The incoming Albanese Government wants the community to back its efforts to stop multinational tax evasion and to do so quickly, as Alan Austin reports.
NEW TREASURER Jim Chalmers has laid out plans for reversing the criminal loss of tax revenue under the recently-departed Coalition Government. Dr Chalmers and the other Treasury Ministers, Stephen Jones and Andrew Leigh, released a detailed consultation paper on Friday and invited public comment.
They have sharpened the challenge by posing specific questions to be answered - 53, in fact - and all homework must be in by 2 September.
The purposes, according to a joint statement by the Ministers, are to fund essential health services, help 'service the trillion dollars of debt racked up by the former Government' and level the playing field for Australian businesses. No problems with any of that.
Three main targets
Friday's paper seeks input on three principal proposals. The first is to amend Australia's current tax rules to limit the number of deductions multinational enterprises can claim on interest or other payments between branches.
The classic case here was Rupert Murdoch's News Corp Australia which evaded $880 million in tax by claiming his Australian subsidiary had to pay interest on loans and other disbursements to the parent company. No money had actually flowed anywhere so the Tax Office took Murdoch's company to court.
In an astonishing decision, the Federal Court handed down a technical ruling in News Corp's favour - just before the 2013 Election. This blatantly unjust decision demanded an immediate appeal to the High Court and urgent changes to the tax laws. The incoming Abbott Coalition Government did neither, thus gifting Murdoch 880 million taxpayer dollars.
The second proposal is to limit tax deductions claimed for intra-company payments for intangibles, such as the use of copyright, brand names, trademarks, patented inventions, trade secrets or algorithms.
Consider a large global social media company with a well-known logo. If that company earned taxable profits of one billion dollars in Australia one year, it would normally pay $300 million in taxes to the Tax Office (and to the people of Australia). But if that company paid one billion dollars in "royalties" for the use of the logo to the Singapore branch of the company, tax payable in Australia would be zero.
The current tax transparency system, first implemented for the 2013-14 income year, has enabled Independent Australia and others to campaign for a fairer tax system, so has been a positive reform. But reporting has largely been voluntary, has had limited uptake by foreign corporations and the data has not been verifiable.
Chalmers' paper asks whether the transparency system should be strengthened, as has happened widely in Europe. The answer is an emphatic "Yes".
Other initiatives to clawed back revenue
Friday's consultation paper is on top of Australia's participation in international talks on the OECD's "two-pillar" solution to the tax challenges presented by the digitalisation of economies. This includes a 15 per cent global minimum effective tax rate on corporate profits.
The Albanese Government has also announced a public registry of beneficial ownership to improve transparency on corporate structures and show who ultimately owns big companies.
The Parliamentary Budget Office estimated Labor's current proposals would generate $1.9 billion in extra tax revenue over four years. This seems quite conservative and has been described so by business people.
The quantum will, of course, depend on how tough the new regulations will be. Given current multinational profits, between three and five billion each year should be achievable.
The Government could go further
As IA has argued previously, there is significant evidence that ministers in the previous coalition governments engaged in collusive activities with donor corporations to the Liberal and National Parties and may have benefited from corrupt practices.
It is imperative that these be investigated fully by a royal commission or the new federal ICAC when in place. This will not only punish the wrongdoers and warn against future transgressions but will recover more misappropriated funds.
Australia's debt mismanagement over the last nine years has been among the developed world's worst. Australia is one of just three OECD members to have increased gross debt by more than 22 per cent of its GDP. See grey chart, below.
(Data source: IMF)
A turnaround may be evident already, although it is too early to be certain.
Over the first six months of this year, Australia's federal gross debt increased from $855.0 billion to $895.2 billion, an average debt expansion of $1,546 million each week.
Over the five weeks since then, with a new cabinet and treasurer, the debt has reduced to $879.3 billion, an average weekly reduction of $3,180 million.
Will this be sustained? It certainly should, if the big corporations contribute their fair share to revenue.
In other positive news, multinational miner Rio Tinto was finally obliged to pay almost $1 billion in taxes to the ATO last month, following a decade-long legal dispute over the use of an offshore marketing arm in Singapore. Yes!
The Government has invited all 'interested parties' to send comments 'on the policy issues and implementation considerations to improve multinational tax integrity, as raised in this paper'.
Independent Australia will make a submission based on the analyses we have published over the last nine years, including here, here and here. Readers are urged to do so also. We have four weeks. Let's fix this.