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