The Australian Taxation Reform Group Inc. (ATRG)

The Australian Taxation Reform Group Inc.

A non party political, non profit, community based organization.

Relevant news

October 2008

SUBMISSION TO TAXATION REVIEW 2008

On behalf of: The Australian Taxation Reform Group Inc.

Contact: E. Mathews 03 5678 3380.

1. The Australian Taxation Reform Group submits that the current taxation system suffers from five major faults which limit any possibility of substantial improvement in either collection efficiency or taxation justice.

2. The faults are: (i) Crippling complexity
(ii) High collection costs
(iii) Inefficient collection methods
(iv) International uncompetitiveness
(v) Distorts local economy.

3. In addition the taxation system is responsible for more company failures and liquidations, approximately 2000 businesses per year, more than any other single cause of liquidation.

4. The only solution is a radical revision to the taxation system to deal with the above.

5. The ATRG submits that in order to break the established pattern the taxation system for the 21st century needs to eliminate the compulsory maintenance of taxation records, eliminate tax returns and automate the collection of tax thereby eliminating the entire taxation recovery and enforcement procedure currently used as a political weapon when needed.

6. The political downside for the adoption of such a 21st century system is the removal of the capacity of governments to use taxation as a tool of social engineering.

Built on Illusion

7. The current taxation system is built on the illusion that it is “progressive” and therefore inherently fairer to low income earners. Reality is widely accepted. The low paid must accept all of the tax burden imposed on them whilst the rich can legally subvert the system and pay a much smaller percentage of their income in tax than the official tax scales set out. In the most extreme cases some of the richest persons in Australia have paid little or no tax. Only ideologues maintain the fiction that the current system is “progressive”, a term which today has no meaning.

8. At a practical level to help overcome the real effects of the tax system on low income earners the government is obliged to make massive social service payouts in many categories.

9. The observed result is that a large percentage of families end up in a tax neutral position by collecting the equivalent in social service payments to the amount they pay in taxation. Unfortunately this system is self defeating since it also adds the costs of collection and of administering the social service payouts to the original tax neutral equation. The government, i.e. the rest of the taxpayers, bears a substantial cost.

10. Any new system must address all these issues… anything else is simply fiddling around the edges of the problem.

11. So a new system must reduce the tax burden on business by reducing the costs of taxation compliance as well as the taxes themselves, redistribute the tax burden so that it falls fairly on all shoulders; increase the government’s capacity to spend on matters of social necessity such as schools, hospitals and other vital services; remove the spectre of jobs being wiped out by the imposition of tax law; and at the same time create a constant cash flow to government avoiding the necessity of borrowing to meet government outgoings between taxation payment periods.

12. As ridiculous as it may seem there is a taxation system which accomplishes all this and more…. an automated electronic debit tax system imposing a small tax at the point of withdrawal of funds from the financial system and the abolition of all other taxes. This deceptively simple system has been given many names since its creation in Roman times, when the taxation was a retained percentage of grain withdrawn from granaries, but the widespread use of modern computers makes the debit system practical and workable for any modern society. It is a fundamental transaction tax but at a very low percentage designed to make virtually any form of avoidance more costly than paying the tax.

The Heart of the Method.

13. Extensive research in the United States, Europe and Australia has identified the continuing shift to electronic payment of accounts and transfer of funds by both businesses and individuals. Fewer and fewer people are risking the carriage of large amounts of cash and the increased scrutiny of cash transactions by anti –terrorism security authorities is reducing the numbers even further.

14. Because these figures are available on a daily basis as a standard part of financial institution book keeping the amount of tax due and payable each day is known and collected. The information time lags built into the current system which are a significant cause of the problems governments and the financial industries are now facing are all eliminated.

15. Most importantly this switch in transaction methods allow a ready means of identifying the taxable transactions. In the system suggested it is ALL transactions, there being no provision for immune transactions which can then be manipulated.

16. This does of course eliminate the tax free status of various religious and charity bodies but a transparent system of refunds from government can deal with any undesirable outcomes and guarantee that public support is not being perverted or diverted by the taxation system itself.

17. The rate of taxation suggested by the ATRG and by academic economists in the U.S. is a total of 1%. Some economists suggest that equity demands the tax be split equally between the buyer and seller in any transaction, i.e. ½% on each participant, but that relies upon the transaction being fully electronic. At the current time 1% on the withdrawal of funds by any means also imposes the tax on cash transactions except with second and further transactions using the same amount of cash, however some strict regulation of cash insurances policies to ensure premiums are more than 1% would make cash transactions unattractive for all but the most desperate who are not likely to be paying tax in most cases.

18. The greatest gain for government lies in the fact that computations based on the above research into the volume and number of transactions indicates government revenue would double at the same time as the burden on individuals and businesses would decrease.

19. No, the ATRG does not believe in ‘magic puddings”, but it does recognise that the current cost to business of compliance with the current taxation system is 2-3% of turnover plus the actual taxes paid. The saving to business of the automated electronic payment system is 1-2% of turnover plus elimination of all the other taxes paid; from payroll tax to fuel tax, to stamp duty, to registration fees on all types .The activities of every government department could be simplified and streamlined to the national benefit.

Restructure of Business

20. A recent reply by the Assistant Treasurer to a query by an ATRG member attempted to dismiss the above system as being to easily manipulable by business restructure.

21. Only ignorance of the current tax laws and the large number of legal provisions that have been introduced to deal with the transfer of funds, profits and losses between companies and their subsidiaries could hide the recognition that companies have restructured themselves on a global basis to adapt to the current system.

22. The business community would certainly restructure to fit with the new provision and to make a number of transfers internal rather than external but this would make the real level of activity in any given company much more visible to the stock-market and other interested authorities.

23. However a considerable number of international companies operating in competitive environments would find relocation of their headquarters and registration to Australia advantageous with a resulting benefit to the capital markets in this country.

24. In short the benefits would extend far beyond the usual domestic considerations of the governments ability to adequately provide for pensions, medical and education systems, rebuilding and extension of infrastructure, without government borrowing and extended debt.. Just the fact of a daily cash flow to the government of all taxes collected that day would eliminate some of the political crises of the past and prevent the over-extension of business borrowing to pay large amounts of tax.

Summary

Only the advent of modern high-speed and reliable computer power coupled with internet communication could make the application of a transaction based taxation system possible. But anything less will be seen by history to be cowardice or at best the refusal to simply regard taxation collection as the goal while seeking other means for exercising the governments desire for economic, social, and political change. We recommend the electronic automated debit tax to the review.

November 2007

The following letter is in response to one received from a couple in rural Australia, who received an ATRG brochure regarding debit tax. They asked some really valid questions based on information in the brochure. This is the ATRG response:

THANK you for your letter of October 17, 2007. We are pleased you were given an ATRG brochure/pamphlet and note your comment “that a debit tax would certainly be a fairer tax for the Australian people”.

There is no doubt that a one percent debit tax that replaces all other Federal, State and local government taxes (rates) would be a financial burden lifted and a life saver to the vast majority of Australian people, including the small to large business operators.

Under the current disastrous and biased tax system, the multi-national companies mostly legally avoid paying tax here by way of the 1953 Double Taxation Act, which was passed by the Federal Government to enable multi-national companies to pay tax wherever registered outside Australia. It was done ostensibly so they could set up an arm of business in Australia to create employment opportunities for our people.

In return they were given the tax incentives not to be taxed twice, here and overseas.
That gives those companies an enormous financial advantage over Australian owned businesses in Australia. Under the Debit Tax system of taxation, foreign owned companies would pay their Australian share of tax here. In fact it would be the cheapest place in the world for them to pay tax. That is where the 1953 Double Taxation Act could be turned to Australia’s advantage instead of disadvantage. Australia would legitimately become a tax haven with Australian businesses competiting on an equal tax footing.

In your letter you ask “what is needed to upgrade our constitution”. You also state “the constitution since its inception has never been obeyed by any government”. Firstly, the constitution is not “ours”, never has been. The vast majority of Australian citizens had no input nor were given the chance to vote for or against the draft constitution. There was a vote for Federation (right to vote based on property ownership) but not for the Constituion. This did not matter anyway, because the British Parliament had the final say on what the colonial constitution could and did eventually contain. The draft was taken to England by Australia’s representatives, who argued for its approval by the British Parliament.

When the English looked at the draft they said in essence, hang on a minute, this constitution in this form, does not allow for continued British control of the colony. The Brits proceeded to alter and rewrite the draft. Some 20 alterations were made to allow Britain to retain control over the colony. Australia was only permitted limited self government. The British Parliament retained control for example, through the Monarch of the day, appointing Governors General with power to reject legislation, or make appointments etc. that the British Parliament did not agree with. Many people do not realise the power the British Parliament wields through the monarchy. The parliament could dismiss or wind up the monarchy tomorrow if it so wished. This shows the real power over Australia comes from the Parliament via its figurehead, the Monarch.

For example, any appointment of an Australian Governor General firstly has to have approval of the Privy Council (consisting of Government Ministers meeting regularly with the Monarch). They then advise the Monarch to make the appointment in accordance with tradition. By this means the British Parliament retained control over Australia. This was acceptable to most people because we were a colony with the majority of people having an allegiance to the Mother Country. It does not alter the fact that the so-called Australian Constitution was imposed on the population through an Act of the British Parliament.

Many of the problems and frustrations Australians face today arise from the fact that Australia is now an independent nation and recognised as such around the world for at least 80 years but still governed under a British colonial constitution not designed for an independent nation. It is a document that allows power to come from the top down (dictatorship) from party run parliaments, bureaucrats and the courts, which behave as if they think they can do as they like. All of the above urgently needs to be rectified by the people.

The only time the Australian public was given a vote on the colonial Australian constitution was in 1999. In the referendum on the republic, the government of the day tried to correct the situation by inserting a preamble including the words “we the people commit to this constitution”. However, ‘we the people’ obviously smelt a rat because the vote was “no we don’t” by 60.36 per cent to “Yes” at 39.64 per cent - a decisive vote against the colonial constitution.You also state “governments don’t obey the constitution”. As to governments not obeying the constitution, they do not have to because the constitution does not have any authority from the people. This did not matter so much when Britain controlled us as a colony because we had some human rights protection through Magna Carta, the Bill of Rights, Common Law, appeals to the Privy Council etc. This protection has disappeared thanks to government and High Court decisions over the years.

What is needed to upgrade the constitution? The first thing and most important action is to give the public the opportunity to have input to its framing. It needs to state that all rights belong to the people and the only rights politicians have are those the people are prepared to allow. Politicians must also be completely accountable to the public for their actions and votes on our behalf.
An upgraded and modernised constitution should also include a Bill of Rights. At present we have no judicial or bureaucratic protection. In fact Sir Garfield Barrack once stated that Australia would be impossible to govern under a Bill of Rights. John Howard has said that Australia does not need a Bill of Rights. Both in fact were saying that with a Bill of Rights, government and the courts would not get away with trampling over people as they do currently.

A Citizen Initiated Referenda (CIR) would also be a strong tool to restore management of Australia by the people. It is impossible to hold a referendum without government approval, which means we are powerless to stop unjust, undemocratic legislation being forced on us.The current system of taxation is used to punish some people and reward others. This has to change. The only fair and equitable system that is easy to administer is the debit tax. This must be enshrined in the constitution at the one per cent rate. This rate could only be changed in the event of a national emergency through a referendum. Any rate change should also include a sunset clause so that the rate would return to one percent on the date of expiry. You also mention the GST, which is unconstitutional but the courts refuse to hear cases arguing this point. An ATRG member was one of eight people named on an application to test the validity of the GST in the Federal Court some years ago. The judge listened to the argument for about three hours one afternoon.

Seven days later he found while he could not find a flaw in the argument, he would not hear the case “because it had no chance of success.” So much for democracy!
To summarise, to upgrade and modernise the 107 year old constitution, we believe the new document should include:
the introduction of a one per cent debit tax, to replace ALL other taxes;
power put back into the hands of the people (rather than politicians, bureaucrats and big business);
a Bill of Rights to safeguard against government, bureaucratic and judicial abuse; and a complete overhaul of the judicial system.
On the latter point, we are told that some 400 constitutional cases have sought hearings in the High Court. More than half were refused consideration while the other half failed to receive a respectful outcome. A lawyer often says to us that Justice is what you get when your money runs out. Thankfully he is one of the good guys, supporting genuine people in trouble.

The Australian Taxation Reform Group is a non party political, non profit, community based group, with members from around Australia, fighting for a fair taxation system and a democratic system of government. All office bearers are elected annually and work on a voluntary basis. No one holds a paid position on behalf of the group. We are neither for or against a republic or the monarchy. We just want a situation where Australian people decide what they want for the future of the country for themselves and their children to come. (Under the current system we are told what we are going to get - and that’s a dictatorship.)

Should you have any further queries please contact us at debitax@yahoo.com.au

April 2006

This week's tax reform document revealed by Treasurer Peter Costello is remarkable, not for what it contains but for what it omits.

As expected, the two businessmen who compiled the report concentrated on the business effects of taxes, the higher company tax rates in Australia, the higher top personal tax rates in Australia, the use of bracket creep by the government to ensure that people pay more and more of their income in taxes, and in passing noted that transaction taxes in Australia were smaller than elsewhere.

The key omission was the fact that Australia's top tax rate applies not to rich people but to anyone earning more than 10% above national average income. For example the top personal tax rate in the United States of 27% (i.e. 20.5% below Australia's) cuts in at an income of $US530,000 i.e. SA736,100). Australia's top tax rate cuts in at $A62,000, less than one tenth of the equivalent US income. The clear message is that the current government is not interested in tax reform, just making enough changes to confuse the situation while soaring petrol prices destroy household spending patterns.

To help shift public thinking about the critical issues the Australian Tax Reform Group Inc. present the "Debit Tax", a thoroughly researched radical tax plan with the capacity to revitalise Australian society and public income whilst removing the thousands of rorts which the current system has spawned.