Coalition Going Weak on the Strong - 7 February, 2014

My op-ed in the SMH online looks at why we need to make sure multinationals pay their fair share of tax.
Tough tax talk short on action, Sydney Morning Herald Online, 7 February 2014

If your boss were to come to your desk and ask for you to arrange a double Irish Dutch Sandwich for him, you could be forgiven for thinking it would involve a trip to the local pub at lunch time. In fact, the double Irish Dutch Sandwich is a complex tax avoidance arrangement used by many multi-national companies involving Irish holding companies as the bread with a Dutch subsidiary wedged in between them as filling.

For tax division of a tax-minimising multinational, it might sound delicious. For the rest of us who have to foot the bill, the double Irish Dutch Sandwich is enough to give you a serious stomach ache. Because the more we let multinational firms avoid tax, the more the rest of us have to pay to maintain good services.

Cracking down on multinational profit-shifting isn’t just about making sure that firms pay their fair share of tax. It’s also about making sure that the tax burden is fairly shared across companies. For a local Aussie company without subsidiaries in offshore tax havens, it’s hard to compete against a multinational that’s able to get away with paying a lower share of tax. Unfair tax arrangements also distort investment decisions by creating an incentive to invest overseas and put local companies at a disadvantage against international conglomerates.

The early rhetoric of the Government suggests that they are looking to use Australia’s G20 agenda to push for reforms in this area. Given that under the Treasurer Joe Hockey’s watch the deficit has blown out by more than 50 percent, you can understand why Mr Hockey would be looking for more tax revenue. Unfortunately, like a ‘gourmet’ restaurant that serves up fast food, the Government’s publicity has not been backed up by good public policy.

The Prime Minister used his recent speech in Davos on the Government’s G20 agenda to argue that ‘the G20 will continue to tackle businesses artificially generating profits to chase tax opportunities.’ However, the only action the government has taken on multinational tax integrity is to dump Labor’s thin capitalisation reforms at a cost of $700 million dollars. To put this figure into context, $700 million would buy a new regional hospital. At the same time as giving multinationals a tax break, the Government has slugged families by removing the low income superannuation contribution and the school kids-bonus.

Alongside repealing important measures to limit multinational tax avoidance, the Assistant Treasurer Arthur Sinodinos has let it be known that he wants to repeal Labor’s tax transparency reforms. These reforms would have ensured the public could see how much tax Australia’s largest companies are paying. As US Supreme Court Justice Louis Brandeis famously wrote, ‘Sunlight is said to be the best of disinfectants’.

If the Government is serious about making sure companies pay their fair share of tax, why are they trying to let these same companies hide how much tax they’re paying? Just as publicly available food inspector reports led to cleaner restaurant kitchens, so too a little publicity about tax paid is likely to serve the public.

The Government’s tough talk and lack of action on multinational tax avoidance is a worrying trend that is repeated time and again regardless of policy area or promises made before the election. As Opposition Leader, Tony Abbott was on a unity ticket with Labor on school funding, but sought to scrap it not six months into his term. Tony Abbott was the champion of workers from Holden in Adelaide, to SPC Ardmona in Shepparton, but again has done a U-turn fast enough to give you whiplash. The Prime Minister who said last year that ‘the ABC will flourish under the Coalition’ is now attacking the national broadcaster for being unpatriotic.

To paraphrase UK Labor leader Ed Miliband, Tony Abbott’s government has shown in its first few months that it is strong at standing up to the weak, but weak at standing up to the strong.

Andrew Leigh is the Shadow Assistant Treasurer, and his website is www.andrewleigh.com.

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