A case for a royal commission into tax avoidance

In the post-war era, Australia has held 49 royal commissions, including one into Aboriginal land rights, two into drugs, several into our national security agencies, five into trade unions and none into tax avoidance – well, not a planned one, anyway. One of the five trade union royal commissions – into the Painters and Dockers Union in the early 1980s – uncovered rampant tax avoidance implemented through the notorious bottom of the harbour schemes. More than three decades later, community trust in the tax system has again broken down.

To restore it as a basis for making the case for genuine tax reform, a royal commission into Australia's tax system is warranted. Not an accidental royal commission into something else but a purposeful, well-planned, well-resourced royal commission into the tax system.

A Senate inquiry, initially chaired by Senator Sam Dastyari and now by Senator Chris Ketter, has unearthed deeply-worrying evidence of large-scale tax avoidance by multinational corporations. Tax Commissioner Chris Jordan continues to complain about companies using "aggressive tax structures."

As the Tax Office uses legislation passed in December to go after multinational corporations using aggressive tax minimisation schemes, tax advisers are warning that some of their clients might choose not to comply ("Multinationals won't open their books to ATO", January 7). The tax office has informed them that opting to pay a small penalty for non-compliance would not be the end of the matter.

Tax Office data released for the first time late last year on 1539 large public and foreign companies operating in Australia revealed that 38 per cent of them paid no tax. Under the law introduced by the previous Labor government, the data release revealed that 45 per cent of foreign banks operating here paid no Australian tax in 2014, as did almost 60 per cent of foreign resources companies.

Of course, there can be legitimate reasons why a company pays no tax; it might have made no profit, depreciation allowances might reduce taxable income to zero and losses from previous years can be carried forward for offsetting against present-year profits.

COMPETITIVE DISADVANTAGE

But that cannot explain away large numbers of apparently highly-profitable companies paying no tax in Australia. Gerry Harvey and Wesfarmers' chief executive Richard Goyder and are among the very few business leaders to speak out against corporate tax avoidance. More should do so, if for no other reason than they will increasingly suffer a competitive disadvantage at the hands of multinational corporations operating here that domicile their headquarters in tax havens.

Labor's shadow assistant treasurer Andrew Leigh has argued that multinational tax loopholes operate disturbingly like old-fashioned industry protection. Back in the era of John McEwen's "protection all round", firms spent too much time lobbying for special protection and not enough time focusing on how to become globally competitive.

Before accusations of class envy are made against Dr Leigh's observation and the royal commission proposal, it is worth reflecting on the positive contribution of an earlier inquiry to the tax reform process. The Asprey committee reported in 1975 and its philosophy of broadening the tax base to lower the rates has guided the successful implementation of all its major recommended reforms over the ensuing decades.

A public royal commission, conducted by experts capable of cutting through the special pleading of interest groups for the protection and widening of their tax lurks, would give reform a far better chance than in the current environment of vested interest politics. Some business groups expect the Turnbull government to increase the GST rate to help pay for a cut in the company tax rate. Against the backdrop of recent revelations of large-scale multinational tax avoidance, the government asking workers to pay more GST to fund company tax cuts would be the opposition's dream come true.

A fully-fledged royal commission into Australia's tax system would build community support for reform. Meanwhile, the Turnbull government could, as a down payment and a demonstration of good faith, implement reforms in the May budget for which the case is already compelling, including to high-end superannuation and negative gearing of rental properties.

Source: http://www.afr.com/opinion/building-suppor...