Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015

Mr HAWKE (Mitchell—Assistant Minister to the Treasurer) (16:22): I rise to support the government's Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. It is a great bill that shows the government is committed to ensuring Australians have a fair and sustainable taxation system.

I was pleased to see that the member for Kingsford Smith got the memo from the member for Fraser that the opposition is indeed supporting the government's measures, as they recognise that these will add extra integrity to the Australian tax system, and indeed will provide for more revenue and ensure that there is not tax evasion by multinational companies in Australia. I do want to take up the member for Kingsford Smith on a couple of the points that he made, because I think it is important in the context of this debate to understand why it is that the government has not put a figure on the revenue to date. Not only is that the expert advice from the ATO; the approach of the government has been to have the ATO working with the multinational companies and working with the government to ensure this legislation has been drafted correctly and ensure that we meet our international obligations under BEPS with the OECD on base erosion. All of that process has meant that we will not make fanciful claims about the amounts of revenue that the government is seeking to get from these changes to this law. I think it is fanciful for the opposition to say it would be $7.1 billion, given that they will not release any of the assumptions made or the modelling relied on to make that claim.

So it is just like it was with the MRRT, and I was stunned to hear the member for Kingsford Smith mention the dreaded MRRT, the minerals resource rent tax—a tax that was implemented by Labor in government that did not actually raise any revenue—as an example of anything that Labor would be putting forward. Really that shameful episode ought to be put back in the drawer and never mentioned or heard of again. This parliament and this country would be better off if we never heard about the MRRT, that foolish proposal, ever again.

It does go to show that they may not have learnt the lessons here: that you do not make overinflated and hyperventilating claims about the amount of revenue you are going to book in the budget. The budget line item in relation to this measure, which comes into place on 1 January 2016, does not have a figure attached to it at this point in time because that is the expert advice—that it is very difficult to assess exactly how much revenue will be raised by the measures that are proposed in this bill. That does not mean we should not proceed with them. That does not mean that we should not listen to all sides of the debate here. The government has said on many occasions: if the Labor Party has amendments that they wish to put up in relation to this legislation, they should put them forward. The government has said that, if there are loopholes that Labor believes it can help close that will deliver revenue, and if there are shortfalls in the tax system, we are prepared to consider those sorts of proposals. So I do think it is odd for the opposition to say that they will book $7.1 billion in revenue without being willing to say: 'Here are the assumptions; here is the modelling; here is exactly how we believe it can be done.' I think everybody who would consider this matter, given that they would not release those figures, would come to the same conclusion—that you really could not claim anything like that, and you really could not claim that of course you could produce that revenue. And I think that is the case. I think when you hear members of the opposition talking about terms like 'super profits' again—and we heard that return to the Rudd era: 'super profits'—you kind of get the sense that they are missing the point about the significance of these measures to combat multinational tax avoidance that we have here.

There are several schedules here that I think are relevant to this debate. We have the multinational anti-avoidance law in schedule 2. In schedule 3, we have stronger penalties, importantly, penalties being a significant part of the government's agenda in relation to combating multinational tax avoidance. In schedule 4 we have country-by-country reporting, which of course is critical when you consider what the OECD is doing in relation to base erosion; that reporting is absolutely vital for different tax jurisdictions to share and to consult with each other on to ensure that tax is booked in at least one jurisdiction.

The schedules that the government has put forward in this bill make sense. They are good measures. So it is welcome that the member for Fraser and the opposition have come on board because, working with the OECD, it is essential that immediate action is required so that the Australian tax system is fit for purpose—fit to deal with the most egregious tax avoidance arrangements, recognising some of those things.

So, while I accept some of what the member for Kingsford Smith says about the rate of multinational tax avoidance and while we want to make these changes to ensure that more tax is paid here in Australia where profits are booked, he did of course then move on to a typical Labor agenda of conflating the income tax system with the company tax system and tried to convey to people that the PAYG system is somehow related to the rates of company tax and that there is some one per cent or something he was talking about, versus the effective 21 per cent of income tax providers.

I think it is important to remind people at this juncture that we are not a competitive tax jurisdiction internationally at this point. We are not competitive on income tax levels. But we are also not competitive on company tax rates, and this is a dual problem. While it is very important to bring down the rates of tax for income pay-as-you-go earners, it is also important to clearly articulate in debates such as this on multinational tax avoidance that we are talking about the design of our laws for a new phenomenon in world history—that is, the multinational and the international nature of the jurisdictions, given the digital age and the new era that we live in. I am talking about company tax which is just as high and just as anticompetitive for Australian companies as it ever has been—in fact, 30 cents in the dollar is a very uncompetitive rate, given all of the comparable economies in our region, and, indeed, that is why the government has moved to lower the small business tax rate to 28.5c, and that is a welcome step by all my colleagues in ensuring the company tax burden is reduced, because, by reducing the rate of company tax and the company tax burden on small businesses, we will create more jobs, more prosperity and of course deliver a stronger growth in our economy, which will deliver more revenue.

But in particular this bill is about producing more revenue from multinational tax avoidance, and I want to commend the former Treasurer and our current Treasurer for the work that has been done here that is ahead of what has been happening in the OECD, but also in sync with what is happening in the OECD, and I think it is important to remember that the measures in this bill will only apply to large multinationals with annual global revenue of more than $1 billion. That is why I think the member for Kingsford Smith fails when he talks about super profits—he is talking about companies that are under $1 billion—and says that somehow they are super profitable or that we should be doing more in this space, when we have a very high rate of company tax.

It is not responsible for a national government in this time, in this era, in the climate that we find ourselves in, in the competitive nature of that digital age that we live in, to be talking about super profits and tax. We know that global growth is on a trend downwards. We know that China's growth is on a trend downwards. We know that we have to compete not just for foreign investment; we have to compete for brains, for people and for people wanting to establish their businesses—for start-ups and venture capital. That is why the Prime Minister is so focused on running the economy and the government of the 21st century. It does require laws such as this—multinational tax avoidance laws—but it also requires an understanding that high rates of tax, uncompetitive rates of tax, both company tax and individual tax, make our economy less attractive to that international flow of capital, that international flow of ideas and that international flow of people and brains that Australia must be in the hunt for if we are to replace the loss of revenue in commodity prices and in particular in iron ore. That is why I welcome the measures.

I think it is important to talk a little bit about what we are doing in schedule 2 with the multinational antiavoidance law. For significant global entities with revenues above $1 billion—and it is estimated that about 1,000 companies will need to consider these rules—our approach has been to have the ATO working with each of the multinational companies to ensure that we can bring in the revenue. We do not necessarily take the stick approach in full swing to these companies without allowing for a change in the law and allowing them to comply with the new law, recognising that with most of the arrangements there has been a failure in legislation and a failure of parliaments to legislate fast enough for a changing and emerging economy rather than illegal behaviour. That is something that emerged from the Senate inquiry in this area. If you are considering this matter, it is important to understand that the stronger penalties regime will of course mean that the government does have a stick in relation to this and we are significantly strengthening the stance against tax avoidance in the legislation. The bill doubles the maximum administrative penalties that can be applied by the Commissioner of Taxation to large companies that enter into tax avoidance and profit-shifting schemes. It will deter multinationals from entering into contrived tax avoidance and profit-shifting schemes. Deterrence is a key element, as we have recognised in the past, in the fight against tax avoidance behaviour.

You might also know that the government has made changes to the thin capitalisation rules, understanding that the nature of the economy is changing and those thin capitalisation rules reflect a pretty deep understanding by the government of the nature of modern arrangements and structures. Combined with those measures, you will see the resources that are dedicated to tax minimisation and opportunities to avoid tax through the offshore activities and larger potential gains that were there. The stronger penalties will help deter any major taxpayers from taking aggressive tax positions, given the government's approach.

Recognising that tax is a very complex area, particularly in Australia, if there is a reasonably arguable position then they will not be affected. That is an important part of the government maintaining confidence in our economy and the way our laws are designed and constructed. There are those who have sought to do the right thing, have obtained the right professional advice and can reasonably argue their position in a multinational context, understanding that the world and the economy are different than they were even five years ago. It is a recognition that tax law does not always provide certain tax outcomes—something that we have failed to grasp from the opposition time and time again.

Returning to my earlier points, I am glad to hear that the opposition will be supporting the government on these measures. That is welcome. As I said earlier and as I think the Assistant Treasurer said earlier today, we welcome any idea that the opposition might have for an amendment or a tax loophole that could be closed. We will consider those ideas in the context that they are put forward. If they are positively framed, if the opposition genuinely believes there is opportunity for billions of dollars of revenue to be recovered in a legitimate way from multinationals, then the government certainly wants to hear about it and will work with the opposition in that regard.

It is, however, a misnomer for the government to repeat the mantra that there is a figure of $7.2 billion available to the government when they will not release any of the assumptions or any of the modelling and will not discuss how they arrived at that figure. We have heard this all before when Labor has talked about the revenue that they can make from a tax. The member for Kingsford Smith spoke about the minerals resource rent tax—the single greatest example of tax design failure, arguably in world history, not just in Australian history. It is the single greatest failure in tax design by the Australian Labor Party—a new tax on a 'super-profitable mining sector', in their words, that did not raise a single cent in revenue. It is obviously a tax design failure. So we certainly will not listen to the architects of the minerals resource rent tax in designing our bill to combat multinational tax avoidance, but we will accept any idea and will consider it carefully in the context that it is put forward. That is a good approach from the Turnbull government.

This is a serious issue and the Australian government has moved in a serious way to ensure that we have fair and sustainable tax system. We have some of the strongest integrity rules in the world and we have changed some of those rules in relation to critical areas, like thin capitalisation. We know that some multinationals are structuring to avoid Australian tax by booking revenue from Australian sales offshore. That is why the government is adopting the measures that are in this bill and that is why the government will continue to work with the OECD and will continue to comply with the base erosion and profit-shifting program of the OECD. In particular, there is schedule 4—country-by-country reporting—which ensures that we are working and cooperating with every international tax jurisdiction, especially within the G20, to ensure that nobody is evading tax by jurisdiction-hopping. That is another worthwhile measure in this bill.

That is what it is all about: well designed tax laws that prevent tax evasion and profit-shifting offshore, recognises that Australia has a lot of work to do in the taxation space, both in the individual income tax space, where our rates uncompetitive, and in the company tax space. We still have one of the highest rates of company tax in any comparable economy in the world. That is something that we do need to look at and it is something that, over time, we need to ensure reduces so that we can be internationally competitive. In relation to this bill, I strongly recommend it to the House. I welcome the opposition's support on this important measure. This will be good for Australia and good to work with our OECD friends to ensure that tax evasion is reduced.