Construction union dictates attack on tradies

Why would the Gillard government specifically seek to anger 451,000 self-employed workers in the housing and construction industries? Surely Assistant Treasurer Bill Shorten, who's leading the attack, realises these people vote.

It is another tax grab. The government appears obsessed with the idea that self-employed people rip off the tax system. They've invented a new reporting system they say will bring in about $500 million over three years from construction workers. But it is another badly researched initiative that shows a government significantly disconnected from reality.

Unlike the mining and carbon taxes, the government presumably hopes this new tax against working people will largely go unnoticed. This is because it involves a complex fiddling of tax administration that doesn't affect everyone and only a few people initially will understand what is happening. There will not be big headlines over this.

Unfortunately for the government, there will be a quiet anger that will build among tradespeople and their families. It will reach its peak in time for the next federal election. Opposition Leader Tony Abbott probably can't believe his luck. Further deepening the government's woes is that this new tax grab is unlikely to raise the money predicted, and will encourage tax non-compliance in the black economy.

The situation relates to a little-noticed item in this year's May budget. The government claims that there are self-employed people working in construction that are not paying their fair share of tax. This is true, just as tax non-compliance happens across society. The government's solution is to introduce a massive new reporting system targeting small business people. This will require the 150,000 building and supply companies working in housing and construction to report to the tax office all their transactions with the estimated 451,000 contractors with whom they do business.

This is an unprecedented "big brother" development. Take this to its logical conclusion.

The tax office also says that some retailers don't declare all their income. This would be true. The government could decide to require every consumer to report every year to the tax office the total of your purchases from every shop. You'd have to name every shop. Every shopkeeper would have to take your name and address and report the total of what they sold to you.

This supposedly would stop shopkeepers who are already tax cheats from being tax cheats. But it wouldn't work. First, all the honest shopkeepers would have a massive new red tape burden. That would increase costs. The already dishonest shopkeepers would still not report all their sales. The consumer would think the whole thing was stupid and many of us would not do any reporting. There would be more non-compliance, not less. The entire scheme would collapse.

The government knows that to attempt this with retailers and consumers would result in political backlash. So they are doing it first with construction contractors presumably hoping no one will notice.

But the industry is furious. The Housing Industry Association, along with other major industry associations, has condemned the plan. They say it will add costly red tape without addressing the cash economy.

HIA says there is no evidence that there are more tax cheats in construction than anywhere else. The government has not released any research to justify their move. HIA says cash payments mostly happen with owner-builders doing household work. But this work will not be part of the new reporting requirements. On this basis alone it is doubtful if the budgeted extra tax can be collected.

HIA says there's the new compliance costs. The 150,000 businesses required to report will have to upgrade their accounting systems. Conservatively, this will cost at least $500 each. That's $75 million for set up, plus the annual cost of additional administration. The 451,000 contractors will have extra costs as well. This will flow to consumers. The tax office is receiving $4.5m for more public servants to read the new reports. More costs for no certain gain!