Andrew Leigh

My op-ed in today's Herald Sun is on the Coalition's decision to go soft on multinational profit-shifting, letting $700 million of revenue slip through their fingers.

We're Cheating Ourselves if Multinationals Don't Pay Up, Herald Sun, 2 January 2014

New York Governor Mario Cuomo once said that parties campaign in poetry, but govern in prose. In the same spirit, one Australian political party seem to think it can campaign for the middle, but govern for its base.

With the change of government, we've seen Prime Minister Tony Abbott's pre-election poetry turn into prose of a quite different character. Apparently, the secret to solving a "budget emergency" is to lower the tax burden on carbon emitters and remove a profits-based mining tax - measures that were anticipated to raise $17 billion over the next four years.

It's lucky we didn't have a 'budget catastrophe', or the government would have had to solve it by getting rid of income taxes and company taxes too.

In the meantime, Treasurer Joe Hockey has sternly told us that the "Age of Entitlement" must come to an end. So battlers are losing their income support payments, the School Kids bonus and low-income superannuation contribution.

But for billionaires, the age of entitlement will continue, with the Government keeping a tax-break for wealthy retirees, providing a tax cut to mining billionaires and hoping to give them back the private health insurance rebate.

Yet one of the most disturbing decisions of the government has been to keep a $700 million tax break to multinational companies. In government, Labor's economic team - particularly former Assistant Treasurer David Bradbury - took careful measures to ensure that multinationals paid their fair share of tax.

Given that our tax base relies more heavily on company taxes than many other nations, that is an issue that matters a great deal to Australia.

There are several tricks that multinational firms use to shift profits out of Australia and into low-tax jurisdictions. For example, they might arrange for their Bermuda arm to sell their Australian arm a paperclip at a cost of $1 million.

The Australian arm claims that as a $1 million tax deduction and the money is effectively shifted offshore.

Thankfully, that particular loophole is closed, but a similar trick can be played with debt. If the Bermuda subsidiary makes a multi-million dollar loan to the Australian arm, a million dollars a year can be shifted out of Australia in the form of interest payments.

The interest payment is a tax deduction in Australia and the profit is moved to Bermuda, where the company tax rate is considerably lower. Same thimbles, different peas. Now you see it, now you don't.

Labor believes passionately in the value of free enterprise. We support foreign investment. But we also believe in the fundamental Australian value that everyone should pay their fair share of tax.

Mr Hockey's announcement that he will forego $700 million of company tax revenue effectively means that he has to go harder on Australian households. A Treasurer who thinks it's better to take away money from children on their first day of school than ensure multinationals pay tax is one who is out of step with the Australian concept of the fair go.

The issue matters on the international stage too. Next year, the heads of the world's 20 biggest countries will come to Brisbane to talk economics. One of the big issues on the agenda will be making sure tax laws on multinational firms keep up with globalisation and technological change.

To maintain a fair tax system, we need to play a leadership role.

Under Labor, Australia was playing a strong role on making sure multinational firms paid their fair share of tax. Labor believes that all of us have a social obligation to contribute to shared services, like roads and railways, schools and public parks. More loopholes in the tax code eventually means more potholes in our roads.

One reason the issue hasn't received as much airplay as it should is that the tax arrangements for multinational firms are fiendishly complicated.

As an economist, I love the details, but I've spared you the technical terms and statutory provisions here, because they don't matter as much as the point of principle.

Unless we cut services or raise debt, every tax break to one person means a tax hike to someone else.

It's time Mr Hockey stopped getting tough with battlers and started muscling up to the billionaires.

Andrew Leigh is the Shadow Assistant Treasurer.