Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

[by video link] I begin my contribution on this bill by echoing the words of the member for Kingsford Smith and paying tribute to the role of charities. Charities have played an incredible role in Fraser over the last 18 months, during the multiple lockdowns that the people of Fraser have endured. Of course, I acknowledge that the people of New South Wales and other states are experiencing lengthy, extremely difficult and traumatic lockdowns as we speak, and I can only imagine that charities are playing an equally important role in those communities.

In Fraser, throughout these lockdowns, charities have helped people in vulnerable positions: people who have English as a second language, elderly people, people with a disability and people who, due to travel restrictions, have been isolated from their families. Charities have helped people in all sorts of ways—in practical ways such as delivering free meals, shopping or buying groceries for people, and helping people navigate government forms which they otherwise would have relied on younger relatives to help them with. And they've helped people to remain socially connected with their communities. Even if it's by Zoom, even if it's by methods which aren't perhaps ideal, charities have been instrumental in helping people to maintain social connectedness during sometimes long periods of lockdown. And I've found it striking that, once lockdowns have lifted, charities have played a key role. People have flocked back to community events at every opportunity. I look forward to that occurring again when the current lockdowns end.

It has been critical that people receive financial support from all levels of government, and we, of course, see that as a key part of providing support to people. But I also think that it's important to recognise the key role that charities play, and that's why I wanted to begin my contribution by acknowledging the role that charities play in Fraser right now and, I'm sure, will continue to do in the months ahead.

I also wanted to make some observations on the provisions of this bill relating to offshore banking units, in schedule 2. Some of my comments in relation to these provisions are going to mirror comments that I may have made in recent times about other provisions. In a sense, it's a rather disturbing and repeating phenomenon that reflects the way this government operates. When we look at the way that offshore banking units have been regulated, what we see—and I'll work through this later on in my contribution—is that they began with a sensible policy rationale but that, over time, the provisions relating to offshore banking units have been misused.

Under the Gillard government in 2011 and in successive budgets, the provisions relating to offshore banking units were tightened. As speakers on this side of the House have pointed out, one of the early acts of the current government, back when Tony Abbott was Prime Minister, was to undo those provisions, to unwind certain provisions which had very sound public policy bases. Now, of course, what we see, many years later, is the government fixing that error. We welcome their fixing the error, but we do think it is important to recognise that we needn't be in this situation where, in 2021, we are basically back in the situation we were in in 2011, with a whole series of errors in between.

I spoke about similar kinds of public policy dynamics in the previous sitting week, when I spoke on a bill related to the regulation of financial advisers. A whole series of very sensible measures that the Gillard government had implemented under the banner of FOFA had been unwound by this government, and now, following the Hayne royal commission, they are being brought back in. I described it at the time as reflecting that this government's term was a 'lost decade'. This government comes into this chamber and trumpets dramatic reforms which really, in many areas of policy, are simply correcting errors it made earlier on in its long eight years, as in the case of unwinding FOFA and then having to bring back many of those provisions in response to the Hayne royal commission and as in the case of having unwound sensible measures that the Gillard government implemented in relation to offshore banking units and now bringing those measures back in. We see the same thing in so many other areas, like social service delivery. We see massive cuts in relation to aged care and the NDIS and then we see this government, in the last budget, correcting some of those cuts but trumpeting it as major reform.

I think it's important to put that context in place—that so much of what this government puts forward as reform is simply cleaning up its own mess. In 2021, so many areas of policy are no further advanced than they were a decade earlier. That's a huge lost opportunity, because if we look at the area of policy that we are focusing on today we see that so much progress should've been made. For us in 2021 to be debating a bill that takes us back to where we were in 2011, but the rest of the world has moved on so dramatically in relation to multinational corporation taxation and the rest of the world has moved on so dramatically when it comes to the erosion of the tax base, it is ludicrous that we are trumpeting it as some kind of success that we are returning to where we were a decade ago, having made so little progress on so many other areas of the tax base.

As other speakers have pointed out, schedule 2 of this bill will amend the Income Tax Assessment Act in order to remove the preferential 10 per cent effective concessional tax treatment and the withholding tax exemption for offshore banking units from 2023-24, making offshore banking units subject to the relevant corporate income tax rate from that time. There are also arrangements that close the OBU to any new entrants from the day after royal assent.

The offshore banking unit regime was introduced in 1987 as a tax incentive to attract and maintain financial sector activities within Australia. This was part of a suite of measures which were introduced to open up the banking sector to competition—not just to open it up to competition from foreign entities but to improve competition within the domestic banking system. This was intended to be one of a number of measures which were designed to incentivise foreign banks to maintain a presence in a world in which there was highly mobile capital that otherwise would have been carried through to low-tax environments such as Hong Kong and Singapore. The offshore banking unit tax incentive facilitated the use of Australia as a centre for offshore trading, investment management and lending. The users of the OBU regime have included hedge funds and major Australian financial institutions. But there has been growing concern that hedge funds have been setting up in Australia specifically to take advantage of the OBU regime, and Treasury figures suggest that the cost to the tax system had been rising. So I think, as earlier speakers have indicated, the cost to the tax system has risen from around $160 million in 2006-07 up to over $320 million in the most recent year.

The changing international environment was reflected in October 2018 in the OECD's Forum on Harmful Tax Practices, which stated that the OBU regime had the potential to harmfully introduce preferential features due to its low-tax rate and the ring-fenced nature that excludes domestic transactions from its scope—that is, the regime was seen to unfairly attract foreign investment to Australia that would otherwise have ended up benefiting another country's tax base. To address the forum's concerns ahead of further reporting from the OECD, the government has decided to remove the preferential tax treatment and close the regime to new entrants. But, as I said, this is something which reflects measures which Labor had introduced some time ago.

The big four banks, Macquarie Group and hedge funds have traditionally been the major uses of the OBU measures for offshore activities. After an expansion of the scheme under John Howard, Labor cracked down on this in 2011 to 2013 to rein in banks that were conducting structured finance transactions known as asymmetric swaps through the offshore vehicles. Labor's crackdown at the time was criticised by the finance industry, and in 2014 the then Liberal Assistant Treasurer, Arthur Sinodinos, implemented more industry-friendly changes to attract mobile financial services.

In the meantime, the OECD's Forum on Harmful Tax Practices has made a number of observations that these practices are eroding the tax space internationally and that this is inappropriate. Indeed, one can look at some quotes from an AFR article which was titled 'Australia's $350M bank tax break enrages EU'. I quote from that article in the AFR, written by John Kehoe:

… if the EU designated Australia as home to a harmful tax practice, EU institutional investors such as pension funds would be banned from buying securitised debt from Australian financial institutions.

This would have particularly affected foreign-owned banks in Australia using special-purpose vehicles for securitised debt deals.

So the government was coming under significant pressure from the EU, and of course from the OECD, about this potentially harmful tax regime. Again, if I can draw a parallel to a bill that I've recently spoken on in relation to money laundering, there are significant areas of noncompliance which the Financial Action Task Force has made reference to over many years, yet this government has been far, far too slow to act.

What we see in so many areas is that this government has either been delinquent in taking action or has in fact, in this instance, unwound protections, and now we find ourselves in a situation where, over many, many years, international agencies, the OECD and the EU, in the case of OBU tax regulation, or, in the case of money laundering, the OECD and the FATF have all criticised this government, and all too often the government belatedly, after having been dragged kicking and screaming, implements reforms.

I want to make some observations about the real cost of what I describe as the 'lost decade' of this government—the fact that we are, in this bill, bringing ourselves back to the situation that we were in in 2011. The lost decade is critical, because base erosion and profit-shifting has only grown. If one looks at many of the companies that the OECD and other international tax experts identify as being particularly problematic, their presence in the global economy is only growing.

Many tax experts argue that one of the trickiest areas to regulate when it comes to international taxation is intellectual property. And we find that companies which rely on intellectual property—for example, in technology, the Apples, the Googles, the Microsofts—are companies whose influence in the economy, whose influence in international transactions, whose influence in international investment flows is growing. That is why the OECD, over years, has been placing a greater emphasis on ways in which we can collectively, across the advanced economies, tax these entities more effectively. There are no simple solutions. It's going to take many years of hard work.

But that's why this lost decade is so critical. While other countries have been investing in this EEPS program at the OECD, which has now gone through multiple rounds of policy work, and while those countries are all working on progressing a policy agenda that is dealing with some very, very challenging policy conundrums for some of the largest and fastest-growing companies in our economy, in Australia we find ourselves with bills like this going back to the future—like Sisyphus pushing the rock up the hill and making no progress. That is the opportunity cost of this government's inaction, of this government's tiny agenda, of this government's delinquency.

We will support the measures in schedule 2, which bring the OBU regime back to where it was, back to where it ought to have been for some time now. But it is worth pointing out that this government's agenda is so limited on so many things, and Australia deserves so much more. We deserve to have a government that has a vision for what our society and what our economy is going to look like on the other side of COVID. We don't want to be a country that is returning to 2011; we want to be a country that has a vision for where we can be advancing to in the future.

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