Tax woes of the wealthy

Retail veterans Gerry Harvey and Solomon Lew were reminded of a very important lesson last week – the public never likes it when billionaires whinge about tax matters.

The decision by the normally media-shy Lew to organise retailers including Harvey Norman, Myer and David Jones into the so-called Retail Coalition and actively lobby the Government over the GST-exemption for goods purchased from overseas is a strange one.

While these retailers have belatedly indentified the rise of web sales as a serious structural challenge to the Australian retail sector, the response was poorly thought out. The sight of billionaires calling for protection from the Federal Government – in a way that will actually cost many consumers – was just never going to go down well.

But Australia isn’t the only country where the tax issues of the wealthy have sparked a public outcry.

In Britain, a protest movement called UK Uncut is targeting wealthy business people and corporations over their use of tax avoidance strategies, creating an “army of citizen volunteers determined to make wealthy tax avoiders pay” through protests, blockades and other stunts.

In the US, bloggers and academics are demanding that the wealthy hand back tax cuts they received under a controversial extension of a tax package put in place by George W Bush’s administration, while a new poll says the rich should be taxed to repair the US budget deficit.

All of a sudden, it appears tax has become a flashpoint in a new round of the class wars.

Britain’s tax revolt

If you think the barrage that Gerry Harvey and Solomon Lew has copped has been ugly, then spare a thought for British billionaire Sir Philip Greene, whose retail empire Arcadia is behind such brands as Topshop, Topman, Dorothy Perkins, Burton, Miss Selfridge and British Home Stores.

Greene has become the number one target of UK Uncut, a protest group that has sprung up since the Conservative government came to power in Britain in May, and subsequently announced a spate of tax and government fee increases and cuts to government services and spending. Among the most controversial measures has been an increase in tuition fees for university fees.

While much of UK Uncut’s power base comes from left wing and student groups, the organisation’s core message – that super-rich entrepreneurs and corporations should be prevented from dodging tax at a time when the rest of the nation is being hit with cutbacks and tax increases – is clearly resonating.

Greene has become a target over the ownership arrangements of Acardia. While he is a British resident and taxpayer, and head of the company, the group is actually owned by his wife Christina Greene, who lives in Monaco and does not pay tax in Britain.

UK Uncut has particularly targeted a $1.8 billion dividend paid by Arcadia through a company in the tax haven of Jersey to Christina Greene in Monaco. UK Uncut says the arrangement – which is legal – cost British taxpayers $467 million in tax. This is money that the protest group says could pay for the (increased) tuition fees of 32,000 students, or the salaries of 20,000 nurses.

Greene is a particularly juicy target because of his involvement with the Conservative Government. In August, Prime Minster David Cameron asked him to advise on strategies to slash public spending in order to reign in Britain’s budget deficit.

The campaign against Greene really kicked off in December, when UK Uncut staged sit-ins, blockades and various stunts (including flash mobs and gluing protesters to shop windows) at Topshop stores around Britain.

While the protests were criticised in some quarters for causing disruption during the Christmas trading period, they have served to highlight to the public what is a complex issue – the often elaborate arrangements that the wealthy use to minimise their tax.

For his part, Greene has denied that his wife is a tax exile and says his company pays large amounts of tax in Britain each year. But that looks unlikely to stop the protestors any time soon.

US voters take aim at the top bracket

The tax treatment of the wealthy is also a hot topic in the United States, thanks in no small part to a controversial decision to extend a package of Bush-era tax cuts and measures for two more years.

The extension of the $US858 billion package has been decried as a free kick for the rich. As well as preventing an increase in tax rates, it eased taxes on wealthy estates, and held in place other benefits such as the current tax rate on gifts, which in the current US economic environment are usually made by the wealthy.

President Barack Obama has said he was forced to agree to extend the tax measures as part of a compromise with the Republicans, and has signalled he will take aim at tax rates for the rich in 2012 when the package ends.

But the backlash has started. A poll released late last week showed that most Americans believe that higher taxes for the rich are the best way to balance the US budget, given a relatively limited number of options.

The poll commissioned by television program 60 Minutes and Vanity Fair magazine shows 61% of respondents would use tax increases for the rich ahead of three other options: cutting defence spending, cutting Medicare or cutting social security.

Even wealthier respondents appear to back the plan – 46% of Americans earning more than $US100,000 said tax hikes for the rich were the best option for bringing the US deficit under control.

Taxing times ahead for the rich

The results of the US survey are hardly surprising – it’s really pretty easy to say you’d like to increase taxes on the rich and solve the problems of the world.

But the protests in Britain show that complex tax questions – such as why governments do leave gaping loopholes the rich can exploit – can jump from the business pages and onto main streets.

With budgets in deficit all over the world, it seems the rich should get ready for greater focus on their tax affairs – and probably higher taxes too.