When I decided to write this a couple of days ago I had the impression that the Australian tax commissioner had sent a letter to Dick Smith, a successful Australian businessman and aerial adventurer, threatening him with dire consequences if he did not refrain from use of legal tax avoidance measures. As I gathered information together, however, a rather different story emerged.
The best place to begin is with the late Kerry Packer, who was the wealthiest person in Australia. When asked by a government member about his company's tax minimisation schemes (during a public inquiry in 1991) Packer famously replied:
"Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"
A couple of weeks ago it seemed that Dick Smith had finally decided to follow Kerry Packer’s lead. Smith wrote, in a letter to the tax commissioner, that he didn’t agree with Packer’s statement at the time it was made “but I certainly do now”.
Smith’s letter to the tax commissioner was in response to a brochure sent to 1200 wealthy Australians. Having just looked at the brochure, merely out of curiosity, it seems to me that there is nothing particularly objectionable in it. The main message seems to be that it is important for wealthy people to get good advice about tax matters.
However, in his letter Smith made clear that what had led him to change his mind was a particular instance of waste and mismanagement in relation to defence procurement. It seems that the tax commissioner was just a convenient target for Smith’s letter.
When I first read the newspaper articles suggesting that Dick Smith had become a convert to Kerry Packer’s views on government spending and tax minimisation I thought this meant that he was about to put his considerable skills in capturing public attention to use in making the case for smaller government and lower taxes. I was wrong.
An article in “The Australian” on Monday indicates that Smith has now told the tax commissioner that he will not be “entering into any scheme to legally minimize my tax”. What did the commissioner do to get Smith to change his mind? It seems that he just appealed to Smith not to do anything that could reduce community confidence in the tax system.
So, how did Smith respond? Well, it seems to me that Smith’s response was the human equivalent of a puppy that whines until it gets attention and then rolls over onto its back and asks to have its tummy tickled. Smith asked the tax commissioner to publish a list of Australia’s 100 top taxpayers in order to give them recognition for their efforts. His reasoning seems to be that anyone in the list of Australia’s 100 top taxpayers must be a particularly virtuous person who deserves recognition for, in effect, volunteering to pay more tax than he/she is legally obliged to pay.
What nonsense. Some wealthy people who take advantage of opportunities legally available to avoid tax, in their efforts to maximise post-tax income, might still be included among the top 100 taxpayers. Moreover, it is possible for wealthy people to minimize their tax as a consequence of altruism rather than selfishness – people pay no income tax if they donate all their income to registered charities.