House debates

Monday, 23 February 2015

Private Members' Business

Taxation

11:52 am

Photo of Andrew LeighAndrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | | Hansard source

I move:

That this House:

(1) recognises that:

(a) the Government's failure to tackle multinational profit shifting in Australia;

(b) every dollar that is avoided by multinational companies must be paid for by Australian taxpayers and businesses, or by cutting services; and

(c) unfair tax arrangements distort investment decisions and put local companies at a disadvantage against international conglomerates;

(2) acknowledges:

(a) the $1.1 billion of multinational tax measures that the Government has handed back to large multinationals, including:

  (i) $280 million in reforms to the offshore banking unit regime;

  (ii) $113 million in legislative elements to improve tax compliance;

  (iii) $140 million from not proceeding with changes to rules applying to multiple entry consolidated groups; and

  (iv) $600 million from the abolition of section 25-90 of the Income Tax Assessment Act 1997;

(b) the Treasurer's laggard implementation of the new G20 reporting standard behind the group of 40 'early adopters';

(c) the $200 million and thousands of staff cuts from the Australian Taxation Office which severely limit its compliance and investigative power; and

(d) the significant gap between this Government's rhetoric and its actions when it comes to ensuring multinationals pay their fair share of tax; and

(3) calls on the Treasurer to bring the same zeal to stopping multinational tax avoidance that he brings to his budget cuts on Australia's least well off.

In the 1970s, Australian conservative governments notoriously lost between $3 billion and $6 billion in today's money, a huge share of revenue at the time, to domestic tax avoidance schemes involving thousands of Australian income earners. The revenue streamed away through loopholes which were eventually closed by two separate major tax changes. The second was following the Fraser-Howard government's public shaming by the Costigan royal commission.

The bottom-of-the-harbour schemes were one of the historic peaks of rent-seeking behaviour in the Australian economy and one of the historic troughs of effective administration of the public good. Paul Keating famously said that the economic opening of the 1980s 'despivved' the economy. It was exactly those tax dodgers and rent seekers who flourished under conservative economic policy in the 1950s, 1960s and 1970s that he had in mind.

Today we are talking about 'despivving' the global economy. Since the Abbott government has come to office it has handed $1.1 billion back to multinationals. These are multibillion dollar firms with multibillion dollar profits receiving multibillion dollar benefits under this government with no strings attached. The issue of base erosion and profit shifting has attracted significant attention. Even big firms themselves are concerned about it. In an interview with the Australian Financial Review, Rio Tinto chairman Jan du Plessis said, 'Too many multinationals are getting away with murder.' He also pointed out that 'tax regimes need to catch up with the consequences of globalisation.'

Martin Lock, formerly a senior official in the tax office, recently told Fairfax journalist Michael West:

Almost effortlessly, a new subsidiary, partnership or trust can be established in any favourable tax jurisdiction, including in a tax-treaty country …

This is a process known as treaty shopping. He goes on to argue:

… the multinational can even shift a parent company or subsidiary's tax residency by doing little more than flying the board members to a chosen tax-treaty country and holding a tax-deductible annual board meeting there.

Loopholes such as the infamous double Irish Dutch sandwich have allowed a single technology firm to avoid $3.4 billion in tax since 2007. But, while the Irish are closing the double Irish Dutch sandwich, the Australian government is doing nothing of the kind. At the recent G20 summit, Mr Hockey claimed that Australia had kicked off moves towards better financial transparency by committing to a 2017 start date for the so-called common reporting standard on banking information. But that start date puts Australia behind over 40 countries, including the UK, Germany, Cyprus, Hungary, Poland, Bermuda, the Cayman Islands and Jersey, which will start the process for automatic exchange of financial information a full year earlier than us, in 2016.

Since the Abbott government have come to office they have talked the talk about multinational profit shifting but they have not acted. There is not a single new dollar that they have added to the government bottom line through a crackdown on multinational profit shifting. Zero new revenue means zero new action. Their actions so far have been entirely in line with what the Liberal-National parties did in opposition, when they voted against Labor's Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, which plugged loopholes in Australia's transfer-pricing rules and anti-avoidance provisions, and when they attempted to block our Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012, a measure championed by the then Minister for Financial Services and Superannuation, Bill Shorten. As well as giving $1.1 billion back to multinationals, the government have announced the sacking of 4,700 people from the Australian Taxation Office, including as many as 1,000 auditors with specific expertise in complex international tax structures. Some of these gamekeepers will likely turn poacher.

Last November I moved a private member's bill in this House to ensure that we get more information in the public domain. With the conversation about tax fairness roiling across the front pages and back bars of Australia, Labor believes that tax reporting should happen sooner, not later. Whether you think that multinationals should pay more tax or less tax, it is hard to see why you should believe the public debate ought to be dumbed down, but the Abbott government are opposing Labor's private member's bill to get more information out in the public arena. Labor will give strong consideration, if we win government, to reintroducing the measures scrapped by the Abbott government when they came to office. Those include reforming the offshore banking unit to ensure that only genuine offshore banking activities access a concessional rate, changes to multiple entry consolidated groups to ensure neutrality between foreign and domestic companies, and the repeal of section 25-90.

This is not anti-business. It is about making sure that all businesses pay their share, grounded in the principles of equity, efficiency and simplicity.(Time expired)

Photo of Lucy WicksLucy Wicks (Robertson, Liberal Party) Share this | | Hansard source

Is there a seconder for this motion?

Photo of Wayne SwanWayne Swan (Lilley, Australian Labor Party) Share this | | Hansard source

I second the motion and reserve my right to speak.

11:58 am

Photo of Peter HendyPeter Hendy (Eden-Monaro, Liberal Party) Share this | | Hansard source

I think the shadow Assistant Treasurer thinks he is addressing undergraduates at ANU rather than the Australian parliament. It is clearly evident he still views the world from the ivory tower. As a former CEO of the Australian Chamber of Commerce and Industry and also, very early in my career, the Director of the Business Taxation section of the federal Treasury, I know a bit about this topic, so allow me to draw on decades of real-life experience at the forefront of policy debate on business and taxation to enlighten him.

The notion that the Australian Labor Party is the party that is serious about cracking down on the tax practices of big business is ridiculous. It is preposterous. It is laughable. The fact is that nothing could be further from the truth. Recall if you will the disaster of the mining tax, a tax the shadow Assistant Treasurer wants to reinstate. This is a tax, I remind you, that fell short of the original revenue estimates—and it did not fall a little short; it fell 97 per cent short. The shadow Assistant Treasurer and the Labor Party irresponsibly locked in billions of dollars of expenditure on the basis of anticipated mining tax revenue. Rather than taxing multinational companies, the perverse outcome of the mining tax before it was abolished was that it was actually doing the reverse—it was paying money to multinationals. It was doing the exact reverse of what the shadow Assistant Treasurer claims. So be very cautious when listening to those opposite on matters of taxation. Someone we might want to listen to is the Secretary-General of the OECD, Angel Gurria. Talking about Australia's strong leadership in international tax policy, he said:

Had it not been for the very serious political support that we have gotten from the G20 presidency of Australia, really we would not have gotten here.

As the Secretary-General noted, the coalition is very concerned about the issues of base erosion and profit sharing. We understand that the issue of multinational corporate tax avoidance is a subject of considerable public discussion. We understand that, and that is why the coalition will continue to examine the issue and we will not hesitate to take action.

This government is pursuing all avenues to ensure multinationals pay their fair share of tax. Unlike the view from the ivory tower, the reality is not straightforward. The development of the digital economy has made this endeavour increasingly complex. Australia has a suite of robust domestic laws to counter base erosion and profit sharing. These domestic laws include a comprehensive thin capitalisation regime; they include controlled foreign company laws; they include tough transfer pricing rules; and they include extensive anti avoidance rules.

The coalition is providing $87.6 million to the Australian Taxation Office over the next three years to review the affairs of companies that have undertaken an international restructure or have significant levels of related-party, cross-border arrangements. Our domestic processes are not enough; international cooperation is required to address these issues. Significant progress has been achieved to date on the OECD's two-year base erosion and profit-sharing action plan, and Australia is a key contributor. As G20 president in 2014, Australia was at the forefront of promoting progress of this international cooperation. There has been significant progress to date, and it is anticipated that the remaining recommendations will be finalised by December of this year.

The base erosion and profit-sharing plan is ambitious, but it is something that we need to get right. We, like the OECD and other G20 member countries, have been consulting with business on the agenda, and we will continue to do so. We need to ensure that the structures that we put in place are effective and do not merely create an impost on international trade and economic growth. For example, following consultation with stakeholders and the ATO it became clear that the targeted anti-avoidance provisions of which this shadow assistant Treasurer has had so much to say would be ineffective. That is why it will no longer form part of the broader package of measures to address profit shifting by excessive allocation of debt of the Australian operations of multinationals. This is a case of conducting the necessary due diligence and consultation with stakeholders and delivering optimal outcomes. This is the way it is done in the real world. We saw far too much evidence of public policy being made without due diligence and without consultation under the last government. Nonetheless I can assure you that we are committed to working as hard as we can to make sure that companies that earn profits in Australia pay tax in Australia. I thank the chamber.

12:03 pm

Photo of Wayne SwanWayne Swan (Lilley, Australian Labor Party) Share this | | Hansard source

I wish to commend Dr Leigh on moving this motion but lament the fact that we need to move the motion in the first place. The Labor Party has always been committed to ensuring that everyone, including large multinational companies and wealthy citizens pay their fair share of tax so that working families and small businesses are not disadvantaged by having to take on a higher tax burden in the future as a result of rampant tax minimisation by some multinational companies—pushing up tax rates for working families and for small business. We understand that we need to ensure that our system is competitive and attracts investment, but the best tax system is one that is fair and progressive. During my time as Treasurer, we acted to prevent these tax minimisation strategies, which were aggressive and which were leaching our revenue and pushing tax rates up for working people and other small businesses. That is why there was a comprehensive package in 2012-13 budget to crack down on this profit shifting overseas and rampant tax evasion.

The very first act of the new government was to wind back this package. They knocked off $1 billion worth of revenue measures which were stopping multinational companies from avoiding tax and pushing their profits overseas. We were fairly aggressive in putting in place a range of measures to ensure that there was an exchange of information with other countries and, indeed, the Swiss agreement was put in place by our government.

What we were doing through this period was closing loopholes which were actually opened by the Howard-Costello government over a decade. That is why we needed these measures which would have brought $4 billion of revenue, and the government has already shred $1 billion of that. This is on top of its first act, which was to throw away $12 billion in revenue which otherwise would have been paid by multinational mining companies and other large power companies by knocking off a carbon price, knocking off some fairness in the superannuation system and then knocking off measures to stop rampant tax evasion. So it was not surprising that almost the first act of this government was to give away $1 billion in revenue that was contained in our BEPS package to multinational companies.

All of this happened at the same time as the government doubled the deficit in its first midyear update. It followed that with hitting the sick, the unemployed and pensioners with savage cuts and tax increases, precisely as it was doubling the deficit and giving away billions of dollars of revenue. That is why we say this is a government which is strong in taxing the weak and weak in taxing the strong. It is a government that is not serious about charting a pathway back to surplus because, if it were, it would not be giving away the revenue.

You only have to look at the coalition's record here. They consistently opposed all of the measures under our government where we were seeking to plug these loopholes in the system. Now they use the excuse that they cannot move so fast because they need some sort of international cooperation. That is bunkum. They do not need that. What they need to do is to get down and raise the revenue. What this is really about is that the government are blowing out the deficit as the excuse to seek the public permission for the harsh cuts that they are seeking to impose. That is why they are blowing out the deficit. They are so embarrassed they did not admit to these goals prior to the election, so they say, 'We'll give away the revenue, we will blow out the deficit and then the public might accept these cuts.'

What we need in this country is a balanced approach about the return to surplus which will involve concentration not only on the spending side of the budget but also on the revenue side of the budget. This government has created a problem with its revenue. It has done that by giving big tax breaks to all of its mates. We on this side of the House have consistently acted on multinational tax minimisation—some may even call it evasion. We have acted on BEPS at the same time that these people have been getting massive tax cuts from those on the other side. This is a government that claims it is open for business. It is open for business alright—open to giving huge tax cuts to a select number of very large multinational companies on the one hand and, on the other, jacking up taxes and the burden on those who are most vulnerable. This is all about an underlying agenda to put the tax burden on working people and take it off the very large corporates. (Time expired)

12:08 pm

Photo of Andrew LeighAndrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | | Hansard source

by leave—The issue of multinational profit shifting is about fairly sharing the revenue burden. As the former Treasurer has pointed out, this is about revenue adequacy because when a handful of big businesses ship their profits offshore it hits the federal budget's bottom line. It is about fairly sharing the revenue burden. When a small number of big firms do the wrong thing, it is the great majority of businesses, large and small, the self-employed and the PAYG taxpayers who end up paying more than they should. It is also about our prospects for long-term growth. If we do not tackle multinational profit shifting, we are effectively turning a blind eye to distortions in the market which are going to slow economic growth over time.

These are the sorts of dumb failings in the tax system which the former Treasurer set about trying to fix because they are loopholes that reward the wrong kind of ethic and they operate unnervingly like those old-fashioned subsidies, that old McEwenist policy, which favoured producers over consumers, which distorted the allocation of resources and which encouraged firms not to test themselves against the market but to test themselves against the rule book. We do not need that kind of economic activity because that is harmful economic activity—it encourages firms to focus their energies on getting their accountants to play with loopholes—loopholes that might allow debt shifting within organisations not in order to improve the productive capacity of the economy but in order to find the next loophole in the tax system. It operates a bit like trade wars, where each of us draws our knife only to have the effect of cutting off one another's face. We need to be able to confidently sustain an adequate revenue base.

Government Member:

A government member interjecting

Photo of Andrew LeighAndrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | | Hansard source

Did you want to speak on this? If you do, that is excellent—one never knows whether a coalition speaker is going to turn up in these debates. I would like to see them in this chamber. I would like to see them having more than one member from that side engaging in these important debates on multinational profit shifting. These are the debates that ought to be bipartisan, because no-one in this House should stand for an extra tax loophole; no-one in this House should support giving a billion dollars back to multinationals while cutting the wages of the cleaners who clean our officers. They are the wrong priorities for Australia—that is not just against Labor values; it is against Australia's fundamental egalitarian values. With these sorts of McEwenist arguments against reform, it feels to me as though we are engaging in that old tariff debate all over again in which we have members walking in here supporting loopholes which, in the end, might be good for a few sharp-witted accountants but end up being bad for the budget bottom line.

Inequality has been growing steadily for the past generation—it did not rise over the last six years of Labor in government; from 2007 to 2013 inequality did not rise. But it is significantly higher than it was in the 1970s. To give just one statistic, the top one per cent has doubled its income share; the top 0.1 per cent tripled its income share. If you are in the bottom tenth of the wage distribution, your real earnings grew $7,000 over the last generation, but if you are in the top tenth your real earnings grew $47,000—more than three times the wage growth at the top of the distribution that we see at the bottom of the distribution.

So now is the very last time that we need a government to be giving money away to firms with multibillion-dollar profits while taking money away from pensioners, from those who are sick and by forcing the unemployed to spend six months without benefits, perhaps sleeping in a car, if they are unable to find a job. Australia's egalitarian values demand that we have a smarter approach on multinational profit shifting. The member opposite pointed out that the government is not proceeding with a targeted anti-avoidance provision. That is a provision the government promised it would put in place. They said they would not proceed with our repeal of 25-90 and they promised at the end of 2013 a targeted anti-avoidance provision. A year later, they broke that promise—like so many other promises that have been broken since this government came to office.

Photo of Jane PrenticeJane Prentice (Ryan, Liberal Party) Share this | | Hansard source

The time allotted for this debate has expired.