Wednesday, 31 July 2019
Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019; Second Reading
Labor will be supporting the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019. For the 92 years since he said it, people have been quoting US Supreme Court Justice Oliver Wendell Holmes Jr when he said that taxes are what we pay for a civilised society. This is as true today as it was 92 years ago. But the difference, of course, is that the structure of the global economy is almost unrecognisable today compared to when that well-known and often quoted remark was made. Today the global economy is more interconnected than ever before. For the first time in human history, companies themselves are mobile, with only very limited concepts of a fixed base of operations.
As we know through the work of the Australian tax office, and through the good work of the OECD and various other international organisations, aggressive tax practices and tax evasion by both individuals and companies have become rampant across the world. The OECD estimates that governments worldwide are missing out on anything between four and 10 per cent of global corporate income tax revenue every year. In US dollars, that is about $100 billion to $240 billion each year. In Australian dollars, it is something like $145 billion to $348 billion every year. That is a remarkable leakage in the revenue base of this country.
This is crucially important because the price of a civilised society, as Justice Holmes spoke about, doesn't fall just because a company or an individual shifts a dollar offshore, it just has to be paid by somebody else. It is paid by the small business owner. It is paid by the shelf packer at Woolworths, who works an eight-hour day or longer. It is paid by the cleaners, the kitchen hands, the brickies and the teachers of this country. For every dollar that is avoided by a multinational corporation, a dollar has to be paid by somebody else if we are to maintain the level of services that people in our society have a reasonable expectation of. It is be paid by somebody else when a company dodges its tax responsibilities to a nation like ours.
This is a range of follow-on effects, two of which I would particularly like to highlight in my contribution today. The first is that it squeezes government revenue. This means the government cannot adequately invest in the infrastructure, health services, education services and social security that our economy needs to ensure that we continue to prosper. The second one is that it erodes people's faith in our institutions. Over the last five years or so, we have seen a glimpse of how that leads to the broken politics that we are observing right around the world. So Labor is very supportive of action to crack down on multinational tax evasion, and we do welcome these bills in that light. But we shouldn't kid ourselves that the passage of this legislation means we have done all that can be done on multinational tax avoidance. I think it is true that one of the best ways we can help fix the mess that the Liberals have made of the budget and the economy is to make sure that multinationals do pay their fair share of tax.
It is worth reminding colleagues in the House that, under those opposite, net debt has more than doubled, gross debts is at record highs, the economy is growing at its slowest pace in the 10 years since the GFC, and the Reserve Bank is having to do all the heavy lifting by cutting interest rates to record lows. This underperformance, this mismanagement, is because of a whole range of factors, particularly when it comes to the budget itself. One of the factors in net debt more than doubling under those opposite over the past six years is that they have failed to crack down sufficiently on multinationals who aren't paying their fair share of tax here in Australia.
When it comes to cracking down on multinational tax evasion or avoidance, I think the problem is that it's true the hearts of those opposite are just not really in it. They say the things that are necessary to get them through and they do the minimum that they can, but, at the end of the day, I think it is true that, if their hearts were in this and they genuinely wanted to make multinationals pay their fair share of tax, they'd be doing more than what they're doing in this legislation before us today.
They were relatively silent on it during the election, and they're not doing enough on it now. They don't understand that closing down tax loopholes means that more money stays in Australia to fund schools, hospitals and the productivity-enhancing investments that we need when the economy is floundering, as it is—productivity going backwards in the last four quarters is such a big part of that story. So I think this bill goes some way to addressing the issues that have been there for some time, but it doesn't go far enough.
There are three measures in the bill: The first one is to tighten the thin capitalisation rules, the second is to ensure offshore sellers of hotel accommodation in Australia calculate their GST in the same way as local sellers do, and the third is that it removes the luxury car tax on reimported cars refurbished overseas.
I think it's important to remind the House that a similar bill lapsed at the dissolution of the House before the last election, but it had two other measures in it: it had changes to the R&D tax incentive, and it had some amendments to the definition of 'significant global entity'. We are advised that the significant global entity amendment was removed for technical reasons but, I think much more significantly, the R&D tax incentives were removed after a government-controlled Senate inquiry last term recommended that the government itself should not proceed down the path that it was attempting to legislate. That's a pretty big deal—that government members on a committee that they controlled knocked over the government's own proposals on the R&D incentive. That is a significant and humiliating development, even by the low standards of the Morrison, Turnbull and Abbott governments.
Cracking down on multinational tax avoidance is fundamentally about fairness, but it is also one of the important ways that we address the mess that has been made, whether it be the doubling of the debt or the failure to invest in productivity and growth in our economy. As I said, net debt has more than doubled and gross debt is at record highs. What's not often appreciated is that both kinds of debt, net debt and gross debt, are growing faster per month on the Liberals' watch than they were under the previous Labor government, and Labor, of course, had the global financial crisis to contend with.
The state of the economy more broadly is just as concerning as the state of net and gross debt in this country. We do have the slowest economic growth that we've had in this country for the 10 years since the global financial crisis. Australia is now in a per capita recession—the longest one since the 1982 recession. The national economy has fallen from the eighth fastest growing in the OECD in 2013 to the 20th fastest growing today. We've got stagnant wages that are growing eight times slower than profits; rising underemployment and youth unemployment; slowing employment growth; five years of weak productivity growth—productivity growth has actually fallen every quarter for the past year; weak household spending; falling consumer confidence; weak business conditions; a sluggish retail sector; business investment at the lowest level since the 1990s recession; and living standards, as we saw yesterday in the release of the HILDA data, that are growing slower under the Liberals than they were growing under Labor. They've actually gone backwards when it comes to incomes. This is an extraordinary list of economic data. Really, it's a report card on those opposite and the last six years of economic mismanagement.
We do have below-average growth from a below-average government and, because of that, the Reserve Bank has had to do all the heavy lifting. It's now got interest rates at one per cent, a third of what they were during the global financial crisis—quite remarkable. Joe Hockey was wondering around saying that interest rates at three per cent were at emergency levels. Now we have interest rates at a third of that, because the economy is underperforming so badly and the Reserve Bank is not getting the assistance that it needs on fiscal policy from this government.
Now, I think it's true that the failures that I just ran through, which is quite a stunning set of facts—not opinions, but facts—are not all a result of a failure to deal with multinational tax avoidance, but a failure to deal with multinational tax avoidance is a part of the problem. It's a problem for the budget and our society because it's about being able to fund essential services. It's a problem for our economy because every dollar of tax that isn't paid here is a dollar that could have been spent on services, repairing the budget, or investing in productivity to get the economy growing strongly again and in a sustainable way.
Mr Chester interjecting—
It beggars belief, despite the interjections of the minister at the table, that those opposite aren't doing more about multinational tax avoidance. They have refused to act for some time now. Remember, and I think the Australian community remembers, that the main policy the government had when it comes to multinational tax—and it will be back at some point—was to give an $80 billion tax cut to multinationals and the four big banks. Much of that would have been sprayed around overseas in the form of executive bonuses and share buybacks and the like. That's been their main contribution to tax. They have actually tried to make multinationals pay less tax here in Australia. We think, and the Australian community thinks, that multinationals should pay more tax here in Australia.
Now, whatever else one might say about the policy offerings, or the opinions that people have about various competing policy offerings in this place, I think any objective analysis would show that Labor has been serious about cracking down on multinational tax loopholes and making sure that companies pay their fair share. During the election campaign we announced a tax haven crackdown. We went to the election with 19 measures to crack down on loopholes and tax havens: tightening debt reductions; closing public reporting loopholes; increasing capacity for the ATO; public reporting of AUSTRAC data; whistleblower protections—the list went on and on. That's what a serious attempt to crack down on multinational tax avoidance actually looks like.
As I said at the very out set of this contribution, we will support this bill, but we don't think it goes far enough. We think that if the government were serious about dealing with this important issue then they would have gone further. They need look no further than the policy proposals that we worked up. If they pick up and run with any of the proposals that we worked up over the years and put them forward then we'd vote for them, and we could get the Australian people the tax revenue needed to fund their services, to repair the budget, which has deteriorated badly, and to invest in productivity so that we can help turn this floundering economy around.
As much as I like the member for Rankin—and he's my electoral neighbour in Queensland—I have to say that there's not much in his contribution that I could agree with. But I'm sure he won't find that surprising. We've had a litany of complaints, as usual, from those opposite and nothing of substance. I find it interesting that he talked about impacts on the economy. Well, he failed to acknowledge that, in the recent election, those opposite proposed to hit our economy with a sledgehammer of $387 billion of new taxes. So his arguments in his contribution for the last 10 or so minutes ring rather hollow given the policy suite and platform those opposite took to the last election.
It's worth reminding the House that it was this government in 2016 that passed the first tranche of multinational tax legislation, and the result of that has been at least $7 billion—I believe the figure's actually a bit higher now at about $13.1 billion—of additional revenue that this government and, importantly, the Australian taxpayer have received. But what the member for Rankin failed to tell the House is that that side over there voted against it. They voted against it. So he can come in here and speak all he likes about multinationals' tax avoidance, but the end result, as it always is in this place, is that you look at what Labor does, not what they say, because there's always a vast difference between the two. And this piece of legislation and the litany of excuses that the member for Rankin just trotted out are no different.
I recognise, as I walk around my electorate and talk to businesspeople and the community more generally, that there are, very rightly, questions asked about whether large multinationals pay their fair share of tax. I think that is a very valid question. Just like ordinary everyday Australians who pay their fair share of tax, multinationals should do exactly the same. We've heard various reports and evidence during committee hearings and in the press about how companies structure their affairs to minimise their tax liabilities. It is a barbecue stopper for many people. The foreign multinationals structure themselves to minimise those liabilities, and, rightly, people are disappointed.
As all good governments do, we've listened and we've acted, and our tax integrity laws are some of the strongest in the world. As I've already touched on, since 2016, we have raised close to $13.1 billion in additional revenue through closing loopholes and ensuring that the tax on profits generated here in Australia is paid here in Australia. Why is this important? It's important for this simple fact: the more money we receive as a government as a result of multinationals paying the tax that they are due to pay here, the more money we have to invest in education, health, defence and infrastructure. We can see from the recent budget that that's exactly what this government is doing. It is delivering record funding for education, health and infrastructure, and it is delivering record funding for community projects across my electorate and every electorate in this place. It is ensuring we have the funds to defend our country, and, most importantly, it is ensuring that everyone is paying their fair share of tax.
When companies arrange themselves to avoid tax, it places an unfair burden on the rest of the Australian taxpayers, other companies and small and family businesses in this country that do the right thing. Whether it's setting up a shell company in Singapore, running services on a hire basis or just directing profits offshore to avoid tax, the government is cracking down on these practices. Let me run through some of what the government has already done in this area. We introduced a multinational anti-avoidance law, the diverted profits tax and country-by-country reporting. We have implemented all of these measures, and we'll continue to further refine measures to clamp down on multinational tax avoidance. We've also created the Tax Avoidance Taskforce within the ATO to focus on tax avoidance by these same multinationals. We've increased the resources of the ATO to go after multinationals and ensure their fair share of tax is paid. A strong cop on the beat will go a long way to ensuring that big multinationals will be made to do the right thing and pay their fair share.
The principle is simple: the profit is earned here and it should be taxed appropriately here. We're closing loopholes that companies like Google and Apple use to minimise the tax they pay. We're working with our international partners to define tax avoidance and ensure the agreed definition is applied globally. Most recently in the 2018-19 budget, the government announced further measures to strengthen our tax system. We will limit the interest deductibility to stop companies shifting profits offshore and broaden the scope for large multinationals to be subject to the multinational anti-avoidance law and the diverted profits tax. Australian taxpayers quite rightly expect all taxpayers in this country to comply with the law because the quiet Australians and the mum-and-dad small-business owners across the country do exactly that each and every day. It is the law of the land and therefore it is the appropriate thing to do. After all, these tax receipts fund the essential services that people demand and expect.
Let me deal briefly with some of the specifics of this bill. The bill amends a number of tax measures, to close loopholes that multinationals use to reduce their tax burden, such as the R&D tax incentive, with it being better targeted to gain the most from the R&D dollar. And there is the use of thin capitalisation as a way of devaluing assets for tax purposes. This bill will also ensure that multinationals cannot structure themselves to avoid our tax integrity rules.
The proposed reforms respond to the 2016 review of the R&D tax incentive. It found that the program was poorly targeted, failing to meet its objectives and leaving Australian businesses unable to spend as much as they would like on R&D and, in doing so, stay competitive. This bill will address the underinvestment in R&D by the private sector. Larger companies will get higher incentives the more intensively they undertake R&D, while smaller companies will continue to receive the refundable incentives of up to a yearly cap of $4 million.
With more than 15,000 small and medium businesses in my electorate of Forde, I believe this amendment will guarantee equal opportunity and provide sustainable research and development capabilities to all Australian businesses, creating jobs and economic opportunity not only in my electorate of Forde but across the entire country. These reforms will apply from the 2018-19 financial year and are expected to have a net gain to the budget over the forward estimates of some $2 billion to 2021-22.
Schedule 4 of the bill deals with thin capitalisation. The changes will mean that companies must use the asset pool reported in their financial statements rather than a different value when undertaking thin capitalisation tests, which are being abused to increase debt and to shift profits overseas to avoid tax. There are a number of tests available to determine whether the entity has a thin capitalisation exposure. These rules vary, depending on the thin capitalisation classification of the entity. This schedule will result in approximately $240 million in revenue over the forward estimates period.
Schedule 5 of the bill deals with online hotel bookings. Currently, rules exempt offshore sellers from including sales of hotel accommodation in their GST turnover calculation. This means that they are often not required to register for GST or charge GST on their mark-up over the wholesale price. Announced in the 2018-19 budget, this bill will remove a carve-out in GST law so that online hotel bookings made through offshore companies for hotel stays in Australia will attract GST and increase revenue. This schedule levels the playing field for Australian hotel bookings by ensuring that offshore sellers of Australian hotel accommodation calculate their GST turnover in the same way as local sellers. This will apply from 1 July 2019 and will see $15 million in revenue and an increase in GST payments to the states and territories over the forward estimates period. For my electorate, which represents the northern part of the Gold Coast, I'm sure the tourism operators will be very pleased to hear of these increased schedules that we're putting in place to ensure that GST is collected appropriately from overseas sellers. And importantly, again, the increased GST payments to the states provide the states with greater capacity to provide the services that they need to provide.
Schedule 6 removes the luxury car tax on cars reimported into Australia following refurbishment overseas, effective from 1 January 2019. And schedule 7 of the bill will ensure that the rules addressing multinational tax avoidance, such as the diverted profits tax and the multinational anti-avoidance law, apply to all relevant entities. This will prevent multinationals from manipulating the values of their assets to increase their debt deductions and reduce their tax payable in Australia.
As I said earlier, the ATO has now raised over $13 billion in additional tax liabilities through our suite of multinational anti-avoidance laws since July 2016. This bill further demonstrates that the government is continuing to identify loopholes and, importantly, to close them, and that it's making sure multinationals pay their fair share of tax. Around the electorate I've heard complaints of, 'Why are you letting big multinationals avoid paying tax?' I'm glad to say we are not letting them off; we are ensuring the people of Australia receive tax from entities whose profits are earned in Australia when it is due. Integrity measures are an important part of preserving our tax structure. While we definitely have strong anti-avoidance laws, we still will continue to build on those to ensure the integrity of our tax system. Importantly, as part of this we're also working with our international partners. It's important that everybody pays their fair share. The old adage that there are two certainties in life—death and taxes—is still true.
The coalition government is proud of its commitment to the Australian economy, to Australian businesses and to the Australian people through this package of measures. We are a government that is creating a plan for a stronger Australian economy with more jobs and guaranteeing the essential services that we rely on. The foundation for that is ensuring everybody pays the appropriate level of tax. In my electorate of Forde, small and medium sized businesses provide thousands of jobs for people in my community and are the essential building blocks and foundation of our local economy. However, to ensure government is able to fund infrastructure like the upgrades to a number of roads, intersections and sporting clubs across my electorate, as I've discussed many times in this place, we need to ensure Australian companies and multinationals pay their fair share of tax.
In closing I say that this government is doing exactly what it said it would do—that is, making sure multinationals pay the tax they owe. As always, this side of the House is delivering on its commitments and promises to the Australian people. All those on the other side do is talk and all they want to do is tax you out of existence. On this side of the House, through ensuring multinationals pay their taxes, we can ensure low- to middle-income Australians have their taxes lowered and their education and health services guaranteed for the future of this country. We will continue to focus on delivering for Australians now and into the future.
We often hear from businesses that they feel they're being overregulated and that there's too much red tape in the Australian system and the Australian economy. But this particular bill, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019, is one of the reasons that regulation is needed—that is, that big businesses often use accounting tricks and restructures to avoid paying their fair share of tax in Australia. As soon as a government regulates, you can bet your life that a big business will use accountants, lawyers and financial advisers to find a way around that and minimise their tax into the future.
Australian companies are no different. Because they make large profits, and their profits have been increasing in recent years—at a much faster rate, I might add, than the average Australian workers' wages—they're always a step ahead of government. This bill represents the Australian government catching up in some respects, although it doesn't go far enough—and I'll deal with that in a moment—because this is a half-hearted approach to tackling the issue of corporations using accounting tricks to avoid paying their fair share of tax. The measures in this bill seek to tighten the thin capitalisation rules to ensure offshore sellers of hotel accommodation in Australia calculate GST in the same way as local sellers and to remove the luxury car tax on reimported cars refurbished overseas.
Labor supports these measures. Thin capitalisation rules are a way for companies to deduct for debt financing expenses to an extent that the entity's debt exceeds a prescribed level where the level of adjusted average debt exceeds a maximum allowable debt in an income year. Debt financing expenses are costs associated with taking on debt such as the fees and commissions paid to investment banks, to law firms and to auditors. An entity is generally required to comply with accounting standards in calculating the value of assets and liabilities in Australia, and the thin capitalisation rule allows an entity to recognise certain assets and revalue assets in a different way in certain circumstances.
Recently, there has been a significant increase in the use of asset revaluation by companies to generate additional debt capacity and claim greater deductions. That's one of the accounting tricks that I mentioned earlier. This represents the government catching up. Some of these companies have been exploiting a loophole that exists in our tax laws to claim a greater level of debt and use that as a deduction to reduce their amount of tax liability. This bill will amend the Income Tax Assessment Act to tighten the thin capitalisation rules and require a company to use the value of the asset liabilities, including debt capital and equity capital, that are used in its financial statements, and it will remove the ability for an entity to revalue its assets specifically for thin capitalisation purposes. Labor supports this reform, although we believe it doesn't go far enough. We believe that the best way to clean up the budget and make sure that multinationals pay their fair share of tax would have been to adopt some of the policies that Labor took to the last election, where we were proposing to close down many of those tax loopholes that have existed in our tax laws for companies for many, many years.
Teachers, nurses, tradies and others that work in our economy pay their fair share of tax. They don't have the luxury of being able to fund solicitors, financial advisors and accountants to find loopholes in the tax legislation to minimise their tax, and it's time that multinationals did the same thing as well, particularly when we're facing a budget with finite resources and increasing expenditure associated with an ageing population and the additional impost of funding health and aged care services as that population ages. But also we are dealing with the effects of climate change and other issues that are a drag on the Australian economy and they will require additional dollars within the budget. It's not fair that the burden of funding those programs relies to a greater extent on low to middle income workers rather than large corporations and multinationals. Closing down tax loopholes can mean more taxpayer dollars stay in Australia to fund critical services such as hospitals and schools, and productivity enhancing investments. While this bill is a start, which is why Labor is supporting it, more needs to be done.
It's fair to say that the Liberals are half-hearted when it comes to making sure multinational corporations pay their fair share of tax and disclose the amount of tax that they pay. We should never forget that it was this government that teamed up with the Greens. They don't like this; they don't like the fact that members of the Liberal and National Party got into bed with the Greens in the Senate to water down the tax disclosure laws that Labor put in place when we were previously in government. These are the laws that require the big Australian companies to disclose on an annual basis the amount of tax that they're actually paying. Those companies didn't want to do that. No, they didn't want to do that at all. I recall some of the ridiculous reasons put forward by members opposite for why those companies shouldn't have to do that. I can remember the previous member for Reid saying that families would be threatened by these laws. When it came to an inquiry and the Liberal Party were asked to produce evidence of this, that evidence was not there.
So it should never be forgotten that those opposite teamed up with the Greens to water down Australia's tax transparency laws so that the amount of tax that big corporations are paying in Australia would not be known by the Australian public. That is their record. That is their approach to tax reform: 'Give Australians as little information as possible because we don't want them knowing the truth about how much tax large corporations in Australia are really paying, because we know that Australian workers would be outraged by the fact that many of these large corporations can use tricky accounting procedures to increase their deductions and reduce the amount of taxable income they have—some with billion dollar turnovers paying no tax at all in Australia.' And those opposite think that's all right. When it comes to clamping down on that sort of behaviour, this is a pretty half-hearted attempt.
Net debt in Australia has doubled and economic growth is at its slowest in 10 years, since the global financial crisis. Yet the Liberals and Nationals have shown no stomach at all to stop multinationals avoiding their tax obligations. During the last election campaign, they were silent on multinational corporations and tax havens and refused to close down tax loopholes, meaning that working Australians have been footing the bill for those unfair tax loopholes. Who could forget the Liberals' signature policy when it came to multinationals: the $80 billion tax cut for multinationals and big banks that flowed overwhelmingly to companies offshore in the form of executive bonuses, share buybacks and inflated dividends.
The Liberals point to revenues raised by the Tax Avoidance Taskforce but never admit that most of those revenues are based on Labor's transfer pricing laws that were opposed by those opposite in 2013. It was Labor laws that the Liberals and The Nationals opposed that underpinned the tax office's $300 million win against Chevron. It was Labor laws that the Liberals and the National Party opposed that delivered the tax office's $529 million settlement with BHP. Only Labor has been serious about cracking down on multinational tax loopholes and making multinational corporations pay their fair share of tax.
During the election campaign we announced further laws to clamp down on tax avoidance. It was a crackdown that would have made it fairer and would have meant that companies that do the right thing would have been helping to fund better healthcare services and better education services. We went to the election with 19 measures to crack down on multinational tax loopholes and tax havens. They were measures such as tightening debt deductions, reporting of country-by-country reports, increased capacity for the ATO, public reporting of AUSTRAC data, closing loopholes of certain trusts that make payments to nonresidents to artificially get a tax rate below the 30 per cent company tax rate and, of course, the whistleblower protections that we put in place.
The Liberals need to do more than just claim credit for Labor's previous reforms. If they were serious about dealing with multinational tax avoidance, they'd take real action and seriously look at some of those proposals that Labor was proposing before the last election. The government need to do more to tackle multinational corporations and ensure that they pay their fair share of tax. Every dollar that this parliament and this government let slip overseas is another dollar that Australian workers and taxpayers have to fork out to fund critical services and investments—and that's not fair. That is not fair to the people who are building the Australian economy and working hard every day. We shouldn't allow corporations that have the funds to use tricky accounting procedures to avoid paying their fair share of tax.
This bill does go some way to closing some of these tax loopholes, but it is a half-hearted attempt. The government should get serious and adopt Labor's reforms that we took to the last election if they are going to be serious about closing tax loopholes for multinational corporations.