The AFR had a tax story today – labelled “Exclusive” – that must be one of the worst beat-up jobs I have ever seen. Just rubbish.
So here is the background: The ATO had to refund a tax payment after the federal court ruled against the ATO in a tax dispute. This would be an unremarkable story except for two factors:
- The amount of the refund – $882 million.
- The recipient of the refund – News Corporation.
To put this story into context the ATO provides tax refunds all the time if tax has been over-paid.
So what happened here? In 2000 and 2001 News booked a $2 billion loss following a series of paper transactions. The ATO disallowed the tax deduction and consequently collected more tax revenue than it otherwise would have. News went to court and won and so the ATO has had to refund the tax revenue it had collected with interest.
The Fairfax spin of that set of unremarkable facts is astonishing.
The single largest factor in the underlying deterioration of the federal budget announced by Treasurer Joe Hockey in December was a cash payout of almost $900 million to Rupert Murdoch’s News Corporation.
Notice the use of the work “underlying”. If you don’t know what to look for you’d think that the ATO refunding money it had legal entitlement to was some sort of rort. The thing is that the government claims to use accrual accounting for budget purposes. If it did in fact use accrual accounting that $882 million would have been a contingent liability on the governments books. The repayment of the $882 million would be charged against the years when the revenue was collected. It is true that it represents a decline the state of the budget on a cash basis (i.e. underlying) and that is what the AFR wants us to concentrate on.*
The Tax Office was deciding whether to appeal against the judgment as News Corp newspapers launched a ferocious attack on the government, kicking off with the Daily Telegraph’s headline on August 5, 11 days after the court judgment: “Kick this mob out.” In the following days, Labor leader Kevin Rudd would claim that News Corp was running a virulent anti-government campaign in exchange for concessions from the Coalition.
Unbelievable. Are we really to understand that the News Corp papers campaigned against the most useless government in modern history just so that the ATO would not appeal a federal court ruling? To prevent that sort of political corruption of the tax system is why the Tax Commissioner in (nominally) independent of government. Winning a case against the ATO in court is hardly a “concession” – a miracle perhaps, but never a concession. When personal taxpayers get a tax refund at the end of the year it is never a “concession”.
A very poor effort by the AFR.
* The great irony is that I actually think that government should only use cash accounting and accrual accounting.
Update I: Should point out that $882 million is more than half of Fairfax’s market capitalisation.
Update II: The AFR comes clean:
Under the Tax Administration Act, payments to taxpayers come out of the Contingency Reserve Fund, which sits as a contingent liability in the budget.
In the mid-year briefing in December, total contingent liabilities stood at $7 billion.