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PwC Says Australian Firms Deliberately Going Broke
PwC Says Australian Firms Deliberately Going Broke

PwC Says Australian Firms Deliberately Going Broke

PwC Says Australian Firms Deliberately Going Broke

Companies that deliberately fail are costing the Australian economy billions of dollars every year, a report has found.
According to the Pricewaterhouse Coopers report, released on Monday, the act of phoenixing whereby companies are systematically liquidated to avoid tax and employee entitlements only to start anew costs for the Australian economy A$5 billion ($3.7 billion) every year, Xinhua reported.
Of that figure, approximately $2.2 billion is lost in debts owed to other businesses.
The report contained an announcement from Kelly O’Dwyer, Australia’s minister for revenue and services, that an audit of 340 businesses believed to be involved in phoenixing resulted in tax bills worth $200 million being issued to the offenders.
She said that the practice “hurts hardworking Australians, including the company’s employees, suppliers, customers and competing businesses” and is a “significant drain” on the economy.
According to the report, phoenixing cost the economy between $2.15 and 3.79 billion in 2015-16, A$1.7 billion of which was in the form of unpaid taxes. Employees were robbed of up to $223 million in unpaid entitlements.
Regular taxpayers were hit hard by the practice too with $1.18 billion out of taxes paid in the last decade going to employees of failed companies.
“Successfully combating potential illegal phoenix activity in a cost-effective manner could provide a significant boost to the Australian economy,” the report said.
The estimated total impact to household consumption as a result of potential illegal phoenix activity is between $1.20 billion and $2.36 billion, it said.
PwC did not estimate how many directors had engaged in phoenixing activities. In November it was revealed that 1,322 people, who were each directors of two or more companies that failed, were responsible for a quarter of the unpaid wage bill picked up by taxpayers through the fair entitlement guarantee, a total of $400 million.
More than one million businesses ceased operations between financial years 2012-13 and 2015-16, the report said, 36,532 of which required the appointment of external administrators following insolvency.
“In most cases, these may have been legitimate and honest commercial failures; in other cases these failures may have been deliberate,” the report said.
O’Dwyer announced that a government hotline would be established to “make it easier to report suspected phoenixing behavior.”
PwC said it did not capture other direct effects including: stress on employees; the discouragement of workers from participating in the labor market; the social welfare burden through increased government transfers; and the distortionary competition effects on lawful businesses if their competitors were able to cut costs by not meeting legal obligations.

 

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