Dealing with tax avoidance: why Australians do it better than the Brits

"Australia is a highly tax compliant country."

The Public Accounts Committee said last month that the UK should look to the Australian model for tackling tax avoidance. Paul Stacey, head of tax policy at the Institute of Chartered Accountants Australia, explains how their system works.

The importance of a good tax system design to sustain government revenues has always been apparent. For many nations, the continuing weakness in revenues following the global financial crisis has made this priority even clearer. In this climate, differing approaches to tax avoidance have become a focal point for discussion, and in the United Kingdom and Australia, this is no exception.

Both nations continue to grapple with issues of design, in both tax law and tax administration, on how best to limit the impact of tax avoidance on revenue collection.

In the United Kingdom, the House of Commons Committee of Public Accounts report on Tax avoidance: tackling marketing avoidance schemes "encourage[d] HRMC to look seriously at whether [the Australian approach] could be effective in the UK."

Jennie Granger, HMRC’s current director general of enforcement & compliance and a former Australian Tax Office (ATO) deputy commissioner, in evidence to the committee, ascribed Australia’s success in dealing with mass marketed tax avoidance schemes to product rulings and the promoter penalty legislation, both of which she said worked well.

The Australian approach to mass marketed or retail tax avoidance schemes thus comprises, from a tax system design perspective, two parts – one part a tax administration solution, the other a tax law design solution.

The first part is product rulings which the ATO first started issuing in 1998. The genius of this idea is that it embedded the idea of an ATO sign off into the marketing of these retail tax schemes. This changed market and investor practice - put simply, if a scheme lacked ATO sign off it became much harder to market.

This change in market behaviour meant that, in turn, that the ATO could choke off supply at the source by issuing a negative product ruling for those schemes which it regarded as offensive. Investors could also rely on the product ruling when self assessing their tax position.

However, the success of the promoter penalty rules – the tax law solution, which came into effect on 6 April 2006 – is less evident. There has only been one case to date, which the ATO convincingly lost.

Granger suggested much of the success of these rules lay in "enforceable undertakings" entered into with advisors which restrict their conduct. But these enforceable undertakings are, by their nature, confidential and hence their existence, or not, will be unknown externally. Nor does the ATO publicly disclose the number of these agreements signed. The success of this part of the Australian solution remains unclear and is not communicated to the public.

Moreover, it should be remembered that Australia is a highly tax compliant country. Its tax collection system is a self-assessment model under which taxpayers assess their own tax liabilities and then remit these to the ATO. That model is bolstered by various withholding measures which limit the opportunity to avoid remitting tax.

The ATO is well resourced, well motivated, and equipped with extensive legal powers. For example, Australia has had a tax general anti-avoidance rule for over 30 years and, as long ago as December 1996, the High Court dismissed the relevance of the Duke of Westminster principle to Australia as merely the ‘muffled echoes of old arguments concerning other legislation’.

In these circumstances tax avoidance is at the margins of Australian economic activity, rather than front and foremost of mind.

This article first appeared on economia

Photograph: Getty Images

Paul Stacey FCA is head of tax policy at the Institute of Chartered Accountants Australia

Photo: Getty Images/AFP
Show Hide image

Is Yvette Cooper surging?

The bookmakers and Westminster are in a flurry. Is Yvette Cooper going to win after all? I'm not convinced. 

Is Yvette Cooper surging? The bookmakers have cut her odds, making her the second favourite after Jeremy Corbyn, and Westminster – and Labour more generally – is abuzz with chatter that it will be her, not Corbyn, who becomes leader on September 12. Are they right? A couple of thoughts:

I wouldn’t trust the bookmakers’ odds as far as I could throw them

When Jeremy Corbyn first entered the race his odds were at 100 to 1. When he secured the endorsement of Unite, Britain’s trade union, his odds were tied with Liz Kendall, who nobody – not even her closest allies – now believes will win the Labour leadership. When I first tipped the Islington North MP for the top job, his odds were still at 3 to 1.

Remember bookmakers aren’t trying to predict the future, they’re trying to turn a profit. (As are experienced betters – when Cooper’s odds were long, it was good sense to chuck some money on there, just to secure a win-win scenario. I wouldn’t be surprised if Burnham’s odds improve a bit as some people hedge for a surprise win for the shadow health secretary, too.)

I still don’t think that there is a plausible path to victory for Yvette Cooper

There is a lively debate playing out – much of it in on The Staggers – about which one of Cooper or Burnham is best-placed to stop Corbyn. Team Cooper say that their data shows that their candidate is the one to stop Corbyn. Team Burnham, unsurprisingly, say the reverse. But Team Kendall, the mayoral campaigns, and the Corbyn team also believe that it is Burnham, not Cooper, who can stop Corbyn.

They think that the shadow health secretary is a “bad bank”: full of second preferences for Corbyn. One senior Blairite, who loathes Burnham with a passion, told me that “only Andy can stop Corbyn, it’s as simple as that”.

I haven’t seen a complete breakdown of every CLP nomination – but I have seen around 40, and they support that argument. Luke Akehurst, a cheerleader for Cooper, published figures that support the “bad bank” theory as well.   Both YouGov polls show a larger pool of Corbyn second preferences among Burnham’s votes than Cooper’s.

But it doesn’t matter, because Andy Burnham can’t make the final round anyway

The “bad bank” row, while souring relations between Burnhamettes and Cooperinos even further, is interesting but academic.  Either Jeremy Corbyn will win outright or he will face Cooper in the final round. If Liz Kendall is eliminated, her second preferences will go to Cooper by an overwhelming margin.

Yes, large numbers of Kendall-supporting MPs are throwing their weight behind Burnham. But Kendall’s supporters are overwhelmingly giving their second preferences to Cooper regardless. My estimate, from both looking at CLP nominations and speaking to party members, is that around 80 to 90 per cent of Kendall’s second preferences will go to Cooper. Burnham’s gaffes – his “when it’s time” remark about Labour having a woman leader, that he appears to have a clapometer instead of a moral compass – have discredited him in him the eyes of many. While Burnham has shrunk, Cooper has grown. And for others, who can’t distinguish between Burnham and Cooper, they’d prefer to have “a crap woman rather than another crap man” in the words of one.

This holds even for Kendall backers who believe that Burnham is a bad bank. A repeated refrain from her supporters is that they simply couldn’t bring themselves to give Burnham their 2nd preference over Cooper. One senior insider, who has been telling his friends that they have to opt for Burnham over Cooper, told me that “faced with my own paper, I can’t vote for that man”.

Interventions from past leaders fall on deaf ears

A lot has happened to change the Labour party in recent years, but one often neglected aspect is this: the Labour right has lost two elections on the bounce. Yes, Ed Miliband may have rejected most of New Labour’s legacy and approach, but he was still a protégé of Gordon Brown and included figures like Rachel Reeves, Ed Balls and Jim Murphy in his shadow cabinet.  Yvette Cooper and Andy Burnham were senior figures during both defeats. And the same MPs who are now warning that Corbyn will doom the Labour Party to defeat were, just months ago, saying that Miliband was destined for Downing Street and only five years ago were saying that Gordon Brown was going to stay there.

Labour members don’t trust the press

A sizeable number of Labour party activists believe that the media is against them and will always have it in for them. They are not listening to articles about Jeremy Corbyn’s past associations or reading analyses of why Labour lost. Those big, gamechanging moments in the last month? Didn’t change anything.

100,000 people didn’t join the Labour party on deadline day to vote against Jeremy Corbyn

On the last day of registration, so many people tried to register to vote in the Labour leadership election that they broke the website. They weren’t doing so on the off-chance that the day after, Yvette Cooper would deliver the speech of her life. Yes, some of those sign-ups were duplicates, and 3,000 of them have been “purged”.  That still leaves an overwhelmingly large number of sign-ups who are going to go for Corbyn.

It doesn’t look as if anyone is turning off Corbyn

Yes, Sky News’ self-selecting poll is not representative of anything other than enthusiasm. But, equally, if Yvette Cooper is really going to beat Jeremy Corbyn, surely, surely, she wouldn’t be in third place behind Liz Kendall according to Sky’s post-debate poll. Surely she wouldn’t have been the winner according to just 6.1 per cent of viewers against Corbyn’s 80.7 per cent. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.