Andrew Leigh

E&OE TRANSCRIPT

RADIO INTERVIEW

RADIO NATIONAL DRIVE

MONDAY, 02 MARCH 2015

SUBJECT/S: Labor’s multinational tax plan.

PATRICIA KARVELAS: Federal Labor today unveiled a policy to shut down legal loopholes allowing some multinational companies to send profits overseas and avoid paying taxes in Australia. But the government says the proposal will cost jobs. Joining me now is Shadow Assistant Treasurer Andrew Leigh; welcome to RN Drive.

SHADOW ASSISTANT TREASURER ANDREW LEIGH: Thanks Patricia, good to be here.

KARVELAS: Can you explain really simply how your proposal works?

LEIGH: Absolutely. Our proposal is aimed at dealing with multinationals not paying their fair share of tax using a particular instrument known as debt shifting. 

KARVELAS: Ok, well obviously on principle no-one would disagree with that, but Joe Hockey and Treasury have said that it will cost jobs. You might say that Joe Hockey has a political motive for saying it, but the Business Council of Australia also says that company tax measures you've proposed have the potential to slow economic growth and diminish competitiveness. How do you prevent that, and how do you answer their concerns?

LEIGH: Patricia, I'm not sure why it ought to cost jobs to say to firms that their debt deductions in Australia can't be bigger than their overall group owes to third parties. It seems like a reasonable rule, and certainly it's a rule that the OECD has recommended in a recent discussion paper. The G20 has talked about debt deductions, and indeed when he gave a $1.1 billion tax break back to multinationals just after coming to office, Joe Hockey promised to put in place a targeted anti-avoidance provision. Of course, he then backflipped on that. We've heard a lot of rhetoric from Joe Hockey but we haven't actually got any meat. We haven't seen any measures that add to the budget bottom line. That's why Labor has taken this very unusual step, in the first half of this parliamentary term, of putting a costed plan on the table.

KARVELAS: I understand the savings in your plan come from the changes to thin capitalisation; Treasury has said previously that this is unimplementable – what have you changed about this that makes it suddenly implementable. 

LEIGH: We're tackling the same problem that we were looking to tackle in the last term of government, but using a different measure. Certainly the challenge of debt shifting is one that everyone recognises, and frankly I was a bit bewildered in Question Time today to hear Joe Hockey effectively suggest that companies should be able to load up as much debt as they like in Australia. The current rule that Labor intends to apply exists in the tax laws already alongside two other rules: an arbitrary debt-to-equity ratio and an arm's length test. We're proposing to remove those other two tests so there'll just be what's known as the world-wide gearing ratio that applies. I'm talking a lot about one element of the package here, but there's other work on hybrid mismatches, data matching and tax office compliance. All of the package has been costed by the Parliamentary Budget Office and it is grounded in the international literature. We're acting on this, the G20 is acting on this, the tax office is doing its compliance work. I just can't work out why the government is standing in the way.

KARVELAS: Well, the reason the government is raising concerns is that they say the Treasury is advising them this will cost jobs, and that companies will move their business overseas. So it will cost Australian jobs, it will cost growth. If that's a risk, certainly you'd be concerned about that, wouldn't you?

LEIGH: Patricia, we need to have a level playing field. I'm really troubled by a situation in which Australians firms that don't have an offshoot in a tax haven aren't able to compete with multinationals that do. I'm happy with multinationals coming to Australia, I'm an economist and a free-trader, I understand the benefits of jobs and growth that multinationals bring. But I don't see why those firms ought to benefit from tax breaks or get away with effectively testing themselves against the rule-book rather than against their competitors. 

KARVELAS: You're on RN Drive, where my guest is Shadow Assistant Treasurer Andrew Leigh. Andrew, aren't you risking getting big business offside, given that they've come out today – these big umbrella groups like the Business Council of Australia – and they've said they're concerned. Don't you risk getting them offside and doing exactly what you did with the carbon and the mining tax – having bruising fights with big business on these proposals?

LEIGH: Patricia, I've consulted extensively on the broad issues of multinational profit shifting. I've given a number of speeches large and small on this issue. I understand the importance of making sure that our tax rules are right. But I've also sat down with executives who are deeply troubled by the current state of affairs. There's companies which are concerned that their competitors have loopholes to exploit that they cannot. I'm yet to hear anyone tell me why debt deductions for an Australian arm of a multinational ought to go to a much higher ratio than the company's overall debt that it owes to third-parties.

KARVELAS: But tax crackdowns like this only work if countries are all working together, otherwise big businesses can just go to other countries where they can exploit loopholes. They basically shop for the best jurisdiction. Why are you suggesting Australia move unilaterally rather than working in the G20 space and all together?

LEIGH: I don't think doing something to close our own loopholes ought to preclude us from working on the international stage. When Labor was last in office we put together a $4 billion package to tackle multinational tax avoidance; the government is pursuing three-quarters of that package. So they themselves have acted, just not to the full extent that I would have liked them to. I want Joe Hockey not to come out and say that there's somebody who is unhappy about this, but to say that Labor's proposal is unfair and here's why. I'm yet to hear him explain that candidly and clearly.  

KARVELAS: Well he has said Treasury's advice is that this will cause all sorts of problems in terms of investment and growth. He's citing Treasury, and I know that you respect the public service for its independence – don't you believe Treasury?

LEIGH: If Joe Hockey wants to table some Treasury advice on Labor's proposals, I'd be very happy to have a look at that. 

KARVELAS: Andrew Leigh, be careful what you wish for because he might! Are you saying that Labor is willing to re-look at its policies if Treasury does formally warn you that this policy will cost jobs?

LEIGH: I don't believe it will cost jobs. In fact, I believe our policy is about laying a level playing field. Don't forget that we need to raise revenue from somewhere. Joe Hockey's alternative is slugging Australians with less funding for states and territories, with a new fuel tax, putting in place a GP tax – although who knows what the fate of the GP tax is today, it might change tomorrow – cutting the pension, cutting health and education.

KARVELAS: So this is about the optics? You're putting out this policy now because you want to have a fairness argument. You're showing that you want to tax big business rather than people at the lower end. You keep comparing the taxes that they have on the table and this new one that you're putting on the table – you're trying to bring back a fairness argument. Is that what you're trying to do?

LEIGH: Patricia, I believe passionately in fairness. I wouldn't have written a book on inequality if I didn't think fairness was fundamental to who we are as Australians, and that it is a value which needs to flow through into our public policy. This is about both fairness between firms and individuals, but also fairness between different firms. As Bill Shorten said in our press conference, it's not obvious why James Hardie should be able to claim tax breaks that James the carpenter can't. We need a system which works for everyone. I believe that Labor's engagement with the policy process shows that we're going to be defined by the power of ideas. We really do care not just about putting down broad markers, but about going to the trouble of putting a specific, Parliamentary Budget Office-costed policy on the table.

KARVELAS: Thank you so much for joining me on RN Drive.

LEIGH: Thanks Patricia, really enjoyed it.

ENDS