Opening statement to House Standing Committee on Tax and Revenue Inquiry into Taxpayer Engagement with the Taxation System

Chris Berg and I appeared before a House of Representatives committee this afternoon talking about the Blockchain and taxation. Our opening statement is below.

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We have been asked to make some points about the effect blockchain and similar technologies will have on taxpayer engagement with the taxation system.

The RMIT Blockchain Innovation Hub was established earlier this year as the world’s first social science research centre into the blockchain economy. The Blockchain Innovation Hub will measure and understand the economic, political, social and legal implications of blockchain, and advise governments, firms and communities on how best to take advantage of this exciting new technology.

We’d like to make a few points that we hope might stimulate further discussion and consideration. We are going to be speculative by necessity.

First, this new technology is an opportunity for Australia. We can attract high value knowledge workers by having a competitive tax and regulatory system. Governments should focus on making it easy to host cryptoeconomy services in Australia.

Second, blockchain services are going to change some of the fundamental structures of market capitalism. The twentieth century was dominated by large public companies. In the future, firms will look more like shifting networks managed by blockchains rather than the hierarchies we are used to.

This will have a number of consequences. Australia is heavily reliant on corporate tax revenue. These new firm-like structures are going to be harder to tax than the monolithic firms of the 20th century. We’ve published sceptically about the parliament’s efforts to prevent profit shifting by multinational firms. However, the born-global nature of blockchains will supercharge these trends. We do not believe there will be any easy regulatory solution to this, and parliament will need to rethink not just how it taxes, but what it taxes.

Another consequence of the networked firm is that more people will earn their living as contractors rather than employees. This will have wide-ranging consequences for superannuation, payroll tax, and so on. The tax and industrial relations system has traditionally struggled to integrate contractors into its frameworks, and this is likely to be a bigger issue in the future.

Blockchain applications make possible real-time reporting and payment of tax obligations. A large public company could place its accounts on a publicly verifiable blockchain. This would eliminate the need for auditing.

We are not proposing real time blockchain reporting as a regulatory requirement, but would urge shareholders in public companies to consider demanding this of management.

We can also see some attraction for small and medium sized firms of real time blockchain reporting, which would make automate tax compliance and make business activity statements redundant.

The ATO should develop guidelines for real-time taxpayer blockchain reporting that it would consider compliant. The ATO should also rethink its internal systems to facilitate voluntary real-time reporting.

Real-time tax reporting raises different issues for individual taxpayers. Privacy is an overriding problem here. There are new technologies that have been developed with the blockchain – such as zero-knowledge proofs – that provide opportunities for privacy-protecting public services in the future. This is a something we plan to work on in the future.

Blockchains are likely to bring about enormous changes to the way we work. For now, and to conclude, we will leave it that any use of new digital technology for government revenue raising has to place fundamental values such as privacy and the rule of law at the centre.

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Unfortunately our time got cut short by a vote in the House.  In the time we had there was some very good questioning from the committee members and I’m hopeful that Australia will be in the forefront of adoption of this new technology.

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21 Responses to Opening statement to House Standing Committee on Tax and Revenue Inquiry into Taxpayer Engagement with the Taxation System

  1. Jeremy

    ___ Blockchain???? What does this mean?

  2. OldOzzie

    Sinclair,

    thanks for this.

    I keep passing your thoughts on Blockchain and Cryptoeconomics onto my Son-in-Law

  3. Mark A

    OldOzzie
    #2527049, posted on October 19, 2017 at 3:25 am

    Sinclair,
    thanks for this.
    I keep passing your thoughts on Blockchain and Cryptoeconomics onto my Son-in-Law

    Why? What did he do other than marry your daughter.
    Don’t you like him?

  4. rickw

    I like how in Australia, if there is some glimmer of real innovation or change, the Governments first question is “how the fuck can we tax it?!” and the second question is “will this thing fuck up our existing taxation?!”.

  5. Bruce of Newcastle

    Well done to Chris and yourself for directly communicating new advances with representatives of government. It’s heartening that they were sufficiently interested to give you that time.

    The comments about contractors and industrial relations will have rung a gigantic alarm bell in all of them though – the LNP because of the painful memories of Workchoices and the ALP because the unions ain’t going to like hearing that one bit. Even the Greens with their relatively recent reliance of union funding aren’t going to like it either.

    So the result may not be that promising in terms of uptake I suspect.

  6. Arky

    rickw
    #2527081, posted on October 19, 2017 at 5:09 am

    ..
    Well put.
    Is there any way these block chain thingos might be able to completely avoid the need to deal with government?
    Or utilized to create an economy which is untaxable?
    The thought crossed my mind way back in 1998 as Howard was putting in the GST: these bastards don’t think income will be a reliable taxable thing. They are preparing for a future where most people aren’t in regular paid employment.
    I think I was right.

  7. I thought I was getting a handle on this new technology.
    “A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions.”
    Got it. So far.
    In the future, firms will look more like shifting networks managed by blockchains rather than the hierarchies we are used to.
    Now I am officially lost.

  8. John Bayley

    Cryptocurrencies and the associated blockchain technology is the free market’s defence mechanism against the cancer that is ever-growing government. With moves afoot toward at outright banning of cash both in Europe and here, decentralised payment and merchant networks (look up Open Bazaar for example; although only in beta, it’s a fascinating concept) will provide an escape hatch for those who – like myself – are not in favour of giving the bureaucrats and politicians unhampered, real-time knowledge of everything we do with our money.
    During a recent visit to Argentina, a country which, like Australia, is blessed with natural resource, but also – as is increasingly the case here – cursed by a rotten government, I noted that a number of businesses accept both US dollars and Bitcoin for payment, in preference to the peso. In an environment with >60% inflation and the recent experience of having the thuggish government outright confiscate their citizens’ bank deposits, can there be any wonder?
    Apparently the same can be seen in Venezuela these days.
    No wonder the politicians, and the banksters like Jamie Dimon, are sh*tting themselves.

  9. Arky

    are not in favour of giving the bureaucrats and politicians unhampered, real-time knowledge of everything we do with our money.

    I’m not optimistic.
    Given they have a strangehold on anything real and tangible that can be consumed via energy and real estate.
    You might avoid reporting a transaction, but everything you use has an energy input, or happens while you sit in a taxed property.

  10. struth

    It’s no surprise that government has got a sniff of bitcoin and want to see you.

    It is certainly up to you to fill them full of shit.

    Send them up the garden path, so to speak.

    They can see a threat to the revenue stream, and unsurprisingly, are right on to it.
    It’s almost laughable, when you consider how long it takes government wheels to turn elsewhere, just how quick they respond to this.

    If you give them all the correct information, you won’t be helping us.

  11. Scriptman

    Arky,

    On creating an economy which is untaxable, you should into the cryptocurrency named Monero. It’s untraceable.

  12. Procrustes

    At some point within the next 5 or so years the public accounts of all governments could also be put up on distributed ledgers, so taxpayers have greater insight into where there money is going.

    For example there would be greater transparency on such things as: what is being underspent and could be returned to taxpayers; what is being overspent and could be cut or made more efficient; and we’re those promised savings at the time of the last budget actually achieved.

  13. EvilElvis

    I may be a little slow, but all I got out of that was a sales pitch to government and the ATO to get ahead of the curve and stump up for whatever ‘auditing’ tool you and your mates have developed for tracking blockchain transactions?

  14. RobK

    There may come a time when some amongst us tread with no digital footprint, invisible to all but god.

  15. Arnost

    There may come a time when some amongst us tread with no digital footprint, invisible to all but god.

    Never happen. In the new world – God will need to have a digital footprint.

    http://www.montypython.com/uploads/Music_FOLDER_Music-116Xq.jpg

  16. Fibro

    I’m hopeful that Australia will be in the forefront of adoption of this new technology.

    Sorry Mssrs Sinclair and Berg, Government are aware and involved. It will never happen

  17. mh

    Please keep us informed of any other matters related to this Tax and Revenue Inquiry. I would like to know if the Australian Taxation Office wants it’s customer service staff to actually have any knowledge of tax.

  18. “I’m hopeful that Australia will be in the forefront of adoption of this new technology.”

    The Bitcoin or Ethereum gas ‘miners’, necessary to run the support infrastructure, won’t be located in the country with the least reliable and highest cost power prices.

  19. RobK

    Arnost,
    An apt rejoinder. 🙂

  20. 2dogs

    I’m hopeful that Australia will be in the forefront of adoption of this new technology.

    Not likely. Australia will strangle it with regulation. To develop in this area, we need to allow people to issue securities in blockchain form – no chance with our current PDS requirements.

    Australia has no real P2P financier (SocietyOne has no facility for retail investors), while the UK has several. Blockchain will build on top of P2P as it expands.

    Blockchain will be post-Brexit UK’s oyster. Australia’s best chance is to hitch a ride on that with an FTA that provides comity/mutual recognition for financial products.

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