Carol Brown (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary for Families and Payments) Share this | Hansard source

I rise to speak on the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. While the Labor Party will be supporting this bill, we note that its revenue impact has no dollar figures attached to it because Treasury has been unable to cost it. This proposal in the bill is uncosted and untested, but Labor will support any steps to tighten Australia's tax net and crack down on multinationals who are avoiding paying tax, no matter how small. That is why we are taking a bipartisan approach to this bill. We hope that in the same spirit of cooperation the government will take a serious look at Labor's fully-costed multinational tax package, which will raise $7.2 billion over the next decade. Labor's plan, which I urge those opposite to look at in detail, would close tax loopholes and keep tax revenue here in Australia.

Labor's plan has been costed by the independent Parliamentary Budget Office. This bill, as I have said, is uncosted. Treasury cannot say how much revenue it will bring in. It is an untested approach to corporate tax. When it comes to tax, Labor believes everyone should pay their fair share. It is unacceptable to allow big multinationals off the hook when Australians work hard and pay their tax. We know that when huge overseas companies avoid paying their fair share of tax, individual taxpayers and small businesses are left to pick up the slack. It is incredibly unfair that massive global companies earning millions of dollars in revenue in Australia can get away without contributing to the things that taxes fund, like our schools, hospitals, roads and many other public services.

It is timely to be debating the bill this week when it has been reported in the media that Chevron Australia's United States parent company paid income tax of just $248 last year, despite earning an estimated $1.73 billion profit on interest charges to its Gorgon LNG development. Someone earning the average wage in Australia pays about 21 per cent in tax and a small business pays the corporate rate of 30 per cent on their profits. But, in recent years, it has become clear that many big companies pay just a fraction of that. At the Senate's recent corporate tax inquiry, we heard evidence that one big multinational company may have paid as little as two per cent tax on billions of dollars in revenue—just two per cent tax.

Just consider: if the average Australian wage earner paid just two per cent instead of their standard 21 per cent, they would be paying almost $15,000 less a year. In its submission to the tax inquiry, the Australian Taxation Office said that more than half of Australia's cross-border trade—or over $300 billion a year—is made up of companies transferring money from their Australian operations to their international arms. More than $115 billion of this revenue was channelled to very low tax jurisdictions. When evidence like this is revealed, how can Australians have any faith in the corporate tax system? Why would Australians feel that they should pay the right amount of tax when others get away with paying next to nothing? Where is the fairness in this system?

It is quite clear that we need to tackle multinational profit shifting and corporate tax avoidance. If we do not act now, Australia will continue to lose millions—or even billions of dollars—in foregone tax. And we know that under this government net government debt is continuing to rise so we cannot afford to let tax revenue continue to drain away offshore. Tax reform for multinational companies is so important because of globalisation and the digitisation of the world economy.

Three of the five biggest companies in the world today are companies that make their money primarily on the basis of intellectual property. This makes traditional tax regimes far more complicated. Digital businesses often do not have permanent headquarters in a physical place where their so-called products are made. So this has made it easier for businesses to shift profits to low-tax or no-tax regimes, regardless of where their profit is really produced. The intangible nature of digital goods also raises issues in pricing transactions within companies. Now more than ever we need to update and close the loopholes that have been created because of these changes in technology and a more globalised business environment.

This bill does focus on companies that artificially avoid booking revenue in Australia so they do not have to pay tax on the profits. It contains four schedules which together make some progress towards tackling multinational tax avoidance. But they do not deal with the issue of debt deductions, which is the main focus of Labor's $7.2 billion multinational tax package.

In this bill, schedule 1 introduces a new concept into tax law—the 'significant global entity'—which will potentially capture up to 1000 companies with annual income of over A$1 billion. Schedule 2 amends the existing anti-avoidance provision to counter instances where multinational firms use artificial arrangements to avoid paying corporate tax in Australia. The maximum penalties for firms involved in tax avoidance and profit-shifting schemes are doubled in schedule 3. As a result of this change, the maximum penalty is 120 per cent of the amount of tax avoided under the scheme. However, these stronger penalties will not apply where the taxpayer has a reasonably arguable position. Schedule 4 implements the Organisation for Economic Co-operation and Development's action plan on transfer pricing documentation and country-by-country reporting.

As Labor's Shadow Assistant Treasurer Andrew Leigh has pointed out, the new Treasurer cannot say how much revenue will be protected by this package because Treasury, as I and others have already noted, has been unable to cost it. As Dr Leigh also pointed out, if Labor had announced a multinational tax package that was not costed—and if we could not say how much revenue would be raised—we would be laughed out of town and out of parliament. And fair enough too. But we will support this bill, because we know we must protect Australia's revenue base. However, we do so in the hope, as I said earlier, that the government will work with Labor to tighten Australia's tax net. Labor's changes, which we announced back in March this year and which are fully costed, can be implemented alongside the changes in this bill. Our multinational tax package contains four measures which, as I have said, are costed and also, importantly they are fair. As I have already outlined, Labor believes in fairness when it comes to people paying tax.

In 2012-13 companies shifted more than $300 billion between their Australian arms to their parent or subsidiary companies overseas. I fear, however, that those opposite are not serious about tackling this multinational profit shifting and corporate tax avoidance. In fact, this Liberal government has already shown its true colours—its top priority on tax is neither about ensuring big companies pay their fair share nor about helping low- and middle-income Australians get a better deal. In fact, the government's top tax priority seems to be helping big companies keep secret how much they really pay.

Only recently this government gutted Australia's existing tax transparency laws. Labor introduced these transparency laws in 2013 in response to growing concern that some big firms were not paying their fair share of tax. Labor's legislation required the Commissioner of Taxation to publish the total income, taxable income and income tax payable of all entities with annual turnover over $100 million. This measure was designed to discourage aggressive tax practices, better inform public debate about tax policy and help combat the risk of base erosion and profit shifting. The first publication of this information, based on the 2013-14 financial year, was scheduled to be released in late 2015. The transparency laws applied to about 2000 of Australia's biggest firms, but the government recently wound these laws back to narrow the scope so that these laws no longer apply to Australian owned private companies. Specifically, those opposite exempt companies earning more than $100 million from the transparency laws if: the company is an Australian resident private company; or the company is not a wholly-owned subsidiary of a foreign corporate group; or the company does not have a level of foreign shareholding greater than 50 per cent. The impact of the legislation is to exempt around 1,000 of Australia's biggest, privately owned companies, including those owned by James Packer, Gina Rinehart, Lindsay Fox and 7-Eleven owner Russ Withers from disclosure.

Labor knows that improving transparency is one important way to tackle corporate tax avoidance. The contrast could not be clearer. Labor believes in holding big companies to account and ensuring they pay their fair share of tax. The Abbott-Turnbull governments believe in hiding them from scrutiny so that Australians never know how much tax these firms really pay. This government's record on corporate tax is one of inaction and hot air. Since coming to office, the only concrete things they have done are reopen offshore loopholes worth $1.1 billion and help big companies keep their tax dealings secret so that Australians never know what sort of corporate tax avoidance may be going on under their noses.

Only Labor has a proud record of firm action in tackling tax avoidance and only Labor has a real plan to address multinational tax avoidance. The Liberals seem to think it is acceptable to hand back more than $1 billion to big multinationals in their last budget, while at the same time cutting the pension and wanting to make young Australians pay $100,000 for a university degree. Those opposite seem to think that it is appropriate to let the big end of town slide, while at the same time blackmailing and bullying the states and territories into increasing the rate of the GST. Instead of coming to this place with a transparent and robust plan to address multinational tax avoidance, those opposite would prefer to soften up the public for a GST increase—an increase which would hurt low- and middle-income earners.

Modelling recently released by NATSEM shows that an increase in the rate of the GST to 15 per cent would require people in the lowest 20 per cent income bracket to pay seven per cent more of their income, while people in the highest 20 per cent income bracket would pay just three per cent more of their income. The same modelling also highlights the problems of funding personal income tax cuts with increases in the GST. The modelling shows that increasing the GST to fund a five percentage point reduction in all tax rates would reduce the progressivity of the tax system even more than raising the GST alone. This scenario would see almost two-thirds of households worse off, with the average impact being negative for the bottom three quintiles and positive for the top two quintiles. That is hardly a recipe for 'fair' tax reform.

We know that an increased GST rate of 15 per cent that is also applied to the basics like fresh food, health and education would be a major hit to the cost of living for Australian families, costing the average Australian family an additional $5,000 every year. Mr Turnbull's plan to increase the GST—and, in so doing, hurt low- and middle-income earners—shows just how out of touch he is with the cost-of-living pressures facing average Australian families. Those priorities are warped and unfair. Yesterday, when asked to define what a fair tax system would look like, Mr Turnbull said:

… I think for Australians [it] means that the burden of tax is borne by those who are best able to pay it ...

I could not agree more. However, the touted changes to the GST do exactly the opposite. They would see those least able to afford it paying the biggest share of their incomes in GST.

If those opposite are serious about tax reform and creating a fair tax system, then they will adopt Labor's plans for fairer taxes on multinationals. Under Labor's plan, tax deductions would be based on a company's entire global operations, not just what they do in Australia. Labor wants to amend the current thin capitalisation rules to reduce the amount of debt that multinational companies can claim deductions for in Australia. Companies would no longer be able to claim up to a 60 per cent debt-to-equity ratio for their Australian operations. Instead, deductions would be assessed on the debt-to-equity ratio of a company's entire global operations.

We also want to better align Australia's rules on hybrid entities and instruments with tax laws in other countries. Standardising the rules will, we believe, reduce companies double-dipping by claiming tax exemptions in one country and tax deductions in another.

Labor also wants to better resource the Australian Taxation Office so it can properly investigate and pursue multinational profit-shifting. The Australian Commissioner of Taxation has acknowledged that additional compliance checks by the tax office is yielding greater revenue from multinationals.

When Labor's multinational tax package was announced, the shadow Assistant Treasurer, Andrew Leigh, said:

We need a tax system that rewards the productive, the innovative, the resilient, the clever and the competitive. We need an economy that rewards hard work in business. The crucial question is not: who do we want to pay more tax? It's: who do we want to win in our economy?

Labor is passionately pro-business, and we want to see individuals and businesses succeeding. More than that, we want to see all businesses—big and small, local and international alike—have a fair chance of succeeding because they are competing on a level playing field where the same rules apply to all.

I implore the government to consider Labor's proposals. I also implore the government to commit to a formal review of this multinational tax bill by 2018, as recommended by the report of the Senate Economics Legislation Committee. The measure in this bill is really an uncosted and untested approach to tackling multinational profit-shifting. Accordingly, it is only proper that Treasurer Morrison commit to an evaluation within three years of its 2016 start date to determine whether it has successfully stopped companies from siphoning profits offshore.

Labor has consistently said that the government's tax package does not go far enough because it does not target debt deductions. But we are supporting the government's bill because we understand that protecting Australia's revenue base is too high a priority for it to be caught up in politics. I hope that those opposite can come to the same understanding and adopt Labor's plan—a plan to really tackle tax avoidance on all fronts.