One line in the Mid Year Economic Financial Outlook (MYEFO) has let multinational companies off the hook from paying the correct tax in Australia.
In 2013, as part of measures to tackle tax minimisation by global companies, the previous government signalled its intention to close the loophole with a projected benefit of $600 million to the taxpayer. Shortly after being voted into power, Joe Hockey and his then deputy Arthur Sinodinos said they would not adopt Labor’s policy, as it would require Australian companies with overseas subsidiaries to incur “unreasonable compliance costs”.
One year on at the G20, Joe Hockey announced that he would develop his own plan to end tax avoidance by introducing “a targeted anti-avoidance provision after detailed consultation with stakeholders”. But a closer look at the MYEFO highlights that this plan too has been scrapped, “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.”
Large Australian companies with operations overseas, such as BHP Billiton, benefit from the loophole, as international subsidiaries are tax exempt from overseas operations, while the interest on money borrowed to grow such operations is an allowable tax deduction.
Shadow Assistant Treasurer Andrew Leigh has accused the Government of allowing another giveaway for large multinational companies, while watching the budget deficit almost double. “Yet again the Treasurer has shown that he is happy to let big companies off the hook while hacking into foreign aid, schools, hospitals and pensions,” Mr Leigh said.
In a statement in response to questions on the issue, Finance Minister Mathias Cormann, who took over the portfolio from Arthur Sinodinos, said “no promise was broken”. “Following consultation with stakeholders and the Australian Taxation Office, it became very clear that a targeted anti-avoidance provision would be ineffective,” he said.
“It is important to remember that the proposed changes to section 25-90 were never advocated in isolation, but were part of a broader package to address profit shifting by excessive allocation of debt to the Australian operations of multinationals.
The government has implemented key elements of this package, including tightening the thin capitalisation safe harbour limits and ensuring the foreign non-portfolio dividend exemption for Australian companies only applies to returns on equity.
“As a result of these changes, all debt used to fund Australian operations, including debt used to fund offshore investments which give rise to 25-90 deductions, is now subject to the binding constraint of the thin capitalisation rules, which provide protection against abuse of section 25-90 deductions.”
Read more at SMH.com.au
The ‘he said, she said’ blame game, which has become the cornerstone of Australian politics looks set to stay, but in the interim, our economy is suffering, badly.
While the headlines scream of broken promises and backflips, the real crux of the matter goes unaddressed – how can we ‘fix’ the economy? Of course, to fix something it has to be broken and it seems Joe Hockey can’t quite decide whether the economy is actually broken. On the lead up to the May Federal Budget, we were told we were in dire straits, that our expenditure was unsustainable and we must accept cuts and tough budget measures to help return the country’s budget to surplus. Yet, on delivering the MYEFO, Joe Hockey, while advising us that the budget deficit would blow out to $40 billion, then told us not to worry as the Commonwealth budget is stronger today than it was last year,” he offered. Finance Minister Mathias Cormann echoed this sentiment by stating that “there’s much more work to be done of course, but we’re on track”.
Well, thank goodness for that.
However, what is alarming is that the work to be done will be done by those least fit and able to undertake the necessary heavy lifting. Many of the proposed Budget measures from May have yet to pass as legislation and several of these measure will take money from those who spend every cent they have to feed, cloth and provide a roof over their heads. These budget measures will cost jobs that people can’t afford to be without, and in return, will reduce the amount of money people have to spend to keep the economy turning. But everyone needs to chip in and do their bit, right?
Yet, at the big end of town no one is asking our friends BHP Billiton and Rio Tinto to hand over the tax they manage to avoid through loop holes and clever accounting. No one is asking investors to shun negative gearing and pay their fair share. No, because that would, as Mathias Cormann himself said, “be ineffective”. Really?
What is ineffective is asking those who can least afford it to bear the brunt of the budget ‘pain’ and banging heads to try and get unfair measures legislated. It’s time to stop the ‘back-flipping’ and ‘promise breaking’ and to draw a line in the sand and move forward. With five months to the next Federal Budget it’s time to accept that a strong economy is good for all Australians, from big companies to pensioners, students and workers. It’s time to stop getting hung up on delivering a surplus and to start working out how best to keep money flowing into the economy, keeping jobs in Australia and making sure everyone pays their fair share.
Should large companies get preferential tax breaks while individual Australians see their incomes cut? Would the Budget measures considered harsh be more palatable if big companies were also seen to be doing their bit?