A Fair and Equitable Tax System

I spoke in parliament today about a bill that will help counter tax avoidance and multinational profit-shifting.
Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill, 14 March 2013

A strong tax system is fundamental to driving innovation, entrepreneurship and economic growth, because it is only through a strong tax system that we are able to provide the infrastructure that business needs to thrive; it is only through a strong tax system that we are able to fund high-quality education and the research and development we know business depend on. So, making sure that we have a strong tax system with good anti-avoidance provisions is a pro-business measure. Those who oppose it—those who say that we ought to have a tax system with loopholes in it—are not pro-business; they are pro-loopholes. They are standing up for those who believe that there ought to be loopholes that those with cunning lawyers can use to avoid paying tax.

This bill puts in place measures that will counter tax avoidance and multinational profit-shifting. It will, as the speaker before me reluctantly acknowledged, protect significant amounts of revenue. Over $1 billion of revenue will be protected by these measures. That is what these measures are about. They are about ensuring that our tax system follows the values that Australians hold dear: the values of equality and fairness; the value of opportunity; the values that say that, just because you can hire the best lawyer in town, you should not be able to get an unfair advantage with our tax code. That is all this bill is about.

If you listen to those opposite, you might think that this bill has been cooked up in a Treasury dungeon somewhere and thrust upon the parliament, but nothing could be further from the truth. Treasury went through a normal public consultation process, as they do with tax reform bills of all types. But beyond that, in the case of this bill, the Assistant Treasurer set up an expert roundtable and Treasury used that expert roundtable extensively. So the views of those affected by these changes have been thoroughly canvassed.

As the member for Throsby acknowledged, there was a willingness on this side of the House to hold a parliamentary inquiry to look into this bill, but when the availability of members was canvassed it was found that, while government members were available in abundance—I cleared the day in my diary—opposition members were nowhere to be seen. So, when the member for Dunkley talks about courtesy, fundamentally the courtesy is of those in the opposition to be willing to attend an inquiry. When we found that there was not a single member of the opposition willing to turn up to this inquiry, we took the view that fundamentally the opposition were not particularly interested in holding a parliamentary inquiry. Had the members for Higgins, Wright and Moncrieff been willing to attend that inquiry, it might well have gone ahead. Had even one of them been willing to attend that inquiry, it might well have gone ahead. But all of them had more pressing concerns.

You would not have known that by listening to the member for North Sydney; you would not have known that from listening to the member for Dunkley. For them, this is just a big story about a government conspiracy. But, when it actually comes to making time to hold a parliamentary inquiry, opposition members were unable to do so. Now they have the temerity to turn up in the parliament and attack the government for failing to hold that inquiry. That is just not good enough. If you cannot make yourself available for a parliamentary inquiry, you forego the right to come into this parliament and claim that that inquiry should have gone ahead.

Let me go to some of the measures before speaking about the context in which they are being implemented. These amendments will maintain the effectiveness of the general anti-avoidance rule to counter tax avoidance. The role of part 4A is exposing the substance or reality of what taxpayers have done to the ordinary operation of the tax law. Taxpayers should not be able to avoid the tax consequences of what they have actually done by arguing that they would have done something completely different or nothing at all. They should not, in colloquial language, be able to have their cake and eat it too. In putting together this bill, with consultation with the public and the expert panel, we received legal advice from senior counsel with expertise in part 4A. So this is a balanced response to address problems without interfering with ordinary commercial activities. That is schedule 1.

Schedule 2 deals with multinational profit shifting. It is about bringing Australia's transfer pricing regime into line with OECD best practice. It is one of the reasons we have the OECD. It is aimed at sharing best practice, particularly in the area of taxes but also in areas like education and health. Here, we have looked to best practice across OECD countries and we have put in place these reforms to make sure that we do not have the tax base eroded and we do not have profits shifted. In doing that, we will protect a significant amount of revenue.

These powers directly reflect the OECD guidelines. There is not a broad new power. They have what is known as a ‘reconstruction power’ and they are an essential feature of a modern transfer pricing regime. The notion behind a reconstruction power is that it helps you tackle an artificial structure, not just an artificial price in an isolated transaction. It is no surprise that there are some who are at the moment using these loopholes and benefiting from the avoidance measures and multinational profit shifting, but they will not be able to do so under this bill. Those of us on this side of the House believe that it is fundamental to a fair go and fundamental to equal treatment of firms that they not be allowed to erode the revenue base in the process. If we are to fund the services that the social sector demands and that I know from my conversations with business people that they are keen to see then we need a strong revenue base. Less tax from one company just means more taxes that have to be paid by other companies and other individuals across the economy.

We know there is a strong demand for infrastructure spending. That is why this government has doubled the road budget and quadrupled the rail budget and spent more on urban public transport than all other governments since Federation combined. But we know there are still calls from business to spend more on infrastructure. Routinely, when business groups survey their members, infrastructure spending stands out as a key priority. Why wouldn't it? We had a period under the Howard government when the pause button was pressed on infrastructure spending and infrastructure decisions were made not based on the national interest but based on sectional political interests. One of my academic papers looked at the Roads to Recovery program. There you could see, even taking into account the population density of an electorate, that coalition electorates were receiving significantly more Roads to Recovery funding than were Labor electorates. That was because under the coalition infrastructure spending was too low and was not targeted to the areas most in need and not driven by cost-benefit analyses. That is not true under this government. But in order to maintain strong infrastructure spending we need a strong tax system to back it up.

A lot has been said in this debate about the general issue of tax reform under this government, so let me address directly some of the statements that the shadow Treasurer and the member for Dunkley have made about tax reform under this government. We have a proud record of tax reform. As economists and environmentalists alike have urged, we have put a price on carbon pollution, the most efficient way of addressing dangerous climate change. We have moved from a royalties regime to a profits based mining tax which make sure that when the world price goes up through luck rather than ingenuity the tax share goes up commensurately. We have put in place an instant asset write-off. We have tripled the tax-free threshold. Those opposite will sometimes ask, 'We had a low-income tax offset there; what do you mean you have tripled the tax-free threshold?' Let me be very clear: what I mean by that is that we have taken one million Australians out of the tax-filing system.

The member for Dunkley likes to talk about reducing red tape. One of the big forms of red tape for low-income Australians is filing an annual tax return. If those opposite were to get into power, they would put the responsibility for filing a tax return back onto a million Australians for no additional benefit to those individuals. We know from surveys that they take a day a year to file a tax return. So that would be an extra day a year gone for a million Australians were the coalition to come to office.

Mr Billson:  Mr Deputy Speaker, I rise on a point of order. I am enjoying the member for Fraser's contribution, but there are about 4½ minutes left for him to actually deal with the bill before the House. I encourage—

The DEPUTY SPEAKER (Mr S Georganas):  The member will resume his seat. The member for Fraser will continue.

Dr LEIGH:  I am addressing directly some of the statements made by the member for North Sydney and the member for Dunkley on the issue of tax reform and the suggestions that have been made that this reform to counter tax avoidance and multinational profit shifting has somehow come out of the blue. It is important to understand the context of tax avoidance and multinational profit-shifting laws. Their broad context is a Labor legacy of tax reform.

We have been committed to good tax reform, guided by the experts. We, for example, followed through with fuel tax reforms that were brought into parliament by Peter Costello in 2003, supported by the opposition right up until the last minute when they realised they could get some political mileage from backflipping on a Peter Costello reform—extraordinary stuff!

The reason we are committed to this bill to counter tax avoidance and multinational profit shifting is that we realise revenue must be raised as fairly as possible and must be spent as fairly as possible. That is why we have means tested the baby bonus, the private health insurance rebate and family tax payment part B. When the member for North Sydney went to London he talked about ‘The Age of Entitlement’. When he came back to Australia he said that reducing the Baby Bonus for second and subsequent children was like China’s one-child policy.

We need a bill to counter tax avoidance and multinational profit shifting because a strong tax system is essential to a fair society.

We have to protect that revenue because if we do not then that means increasing taxes in other places. That is fundamentally the problem that the coalition has in so many of these areas. They are constantly saying that there are taxes they are going to reduce, that there are revenue measures they are going to oppose. The effect is that they now have a $70 billion hole in their costings—not my figure, a figure of the member for Goldstein, subsequently backed in a few days later by the member for North Sydney, who said, 'well, $50 billion, $60 billion, $70 billion', as though there really was not much difference. What is a spare $20 billion between friends? Let me be clear as to the implications.

Mr Simpkins:  Where's your surplus?

Dr LEIGH:  I did look over because I thought briefly that the interjection might be the member for Wright turning up to this debate to explain where he was when we had the parliamentary hearing that was scheduled. But let me continue.

The bill before the House ensures that we protect revenue, because if we do not protect revenue then we get into the problem the coalition find themselves in. The problem the coalition find themselves in is a massive costings gap. That is because, if you are a special interest, the coalition welcomes you with open arms; but, if you are a struggling Australian family, the coalition puts up their hand. They want to cut the schoolkids bonus, which is $410 for primary schoolchildren and $820 for secondary schoolchildren. They want to take that away. They want to increase taxes on low-income Australians by bringing down the tripling of the tax-free threshold. They want to cut pensions, because they have to do that once they have gotten rid of the carbon price, that most efficient way of dealing with dangerous climate change.

This bill is part of a set of Labor reforms concentrating on making sure our tax system is as fair as possible. On this side of the House we will not be driven by special interests. We will be driven by the Australian national interest. We will be focused on the interests of Australians and on making sure our tax system is fair and equitable.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.