Foreign investment is great, until it becomes a drain - Opinion Piece

Foreign investment is great, until it becomes a drain

A few years ago, the Australian Taxation Office won a court case against energy giant Chevron that saw the company pay an extra $10bn over the following decade.

That's equal to 10 hospitals, hundreds of schools, or thousands of kilometres of rail.

One way Chevron cut its tax bill was by lending money to itself. Interest payments are tax deductible, so by creating an internal loan from the US parent to its Australian subsidiary, Chevron reduced its taxes.

Over the past two centuries, Australia has benefited greatly from foreign investment. But multinationals still have an obligation to pay their fair share. Multinational companies benefit from Australia's infrastructure and rule of law. It's only fair that they contribute.

There's another reason why multinational tax matters. When one firm uses dodgy tax arrangements to get a competitive edge, it tilts the playing field. Suddenly competitors find themselves asking: “Do we have to get in on the lurk, too?” Rather than focusing on delivering through better products and services, companies begin to wonder if they should exploit loopholes. Firms that do the right thing find themselves at a competitive disadvantage. Getting multinational tax laws right is fundamental to shaping a productive and competitive economy.

Abuse of debt deduction rules has long been a problem for Australia. As one expert put it, the risk is that our economy becomes one where multinationals “export minerals and import debt”. Left unchecked, related party loans can eat away at our tax base. And when multinationals pay less, Australian individuals and small businesses end up paying more.

Under the Rudd and Gillard governments, Labor tightened the debt deduction rules and transfer pricing rules - over the objections of the Coalition. Those tougher rules were ultimately used to secure the Chevron judgment, in which a court found that Chevron's Australian subsidiary couldn't claim interest on its debts as though it was a standalone “orphan” firm.

Yet under the Coalition's nine years in office, the misuse of debt deductions continued to be a problem. That's why Labor went to the 2022 election promising to curb the practice. We consulted extensively with industry, experts and civil society before putting our reforms to parliament. The Senate held two separate inquiries on the reform. And just before Easter, the changes passed into law.

By toughening the rules around debt deductions, Labor again demonstrates our commitment to tax fairness. Just as we reformed the stage 3 tax cuts to ensure that every Australian taxpayer would get a tax cut from July 1, we're updating multinational tax laws to deliver fairness. If the Coalition had remained in office, multinationals would be paying less tax, and workers earning less than $45,000 would not be getting a tax cut. Under Labor, multinationals are paying their fair share and low-wage workers will be paying less tax.

Proponents of trickle-down economics like to claim that the best way of helping battlers is to boost the profits of billion-dollar firms. Their solutions start with trying to make the most profitable companies even more profitable. Some have never seen a tax loophole they wouldn't defend. Maybe they think it's just a coincidence that many of the dollars earnt by Apple, Meta and Google find their way to low-tax jurisdictions such as Ireland.

But if you want to grow the economy, the best way is to ensure that everyone gets a fair go. Wage rises for workers. Tax cuts for every individual taxpayer. And multinationals paying their fair share. That's the recipe for an economy that works for everyone.

This was originally published in the Daily Telegraph on the 9th of April 2024.


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  • Toby Halligan
    published this page in What's New 2024-04-09 09:47:44 +1000

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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.