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Economics References Committee
14/03/2018
Corporate tax avoidance

McCULLOUGH, Mr Paul, Division Head, Revenue Group, Corporate and International Tax Division, Department of the Treasury

POTTS, Mr William, Senior Adviser, Revenue Group, Corporate and International Tax Division, Department of the Treasury

[13:44]

CHAIR: I now welcome officials from the Treasury. I remind officials that the Senate has resolved that an officer of a department of the Commonwealth or of a state or territory shall not be asked to give opinions of matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Thank you for appearing before the committee today. If you have an opening statement, I ask you to make it, and I will then open the hearing up for questions afterwards.

Mr McCullough : I don't have an opening statement to make, but I do have a brief explanation/apology. I just want to let you know I've been in this particular role for a week and a half, so I may not be full bottle on the latest issue. You are not getting a total novice: I did spend a number of years in the early 2000s and again in the late 2000s in a very similar job. I am assuming many of the issues are the same, but if we get into questions of detail and recent policy I might have to rely heavily on my notes or take things on notice.

CHAIR: Firstly, I would like to ask about the Treasurer's visit to the US and, in particular, the meeting with ExxonMobil. There was a comment in the media release of 29 January which indicated that there would be such a meeting. Can you confirm that that meeting took place?

Mr McCullough : I apologise. This is not a level of detail that I could answer on the spot. I would have to take that sort of thing on notice.

CHAIR: You're not familiar with the meeting at all?

Mr McCullough : No, I'm not.

CHAIR: Are you not sure as to what the purpose of the meeting was?

Mr McCullough : As I said, I apologise: I have been in this job for a week and a half. I have not followed all of the recent events. I assume if there was a release about the Treasurer's meeting, then there was a meeting; but I would have to take it on notice if you want something specific in relation to it.

CHAIR: I do have a list of questions in relation to that, so if you could take those on notice.

Mr McCullough : Yes.

CHAIR: Just in relation to the issue of mandatory reporting, the OECD has a standard, if you like, for mandatory disclosure rules. The government announced on budget night of 2016 that they would seek community input into that OECD document. This standard requires tax advisers and/or taxpayers to make early disclosures of aggressive tax arrangements. Can you explain how that information would assist the tax office?

Mr McCullough : Rather than me explaining, is it worthwhile if I try to refer to what the OECD set of BEPS recommendations for BEPS action measures refer to. That's where it came from. It's something that the government has adopted. As I understand, they have asked the Board of Taxation to have a look at the implementation detail; but it was one of these issues that arose out of the multinational review of base erosion and profit shifting.

CHAIR: I'm not so much interested in an explanation about the BEPS program. There is a lot of work being done at an international level. I am more concerned about what was the thinking behind having this opportunity for community input into these rules, particularly the ones that relate to tax advisers and taxpayers making early disclosures of aggressive tax arrangements.

Mr McCullough : I'm sorry, I'm not really understanding the question. If you are asking about is there an advantage generally in concepts of transparency, there are many arguments that there are. You seem to be asking about what was the—

CHAIR: It was opened up for community input into the OECD's—

Mr McCullough : That's a standard on any tax policy issue. As you would be well aware, tax is extraordinarily complicated. If one was to simply come up with a policy position and then implement it as designed in a black box, if you like, there would be unintended consequences. The typical arrangement for any tax policy follows a cascading trend. The policy announcement is made. Sometimes that has been consulted on before it actually becomes public. After the consultation or after the announcement in principle, there is typically another round. When something becomes a matter of regulation, finally there is usually another round of consultation.

CHAIR: Are you familiar with the consultation paper that was issued?

Mr McCullough : I am familiar that there was one issued.

CHAIR: Perhaps Mr Potts might be able to help me with this then. The measures were identified in that consultation document were actually weaker than what the OECD proposed. For example, the Treasury's version was that the ATO would have to issue a notice asking tax advisers if they were promoting an aggressive tax arrangement only after the ATO has detected it, whereas the OECD position is that the tax advisers should have an obligation to report whether they are promoting a tax arrangement that is tax aggressive. Are you familiar with the detail to that extent, Mr Potts?

Mr Potts : Yes. I haven't got the paper in front of me, and I'm not sure exactly of the comparison of what the paper said and what the OECD has said. The proposition generally is that the ATO would publish some hallmarks. It is not a general proposition that an adviser has to self-assess himself as to whether something is an aggressive tax arrangement. There will be some degree of self-assessment. But before an adviser—and this is going back to that paper—would be required to make some disclosure to the tax office, he or she would need to take into account the hallmarks put out by the tax office.

CHAIR: So you disagree that the OECD's recommendation was that there be some self-reporting in advance so that the tax authority could get some early intelligence?

Mr Potts : No, I'm not disagreeing. I am disagreeing about the differences. It is certainly the case that it would be early reporting. The reporting would be in advance of, for example, the filing of a tax return. These are consultation papers. The government hasn't made any final decision on it. As my colleague said, this is pretty normal practice. But at that time, the general scheme would be that an adviser who promotes a scheme arrangement—there is no guilt necessarily or anything wrong with that—had an arrangement that came within some certain hallmarks, the adviser would be required to report that to the tax office. Again, I emphasise that this is if the government decided to do it. It still part of the consultation process.

CHAIR: So you're saying that the consultation paper was in accordance with the OECD recommendation?

Mr Potts : I'm not in a position to work out if it was exactly the same or not. I would say it is generally in line with the OECD recommendations. I would need to check to answer your question directly.

CHAIR: I think there is a view abroad that the consultation paper set out a weaker position than the OECD recommendation. You don't agree with that?

Mr McCullough : It's very difficult for officials to have an opinion on the value judgements that are applied in different policies. What my colleague is saying is that to his knowledge it gives effect to the essence of the thing; but it is the characterisation of 'weaker or stronger', when you are comparing two things with subtle differences, that is a bit awkward for us to deal with.

CHAIR: Generally, in terms of a policy position, wouldn't it be a stronger position to require tax advisers to report in advance rather than waiting for the ATO to have already detected an issue?

Mr Potts : We may well be discussing at cross-purposes here. Firstly, whether it's weaker or stronger, we should acknowledge that different jurisdictions will have different starting bases and quite a lot of information comes to the ATO already through various mechanisms. Another country may not have the same base starting point. But getting to your question: a mandatory disclosure regime, as thought of in our consultation, would have a requirement, if the government decided to implement it, to disclose that earlier than you would expect it to be disclosed at the moment. I say, 'earlier than you would expect it to be disclosed at the moment', because there are lots of points of time where the tax office may get information at the moment.

CHAIR: Let's move onto the period of consultation. I understand the submission period ran from 2 May 2016 to 15 July 2016. When did Treasury complete its consultation?

Mr Potts : I'm not sure. I'll have to take that on notice.

CHAIR: Can you tell us when you expect the review to be completed?

Mr Potts : The review in the sense of—I suppose I need to take that on notice, but we aren't consulting at the moment with industry.

CHAIR: But the government announced that it was looking at the OECD's mandatory disclosure rules, and my questions go to the fact that the government decided to have a community consultation process and this all suggests that the government is going to move in this direction?

Mr McCullough : On this particular one, putting it in context, the last time I looked there were 200 measures on the set of proposals in the tax area. What happens is that many of them move at a different pace according to government priorities and according to parliamentary priorities. As we understand it, the formal consultation on this one has finished. The government, at some stage, will announce its position on it and give it an appropriate slot in the schedule, if it decides to go ahead with those proposals, or it might decide to change the design and consult again. All we're saying is at this stage it hasn't got a formal slot in the program, because it hasn't got a government response.

CHAIR: It's been over 18 months since the closing date of the submissions. Can you tell us when the Treasurer will make the non-confidential submissions publicly available?

Mr McCullough : I thought the non-confidential submissions were already available.

Mr Potts : No, I don't think they are.

Mr McCullough : I apologise. I can't tell you when they will be made available, but we'll take that on notice.

CHAIR: And can you tell us why they haven't been made public as yet?

Mr McCullough : I certainly can't now, but we'll take that on notice. There are two ways to do this with consultation. Typically, if there is a government response, that's a really good time to make the submissions public. Sometimes it's done well in advance. It just depends.

CHAIR: Has Treasury presented its final position to the government?

Mr McCullough : Not to argue about words, but Treasury doesn't have final positions on things; Treasury gives advice. It evaluates options.

CHAIR: Have you given advice to government on this?

Mr McCullough : I think we would have, at one stage. I'm just not sure how much more might be required; that's the difficulty. These complex processes often require a series of advice.

CHAIR: Has the government requested further information from Treasury, the ATO or the Board of Taxation?

Mr McCullough : I don't think I can answer the question about whether the government's requested this or asked for that.

CHAIR: But you can tell us whether they've requested it from you.

Mr McCullough : I can certainly take it on notice.

CHAIR: Are you able to tell us whether draft legislation has been prepared?

Mr McCullough : I would doubt that, because the government hasn't made a decision. Normally, the legislation follows the announcement of the decision.

CHAIR: Is there a projected date by which the mandatory disclosure regime would be implemented? Are you working on any assumptions, at this stage?

Mr McCullough : No, no assumptions as to starting dates. Again, it's part of this issue to do with the legislative program. It's sometimes easier to say things on the legislative program have fixed starting dates or whatever, but we're far too early in that process. The government hasn't actually announced its position yet.

Senator KITCHING: Mr McCullough or Mr Potts, just to clarify—obviously, you don't need to release your confidential or internal working memos, but has there been any concern in Treasury for the amount of tax that might be being missed? When the federal government does a budget, for example, and they're aware that there's a source of income that isn't forthcoming but it should be, is there any concern within Treasury about any internal discussions or working documents around not necessarily assumptions but, perhaps, a discussion point within Treasury around the measures that might be taken to get those revenue streams coming in or be more forthcoming more quickly?

Mr McCullough : There are a lot of elements in that. Can I first just point out that Treasury's not in the 'governments should do this' business.

Senator KITCHING: No, I understand.

Mr McCullough : We provide options, analysis, impact statements. We say, 'If you do this, we think this will be a consequence and these people will be affected,' and 'If you did that,' then, vice versa.

Senator KITCHING: Or you might say to ERC members, 'Well, you might want to do this and if we have this stream of revenue coming in that would enable you to do X policy because you'll have this money.'

Mr McCullough : Typically, those sorts of things are presented in the context of the Treasurer's revenue submission or the portfolio budget submissions of departments. They're considered as part of the budget process. A bit like the public is invited for—it's input to the budget is a similar internal process, where the Treasurer and the Prime Minister ask departments for their submissions that go forward in the budget context. They're considered, variously, by the Expenditure Review Committee and then, ultimately, if they're agreed to, cabinet will make a decision in the budget context.

Senator KITCHING: What I'm asking you is: internally, within Treasury, has there been discussion or advice, internal or external—to, let's say, the various processes around ERC—about ensuring that the revenue stream that could come in from various corporate entities should be coming in but isn't. Has that been discussed?

Mr McCullough : Treasury doesn't get into advice about particular corporate entities.

Senator KITCHING: No, but it may be a type—not a particular one—of entity.

Mr McCullough : From time to time, we would provide some estimate of where we think the pressures on the tax bases are. It wouldn't be a question of what should be done; it would be a question of how sustainable is the revenue stream. We would do some sort of projection of a particular revenue stream and say, 'This is the trend we see.' These things are routine; they're done all the time.

Senator KITCHING: Given that they are routine, did Treasury consider from a particular type of entity, say a multinational corporation, that there might be a revenue stream to suggest a certain amount of tax might be expected but was not forthcoming? Perhaps Treasury has had to review that position.

Mr McCullough : I'm not trying to avoid your question, but, again, we don't project from individual corporations. The whole process of revenue analysis—

Senator KITCHING: I'm not talking about particular corporations; I'm talking about a particular type of corporation.

Mr McCullough : In every budget the government publishes its review of all the revenue strands. It would make some commentary, depending on what happens to be a variation of expectations on a particular year. I'm not overstating the point, but probably every budget under every government has done something like that.

Senator KITCHING: But I'm asking about the particular type of entity we are examining, did Treasury—

Mr McCullough : Large corporates?

Senator KITCHING: Let's say large corporates and let's stick to the resource sector. Let's say it's a large multinational resource company and let's take that as a type of corporate entity. Treasury had a view that there would be X dollars coming in and that hasn't eventuated, and so has Treasury examined whether there's been a wrong forecast or there needs to be a refinement of when that revenue stream comes into consolidated revenue? What I'm really trying to get to is: is there a way that Treasury can consider whether these entities are paying the tax which you thought they should? If not, where is it possible to make improvements in the system so that that tax does come in?

Mr McCullough : I fear I'm being unhelpful, Senator, but it just doesn't work that way.

CHAIR: I'm sorry to interrupt you, Mr McCullough, but in the process of your consideration of the implementation of the BEPS program, these are the sorts of issues that the Treasury must be looking at. Perhaps this is an opportunity to tell us how you are going insofar as it impacts on what we are talking about here.

Mr McCullough : I am hearing that is a different question.

Senator KITCHING: Surely, if you're thinking that money is coming in under a certain scheme or system but it doesn't come in, you don't leave the system in place. You must think, 'Hang on a sec, that's not working.'

Mr McCullough : The penny's dropped. Are you referring to the general issue that, in many people's view, the corporate tax base is under threat not so much from avoidance but due to its inherent design which has led to a number of things such as the—

Senator KITCHING: I'm interested, I guess, in both.

Mr McCullough : Where do we start? Because of the nature of globalisation, any form of corporate income tax is going to be under threat. That seems to be the international consensus. Because the threats tend to come from timing issues, access to different rate issues or border issues, all jurisdictions seem to be saying that, in the absence of any sort of global accord as to how we should tax things within our jurisdiction, we want to make sure that we get our bit. This was the OECD BEPS process, which the then Treasurer was significant in prosecuting. That has resulted in a number of measures. Essentially, that is affecting what is taxed in this jurisdiction compared to what is taxed in another jurisdiction and what is taxed at our rates compared to what is taxed at another's rates. So, during the course of that process, Treasury would have provided all sorts of advice based on ATO projections and other things as to what the consequences of those changes would be.

Senator HUME: As a supplementary to that line of questioning, could you provide an overview to the committee on the domestic legislative framework that is currently in place to prevent base erosion and profit shifting?

Mr McCullough : Yes. The tricky part about that is that it depends on where you start with your base. I don't want to make it a theoretical concern, but, in order to determine what is a departure, you have to first decide what is the paradigm, the ideal. In a simple world where, say, an Australian manufacturer manufactured something in Australia and sold it to Australians, everything was in the one boundary and it was very easy to determine how much income tax should be paid, and if there were excises or taxes on the production that was all very simple. But in a world where you've got, say, American capital, intellectual property in Switzerland, the manufacturing being done in an eastern country and it all being sold to Australians, then there becomes a question of: can one tax framework do all that? I am not supposed to give opinions, but I suspect it would be a reasonable opinion to say 'probably not'. You couldn't just say that an income tax can handle all of that, which is why most jurisdictions have reliance on a suite of taxes. The consumption that takes place in a country is easy to tax through a consumption tax, a value-added tax—that sort of thing. It becomes trickier with the income taxes, because then the fundamental question is: how do you tax the return on capital? If parts of the capital are in the production jurisdiction, parts of the capital are in the intellectual property jurisdiction and parts of the capital are in the financing jurisdiction, then the laws of different countries have to make sure that there is a fair apportionment amongst all. We've got a number of treaties that address all of those issues, and we've got our own domestic rules on transfer pricing, which means that when you are requiring something from another jurisdiction, particularly in related party circumstances, you can't simply shift all the profit to, say, a lower taxing jurisdiction. We've got thin capitalisation rules, which are the same idea but are based around debt and equity divisions rather than just the prices that are charged for things. On top of all that, we've got general anti-avoidance provisions. Now we've got both the domestic ones and the MAAL, which is one of the BEPS measures. In fact, you have probably got a list of the other things that have been introduced into parliament. William, do you want to read that out?

Mr Potts : Yes. Since the BEPS came into the tax language in the last four years, Australia has introduced a number of measures. I suppose notably amongst those is the multinational anti-avoidance law, which goes to address issues where a foreign resident company tries to avoid—I can't think of another word that has the same connotation—Australian taxation by making sure that it hasn't got enough presence in Australia to have a taxable presence. So that has been introduced. Then the diverted profits tax was subsequently introduced. The diverted profits tax kind of adds to the transfer pricing rules, which my colleague just mentioned. It gives the commissioner additional powers to impose taxation on profits that have avoided Australian taxation where they've been transferred to another jurisdiction or to a related party. The diverted profits tax imposes tax at a penalty rate of 40 per cent.

Senator KITCHING: How many companies have paid that penalty rate?

Mr Potts : I'm not sure, but I know some ATO representatives are appearing later. They may or may not have some numbers on that. I will say a couple of things. It started only last July and by its very nature it can be imposed only after the end of the financial year. I'll let the ATO answer that.

Mr McCullough : The other general point I would make about the anti-avoidance provisions, be they general or specific, is that they have a deterrent effect. Essentially you often don't raise huge amounts of money under things like part IVA, but I think it's fairly reasonable to say the presence of part IVA had a fairly significant deterrent effect on the practices that were around in the 1980s when it was brought in. I think the philosophy is the same with this multinational anti-avoidance provision—that it would be a good provision if it never had to be used, because it was then containing whatever was the fundamental concern.

Senator KITCHING: But obviously there must've been some consideration for its necessity.

Mr McCullough : Absolutely. I'm not saying that it shouldn't exist. I'm saying that, if it exists but is never used, then it is a fairly effective deterrent.

Senator HUME: I have got one question. Is Treasury satisfied with the integrity of the reporting framework for large multinational subsidiaries operating in Australia with the introduction of these new regimes?

Mr McCullough : Again I don't wish to be difficult about the language, Senator, but it's just so hard to say that Treasury is 'satisfied' with things. I think it is acknowledged as being reasonably robust. It is acknowledged around the world that Australia's regime is as effective as most.

Senator CAMERON: Well that's not what one of our submissions says. One of our submissions says that we are massively underselling our position in relation to tax, certainly on the PRRT. You are aware of that, aren't you?

Mr McCullough : I haven't read the submission. Everything that we've said so far really relates to income tax. The PRRT is a completely different concept and exists in addition to income tax.

Senator CAMERON: Sure, but it all means revenue. One way or the other it's revenue to the government—not much recently, but it should be.

Mr McCullough : It has a very difficult name—the petroleum resource rent tax—because it makes people think that there's some sort of renting of the resource going on, but that's not really what it's on about. It's a specific tax that is designed for long-term projects, typically resource projects—and, indeed, this is the history of the PRRT. It replaced an excise. Originally you will remember that Bass Strait oil, which was essential for Australia's development at the time, was subject to an excise. The argument was that they couldn't actually make the project pay—

Senator CAMERON: I'm aware of a bit of the history because I was on the economics committee during the MRRT debate, so I don't need you to go to all of this. The point I want to make is that we had Exxon in here this morning and they're not going to pay any tax for appropriately 10 years. Going back to the Henry review, two issues were raised by Ken Henry. One of those was the following:

Australia's current resource charging arrangements fail to collect an appropriate return for the community from allowing private firms to exploit non-renewable resources, mainly because these arrangements are unresponsive to changes in profits.

Has the department got a different view to that now?

Mr McCullough : I'm not sure it's a departmental view. Ken Henry was chairing a review. Let me just explain a couple of things. That was done in the extent of the state's royalties being set at a relatively fixed amount and not responding to large increases in the prices that were being obtained for iron ore et cetera at the time.

Senator CAMERON: No, that's not what it says. It says the 'current resource charging arrangements', which are PRRT, royalties, taxation—a range of issues.

Mr McCullough : I'll go back to your first question about the PRRT. The PRRT is deliberately constructed so that tax is paid after expenses are recouped from profit. It is not like an income tax where expenses are apportioned over the economic life of the project and therefore you see profits being calculated in accounting terms earlier on. With the PRRT and similar sorts of taxes, the whole idea is that all of the expenses are set off against profit before an amount is brought in, subject to tax. Typically with individual projects, that happens at the end of the project. If you're looking at an individual project at any given time, if it's early in its life you'd expect to see no PRRT paid, and then, after a number of years, the PRRT would be paid.

Senator CAMERON: But they could offset a closure against a PRRT, can't they? So it can apply at the end as well.

Mr McCullough : The rules are actually a bit too complicated to go into here, but, as a general rule, projects are assessed individually and one can't transfer an accumulated loss to another PRRT project.

Senator CAMERON: The ATO simply applies the law in terms of tax whether it's PRRT or whether it's corporate tax. Governments make decisions based on advice from you guys in relation to these issues. PRRT, it seems to me, is not delivering, and that's the consensus in some of the submissions we've received. It also takes the position that, if we applied the PRRT at the same level as the Scandinavian countries, we would be bringing hundreds of billions of dollars more into the Australian economy. Has the Treasury looked at that issue—what's been done in the Scandinavian and the European countries compared to what's been done in Australia? Has that been looked at?

Mr McCullough : I think it's fairly common knowledge that the Scandinavian tax system across resource taxation and personal taxation and everything else is quite different to Australia. The Scandinavian countries are high-taxing regimes. They've taken a different approach to resource rents, but I don't know that I can comment on one being better than another.

Senator CAMERON: They want their communities to actually benefit from it. That's what they do. They actually have made the economic case to benefit the community. We're not doing it.

Mr McCullough : I don't think I can comment on that.

Senator CAMERON: Why not? We've just had Exxon in. They're not going to pay tax for 10 years. Part of that is the PRRT.

Mr McCullough : The reason I can't really comment on it is that the questions of better or worse and fair or not fair are not really questions the Treasury can enter into. We can help on efficiency, productivity, risk and complexity, but the question of what is fair is really a question of philosophy and politics.

Senator CAMERON: You have no philosophy, then, have you—no philosophy in the Treasury? Is that right? Is that what you're telling me?

Mr McCullough : We might have our individual philosophy, Senator.

Senator CAMERON: Yes. You advise on these issues. The tax office simply implements. You're the guys who advise governments to implement a PRRT. That's correct, isn't it? You advise. Governments can either reject or accept.

Mr McCullough : Our advice is typically based around the net well-being, shall we say.

Senator CAMERON: So the PRRT in Australia is not delivering effectively in terms of the community. Major corporations like Exxon are not paying tax for up to a decade. What's the problem here? Maybe just explain to us in layman's terms what the problem is, other than: 'They can write everything off.' The submission we got from the Oxford Institute for Energy Studies basically says we're getting ripped off compared to other countries. You can go on and on and on about all the theoretical positions. What I'm interested in is: why are we being ripped off in relation to the PRRT and tax from these multinational corporations? And what are you guys doing about it to advise government how it is fixed?

Mr McCullough : As I was explaining on the original PRRT, the point was that, at the time, governments concluded that the project would not continue and that the resources were required, and therefore a different design of tax was applied. There's no doubt that, if we applied a different tax to resources than we do, we would get a different result. It's logical that, if you tax something more heavily, you get more tax. The question becomes—

Senator CAMERON: Maybe if you tax it equitably, not heavily. That is a very subjective position you're putting and it's typical of the Treasury—

Mr McCullough : No—I said 'more heavily'. I was making a comparison between—

Senator CAMERON: It's pretty typical, with my experience of the Treasury, that tax is a problem. Well, tax is a benefit to the community. I'm interested in how you can use your expertise to actually make it more beneficial for the Australian community and get a reasonable return on tax from these corporations that, for a decade, are paying nothing. What are you doing about it?

Mr McCullough : The choices of which taxes to impose are really questions for not just the current government but all governments that have been around since the PRRT was introduced. The Treasury advises on, typically, the efficiency and growth prospects, it advises on the complexity, it gives an analysis of risk and it gives an analysis of distributional impacts, but decisions on which is better are really decisions for government, and I can't help you any more.

Senator CAMERON: Have you made that analysis recently? Are you doing any up-to-date work on how we can get a larger share of the profitability from these resource companies?

Mr McCullough : I don't think I can advise you on the specifics of our advice to government in—

Senator CAMERON: I'm not asking you for specifics. I'm asking whether you're doing any work on it.

Mr McCullough : I go back to my earlier answer. There is the equitable impact that you provided. We constantly provide advice on the impacts of laws. We're constantly analysing what's happening. Reviews occur and measures are being brought forward. The timing and the detail of those are matters for government.

Senator CAMERON: Did anyone in the Treasury have a look at the submissions to this committee?

Mr McCullough : I'm sure somebody did.

Senator CAMERON: Would they have looked at submission 158 from the Oxford Institute for Energy Studies?

Mr McCullough : Again, I'm sure somebody's looked at it.

Senator CAMERON: You've got no views on it? They're basically saying we're getting ripped off by hundreds of billions of dollars.

Mr McCullough : I saw a press article. I haven't seen anything more than that and it's very difficult to—

Senator CAMERON: Can you take on notice whether anyone has had a look at that submission and provide us with details of whether that submission was looked at? If the submission was looked at, what are the lessons, from an economic perspective, that we should be addressing. If it wasn't looked at, why not? Can you take that on notice?

Mr McCullough : I can take it on notice.

Senator CAMERON: Thanks. So the Henry tax review did have a look at PRRT and resource rent taxes. Is that still actively under consideration in Treasury?

Mr McCullough : I'm just being reminded by my colleague here that the government did have a review into PRRT, of course. Treasury released that review, the Callaghan review, on 27 April 2017. Then the Treasurer asked Treasury to undertake consultation on options. Treasury consulted extensively with stakeholders. You were asking me before about submissions. There are 24 public submissions available on the Treasury website. There is one confidential submission, which was not published. The consultation paper was released on 30 June 2017.

Senator CAMERON: What were the key recommendations arising from that inquiry?

Mr McCullough : From the Callaghan review? Mr Potts, do we have that in front of us or not? So, for the Callaghan review, my notes here say that the review found that 'the decline in PRRT revenue does not in itself indicate the Australian community is being short-changed in receiving an equitable return from the development of its resources'. It found that the PRRT 'remains the preferred way for charging for the use of petroleum resources and that the current scheme was not deterring investment'.

Senator CAMERON: What were the other aspects that saw a lack of return?

Mr McCullough : I beg your pardon?

Senator CAMERON: You said that the Callaghan review said that the PRRT in itself was not a reason. What were the other reasons?

Mr McCullough : I didn't read that sentence as having that implication. We'll have to take that on notice.

Senator CAMERON: What implication did you read?

Mr McCullough : It is simply only examining the PRRT, so it is looking at things in isolation and, of course, sometimes when you look at things in isolation you get a different result. But you have to kind of assume that there is nothing else happening as well.

Senator CAMERON: So, if we've got PRRT and a tax system now that means that a corporation like Exxon won't pay any tax for 10 years, if we reduce the headline tax rate for corporations again, when will companies ever pay tax?

Mr McCullough : I don't think I can help you with such a general and—

Senator HUME: Politicised question.

Mr McCullough : Thank you.

Senator CAMERON: No, it's not politicised.

Mr McCullough : I find it a bit loaded.

Senator CAMERON: Are you accusing me of politicising it?

Mr McCullough : I find the question a little bit loaded. I find it very difficult to answer some of those comparisons—and the speculation.

Senator CAMERON: But it is on the record. The Prime Minister is arguing, and the Treasurer is arguing, for a further reduction in corporate tax rates—$65 billion cost. Companies like Exxon are not paying any tax for a decade. Where is the revenue going to come from to pay for schools, for health, for infrastructure? It's a simple question.

Mr McCullough : I don't want to repeat the answers that were, I think, given at some length by the secretary at Senate estimates, but essentially—

Senator CAMERON: I wasn’t at Senate estimates.

Mr McCullough : Okay. Essentially, the argument is that corporate tax itself is by comparison a less efficient tax than many of the other taxes in the tax mix. If you reduce, relatively speaking, the inefficient tax, then overall the taxing package for the same amount of revenue is more efficient. That means that the dead-weight loss that we are experiencing at the moment is lessened. That leads to productivity. That leads to growth. Growth leads to increases in wages, ultimately. I mean that's the economic—

Senator CAMERON: So wages are going to increase sometime in this country, are they? Is that colloquial for 'the trickle-down effect', is it? Is that a sophisticated argument for trickle-down, is it?

Mr McCullough : I must declare here that I'm a lawyer not an economist. I was repeating the evidence that I heard at Senate estimates.

Senator CAMERON: Who's the economist? Mr Potts, are you the economist?

Mr Potts : No. I'm not an economist.

Mr McCullough : There are only lawyers and tax people here.

Senator CAMERON: So, when we are talking about the economy, why have we got a couple of lawyers sitting up the front? Can you explain that to me?

Senator HUME: When we're talking about tax, why do we have economists from the Australia Institute?

Senator CAMERON: Can you tell me that?

Mr McCullough : I'm sure the previous occupants of my role have been economists at various times. It's just that I happen to be here now.

Senator CAMERON: You just happen to be here but you're not an economist?

Mr McCullough : Yes.

Senator CAMERON: Do you consider yourself to have some expertise in economic issues?

Mr McCullough : I think that would be above my station. I have merely had 40 years involvement with tax.

Senator CAMERON: So, in relation to tax, you provide the economic advice on tax, do you?

Mr McCullough : Treasury is the premier economic adviser.

Senator CAMERON: You are the division head, corporate and international tax division?

Mr McCullough : I wouldn't take anything personally. It is very much a team effort in Treasury. We manage to have lawyers and economists working together—sort of like 'both types of music'.

Senator CAMERON: Did you ever think to bring an economist along with you today to answer any of these questions? Are you saying you can answer them?

Mr McCullough : If you're unhappy with my answers, I'm happy to refer them to somebody—

Senator CAMERON: I didn't say I was unhappy.

Mr McCullough : but I haven't been aware that there were a great deal of economic issues that we were not addressing.

Senator CAMERON: I don't think you're addressing the flaws in the PRRT.

Mr McCullough : Again, I'm not even sure that if an economist was sitting here in a Treasury role they could assist you any more.

Senator CAMERON: You gave me the rhetoric about trickle-down. That's an economic issue.

Mr McCullough : That's your label. I didn't use that.

Senator CAMERON: I think anyone that reads the Hansard or that would watch this would know exactly what you were doing; you were defending trickle-down; that's what you were doing.

Mr McCullough : I was simply explaining the evidence that had previously given at Senate estimates.

Senator CAMERON: Yes, from the department.

Mr McCullough : Yes.

Senator CAMERON: Yes. So the department supports trickle-down.

Senator HUME: Chair, I do think that Senator Cameron is badgering—

Senator CAMERON: That's the reality.

Senator HUME: a public servant here, and putting words into his mouth.

Senator CAMERON: Oh, come on! Why do you always do this?

Senator HUME: I don't know. You seem to be perfectly qualified to comment on economic points yourself without any qualifications.

Senator CAMERON: You wouldn't know what my qualifications are.

Senator HUME: I do. I just looked you up on Wikipedia.

Senator CAMERON: Wow. I'm being stalked. So you looked me up on Wikipedia, did you?

CHAIR: Senator Cameron, do you have any further questions?

Senator CAMERON: Did Treasury do any analysis as to the amount of income that the government can expect from the PRRT recently?

Mr McCullough : Again, I'm sure that in every budget process, estimates of revenue, not income, are par for the course. We publish them on an annual basis. We review them in the MYEFO process. I don't have those figures to hand, but they are routinely estimated.

Senator CAMERON: How many estimates have you got wrong recently in terms of budget outcomes?

Mr McCullough : I would have to take that on notice.

Senator CAMERON: There are a few, though, aren't there?

Mr McCullough : I would have to take it on notice.

Senator CAMERON: Are you saying there's none?

Mr McCullough : The numbers are not my area. I don't do the—

Senator CAMERON: We've just had Exxon in here. They've got tax departments with multimillion-dollar budgets. The critique I've seen recently is that some of our government departments are being gutted in terms of expertise. That makes it very difficult, doesn't it?

It makes it very difficult if we can't match the expertise in some of these multinational corporations.

Mr McCullough : It's always been thus. The Public Service advises government. These days, it's much more contestable as well. It's not just the Public Service. Government takes advice from all sorts of sources. Yes, it's true that multinational companies, probably, pay higher salaries.

Senator CAMERON: I'm not interested in higher salaries, I'm interested in expertise.

CHAIR: Thank you very much, Mr McCullough and Mr Potts, for appearing before us.