The versatility of opinion piece writers these days is such that virtually anything announced by the Federal Government can be put down to an elaborate union conspiracy.  Although he has a fair bit of competition out there at the moment, Paul Sheehan’s article about the Gillard ‘attack’ on the self-employed (SMH 12/05/11) must nonetheless rank highly amongst the conspiracy theorists. It certainly scores well for hyperbole and logical contortion.

Sheehan asserts that unions fear the self-employed and so they have entered into a secret pact with the Greens to ‘intimidate’ the Government. He divines this deal to be hidden in an announcement in this week’s Budget. The unions, Mr Sheehan says, want to strangle self-employment and the Government has acquiesced in this scheme through the introduction of a ‘grave and gratuitous administrative burden’ that would require reporting of payments made to contractors in the building and construction industry. 

The main authority for Sheehan’s thesis is not an analysis of the substance of what is proposed, but the views of Ken Phillips from the Independent Contractors Association, who describes the announcement as ‘a blatant and intentional attack on the self-employed.’

Heady stuff indeed.

But if we step away from the rhetoric and take a cold hard look at what is being proposed and why, a different picture emerges.

Origins of measure with Board of Taxation

Firstly, the suggestion that giving some attention to taxation compliance in the construction industry is a union plot is plain nonsense. Even the Cole Royal Commission (hardly a union-oriented body) accepted that compliance was a major problem in the industry. It recorded that for every dollar spent on compliance, the ATO recovered $6 in unpaid tax revenue. It made recommendations in favour of ATO audits and amnesty periods for those abusing the tax system.

The ATO has also told various Senate inquiries that there is a large slab of tax foregone in the industry through phoenix activity, fraud and evasion.

The October 2009 Report of the Board of Taxation, the first serious consideration of the personal services income rules in almost a decade, concluded that the current regime did not provide acceptable levels of integrity and equity in the tax system. It made a series of recommendations to address the problem. Included in these was a modest reporting requirement to facilitate data matching and encourage voluntary compliance.

The recommendation suggested the new reporting requirement be matched with existing reporting measures to minimise compliance costs. It would be nothing of the scale of the Business Activity Statements requirement that was imposed on businesses by the previous Government with the introduction of the GST.

If all of that sounds like a sensible means by which the ATO can ensure that compliance with tax laws is maintained, particularly in high risk industries like construction, it is because that is exactly what it is. Why would any responsible Government confronted with compelling evidence from a variety of reputable sources not take some action to stop serious revenue leakage and make sure people were playing by the rules?

But according to Mr Sheehan’s theory this is all just a ruse to fortify the position of the CFMEU, even though as he readily concedes, the measure ‘might harvest some tax revenue.’

CFMEU also represents self-employed

Trade unions do not fear the self-employed. In fact we enrol and represent many of them. What we do fear is the effect on the nation of the unrestrained growth of bogus or sham contracting. The CFMEU’s recent discussion paper ‘Race to the Bottom’ identified that up to 168,000 people or 46% of all those who style themselves as ‘independent contractors’ in the construction industry, could be  sham contractors based on ABS data. The cost to the nation in lost tax revenue was estimated to be almost $2.5b per annum.

The former Workplace Relations Minister Kevin Andrews almost gave the game away when he described the current tax rules for determining a contractor as ‘a self-assessment test ....easily manipulated to achieve the desired outcome if a worker is seeking to be classified as an independent contractor rather than an employee.’ Yet the proposal just announced does not do anything to change the existing laws. It is only directed to improved compliance with the laws we currently have.

MBA and AIG must decide whose side they are on 

What the Sheehan article really does is highlight the huge dilemma that the growth of sham contracting arrangements poses for those who represent the large number of legitimate businesses is the construction industry. Many contractors and employers in the industry are screaming at their industry bodies to acknowledge sham contracting as a fact and do something about it. They are doing their best to comply with tax laws and industrial laws but are regularly undercut by dodgy operators who flout these laws by engaging people as bogus contractors.

These are not the businesses that the Sheehan article supports.

Unfortunately outfits like the ICA (which in reality is an ‘astroturfing’ group with limited penetration amongst small contractors)  will always downplay the problem of sham contracting, even where the national interest in ensuring equity in tax treatment and tax revenue demands it. Worse though is the fact that bodies like the Master Builders and AIG continue to oppose any sensible measures that might rein in the growth of sham contracting and so assist those amongst their constituency who are legitimate contractors trying to compete against the ones who ignore the law and refuse to pay their fair share.

A matter of principle

An equitable tax system should be based on the simple principle that those doing the same work under the same conditions pay the same tax. Forget the hysterical headlines, this announcement is no conspiracy, just a small step towards a fairer system.