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Monday, 1 September 2014
Page: 9325


Dr CHALMERS (Rankin) (18:22): I also rise today to speak on the International Tax Agreements Amendment Bill 2014 and the amendment moved by my colleague the member for Fraser. I commend my colleague the member for Griffith for her characteristically high-quality contribution to the debate a few moments ago.

Mr Deputy Speaker Goodenough, as you know from our work on the Standing Committee on Tax and Revenue, how we set up our international tax arrangements is very topical at the moment and is very important for us to consider. This bill brings into force the revised Australia-Switzerland tax treaty, which was worked on under the last Labor government and signed on 30 July 2013, before the change of government last year. As the member for Page was saying, the laws will align the bilateral tax arrangements more closely with international tax treaty policy settings and will strengthen the administrative assistance between the ATO and its Swiss equivalent. Labor will certainly support any legislation that makes international tax arrangements easier and fairer.

It is certainly true that some of the complexities of international tax are not everyone's cup of tea. They are hard to grasp. They do not set the front pages on fire with their newsworthiness, but they are very important, because they boil down to a crucial issue, which is that the more companies and others pay their fair share of tax, the less tax that ordinary punters in our community have to pay. Our interest as a parliament and as Australians should be making sure that we are closing down, where we can, the various loopholes in the corporate tax system, because if those loopholes are not closed down, either there is a cost to services that are provided in our community or people with less capacity to pay have to pay higher rates to fill in the holes. So it is a really crucial principle at stake here, and this is why it is important that the amendment moved by the member for Fraser broadens this issue out beyond the Australia-Switzerland agreement to more fundamental issues of international tax, including profit shifting and base erosion.

When we speak about international tax arrangements, we cannot ignore the government's inaction in other areas. I have a lot of time for the member for Page, who spoke to this chamber a moment ago, but he is wrong to say that the government is blameless when it comes to some of the loopholes in our tax system—and I will go into a bit more detail on that shortly. It is a fact—it is not an opinion—that Labor had taken measures which have been subsequently wound back by the current government. So, while the G20 is rightly considering all of these issues and while the OECD and other sorts of credible economic institutions are also working on these issues and heading in one direction, the government in that respect of the section 25-90 change is unfortunately heading in the other direction, and that does have costs for our country, which I will come back to those in a minute.

It is again fact, not opinion, that the last Labor government, particularly the former Assistant Treasurer, David Bradbury, who was the former member for Lindsay, did a lot of good work in this area to tighten up loopholes in multinational profit shifting. I think you can take as evidence of the good work that David Bradbury did, that upon leaving this place, involuntarily I should say, he was picked up, snapped up, by the OECD and he is now a tax specialist in Paris at the OECD. It is a very technical, specialised role for which he is ideally qualified, and I think that shows just how skilled he is in this area. He did a lot of good work during the last Labor government, working with others in the economic portfolios, whether that be Chris Bowen, Wayne Swan or any of the others who did economic jobs in that government.

We believe that action on multinational profit shifting is important for two really crucial reasons: firstly, because the scale of profit shifting currently undertaken is a threat to our corporate tax base; and, secondly, because it is simply not fair for big multinational companies to profit from business undertaken here but not pay their fair share of tax here. They benefit from our infrastructure, from our services and from our education system. It is important that we tighten up these loopholes where we can so that the companies who benefit from a first-class, first world economy and all that that entails are also kicking in to maintain that first-class, first world economy. We are all familiar with the example of Google. Google, of course, is a really impressive and important company. It is bringing a lot to change our economy. Ordinarily, I would be a big supporter of Google but it has been well publicised that their tax bill is probably out of whack with community expectations. I think they paid about $75,000 in tax in 2011, when they earned about $1 billion in revenues. It means that Australia is missing out on millions of dollars of tax revenue as a result of the complicated tax arrangements that companies like Google can put in place. This is money that Australia could be using to finance better schools, better hospitals, better roads or an improvement to the budget bottom line. There are lots of examples. I do not mean to single out just Google. There was another one in the paper today involving a big furniture manufacturer. There are a number of companies who are doing this legally, but this is because of an arrangement in our tax system that I believe is inadequate, and this is what the member for Fraser's amendment is all about.

This is also the point made by the Micah Challenge people. My colleague the member for Griffith also mentioned it. We have all met with the Micah Challenge people. They do fantastic work in our community and they are worried about this. They came and saw us. I think I see the member for Makin nodding. He probably had a meeting with them as well in June, when we all did. They have done some really important work to show the consequences and the costs that happen when multinational companies shift their profits. It has a particularly adverse impact, unfortunately, on developing countries who do not have the means to chase down these corporate tax dollars. So what we see in the developing world, particularly around Asia, and in Australia as well is that a lot of countries are being sold short by this practice. I think it was a point well made by our friends at the Micah Challenge.

No government wins out of this race to the bottom in the era of profit shifting. For this reason Labor did seek to close multinational profit-shifting tax loopholes to make it easier for profit made in Australia to be taxed in Australia. This was not easy to do. David Bradbury and others took risks to implement a scheme of this nature and there was a rigorous debate, as there always is when it comes to tax policy in Australia; but it was the right thing to do, even if it was not the easy thing to do. And Labor introduced a suite of transfer pricing, offshore banking and thin capitalisation reforms that would have made international tax arrangements fairer and would have netted the budget something like $1.8 billion. In December last year, unfortunately, this government wound back most of those reforms to thin capitalisation and the offshore banking unit at a cost of $700 million to the budget bottom line, and in the May budget a further $443 million worth of tax loopholes were reopened. The result of this is $1.1 billion less towards the budget bottom line and $1.1 billion back into the pockets of multinational companies overseas.

And it is worth mentioning—and you were probably there, Mr Deputy Speaker Goodenough—that we asked the tax commissioner, the guy who runs the Australian Taxation Office, about this at a committee hearing. He said that some of these arrangements are the only place in the tax system where you can get an exemption for exempt income. That was one of the things that we were trying to close down, and unfortunately the current government has reopened that situation, that unusual situation, which only benefits some of these big multinational companies. It is a shame. The member for Page was unhappy that we had accused them of being inactive. Unfortunately, it is worse than inaction; they have wound back some of the very sensible measures that we had put in place.

People who know their stuff in the fiscal world and the economic world have pointed to the fact that Australia has had a shortfall in revenue over the past few years. The Labor years were the lowest-taxing years, and that is because there are holes in our corporate tax base. There is a whole range of other reasons—the global financial crisis is one, of course. But corporate taxation did not recover as much as most people had hoped. Whether it is the Treasury Secretary or others, they have all said that Australia does have to look at its revenue base if it is to fund the sorts of services that people have a right to expect in a good country like ours. It is good to see that the government have said that they will make this a priority at the G20 meeting. Unfortunately, the G20 is heading in one direction while so far the government has been heading in the other direction. But we hope, for the sake of the country, that they change course. We hope that they reinstate some of the sensible measures that Labor had so that they can show the international community that they are actually serious about some of the things they have been saying about profit shifting and base erosion.

Unfortunately, it does go to the priorities of the government that they will cut money from higher ed, they will cut money from schools and hospitals and they will cut money from pensions at the same time that they are willing to forgo $1.1 billion from some of the biggest companies in the corporate tax system. One example, just to give people a sense of the scale of this $1.1 billion, is that if they held on to that $1.1 billion they would not need to cut the $1.1 billion they are taking from the childcare system. That is just one example of the sorts of things the government is doing and what their priorities are. I could go through a whole range of these sorts of opportunity costs, but I think my colleagues get the point.

So, in conclusion, Labor will of course be supporting the International Tax Agreements Amendment Bill 2014, but we cannot do that without recognising the government's substantial backward steps in the area of multinational profit shifting, and that is what the very sensible amendment of the member for Fraser goes to. Australia, as the host of the G20 meeting this year, must take a leadership role in improving the fairness of the international tax system. It is disappointing to see this government unwinding some good reforms to profit shifting here at home.