Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Hansard source

I am speaking in support of the amendment that has been moved by the member for Fenner, and in doing so I am critical of the government because, although we are supporting the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017, it is a soft touch. It is another wasted opportunity for this government to tackle what is a very big issue for our nation's finances—that is, multinational profit-shifting, which results in less revenue coming into the Australian budget, revenue that can fund important health, education and aged-care services and, importantly, go towards reducing the deficit, which has increased substantially under the Abbott and Turnbull governments. This piece of legislation really is a missed opportunity. Under these proposals that we debate here today, the government raises an additional $200 million. However, if they had adopted Labor's much stronger reforms on multinational tax avoidance then the budget would be $1.6 billion better off over the forward estimates and $5.9 billion better off over the decade, a much greater increase in revenue and a much stronger response to a problem that has been identified by a number of countries and dealt with through reforms such as this and others, like the ones that Labor proposed in the lead-up to the last election.

Nonetheless, this bill does implement three different elements of the government's tax integrity package. The first is a diverted profits tax, also known as a Google tax, something that has been done in the United Kingdom that we are now following here in Australia. The second is an increase in administrative penalties for global firms with revenue over $1 billion that seek to transfer profits overseas and avoid paying their fair share of tax here in Australia. The third is updating Australia's transfer pricing guidelines to bring them in line with OECD guidelines, which have recently changed as part of the OECD's approach to base erosion and profit-shifting, something that Australia signed up to a couple of years ago.

Firstly, the diverted profits tax aims to ensure that the tax paid by significant global entities—defined as firms with a global income greater than $1 billion—properly reflects the economic substance of their activities in Australia, and aims to prevent the diversion of profits offshore through contrived arrangements. If the DPT applies, the Diverted Profits Tax Act will impose a tax on the amount of the diverted profit at the rate of 40 per cent, and the diverted profits tax applies when the ATO believes that an entity is transferring profits to a related entity in another jurisdiction which has a lesser and more favourable rate of multinational tax to that here in Australia, thereby avoiding paying their fair share of tax, and duping the Australian budget and the Australian people out of revenue that would fund important services in our community.

That rate applies if a company with more than $1 billion in turnover seeks to transfer funds to a foreign jurisdiction with a tax rate below 24 per cent, and that includes jurisdictions such as Singapore, Hong Kong, the United Kingdom and Ireland. Unfortunately, we have seen celebrated cases over recent years of big multinational companies seeking to transfer profits, and they generally do it in the form of a loan to a subsidiary company in another jurisdiction, particularly in Singapore. We have seen some of Australia's large resources companies seeking to transfer their profits to related entities in Singapore. A number of tech companies and IT companies have been transferring profits to head offices in Ireland.

Schedule 2 of the bill increases the administrative penalties that can be applied by the Commissioner of Taxation to those significant global entities to encourage them to better comply with their tax obligations, including lodging tax documents on time and taking reasonable care when making statements. The shadow Assistant Treasurer introduced a private member's bill in February 2016 designed to raise penalties for noncompliant reporting. What we are seeing here in this bill is that the government is actually adopting Labor's policies on noncompliant reporting. They say that imitation is a form of flattery. In that case, Labor is flattered by the fact that the government has seen fit and has seen the merit in Labor's policy and has sought to adopt it in some of these measures here today.

Schedule 3 of the bill amends the Income Tax Assessment Act to update the reference to the Organisation for Economic Cooperation and Development, or OECD, transfer pricing regulations in Australia's transfer pricing rules in division 815 to include the 2016 OECD amendments to the guidelines.

In terms of revenue, schedule 1 raises $200 million over the forward estimates, whilst schedules 2 and 3 have unquantifiable revenue gains. But let's be clear about this. As I said earlier, this is nothing more than the government paying lip-service to the notion of ensuring that big businesses pay their fair share of tax. You need look no further than this government's approach to domestic company tax policy to see how fair dinkum it is about ensuring that companies pay their fair share of tax. At a time when our budget is under considerable strain, when the deficit has been increased by a very large amount, when the ratings agencies are starting to question Australia's AAA credit rating—a downgrade of which has implications for anyone who has a mortgage or a business with a loan facility because it means higher interest rates over the longer term—this government is proposing to offer a $50 billion tax cut to corporate Australia, most notably some of the biggest corporations in this country. This comes at a time when we need that revenue to fund important services such as the National Disability Insurance Scheme, aged-care services, our education reforms, our health care and its increasing costs.

I have to say that for all of the bluster from the coalition about fiscal rectitude, about reining in budget deficits, they sure have a pretty good record when it comes to promising things and putting expenditure in the budget that is unfunded. In fact, they wrote the book on how to do it, particularly the Howard government. They were the best of all of the Australian governments at making promises and spending taxpayers' money but not finding a source in the budget from which to fund them.

I am speaking in particular of their policy of reducing the capital gains tax discount that applies to sales of capital gains tax goods—the discount that was introduced when Peter Costello was the Treasurer—and the effect that had on the budget. Again, that was unfunded. The superannuation reforms from Treasurer Costello towards the end of the Howard government years allowed people to pump as much money as they wanted into their superannuation. That was forgone revenue, unfunded in the budget. So they have form on this issue of not funding properly in the budget promises and additional spending commitments.

This is again the case with their $50 billion tax giveaway, because the Treasury modelling on the government's company tax cut indicates that it will only generate 0.1 per cent in economic growth and create next to no jobs. The Australian public has seen with their own eyes this government's favourable treatment of big businesses through their treatment of the banks. Some of the organisations that will benefit from this $50 billion company tax cut over the longer term will be Australia's biggest banks. Can you believe it, Deputy Speaker? What the banks have put the Australian public through—the number of people they have ripped off, the number of claims they have denied through their insurance arms, the number of dodgy financial advisers who worked for them who have ripped off Australian taxpayers over recent years—has been astounding. And the Turnbull government wants to give them a tax cut. That says everything about this government's approach to fairness and equity in the Australian budget and taxing people fairly. They are giving the biggest businesses, including the banks, a tax cut, but at the same time they want to slug pensioners. They want to slug people with a disability. They want to slug people who are unemployed. They want to slug single mums and working families. Labor says that that is not on. That is unfair. That is not the way that you should be managing Australia's finances—by hitting the most vulnerable and letting off Australia's big businesses.

Since the Liberals took office, net debt in Australia has blown out by an estimated $317 billion. Deficits over the forward estimates have blown out by another $10 billion and a weakening economy has delivered more than $30 billion in revenue writedowns. In 2015 coalition MPs cheered when Prime Minister Abbott told the parliament:

So far the only idea they—

Labor—

have come up with is to spend $100 million on the ATO to raise $1 billion. And they all cheered and thought that that was wonderful from their then Prime Minister—and then, of course, they got rid of him.

Yet we find in the 2016 budget—most of which has still not been passed by the parliament—that the government did precisely what the member for Warringah was criticising the Labor opposition for, claiming that an additional $679 million investment will raise more than five times as much: $3.7 billion. If this is true, then it must also be the case that the government's savage cuts to the tax office, in axing over 3,000 jobs, will have cost revenue over the past few years and will do so into the future. Promising to restore some of the tax office's funding in this budget is an admission of failure—it is an admission that they got it wrong—and is not a new crackdown on multinationals. If the government truly had an appetite to close the tax loop holes that are exploited by multinational corporations, they would do something about the one in three big companies that pay no tax at all here in Australia.

The 2014-15 tax office tax transparency data shows that 109 companies did not pay any tax, despite reporting more than $1 billion in total income. This transparency data report, covering 1,904 companies in total, is only available thanks to Labor's reforms when we were in government. The former Assistant Treasurer, David Bradbury, introduced these excellent reforms that now allow Australians on an annual basis to see how much tax private companies are paying. These reforms were passed over the objections of the coalition. Let us never forget that the Liberals and Nationals—all of those on that side of the chamber—voted against these reforms to increase transparency on the amount of tax that Australian private companies are paying to the Australian government. And a couple of years later, after we established these reforms, both the Nationals and the Liberals voted with the Greens to water down those tax transparency laws and ensure that two-thirds of those private companies that were previously captured by those laws were now cut out. Well, so much for tax transparency in Australia!

In stark contrast, Labor is tackling multinational profit shifting. Our proposal is to move to a worldwide gearing ratio for calculating the amount of debt that companies can claim deductions on in Australia. Under our preferred approach, deductions would be assessed on the third-party debt-to-equity ratio of a company's entire global operations. That would be achieved by eliminating the existing safe-harbour and arms-length tests and making the worldwide gearing ratio the only test for the level of allowable deductions. This is a shift away from the current safe-harbor rules which let companies claim deductions on up to 60 per cent of their Australian debt without needing to show how this debt relates to their real business activity.

This bill makes crystal clear this government's preference to protect their big business mates at the expense of low-income Australians. Labor is committed to ensuring that we are fair dinkum about tackling multinational tax avoidance. That is enshrined in our policies, and that is why I am supporting the amendment moved by the member for Fenner.

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