Let's get fair dinkum about tax reform. The Tax Office estimates the Commonwealth is being defrauded by as much as $1 billion by tax avoidance on share schemes.
That was noted in a report to Treasury four months ago. In this month's budget the Government moved to close the rorts. The reform was long overdue. Now, just two weeks later, wilting under an assault from the unions, the business lobby and their vassals in the media, it is getting the wobbles.
Three unions have been particularly noisy - the Financial Sector Union, the Australian Workers Union and the union for chief executives, the Business Council of Australia.
The boss of the council, Michael Chaney, argues it is unfair to compel people to pay income tax in advance on shares or options that might turn out to be valueless. "Counterproductive and totally unfair," he called the proposed changes. Insofar as they are counter-productive for chief executives' pay packets, he's right.
Presumably Chaney now proposes to launch a jihad against the entire provisional tax system, requiring as it does every self-employed person to pay tax in advance on estimated income - income they might never receive. Government promises to refund the tax if no value is realised apparently count for nothing.
It is because of widespread tax avoidance that the Government has no option but to compel pre-payment. It seems that the bulk of that tax dodge is coming from Chaney's comrades in the executive suite. For them, the government promise to refund their tax is not enough.
According to the Tax Office, about 8 per cent of 1300 executives who earned more than $1 million a year failed to disclose an average of $180,000 in income from share schemes. That is $18 million defrauded from the taxpayer in one year alone. Why aren't these pillars of the community in jail rather than using their liberty to organise a campaign against the reforms? If the Government named these offenders, suddenly the opposition to the reforms might vanish.
Of course, we shouldn't be concerned about executive welfare fraud, as we've been assured that the failure to report share-based pay as income is just a common mistake.
The systematic fraud on the taxpayer through share schemes is hard to detect among high- and low-income earners alike.
The Tax Office requires people to hold records only for five years. When the share disposals take place after five years, a collective amnesia overcomes taxpayers and they neglect to include their full gain as income on which the top rate of tax (45 per cent) is payable. Instead the Tax Office sees only a share sale on which concessional capital gains tax is payable - at 23.25 per cent.
This amnesia is convenient because it magically turns income into capital gains. Better said, this is a $1 billion tax heist against which the Government should be praised for acting rather than condemned.
What the new Fabians among our chief executives, protesting at the potential demise of the egalitarian share ownership plans, don't want talk about is the value of the continuing tax concessions on executive share ownership. This wonderful ruse allows them legally to pay a maximum of 26 per cent tax. What possible economic or social good derives from this egregious taxpayer subsidy of chief executives' pay?
It's time for the Rudd Government to show a bit of spine and stand up to the shills who are feathering their nests with the retirement incomes of ordinary voters. It beggars belief that it is showing signs of wilting at the hands of fraudsters and rent seekers.
If the Government wants to end the culture of executive entitlement, a simple solution is at hand. Make it impossible for anyone to claim the CGT concession for shares they acquire out of pre-tax income. That way all gains made as a result of selling one's labour would be taxed as income.
In the 1970s and 1980s there was outrage over the contractor, builder or barrister who skived out of tax while pay-as-you-go workers stumped up their fair share every week.
Much of the lobbying noise is emanating from the banking sector - the finance union and at the corporate level. Frankly, the banks are now state-supported enterprises, backed by wholesale funding and deposit guarantees, protected by the short-selling ban and in the best market-share shape in two decades. All this underpins their profits and remuneration.
Now, the outrage is mute although the biggest abuses are clearly at the big end of town. There is no economic argument for undoing the reform proposal and there is certainly no social equity case. Tax breaks on share schemes benefit those in listed companies to the detriment of all other taxpayers. It's time this dream run came to an end.
