Why tax havens are so dodgy - Speech, House of Representatives

HOUSE OF REPRESENTATIVES, 4 MARCH 2020

The problem of multinational profit-shifting is a massive one. Globally it has been estimated that some $600 billion of profits are shifted to tax havens. That is around two-fifths of all multinational profits being shifted to tax havens. Tax havens affect Australia's tax base. They siphon taxable profits away from jurisdictions like Australia, and the effect is that Australians either have to pay higher personal income taxes or else suffer from a lower quality of services.

Tax havens aren't always illegal but they're frequently immoral, and the users of tax havens include an awful lot of crooks. Tax havens are used by the North Korean regime for money laundering. They're used by extortionists. They're used by drug runners. Mexican drug cartels have been known to stash money in tax havens. So, if you're operating out of a tax haven, you're likely rubbing shoulders with some pretty unsavoury characters.

Aggressive tax planning erodes public confidence in the tax system. When taxpayers see others minimising their tax through the aggressive use of tax havens, they're less likely to do the right thing. One of the reasons that's we have relatively good tax compliance in Australia is a notion that people are playing by the rules. As that starts to break down, the tax base is at threat.

Gabriel Zucman, an economist at the University of California Berkeley, has estimated that around four-fifths of the money in offshore bank accounts is there in breach of other countries' tax laws. Counterfeiters, those using forced labour, and al-Qaeda financiers have even routed their payments through tax havens. It has been estimated that there are even environmental vandals in tax havens. Following the Panama Papers, a study in the journal Nature Ecology & Evolution found that 70 per cent of fishing vessels implicated in illegal, unreported and unregulated catches had at some point been registered in a jurisdiction like Panama or Belize.

Tax havens increase inequality. Offshore wealth held in tax havens by Australians has been estimated at six per cent of GDP, according to Gabriel Zucman's work from 2013. Update that to the present day and it would mean that over $100 billion of Australians' assets are currently sitting in tax havens. This is money not just of the wealthy but of the super wealthy. One study which matched data from high-profile leaks to tax statistics estimated that half the money in tax havens was held by the top 1/10,000th of the population.

We're not talking about the one per cent. We're not talking about the 0.1 per cent. We are talking about the top 0.01 per cent holding half the wealth in tax havens. That makes sense when you know about the sorts of vehicles we're considering. If you need a minimum million dollar investment, you'll need to be a multimillionaire to be investing in these sorts of vehicles. When you take offshore wealth into account, estimates of inequality turn out to be a whole lot higher.

The residents of tax havens themselves don't necessarily benefit from these arrangements, so, if you take a country like Bermuda or the British Virgin Islands, many of the citizens live in poverty. Akin to the ‘resource curse’, people have talked about the ‘finance curse’, where places like Bermuda fail to see the benefits for their citizens from being a tax haven. The International Monetary Fund has found that these sorts of negative spillovers can particularly hurt developing countries.

I'd commend to the House an important initiative that the OECD has been pursuing, Tax Inspectors Without Borders, modelled on the much better known Doctors Without Borders -- Medecins Sans Frontieres. Tax Inspectors Without Borders is a joint initiative of the OECD and the UN Development Program. Working in countries such as Africa, Asia, Latin America and the Caribbean, it sees tax inspectors work alongside finance ministries in those countries to get the tax that's appropriately due to residents of that country. It's been estimated that for every dollar spent on Tax Inspectors Without Borders there's an additional $100 in revenue to those developing countries. That is an extraordinary payback. I'd encourage the government, through its foreign aid program—limited as it now is—to consider investing more Australian resources in Tax Inspectors Without Borders. It would be an appropriate thing for the government to do in order to deal with some of these challenges that tax havens pose to those in developing countries.

Tax havens should be a top priority for this government. Since 2013 there's been a joint initiative of the OECD and the G20 called the Base Erosion and Profit Shifting Project. Australia used to be on the steering committee for that. We no longer are. We have shifted from the front seat into the back seat. That's a pity, because it means that we're unable to influence this important conversation and to be leaders on multinational tax avoidance, as occurred during Labor's last term in office. We were at the vanguard of pushing some of these important measures, but, since the coalition's come to office, Australia has been a laggard on dealing with multinational tax avoidance.

The coalition promised to put in place a register of beneficial ownership and then backflipped, killed the idea. They voted against Labor's measures to close multinational tax loopholes when they were in office, and then, despite us supporting their multinational anti-avoidance law, set about lying to the Australian people: suggesting that Labor had not supported that law. It's simply not true. Labor has supported the modest multinational tax avoidance measures the coalition's put in place, but we would like to see them go further. An estimate from Gabriel Zucman and co-authors is up to $16 billion of additional revenue could be flowing to tax havens as a result of the failure to properly crackdown on tax havens.

Other countries are looking at alternatives such as digital taxation. Other countries are moving more quickly on the public reporting of country-by-country reports. Other countries have better registers of beneficial ownership, providing accurate information as to who really owns Australians' firms. Other countries have whistleblower protection laws, qui tam laws, which have been in place in Britain and the United States for many years. They have better rules around government tenders, ensuring those who are tendering for government contracts disclose their country of tax domicile. Other countries have significantly greater tax transparency than Australia does.

As the member for Kingsford Smith pointed out earlier, Labor's laws that would have seen reporting of taxable income and tax paid by firms over $100 million were wound back by the coalition in office via a dodgy deal with the Australian Greens. When the threshold went from $100 million to $200 million, two-thirds of private firms were taken out of the tax transparency net. We were told before those laws came into place that they would create a kidnap risk. A variety of questionable excuses were used. I have seen no evidence since those laws came into effect that any of those scare campaigns were anything other than vested interests trying to look after their mates. So it would be perfectly appropriate in an era in which Australians are hankering after more tax transparency for this information to be expanded and for the threshold to be brought down from $200 million to $100 million.

This tax transparency information has taught Australians the true extent of tax paid in Australia. We can see a significant number of Australian firms, as the member for Whitlam has noted, not paying any tax, including some of Australia's largest firms. The Luxembourg leaks, the Panama papers and the banking royal commission should have taught us that tax transparency is of the utmost importance and that, if you're going to have faith in the system, you need a significant expansion of tax transparency.

The coalition has misstated to the Australian people its own record on tax transparency. The moment of greatest chutzpah came when the Prime Minister tried to claim credit for a $300 million tax judgement against Chevron, despite the fact that that judgement was only allowed because of Labor's laws, which he had voted against. He and his colleagues voted against closing a multinational tax avoidance loophole, which was then used to add $300 million to the budget bottom line, and he patted himself on the back for it. What he really should have done was go to the Australian people and say: 'I'm sorry. I got it wrong.' Frankly, the Prime Minister should be saying he's sorry a whole lot more often, on everything from sports rorts to the fact that people can't buy those ‘Back in Black’ coffee mugs from the Liberal Party website any longer. But the Prime Minister is not really one for apologies, and he wasn't one for apologising for having wrongly voted against Labor's measures to close multinational tax avoidance loopholes.

We've seen from the coalition advertisements patting themselves on the back for getting tough on multinational tax avoidance, while at the same time slashing compliance staff in the tax office. The tax office has lost some 4,000 staff since the coalition came to office in 2013. It has lost a huge number of its staff, and the coalition are then calling on the tax office, like they're calling on so many Public Service agencies, to do more with less. We know that, when you cut tax office staff, you cut into the revenue base, because the projection for additional tax office staff is that they more than pay for themselves in ensuring that multinational companies do the right thing. We have a coalition government that is much more a mateocracy than a meritocracy, that is looking after multinational tax avoidance loopholes.

Mr Sukkar:  You voted against it and you were leading the charge.

The DEPUTY SPEAKER (Mrs Wicks):  Order! The minister will refer to members by their proper title and address his remarks through the chair.

I'll take that interjection from the minister. The minister needs to turn the Hansard and refresh himself with the fact that Labor never voted against the coalition's multinational antiavoidance laws. It is simply a lie put about by the Liberal Party to try to distract from the fact that they, indeed, did vote against Labor's loophole closing. They wrongly claimed that our loophole closing was retrospective. We said that their laws were inadequate, but we would vote for them all the same because modest measures were better than nothing.

We saw the Treasurer, when he had his former resources portfolio, make speeches to large mining conferences in which he proudly said to the multinational firms there that he was opposed to closing multinational tax loopholes, that he would fight to keep those loopholes open. So when they're with their well-connected insiders they're always happy to fight for loopholes. When they're advertising to the Australian people they pretend they're serious about tax havens. They simply are not.

ENDS

Authorised by  Paul Erickson, ALP, Canberra.


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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.