The Murdoch press is touting a report from Price Waterhouse Coopers, predicting all manner of disaster for Australia if we do not mend our debt ridden ways. A typical example is a projection of $1 trillion in debt by (IIRC) 2037. There’s no link in the stories I’ve read, and nothing obvious on the PwC website, so I’ll make some more general observations.
* It’s startling to read this kind of sermonizing from an outfit like PwC, recently described by the British Parliamentary Public Accounts Committee as ‘promoting tax avoidance on an industrial scale’. If we are facing a fiscal crisis, shutting down firms like PwC seems like an obvious prerequisite to achieving a solution
* Even on the hypothesis that this was in fact a serious effort at assessing our fiscal condition, why would anyone give any credence to one of the accounting firms that gave us the Global Financial Crisis
* The projections are highly implausible, though without access to the report I can’t point to the specific dodgy assumptions used to derive them.
* The same issues are regularly examined by the Commonwealth Treasury in its Intergenerational Report. The 2015 report was legally required to be published on 3 February but has not appeared. Now instead of the IGR, the government’s media arm comes out with this piece of tripe. Was the IGR not alarmist enough for Hockey?
Update My point about the IGR was pure conjecture when I wrote it. But on TV last night I saw Hockey pushing the PwC “report” (still vaporware, AFAICT), even though he is supposedly too busy to fulfil his legal obligation to release the IGR.
Further update Commenters Megan and Liam have dug up a link to a two-page paper from a talk given a few days ago. This in turn links to publications from 2013 and 2014, drawing on estimates published in 2012 which (I imagine) rely on data going back even earlier. The same alarming projections appear, but still without any basis for the calculations. To sum up, this is a total beat-up.
John Quiggin 
They once grew debt in England!
Debt has always gone up and down.
The sun caused it.
They fraudulently changed the data (see, GDP keeps being revised after the event)!
Conspiracy!!!
Even if the debt is manmade, it’s too costly to reduce it.
It’s too late now, so we should just adapt.
I agree with J.Q.’s observations. I could write an extended rant on why I agree but I always write too much. J.Q. has covered all the essential points with a wonderful degree of irony. Perfection has clearly come too soon. 🙂
It wasn’t just the Murdoch press – it was also reported on ABC radio this morning. It was definitely an attention grabbing headline and I was genuinely worried when I heard it. I’d truly like to hear some good objective analysis of these reports if they become available.
They only exist because the complexity of tax law creates a demand for their services. If you want to shut them down, simplify the tax laws.
As for this report, there’s no link on the PwC website. It’s not even mentioned in their media centre. I suspect this is a bit of attention grabbing by a PwC partner who is looking to drum up some business for himself.
Incidentally, if we had $1 trillion of public debt now, it would give us the same level of debt, relative to national income, that Germany – the strong man of Europe – has now. In 2037, assuming 5% nominal GDP growth, national income will be triple what it is now, about $4.5 trillion.
$1 trillion of debt in 2037 will be no big deal at all.
@Troy Prideaux
I can’t find it on the ABC website?
On back of envelope calculations they seem to assume we wil never get back to trend Nominal GDP levels. Any reason why
?
@Uncle Milton
Well, the simplest tax law possible is “pay the amount assessed by the Taxation Office who have absolute discretion in determining this”. I assume that’s not what you had in mind, but any attempt to make tax obligations depend on income creates complexity and opens the door for the likes of PwC. So, I don’t think “make the laws simpler” is useful advice.
I agree entirely about the fact that the scary numbers aren’t actually scary, but I wanted to look at the report before giving a full rebuttal along these lines.
So, the sky is falling down AGAIN, is it.
It’s only about the rich trying to fob their responsibilities off onto everyone else, as usual
As for the ABC, a LOT of censorship about that place. A night or two ago, Steve Cannane jumped down Mike Seccombe’s throat for daring to suggest that Hockeynomics is about transfer of wealth from the poor to the rich.
@John Brookes
Dunno… It was mentioned in the headlines on my local ABC (774) radio this morning – that’s how I heard about it. They must have fact checked it or delved deeper since then and removed any mention of it.
@John Quiggin
You can’t make the tax laws simple, but you can make them simpler. There is no good reason why the ITAA has to be 10,000 pages long. If it was cut by 50% to 5000 pages, still allowing for plenty of checks against the ATO’s power, and that reduced employment at the tax
evasionadvisory divisions at major accounting firms by 50%, that would be the greatest social improvement since women were given voting rights.I’m not buying this. The OECD Guidelines on Transfer Pricing (one of many of the dodges marketed by PwC) run to 371 pages.
http://www.oecd.org/tax/transfer-pricing/transfer-pricing-guidelines.htm#TableofContents
I imagine that turning Guidelines into legislation that can stand up against the PwCs would mean even more pages than that.
Of course, it would be an improvement all round if we scrapped most of the personal concessions, particularly as regards super. But retail avoidance exploiting this kind of loophole is, I think, on the decline. It’s the industrial stuff that’s the big problem, and that is bound to be difficult as long as we have complex global corporate structures.
Simplifying global corporate structures amounts to pretty much the same thing as shutting down the firms like PwC that design them.
Dont worry ,Scott Morrison will use some ‘reform’ to ‘stop the bludgers’ and cure Government debt ;- simple.
@John Quiggin
You can always do both.
You have to understand what is at stake here. When I was at school the huge dream was to become a millionaire. To win the Opera House Lottery prize of $100,000 was the poor man’s millionaire equivalent. Then the first multi millionaires began to appear. Then came the first billionaires. One thousand millions of dollars. Wow. Then, astonishingly, we had the first multi billionaires, and a huge question. You have to realise that people who circulate in this “club” are irrationally motivated towards aquiring wealth.
The question? Who will be the first Trillionaire.
These people have rational moments enough to realise that to ever have the hope to have a go at the hundred billion target and then on to the Trillion dollar goal in one lifetime, paying tax is not an option. International boundaries to minimum cost labour and virtually stolen resources are also unacceptable.
Our world does conceal “Supers”, but they are not Marvel’s civic minded heroes, they are, I believe, PwC’s extremely welcome inner circle clientele.
Uncle Milton is running with the old chestnut that tax evasion is the product of a tax code that’s too hard to comply with, and not the holy grail of every capitalist enterprise.
If the tax code were simplified, PWC and co would simply have larger loopholes to waltz through.
@John Quiggin
“… any attempt to make tax obligations depend on income creates complexity…” – John Quiggin.
That begs the question: What should tax obligations depend on? Currently in Australia, taxes come from;
Individual tax 45%
Company tax 23%
GST 16%
Excise 9%
Other taxes 4%
Super funds 3%.
This was in 2006?07, when the Australian government collected $262.5 billion in tax according to the Treasury site.
“Australia’s tax to GDP ratio is the eighth lowest in the OECD and substantially below the OECD average of 36.2 per cent (Chart 5.1). Government spending in Australia is the third lowest of all 30 OECD countries (Chart 5.2).
The gap between Australia’s tax to GDP ratio and the OECD average has remained relatively constant at around 5.5 percentage points of GDP since 1965. Compared with the nine most comparable OECD countries (see Box 5.1), Australia’s tax to GDP ratio is about average. However, two of the nine countries with lower tax to GDP ratios than Australia also run significant fiscal deficits (the United States and Japan).”
So, we are a low taxing country. That is interesting considering all the propaganda we hear to the contrary.
“The Australian tax mix is broadly comparable with most OECD countries. Like most of these countries, Australia raises the majority of its tax revenue (64 per cent) from direct taxes on incomes. The OECD average is 62 per cent (Chart 5.4). The remaining 36 per cent of Australia’s tax revenue is raised through indirect taxes including GST, excise and customs duties, and property taxes.”
In summary, we are a relatively low taxing country by OECD standards and our tax mix is “broadly comparable” with most OECD countries. I would go further and say it is closely comparable.
The main problem seems to be with failing to adequately tax large companies and multinational or transnational companies. (Correct me if this assumption is wrong.) OECD countries and others seem to have trouble preventing these multinationals from avoiding taxes by transfer pricing, the use of tax havens and other measures. These would be the issues the G20 would tackle if it was serious. Interesting and perhaps mischievous question: Why isn’t the USA interested in regime change for tax havens?
On a personal note, I get really annoyed when large companies avoid tax and then make a song and dance about their philanthropic donations. They dodge in dollars and donate in pennies.
And this was news in just Dec. 2014.
“Treasurer Joe Hockey’s broken promise to impose tough new tax avoidance rules on multinational companies reveals the true hypocrisy of the Abbott Government, said the ACTU.
“The Abbott Government has just given its big business mates a $600 million dollar Christmas present while continuing to pursue unfair budget cuts that will hurt hard working and vulnerable Australians,” said ACTU Secretary Dave Oliver.”
We need something creative in the way of tax schemes. There was a sci-fi novel once, where the only tax was a land tax, and the owner of the land provided their own valuation of the land. There was a catch – your land could be bought at the valuation you gave…
While that isn’t workable, maybe it is time to become a bit more creative in our taxing. I came up with one simple means testing scheme myself. Consider the car you drive to work. If you don’t own it yourself, then you fail the means test.
PwC has the enviable position of being the favoured adviser to the UK government tax authorities, with a revolving door between the government and the big accountancy firms.
So they help design all those complex rules, and then design the tax ‘avoidance’ schemes to exploit them.
Nice work if you can get it!
http://www.theguardian.com/commentisfree/2011/dec/20/hmrc-tax-avoidance-industry
The links between the big accountancy firms and the Treasury attract no comments from the committee. For example, former PwC staffer Mark Hoban is the current financial secretary to the Treasury. Sir Nicholas Montagu, one-time chief of the Inland Revenue, joined PricewaterhouseCoopers in 2004 before moving on to other lucrative commercial appointments. PwC partner Richard Abadie has been the head of private finance initiative policy at the Treasury. In June 2009, former PwC partner Amyas Morse was appointed UK comptroller and auditor general and became responsible for directing the National Audit Office. Former PwC tax partner John Whiting is the director of the newly established Office of Tax Simplification, advising the government on simplification of tax laws. Chris Tailby, one-time tax partner at PricewaterhouseCoopers became head (until 2009) of anti-avoidance at HMRC.
NewsCorp ard trying to put Humpty back together again, after his great big, pushed by Rupert, fall.
John,
Haven’t had the chance to read myself, but seems to stem from a two-page release here: http://www.pwc.com.au/tax/assets/TaxTalk-13Feb15.pdf. Predicts all government net debt will hit 28% of GDP within 15 years. The landing page for all of this is here: http://www.pwc.com.au/tax/tax-reform/
Simple way to stop multinations transfering money, and I mean any money to catch the rorts that they use to minimise profits, between countries is to tax that money somewhere between 50 & 75%. This might just make them report the profit and pay the tax on it the country where the profit is made.
I cynically note that the Governor of the RBA, Glenn Stevens, was appearing before the “Standing Committee on Economics” today.
A Dorothy Dixer from the transcript:
“…debt…a significant problem…long before we get to 2037”!!??!!!
Aaaaagh! Quick! WE NEED AUSTERITY AND ASSET SALES NOW!
It appears that News Ltd, and presumably the LNP, are the only ones to have seen the PwC “report” by “tax partner” Paul Abbey.
PwC “advice” can be very useful as a weapon. Sometimes it can even be “sanitised” for a certain purpose if you need [from an AFR story about the Rinehart family stoush]:
The best advice money can buy.
Bingo!
I’m guessing this is the source?
Ironically, it comes from a branch of PwC obsessed with tax “reform”.
@Megan
It is clear that neoliberals either;
(a) do not understand macroeconomics at all; or
(b) understand macroeconomics only too well and choose to lie to the public about it.
I lean towards explanation (b) for programmatic neoliberals but some of their simpleton supporters do fall under explanation (a).
The contest today, to put it as simply as possibly, is between bankers and their super-rich clients on the one hand and the great mass of workers and unemployed on the other hand. The interests of bankers and the super-rich are met by protecting the value of money (low inflation) and pushing asset prices and stock market valuations up whilst driving wages down as low as possible. Their interests are also met by high unemployment which helps to discipline wage demands.
The interests of workers (especially currently indebted workers) would be met by lifting wages, implementing full employment programs and pushing inflation up to about 5% but not much more than that. Concomittently, asset price and stock market bubbles would need to be allowed to deflate somewhat.
The policy that protects bankers and rich persons’ wealth (mainly wealth already gained to date) is the policy of balanced or surplus budgets even in a time of contraction. The policy that would help workers and the unemployed would be budget deficits in a time of contraction and rising and/or too high unemployment (like now in Australia).
There are contradictions (or countervailing tendencies) in the austerity policy. If wages are driven down too much then workers cannot buy the output of production. There is a crisis of the over-accumulation of capital. The rich have plenty of plant (factories), money capital and paper capital (shares) but the plant cannot work at capacity, the money capital cannot find anywhere to get a decent return and the shares are in danger of collapsing in value due to the economic slowdown.
Pushing austerity too hard could cause an economic crash. I suspect the smarter, richer neoliberals know this. However, at this juncture I suspect they want or at least no longer fear a crash. If they have (a) already cornered most of the wealth they realistically can and (b) know a climate change / limits to growth crash is coming then there is no logic in trying to grow the economy any more. They know it can’t grow much more. Thus if the economy can’t grow ever more wealth and indeed may be growing less or not at all in future then the biggest players know what to do. They corner the existing wealth and hang on to it even at the risk of collapsing a system due to collapse soon in any case. What they are doing is entirely rational from a self-interest point of view… at least until their “Ceausescu Moment”.
Ahem…..
JQ, that last bullet point has a link to a News Ltd hate sheet.
Linking to them not only gives them money, but worse it gives them an undeserved appearance of credibility.
It is a great point on tax dogers being alarmed about government revenue shortfall.
Besides that such situation is giving them even more ability to buy political influence, public debt is no alarming issue ever but private debt is.
Level of federal Australian debt is around 13% of GDP, but household debt is close to 100% of GDP while total private debt is well over 100%.
Why is 13% more alarming then 100% debt?
And the most important point on private debt is that over time the wage growth makes it easier to repay. The capacity to inflate away the debt by wage increase is crucial to capitalist economy.
If wage growth stops, then that capacity will go down and agregate demand will fall because debtors have to keep paying at the positive real interest rate. This starts deleveraging process and if not stoped, only then public debt becomes problematic.
The source for public debt comes from private debt. Deleveraging reduces the private debt and that reduces the source for public debt, which otherwise could and would expand forever.
Magna Carta is coming up 800 this year. The great cry derived from Magna Carta was “No taxation without representation.” C13 geography was obviously different in that assets were extremely fixed and could be taxed where they resided. Perhaps in the C21 we need a corollary – “No representation without paying taxation.”
The heading of the thread says it all.
Transfer pricing and profit shifting is nothing new. What has changed is the amount of information available to the public. Almost every week there is an article in the smh and in the guardian on this topic. Newspapers in other countries also report.
Austerity is not necessarily a bad thing if the question for whom is added.
I read somewhere that $1 trillion in debt by 2037 would actually be less as a percentage of GDP than the very low 16% we have now.
The IGR would most likely publish the truth, which is that the major “intergenerational theft” going on is by retiring boomers – i.e. the major Liberal voting bloc – thieving from younger generations through super laws and lack of accurate means testing for medical services. No wonder the Libs would want to suppress that line of thinking.
@m0nty
Yes, formal economic intergenerational theft (so-called) can only go on between existent generations. Thus a policy to protect accumulated wealth at the cost of higher unemployment (which hits the young disproportionately at present) is a form of current intergenerational theft.
Intergenerational theft between an existent generation and a yet to be born generation must take a real form not a formal economic form by which latter I mean something mediated by currently existent macroeconomic practice (e.g. budget austerity). Intergenerational theft between an existent generation and a yet to be born generation must be of a real material form and this means something like stealing a benign climate from unborn generations by emitting too much CO2 now. It could also mean failing to put infrastucture needed for the future in place now. Budget austerity is actually much more likely to steal from future generations in terms of development possibilities foregone.
@Megan
Absolutely.. exclusively, b)
Sorry, Ikon replying to Megan.
@Megan
It’s just a marketing document, designed to get businesses to pay PwC to write submissions for them in this year’s tax White Paper process.
It is to analysis of public sector finances what an advertisement for a fast food chain is to analysis of nutrition. Caveat emptor.
But don’t blame PwC. Doing this stuff is their move. It’s what they do. PwC partners exist to bring in business. If they do, they are handsomely rewarded, If they don’t, soon they are ex-partners. So of course they are going to put out this tripe that they probably don’t even believe themselves. Blame the dopey journalists who fell for the spin from PwC’s marketing department that this is anything but an advertorial.
@Uncle Milton
I do.
The Murdoch ones are shilling and scare-mongering for the LNP’s foregone conclusion of asset sales and austerity and using this ‘tripe’ as proof to support that pre-determined goal.
The others, Guardian ABC Channel 9 etc.., I blame for not being able to do as I did – reasonably easily – and track down the source to expose how vapid and lacking in evidence it is for the claims made.
Au contraire, those are excellent reasons to blame PwC.
Addendum
But don’t blame child pornographers. Doing this stuff is their move. It’s what they do. Child pornographers exist to bring in business. If they do, they are handsomely rewarded, If they don’t, they are soon broke.
This is getting more and more interesting. I read the article dug up by Megan and Liam, linked to in the update.
PWC invites ‘leaders’ in civil society to have a talk with PWC (2 names mentioned) about taxation. The first question that came to my mind is: Which electorate do the two named members of PWC represent? Does anybody know?
Not electorates out in the dusty west?
Why does a company or corporation care about tax rates faced by a specific nation’s citizens? Why does a company or corporation care about the overall health of a nation? I can understand why a citizen of that nation legitimately cares about these things but I am not sure how a multinational can legitimately and in good faith care about these things. Indeed, a company or corporation cannot care about anything as it is not a human being. Its owners might care though the evidence suggests they do not care in any benign sense for the majority of citizens of any nation. We need only to witness the performance of PwC “recently described by the British Parliamentary Public Accounts Committee as ‘promoting tax avoidance on an industrial scale’” as John Quiggin reminds us.
Thus, if such a multinational’s interest in tax policy is not fundamentally legitimate (in a good faith sense) nor benign then we have to wonder at real motives. These motives can only be to reduce corporate taxes, increase opportunities for tax avoidance and tax avoidance business and to increase corporate income and power. Along with this motive, the starving of government of revenue and the consequent weakening of democratic government (other than as a servant to corporations and their goals) must be their objective.
Does anyone have any additional theory as to why they are promoting a reduction of pretty much all taxes except land tax? For some reason, they seem to favour increasing land taxes.
I am very suspicious. My heuristic or rule of thumb is that anything a multinational is promoting must be inimical to me as a human and as an ordinary citizen. It can only be of benefit for the super-rich owners of corporations. At least, that is my conclusion by applying my heuristic. Of course, rules of thumb are not always right just right more often than not.
CHESS HEURISTICS.
The rook belongs on the open file (unimpeded by pawns).
For the rook, the seventh rank is heaven.
CORPORATE CHESS HEURISTICS.
The corporation belongs on the open power corridor (unimpeded by citizens).
For the corporation, the deregulated country is heaven.
@Ikonoclast
The majority of decisions about how corporations will behave are not made by their owners, but by their executives — executives may also have an ownership stake, but then again they may not. Insofar as it’s meaningful to think in terms of corporations having interests of their own, the interests of the corporation’s executives may or may not coincide with the interests of the corporations; also, the interests of the executives may or may not coincide with the interests of the owners. Corporate executives may have legal obligations in at least some cases to prefer the interests of the corporation or its owners to their own personal interests, but just because people have legal obligations doesn’t mean they always comply with them. So if you’re curious about what motivates the behaviour of corporations, I suggest that you need to pay at least some attention to the interests and motives of corporate executives and not just those of the corporations as entities or of their owners.
None of this is new, but I suggest that corporate executives can have a strong interest in diverting attention from their own interests to the interests (or supposed interests) of the corporations themselves and/or their owners. ‘Pay no attention to the people behind the screen!’ they might like to cry, which is what makes me feel that it’s worth periodically drawing attention to them again.
Guy fawkes blog had a nice podcast on how the Guardian reduced its tax bill to 1% of profits
Maybe they just took director’s duties seriously.
@J-D
For sure, I don’t doubt that what you say is the situation in many cases, especially when it comes to less than strategic decisions. However, owners of companies which are not publically listed, e.g. Koch Industries, are often CEOs too. At least in that particular case one brother is the CEO.
In addition, CEOs of some state owned companies certainly answer directly to highly centralised state authority. The CEOs of Sinopec Group, China National Petroleum Corp. and Saudi Aramco are examples. I am certain there are business strategic and indeed geostrategic concerns where the state authority directs them.
In publically listed companies, the web of ownership is complex. However, I am sure the largest owner-oligarchs play a big role in directing major strategic decisions of companies in their web of ownership. But for sure CEOs and execs play a big role too and often “bid fair” so to speak (well probably they bid unfair) to become oligarchs in their own right. I assume oligarchic power can be based on corporate position power as well on ownership and wealth power. With that definition of oligarchic power, the identification of the corporate oligarchs as being the ones who run things remains sound.
If you want to maintain social equity under capitalism, you must increase public debt as a proportion of GDP.
If you want a stable debt to GDP ratio you must steadily decrease wages.
This assumes, of course, that capitalists maintain their rate of profits even as capital accumulates.
So the governor may be correct – but the answer is to develop an alternative for of economy.
As it only makes sense for the owners of capital to assume their corporate executives have the same motivational orientation as themselves – a pleonexic one – and as it makes sense for executives to think the same thing, then we would seem forced to think of corporations as a touchy mutuality of a shared aspiration for wealth and power. This is how our oligarchy structures itself as a profit extractive device.
The simplest workable system was attributed, by Norman Douglas in South Wind, to a feudal baron; you paid only as much tax as you wanted. He didn’t tell you how much was due – it was entirely in your own hands. And if it wasn’t enough, one of them would be cut off.
@Tony Lynch
That seems correct to me. If you search for Marx and pleonexia you get a few interesting hits. Marx did not use the precise word to my knowledge but some commentators do in explaining his ideas. A critique of pleonexia is quite explict in Marx’s thinking. Searching for Marx and Aristotle gets some interesting hits too.
@Tony Lynch
If several people share pleonexic motives, I don’t see how that makes them likely to be allies; it seems at least equally likely to make them rivals.
Also: I am a member of a superannuation fund, which invests part of my money in the share market. In this way I am a partial owner of some corporations. I don’t claim perfect self-knowledge, but for what it’s worth I don’t perceive my own motives as pleonexic; further, pleonexic or not, I don’t (as a matter of fact) assume that the motives of the executives of those corporations are the same as mine, and I don’t see how it’s sense that I should.