Every year, the International Tax Review nominates its ‘Global Tax 50’ — the people and organisations who are most influential in improving tax systems around the world. Two years ago, David Bradbury made the list, for being “a vocal and proactive voice on a variety of tax issues”.
One of Bradbury’s award-winning reforms was tax transparency — laws that required the tax office to report the tax paid by firms with total income above $100 million. The Liberals didn’t like the change, and voted against it at the time. After winning government, they set about trying to repeal it — first by warning of kidnap risk, and then by suggesting that it might embarrass some firms if the public knew how little tax they paid.
Farcically, the government said that it wouldn’t pass its own multinational tax package unless the parliament agreed to wind back secrecy. In effect, Scott Morrison was holding a gun to his own head, but the Greens fell for it. On the last day of parliament for 2015, the Greens Party agreed to amendments that kept two in three private companies out of the tax transparency net.
This week’s release of tax transparency data has shown the value of letting the sunlight in. The 1300 economic groups covered by the report had a combined taxable income of $170 billion, and contributed $40bn in tax towards funding Australia’s schools, hospitals and roads.
Worryingly however, the tax office report also reveals that one in four of these companies paid no tax despite earning over $100m in revenue. In the energy and resources sector, 57 per cent of multinational firms paid no tax, while in the banking and financial sector the figure was 45 per cent. The companies concerned will no doubt want to explain these figures further to their customers and the Australian community.
Tax transparency matters because without it, we have no way of knowing if big companies are paying their fair share. There are plenty that do, and their contribution deserves acknowledgment.
More importantly, though, it is clear some firms don’t. When companies are paying tax at a fraction of the standard rate, Australians should ask why. At a time when the government is talking about raising the GST to 15 per cent — a decision that would hit low-income Australians hardest — it is right that we should look closely at whether all taxpayers are making a fair contribution.
While Labor has supported the Government’s baby steps on multinational tax, we don’t believe they are enough. We are particularly concerned about the government’s unwillingness to address the practice of companies loading debt into Australia to artificially inflate their tax deductions.
Thanks to the ongoing corporate tax inquiry — particularly the work of Labor senators Sam Dastyari and Chris Ketter — we know that some big companies are transferring money into their Australian arms and dressing this up as a loan, even though it’s really just shifting money from one pocket to the other. In paying back these artificial loans, companies can send their profits overseas while pocketing a tax deduction at the same time.
That’s the problem Labor’s package zeros in on. By moving to a worldwide gearing ratio approach, companies would only be able to claim deductions against the average amount of debt they owe to banks around the world.
Labor’s plan is grounded in careful OECD work, and costed by the Parliamentary Budget Office. By closing loopholes, we recognise that Australia needs a tax system that rewards the productive, the innovative, the resilient, the clever and the competitive. Not a tax system that rewards those willing to push the envelope the furthest.
We need a plan to win investment from the world, yes. But this plan should work because big firms think it is worth buying into Australia — not because our government thinks they have to cut special deals that sell us out. A plan that leverages the ingenuity of the Australian workforce, the strength of Australia’s institutions and the quality of Australia’s infrastructure.
Our plan for winning investment from the world should not be premised on how big a tax break companies can get here, because that is not a competition we’re ever going to win. If we want to join the countries at the top of the global league table, we need to invest in growth, not engage in a race to the bottom with our tax loopholes.
In recent weeks the OECD has handed down the final set of deliverables for its Base Erosion and Profit Shifting Action Plan. This plan has been more than two years in the making and lays out a comprehensive 15-point agenda to close the loopholes that have opened up in the tax net due to changing technology and an increasingly global business environment.
The 15 items on the action plan tackle everything from the taxation of intangible goods to hybrid instrument rules and the creation of a multilateral tax instrument to allow more rapid co-ordination of rules between OECD countries in the future. Australia is making progress in some of these areas — for example, the effort to extend the GST to digital downloads, which was supported by both Labor and Liberal state and territory governments. But there is still a lot of work to do.
The Treasurer has the OECD’s blueprint, and Labor’s costed proposals. He must now choose between his regressive measures and our progressive proposals. Unlike a 15 per cent GST, closing multinational tax loopholes won’t impede growth, worsen inequality or make housing less affordable. There should be no more excuses and no more delays when billions of dollars in tax revenue are potentially at stake.
Andrew Leigh is the Shadow Assistant Treasurer. This article first a appeared in the Business Spectator on 17 December 2015.