Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That all words after 'That' be omitted with a view to substituting the following words:

'whilst not declining to give the bill a second reading, the House notes the Coalition’s failure to close multinational loopholes and its failure to improve tax haven transparency'.

Labor supports the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, which implements a number of sensible amendments to improve the integrity and operation of the consolidation regime. The measures, with the exception of the deferred tax liabilities measure and the securitised assets measure, were originally announced by the former Labor government in 2013-14. The bill implements recommendations made by the Board of Taxation in 2012 and 2013 and reflects consultation carried out by Treasury and the Board of Taxation.

As the second reading amendment makes clear, Labor believes that we need to go further in cracking down on multinational tax avoidance. One in five of Australia's biggest companies paid no tax for at least the past three years. We heard in Senate estimates last night that despite the besmirching of the careful work on the issue of corporate tax paying carried out by Emma Alberici, the ABC's economics correspondent, ABC executives were unable to identify any specific errors in that work.

It is of deep concern to many Australians that the government's biggest economic priority is a budget-busting corporate tax cut that will increase household income, on their own numbers, by 0.1 per cent in the 2030s. 0.1 per cent in the 2030s reflects another month's growth in household income. That is, according to the government's best estimates, the one-off benefit of their budget-busting big business tax cut.

Why does it deliver such small gains? It reflects in part the fact that Australia's corporate tax rate places us in the middle of the G20 pack, according to Congressional Budget Office analysis published in March last year. Our statutory rate places us 10th in the G20. Following the United States' recent tax cut we would be the ninth highest in the G20. But our effective rate places us in the bottom half of the G20 for corporate tax. We, unlike other countries, don't have state corporate income taxes. Unlike most other countries in the G20 or the OECD, we have dividend imputation, a system which gives back about a third of the corporate tax revenue. So from a fiscal perspective, the perspective that the government used to say that they cared about, a corporate tax rate of 30 per cent with dividend imputation raises about as much for the budget as a corporate tax rate of 20 per cent without imputation. Anyone who talks about corporate rate cuts and fails to mention imputation is being deeply disingenuous.

The Liberals said that they cared about the deficit when they were in opposition. Not only did they say it, the now Prime Minister was photographed in front of debt trucks with terrifyingly large numbers—terrifying for him back them, but about half of what he's produced right now. The fact is that the Prime Minister and the Treasurer really don't care about deficits any longer. The attacks on the deficit were all a smokescreen for the cuts to social services in the 2014 budget. They care deeply about the deficit if it's an excuse to take money away from the poorest Australians, but they don't care at all about the deficit when it comes to the debate over corporate tax. When it comes to a big business tax give away of $65 billion, they're not at all worried about the deficit. At least they're not worried now, but of course we know what will happen, because we've seen this playbook before. We know that as the deficit and debt continues to blow out as a result of these corporate income tax cuts, were they to get them through, they would be back in this parliament saying that the real problem with the Australian budget is that social services are 'unaffordable'. 'That's why we have to cut the pension, cut supports to people with disabilities and take money away from sole parents and students.' That's what they would be coming back and saying.

It is the 'starve the beast' strategy that we've seen under the US Republicans for so long. The Republicans in the United States have spoken so often about caring about debt and deficits. But if you look under Ronald Reagan or George W. Bush you see an increase in the deficit. The US Republicans care about debt and deficits as an excuse, a fig leaf, to take money out of the social safety net, but when they're talking about their own tax cuts suddenly they're not worried about debt and deficits at all. We've seen it with President Trump at the moment putting in place a corporate income tax cut which is going to massively add to that country's deficit. And we see it back here in Australia: a Prime Minister getting off the plane from the United States and saying that we need a corporate tax giveaway, we need to bust the budget—

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The member for Gilmore, on a point of order?

Ann Sudmalis (Gilmore, Liberal Party) Share this | Link to this | Hansard source

Does American politics and finances have something to do with this? I don't think so. If he could stick to the point, that would be great.

Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I think that might have been a sledge rather than a point of order, Mr Deputy Speaker. I am speaking directly to the second reading amendment that I moved.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The member for Fenner is in order.

Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Thank you, Deputy Speaker. The corporate tax debate we're having in Australia does echo the United States' debate and does go directly to the question of the sustainability of the Australian budget. Labor believes that we need to crack down on multinational tax avoidance. We have announced a series of measures that would add directly to the bottom line of the budget. For the benefit of the House—indeed, for the benefit of the member for Gilmore—I will go through some of those measures. Labor would tighten debt deduction loopholes used by multinational companies, improving the budget by more than $4 billion over the medium term. We would introduce public reporting of country-by-country reports, which are high-level information about where and how much tax is paid by large corporations. We would provide protection for whistleblowers who report on entities evading tax to the Australian Tax Office and, where whistleblower information results in more tax being paid, we would allow them to collect a share of the tax penalty—being a reward of up to $250,000—as occurs in the United States and the United Kingdom.

We would introduce a publicly accessible register of beneficial ownership of Australian listed companies and trusts, allowing everyone to find out who really owns our firms and ensuring that shareholders can't use complex structures and sham ownership to avoid complying with corporate tax rules. We would introduce mandatory shareholding reporting of tax haven exposure. If a company is doing business in a tax haven, we believe that shareholders should know about it. There is a mood across the OECD to crack down on tax havens. Shareholders need to know if their corporate boards are making a decision to do business in a tax haven. The member for Gilmore might think it's alright to do business in a tax haven, but my guess is that the people of Gilmore would be deeply concerned about firms that were doing business in a tax haven and not informing their shareholders of that.

We would appoint a community sector representative to the Board of Taxation to ensure community sector voices are heard in tax design and review processes. We would introduce public reporting of AUSTRAC data and require the annual public release of international cashflow data. We would require government tenderers to disclose their country-of-tax domicile. If they are tendering for contracts worth more than $200,000, the Australian public have a right to know where their country-of-tax domicile is. We would develop guidelines on tax haven investment by superannuation funds, working with the Australian Taxation Office, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. We would require that the Australian Tax Office in its annual report provide information on the number and size of tax settlements. We would deliver more tax transparency by restoring Labor's $100 million threshold for public reporting of tax data for private firms—a threshold raised from $100 million to $200 million by the Liberals and the Greens, effectively taking two-thirds of private firms out of the tax transparency net.

We need to make sure that we have a multinational tax system with integrity, a multinational tax system which ensures that firms pay their fair share of tax. This is a worthy bill in itself, but it doesn't go far enough. We can add to the budget bottom line in a fair and responsible way. Labor urges the government to do the right thing on closing multinational tax loopholes.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

I second the amendment.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

I thank the honourable member for Kingsford Smith. The original question was this bill be now read a second time. To this, the honourable member for Fenner moved as an amendment that words after 'that' be omitted with a view to substituting other words. If it suits the House, I will state the question in the form that the amendment be agreed to. The question now is that the amendment be agreed to, and I call the honourable member for Kingsford Smith.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

I speak in support of the amendment moved by the member for Fenner. The purpose of this bill, the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, is quite complicated, and it comes about as a result of consultation that was undertaken by Treasury with interested participants from industry and tax experts that work in this area. They published a paper that looked at the advantages that multi-entry consolidated groups have over domestic Australian resident-owned head companies that consolidate to form a group for taxation purposes. They did find that there were a number of advantages that the multi-entry consolidated groups had over the domestically based companies, and this bill seeks to amend and remove some of those taxation advantages that exist in the current law.

In the Australian law, the consolidation regime applies mainly to a wholly-owned group of Australian resident entities that choose to form a consolidated group for income tax purposes. A consolidated group generally consists of an Australian resident head company and all of its wholly-owned resident subsidiaries. Specific rules allow for certain resident wholly-owned subsidiaries of a foreign holding company to consolidate by forming a multiple entry consolidated group. Of course, these measures, except for the deferred tax liability measures and the securitised assets measures, were originally announced by Labor in the 2013-14 budget. So, it's good to see that the government finally has adopted the recommendations of this working party and Labor's proposal and brought this legislation to the parliament.

I'm not going into the details of this, because it's quite a complicated piece of legislation, but I want to point out that this is an element of a policy that Labor has been pushing for some years in order to clean up the tax system, to close loopholes, particularly for foreign multinationals to avoid paying their fair share of tax in Australia, and ultimately to raise more revenue for the budget to fund education, health and infrastructure services. We've had a clear plan on integrity for tax measures for some time. When you consider that one in five of Australia's biggest companies has paid no company tax for the past three years—that's no tax from those who can most afford it—it's not a fair contribution to key areas of public spending such as hospitals, schools, universities and infrastructure.

Indeed, health is one area where most Australians can least afford the imposition of ill health and bad luck. I recently received a letter from a constituent who has been on the waiting list for a double-hip replacement for some months now. He was meant to be operated on in June last year, and when he contacted me earlier this year he hadn't heard anything from the doctor or the hospital, the Prince of Wales in Randwick, where he was supposed to have the surgery. It was only as a result of my intervention and writing a letter to the Minister for Health in New South Wales that he finally did get some action, and he is hopeful that that surgery will now take place. I raise this as an example of the fact that this government has cut funding to hospitals. It has continued the freeze on Medicare, which has forced some doctors to push up the rebate, and it is having an effect on our health system. It is having an effect on our health system in terms of elective waiting surgery times and, of course, hospital emergency departments. In the context of this government now wanting to provide a $65 billion tax cut over the next decade to the largest Australian corporations, to the big companies, when people can't get the adequate health services that they need, when schools during the summer don't have air-conditioning so the students are sitting there in sweltering heat, when infrastructure that's vital to unclog our cities isn't being developed, you can understand why Australians are frustrated that this government is offering a big tax cut to the wealthiest multinational corporations, most of the advantage of which will go overseas.

Cost of living is a huge issue for Australian families and pensioners. Over recent years, they have been facing the rising cost of electricity. The cost of insurance has gone up. The cost of child care has gone through the roof. Housing, in my area, is just ever increasing. On this notion that the housing market is coming off the boil, I urge people to come and have a look at the area that I live in. They would fail to see that that evidence is actually taking place at the moment. Pensioners can't afford to switch on air-conditioners during summer, because they can't afford their electricity bills. Cost of living is a huge issue at the moment for Australians who are struggling to make ends meet. Yet this government is proposing to cut taxes for the largest companies and corporations and give them a tax break, but at the same time it is increasing taxes for hardworking Australians by increasing the Medicare levy by 0.5 per cent.

Well, Labor's not buying it. We've said that we're opposed to this proposed company tax cut. We want to keep that money in the federal budget to properly fund health, education and infrastructure. We've said we'll consider cutting company taxes, as we have in the past, once the budget is back in surplus, which is the fiscally responsible and sensible thing for a government to do. But this government, on its ideological crusade, won't have a bar of that and is persisting with this notion, which is opposed by the majority of Australians, that it should cut company tax and that that benefit will trickle down to workers. Of course, we don't know that.

They're using the US as an example. They're saying, on the back of their lovey-dovey tour last week to the US, that Australia is going to be uncompetitive when it comes to corporate taxes and will fall behind. But, interestingly, the Congressional Budget Office in the United States recently published a paper where they looked at what they call the effective rates of company tax throughout the world, and they gave countries international rankings. An effective rate of tax is one where the whole nature of a taxation system is considered in terms of the eventual rate of tax that a corporation might pay, and it includes things like dividend imputation in Australia, the tax credit that shareholders will get for tax that's already been paid by the corporation at a company level; depreciation and the fact that certain assets can be depreciated at a faster pace in Australia than in other nations; instant asset write-offs, which are related to depreciation, of course, but provide an opportunity to write that asset off over the course of one year; and, of course, the deductions that exist in a particular nation. We all know that Australia has a very generous system of deductions for income spent in generating a profit for a business, most notably in the resources sector, where it's basically the case that companies don't begin paying any tax until they make substantial profits. They're some of the most generous deduction systems in the world.

Based on those characteristics, the Congressional Budget Office ranked the effective tax rates of nations, and they found that Australia's effective tax rate is around 11 per cent, but that of the United States is around 16 per cent. So, when you look at effective rates of tax for corporations, we're actually lower than the United States, based on this study by the Congressional Budget Office. But this government seeks to ignore those facts and will push on with a policy that is deeply unpopular in the Australian community, who would rather see people hold that money in the budget to spend on education, health and infrastructure.

We've also got a plan to tighten up some of the tax loopholes that exist and crack down on tax havens. That clear plan to tighten debt deduction loopholes used by multinational corporations will improve the budget bottom line by $4 billion over the medium term. Labor will also introduce public reporting of country-by-country reports, high-level taxation, and information about where tax was paid, and how much tax was paid, by large corporations, those with over a billion dollars in global revenue. Providing protection for whistleblowers who report those entities evading their taxation obligations to the Australian Taxation Office is also very important. Where whistleblower information results in more tax being paid, Labor have said that we'll allow them to collect a share of the tax penalty, with a reward of up to $250,000.

So you can see that Labor's got a fair-dinkum system and a fair-dinkum policy when it comes to closing some of these tax loopholes, but it relies a lot on some of the measures that have been recommended at an international level through the international organisations that Australia is a member of. It's something that has broad support and that many other nations are now adopting, and it's based on some of those BEPS measures and some of those other international movements that are associated with improving tax transparency and ensuring that there's no leakage from domestic taxation systems and that you maximise the funds and revenue raised to fund services within a budget.

As I mentioned earlier, this bill has been on the table for many, many years. It's something that Labor has supported for many years. It was in our policy that we took to the last election. It does raise close to a billion dollars over the forward estimates, and it does clear up that discrepancy that exists between foreign-based holding companies and Australian holding companies. We do congratulate the government for finally bringing this on and adopting one of the policies that were put forward by the Labor government in 2013-14. They say imitation is the greatest form of flattery; I thank the minister for imitating Labor's policy.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I would like to add a few comments to follow up comments made by the members for Fenner and Kingsford Smith. Firstly, the member for Fenner made the allegation that the coalition's plans to reduce the corporate rate of tax in this nation are budget busting. The member of Fenner should know that every cent of that is already in the budget, and we will have that budget back into balance and then into surplus very soon.

Secondly, the other point that I think needs to be made is that it appears that we have members of the Labor Party that are living in a fool's paradise if they think that we do not have to respond to the US reduction in the rate of corporate tax. The US are reducing their rate of corporate tax to 21 per cent—in the world's largest economy. But they are not the only nation that are reducing their rate of corporate tax. It is also the UK and France. In fact, over the last decade, we have seen almost every major OECD nation reduce their rate of corporate tax. We understand that we as a nation need to be competitive to attract investment and drive jobs growth to drive the prosperity of this nation. Anyone that thinks that we can just sit on our hands and watch our global competitors reduce their corporate rate of tax while we do nothing is living in a fool's paradise.

But there are other risks to our nation's competitiveness. It is not only that the Labor Party does not understand the importance of our corporate rate of tax being internationally competitive. The other threat we have seen in the last 24 hours is the real sovereign risk that comes with the conduct of the Leader of the Opposition. Today's papers are reporting a duplicitous stance by the Leader of the Opposition on the Carmichael coalmine, telling one group of CFMEU workers and those in Northern Queensland that he's in favour of the mine but telling others that he's against it.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The member for Lingiari, on a point of order?

Warren Snowdon (Lingiari, Australian Labor Party, Shadow Assistant Minister for External Territories) Share this | Link to this | Hansard source

This contribution is ranging far further than this legislation. I ask you to bring the member to order on the matter of relevance.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

The issues raised by members in this debate clearly go to the competitiveness of the Australian economy.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The member for Hughes is in order. He will continue.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Thank you, Deputy Speaker. It is clear, as I was saying, that it is important that our nation stays internationally competitive to attract investment. One of the risks to that is the corporate rate of tax, and the opposition are burying their heads in the sand about that. But the other danger is the sovereign risk that has been raised in the last 24 hours, where we have the Leader of the Opposition being duplicitous, saying one thing to one group of people about the Carmichael coalmine up in Northern Queensland—that he's in favour of it—but saying another thing to green, environmental activists—that he will block it; he will revoke their licence. What message does that send to foreign investors who are thinking about bringing their capital to Australia that will help create jobs and wealth and raise revenue for the government to pay for all those things that we want to pay for—for pensions, for aged care, for hospitals, for schools and for kids with disability? We've got to create that wealth and we need to attract that foreign capital.

But what would people sitting around a boardroom table overseas think when they pick up the paper today and read that the alternative leader of the Australian nation is so duplicitous that, if he comes to office, he will revoke a licence given out. Who is going to put their capital up, to take the risks, to go through the environmental approvals that take years in this nation, knowing that, if they do everything correctly and by the book, the alternative leader of the government will revoke their licence simply to appease extreme environmentalists and to win green votes in marginal electorates. We are in a competitive race against nations in the rest of the world. This is why the corporate tax rate is important for our nation. This is why everything this government does is to make sure that our nation stays competitive—because we realise that is the only way we can continue to finance our first-rate hospitals, the National Disability Insurance Scheme, our pensions and our aged care. Those things are so important to this nation and we all want to be able to afford to do that. The only way we can continue to do that is to ensure our nation is internationally competitive in attracting investment—and the greatest threat to that are those members who sit on the opposite side of the chamber.

Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Link to this | Hansard source

Firstly, I would like to thank those members who have contributed to this debate. This bill amends the Income Tax Assessment Act 1997 to improve the integrity and operation of the tax consolidation regime. There are around 12,000 consolidated taxpayers in Australia, including the majority of Australia's largest businesses. The consolidation regime allows a wholly owned corporate group to be treated as a single entity for income tax purposes. This not only improves the integrity of the tax system but also reduces compliance costs for businesses and removes impediments to group restructuring and efficient business practices.

While the consolidation regime works well in general, the government is making changes to remove loopholes and improve the fairness and operation of the business tax system. The government is introducing changes to prevent a double tax benefit from arising when an entity holing a deductible liability joins a consolidated group. The bill will also prevent a double tax benefit from arising when an entity joins or leaves a consolidated group where the entity has securitised an asset.

To reduce the circumstances in which tax outcomes differ from commercial outcomes, this bill will simplify the operation of the entry and exit tax cost setting rules by ensuring that deferred tax liabilities are disregarded. This bill closes a loophole that allows consolidated groups to access double deductions by shifting value across entities in a consolidated group. Nonresidents will also be prevented from churning assets within related corporation groups to access double deductions.

Finally, the bill will ensure that the tax treatment of certain intragroup liabilities and assets between a continuing member of a consolidated group and an existing member of a consolidated group is consistent with the economic substance of the relevant transaction. This will clarify the interaction between the consolidation regime and the taxation of financial arrangements regime.

We have consulted widely over a number of years to ensure that these changes operate as intended, and fairly balance the need for additional integrity without unduly burdening business with compliance costs. These changes demonstrate the government's commitment to improving the fairness, integrity and effectiveness of the business tax system. I commend the bill to the House.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fenner has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the amendment be agreed to.

Question negatived.

Original question agreed to.

Bill read a second time.