Andrew Leigh

E&OE TRANSCRIPT
RADIO INTERVIEW
ABC BRISBANE DRIVE

THURSDAY, 10 DECEMBER 2020

SUBJECT: Hundreds of companies paying no tax in Australia; the Coalition failing to crack down on multinational tax avoidance; companies using JobKeeper to pay out executive bonuses.

STEVE AUSTIN, HOST: Andrew Leigh is the federal Labor MP for the electorate of Fenner in Canberra. He's the Deputy Chair of the Standing Committee on Economics. Dr Andrew Leigh, thanks for coming back on.

ANDREW LEIGH, SHADOW ASSISTANT MINISTER FOR TREASURY AND CHARITIES: Always a pleasure, Steve. Great to chat with you.

AUSTIN: Alright. How significant is it overall that a third of Australian companies paid no tax at all?

LEIGH: It's pretty significant, Steve. This is a time in which we need every cent we can get, with a million people out of work and government debt going towards a trillion dollars. Not only do we have a third of companies not paying tax, but as you said, there’s 80 companies that haven't paid tax for the last six years. Among the companies that didn't pay any tax this year are some of the giants of the resources sector - Woodside Petroleum, Chevron, BHP [Aluminium], as well as firms like IBM, CITIC and BNP Paribas. So these are significant entities, and in some cases there might be good reasons why they haven't paid tax. But we also know that there's a big fight going on between the well-paid accountants at large firms who are looking to try and find every tax loophole available and the under resourced Australian Tax Office, which has had its budget cut and has been put in a position where it's increasingly finding it difficult to go after the big end of town.

AUSTIN: The argument about – let’s just, you mentioned those resource companies. The argument is that, well okay, they might not be paying tax, but they are paying royalties and they're massive employers. And those royalties that they earn from their export, of their royalties overseas goes to state governments like Queensland. Does that excuse it?

LEIGH: Royalties are a payment for what you're taking out of the ground, and that ought to be in addition to tax. Just because you employ people doesn't mean you don't also have an obligation to pay tax on your profits. We’ve had, for example with Chevron, the change in the law under Labor in 2012 which was directly responsible for a $300 million additional tax payment. The same change led to an additional $500 million tax bill for BHP. So you’ve got to keep on tightening up the laws and you've got to work with other countries as well. There's an appetite in the OECD and the G20 to work on those things. But Australia, which used to be on the steering committee dealing with that project, has now moved to the backseat. Other countries are playing more of a leadership role in getting large firms to stop using tax havens, stop diverting profits to low-tax and no-tax jurisdictions, and ask them to pay their fair share.

AUSTIN: So when they divert, they divert - as I understand, it's called price shifting or I forget what the word is, but where their profits are made overseas and their debts are incurred here in Australia. I forget the full name for it.

LEIGH: That’s right. Transfer pricing-

AUSTIN: Transfer pricing. Thank you!

LEIGH: The simplest example is you've got an offshore subsidiary that sells a paperclip to the Australian company and charges a million dollars. The paperclip moves to Australia, the million dollars move overseas. Obviously, the tax law cracks down on that, but more complicated variants of that are still in existence.

AUSTIN: Now this is what the big companies of the world are doing, isn't it? The Googles, the Facebooks, the Apples – they don't pay tax anywhere. These are Australian companies basically pinching or using the same model to avoid paying taxes, is that right?

LEIGH: Yeah. They’ve done a lot to move revenue overseas, famously through the contrivance called the Double Irish Dutch Sandwich, which involves moving revenue around a couple of times until - like the pea in the thimble trick - it suddenly disappeared. And you've also seen-

AUSTIN: Well, it employs a lot of accountants - that's where the money's going, where the profits are going.

LEIGH: That’s absolutely right. And these tech firms say ‘well, the reason we don't book many profits in Australia is all we do in Australia is marketing and that's not a very valuable activity’. And at the same time, you've got the resources companies saying, ‘well, the reason we have a lot of profits in Singapore is because we do our marketing out of there and marketing is a very valuable activity - so therefore, we don't need to pay as much tax in Australia’. So it's these sorts of inconsistencies which we need to address through a global approach.

AUSTIN: What about the company Atlassian? Mike Cannon-Brookes’ company Atlassian - Australian business, success story, done incredibly well. I keep reading in the Financial Review that they pay no tax at all.

LEIGH: I'm just looking at the spreadsheet here, Steve. The latest spreadsheet does have Atlassian paying tax. $11 million, according to spreadsheet here.

AUSTIN: Alright, that's good. They’re paying something. $11 million.

LEIGH: My search skills on Excel aren’t completely hopeless.

[laughter]

AUSTIN: Trust Andrew Leigh to have a spreadsheet. This is ABC Radio Brisbane. You’re hearing the voice of the Deputy Chair of the Standing Committee on Economics in Australia's parliament. Andrew Leigh is a Labor MP from Canberra. Now why this is of interest - just yesterday there were reports that the federal government has strong incentives to encourage Centrelink’s debt collectors to claw back money, despite the fallout of the now known illegality of the Robodebt scheme. Should the federal government consider redirecting those debt collecting efforts to the big end of town rather than the little end of town?

LEIGH: Absolutely they should, Steve. I mean, the Robodebt scheme was an illegal scheme, which saw thousands of Australians hit with bills which they didn't need to pay. But many of them ended up paying, often to the cost of their livelihoods and their families. Some people even took their lives. And you can contrast that hardnosed approach, based on just letting computers run wild with no human oversight, with the kid-gloves strategy that the government has taken to dealing with multinational tax avoidance. And also with issues like BonusKeeper, where a number of firms have taken JobKeeper payments and used that to prop up bonuses to millionaire CEOs. That's not why we had JobKeeper put in place. JobKeeper was put in place to support jobs, not to pad the pockets of millionaires.

AUSTIN: In fairness, everyone has had difficulty getting the big end of town to pay tax. Labor governments and coalition governments, haven’t they, Andrew Leigh? In other words, it's a problem for everyone and other countries as well.

LEIGH: You're totally right, Steve, and it's a moveable feast. Increasingly as production has become weightless, it's become easier for firms to change the place where they say they're producing the value. It was much harder to do when in an old manufacturing or agricultural based economy, where it was pretty obvious where the farm or the factory was. It's a bit harder where tech firms are able to say that they are producing value in certain places where the intellectual property is located. So we've got to have our laws keeping up to snuff. We've also got to be working with other countries. And there's a range of things we can do - particularly a crackdown on tax havens like the Cayman Islands, which are now the location of two-fifths of multinational profits. There are hundreds of billions of dollars of multinational profits being channelled through these tax havens. We need a concerted approach to crack down on them, not only because that's important for revenue, but also because there's a lot of wrongdoing happening in those tax havens. Terrorist financing, all sorts of problematic behaviour happening in tax havens.

AUSTIN: The Australian Tax Office revealed in their data that it had invoked the powers under what's called the diverted profits tax law for the first time. They're going after I think, one particular unnamed company - we don't know the name of the company. How significant is this, just explain to me in simple terms please Andrew Leigh, how significant this is.

LEIGH: The diverted profits tax is another tool in the arsenal of the tax office. If there's a company engaged in a contrived arrangement, then the ATO can hit them with a 40 per cent tax. Labor’s always said that we didn't think it would have a massive impact, and that's illustrated by the fact that it's only being used now this initial time. But we certainly supported its passage through the parliament.

AUSTIN: My guest is Andrew Leigh. Andrew Leigh, the tax take was apparently up this year - 56 point 1 billion, which is a little bit up from the year before. But in my mind, both the federal government and state governments of Australia have less revenue coming in and are borrowing and spending more. At a certain point, we have to stop that. I'm wondering if you have a view on that.

LEIGH: That’s absolutely right, Steve. You’ve got to balance the budget. If you're a Keynesian when the economy turns down, you've got to be a Keynesian as the economy recovers. And the idea that we can just have red ink as far as the eye can see isn't sustainable, even when interest rates are at historic lows. This report that we're discussing today goes to the 2018-2019 tax year and so that's pre-pandemic. We know that the revenue’s going to be turning down in the pandemic, and so the coalition's love for corporate tax cuts, their ongoing desire to give multinationals a lower rate of tax just is completely out of whack with where the Australian economy needs to be going now. We need to be making sure multinationals pay more rather than paying less. Otherwise teachers, police officers, nurses will end up bearing a higher tax bill.

AUSTIN: In Queensland here, we're borrowing money to pay for them as we employ more of them. I just want to ask you a question about the turnover tax. So one of my listeners, Andrew from the Gold Coast, says Australia should introduce a turnover tax on foreign nationals. How do you feel or how does Labor feel about a turnover tax?

LEIGH: Well Steve, here's the challenge with a turnover tax. Imagine you’ve got two firms next door with one another. One’s a petrol station that makes a few cents of the dollar of its turnover. The other one’s a consulting firm, where basically all of the revenue is profit. A turnover tax would essentially drive the petrol station out of business because they'd be paying tax on the revenue from every litre of fuel. But the consulting firm would be just fine, because their revenue is basically their profit. So taxing profits does make sense to me. I don't think we should be taxing turnover, but I think we do need to do a better job of catching that profit. I don’t buy this argument that we need to just race to the bottom, that we need to find the country in the world with the lowest corporate tax rate and match them. That way lies madness and the destruction of the Australian social safety net.

AUSTIN: My guest is Andrew Leigh. What's the solution, Andrew Leigh? You're in opposition - you can point the finger of blame at the federal government all you want, but you don't have to come up with a solution.

LEIGH: We took about a dozen solutions for the last election, Steve, around cracking down on multinational profit shifting: publishing country by country reports, denying deductions for companies who try to travel to and from tax havens, capping deductions for managing tax affairs and making sure that debt isn't used to reduce the tax bill. Because these debt deductions have been used rampantly by firms and are one of the sources of multinational tax avoidance. Labor will be looking closely at what's going on in the leading countries in the OECD and G20 as we shape our multinational tax policies coming into the next election. But it's got to be done and it's the fairest way of getting our budget back into balance.

AUSTIN: Andrew Leigh, thanks for your time.

LEIGH: Always a pleasure, Steve.

AUSTIN: Andrew Leigh is a federal Labor MP. He's the Deputy Chair of the Standing Committee on Economics.

ENDS

Authorised by Paul Erickson, ALP, Canberra.