Tony Zappia (Makin, Australian Labor Party) Share this | Hansard source

It was interesting listening to the member for Wills. I agree with his comments and summation of the importance of this legislation, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. For years now this parliament has been talking about ensuring that everyone pays their fair share of tax. It's one of the subjects that quite often gets raised by, I have to say, all members of this parliament, and I accept that there is goodwill from across the chamber to ensure that that is very much the case.

In the 2022 federal election campaign, Labor committed to ensuring that multinationals pay their fair share of taxation if Labor was to be elected. As part of this commitment, this legislation is now before us in the parliament. It is legislation which begins the process of ensuring that everyone in this country pays their fair share of tax. Whilst I'll make some comments about that in my own remarks, I'm pleased to see that everyone who has spoken thus far does not disagree with that sentiment.

The Australian tax system is complex. It has evolved over the years and has morphed into a tax system that is complicated, difficult to understand and manage, and filled with loopholes and other provisions which enable legal tax avoidance. I stress the word 'legal', because what most of those who avoid tax are doing is allowed to be done under our laws. If it wasn't, they wouldn't be able to do it. It is those laws that we need to try and rectify. Adding to the difficulties, we live in a global economy, where large corporations—and that includes companies that were founded here in Australia—operate across multiple countries. Each of those countries have their own tax laws, tax rates and tax compliance regimes. Through domiciling their head offices in low-tax jurisdictions or by establishing multiple subsidiaries, global entities are able to minimise their taxation payments and, in some cases, completely avoid taxation whilst operating entirely within the law. Australia's relatively high corporate tax rate adds to the incentive for global corporates operating here in Australia to engage in tax avoidance.

Whilst I note this is something other countries are attempting to address and I accept that there have been international discussions about how we collectively work on this problem—because it is a problem for other countries as well—the reality is that we still live in a global environment where almost half the countries of the world don't want to engage and will be happy not to be part of the discussions or part of a process by which everyone pays their fair share of tax. They don't want to be part of that process because, through their own systems of government and their own tax laws, they actually make money out of their jurisdictions being used as either tax havens or tax avoidance places by the corporates of this world.

This legislation attempts to bring back at least some additional genuine tax to Australian taxpayers. Schedule 1 targets Australian public companies, in expecting them to disclose their subsidiaries and where they are located—a point I was making a moment ago. Schedule 2 targets a known tax-planning arrangement by limiting multinational entities' debt deductions. That's a much more complex process and, I suspect, one that only good tax accountants understand. I think it is that complexity and lack of understanding that has allowed this process, a process whereby companies are able to claim many more deductions than they are legitimately entitled to, to continue for decades. If we can close it down, and I hope we can, it will be one way of at least recovering some of the lost tax that this country is entitled to.

I note that the legislation has been consulted on extensively. Consultation began almost immediately after the election in May 2022. In the first round of consultation, which was a broad consultation process, there were some 70 submissions. Later, in November, there were consultations with the tax advisory firms and the property sector. In March there were consultations on the proposed draft legislation, where another 55 submissions were received. The last round of consultations took place in April. I understand that they were mostly with industry representatives. I stress that point just to assure people in this place that consultation with respect to what is important legislation has been extensive and the proposal before us was reached after that consultation took place.

With respect to the disclosure of information about subsidiaries, Australian public companies will be required to disclose such information in their annual financial reports. This will impose some compliance costs—and I note that within the consultation process the issue of compliance costs was also raised—however, the reality is that those compliance costs are relatively minor in comparison with the turnover of the companies involved and the amount of tax that has been lost. Whilst there are indeed thousands of entities that meet the definition of those companies that will be part of that compliance, realistically this will impact only those companies that have complex corporate structures. I believe those entities are all in a position to meet the additional compliance costs required of them. My understanding is that the EM's indicative estimate of 471 entities is based on Australian public companies, with a group turnover of more than $250 million—that is, the large corporate groups. If that is the case, and they are companies or entities turning over more than $250 million, I suspect that the compliance costs would pale into insignificance compared to the total cost of running those entities.

I have spoken in this place on several occasions about multinational tax avoidance.

And I note that according to one 2020-21 report 73 of the 134 fossil fuel companies in Australia paid no tax at all on a total income of $164 billion. When the average person out there in the community hears figures like that, they ask the question, how can that be? We are talking about $164 billion of turnover, yet 73 of those fossil fuel companies paid no tax at all. The truth of the matter is that most of those fossil fuel companies are well-known brands—companies that people know of and know full well that they would be making handsome profits, albeit that they were able to minimise or totally avoid their tax obligations.

Tax is paid on profits made in Australia, and it is clear that those 73 companies, a number of which are amongst the richest and most profitable and powerful in the world, are shifting their profits offshore, either through subsidiaries or by having their head offices domiciled offshore. Then they pay head offices all sorts of fees at inflated prices to ensure that here in Australia their taxation returns show that they have not made a profit. That is what we need to try to work through and resolve.

On that issue of tax avoidance, I want to quote from some other reports and summarise what I think is the true situation across the world right now. In June an OECD report showed that in recent years across 15 countries, including Australia, a large proportion of inflation has been attributed to company profits. People in this place talk about the causes of inflation, and one of the drivers of that inflation is the profit-making by those large entities. Again, it's hard to single out anyone in particular, and it's hard to quantify specifically, but we know it is happening. And post the COVID pandemic there have been numerous reports—again, both within Australia and from around the world—that corporate profits soared. At a time when the economies of most countries were being shut down because of COVID, corporate profits were increasing. Again, it's hard to imagine, in the minds of most ordinary people, but that is in fact what was happening.

Fortune reported in early 2022 that US companies posted their biggest profit growth in decades by jacking up prices during the pandemic. Again, looking at the issue of COVID and how those profits are derived, when not only were economies shutting down but also people in many cases had lost their jobs and were receiving no income or being supported by governments through welfare payments, these companies were making huge profits and actually increasing their prices. It's totally immoral and unethical. A Bloomberg article in August 2022 described a measure of US profit margins as being its widest since 1950—that is, in more than 70 years. Oxfam have reported:

The world's small elite of 2,755 billionaires has seen its fortunes grow more during Covid-19 than they have in the whole of the last fourteen years combined.

And it has been reported this year that in Canada nearly every sector has achieved more gross profits than in pre-pandemic times. Lastly, Tax Justice UK reported in late 2021 that just six companies made 16 billion pounds in excess profits during the pandemic.

So, in the past three years, when the world was effectively on its knees in so many ways, the big corporates were making windfall profits, and it is those windfall profits that they should be paying their fair share of tax on. This legislation goes some of the way to trying to ensure that that is the case.

I note that similar types of measures have been introduced overseas and particularly in the UK, where much of the guidance for this legislation has been sought. However, if we are to truly tackle this problem, I believe that we need to ensure that it is done in a cooperative way right across the globe, not just with some of the countries that share our concerns about it. Because, whilst there are countries that are prepared to act as havens for tax avoidance companies, the processes and practices that these companies engage in will continue. And they will continue in a legal way.

The reality is that the effects of this go further than just simply those companies not paying their fair share of tax. It also gives them a competitive advantage when they are competing with other companies that are prepared to pay their fair share of tax, because, by not paying the tax, they have an advantage and, therefore, are able to undercut those companies. Secondly, it is totally unfair that companies will continue to do that whilst paying their executives millions of dollars. The average working person in Australia pays their full share of tax each and every week and is not able to participate in those tax avoidance schemes. And, thirdly, as others have spoken about, there is a concern that small entities in Australia don't employ the accountants and don't have the subsidiaries overseas to be able to engage in the tax avoidance measures that these companies are doing each and every day.

For all of those reasons it is important that we try to level out the playing field and have a fair tax system. In doing so, it will assist governments of all persuasions in raising their revenue so they can provide the services that everyone expects of governments.

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