08/04/21

AUSTRALIA: Greens’ proposed wealth tax could spur ‘significant’ tax avoidance, according to PBO.

As published on accountantsdaily.com.au, Thursday 8 April, 2021.

Policy costings by the Parliamentary Budget Office (PBO) show the ATO would need to employ an additional 200 full-time staff, at a cost of $40 million to set up and a further $35 million each year to administer the new tax, which the Greens believe will rake in $40 billion over the next 10 years.

The 6 per cent wealth tax is proposed to be applied to individuals with net wealth above $1 billion, with all assets, both financial and non-financial, over the value of $50,000 to be included in taxable wealth.

Greens leader Adam Bandt said in March that the new taxes would help fund public schools, provide free dental care — by folding dental into Medicare — and raise the JobSeeker rate to $80 a day.

“In balance of power, the Greens will make billionaires and big corporations pay their fair share of tax to help put dental into Medicare, get rid of public school fees and give a decent job to everyone who wants one on planet-saving, nation-building projects,” he said.

However, the PBO prefaced the proposal’s costing with a “very high degree of uncertainty”, pointing to the likelihood of high-wealth individuals who would avoid or work to minimise their tax liability, which would “significantly reduce the revenue raised by the tax”.

“High-wealth individuals affected by the proposal may respond in various ways to minimise their tax payable,” the PBO said.

“In the first year of the proposal, it was assumed that 50 per cent of the tax would be lost due to tax avoidance or evasion. This proportion was assumed to increase to 80 per cent after five years as individuals take further steps to minimise their tax.

“This is a high-level adjustment informed by academic studies which suggest that high degrees of tax avoidance are undertaken by the ultra-wealthy.

“For example, a paper published by the Wealth Tax Commission in the United Kingdom estimated that the imposition of a 1 per cent wealth tax could reduce the tax base by 7 to 17 per cent. Since this proposal sets a tax rate for wealth at 6 per cent, we have assumed a very significant behavioural response.”

The PBO noted that wealthy individuals could seek out a number of options to escape the new tax, including exploiting valuation challenges in complex structures such as trusts and partnerships, moving overseas for tax purposes, hiding assets in offshore accounts, not disclosing and underreporting assets, restructuring assets, “gifting” assets to non-immediate family members, or “gaming” the date for which net wealth would be calculated by adjusting their asset holdings around that time.

The costing also took issue with the fact that the tax would only value a person’s assets once a year, on 30 June — despite the volatility of high-value assets — which would see the taxpayer subject to the same rate for the remainder of the year, regardless of further fluctuations in value.

The PBO expressed uncertainty around the ATO’s valuation methods when applied to various assets under the proposal — along with their ability to accurately value all asset types — as well as how the billionaire’s tax would interact with other taxes, like capital gains tax and personal income tax.

Australian investment could also take a hit under the proposal, according to the PBO, who said it remained unclear whether other investors who aren’t subject to the tax would make up for the loss of investment from high-wealth individuals.

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