October 18, 2017

Horse 2335 - Taxing Churches Is Either A Pointless Or Nasty Exercise

One of the things that I've seen with mind numbingly dull regularity and usually in relation to fixing holes in government budgets, is the suggestion that churches should be taxed. I suspect that this is almost always put forward because of one of two worldviews: firstly that there is a perception that churches are​ monolithic organisations of magic piles of untapped monies; secondly that the person making the suggestion either doesn't like churches or has a quiet vendetta against them. The first of these two theories is relatively easy to unpack, the second is even easier because at least it is open with its truth.
So, I'm going to do precisely that.
The idea that churches somehow hide a limitless pile of untapped monies is laughable; yet if you unpack this for people, they tend to want to accuse you of being a conspiracy theorist, even though it is their theory that you've just unpacked.

Churches and indeed all religious organisations derive their income from voluntary sources. It probably should go without saying but we need to start somewhere. One of the basic assumptions of economics happens to align up with one of the central tenants of Christianity quite well and that is that people are selfish. Economics usually goes on to make the further assumption that people are rationally selfish but anyone who has observed people in anything more than an academic sense, which usually isn't economists, will tell you that people are not particularly rational. On the other hand, mathematicians will tell you that if you have a sufficiently large enough sample size, then the individual irrationality of people becomes a statistical predictability; so we'll look at that.
The Australian​ Taxation Office tells us that the rate of charitable giving in Australia works out to be slightly less than 1% of people's declared taxable incomes. The Internal Revenue Service in the United States, which also happens to include donations to churches within people's tax returns as allowable deductions (church giving is not an allowable deduction in Australia), reports that the rate of charitable giving in the United States only improves to about 2%. You can of course put forward the theory that people who give money to charity don't want to report their charitable giving because of reasons of piety but the obvious counter to that is that the rate of charitable giving by companies and trusts is so incredibly small as not to be statistically significant.
We can make the general assumption that churches and indeed all religious organisations probably collect about 1% of total GDP as revenue. If we take the doctrine of the tithe, which suggests that one tenth of a Christian's income should be given away for the purpose of doing good, then working backwards we can draw the conclusion that of the total population that probably about 10% of Australians are regular atttendees of churches and that seems about right to me.

It should also be pointed out at this point that churches and other religious organisations in Australia are almost never vertically integrated. A local church is almost always an exclusively local organisation, which might pay association fees for administration but even something as big as "the Catholic Church" is still made up of independent parishes with independent sets of accounts. They aren't even large group employers for the purposes of taxation. In addition to this, schools, colleges, universities, hospitals and philanthropic and charitable organisations and foundations are also independent from churches. Unless a school is exceptionally small, although they might share board members with the church that spawned them, then they are both functionally and actually independent.

Taking that 1% of GDP as the assumed revenue for all churches (which by the way I think is very much optimistic) then the total amount of available money should be $12.05bn, right? Well not really.

If we're going to make the assumption that churches specifically should be taxed at company tax rates, then it immediately follows that they should also be allowed to make deductions which relate to the revenue that they collect. Section 6 of the Income Tax Assessment Act 1997 provides the definition of ordinary income and almost immediately after, Section 8 of that same act defines the allowable deductions which relate to that income.
Here we immediately run into a problem. Once you allow for electricity, water rates, gas bills, council tax, insurance, stationery, maintenance of buildings, and what not, then like most organisations, the single biggest expense for churches are paying wages. The thing is though that right across Australia, there is a consistent underpayment of vicars, pastors, immams, and others​ ancillary staff, if indeed they are paid at all.
Should the full economic costs of what amounts​ to voluntary work be brought to account? As soon as you start enforcing that vicars, pastors, immams and everyone else employed by religious organisations are paid at full rates of wages, then immediately the entire sector of the economy begins to start running on exceptionally tight margins, to the point where they almost always run at actual losses. This is exactly the reverse problem which usually presents itself in corporate tax law: instead of corporations sending revenue streams overseas to create tax losses and avoid paying tax, churches would need to start bringing to account previously unaccounted for expenses.
Instead of a magic pot of untold billions of tax dollars that those people who want churches expect to be found, we find a hole of untold billions of expenses which have never been paid for and if they were all brought to account, then I can pretty well much guarantee that most churches would become loss making entities and pay zero corporate tax. So much for that idea then.

The other issue why people might want to start taxing churches is because they don't like them and wish punitive harm upon them. Scratch the surface of the veneer of civilisation even just a tiny little bit and you'll instantly return to that previous statement that people are irrationally selfish. If you then ask the basic question of why a church isn't any different to a sporting club, theatrical society or a book club and your previously reasonably rational person who wants to justify taxing churches, turns into a knave. If that's all that substantiates the desire to tax churches, then in the cold light of rationality, why not start taxing sporting clubs, theatrical societies and book clubs? I openly hate rugby league and think that it is stupid but I don't think that rugby league clubs should be taxed unless they pass into the realm of obviously being a business.
That last point is worth considering. At some point, club, association or society does look less and less like a not for profit organisation and does begin to look like a full blown profit making company. I don't know where the line lies but I do know that Sanitarium Foods and Hillsong Music very very very much look like profit making businesses and motives should very much be questioned. The local parish church in an inner city suburb with 60 members and only 4 properly paid staff, although it might sit on a plot of land worth a few million dollars, is not exactly what most people would call a business.

The logical conclusion is that if churches were to suddenly become companies for tax purposes, just because some bozo out there thinks that there's a massive untapped pile of tax revenue, it won't do much at all. If that same bozo wants churches were to suddenly become companies for tax purposes, just to fulfil some kind of strange vendetta, then that's equally as pointless. I imagine that taxing churches would be even less fruitful than the brilliantly myopic Minerals Resource Rent Tax of the Rudd/Gillard/Rudd/Abbott governments and collect less than 10% of the expected revenue and since the expected revenue is already diddly-squat, then 10% of that is not even diddly - which makes such a plan either stupid or nasty, so pick one.

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