WEDNESDAY, 24 MAY 2017
Subjects: Labor’s plans to tackle phoenixing activity, ATO arrests, charities and transparency
JEREMY CORDEAUX: Phoenixing – it’s a lovely word, isn’t it? Phoenixing, phoenixing, phoenixing. Phoenixing companies. I was talking about it at the beginning of the program – it’s about stripping the assets of a company, going bankrupt, scamming all the creditors – including the ATO – then starting up the company again, down the road maybe or maybe in the same place, I don’t know, and doing it all over again. It’s just too easy and too attractive and it shouldn’t, somebody should’ve done something about this a long time ago.
Somebody who feels very strongly about it is Dr Andrew Leigh. He’s the Shadow Assistant Treasurer and he’s got a whole pile of other things he’s responsible for. I personally think he should be the leader of the opposition, but that’s just me. How are you, Dr?
ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Very well, though I have to disagree of course Jeremy – I think Bill is doing a fantastic job as our leader.
CORDEAUX: Well, you would say that. I just think you can run rings around just about everybody in parliament, frankly, but anyway.
LEIGH: Very kind of you.
CORDEAUX: That’s just me. Now, this phoenixing thing – how come this has been allowed for so long?
LEIGH: Well, beats me. I mean, phoenix operators are ripping off taxpayers, ripping off workers and most of all they’re ripping off decent small business owners. There was a bloke called Daniel O’Connell, a plumber in regional Victoria who lost $200,000 to a phoenix operator called Global Contracting, who left him and another 300 creditors out of pocket when they took the money and moved it to a different company.
There’s a team of experts at Melbourne University and Monash who have been working on phoenix policy for the last three years and have come up with a bunch of sensible recommendations, including the straightforward idea that we should have a director identification number, so directors can’t pretend to be a different person when they get shut down and then want to go back into business.
CORDEAUX: No, I couldn’t agree more. It’s such a simple way of handing it. If you’re the director of a company - and it’s very easy to set up a company and it’s very easy to become a director – it should be that there is some sort of accountability or tracking mechanism.
LEIGH: And the strange thing, Jeremy, is that it’s easier at the moment to become a director than to open a bank account. We’ve had praise for our proposal today coming not only from the ACTU, but also from former ACT Liberal leader Kate Carnell. We’ve had the Australian Institute of Company Directors saying that they support a director identification number.
CORDEAUX: What do the Liberals say?
LEIGH: Well, they say they’re looking into it, but they’ve been dragging their heels on this one and meanwhile honest businesses are getting ripped off. Phoenix operators are able to run rampant in the economy, particularly in areas like construction and labour hire and they’re giving good directors a bad name and they’re ripping off honest workers.
CORDEAUX: The areas that sort of get feedback on are car, people in the car business, the car industry, the cleaning contractors, the building industry is almost infamous for this type of thing.
LEIGH: That’s right. We all know the myth of a phoenix, a bird that’s magically reborn from its ashes. But there’s nothing magical about these phoenix operators. They’re the lowest of the low because they they’re taking advantage of people’s trust and then leaving others out of pocket to pick up the pieces. Trying to take the assets, strip them out of one company and put them in the next one. We might not be able to eliminate all phoenixing, but straightforward measures such as raising the penalties, getting the standard of proof right and getting the director identification number will make a big difference.
CORDEAUX: Yes, that should just whiz though, for god’s sake. Everybody should be favour of that unless you’re a crook.
LEIGH: I certainly hope it will. We’re encouraging the government to take this up and frankly the thing about politics Jeremy is that we don’t mind who takes the credit, so long as the change gets done. So long as we can get this important change in place and protect people like Daniel O’Connell.
CORDEAUX: Yes. The ATO is a perpetual victim of this kind of thing. I’m surprised they haven’t cracked down on this – though they did tell me that Michael Cranston, this guy that’s in a bit of trouble at the moment, the guy who was supposedly in charge of these phoenixing files.
LEIGH: Obviously, that’s an ongoing investigation, so I’m cautious about what I’d say about it. Certainly, it’s a matter of public record that Mr Cranston oversaw a lot of this operation, but it’s also something that the tax office has been working on. Frankly, we just need to give them the tools to do their job. Director identification number means we can avoid the situation, for example, where someone has tweaked their birthdate and suddenly it looks like they’re an entirely different director. Making sure that we have the right standard of proof ensures that we’re actually able to convict people who have ripped off employee entitlements. There’s never been a conviction and that suggests that the laws just aren’t right.
CORDEAUX: It’s a bit trickier here in South Australia, in Adelaide, because word of mouth is such that everybody knows everybody, how good everybody is and where he is or she is. It kind of keeps people honest. But you go to big city like Sydney or Melbourne, these people can close down on one side of Parramatta Road and open up the next day on the other side under another name and no one will notice!
LEIGH: That’s absolutely right, Jeremy, and one of the risks then is that people don’t want to do business with strangers. They’re only willing to deal with the close-knit group around them and that’s inefficient. It’s no way to run an economy. Now, one of the interesting things about Adam Smith’s writing - one of the founders of free market capitalism – Smith talked about the importance of trust, about how markets work better when you and I can trust one another in the world of commerce. So we need good rules on phoenixing to make the economy hum.
CORDEAUX: Well, when do you think we can clean this up?
LEIGH: Well, it’s just a matter of the government moving on it. This is Labor policy – Brendan O’Connor, Katy Gallagher and I announced it today and Bill Shorten is very enthusiastic about it. Under a Shorten Government, it would happen. Under a Turnbull Government, we’re crossing our fingers.
CORDEAUX: Well, bless you. It’s just a no brainer, as they say. The other thing I wanted to ask you about – I know you’re the minister for charities and I only found out the other day. I didn’t know there was a minister or a shadow minister for charities.
LEIGH: Well, it’s an important issue for Bill Shorten. He created that ministry after the last election, he felt that it was important for us to engage better with the charitable sector than we’d done.
CORDEAUX: Well, engaging is wonderful. Keeping them accountable is another. I’d like to ask you, the whole not for profit, charitable area is about $1.5 billion a year. It’s a very big sector and these people enjoy this wonderful thing called tax deductible status. Now, that’s money the government doesn’t get and I’m concerned that in most cases, the cause for which the money is collected doesn’t go there either. We are talking about a thing that is so opaque that instead of a law saying you have to declare how much of every dollar that you collect goes to the cause, it can be as little as two per cent.
LEIGH: Well, Jeremy, like a good dinner party guest, I’m always reluctant to disagree with the host, but I think it’s unfair to say that on average the charitable sector isn’t doing a good job. I’ve engaged with hundreds, if not thousands, of charities since taking on the job and I see how they’re able to make the world a better place on the smell of an oily rag. But we do need appropriate accountability and the creation of the charities commission in 2012 and it’s now got bipartisan support, apparently, under its fifth minister with the Coalition. So the charities commission is the central body which provides this level of accountability and making sure that they’re properly resourced and they’re able to deregister a charity if they’re absolutely doing the wrong thing and then provide transparency for the vast bulk of good, honest charities.
CORDEAUX: They can chalk up anything to administration, luxury car hire, leasing payments, overseas travel, fact finding and the result is that this is a huge business and, in some cases, an enormous rort. I’ve seen it up close myself.
LEIGH: Jeremy, you need to do your due diligence if you’re going to be giving to a charity. I think it’s important that we encourage people to look into a charity rather than have someone simply knock on the front door and immediately just fork over cash out of your wallet. In the United States, there’s a big move towards impact evaluation now, the effective altruism movement. And that’s saying we need to go beyond just looking at the administrative costs to actually looking at what a charity does on the ground. Because you can have low administrative costs but not make the world a better place. Peter Singer’s been very active in this, I chatted about with him when he was out in Australia recently. There a US website called givewell.org. I’d love to see more of that assessment of charity impact in Australia.
CORDEAUX: But why wouldn’t you just have a simple law of transparency? You have to have a statement that tells your donors exactly how much of every dollar goes to the cause – is it 60 per cent? Is it 40? Is it 80? Some of the charities, some of the really good ones like the Smith Family, it’s about 98 per cent.
LEIGH: Well, you can get a lot of that information on the charities commission website, but what I worry about is that administrative costs can often be monies that you would want a charity to spend. You would want a charity to make sure that they’re paying their workers decent wages, for example. Charities with the lowest administrative costs aren’t necessarily that are doing the most good, so I’d really like us to move towards better impact evaluation, towards helping donors sort out the very best charities. I’d encourage your listeners to log on to givewell.org – very interesting site which has gone through and taken a fine tooth comb to a group of charities and identified those who are saving the most lives for the fewest number of dollars.
CORDEAUX: What did you think of Twiggy’s, of Twiggy Forrest’s donation? $400 million.
LEIGH: Very generous and a good example to many others.
CORDEAUX: Good tax deduction too, would it not be?
LEIGH: Well, donations are always tax deductible, whether it’s you and I buying some raffle tickets or Mr Forrest making a donation of that scale.
CORDEAUX: Are raffle tickets allowed? I didn’t think so
LEIGH: No, not raffle tickets – I was thinking of door to door donations. You’re quite right! But I think it is an example, a reminder that you can’t take it with you. Coming back to Peter Singer again, he was telling me that he started giving a tenth of his income in the 1970s. He’s up to a third now, aiming to move up to a half in a number of years. People like that are a real inspiration for those of us who aren’t able to match their generosity just yet.
CORDEAUX: Well, I’ve made up my mind, if I can’t take it with me, I’m not going.
LEIGH: [laughter] That seems a good strategy!
CORDEAUX: Thank you very much for talking with us.
LEIGH: Thank you, Jeremy.
CORDEAUX: All the best, sir. Andrew Leigh, Dr Andrew Leigh – he is the Shadow Assistant Treasurer and in charge of charities and look – if you tried to fit everything that this man does on a business card, it would have to be kind of 12 inches wide, I would think.