Forty-five millionaires paid absolutely no tax in the 2018-19 financial year because they reduced their astronomical gross incomes to “taxable incomes” below the tax-free threshold by applying various legal deductions.
Guardian Australia’s Greg Jericho argued the data vindicates federal Labor’s 2019 election platform, which would have limited deductions for negative gearing and tax management. However, there has been little critical examination of the biggest deduction wealthy individuals are claiming: donations to charities.
The ATO’s latest data dump revealed that 14 of Australia’s highest earners — many featured in The Australian Financial Review’s recent Rich List — gave away a whopping $161 million in the 2018-19 financial year, about $11.5 million each.
While some rich-listers give to truly worthy causes, many recipients of their largesse are not quite so altruistic as World Vision or the Guide Dogs. Australia’s richest person Gina Rinehart has contributed millions to the conservative think tank The Institute of Public Affairs (IPA), all of which would have been tax-deductible as the IPA has tax-deductible gift recipient status.
Last Friday Rinehart pledged another $1.6 million to the SAS Resources Fund, another tax-deductible gift recipient. The fund is in part paying the legal fees of returned servicemen caught in the fallout from the Brereton inquiry into alleged SAS war crimes in Afghanistan — which Rinehart regards as largely a beat-up by the “left media”.
But if the government were to limit tax deductibility for rich donors, couldn’t that affect truly deserving non-profits too?
Despite survey data suggesting we all dug deep for the Black Summer bushfires, ATO data shows charities increasingly rely on the rich because of a long-term decline in average donors due to stagnant wages and declining consumer confidence. Some rich-listers would surely contribute regardless of our tax settings, but a few disgruntled billionaires may stop returning the Royal Children’s Hospital’s calls.
But this might not be such a bad thing.
In the United States, the consequences of non-profits’ over-reliance on elite funding were exposed by Bill and Melinda Gates’ recent divorce. The incident highlighted the financial risk of many global humanitarian efforts being so dependent on two individuals whose future philanthropic propensity is now uncertain.
Philanthropy can also allow wealthy individuals to cleanse their conscience and burnish their social status after profiting from others’ misery, instead of simply acting ethically in the first instance. And often the social problems rich do-gooders showboat as saviours for could have been prevented if they had simply paid more tax.
As Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World, wrote: “Gifts to the arts and other good causes are not only a way for ultra-wealthy people to scrub their consciences and reputations. Philanthropy can also be central to purchasing the immunity needed to profiteer at the expense of the common welfare.”
Capping rich-listers’ tax write-offs from donations would not only benefit Treasury’s coffers — it would forge a more sustainable and impactful charitable sector. And it would rein in elite power by ensuring the rich contribute to the collective assets of our elected government, not their own preferred causes.
Before federal Labor lost its nerve on tax policy, such a deductions cap briefly gained traction. In 2015 Anthony Albanese moved a failed motion at the ALP’s national conference recommending the adoption of the “Buffett rule”, named after US investor Warren Buffett who derides his fellow billionaires’ substantial tax deductions.
The plan would have capped the percentage of total income that the richest Australians could shave off with deductions. The Australia Institute suggested capping it at 35% for those earning more than $300,000. Labor figures including party president Wayne Swan pushed the policy even after it failed on the conference floor.
But Labor’s Treasury spokesman Chris Bowen rejected the proposal in 2017, partly due to concerns about its impact on philanthropy, opting instead to confront tax loopholes such as negative gearing and franking credits directly.
Since Bowen’s strategy imploded at the 2019 election, revisiting the Buffett rule could allow Labor to improve the equity of our tax system while assuring middle-income voters the limits would not apply to them.
As the end of the financial year approaches, charities are bombarding the public hoping that generosity might be heightened by the prospect of getting the cash back in your tax return.
If you’ve got the capacity, you should dig deep for a worthy cause. But if you’re in the top tax bracket, you should not give for want of a tax deduction — but out of the goodness of your heart and the fatness of your wallet.