This morning Bill Shorten said something interesting (emphasis added):
Bill Shorten has attacked the ability of wealthy people to claim a tax deduction for their accountancy fees.
Mr Shorten singled out deducting accounting fees as “one of the rorts we want to shut down”, arguing Treasury had wrongly calculated the closing down of tax loopholes as tax increases.
“Did you know that if you want to deduct millions off your tax, you get your accountant to do it. Did you know you can also claim as a tax deduction the hundreds of thousands of dollars you give to your accountant to deduct millions out of the tax system,” Mr Shorten said.
“You can even claim what you pay the accountant as a tax deduction. Most Australians will never access that system.
“Why on earth is this government defending the ability of the super wealthy to pay their accountants to minimise their tax and then even claim the cost of paying the accountants? It is a sweet deal but it has got to stop.
Seriously? The superwealthy use tax accountants and the cost of the accountant is tax-deductible? Shocking!
Well. Unbeknown to Bill Shorten – who has an MBA – Australia is a very egalitarian nation. Lots of people have tax accountants. Not-so-wealthy people employ tax accountants. Here is the historical data on use of a tax agent from the ATO’s own data.
What else do we know about these wealthy rorters claiming millions out of the tax system? Turns out they’re not so wealthy, and they are not claiming millions.
So first – some basic data (again from the ATO tax stats).
So the actual millionaires – people with an income over $1 million – are claiming, on average, $7655 for managing their tax affairs. Not “hundreds of thousands of dollars” as Bill Shorten MBA (Melb) claimed. Their total deductions are, on average, $83,388. Not “millions” as Bill Shorten claimed. This is data from the ATO – it is their job to track this information.
So why am I claiming that the ALP are coming for our tax refunds?
Because I first crunched these numbers a decade ago when there was a proposal for a “no-returns tax system”. Andrew Leigh – then at the ANU – the now assistant shadow treasurer is a fan on no-return tax systems (emphasis added).
In August of each year the Australian Taxation Office (ATO) — knowing how much each taxpayer earned from various sources — could send out tax statements, setting out each person’s income and tax liability. In other words, the tax forms could be ‘pre-populated’ with the information already held by the ATO. If a taxpayer then wished to claim certain deductions, they would be free to fill in a tax return. But if not — and provided the taxpayer’s only income is from wages, dividends and interest — they would have the option of not filing a tax return. All the taxpayer would then have to do is let the ATO know that he or she agrees with the assessment, and then claim a refund or pay the excess tax. Plenty of taxpayers may choose to forfeit deductions to which they are entitled in exchange for avoiding the hassle of filing a tax return. Indeed, the rise in tax revenue from these forfeited deductions is likely to outweigh any increase in administrative costs for the ATO in moving towards a system of pre-population.
So save yourself the ‘hassle’ of filling out a tax return and save the number you pay your accountant to rort the system.
My paper was a response:
Certainly the idea of trading off work-related deductions for a simplified tax-return system would not be in the financial interests of the taxpayers and buying them out would be very expensive for the authorities. …
The analysis presented in this paper, however, suggests that [Leigh’s] argument is wishful thinking at best. Few taxpayers would want to give up their work-related deductions to save the cost of an accountant or tax agent.
It seems the ALP want to re-open that debate and proposal by softening up the electorate with talk of millionaires rorting the system.