International tax agreements legislation

The way that we can manage our tax evasion directly affects the budget, as we have been talking about to date. This government has tried to manufacture a budget emergency. They have now downgraded that to a so-called budget mess, but the fact is that when you come to office and you take about a year to start to address tax evasion people are going to raise their eyebrows when you claim that there are expenditure problems in the Australian budget. 

Ms BUTLER (Griffith) (17:59):  Labor welcomes the government's implementation of legislation to give effect to the revised Australia-Switzerland tax treaty, which was signed on 30 July 2013. The revised treaty was a result of hard work by the previous Labor government. From the perspective of a Labor member, it is important to take opportunities to speak about moves and measures aimed at, among other things, stamping out tax evasion. Labor cares about tax evasion, because tax evasion is fundamentally a question of fairness. It is a question of people making the appropriate contribution to the community in which they live and to the community in which they do business. One reason that we are fundamentally concerned with stamping out tax evasion is that taxation is an important concern when considering issues of inequality in society.

We know that here at home Australian society has become more unequal. Callum Pickering, in an article entitled 'Australia's inequality shame can no longer be ignored', wrote on 22 January this year:

There is a balance to be had between inequality and opportunity and we have failed to get that balance right.

… the share of national income accruing to the top 1 per cent of income earners has increased significantly over the past three decades … Australia had the second highest increase in inequality.

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The top 1 per cent of income earners account for almost 10 per cent of Australia’s annual income. In addition, the biggest gains in income share have been concentrated in the top 1 and top 0.1 per cent of income earners. Remember that for the income share of any of these groups to go up another group has to go down …

… …   …

The actual level of income growth over the past thirty years is quite extraordinary and really reinforces how well the ‘elite’ have done compared with the working class. Real income for the bottom 90 per cent of the income distribution rose by just 34 per cent between 1980 and 2010. By comparison, the top 1 per cent has enjoyed income growth of around 178 per cent.

You can see that inequality is a concern for the Labor Party, because we care about equity and fairness. There are some really important reasons why modern societies should be concerned about extreme inequality. In their briefing paper Working for the few: political capture and economic inequality, Oxfam wrote in January this year:

Extreme economic inequality is damaging and worrying for many reasons: it is morally questionable; it can have negative impacts on economic growth and poverty reduction; and it can multiply social problems. It compounds other inequalities, such as those between women and men. In many countries, extreme economic inequality is worrying because of the pernicious impact that wealth concentrations can have on equal political representation. When wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else.

The paper goes on to quote US Supreme Court Justice Louis Brandeis as famously having said, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’

The question of combating inequality goes to the fundamental fabric of a society. Of course, we know that there is also a correlation between inequality and peacefulness in the world, so it is a serious issue to try to combat inequality and it is a task that Labor takes very seriously. In the briefing paper, Oxfam further said:

The particular combination of policies required to reverse rising economic inequalities should be tailored to each national context. But developing and developed countries that have successfully reduced economic inequality provide some suggested starting points, notably:

• Cracking down on financial secrecy and tax dodging;

and a number of other things, including, interestingly in the present Australian context, investment in universal access to health care and education as a means of improving inequality.

I note that in the House today we heard the Minister for Education claim that the idea of  deregulating higher education fees and imposing real interest as well as cutting funds to universities might somehow help more students get to university. That is a nonsense, and I think the minister is aware of that. As I say, the usefulness of combating inequality is something that is really evident if you consider the effects of inequality. Oxfam has spoken about the importance of financial transparency and cracking down on tax evasion to deal with some of the causes of inequality in society.

Like the previous speaker, I was visited earlier this year by young people representing Micah Challenge in their Shine the Light campaign on international tax evasion, particularly in the context of the G20 agenda this year. The Micah Challenge representatives who visited me told me that tax avoidance and tax evasion drains developing countries of vital revenue that they need for development and for reducing poverty. Their advice is that multinational companies cheat developing countries out of at least $160 billion a year in tax revenue, according to research undertaken on just two types of tax avoidance by UK aid and development agency Christian Aid. Aid and development agencies have a strong concern around tax evasion as well, because foreign aid, as important as it is, is not enough. We also need to have international tax justice so that developing countries have the money to which they are lawfully entitled so that lives can be saved, so that countries can develop, so that appropriate moves can be made and can be funded for development of developing countries.

That is why Labor will always take the opportunity to speak on laws that aim to assist in cracking down on tax evasion. This bill is, as I said, the government's implementation of legislation that will give effect to the revised Australia-Switzerland tax treaty that was signed in July 2013 as a result of hard work by the previous, Labor government. The revised tax treaty between Australia and Switzerland will enhance the already-strong economic relationship between the two countries by aligning the bilateral tax arrangements more closely with current Australian and international treaty policy settings. It will also strengthen administrative assistance between Australian and Swiss revenue authorities, in particular by permitting them to exchange taxpayer information, including information held by banks and other financial institutions, in order to address tax evasion. We know that part of the issue with tax evasion is the transparency of information provided by companies and by taxpayers, because what you cannot measure you cannot manage, to use a management truism. You have to be able to see what is being paid, and how, in order to better understand and manage tax obligations and tax policy settings.

So, the bill reflects both countries' commitments to a fair tax system and is consistent with ongoing international efforts, including, within the G20, the base erosion profit-shifting agenda that has been spoken about, to improve tax system integrity globally. The revised treaty will enter into force after both countries have completed their respective domestic requirements. We welcome the government's move to give effect to the treaty through this legislation. However, we are still greatly concerned with the government's inaction on multinational tax avoidance through profit shifting and transfer pricing. Since coming to government, the coalition has provided over $1 billion in tax breaks to multinational firms. And, as I said, we know there is an international move through the G20 process, through the OECD, to counteract base erosion and profit shifting, to counteract tax evasion. The OECD actually has an action plan on base erosion and profit shifting, which has stated as follows:

Globalisation has resulted in a shift from country-specific operating models to global models based on matrix management organisations and integrated supply chains that centralise several functions at a regional or global level. Moreover, the growing importance of the service component of the economy, and of digital products that often can be delivered over the Internet, has made it much easier for businesses to locate many productive activities in geographic locations that are distant from the physical location of their customers. These developments have been exacerbated by the increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning, thus providing MNEs with more confidence in taking aggressive tax positions.

The result of that is that multinational enterprises have increased opportunities to minimise their tax burden by shifting profits across borders, and this has significant flow-on effects not just for our economy but for all economies in the world and for developing countries as well. Those ramifications of course place constraints on government's abilities to invest in important areas, like health and education. That is why we say, and that is why it is recognised internationally, that base erosion and profit shifting undermine the integrity of the tax system.

I think the Australian community is aware through the media that large multinational corporations are sometimes not paying their fair share of tax despite the often very healthy profits companies can enjoy. It is worth noting that part of the national interest when it comes to tax collection is in ensuring that we are collecting an appropriate amount of tax to fund our services.

The way that we can manage our tax evasion directly affects the budget, as we have been talking about to date. This government has tried to manufacture a budget emergency. They have now downgraded that to a so-called budget mess, but the fact is that when you come to office and you take about a year to start to address tax evasion people are going to raise their eyebrows when you claim that there are expenditure problems in the Australian budget. I think Australians are alive to that issue.

We strongly support any moves to increase the integrity of the tax system, and we do not want to see large and powerful taxpayers avoiding taxation in a way that then puts more pressure on smaller taxpayers and causes taxation collection to be conducted in a way that is unfair, particularly given the rising inequality I mentioned earlier.

Unfair tax arrangements also have a distortive effect on investment decisions. They create a perverse incentive to invest overseas, limiting local firms' access to capital and constraining their ability to grow, which of course affects their ability to create jobs and to further contribute to tax revenues here in Australia. As I have already said, tax avoidance is a grave problem internationally because of the direct relationship between poverty in developing countries and international tax evasion and profit shifting.

I, and I believe everyone in this place, would like to see real advocacy and real change when it comes to cracking down on tax evasion internationally. This year there is an opportunity to take a leadership role in the issue, in the context of the G20. My colleague the shadow Assistant Treasurer, Dr Leigh, has said:

Multinational companies can take advantage of slow-moving tax laws by shifting profits to low-tax countries.

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This has obvious implications for tax revenue: companies avoiding their fair share of tax mean higher taxes or reduced services for you and me. Equally important, however, is the disadvantage incurred by local businesses which lack either the savvy or the scale to implement these complex taxation avoidance schemes.

In other words, the more power you have, the more sophistication you have and the more you are able to avoid paying your tax, then the less you pay your fair share. That is not a fair thing in a country of the sophistication and modernity of ours.

I mentioned to you that Micah Challenge had come to see me earlier this year. They have identified three critical measures to tackle tax dodging. I will mention those to you, because these are important issues for cracking down on international tax evasion. The first is the automatic exchange of information between tax authorities, which is about sharing information between revenue collection authorities. They have told me that when Denmark sent out 1,100 letters informing Danish taxpayers about information that had been shared automatically, 40 per cent reported foreign income that year that they had not previously reported. So clearly just the act of making information transparent encourages willing compliance, or more-willing compliance, with taxation obligations.

Second, beneficial ownership disclosure through a public register. In other words, some public means of ascertaining the beneficial owners of assets, not just the legal owners of assets. Of course, when complex trust structures are set up, it is very difficult to really have a clear picture of the wealth of a particular taxpayer.

Finally, they have raised with us country by country reporting for multinational corporations. So instead of aggregating all of the tax paid internationally in a global report, country by country reporting increases the transparency for multinational corporations, again, to better shine the light that Micah have spoken to me about on taxation collection.

While welcoming this bill, the government stands condemned for inaction on multinational tax avoidance that has seen tax breaks being given to multinationals— (Time expired)

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