Joe Hockey (North Sydney, Liberal Party, Treasurer) Share this | Link to this | Hansard source

by leave—

Introduction

If we are to unleash the productive capacity of Australia's economy, create new jobs and unlock innovation, foreign investment is essential. That is why this government welcomes foreign investment. As we have said many times before, Australia is open for business. But opening our doors to business also means ensuring that multinational companies pay tax in Australia on the income they earn here.

As the Prime Minister and I have both previously said, you should pay tax in the country where you have earned a profit. That is not just an essential tax principle; it is rational and fair. Of course, most businesses do comply with our tax laws. But there is a small proportion of multinational businesses that set up sophisticated arrangements to avoid Australian tax. This is patently unfair—unfair on the Australian taxpayer and unfair on local businesses that are doing the right thing.

This government will not stand idly by while this is happening, and we are firmly committed to ensuring that Australian tax is paid on profits earned in Australia. That is why we are taking action on three fronts by: implementing effective domestic policy changes, collaborating with and through the Commissioner of Taxation to strengthen administration, and pursuing multilateral international change.

Australia's integrity rules and legislation

Australia has a robust and sophisticated set of laws that deal with aggressive tax planning and international profit-shifting. They ensure that our tax system has integrity. These laws include specific provisions covering transfer pricing rules, thin capitalisation rules, controlled foreign company rules and general anti-avoidance rules.

I am advised that they are amongst the strongest anti-avoidance laws in the world. But the government is acutely aware of the need to stay alert to constant changes in financial arrangements used for tax minimisation across the global economy. Our actions underscore our strong commitment to making sure that multinational companies pay the correct amount of tax in Australia on the income they have earned in Australia.

When we came to government just 12 months ago, we immediately dealt with 96 announced but unenacted tax measures with one dating as far back as March 2001. The government methodically worked through this backlog and in December last year, after an expedited consultation process with tax experts, facilitated by the board of tax, we announced that we would proceed with 37 measures, including some with amendment. We decided not to proceed with 55 measures on the basis that some were redundant, some were just too complicated to be complied with and some policy announcements were simply unable to draft in legislation.

As honourable members know, the House of Representatives currently has before it legislation that tightens the rules governing thin capitalisation. There is further legislation before the parliament that will prevent multinational companies using hybrid financial arrangements to circumvent the proper application of our thin capitalisation rules. This is a flaw that is been in our laws for more than a decade. I note that the previous government recognised this and announced its intention to address the issue.

This government is now building on the previous government's work and is legislating to fix thin capitalisation rules, by making sure that repayments of interest to companies in Australia from overseas subsidiaries are subject to tax even when they are dressed up as dividends. These amendments are due to take effect from 1 July this year.

The previous government announced several other measures without properly considering the full impact of the changes on Australian companies. One flawed proposal repealed section 25-90, which enables companies to claim interest deductions on investments in their overseas subsidiaries which produce exempt dividend income. Soon after the election, the government was told that this measure would impose extra costs on Australian businesses seeking to expand offshore and those already operating offshore, by denying legitimate business deductions for interest costs on their borrowings. Increasing taxes on Australian businesses seeking to expand into new markets is poor public policy.

Australia's tax administration

Good policy and robust legislation requires the support of well-resourced and skilled tax administrators. We are working with the Australian Taxation Office to create the best tax administration system in the world. The Australian Taxation Office has extensive investigative powers and can take appropriate measures to ensure that multinational companies operating in Australia are not just complying with our laws but also paying their fair share. I have asked the Commissioner of Taxation to double his efforts in this area by undertaking more extensive inquiries and audits of multinational companies considered a risk to Australian tax collections.

Australian consumers often pay much higher prices compared to United States consumers for identical IT hardware, software, music, games, sporting equipment and fashion, to name a few. Members would also be aware of media reports detailing that some companies selling these products pay little tax in Australia, despite their products selling for much higher prices in Australia than elsewhere around the world.

Part of the commissioner's efforts will be examining whether these are location specific profits being generated and then shifted out of Australia. In such cases, Australia's transfer pricing rules could apply to determine whether the appropriate amount of profit from Australian sales was booked to Australian operations. These rules, of course, are based on the OECD's internationally recognised transfer pricing rules. I have also asked the commissioner to double his efforts in applying our rules so that his officers are able to look at these price differences to ensure that profits earned in Australia are taxed in Australia. Combined with our strengthened transfer pricing rules, the commissioner's proactive agenda will provide greater integrity to our tax system and help us collect the right amount of tax.

Global Action

The third area we are taking action on is on the international front. International cooperation, of course, complements both our robust domestic laws and our administrative efforts to counter international tax avoidance.

The ATO has placed greater emphasis on its cooperation with other tax authorities. We now have a significantly improved understanding of international tax planning arrangements, where the risks lie and there is better targeting of compliance activities.

As you will know, I am meeting other G20 finance ministers in Cairns in two weeks time. Along with other parts of the G20 agenda, we will be discussing the progress of the G20's work on tax reform and we will be undertaking further work to accelerate global integrity measures. The G20's tax agenda responds to international concern about the ability of multinationals and high-wealth individuals to avoid or evade their tax liabilities. The G20 is committed to making our international tax system fairer for all countries, whether they are fully developed economies or not. The G20's tax agenda focuses on addressing base erosion and profit shifting—known as BEPS—tackling tax avoidance and promoting tax transparency and automatic exchange of information. It is getting strong technical assistance from the OECD, but it is a fully inclusive work program involving the 20 largest economies in the world. It was endorsed at the 2013 St Petersburg summit and significant progress has been made. An important theme for our upcoming meeting in Cairns will be tax transparency and information exchange. When tax authorities provide better information on individuals, as well as the global operations of multinational companies, that data becomes a powerful tool to crack down on tax avoidance.

I have further promoted the work at G20 finance ministers' meetings in Sydney and Washington this year. Australia is now a leader in exchanging information with other countries. This involves transmission of individuals' information on financial accounts and income to other tax authorities where they are resident. Currently, the tax office automatically sends information to around 40 countries and it receives information from around 20 tax authorities. I can advise the House that a new common reporting standard for the automatic exchange of information was endorsed at our G20 finance ministers' and central bank governors' meeting in Sydney in February. This is a single global standard for the collection and reporting of financial account information on nonresidents. This will result in a large increase in the amount, accuracy and comprehensiveness of financial information exchanged between tax authorities. It will help the Commissioner of Taxation to identify and catch tax cheats.

We will detail our implementation plan for this initiative, along with other G20 countries, at the upcoming meeting in Cairns in two weeks. Australia will not be alone in moving to this new global standard. More than 60 other countries and jurisdictions have committed to doing the same, including Luxembourg, Switzerland, Singapore, the British Virgin Islands and the Cayman Islands. This exchange of information will catch hidden assets and undisclosed income. Under this government we have provided Australians with a one-off opportunity to disclose those assets held offshore, without severe penalty. Accordingly, I encourage Australian residents with offshore investments to take advantage of the ATO's voluntary disclosure initiative, Project DO IT. They should now come forward and disclose unreported foreign income and assets before the end of this calendar year. I will say that again: now is the time to report assets held offshore by Australian residents before the end of this calendar year.

At Cairns the G20 will also ensure progress on the OECD base erosion and profit-shifting action plan. We are halfway through an ambitious two-year program to update international tax rules for the 21st century. The action plan is aimed at ensuring that international tax rules keep up with advances in multinational companies' business models, such as greater use of intellectual property, information technology and integrative global supply chains. The OECD has developed a comprehensive 15-point action plan that includes articulating the challenges of collecting tax on the digital economy and developing responses to these. At Cairns we will review the work to date, which involves progress on country-by-country reporting of tax information by multinationals, assessment of harmful tax practices and responses to business use of hybrid-funding instruments to avoid tax. The OECD has advised me they have made progress on all 15 action items and that Australia continues to lead the global response to tax base erosion and profit shifting, as G20 president.

As I have made quite clear, the government is absolutely committed to a fair and efficient taxation system. We are determined that multinational taxpayers will not be able to avoid their Australian tax obligations by shifting their international profits to low-tax or no-tax jurisdictions. We already have strong domestic laws and an active, effective tax administrator, who is working with other tax administrators internationally to put together the global picture of these multinationals. We will continue to monitor our domestic laws. We will introduce new laws, if necessary, in response to the changing international economy and will make sure they remain effective in countering arrangements designed to shift profits out of Australia. Our leadership role in the G20 tax agenda demonstrates just how determined we are to maintain the integrity of our tax system. In its role as G20 president this year, Australia has taken the lead in global efforts to address international profit-shifting arrangements.

I thank my fellow finance ministers in the G20 for their cooperation, particularly over the last few weeks, in this area. That leadership will continue well into the future and over the next few weeks in the lead-up to the leaders' meeting in November, finance ministers will continue to meet—in Cairns in two weeks and again in Washington a few weeks after that and then again in Brisbane in November—to deliver real progress in ensuring tax evaders are caught, wherever they may be located.

I present a copy of my statement and I ask leave of the House to move a motion to enable the member for McMahon to speak for 15 minutes.

Leave granted.

I move:

That standing and session orders be suspended as would prevent the member for McMahon speaking in reply to the minister's statement for a period not exceeding 15 minutes.

Question agreed to.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

The Treasurer in his ministerial statement outlined the principles as to why tackling tax avoidance is important, and he is right. He talked about the importance of foreign investment in Australia's economy. He is also right about that. I have made very clear Labor's approach to foreign investment, being in favour of foreign investment, and I have outlined publicly how I would have taken a different approach to the Treasurer on some key foreign investment issues that he has had to deal with in his time as Treasurer.

Tackling tax avoidance is, of course, the right thing to do. We need a government which can fund important investments in the future. The fact of the matter is that the Australian government will always need to tax to a certain level. The fact of the matter is that, if some people are avoiding tax, it simply means others are paying more. That is simply a matter of fairness. Businesses, whether they be big or small, domestic or international, should all be paying their fair amount of tax. This is a matter of competitive neutrality. Tackling international tax avoidance is about being fair to all businesses. It is a pro-business approach. So we agree with the principles outlined at the beginning of the Treasurer's statement. I do have to say, though, that I am disappointed that the statement did not contain much more substance than it did. I had thought, when I heard the Treasurer was going to bring down a ministerial statement today, that it would include some announcements, some steps forward. Unfortunately, it did not. There were 2,000 words, but very little action. In fact, the Treasurer and this government have not been proactive when it comes to improving our response to tax avoidance, unlike the previous government.

The Treasurer said in his remarks that we have a robust and sophisticated anti-tax-avoidance regime. Again, he is right, but that is due in large part to the actions of the previous Labor government. I want to take this opportunity in the House to pay tribute in particular to the former Assistant Treasurer of Australia, David Bradbury, who, under the member for Lilley's leadership, led the way in ensuring that we have what the Treasurer called a robust and sophisticated anti-tax-avoidance approach by reforming part IVA of the Tax Act—the anti-tax-avoidance section. So important and so good was Mr Bradbury's work that, after leaving the parliament, he has been employed by the OECD to lead the OECD's work on tax evasion. The Treasurer referred to strong technical support from the OECD. That technical support is being provided by the former member for Lindsay, David Bradbury, which shows just how well-regarded he is on an important international stage.

In the 2013-14 budget, Labor enacted a comprehensive package to reduce profit-shifting and multinational tax avoidance: addressing aggressive tax structures that seek to shift profits by artificially loading debt into Australia; better targeting of resource sector concessions for depreciating assets to support genuine exploration; improving the integrity of and ensuring better compliance with the foreign resident capital gains tax regime; closing loopholes in the offshore banking unit regime and the consolidation of the business entities regime; preventing sophisticated investors from engaging in dividend washing; and increasing ATO compliance checks on offshore marketing hubs and business structures. All these measures put together improve the budget bottom line by more than $5.3 billion. I need to say that, unfortunately, on coming to office this government decided not to proceed with important measures at a cost of $1 billion. I note that the Treasurer referred to this in his ministerial statement.

I also note a significant change in rhetoric from him on this point. He had previously claimed that these changes were not implementable—unworkable, poorly designed. Now he says that they would have imposed extra costs on business. He changed his excuse for not implementing these changes quite dramatically. I say to the Treasurer: if you are fair dinkum about dealing with tax evasion, you would be implementing the previous Labor government's changes. You would not be walking away from them. You would not be backsliding on them. You simply would be implementing them and you would, of course, have our support to do so. The chamber is sometimes asked, 'Where is the bipartisan approach?' If you had a bipartisan approach, we would congratulate you for implementing those changes if you had done so. You have not done so, and so we criticise the government for that.

On the matter of implementation, as a former Assistant Treasurer, a former Treasurer and a shadow Treasurer, I fully accept that tax changes can be complex to implement, that sometimes unintended consequences can emerge after announcement and that the tax office and the Treasury can provide advice as to that, but you work those through. You do not use them as an excuse to walk away from important tax changes; you do not use them as an alibi for letting tax evasion go free. You use it as an opportunity to work with business, to work with the tax office and to work with the Treasury to ensure workable, proportionate tax laws. You do not use them as an excuse—which this government has done and which they should be condemned for doing. This comes at a cost of $1 billion to the Australian taxpayers. As I said before, the Australia government will always need to raise a certain amount of tax revenue and, if some people are avoiding it, others simply pay more—Australian businesses and individuals pay more.

I want to go to the Treasurer's comments in relation to the tax office and compliance. This is important. The tax office implementing the tax laws and assurance compliance is a key part of any government's approach. The Treasurer referred to his asking the Australian Tax Commissioner to double his compliance effort. Let me make it very clear: we on this side of the House are strong supporters of the Tax Commissioner, Mr Jordan. He is a very good Tax Commissioner, appointed by my predecessor, the member for Lilley—a very good appointment from the business community. He is somebody who understands the tax system very well as a former deputy chair and chair of the board of taxation. But let me say this as well: simply asking the tax office and the Tax Commissioner to double his compliance effort at the same time as reducing funding from the Australian tax office makes absolutely no sense at all. We asked the tax commissioner to increase tax compliance efforts as well, but we gave him the resources to do it. We increased the funding for the tax office when we were in office. Under this Treasurer, the staffing complement for the Australian Taxation Office has been reduced by 4,700 people over the next four years. That is a very substantial reduction for the tax office. I say to the House very clearly: compliance will suffer as a result. With that many fewer people working for the tax office it is inevitable that compliance will suffer.

We would support the Treasurer in his request to the tax commissioner to double compliance efforts, but we say: give him the tools he needs to do the job. Give him the resources he needs. Rhetoric is not good enough. Words are not good enough. Saying that you have asked for more compliance at the same time as reducing the resources available to the commissioner is simply not good enough. It takes more than words to beat tax evasion. Words do not beat tax evasion. Rhetoric does not beat tax evasion. Chest-thumping does not beat tax evasion. Strong laws, properly enforced—strong compliance measures—beat tax evasion. A strong tax office beats tax evasion. My colleague and friend the shadow Assistant Treasurer has pointed out consistently the folly of the government's approach when it comes to tax office funding, and it does mean that people will be getting away with tax evasion.

I also want to go to the Treasurer's comment about transfer pricing and his commentary about technology companies in particular. He pointed out that in Australia we pay more for many goods, most particularly in relation to information technology—although he did point out other areas quite validly as well. This should come as no surprise to the House, because some people have been talking about this for some time. The leader on this particular matter has been the member for Chifley, who is at the table. He has been pursuing this matter aggressively and appropriately on behalf of Australian consumers, through his work on the House of Representatives Standing Committee on Infrastructure and Communications. Working with the member for Wakefield, the chair of that committee, he conducted a very good inquiry with the other members. The committee handed down its report a year ago. While it did go to tax evasion—it was not their remit—it did go to this issue, and I call on the government to take that report seriously and to examine its recommendations very seriously. A year has passed and nothing has happened. Australian consumers deserve better than that.

The Treasurer talked of the OECD and the G20 process—again appropriately. It is important that we work together with our like-minded nations, and good progress has been made. On tax information exchange there has been remarkable progress, I think, over the last six years. Countries which would not engage in tax information exchange now do—countries in our region; countries which could have been regarded as tax havens now exchange information with the Australian tax office. This has been a bipartisan effort. I was dealing with it when I was Assistant Treasurer, many years now, through the OECD. My successors in the former government did, and I am sure that will continue under this government.

The role of Australia as chair of the G20 is important. Of course, the G20 is actually run, in effect—some people may not appreciate this—by a troika of the chair, the previous year's chair and the incoming chair. Australia has played a role for some time in leadership in the G20, not just this year as chair and not just ending when our chairmanship ends but following on to the next year. So I would encourage the Treasurer not just to use our time as chair of G20—which is very important—but our time on the troika as being very important in providing leadership. This cannot be a 'set and forget' approach from the G20. Simply making statements and then walking away will not achieve the job. In our year as chair—which is a wonderful opportunity for the Treasurer to show that leadership—which will include next year, as it included me last year and the member for Lilley prior to that, it is very important that while we are on the troika, the effective co-chairmanship of the G20, that that work continues.

As the Treasurer said, the OECD action plan was endorsed at St Petersburg in 2013, when Mr Carr represented Australia. It was progressed at Moscow, when I represented Australia at the G20 finance ministers meeting; so this has been an ongoing process and I am glad to hear that the Treasurer will be continuing that work in Cairns, as he should, and he will have our bipartisan support as he does so. But we do need to see concrete action. Words are not enough. We need to see much more than that.

It is important that tax evaders know that this is not something which will be a temporary approach by any one government at any particular time. It is important that tax evaders know that they cannot gain governance and they cannot wait for one government to pass and another government to come in and then they will get away with their actions. They need to know that there is a bipartisan approach to tax evasion. To the degree that the Treasurer will pursue that, he will have our support. Again, this is why I express my profound disappointment that the government has decided not to proceed with those important measures that the previous government was implementing at a cost of $1 billion. Tax evasion is not beaten by lectures. It is not beaten by simply lecturing other countries that they should better, or lecturing the parliament. It is beaten by concrete actions, which the previous government showed—at some political cost and some political risk—that we were prepared to engage in. Unfortunately, the current government has not shown the same determination when it comes to that $1 billion in forgone tax revenue, because of their changes.

We talk of budget emergencies, the age of entitlement, the need for tough decisions; there is one right there—$1 billion which could be implemented. If the Treasurer had concerns about implementation, had concerns about details, then of course the Labor Party would be open-minded about changes he might wish to make to ensure that it could be properly implemented.

Mr Hockey interjecting—

If they are undrafted, get them drafted.

Joe Hockey (North Sydney, Liberal Party, Treasurer) Share this | Link to this | Hansard source

Undraftable.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

The Treasurer has changed his rhetoric yet again. In his ministerial statement he said that they would increase the cost burden on other companies; now he says they were undraftable. No law is undraftable if you are prepared to do the work, to consult with the sector, to work with the tax office, and to work with the Treasury, it could be done. The Treasurer simply lacks the will. The Treasurer lacks the political will to make it happen. The Treasurer is strong when it comes to standing up to the weak but weak when comes to standing up to the strong. That is the fact of the matter: he lacks the will to take on tax evasion.

Joe Hockey (North Sydney, Liberal Party, Treasurer) Share this | Link to this | Hansard source

You've been praising me; now you're bagging me!

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

I have been prepared to praise the Treasurer when he has earnt it. I have been prepared to commend the Treasurer when he has done the right thing. I have been prepared to provide bipartisan support to the Treasurer on important matters. But, when he has failed, I will tell the House—and he has failed on tax evasion. He has failed by giving back a billion dollars to tax evaders. Australians deserve better. Australian small businesses deserve better. Australian businesses that are large and paying their fair share of tax deserve better. They deserve to be able to compete on a level playing field. I call on the Treasurer to give them one: give them a level playing field, give them fairness. (Time expired)