Taxes and armies are like the chicken and the egg — you can’t have one without the other, and no one can say which came first. Big armies demand big taxes to support them; big taxes need big armies to collect them.
This is well illustrated by the history of the Commonwealth. The chief justification for federation was defence, and federal income tax was introduced in 1942 as a temporary war time measure to support our real army.
They say the pen is mightier than the sword. Just as well. The army that fought in Tobruk, Normanby, Burma, Singapore and Kokoda has almost withered away and has been replaced by an army of pen pushers.
One of the biggest divisions in Canberra’s modern army is the ATO division of 18,000 whose job is to collect income tax. (This ATO army is nearly 3 times larger than the army of William the Conquerer which defeated the English at Hastings in the biggest battle on English soil for the last two thousand years.)
There are three distinct political eras in recent Australian history. First came the “Honest Era”, up to about 1970, and before the massive growth of the tax/welfare cancer. During the Honest Era, both paying taxes and working were seen as necessary obligations to most Australians.
Then came the “Irresponsible Era”, from 1970 to 1990. Two developments highlighted this era. Firstly, poorly designed tax laws and lax administration of the rules made working optional for another sub-culture of Australian society.
They complain about a lack of entrepreneurial spirit in Australia. By the time the bosses had worked out how to dodge tax and the workers and kids had devised a scheme to rip-off social security, most of the risk taking and entrepreneurial spirit had been exhausted.
Since 1990, we have been living in the “Era of Painful Consequences”. First to feel the pain were taxpayers, with a rash of tax reform, new taxes, tax audits and an explosion of tax laws and regulations. (Yet to come, before the Era of Painful Consequences is over, is a similar crackdown on the welfare industry, followed by an attack on the red tape army.)
The first rule of government is “Anything worth doing is worth over-doing.” This has been the guiding principles of the tax reform frenzy of the 1990’s.
The sausage machine churned out an unprecedented volume of tax trivia. Parliamentary bills, regulations, departmental rulings (both draft and final), court determinations, political promises and government-by-press-release on negative gearing, tax losses, assets tests, child support, super tax, training tax, mining tax, resource rent tax, fringe benefits tax, prescribed payments tax, capital gains tax, provisional tax — more than 6,000 pages of gibberish in 1994 alone. One sentence in Tax Law Amendment Bill No 4 has been submitted to the Guinness Book of Records for complex sentences — it takes 970 words filling four pages of the bill to define “eligible pre-existing offer”.
The cost of tax collection and compliance has become unbearable. Tax accountants and tax officials have to read 25 pages of turgid tax law every working day just to keep up to date. Is it any wonder that an efficiency audit of the ATO itself showed that 31% of the answers they gave to questions from the public were either partly or totally wrong? In addition, 44% of taxpayers abandoned their telephone queries to the tax office because of the delays incurred.
Australia is now bogged down by an army of accountants, tax agents, computer programmers, lawyers and auditors all occupied in ensuring we comply with the tax laws. In 1989, the Queensland President of the Australian Society of Accountants estimated that the cost of tax accounting alone was $2 billion per year.
Faced with rapidly rising real cost of assessing tax returns, the ATO hit on a great new scheme to hide the real cost — self assessment. Under this system taxpayers calculate their own tax, take full responsibility for all errors and misinterpretation and send the cheque.
(Imagine the outcry if SEQEB, in a cost cutting measure, said that electricity consumers had to read their own meters, determine the appropriate tariff, work out the charges, prepare their own invoices, and send them to SEQEB with cheque attached.)
Another cost cutting innovation was “Tax Pack” which was supposed to reduce the need for taxpayers to go to tax agents to get their returns done. The latest version, with a print run of millions, was 100 pages with about as much clarity and excitement as the Government Gazette. I have never read a “Tax Pack” — I always seem to have more exciting things to do such as going to the dentist, cleaning the septic and filling out the ABS farm census. Moreover, even the Commonwealth Ombudsman says that Tax Pack contains more than 20 serious errors and ambiguities. Its chief result was to send more Australians than ever to their tax agent.
Australia has a fixation with compliance at all costs — a pre-occupation with enforcing rigid obedience to millions of petty and often incomprehensible rules — all enforced by a Tax Office which, in 1992, admitted it could not calculate its own FBT property, had inaccurate records of business taxpayers, and had no proper register of its own assets!
Australian businesses spend up to 11 times more on direct tax compliance than even British companies. Complying with the Tax Audit of the top 100 companies cost one company alone $500,000.
In a bit of poetic justice the Liberal and Labor Parties both complained about the cost of preparing their own annual financial return — the cost for the 1993 return alone was about $185,000 for each party.
The collection and compliance cost of many of our taxes suggest they should be abolished immediately. For example, for 90% of companies liable to pay FBT, their administrative costs represent 42% of the tax collected. For 96% of companies submitting income tax returns, it costs the companies more in compliance costs than they paid in taxes — for all companies, an average of 23% of the tax collected was spent on tax accounting and compliance. After that the ATO has to support its army of 18,000 before any of the looted tax gets to supporting our real army of 26,000 soldiers (many of whom are clerks, stewards, cooks, musicians and storemen).
All of this enormous cost in tax regulation, collection and compliance provides nothing of real value for any Australian — no defence, no schools, no real goods or services, nothing that could be sold at a profit in any market anywhere.
We are on the road to tax-induced poverty. No amount of tax summits, rewriting, self assessment or tax packs will solve the problem. What is needed is a massive repeal of many inefficient taxes and a vast simplification of the rest — flat rates, no exceptions, no special allowances for anyone.
We can disband the ATO standing army and send the tax troops home to get a real job.
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