4 June 2014
In March 2010 the United States Congress enacted the Foreign Account Tax Compliance Act, also known as FATCA. The aim of the act was to improve compliance with US tax laws. FATCA imposed certain due diligence and reporting obligations on non-US financial institutions, including Australian institutions. Two years after the passing of FATCA, the member for Lilley, Wayne Swan, the then Treasurer, met with United States Treasury Secretary Timothy Geithner in Washington and issued a statement on 7 November 2012 announcing that Australia had commenced formal discussions for an intergovernmental agreement with the United States to minimise the impact for Australians of FATCA. That statement noted that an intergovernmental agreement would also improve existing reciprocal tax information-sharing arrangements between the Australian Taxation Office and the United States Internal Revenue Service, which would help ensure Australian tax laws are effectively enforced so that Australian businesses and individuals who pay their fair share of tax are not disadvantaged by those who seek to evade their tax obligations.
Under the agreement which has been signed with the United States and was announced by the Treasurer on 28 April this year, we now have an intergovernmental agreement which sees Australian financial institutions complying with FATCA. Under this arrangement, a broad range of Australian financial institutions are affected: banks, building societies, credit unions, specified life insurance companies, investment funds, custodial institutions and some brokers. Those financial institutions are to be required to register with the US IRS.
Under this bill, from 1 July 2014 the affected financial institutions will review customer accounts to determine whether they are reportable accounts, US citizens or US tax residents under the intergovernmental agreement and will report to the ATO in the 2015 calendar year the required account information for the 2014 calendar year, which will then be passed on from the ATO to the IRS. This bill puts in place those appropriate arrangements in order to see Australian institutions complying with FATCA.
It is pleasing for those of us on this side of the House to see the end of these negotiations, begun under the member for Lilley and concluded under this government. The Labor Party welcomes sensible steps to assist tax authorities in ensuring compliance with tax regulations. What we are concerned about, however, is that while the government has managed to conclude this deal, it has dropped the ball on multinational profit shifting. More than $1 billion of loopholes have been opened up under this government, which will allow multinational firms to shift profits overseas. So while dual Australian-US citizens will be affected by FATCA, the multinationals will be able to continue to shift profits overseas. In a speech earlier today I listed the measures, five of them, on which the government has backtracked. The total amount is $1.1 billion.
Multinational profit shifting is a painfully detailed area and we were fortunate in government to have Assistant Treasurer David Bradbury focusing on these reforms for us. It might be helpful to the House if I outline in straightforward terms how multinational firms shift profits out of Australia and into low-tax jurisdictions. One simple example that members might think about is an arrangement in which the Bermuda arm of a company sells the Australian arm a paperclip at a cost of $1 million. The Australian company then claims that as a $1 million tax deduction and the money is effectively shifted offshore. That particular loophole has been closed, but a parallel trick can still be played with debt, in which the Bermuda subsidiary makes a multimillion dollar loan to the Australian arm and effectively $1 million a year is shifted out of Australia in the form of interest payments. Those interest payments are a tax deduction in Australia and the profit can be moved to Bermuda, where the company tax rate is considerably lower.
The concern that the Labor Party has on this is that multinational profit shifting will invariably become more tempting as industries internationalise. As more and more business is done over the internet, we are moving from a closed economy to a very, very open economy. And a government which is going soft on multinational profit shifting is a government which is increasingly going to miss out on revenue. Australia already has a higher than average share of revenue collected from company taxes, and so failing to close company tax loopholes is a significant issue for Australia. And because this government is unwilling to close corporate tax loopholes it has to do things like taking money away from children on the first day of school—getting rid of the schoolkids bonus payments, which is targeted towards low- and middle-income households, because it is going soft on multinational profit shifting. The Treasurer talks the big talk when he is at the G20, as the Prime Minister does when he is at Davos. But when it comes to actually walking into this House and passing bills which see multinationals pay their fair share of tax, this government is not up to the job. As a consequence, ordinary Australians will have to pay more tax or receive lower services.
The total effect of the government's budget was to increase the deficit. Don't take my word for it: the member for Cook in question time yesterday said:
If I go back to the PEFO—as we know, the PEFO is where the officials tell the truth about what the budget really is from the previous government. From the previous Government, that's what it does, that's what it does.
A little repetitious, but you get the idea. PEFO is the true state of the books, so let's compare where we are at under the true state of the books, the Charter of Budget Honesty state of the books, with the current budget.
The current budget's deficit is higher this year. It is higher next year and it is higher over the forward estimates. So what the government has done effectively in this budget is to redistribute resources—redistribute them from the most vulnerable to the most affluent. This is not only a failure of the fair-go test, because those who were most vulnerable have, after all, been doing it worse over the past generation, a generation in which incomes have risen faster for billionaires than for battlers, but now we have a budget that transfers resources from battlers to billionaires. A simple example of that: the budget raises the non-concessional superannuation cap pushing it from $150,000 to $180,000—a measure which will help some of the most affluent.
But the vulnerable Australians do not just have low incomes; they also spend a larger share of their incomes. In fact if you look at those in the bottom income group, they tend to spend all of their incomes; and those in the top quintile tend to save about a quarter of their incomes. So, if you take $10 billion, you move it from the bottom quintile to the top quintile and then you take $2½ billion dollars out of the economy. What would that do? You would expect it to have a hit on retail trade, and we are already seeing retail trade figures down. You would expect it to have a hit on consumer confidence, and we have the ANZ Roy Morgan Consumer Confidence measure now falling faster than at any time since the global financial crisis. We have the Westpac Melbourne Institute consumer confidence survey at nearly a three-year low.
Part of what is going on at the Westpac Melbourne Institute consumer confidence survey is that confidence has fallen to a lousy 74.9 among Labor voters. I have news for those opposite: Labor voters may not have supported them in the last election but, if you are a retailer, a dollar coming out of the wallet of a Labor voter is just as good to you as a dollar coming out of the pocket of a coalition voter. This pessimism in the economy is hurting retail trade.
Robert Menzies liked to say that about half the people didn't vote for him at each election and they could not all be wrong. It neatly sums up the value of bipartisanship but it is particularly important when we are thinking about economic policymaking. Governments must govern for all Australians. They must recognise that retailers are depending on the spending of coalition voters and Labor voters alike. But a government which is behaving as political scientist Judith Brett wrote recently like 'a bunch of winners taking it out on the losers … It all feels a bit like student politics and its short-term point-scoring, its payback and its intense personal antagonisms.' A government of that kind is a government which will not engender confidence in the economy.
Perhaps we should not be surprised then that the Australian Institute of Company Directors biannual survey found that fewer than one in three company directors believe the federal government is having a positive impact on their business decisions and consumer confidence.
This is a measure which improves transparency, and it is good to see this government supporting transparency. As Justice Brandeis said—that is not 'the-would-be Justice Brandis'; that is the real United States Justice Louis Brandeis—sunlight is the best disinfectant. I am a strong supporter of transparency, but it does strike me as strange that the government is very keen on transparency for US-Australian citizens in exchanging information between the ATO and IRS but less keen on transparency when it comes to what has happened in our detention centres, what is happening with boats.
When it comes to the Australian Charities and Not-for-Profits Commission, a commission set up to ensure transparency in the charitable sector and to ensure that Australian donors can see the organisations to which they are donating, the government wants to scrap the ACNC and reduce transparency in the charitable sector.
The government is yet to hold a single community cabinet, a great transparency measure introduced under Labor. The government has said that it will not release the Treasury blue books under the freedom of information laws as they were after the two previous elections.
The government in another anti-transparency move has taken the Family Impact Statement out of the budget. The family impact statement was put in the budget by Peter Costello, and maintained when the Rudd and Gillard governments were in office. We thought they were a good thing, so we kept them there. This year they disappeared, and families will not be surprised as to why. If you are a family in the bottom quintile in income distribution, families with children lose 6.6 per cent of their disposable income as a result of this budget; they lose more than $1 in $20. The poorest single parent families with children lose more than $1 in $10—$1 in $10 is being taken out of their wallets as a result of this. No wonder the government is backtracking on transparency with the Family Impact Statement.
On the measure championed by Labor, which would have required the tax commissioner to publish the amount of corporate tax paid for entities with a total income of $100 million or more, the coalition has already sent out strong signals that it is not going to proceed with that particular transparency measure. They were so proud of that particular announcement that they brought it out in the first week of the new year—not normally a time in which you announce the things that you are very excited by—but the time when then Assistant Treasurer Arthur Sinodinos chose to drop the story to the Australian Financial Review.We have heard nothing of it so far, but I am deeply concerned that this transparency measure will be dropped as well.
The opposition supports this sensible measure. The FATCA agreements were initiated under Treasurer Swan and concluded under Treasurer Hockey. I wish the spirit of this bill would better pervade the government's actions. Transparency is good enough for FATCA and it ought to be good enough for other areas of government policymaking. If it is good enough to close down tax loopholes to stop tax minimisation then it ought to be good enough to close down tax loopholes that are allowing a billion dollars of tax owed by multinationals to escape.