How the ATO’s decision to investigate tax fraud allegations against Chevron may affect the economy.

Global energy giants Chevron have recently been involved in a legal battle with the Australian Taxation Office regarding potential tax evasion of up to $300 million, which the ATO has now issued them to pay. Although Chevron believe this decision to be unfair and will likely contest it, it looks likely that the ruling will go ahead, and this may have multi-faceted repercussions on Australia’s economy.

Chevron are a worldwide company, who operate in over 180 countries, and are worth an estimated US $155 billion, and this crackdown by the ATO (Australian Taxation Office) is sending a huge statement of intent to companies worldwide about tax evasion/exploitation in Australia.

How this will affect businesses

This case will likely reduce the incentive for other large corporations to expand and invest in Australia, as they see venturing into Australia as less profitable now as they realise their tax practices (which may or may not be legal) may be investigated and they therefore may be forced to pay full tax rates.. If this were to happen, Investment (a key part of Aggregate Demand) would decrease. This would then potentially reduce profitability for many businesses, especially those who do contract work in the infrastructure industry, and businesses that feed off of such industry. This could potentially cause unemployment, as businesses downsize to compensate for the lack of profit that they are seeing.

Australia’s economic goals

This will also inevitably affect Australia’s economic goals. Inflationary pressures would likely decrease alongside the decrease in AD. Unemployment would likely increase as jobs are lost, and Economic growth would most likely decrease too.

Conclusion

It is going to be hard to tell how other businesses who are looking to invest in Australia will react to this, and whether this decision may actually decrease Investment by a considerable amount. It leaves the government stuck in a hard predicament, and I believe that they would have had to think carefully about making the decision to prosecute Chevron for the tax charges because of these potential follow on effects it could have on the economy, and essentially make a decision about the opportunity costs of the decision.

Question

If you had to decided whether to investigate Chevron on this matter, would you?

Source: http://www.smh.com.au/business/mining-and-resources/federal-court-tax-ruling-against-chevron-a-huge-disappointment-says-global-vp-20170502-gvxdh4.html

Advertisements

9 Comments

  1. A very interesting take on the ATO’s decision, one I certainly never would have considered. While deeply disturbing that there may be negative effects of compelling a company to abide by the law, this is an excellent point, as the economy may suffer considerably more for the lack of investment than it might for the payment of this owed tax. Given the uncertainty of whether this will be of net benefit to the economy, I believe that companies should be compelled to pay these taxes, for no other reason than it will discourage other companies from shirking their taxation responsibilities in the future. I would also like to think that the allure of the Australian Economy will continue to encourage investment, even if we force companies to pay our taxes, though the fact that it might not has certainly broadened my perspective on the situation.

    Liked by 1 person

    1. I wholesomely agree with your point of view. Scaring the giants would most certainly have the smaller companies follow suit. Although, maybe a different approach to incentivise companies to pay tax, perhaps through benefits given to companies when taxes are paid?

      Liked by 2 people

  2. Although attracting foreign investment is an important part of the economy, allowing them to get away with tax evasion is a dangerous game. Firstly, it’s a slippery slope – if they know they can get away with not paying taxes, what other laws will they flout? Also, foreign investment impacts negatively on our balance of payments, and leads to incomes and profits being sent back overseas. Domestic investment (what goes into Aggregate Demand) is much more healthy for our economy in the long run. Unfortunately, we don’t have the ability to manufacture petrol and so must trade internationally for it. I don’t think this gives large multinational corporations the right to mess us around.

    Like

  3. There are many countries that establish themselves as tax havens for large businesses. For example, Ireland does this to a fairly large degree and is very soft on enforcing it’s already lax taxes. This has large ramification and can lead to displeasure on the international stage. It also significantly reduces the income of the government. Almost never does the money have larger economic impact than when the government gets it, as the government is often inclined to spend it it. The same is not true for large corporations. As such, it is often not a good move for a government to ignore these issues,

    Liked by 1 person

  4. Although taxation is a leakage from the economy, it also leads to more government spending (which is an injection) on things that may better Australia’s overall material and non-material living standards such as infrastructure or welfare payments.

    Liked by 1 person

  5. It would be unreasonable to expect smaller companies to follow the law but not larger ones simply because the larger ones make more money – any government that supported such a policy would not last long in the eyes of the media. Chevron should have seen this coming.

    Liked by 1 person

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s