Snapping at heels of civil liberty

It was obviously a tactical error for Paul Hogan to tell the Australian Taxation Office to “come and get me, you bastards”.

The ATO claims Hogan used offshore accounts to hide profits from his film Crocodile Dundee and avoid paying tax. So they slapped him with an order to prevent him leaving the country. Never say the Tax Office isn’t fearless: Hogan was visiting Australia for his mother’s funeral.

The order was lifted yesterday after the Tax Office and Hogan had a ”cordial” meeting.

There are many reasons to be concerned by this course of events. The Hogan case is a window into just how draconian the government’s taxation and regulatory powers have become.

To start: Hogan has not been charged with any crime. Sure, he allegedly owes the government money – some reports claim it could be up to $150 million, after interest and penalties.

But he has an absolute entitlement under our taxation system to dispute that amount. And there’s a fair chance he could win: about half of all tax disputes end with the taxpayer paying less than the ATO claimed. Tax disputes are complex and technical. Taxpayers have been known to make mistakes. So has the ATO.

On a purely practical level there was little reason to believe he was a flight risk. Hogan is no Carlos the Jackal. Yes, he lives overseas, but he has returned to Australia frequently in the many years he has been under investigation. He has five children and nine grandchildren here.

Hogan’s bad luck was to find himself smack bang in the middle of a political push to eliminate the use of overseas tax havens. He is the highest profile target of Project Wickenby, a federal government crackdown on offshore tax evasion and tax avoidance.

Project Wickenby’s conflation of evasion and avoidance is a big problem. Everyone tries to avoid paying more tax than they have to. We all keep receipts of work-related expenses and rigorously, if not enthusiastically, tally them up to be deducted from our income.

One Henry tax review recommendation was to set a “default” deduction, institutionalising this minor and common form of tax avoidance.

Sometimes avoidance is more complicated – digging through the tax act for exemptions. Australia’s income tax law is 5743 pages long. Compare this to Hong Kong’s 200 pages, and it’s no surprise there are many cunning schemes to minimise tax.

There’s nothing wrong with that. Australians have no moral obligation to pay more tax than the tax law requires – even if it means using offshore accounts. The government itself admits that many uses of tax havens are completely legitimate.

Evasion is supposed to be very different from avoidance. For one, it’s clearly and unambiguously illegal. You evade tax when you are liable to pay tax, but deliberately do not.

In Australia, the distinction between evasion and avoidance has been long recognised by law. Yet in the past two decades the government has deliberately blurred the distinction in order to investigate tax havens and their clients.

One reason governments don’t like tax havens is obvious: money goes to the haven instead of government coffers. But perhaps a bigger reason is tax competition. Lower taxes elsewhere pressure governments to keep their own tax rates down.

The Organisation for Economic Co-operation and Development has been running a campaign to have developed nations harmonise their taxes as far as possible and end the “harmful” competition.

This international debate about the legitimacy of tax havens and the desirability of tax competition is the background to Project Wickenby and the case against Hogan.

For now, whether Hogan’s alleged use of offshore accounts is evasion or avoidance is an open question. While this question remains unresolved, the ATO’s violation of Hogan’s freedom of movement – a basic civil liberty – is obscene.

It is also a reminder that some of our regulatory agencies and government departments are vested with extraordinarily coercive powers. Since 2004, Wickenby investigators have been repeatedly accused of being aggressive and using intimidation as a weapon.

The Australian Securities and Investments Commission can be just as draconian. ASIC has a remarkable array of powers. It can compel people to answer questions with no recourse to the court system. ASIC runs private hearings, where people are made to give evidence under oath, with “as little formality and technicality” as possible – “formalities” such as the rules of evidence and the privilege against self-incrimination. The ASIC Act even says the regulator should do “whatever is necessary”.

A Senate report in 2000 found that a number of government agencies had stronger powers to enter and search private property than the federal police. In the Herald in July, Professor George Williams argued that many powers held by the Australian Building and Construction Commission “greatly exceed those given to any police officer in the nation”.

And the Rudd government’s Carbon Pollution Reduction Scheme Bill – had it passed – would have eliminated the right to silence and the privilege against self-incrimination, and reversed the onus of proof for suspected polluters.

The erosion of these rights and protections in order to tax and regulate should be a big concern.

These protections have developed over centuries to defend the rights of individuals against coercive and unjust state power.

Polluters deserve rights, too. So do unions targeted by the ABCC. And people suspected of corporate wrongdoing. And wealthy taxpayers.

The ATO has badly abused Hogan’s civil liberties. That’s bad enough. But more worrying is that many other regulators have the ability to do so as well.