of Farmers & Drovers Bank in Council Grove, Kansas.

It somewhat surprises me that Farmers & Drovers ran to having a vice-president, given that Professor DeLong reports it only has 25 employees and assets of US$185 million.

There might still be a credit union in Australia that small, but I doubt it. By way of comparison, the winner of last year’s “best small credit union” award had assets of $1.65 billion.

Never mind, her Farmers & Drovers experience was enough to have Ms Bowman appointed State Bank Commissioner of Kansas in 2017 – yes, Kansas is a Republican state – and Trump appointed her as a Fed Governor the next year.

Even by the Liberal Party’s AAT standards, that looks like a bit of a stretch.

The point of a ‘stackee’

But maybe it wasn’t Ms Bowman’s banking and economic experience that led her to vote against the other 11 members – maybe it was Donald Trump having publicly warned the Fed not to cut interest rates before the election and promising they would be cut after he was elected.

Well, in Trump World, what’s the point of appointing someone if they don’t do what you want? Professor DeLong’s examination of Ms Bowman’s voting record found she was on the dovish end of the Fed when Trump was President and hawkish when Biden took over. No doubt purely coincidental.

Trump’s plans to stack everything that can be stacked in the US – and there’s a lot – should serve as a warning to others. So what chance either party destroying the idea of Reserve Bank independence by stacking the board?

RBA policy board

Under the existing single-board system, any board member’s political bias is muted by the much greater influence of the bank’s ‘econocrats’ on decisions.

Under the dual-boards system proposed by Jim Chalmers’ dubious review, the monetary policy board is supposed to have sufficient monetary and labour force expertise and credibility to challenge the bank staff.

Opposition slaps down concessions on RBA board changes

There is no shortage of self-proclaimed monetary experts jostling to be noticed, but of those wanting the part-time job of being on the new board, there would be very few, if any, with the cred to roll the RBA.

Overwhelmingly, though, any government would be stupid to try to stack the board with second-rate choices based on perceived political leaning. However inconvenient it might be at times, in the long run, the government is better off seeking the best central bank it can get.

There have been dud appointments to the RBA board, but they haven’t mattered beyond taking up valuable space and time.

The new board – if it gets up, if Chalmers does a deal with the Greens to do the sensible thing of retaining the power to overrule the RBA  – will matter a bit more. For a start, it will take up a lot more space and time.

As stated, a government would be stupid to do a Trump – not that we don’t have governments that are stupid from time to time.

The Reserve Bank of Australia really does want Aussies poorer

This post was originally published on Michael West.

As the evidence of a slowing Australian economy mounts, Governor Michele Bullock quietly told journalists the RBA wants Australians to be poorer. Nobody seemed to notice except Michael Pascoe.

The problem with reporting a speech by the Reserve Bank Governor is that everyone tends to run the most obvious angle – “some people will have to sell their houses!” – or the preferred political angle – “RBA v Chalmers fight!” – as no journalist wants to be seen as missing the day’s big headline.

Unfortunately, this means the main news can be missed, and something that is not news and is entirely obvious – that some people have to sell their houses – dominates coverage.

That is what happened last week when Governor Bullock delivered the annual Anika Foundation speech and took questions. She made two important statements that nobody seemed to pick up and a third that only one journalist reported.

For mine, the real headline was that the RBA wants Australians to be poorer; to have a lower standard of living than they currently have. Think about that – average Australian living standards have been going backwards for two years, but the RBA thinks they’re still too high and wants them down.

That is what follows from the Governor’s answer to a question about the preceding day’s pitiful GDP growth numbers – COVID aside, the weakest growth since the early 1990s recession. Hugh Riminton asked why the bank wasn’t softening its interest rate predictions, given that household consumption had come in significantly lower than the RBA forecast.

“In simple terms, Hugh, it’s the difference between growth rates and levels,” Ms Bullock replied.

Get it? To translate into English: Sure growth is miserable, negative on a per capita basis, but the level of consumption is still too high. We want you to have less, to be poorer. Or, in the Governor’s own words:

“It’s true that the growth rate of GDP has slowed. GDP itself was around where we forecast it would be, but the components were a little different. Consumption was a little softer. However, part of monetary policy’s job has been to try and slow the growth of the economy because the level of demand for goods and services in the economy is higher than the ability of the economy to supply those goods and services. 

“So there’s still a gap there. So even though it’s slowing, we still have this gap. Part of that is because the supply side of the economy isn’t performing as well and productivity is part of that. Part of it is that demand was so strong coming out of the pandemic that its level is still above the ability of the economy to supply the goods and services.

“That’s why inflation is still there. So I understand why people would think that as things are slowing, that should be a reason to lower interest rates.

But we need to see the results in inflation before we can do that.

Reserve Bank inflation backflip as Bullock disses Chalmer’s CPI reduction

It’s about demand, not growth

There was that “level” thing again – the bank doesn’t care if growth is slow. It wouldn’t care if it was negative. It wants us to shrink our demand. 

People who aren’t monetary hawks chanting “lift rates!” will see some of the obvious problems with this RBA policy.

Key factors in our “sticky” inflation aren’t or are barely influenced by interest rates – e.g. insurance premiums and health costs – but the RBA tightens policy anyway. (And, yes, policy is still tightening – the RBA says the last rate rise way back in November is still working its way through the system.)

Furthermore, that more restrictive monetary policy is making some key aspects of the alleged demand/supply imbalance worse, most obviously rent and housing costs. While trying to kill demand, the RBA also is wounding supply, keeping inflation “sticky”. 

Ms Bullock’s predecessor, Philip Lowe, addressed that very point two years ago in what might have been his best speech. Life had been easier for central bankers when inflation was all about excess demand.

“Life is more complicated in a world of supply shocks,” Dr Lowe said. 

“An adverse supply shock increases inflation and reduces output and employment. Higher inflation calls for higher interest rates but lower output, and fewer jobs call for lower interest rates. It is likely that we will have to deal with this tension more frequently in the future.”

Translation:

When a supply shock increases inflation too much, lifting interest rates can just make it worse.

A poor ‘solution’

The current RBA management just wants you to be poorer.

Governor Bullock’s other overlooked admission was in answer to a question that was aimed at pushing the “government spending is to blame for inflation” line, which she dismissed by saying:

“Government spending is not actually the main game here. I think as we saw in the National Accounts yesterday, consumption is really weak. We are looking for a recovery in consumption but if that doesn’t occur, then that’s actually going to be a really important piece of information and it’s also going to be really important for the inflation outcomes. I think basically we should be focusing on the breadth of what’s happening in the economy, demand as in total demand and not focusing on individual components and thinking about what that means for the inflationary pressures in the economy.”

See that? While wanting a lower level of demand, the RBA is expecting consumption to increase. The RBA’s hawkish promise of no interest rate cuts this year appears to be based on its guess/bet that the tax cuts were going to bring consumers out spending.

the spendathon isn’t happening

Not only did the RBA woefully overestimate consumption in the June quarter, it shows no understanding of battered consumer psychology now. As the mounting data continues to show, the spendathon isn’t happening. Memo RBA: that’s “a really important piece of information.”

Turns out economists searching for meaning in the entrails of historical graphs are useless at divining “the vibe”. Time to hire some psychologists instead.

The third insight

Bullocks’ Anika Foundation speech presented a third mainly overlooked insight. The Guardian’s Peter Hannam asked a good question about the RBA’s quarterly forecasts being made on the basis of what the money market is betting will happen to interest rates, rather than what the RBA thinks (or actually knows) it will do. Bit silly when you think about it.

Mr Hannam wondered if the bank also ran through its models its own idea of where interest rates would be, rather than the money market’s guess, and what that meant for unemployment.

According to the quarterly statement on monetary policy, the bank’s model computes that if rates are cut this year (the money market’s bet), inflation will stay too high for too long – the trimmed mean measure is 3.1%  for this financial year despite unemployment rising to 4.4%.

If this monetary policy thingy works then, it looks a fair bet that feeding higher rates for longer into the model should predict higher unemployment and lower inflation than what was published.

Ms Bullock answered that the RBA “can do that exercise” but professed no knowledge of what the numbers might be.

It looked to me like she may have wanted to dodge the implications of the question. I would be disappointed with the lack of intellectual curiosity in the bank, as I was when it said it never modelled the inflationary impact of tax cuts if the board wasn’t fiddling with the rangefinder on the only tool it has.

Peter Hannam was the only journalist to record that point and then did it modestly at the end of his column.

So, tying the three overlooked strands together, our central bank wants us to be poorer, fears we poorer consumers will start splashing money around sometime soon, and actually believes the unemployment rate will be higher and inflation will be battered down quicker than it officially forecasts.

That’s all more important than stating the obvious that people sell their houses when they can’t service their mortgage.

Sell your homes, let’s fight inflation! | Scam of the Week

 

This post was originally published on Michael West.

Cockroach-fighting multinational SC Johnson of Raid fame fronted the Senate to decry Labor’s corporate tax reforms but, as Michael West reports, it is likely the laws will pass despite the cries from the Big Business lobbyists. 

Cockroaches and tax lawyers? It was poetic that, at the Senate hearings this week into Labor’s multinational tax reform proposals, one of the business lobby’s advocates against reform was the head of tax for SC Johnson, Tom Howard.

SC Johnson is an American family company which makes the Raid cockroach killer products; Windex sprays and Duck toilet flush liquid sachets too – you know, that blue stuff. And Tom the company treasurer was quick to point out the SC Johnson was merely a small family company, a private company and therefore deserved relief from the proposed new laws.

As is routine for the business lobby, Howard decried the impending legislation proposed by Assistant Minister for Treasury Andrew Leigh because it would hit jobs, prices and investors. It is always these three, the three big moans: if you make us pay more tax it will cost jobs, our prices will go up, and it means “sovereign risk” – good old “sovereign risk”, that is that the flow of foreign capital into Australia would be imperilled by your laws!

Peak lobby group Business Council of Australia invariably runs the same script:  jobs, prices and sovereign risk. As does the Minerals Council of Australia and every other business lobby.

As the American tax counsel whined about the gross injustice being meted out to his “family company”, our contact at the hearing, Jason Ward, also on the call with the Senate’s Economic References Committee, made haste to the ASIC database to check out SC Johnson. It turns out they paid just $1.4m tax anyway, and their “small company” revenue was $76m.

And they had the cheek to rip out $25m last year in a ‘return of capital’. This capital not invested in Australia where they pay a pittance in tax, was just secreted away cockroach-like to another dark destination.

Get the Duck out

But Tom Howard the treasurer had told the story to the senators that Australia represented just 1% of global revenue for SC Johnson. If this is the case then global revenue must be $7.6B; hardly a small company, one of the richest families in America in fact, though technically its Australian entity is classified as a small company as revenues are beneath $100m.

It is no small irony either that one of their best known brands, Raid, sells cockroach sprays and baits, and just like cockroaches tax lawyers love to burrow about in dark spaces for a feed. Similarly tax lawyers love darkness, they shy from the sunlight and transparency because transparency draws attention to their cockroaching activities – chiefly hunting for ways to suck money out of Australian companies into tax havens.

Spraying on the Windex

For instance, as Ward discovered via ASIC searches, the immediate parent company of this Australian outpost of SC Johnson & Son Pty Ltd in Australia is S.C. JOHNSON NL HOLDINGS, B.V. 

Why would this company in Australia not be immediately owned by its American parent group but rather by an obscure mob in the Netherlands at the address Groot Mijdrechstraat 81 3641 Rv Mijdrech?

It also made a $24m loan from Australia to what probably equates as a Post Office box in Groot Mijdrechstraat. Why?

Tax of course. The explanation could hardly be that this “family company” as Tom describes it, was feeling benevolent towards a Dutch associate so simply decided to Ziplock them a $24m loan. SC Johnson in Australia would of course be charging interest on that family loan … as you do because interest is tax deductible so it helps to drag the taxable profits lower in Australia so the Australian government doesn’t get as much money from you in tax.

And SC Johnson has form. They were busted for Mr Muscle grade tax dodging by MWM friend David Cay Johnston in the US.

The global skive

When you think about it, if you can skive out of paying 30c in every dollar you make which is the corporate tax rate, or a good deal of that, you are doing well as the company tax guy … along with, in this instance, the auditing cockroaches from EY Australia.

The $600B or so syphoned into tax havens each year, sucked out by tax lawyers and the Big 4 tax and audit partnerships, makes multinational tax avoidance the biggest racket in the world. Ultimately, there will be little choice but to tax the Big End of Town; it makes no sense slugging a shrinking workforce with PAYG to finance Australia’s future needs – pensions, welfare, defence, infrastructure and so forth.

In any case, we will go into detail on the Labor Leigh reforms in the coming days. They are not done yet. There will be more politics and lobbying before they are due for a vote sometime in August; and they have already been watered down since the election and delayed for a year while Andrew Leigh batted off the business lobby’s artillery of complaints and sob stories.

World first

In fact, if they don’t get watered down further, some of the measures may catapult the Labor government to the forefront of world corporate tax reform. Yes, we will believe it when we see it. However, the Country-by-Country transparency measures are excellent and a vindication of the campaign by Tax Justice Australia.

The others, in quick order, are the proposed 15% minimum global tax rate, proper subsidiary disclosures and measures for professional firms in response to the PWC case. Oh, and tweaks to the PRRT, which is the failed attempt to tax the fabulous profits of fossil fuel exporters.

The minimum global tax proposal is good, not huge in revenue terms but may bring in a couple of hundred million (corporations will have to pay 15% somewhere in the world). 

The ‘tightening’ of the PRRT regime is a complete dud and just goes to further kowtowing to the foreign gas lobby. As Ward notes, it looks like it was written by the gas lobby and even makes tinkering around the edges look robust. We will also cover the ‘PwC’ measures on professional firms later. 

Country by Country

The point of the Country-by-Country (CbC) measures is transparency. It was the transparency measures enacted by the Abbott and Hockey government in 2015 which brought billions into the ATO coffers. Transparency works as it allows civil society group (like us) a window into the operations of multinational tax avoiders.

An example of disclosure which would be accessible under CbC is blood multinational CSL which makes 10 times the profit per employee in Switzerland than it makes in Australia. This is not because the Swiss consume a lot of blood but because CSL funnels money there as the corporate tax rate is lower.

As Jason Ward, who operates the Centre for International Corporate Tax Accountability & Research (CICTAR), if the government does as promised push ahead with CbC reforms next month it will be a world first, benefitting not only tax authorities in this country but elsewhere too. 

“Legislation introduced into the Australian Parliament will require multinationals to publicly report on tax payments and profits in a broad list of tax haven jurisdictions. Stakeholders will be able to determine if genuine business operations align with where profits are booked and taxes are paid, or not. 

“Corporations that have created artificial structures to dodge paying tax in Australia – and elsewhere – will be exposed.” 

Under the proposal, large multinational corporations with an annual Australian turnover of $10 million or more will be required to report tax payments, number of employees and other key financial information on a country-by-country basis for specified jurisdictions that are widely regarded as tax havens.

Says Ward: “Multinationals are encouraged to report financial data for every country with operations, which is essential for full transparency. For now, mandatory public reporting for all jurisdictions remains an unfinished reform. Large multinationals already report similar information on a confidential basis to OECD tax authorities, including the Australian Taxation Office (ATO), but is not available to civil society [groups], investors, academics, other government bodies or most global tax authorities.

“Requiring this information to be made public is a huge increase in tax transparency and public exposure will be a strong incentive for multinationals to stop shifting profits offshore. Without changes to corporate practices, increased transparency will expose the current scale of profit shifting and inform debates on further reforms needed to close loopholes and increase funding for essential public services.”

The problem with PWC and the Big 4 – treason is the business model

This post was originally published on Michael West.

The Sydney hospital privatised to Cayman Islands financial engineers is in strife, lending heft to calls for the hospital to be put back in public hands. Michael West reports.

Selling Australian public hospitals into private hands, especially Cayman Islands’ hands, was never a bright idea. The latest furtive disclosures regarding the privatised Northern Beaches Hospital make that clear. 

As does anecdotal evidence from health professionals associated with the hospital; reports of draconian cost cuts to medical staff and security staff. But following the money, the latest financial statements from NBH Holdco 2 Pty Ltd, which controls the hospital make for hairy reading.

Deloitte, auditor of the group which controls the hospital, has warned of the risk this company may not survive – given its working capital position and a large debt to another company in the maze of Brookfield’s financial engineering empire.

In the big picture, there is a conflict of interest between private operators making profits from hospitals versus delivering good health outcomes for the community. 

This was borne out in a comparison here where the available public disclosures (and transparency is not their strongest suit) show the foreign financial engineering group is charging the public 2.5x more per public hospital bed.

Royal North Shore Hospital charges $1m per public bed ($750m per year for 750 beds) and Northern Beaches $2.5m per bed ($600m for 250 beds). 

Caymans-owned Northern Beaches Hospital performs world-first “Headinthesandectomy”

The recently released NBH Holdco accounts for December record no cashflow in the cashflow statement or any tax position but they do show that, despite the hard times, Brookfield managed to get revenue up from $352m to $357m and snip only a marginally lower ‘management fee’ of $261m ($263m).

The cashflow squeeze is displayed in the net current liabilities of $283m exceeding net current assets of $83m.

The notes appear to show Brookfield’s Healthscope favouring private patients over public patients. Revenue from public patients has fallen in almost every year of the NBH operation (from $190m to $184m for year-end 2023) albeit, in those same years, revenue from private patients has increased from $135 million to $163 million, a 20% increase.   

“Public patient revenue 

The recognition of revenue from the provision of public hospital services occurs over time in accordance with the relevant agreement. Revenue is recognised on the date the services are provided.

If the consideration in a contract includes a variable amount, such as any amount that is currently the subject of negotiation, the Group estimates the amount of consideration to which it will be entitled. The Group does not recognise it as revenue until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved.”  (MWM underlining). 

The underlined text reads seems to indicate NBH applies a downward adjustment factor to the revenue attributed to public patients. The amount of the downward adjustment has not been disclosed. It must be large given that private patient revenue has increased by 20% yet public patient revenue has fallen.     

Meanwhile to the regulator, which has rebuffed efforts for comment by MWM.  The Northern Sydney Local Health District (NSLHD) accounts show an amount of about $600 million is being paid by NSLHD to the NBH.  

Perhaps the discrepancy is because the financial statements attached at pages 13 of the end year 2023 report refers to “revenue from contracts with customers” however NSLHD pays money to NBH Holdco 2 and 1 per the terms of the Project Deed which may not have been classified as ‘payments under contracts with customers’. 

Further:

“Since 18 December 2019, NBH Holdco 2 Pty Ltd and its wholly-owned subsidiaries NBH Holdco 1 Pty Ltd, NBH Car Park Operator Pty Ltd, and NBH Operator Co Pty Ltd have been part of a Deed of Cross Guarantee pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 and are relieved from the requirement to prepare and lodge audited financial reports.”

From the Northern Beaches of Sydney to the Northern Beaches of George Town, Cayman Islands

“Material Uncertainty Related to Going Concern 

We draw attention to the working capital position disclosure in the financial report, which indicates that as at 31 December 2023, the Group’s current liabilities exceeded its current assets by $204.1 million. As stated in the working capital position disclosure, these conditions, along with other matters as set forth in the working capital position disclosure, indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.”

The auditors appeared worried about the financial viability of the NBH.  They have recently announced staffing cuts to mental health care all round and no beds will be established to care for acute youth and adolescent mental health care needs, despite promises to do so. 

There are rising calls for the government to step in and take back control of the public portion of the hospital.

Saving the Deal: cover-up over Northern Beaches Hospital sale to the Caribbean

This post was originally published on Michael West.

“Crackdown on money launderers!” they cried. But are laws promised 17 years ago to stop lawyers, accountants and property developers from laundering money any closer? Michael West reports.

How wonderful it is to see the government has brought back the mighty ‘crackdown’. Like crickets on a summer evening, we hear crackdowns but never see them. That is the charm of the crackdown; it delivers the appearance of decisive government.

So it was that this very week, we hear of the crackdown on money launderers.

“A crackdown on money laundering means real estate agents, lawyers and accountants will need to report suspicious transactions,” declared the ABC.

“Australian crackdown to stop dirty money buying real estate,” trumpeted the AFR. 

Reforms long, long overdue

The crackdown is not before time – because billions of dollars in black money from China and elsewhere have been driving up real estate prices for 17 years since the government first promised it would deliver Tranche II of its AML-CTF (Anti-Money Laundering and Counter-Terrorism Financing) reforms.

These are the laws proposed to compel lawyers, accountants and property developers to identify the source of their funds – just like banks and casinos have had to do since Tranche I of the AML-CTF regime was enacted in 2006.

Inequality: how dithering over money-laundering reforms is fuelling Australia’s house affordability crisis

For 13 years, this humble reporter has been ringing whichever minister is in charge of money-laundering reform – they juggle it about between portfolios –  to inquire as to when lawyers, accountants, and property developers might possibly be forced to comply with AML II, as is the case in most civilised countries around the world.

It now resides in the portfolio of Attorney-General Mark Dreyfus. And this week, in the Budget leak du jour, Dreyfus announced: “Boosting Australia’s anti-money laundering and counter-terrorism financing regime”.

Hooray! Except that, when you read down a bit, it was just more of the same: more consultation with stakeholders, just more talk. 

Just more talkies?

“The Albanese Government recently commenced the next stage of consultation on reforms to Australia’s AML/CTF regime, demonstrating our commitment to combat criminal abuse of our financial system after nearly a decade of inaction by the former government,” said the announcement.

And while the media lapped it up, the money laundering lobby did not see it quite the same way.

The Law Council of Australia, long-term champions of money-laundering, welcomed the AG’s ‘consultation paper’ (not crackdown) and the loopholes to which the government appears to have already conceded in its two years of talks, sorry, engagement with key stakeholders.

Its press release was headlined, “Further consultation on Australia’s AML/CTF regime welcome.” Nice of them to be so pleased.

“We commend the Government for continuing to consult on potential reforms to simplify and modernise the AML/CTF regime, and we look forward to contributing further to that process,” Law Council of Australia President-elect Ms Juliana Warner said.

Indeed we at MWM commend the commendations of the Law Council of Australia and are pleased that they are pleased. And we look forward to contributing further to the process of hammering them and the other money laundering lobbyists.

“The Law Council is heartened to see that its advocacy for a risk-based response has resulted in some important clarifications by the Attorney-General’s Department in the consultation paper. These include some exemptions that are sensible and proportionate, and the Law Council welcomes these clarifications.”

So what have we here with this ‘crackdown’? We have no legislation, just a proposal to consult further with the money laundering lobby, which has already apparently locked in loopholes.

“Legal professional privilege!” cried the Law Council, which is lawyers’ jargon for keeping client stuff secret, no matter the money laundering.

But we also have some money changing hands. “The Australia Government will invest $166.4 million in this month’s Budget to implement reforms to Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime,” says the A-G’s press release. This suggests that they must finally be fair dinkum about doing something to fall in line with the rest of the world.

They couldn’t possibly be just forking out $166.4m for nothing … could they?

Action on money-laundering, property price relief, or plus ça change?

This post was originally published on Michael West.

Bank victims advocate Geoff Shannon is preparing lawsuits against Commonwealth Bank and ASIC for what he claims is a ‘stitch-up’. Michael West reports.

On October 11, 2018, Commonwealth Bank chief executive Matthew Comyn faced a hostile Parliamentary inquiry into the bank’s poor treatment of its customers.

Flanked by his long-term General Counsel, David Cohen, the two top executives of Australia’s biggest bank were grilled over the treatment of a customer Natasha Keys by the now Minister for Home Affairs Clare O’Neill.

“I’ll just raise a final matter which is that of Tasha Keys … not sure if any of you have had any interaction with Ms Keys but she is a single mum who has lost her farm and, of all the cases that I have heard, this is one where i think probably the worst of the abuse of the law has been instigated …”

Comyn did not proffer a response. David Cohen did, however: “I don’t know the precise facts of that matter,” Cohen told the assembled MPs.

It was a curious response from the bank’s top lawyer, given that four months earlier, Natasha Keys had met with Matt Comyn to talk about a settlement in her case against the bank. Indeed, she gave this precise evidence as the star witness for ASIC in its failed court action against bank advocate Geoff Shannon last year:

“I first met with Matt Comyn at … the Royal Commission … and then I met with Matt Comyn and his couple of offsiders … in Sydney not long before that, June 2018.

It is even more curious that the bank executives would disavow any knowledge of the facts of the Keys matter given that Keys had been working for Geoff Shannon in Shannon’s Unhappy Banking franchise for years until 2015, and Shannon had been a thorn in the side of CBA for the prior ten years, being a vocal public critic of the bank, fighting them in the courts, and winning settlements for CBA customers who had run into trouble with their loans.

An extraordinarily curious response, one might surmise, given that Shannon had also lodged complaints with the NSW Law Society about David Cohen, as well as filing a complaint to the Banking Royal Commission in July that year critical of Cohen’s dealings with class action lawyers in the Storm Financial Group collapse. The Storm settlement was also Matt Comyn’s baby at the time.

In fact, Geoff Shannon had also lodged a complaint with the NSW Office of the Legal Services Commissioner about David Cohen in 2015. The two men, Shannon and Cohen, had been long-time acrimonious banking adversaries, with the CBA managing to have Shannon bankrupted in 2013.

The bankruptcy of the former motorbike rider and property developer had laid the seeds for the disastrous action by regulator ASIC against Shannon last year. ASIC, armed with the testimony of none other than Shannon’s former work colleague Keys, had tried to put Shannon behind bars for acting as a company director while bankrupt.

Shannon won the case emphatically, with the judge finding Keys to be an “unreliable” witness and “not a witness of credit”. 

Nice work if you can get it

But here is the thing. Comyn had not only agreed to wipe out her loan with the bank after years of suing her, but he also agreed to pay her $310,000 and even wipe out her credit card debt. The final settlement was struck just a few weeks after the Parliamentary committee hearing (although discussions appear to have been going on since May or June).

Then, at some point in the next couple of years, it appears Keys agreed to be ASIC’s witness in the case against Shannon, providing the regulators with 16000 emails sourced from the time she had worked with him.

Now Shannon is gearing up to sue ASIC for wrongful prosecution and the CBA for collusion and damage to his reputation. 

On March 27, Shannon won his cost order claim against the ASIC. What is interesting he says, is the findings regarding his trustee in bankruptcy Nicole Greentree.

“Ms Greentree, who had the day-to-day carriage of the administration of my bankruptcy, had not been contacted by ASIC’s Investigator Nathan Miller (for the case), nor was there any attempt to take a statement from or interview her. 

“Her evidence may well have impacted upon the proceeding being commenced or continuing.”

As for the 16,000 documents provided by Keys to ASIC, “it would seem clear the investigator did not thoroughly consider the material that was provided to him before commencing proceedings. 

“If he had, he may well have been alive to the issues surrounding Ms Keys credit and reliability. Ms Keys was ASIC’s principal prosecution witness who was found to be unreliable and not a witness of credit.”

“Mr Shannon did not bring suspicion upon himself,” the judge found. “Mr Shannon participated in an electronically recorded interview before being charged and offered a version, including Ms Greentree’s details. As I previously indicated, this was not investigated.

“Having considered these factors, I am of the view that it is proper to make a costs order.” 

“Hi Babe” Case: ASIC witnesses mauled in court, Commbank embarrassed, evidence ends abruptly

Ructions at the regulator

It can now be revealed that just three weeks out from the commencement of the ASIC trial on October 7, 2022, the outgoing CEO of ASIC Mr Warren Day requested ASIC Investigator Mr Joe Zubcic to call Mr Shannon directly and not through his lawyers. 

“ASIC was pleading with me not to defend the prosecution – which was to commence on October 2022.” 

So where to from here for Shannon?

In September 2023, well before Shannon’s not guilty verdict was handed down in Queensland, Shannon reached out to the National Anti Corruption Commission (NACC) and made an official complaint against ASIC and various officers, including outgoing CEO of ASIC Mr Warren Day, based on evidence obtained under cross-examination of Natasha Keys.

The complaint is being investigated, he says. Mr Day has since left ASIC, and Shannon’s lawyers are investigating claims of malicious prosecution against the regulator, as well as a claim against the CBA and Natasha Keys.

“I’m also assisting others who have been wrongly prosecuted including Clive Palmer, who is being pursued over two transactions – Palmer had also obtained expert legal advice in respect of the two transactions ASIC have charged him with”. 

Shannon’s legal team have confirmed proceedings will be filed soon, including possible charges against Matt Comyn. 

“We have been waiting on the recent findings in the costs decision against ASIC to enable his legal team to finalise the claim against Commbank, Matt Comyn and no doubt Natasha Keys. 

Questions were put to Matt Comyn for this story and any response will be appended if the bank chooses to respond. In the testimony before the Committee David Cohen did say he would be happy to come back to the Committee with responses. The Minister Claire O’Neill (then in Opposition) had questioned what the bank was doing spending almost $1m fighting Ms Key’s claim for a loan which was originally sized at just $200,000. O’Neill has also been approached for comment.

The Shannon imbroglio adds to ASIC’s woes, including adverse findings from the inquiry brought by Senator Bragg and revelations that another ASIC commissioner had had significant contact with a hedge fund manager.

This post was originally published on Michael West.

The Australian public has bought a big-long gas pipeline from foreign tax cheats – but there’s no gas. It’s a white elephant! Jemena and sleepy regulators AEMC are the culprits. Energy consumers and taxpayers the victims. Michael West reports.

Energy bosses cover for tax cheat, public gets elephantine bill

The can’t say they weren’t warned this would be a shocker. They were warned by energy analyst Bruce Robertson and environment lawyer David Barnden more than five years ago. And so it is that the public has paid for a billion dollar gas pipeline which has no gas running through it. They built it anyway.

Our story begins in the foyer of an office block in Sydney’s CBD in 2019 when yours truly – a journalist – was blocked from attending a public meeting of a regulator, the mob which sets the rules for the energy market, the AEMC (Australian Energy Market Commission). The proposed Northern Gas Pipeline was to open up three Northern Territory & Queensland basins for gas fracking.

John Pierce, then chairman of the befuddled AEMC, gave the excuse that yours truly had not filled out a pre-registration form to attend the meeting; a meeting incidentally which had plenty of empty seats.

1. Just got blocked from entering public hearing by this guy, Richard Owen of AEMC. Pipeline will open up three NT & Qld basins for fracking #auspol pic.twitter.com/612wkzy2kK

— 💧Michael West (@MichaelWestBiz) May 7, 2019

Fast forward five years and the 622km pipeline between Tennant Creek and Mount Isa has been built, but the Northern Gas Pipeline ceased to operate in September 2022 due to lack of gas volume.

The NGP again stopped transporting gas in early February and two week ago the pipeline operator Jemena informed NGP customers it expected gas flows would not resume until at least June.

The irony is that the NT is the beneficiary of the pipeline but southerners are paying for it as the NT is subsidised by the Federal Government. A further irony is that the Tax Office has since pinged the operator, Chinese and Singapore owned Jemena, for tax evasion.

This at a time when the Albanese government is under fire from Liberal Party media outlets for subsidising the renewable energy transition, the Future Made in Australia policy.

Tax Office passes Go, collects $50m cash, saves a further $170m

The AEMC had been well warned. Bruce Robertson wrote a report on Jemena’s Northern Gas Pipeline in May 2016.

The Northern Gas Pipeline report warned:

“In 2015 Jemena’s shareholders restructured their investment in the company. They converted their Trust loans into $3.2 billion of shares and an $800m convertible note (see note 22b of the 2015 Jemena accounts). The $800m of convertible instruments is classified in the accounts as debt. It is arguable whether these securities have debt or equity characteristics.

“A common way of tax avoidance is for a parent company to charge high non-commercial interest rates on debt. This has the effect of reducing the profit before tax of a corporation and transferring that wealth to the parent company or intermediaries that may be located in lower tax jurisdictions. Jemena’s convertible notes are a debt instrument according to their accounts. The rate charged on these notes is not commercial. At 10.25% it is far above a commercial borrowing rate for a company such as Jemena. APA Group (APA), a similar company operating pipelines, paid an interest rate of 4.97% in 2015. In our opinion this is a method of transferring wealth generated by Jemena to the parent governments (those of Singapore and China) and reduce Australian Income tax costs.”

Environment lawyer David Barnden picked up on the report and wrote a letter pointing out Jemena’s sketchy tax ploy to the Tax Office. Things move slowly in the land of the regulator but the Tax Office did move. They settled an action against Jemena on March 8 this year.

The settlement had three key aspects

1. A $50.8m payment to the Australian Tax Office “for past years”.
2. Jemena has been forced to change its financial structure to eliminate the convertible notes that caused the tax evasion in the first place.
3. But there is no fine, no penalty at all for the $800m convertible note tax rort. 

“It’s great to see the Australian Taxation Office finally collecting some tax off these government-owned corporations,” Robertson told MWM. Corporations owned by other governments, not our government that is! Not only has the ATO collected $50.8m in back taxes but it has neutralised the instrument that would have cost it a further $170m out to 2050 based on the size of the settlement. Jemena’s auditor is KPMG.

Another privatisation fail

Failure of regulators and, in this case the AEMC in particular, has put Australia in a pickle, says Robertson

“Jemena runs vital gas transmission pipelines – services which used to be provided by our government. We have now privatised these monopoly assets (albeit in this case privatised them to a foreign government corporation. The use of the term privatisation is pretty loose as Jemena is really a foreign government corporation.”

Jemena is wholly owned by the State Grid Corporation of China and SP Group. Essentially Jemena is owned by the governments of China and Singapore.

“Clearly some pretty politically sensitive negotiations occurred over this tax liability given our current delicate relations with one of our largest trading partners, says Robertson. “The sensitivity explains the low settlement figures and the lack of a fine.

“If Australia has got itself in a pickle over gas the NT is next level with its support for an industry that has cost NT and federal taxpayers dearly. This long tradition seems unlikely to abate anytime soon with the Federal and NT governments’ multi billion dollar support for a petrochemicals and gas complex at Middle Arm in the NT and continued support for the failing Beetaloo shale gas projects.”  

Beetaloo fracking projects he says are likely to be swept away by the imminent global LNG glut, falling demand and a rash of very low priced LNG entering the market from the USA and Qatar.

The original reason for the report that pointed out the taxation liability was not Jemena’s tax shenanigans. That was merely a by-product of the analysis. What the report was about was the lack of financial viability of the NT government sponsored Northern Gas Pipeline owned by Jemena.

It proved prescient – and its title Pipedreams has seen the Northern Gas pipeline turn into a nightmare for the NT government. The NT government needed a pipeline built between Tennant Creek and Mt Isa to connect the NT with the Eastern States to sell its excess gas. 

Gas deal: “a massive transfer of wealth from gas customers to China and Singapore”

The NT government, far from just providing services to the people of the NT, is also in the gas business.  

David Barnden’s submission to the AEMC explained how the government entered the gas trading business and how it has gone.

“In 2006, the NT entered a take or pay contract with ENI’s offshore Blacktip gas project. From 2009, the NT was required to pay for 23 PJ of gas per year. That amount is about the demand required to produce electricity for the Darwin and Katherine region. However, under the contract, the volume NT must pay for, regardless of whether it us it, ramps up to 37 PJ/a. The problem is that there is no demand for the excess gas. The contract runs for 25 years to 2034.” 

The over-contracting comes as no surprise. Even back in 2006, the NT Utility Commission’s December review stated:

Contract quantities available from Blacktip will be in excess of projected requirements under the Commission’s high growth scenario through to 2015-16 and beyond.

By 2018, the NT took 65TJ per day from ENI’s Blacktip field leaving 36TJ a day unused. Having paid for this extra 36TJ a day of gas for every single day to 2034, but having no prospects of using it, the NT government contracted Jemena to build a new $800 million pipeline to funnel the gas to somewhere it could be used. 

The extra Blacktip gas is shipped to Darwin. It then flows through the Amadeus Gas Pipeline to a junction at Tennant Creek where the new NGP joins and along the 622 kilometre link to Mt Isa. Gas can be used by industry at Mt Isa, or backhauled to Sydney or Melbourne through an existing pipeline network at minimal cost. 

“NT is the foundation customer for the NGP. Jemena has a contract with the NT government to ship 31TJ of the over-contracted gas each day to Mt Isa. That contract runs for 10 years. The gas is ultimately sold by the NT to Incitec Pivot at a reduced price.”

AEMC fail

The David Barnden submission to the AEMC also fell on deaf ears. In a number of respects the AEMC seems to have not fulfilled its duties. The submission has aged very well whereas the AEMC’s decision to wave the Northern Gas Pipeline through the regulatory hoops looks poor. 

“So, from the get-go the Northern Gas pipeline was a stuff-up to cover up another NT government stuff up,” says Robertson.

The trouble is Jemena has built the pipe and the NT government no longer has the gas to put down it. ENI’s Blacktip field that supplied the NT government under a “take or pay” contact has had major production issues since 2022

The result was the $800m gold plated Northern Gas Pipeline ceased to operate in September 2022 due to lack of volumes.

And the production problems at Blacktip don’t seem to have been resolved. “In 2022, the NGP supply issues forced the NPG to shut for three months, then in 2023 the pipeline transported no gas for a further three months over two separate periods. The NGP again stopped transporting gas in early February and last week pipeline operator Jemena informed NGP customers it expected gas flows would not resume until at least June.”

“The NT government has massive obligations to be the foundation customer for the $800m Northern Gas pipeline paying the governments of Singapore and China tariffs that are at nose-bleed levels to transport gas it doesn’t have to supply a contract with Incitec Pivot that it cannot fulfil.”

A little sting in the tail for taxpayers and energy customers in the southern states is that Southerners are paying for it. The NT government is not self-funding.

“The NT’s and Federal governments gas obsession has cost all of us dearly. We are compounding the problem with massive commitments to the failing Beetaloo basin and the NT’s latest folly the multibillion dollar Middle Arm gas and petrochemicals complex in Darwin.

Surprise! CSIRO gas funded research lowballs emissions from Darwin’s Middle Arm petro-port and Beetaloo fracking

Editor’s Note: they can always lop the top off this pipeline and make it the world’s longer skateboard half-pipe

This post was originally published on Michael West.

Private schools are competing in an ‘arms race’ of vanity projects, even winning architecture prizes, so how can tax breaks on building funds be justified when public schools are struggling? Analysis of the taxing issue of private school funding by The Australia Institute’s Alexia Adhikari and Morgan Harrington.

Private schools are competing to see who can boast the most luxurious accoutrements, and the tax-deductions they can claim on constructing buildings are helping them do it. The Scots College is awaiting construction of its new library, which will resemble a Scottish Baronial castle. At one point they had a hypoxic chamber for altitude simulation sports training.

Newington College has its own rifle range, and Knox Grammar boasts an adjustable orchestra pit. Many of Sydney’s elite private schools have camps that sit on prime acreage outside the city. None of these things are needed for students to complete the required national curriculum, yet the public helps pay for much of what they build. 

In 2024, the Commonwealth Government will spend an estimated $29.1 billion on schools in Australia. More than half of this – $17.8 billion – will go to private schools, including those with Olympic sized indoor swimming pools (Cranbrook and Knox Grammar as well as many others), in-house baristas (Knox Grammar again), and those with an already extensive list of sporting fields and amenities, including on-site physiotherapy facilities (here’s looking at you, The Kings School and Trinity Grammar).

With some private schools in Sydney charging more than $50,000 per student this year, how can this be justified? 

In addition to direct government funding, private schools take donations to their building funds, which are tax deductible. For some schools, these funds accumulate millions of dollars. At the risk of repetition – collectively, private schools get more Commonwealth funding than public schools. Could this help explain why enrolments in private schools are rising faster than enrolments in public schools? Is it surprising that parents want to take advantage of the tax-payer subsidised opportunity these facilities provide? 

Public schools? Demountables for you!

In comparison, Australia’s public schools have to put up with facilities that aren’t good enough. Narrabeen Sports High School has had leaking roofs. Ashfield Public doesn’t have enough air conditioners. A 2022 NSW Government inquiry found that Castle Hill High School has asbestos, Concord High School has poor toilet facilities, and Oran Park Public School has so many demountables that locals liken it to a detention centre.

Oran Park isn’t alone – in 2023, there were more than 5,000 demountables across NSW’s public schools. All of this is compounded by delays for capital works projects at public schools – Lane Cove Public school has been waiting for its hall to be rebuilt after it burnt down four years ago. This is happening as the wealthiest private schools fund multi-million-dollar facilities that are of such high quality they are winning architecture awards. 

There are questions not only about how private schools spend the money in their tax-deductible building funds, but about how ‘voluntary’ the donations made to these funds are in the first place. Many schools include a ‘recommended’ donation on their fee invoices and fee schedules. These ‘suggested’ amounts can add up to more than $2,000 per year. Here’s a rough estimate of the building fund donations given to just 11 private schools in Sydney that have tuition fees of over $40,000. They amount to about $3.85 million in forgone tax revenue each year.  

According to the Productivity Commission, there are about 5,000 school building funds across Australia, which makes them the second most common category of deductible gift-recipient endorsement (although, as the Commission notes, some public schools do have these funds). In its 2023 draft report on charitable giving, the Commission concluded that current arrangements for school building funds are an ineffective use of government support and should only be allowed if there is an explicit equity objective.

So what kind of building does meet an equity objective? Polling conducted by the Australia Institute sheds some light on what the general public think schools should be allowed to build with tax deductible funds – and its libraries, classrooms, or science labs. Most Australians do not think spending on extra-curricular frills like rowing boat-sheds and swimming pools should be tax deductible. 

Australia’s education system is unbalanced. It disproportionately favours those who are already advantaged. It gives public money and tax concessions to private schools that end up going to private beneficiaries. Already wealthy schools do not need a leg-up from the taxpayer. It’s fine for private schools to have building funds and ask for donations, but public money could be better spent on public schools. Removing the tax subsidies given to building funds would help support equity in school funding, instead of undermining it.

Cranbrook and the private school “arms race”. How far is elite school funding out of whack?

The Australia Institute’s submission to the NSW inquiry into the Education Act can be found here.

This post was originally published on Michael West.

Private schools are competing in an ‘arms race’ of vanity projects, even winning architecture prizes, so how can tax breaks on building funds be justified when public schools are struggling? Analysis of the taxing issue of private school funding by The Australia Institute’s Alexia Adhikari and Morgan Harrington.

Private schools are competing to see who can boast the most luxurious accoutrements, and the tax-deductions they can claim on constructing buildings are helping them do it. The Scots College is awaiting construction of its new library, which will resemble a Scottish Baronial castle. At one point they had a hypoxic chamber for altitude simulation sports training.

Newington College has its own rifle range, and Knox Grammar boasts an adjustable orchestra pit. Many of Sydney’s elite private schools have camps that sit on prime acreage outside the city. None of these things are needed for students to complete the required national curriculum, yet the public helps pay for much of what they build. 

In 2024, the Commonwealth Government will spend an estimated $29.1 billion on schools in Australia. More than half of this – $17.8 billion – will go to private schools, including those with Olympic sized indoor swimming pools (Cranbrook and Knox Grammar as well as many others), in-house baristas (Knox Grammar again), and those with an already extensive list of sporting fields and amenities, including on-site physiotherapy facilities (here’s looking at you, The Kings School and Trinity Grammar).

With some private schools in Sydney charging more than $50,000 per student this year, how can this be justified? 

In addition to direct government funding, private schools take donations to their building funds, which are tax deductible. For some schools, these funds accumulate millions of dollars. At the risk of repetition – collectively, private schools get more Commonwealth funding than public schools. Could this help explain why enrolments in private schools are rising faster than enrolments in public schools? Is it surprising that parents want to take advantage of the tax-payer subsidised opportunity these facilities provide? 

Public schools? Demountables for you!

In comparison, Australia’s public schools have to put up with facilities that aren’t good enough. Narrabeen Sports High School has had leaking roofs. Ashfield Public doesn’t have enough air conditioners. A 2022 NSW Government inquiry found that Castle Hill High School has asbestos, Concord High School has poor toilet facilities, and Oran Park Public School has so many demountables that locals liken it to a detention centre.

Oran Park isn’t alone – in 2023, there were more than 5,000 demountables across NSW’s public schools. All of this is compounded by delays for capital works projects at public schools – Lane Cove Public school has been waiting for its hall to be rebuilt after it burnt down four years ago. This is happening as the wealthiest private schools fund multi-million-dollar facilities that are of such high quality they are winning architecture awards. 

There are questions not only about how private schools spend the money in their tax-deductible building funds, but about how ‘voluntary’ the donations made to these funds are in the first place. Many schools include a ‘recommended’ donation on their fee invoices and fee schedules. These ‘suggested’ amounts can add up to more than $2,000 per year. Here’s a rough estimate of the building fund donations given to just 11 private schools in Sydney that have tuition fees of over $40,000. They amount to about $3.85 million in forgone tax revenue each year.  

According to the Productivity Commission, there are about 5,000 school building funds across Australia, which makes them the second most common category of deductible gift-recipient endorsement (although, as the Commission notes, some public schools do have these funds). In its 2023 draft report on charitable giving, the Commission concluded that current arrangements for school building funds are an ineffective use of government support and should only be allowed if there is an explicit equity objective.

So what kind of building does meet an equity objective? Polling conducted by the Australia Institute sheds some light on what the general public think schools should be allowed to build with tax deductible funds – and its libraries, classrooms, or science labs. Most Australians do not think spending on extra-curricular frills like rowing boat-sheds and swimming pools should be tax deductible. 

Australia’s education system is unbalanced. It disproportionately favours those who are already advantaged. It gives public money and tax concessions to private schools that end up going to private beneficiaries. Already wealthy schools do not need a leg-up from the taxpayer. It’s fine for private schools to have building funds and ask for donations, but public money could be better spent on public schools. Removing the tax subsidies given to building funds would help support equity in school funding, instead of undermining it.

Cranbrook and the private school “arms race”. How far is elite school funding out of whack?

The Australia Institute’s submission to the NSW inquiry into the Education Act can be found here.

This post was originally published on Michael West.

The Budget will soon disclose the booming transfer of more wealth via negative gearing to the already wealthy. Harry Chemay reports on negative gearing and the political reality of politicians mollycoddling investors and leaving renters in the cold.

Australia’s residential housing supply stood at 10,852,208 private dwellings during the 2021 Census, of which 30.6%, or some 3.3 million, were rented.

The vast majority of residential rental properties in Australia are owned by private landlords, those rented via state or housing authorities having halved since 1999 to around 3%. These landlords now hold residential property wealth valued at over $2.5 trillion.

According to Tax Office data, some 2,245,000 individuals had an interest in a rental property during the 2020-21 income year.

Rental-related deductions are now the second-largest item of tax revenue forgone.

Collectively, Treasury estimates that these individuals will punch a $27 billion dollar hole in this year’s Budget. So who exactly are these property investors?

Far from the myth of ‘mum and dad investors’ perpetuated in the wider media, residential property investing is a game disproportionately played by those higher up the income scales. Treasury analysis below shows that more than a third of benefits go to about 500,000 landlords who happen to be amongst the top 10% of income earners.

Or, in Treasury’s own words:

Rental deductions are most commonly claimed by those with higher taxable incomes, with individuals in the top 30 per cent of taxable income accruing 65 per cent of the total benefit.

But why would presumably intelligent taxpayers be so enthusiastic about an investment that likely makes a cashflow loss each year, dipping into their own pockets for the difference between the rent collected and the expenses (loan interest, council rates, agent fees, property taxes and maintenance) incurred?

Surely it can’t just be for negative gearing’s ability to deduct rental income losses against other assessable income, can it?

Rental Crisis – The West Report

Residential property – a ‘sure bet’ investment?

Somewhat ironically, the Australian Stock Exchange (ASX), that bastion of Australian capitalism, has inadvertently provided the key insight.

In a series of ‘Long-Term Investing Reports,’ the ASX (together with global asset firm Russell Investments) calculated the 10 and 20-year returns for some of the most popular investing strategies, including cash, Australian shares, managed funds, and, yes, residential investment property.

The endeavour was, presumably, to highlight the superiority of Australian shares (its own ‘product’) as a creator of long-term investment wealth.

Rather than functioning as a content marketing campaign for shares, the reports backfired spectacularly by consistently pointing to the same outcome: the final report (to the best of the author’s knowledge) somewhat exasperatedly concluded,

The top line results from the 2018 Russell Investments/ASX Long-term Investing report are: Australian residential property outperformed all asset classes for the 10 and 20 years to 31 December 2017.

The below chart, taken from the 2018 report, shows how much better: residential investment property first, daylight second.

And that’s before accounting for taxes. When they are, property investment extended its historic advantage for high-income earners over Aussie shares, despite our dividend imputation system.

For a top marginal taxpayer, property’s pre-tax return of 10.2% per year for the 20 years to 2017 reduced to 7.6% per year after tax, markedly higher than the net 6.7% per year achieved by the same taxpayer holding Australian shares.

Residential property also generated returns 3% per year higher over the period than Australian listed property trusts, which generally invest in commercial property such as office buildings, shopping centres and industrial warehouses.

Same asset (land and a building on it that can be leased), yet vastly superior investment returns for residential property investing.

Residential property bending the rules of investing

On any rudimentary understanding of investing risk and return, these outcomes should not occur so consistently over such extended time periods.

Shares are far riskier than residential housing, and in a well-functioning capital market, this should result in higher long-term returns on share market investing.

For example, in the depths of the global financial crisis downturn, the report found that as Australian shares crashed 40.4% during 2008, residential property declined a gentle 3.7% by comparison. Only during three other years did property investments deliver a return less than 6%.

In residential property, Australia has clearly found a way to break with established investing norms.

We’ve managed to create an investment strategy where the returns bear little relationship with, and are nonsensically above, the risks borne in attaining them, particularly after tax.

In one sense that’s a stunning feat of political and taxation engineering, somewhat unique amongst developed economies, where the long-term appreciation in the value of housing has been found to be entirely attributed to the rental yield, with real capital gains close to zero.

In another, it means that renters engage in the housing market with a proverbial peashooter, up against property investors carrying the financial equivalent of a bazooka.

Australia’s renters versus rent seekers

Australia’s renters (and prospective first homebuyers) now find themselves trapped in a game they can’t remotely win unless one of two things happens: either real income growth must accelerate while house prices stay constant, in real terms, for an extended (multi-year) period of time, or housing prices would have to fall to rebalance the historical multiple of prices to income. Neither is likely to eventuate any time soon.

With the wage price index rate for 2023 at 4.2%, the highest annual wage growth since 2008, wage growth is an unlikely route out of the housing Hunger Games. Falling house prices would upset the nation’s property owners and investors. In the numbers game that is politics, neither side wishes to see this scenario occur.

Very simply, absent decent and sustained long-term wage growth, the only way to make the majority of the population feel like they’re progressing in life now is with ever-escalating property prices.

This ‘wealth effect’ is not a particularly sophisticated way to manage an economy, but it is remarkably efficient.

Former Prime Minister John Howard’s political antennae were well calibrated when he noted that no voter had ever approached him to complain about the value of their property rising too much.

The flip side, however, is that no government now wants to see house prices fall on their watch.

Wealth effect ‘Catch-22’

The wealth effect working in reverse would damage consumer confidence and, if severe enough without offsetting changes (interest rate cuts), might induce a recession.

That would be a fast way for an incumbent government to find themselves on the opposition benches.

So here we are, in 2024, in Australian housing’s Hunger Games. Fabulous for the 7-odd million households who own the roof over their heads, particularly where mortgage-free.

And fantastical for those investors who also own the roof over someone else’s head; thanks in large part to the twin boosters of negative gearing and the post-1999 capital gains tax rules.

For those wanting to rent by choice or forced to rent while the dream of home ownership becomes ever more distant? Not so much.

The Hunger Games of renting. Most liveable cities in the world or dystopian nightmare?

Editors note: This article is the second in a series on the housing crisis.

This post was originally published on Michael West.

PwC and the Big 4 have been in full defence mode before the Senate’s inquiry into consultants, and for good reason. They are protecting the global tax avoidance trade which earns them billions. Adam Lucas and James Guthrie report.

The scandalous behaviour and lack of accountability of the Big Four accountancy firms – Deloitte, KPMG, PwC and EY – remains a regular feature of the news cycle as the Senate Inquiry into consultants draws to a close. While government consulting has been the fast-growth business for the Big 4, their bread and butter remains the other two divisions: audit and tax (avoidance) advice.

So it is that, despite the demands of the Senate for release of the Linklaters report into the PwC scandal in Australia – PwC Global had commissioned the report – the firm has refused to provide it.

As David Cay Johnston, US journalist and tax expert told his subscribers this week, “PwC is doing everything possible to make sure that big US and UK names – of partners and client companies – won’t hit the headlines outside of Australia.

An email cache uncovered by AFR showed that PwC had quickly put together an international swat team, “Project North America”, to market the intel to multinationals interested in avoiding new Australian taxes … PwC Australia had charged $2.5 million in fees in 2016 to advise 14 clients how to sidestep new multinational tax avoidance laws based on the intelligence shared by tax partner [Peter] Collins”.

PwC executives accused of ‘thumbing nose at parliament’

 

Time for reform

Together with several critical accounting colleagues from Macquarie University, Sydney University, the University of Wollongong, and the Open University (UK), we have been making a series of parliamentary submissions, as well as writing popular and journal articles documenting these issues and recommending to the government a series of substantive reforms to the way auditing, accounting and consultancies are performed and operate in Australia.

MWM has been instrumental in drawing attention to the many questionable, unethical and even illegal practices in which the Big Four have allegedly been involved over many years. With this in mind, we have been invited by MWM to draw readers’ attention to some of this work in the hope that it might provide some more impetus for reform.

Ziggy plays for time: PwC’s dual ‘independent reports’ a dual whitewash

The audit oligopoly

A major reason for shining a light on the activities of the Big Four is that they audit 98 per cent of global corporations with a turnover of US$1 billion or more. They audit all the FTSE 100 Index firms in the UK, and ALL THE Fortune 500 companies in the US.

They also audit 97 per cent of Australia’s ASX 300 companies. Many of these companies are known to be involved in profit shifting, transfer pricing and the use of complex corporate structures involving tax havens. In July 2023, the Tax Justice Network reported that

US$480 billion a year is lost to global tax abuse.

Of that sum, US$311 billion is the result of cross-border corporate tax abuse by transnational corporations, while US$169 billion is the result of offshore tax abuse by wealthy individuals. 

Although the Big Four have repeatedly been accused of engaging in conflicts of interest while assuring the public and regulators that there is ‘nothing to see here’, the empirical evidence suggests that there is, to the contrary, plenty to see here.

World’s biggest scam – billionaires, multinationals tax dodging – can’t be fixed by talkfests

Audit quality and consultancy capture

Despite their dominance of global audit processes, the Big Four have repeatedly failed to identify fraudulent accounting practices in significant firms that have subsequently collapsed, including WorldCom, Thomas Cook, Lehmann Brothers, Carillion, BHS, IMDB and WireCard, to name just a few.

The evidence we have compiled in the parliamentary submissions and popular and journal articles we have hyperlinked below demonstrates how global consultancy firms – and most prominently, the Big Four, have captured regulatory agencies, government service providers, senior bureaucrats and members of ruling political parties.

This has enabled them to shape the legal, regulatory, and policy processes to favour themselves and their corporate clients to the detriment of the public interest in every nation in which they operate.

We wholeheartedly support calls by Michael West, Jeff Knapp and other contributors to MWM that appropriate regulation of audit, tax advisory and consultancy firms is essential to shift the balance from profit-making to protecting the public interest.

Our analysis supports previous calls by tax experts and industry insiders to break up these firms and force a structural separation between their strategic advisory, taxation and auditing functions. We have also argued there are substantial grounds for abolishing the opaque structures of limited liability partnerships (LLPs), which effectively enable these partnerships to internalise the extent of their accountability for wrongdoing.

Multinational tax integrity and tax avoidance by the fossil fuel industry: Part 2

Multinational Tax Integrity and Tax Transparency Consultation

Consulting Services submission to Senate

NSW Government’s use and management of consulting services

Ethics and Professional Accountability: Structural Challenges in the Audit, Assurance and Consultancy Industry

ASIC Investigation submission to Senate

The tax dodging elite – how they do it | The West Report

This post was originally published on Michael West.

Prime Minister Anthony Albanese announced last week that the previous government’s stage 3 tax cuts need to be revised to give greater cost-of-living relief to middle-income earners.

This post was originally published on Michael West.

Fossil fuel giants and other foreign multinationals are again the biggest tax dodgers in Australia. Callum Foote and Michael West unveil the un-prestigious Michael West Media Top 40 Tax Dodgers awards.

This post was originally published on Michael West.

The government has to make a vital decision soon: help struggling Australians, or keep its election promise on Stage 3 tax cuts and help wealthier Australians

This post was originally published on Michael West.

Talkfests can’t fix global tax evasion by multinationals and billionaires for one simple reason: the US will never agree to a plan where their billionaires and multinationals pay more tax in other countries like Australia. Callum Foote and Michael West report on the futility of G20 and OECD efforts to address the world’s biggest scam.

This post was originally published on Michael West.

Airbnb rort: despite the housing crisis, despite the rentals crisis, holiday house landlords claim year-round tax breaks on short-term rentals often vacant

This post was originally published on Michael West.

The Labor government and the Greens have finally agreed to pass the Housing Australia Future Fund (HAFF) bill. But how much will go to housing, and how much to fund managers?

The double standard is glaring, further illuminated by the findings of the Robodebt Royal Commission. While the AFP dithered for years in investigating the blue-chippers from PwC for selling state secrets to foreign corporations, it was as quick as a rat up a drainpipe when it came to sending out letters to Centrelink clients threatening them with prison sentences unless they paid their Robodebts. Michael West reports.

This post was originally published on Michael West.

PwC advised Lendlease on the billion-dollar tax scam which is now subject to Australian Tax Office audit. As Lendlease whistleblower Tony Watson fights the giant in court over his dismissal, documents obtained by MWM show how Watson warned a PwC tax partner and group finance chief Tarun Gupta the tax scheme was a rort. Michael West reports.

This post was originally published on Michael West.

At the heart of the nation’s housing crisis is a tax rort that sees thousands of liveable homes left unoccupied, Tim Evans reports

This post was originally published on Michael West.

A global analysis of Canadian financial engineering juggernaut Brookfield, which is close to wrapping its $20bn takeover of Australia’s Origin Energy, reveals a uber-complex global structure and aggressive tax avoidance strategies, reports Callum Foote.

This post was originally published on Michael West.

Buy Now Pay Later was once hailed as the ultimate in consumer credit innovation. The reality is massive losses for the providers as cost-of-living pressures escalate and the most vulnerable consumers suffer most. Welfare groups are demanding regulation,

This post was originally published on Michael West.