On February 3, Minister for Small Business and Assistant Treasurer Kelly O’Dwyer addressed the National Press Club. In a speech full of regurgitated spin followed by blustering non-answers, Ms O’Dwyer came across as little more than a partisan party hack.
“When we came to Government, we inherited a tax system from Labor that had failed to keep pace with the changing times. Our government has changed our tax system to help it keep up – because we are absolutely committed to shutting down tax avoidance strategies used by multinationals.
That is why in 2014 we tightened thin capitalisation rules to stop multinationals claiming excessive debt deductions, so they pay more Australian tax.
That is why we introduced the new Multinational Anti-Avoidance Law to stop companies artificially structuring themselves to move profits from doing business here to low tax countries.
All up the ATO estimates that they will raise $700 million over the coming year as a result of the multinational compliance program and hundreds of millions over the forward estimates as a result of the Multinational Anti-Avoidance Law.
And yet Labor voted against the legislation that allows the tax office to target this sort of behaviour.
For all their big talk on tax – they put their base political interest ahead of the national interest.
Not only have we ensured that tougher laws are in place, but we’re ensuring the tax office has the resources to enforce them.”
Surely she jests?
Ms O’Dwyer must think political journalists, and the public, have very short memories. Considering that not one journalist picked her up on these outrageous statements, she may be right.
In the 2013-14 Budget, to tighten generous deductions available under the Income Tax Assessment Act 1997 that allow foreign-based companies to load debt into their Australia entities and then claim deductions from the tax man on the interest paid on those borrowings, the Gillard government announced the abolition of deductions under section 25-90 as part of a package to combat tax minimisation by global corporations, at a projected benefit to the taxpayer of $600 million.
Companies with significant operations overseas get a “double bonus” under the existing law, introduced by the Howard government in 2001, because dividends from their international subsidiaries are tax exempt yet the interest on borrowings used to grow overseas operations is tax deductible.
One of the loudest opponents of the plan to abolish deductions was major Liberal Party donor Paul Ramsay, now deceased, who complained it would make it more expensive for his company Ramsay Health Care to use debt to invest in Europe.
In November 2013, Mr Hockey and the then Assistant Treasurer, Arthur Sinodinos, announced they would not legislate Labor’s package, saying it would impose “unreasonable compliance costs on Australian companies” with subsidiaries offshore. Instead, they would “introduce a targeted anti‑avoidance provision after detailed consultation with stakeholders”.
That ‘detailed consultation’ led to a single line a year later in the December 2014 MYEFO:
“The government will not proceed with a targeted anti-avoidance provision to address certain conduit arrangements involving foreign multinational enterprises, first announced in the 2013-14 MYEFO.”
Mathias Cormann said “Upon coming to office, Treasury advised us that the abolition of 25-90 should not proceed. The Treasury said that to do so would result in significant increases in complexity and compliance costs. They also said it would impede legitimate taxpayer activity in investing offshore.”
That is odd considering, in 2013, Treasury said the practice of global corporations loading up subsidiaries with debt and then claiming relief from the Australian tax man on the interest paid gives an “unfair competitive advantage” over local rivals.
“When some taxpayers avoid or minimise their tax in a sustained way, the tax burden eventually falls more heavily on other taxpayers,” a Treasury issues paper found at the time.
Martin Lock, formerly head of withholding tax at the ATO, said “Cormann is effectively saying that the reason multinationals should continue to be allowed a tax-deductible claim for such attributable interest is that it would be too costly for them to work out the attributable amount, and that repealing 25-90 to end their generous entitlement to the claim would be ineffective. As a matter of both principle and evidence, the proposition is highly questionable.”
John Passant, a tax expert from the Australian National University, wrote “It is unfortunate in the extreme that the Treasurer and Treasury have listened to a group of rent seekers being unjustly rewarded by not repealing section 25-90. But since this is a government of the 1% that is not surprising and we can conclude in fact that Hockey’s bluster about addressing tax avoidance by his rich mates is just that – complete and utter bluster.”
When Ms O’Dwyer said that Labor voted against tax transparency laws, she wasn’t telling the full story.
Tax transparency laws passed under Labor, which Coalition ministers voted against, would have seen the tax details of about 1600 public and private companies with $100 million or more annual turnover published.
After complaints by private business owners that they could be kidnapped and held at ransom when people inspected their published tax information and realised how wealthy they were, the Coalition eventually, with the backing of the Greens, doubled the reportable turnover to $200 million causing the number of companies that will now be covered by the reporting rules to fall from 900 to around 300.
Multinational companies with a global turnover of $1 billion or more will have to prepare “general purpose” financial statements that disclose greater tax details. Contrary to Ms O’Dwyer’s claims to be giving the ATO the resources to enforce the law, thousands of jobs have been slashed. In order to cut costs, the Big Four global audit firms, as well as a couple of second tier players, were invited to participate in a pilot scheme that sees them doing tax compliance for their own audit clients.
Under this External Compliance Assurance Program (ECAP), the tax affairs of multinationals are policed by their own auditors, the very firms who tee up their tax haven arrangements.
It should also be remembered that the Coalition chose not to go ahead with Labor’s requirement for a 3 month log book once every 5 years for people claiming business usage for their car.
The Coalition government has watered down or abolished every transparency measure Labor tried to introduce. For Kelly O’Dwyer to claim credit for legislation to which they were dragged kicking and screaming, exempting as many people as they could on the way while passing on oversight to their private consultancy friends, is ludicrous.
When asked why, when they wanted a national conversation, they had abandoned the Green Paper on taxation reform, Ms O’Dwyer responded:
“Let me say this, I don’t think there is anybody sitting at home waiting for a green paper. What I do think they’re waiting for is they’re waiting for a very clear direction from Government on a range of issues to do with our taxation system. So we will make it very clear that our direction is going in a particular way on those range of issues. How we do that I will leave for the Treasurer to announce. This is obviously very much in his bailiwick, but I don’t think there are a lot of people sitting at home waiting for a green paper. I think they’re sitting at home waiting to see what the options are and I think there are a range of ways we can present them.”
When asked by Kieran Gilbert today, what options other than GST they had to fund income tax cuts, O’Dwyer said “Well, there are a number of options around taxation and that’s what we’re examining at the moment. And before the Budget, as the Prime Minister has said, we will be putting options to the Australian people as to what we think is the right path forward for the Australian people.”
For a government more than 80% through its term, they seem bereft of ideas. Apparently we will be enlightened sometime before the election but I won’t waste time expecting to hear anything of substance from our Assistant Treasurer who offers no solutions but a lot of ‘blame Labor’ excuses.
