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Issue #1553      27 June 2012

Corporate welfare alive and well

Picture a cash-strapped government frenetically pursuing a budget surplus. The corporate sector screaming for more tax cuts on its profits and pressuring the government for an increase in the GST which they don’t pay. But don’t shed too many tears of sympathy. The corporate sector is not going without. Corporate tax concessions and rebates to the corporate sector were close to $50 billion in 2010-11. That is almost as much as the federal government spent on health in the same year.

The budget papers provide information on government handouts, but do not outline other forms of corporate welfare that are delivered through such means as tax concessions. This information is contained in Treasury’s annual Tax Expenditures Statement.

The $50 billion figure is conservative as some corporate welfare measures are not reported “because of confidentiality”! The report does not attempt to estimate the concessions given to the wealthy for philanthropy. Philanthropy tax exemptions for public benevolent institutions come to $1.2 billion.

The Treasury statement provides details of the income the government forgoes because of tax concessions, exemptions, rebates, incentives and other assistance given through the taxation system – what are referred to as “tax expenditures”.

These include the speeding up of depreciation of capital expenditure, tax rebates for investment in research and development (R&D), etc. The government lost $5.4 billion as a result of industry-specific tax concessions. Small business and general business tax breaks totalled $2.3 billion.

It also spent $3.6 billion on direct handouts to specific industries.

The rich are costing the government billions of dollars in do-it-yourself superannuation funds that serve as tax evasion schemes.

Jessica Irvine writing in The Sydney Morning Herald (June 9-10, 2012) provides a useful summary of some of the tax expenditures and other industry assistance.

The total value of industry assistance to the manufacturing sector was $7.5 billion.

Some of the assistance can be seen as saving jobs, although as seen with the car companies, sackings continue. Power still resides in the boardrooms of Tokyo and New York, as companies extract more blood from governments under threat of closure. This money would be better spent nationalising companies and the government controlling future production and receiving a return on its money.

Primary production received $1.5 billion, including interest rate subsidies and drought relief.

The government subsidises the mining corporations by around $2 billion annually through its diesel fuel excise rebate. Instead of paying the standard excise of 60 cents a litre, they pay 22 cents. (The 38 cents rebate may be reduced to 32 cents after the introduction of the carbon tax; the mining companies are still fighting this one.)

The concessional rate of excise levied on aviation gasoline and aviation turbine fuel provides an effective subsidy of $1.02 billion for the airlines and other corporations and corporate highflyers.

There are some interesting (and worrying) tax exemptions: “The profit and remuneration of United States contractors, United States armed forces members and their associated employees, or other United States residents or foreign employees and their dependents in connection with certain approved United States Government projects in Australia are exempt from Australian income tax.

“The United States Government projects to which the exemption applies include the North West Cape Naval Communication Station, the Joint Defence Space Research Facility, the Sparta Project and the Joint Defence Space Communications Station program.

“This exemption only applies where the income is subject to tax in the United States.”

No estimate is given as to how much tax they avoid.

Treasury missed out on more than one billion dollars from tax deductable gifts to tax deductable gift recipients and charitable trusts by individuals.

Superannuation

The cost of the various concessional rates and deductions for employer contributions ($13.35 billion), for superannuation earnings ($12.6 billion), unfunded superannuation ($430 million), personal contributions ($920 million) and co-contribution for low-income earners ($300) totals $27.6 billion.

In other words, the government subsidised the superannuation system in 2010-2011 to the tune of $27.6 billion. As stated above, the rich who have been rorting the system have made a killing.

The current superannuation system amounts to the privatisation of individual retirement savings. These savings gyrate with the luck of investments and gambling on stock markets, financial markets and highly speculative products like derivatives. Workers take all the risks, the insurance companies, banks and their investment houses pocket fees and commissions, rake in guaranteed profits, but take no risks.

The government should be directing these funds ($27.6 billion rising every year) into increasing the age pension and setting up a national publicly owned and run fund.

Workers who wish to join this fund would have their savings guaranteed by the government, their retirement income in the form of guaranteed entitlements (fixed benefits scheme) on a monthly or fortnightly basis for the rest of their lives. They would not receive a lump sum on retirement to be reinvested with all the risks that entails.

The National Fund would invest retirement savings in socially desirable projects such as public transport, alternative renxewable energy research and production, public housing, aged care, education and health.  

Next article – Unions oppose Fairfax Media sackings

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