As the chairman of BHP Billiton, Jac Nasser knew exactly what he was walking into this week when he suggested the very rich should be left alone. Nasser more than most is in a position to gauge a global move to increases taxes on the world’s wealthiest.
In the US President Obama has resurrected the notion of ‘class war’ with a focus on the lack of tax paid by his Republican opponent Mitt Romney. Romney, a very wealthy former investment banker, has paid an effective tax rate of 15 per cent against 23 per cent paid by Obama.
In the UK the deputy prime minister, Nick Clegg, is targeting the rich with a ‘mansion tax’ that concentrates on properties worth more than $1 million. Meanwhile, Clegg’s Labour opposition is talking about a more widespread ‘wealth tax’.
In France the debate has reached fever pitch after Bernard Arnault, the richest man in France, announced he is looking at changing to Belgian citizenship – a move which would allow him to avoid a 75 per cent wealth tax being prosecuted by Socialist French Prime Minister Francois Hollande. The move prompted left-wing French newspaper Liberation to taunt the tycoon behind luxury goods maker LMVH with the headline ‘Get lost you rich idiot’.
We’re not quite debating wealth taxes yet in Australia but there are clear signals alluded to by Nasser that the Gillard regime is going to target ‘the rich’ in the months ahead.
Two factors point to a ‘rich hunt’: A Labor government consistently vilifying rich entrepreneurs, led by Treasurer Wayne Swan’s attacks on mining tycoons, and rumours of a crackdown in DIY superannuation – where the average fund balance is reportedly $900,000 versus an average balance for the majority of funds held by ‘ordinary Australians’ of less than $50,000.
Nasser suggested the risk now in Australia is that rich entrepreneurs will literally run from a government which they believe is out to get them: They’ll head for Singapore or Switzerland.
The former Ford boss, who is a self made corporate captain who rose from a modest Lebanese immigrant family, can mount these arguments with impunity because he represents the best form of winner in a capitalist society. Moreover, we know his salary ($1.1 million a year from BHP) and we know he pays tax (because he works for a closely monitored public company).
But the answer is not to leave the rich alone: The answer is surely to reward hard work and risk taking and to tax wealth when it starts to represent what they used to call ‘the unacceptable face of capitalism’.
Perhaps the most contentious rich are those who make huge salaries from poorly performing companies. But it must be said there is genuine progress being made here as the second year of ASIC’s 'two strikes' rule really hit home in the last reporting season with a string of under-performing CEOs forgoing pay rises, including Nasser’s own understudy, BHP chief Marius Kloppers. (The rule means executives can be voted off a board if they get protest votes from shareholders two years in a row.)
Ironically, it seems the government is chasing the wrong type of rich: Entrepreneurs such as the mining titans identified by Swan and aspirational investors typified by DIY funds are what makes for a successful economy.
Meanwhile, Australia remains free of any form of inheritance tax. As leading investment banker Mark Carnegie put it at the time of the last tax convention in Canberra: "Everybody else gets taxed when they get income, but somebody who gets money from daddy or mummy can then turn around and pay no tax on that.” If the Gillard regime wants to pinch the rich, inheritance tax could be the best place to start.