Speeches

Speech - Treasury Laws Amendment (Combating Multinational Tax Avoidance) Diverted Profits Tax Bill

March 21, 2017

HON. WAYNE SWAN MP

FEDERAL MEMBER FOR LILLEY

 

TREASURY LAWS AMENDMENT (COMBATING MULTINATIONAL TAX AVOIDANCE) DIVERTED PROFITS TAX BILL

CANBERRA

TUESDAY 22 MARCH 2017

***CHECK AGAINST DELIVERY***


Multinational tax evasion in this country has reached epidemic levels, and, as the Commissioner of Taxation himself said, 'Enough is enough.' The previous speaker, the member for Parramatta, was correct: there is something missing in this bill. Some of the measures could well be effective if they are properly implemented. Yet the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 raises virtually nothing, a fig leaf—a measly $200 million. When you consider that one in three private companies pay absolutely no tax, and one in four public corporate entities pay absolutely no tax, to say that, through a measure like this, all you are going to raise is $200 million proves it could well be merely a popgun.

If we assumed, for example, that five per cent of tax revenue that is lost to tax evasion and aggressive minimisation were returned to the budget, that would be something like $13 billion over four years. So what is quite implausible about the bill is the estimate that it is only going to raise $200 million. This bill could well be a toothless tiger.

I do accept that the efforts of the tax commissioner, using anti-avoidance provisions which were put in place by Labor, have made some progress in exposing tax evasion by some of our most respected companies. Those efforts are most welcome, and they go to the competence of our tax commissioner. But he has been hamstrung in his efforts by this government's failure to follow Labor's reform agenda, which was to crush the debt deduction loopholes which have been bleeding revenue. That is still a major issue which has not been dealt with by the government.

Labor put a comprehensive package in the 2013-14 budget and most of it was knocked out by the Abbott government. The truth is a significant number of our most respected companies have become fiscal termites, eating away at the foundation of our corporate tax system. We must give our tax commissioner all of the power and all of the weapons to deal with these fiscal termites.

When we are dealing with the fiscal termites, they generally specialise in debt dumping and aggressive transfer pricing. We know that two of our most respected companies, BHP and Rio, have been very much into transfer pricing—that was on parade at the Senate inquiry into multinational tax avoidance. Over a two-year period, that Senate inquiry into multinational tax evasion gave an insight into the very tawdry behaviour of so many so-called respected companies and executives. As the tax commissioner himself said at the time, 'Enough is enough'. Corporate Australia has a moral and legal obligation to pay tax here and to support the economic system which supports them. A progressive tax system for corporates and individuals is central to a country's capacity to fund its own growth—growth with equity. The sort of rampant tax evasion we have seen here and around the world has trashed public faith not only in our political system but in our whole system of government.

It is pretty clear from what we now know publicly—largely thanks to Labor's transparency legislation, which meant that we knew the figures around what tax was paid by companies in any one year—that there has been a culture of avoidance in our most respected company, BHP. They have tried or sought to evade tax on $5.7 billion, which they have held in their Singapore tax shield. Rio has been up to this as well. Both BHP and Rio have also sought to evade state royalty payments through their transfer-pricing activities. The governments of Western Australia and Queensland have been treated very poorly. When companies are rorting the system, both at the state and federal level, they give a green light to everybody else to get in there and do the same.

The shame with BHP in particular is that it has backed up its evasion with unprecedented political interference and thuggery—most recently in the Western Australian state election. We have seen the newspapers over the weekend, where its acolytes were bragging about their success in taking out a leading politician, Mr Grylls. Let me make it very clear: I welcome the election of the McGowan Labor government in Western Australia and I welcome their win in the Pilbara, but we are not going to get better politics in this country when business lobbies in general and the mining lobby in particular do not practice what they preach. They claim to be honest taxpaying corporate citizens. Many are, but some are not. Sadly, the Big Australian has become known as the Dishonest Australian for its activities in the use of its Singapore tax hub and, now, for its attempts to fleece revenue from the state governments of Western Australia and Queensland.

It might be okay if political campaigning was all that BHP was up to. Most people would say: 'Fair enough, it's a private entity. Go out and defend your economic interests; you are perfectly entitled to do that.' And they are. The problem here is that behind that apparent use of our democracy are their shady operations, their dishonest operations and their tax evasion. Behind the scenes, they are deliberately evading the laws of our nation, and it does not make their political activities respectable when the purpose is actually to cover up a much more evil intent. They are fleecing from federal and state treasuries billions of dollars of essential revenue which needs to be there to fund health and education, among other things.

What we have in this country is a 'Commodities Kremlin', where some of these big companies are behaving like governments, treating the people of this country with contempt and behaving as if they are above the law. That sort of behaviour produces political polarisation and alienation with the political system, which we have seen in parts of the world, including here. We have this 'Commodities Kremlin', through the Minerals Council but particularly through BHP and Rio, where they do what they want when they want and they get even with those who have been in their way. As I said, normal political practice would say that it is shareholders' funds and to use them as they wish—it is a democracy. But when it has been used in the context of covering up, if you like, a darker layer of activity which eats away like termites at our revenue base then I think we should think again.

The failure of the Business Council of Australia to speak up against aggressive minimisation and evasion completely erodes any credibility it has as well. Why is that important? Because the Business Council of Australia has been the loudest advocate for the $50 billion unfunded corporate tax cut, which the government says is the central element of its drive for jobs, investment and growth. The $50 billion unfunded corporate tax cut is a pure form of trickle-down economics. Trickle-down economics operates on what I call voodoo logic—that tax cuts for the wealthy will drive economic growth and improve the lives of everyone in the community from the top down. Hey presto! A lot of money to the people at the top, it all comes down, everybody is happy and on we go. Well, the results internationally from this have been appalling: a growing concentration of wealth and income at the top across most developed economies, most particularly in the United States; a hollowed out middle-class; and vast armies of working poor—as we saw on Four Corners a week or so ago. The truth is that corporate tax cuts alone cannot, necessarily, drive jobs, growth and investment, and it is absurd to claim so. It is utterly absurd and insulting to claim so.

To see our Prime Minister put forward purest form of trickle-down, when he sits there in his Point Piper mansion—a multimillionaire who has his portfolio in the Cayman Islands, a tax haven—and expect that the Australian people would believe that a corporate tax cut is going to drive higher wages and many more jobs is just preposterous. But yet that is where our economic debate has got to under this Prime Minister.

In the time remaining I want to talk about some of the myths, about the so-called elixir of this unfunded $50 billion corporate tax cut. It is a con to start with. The average rate paid by Australian companies is 24 per cent, not 30 per cent. We have heard before that, in any one year, one in three, or one in four, are paying nothing. So the notion that people are getting a tax cut is a nonsense when tax is not being paid. The truth is there are a few companies that pay it; many do not. The fact is that a corporate tax cut does not necessarily encourage investment and does not necessarily encourage growth, because many people are not paying any tax at all. David Gonski, a very respected businessman in this country, spoke out against the stupidity of the government and the Business Council last week and made the very obvious point that it will not necessarily drive jobs and growth.

If we look at OECD countries between 2011 and 2016, Australia's GDP increased by 15.6 per cent and we were ranked 11th in the OECD, but not one of the 10 countries who achieved stronger economic growth over that period did so by cutting their corporate tax rate. It does not matter where you go on the data, there is not any real international evidence that backs up the claims that are being made for this corporate tax cut.

The other ridiculous myth is that the corporate tax cut will flow through to increased wages. That would make a cat laugh. Profitability in the Australian economy is high. The profit share is going up; the wage share is going down. We are not seeing higher wages as the profit share goes up. So that claim is absurd. The other one is that somehow global capital is scarce; we have to be part of a race to the bottom—take our rate down; get it below a tax haven like Ireland or Singapore. The US is about to go from 30-plus down to 15. Race it down, race it down—what a nonsense. The fact is that the world is awash with capital. What they are looking for is a safe haven and profitable investments. If there are profitable investments, they will come to this country at zero, 15, 30, 35—and they do come here. But many of them come here knowing that they are going to pay nothing, because they can get away with it.

So we need a strong set of laws to make sure that the effective rate paid is closer to the nominal rate. There will always be deductions that companies should be claiming, and that is good for investment. But, as in our personal tax system, we have in our corporate tax system a gap—a big gap between the nominal rate and the effective rate. The effective rate here, at 24, is not the rate of 30 that the government talks about. The fact is the world is awash with capital, and people are coming here for a whole variety of reasons that have nothing to do with the corporate tax rate: the rule of law, the quality of our people and the quality of our institutions, which of course will be starved over time. If we join a race to the bottom in tax rates, both personal and corporate, we do not have the money to invest in the infrastructure of the country that brings the investors to the country in the first place. So it is just a con job. The $50 billion unfunded corporate tax cut which the government now appears ready to drop, leaving it without any central economic message or reason for being, is going nowhere.

Worse than that, what we have had in this country is a number of people who sit on the boards of some of our most respected companies who have been part and parcel of breaking what I call the Australian social contract. We need to see a lot better behaviour from some of our most respected companies and to see their public rhetoric matched by their private action. We need to see an end to the white-anting of our tax system by respected companies and a renewed commitment to the country that has nurtured them so that they pay their fair share of tax and we as a country can raise the revenue we need to grow more strongly and to grow fairly.

SIGN UP TO THE CAMPAIGN