“Australia does not have a spending problem, it has a revenue problem and it must be fixed,” says the Tax Justice Network in a report released today on corporate tax practices.
Tax Justice Network is a group of aid and church-based organisations including Anglican Overseas Aid, the Uniting Church, Caritas and World Vision Australia, advocating for a fairer tax system. It says communities are paying the price of corporate tax avoidance.
The report, in collaboration with United Voices, reviews the tax practices of ASX-listed companies and the tactics they use to legally reduce their tax bill to less than the statutory corporate tax rate.
While the corporate tax rate is at 30 per cent, the effective tax rate of ASX 200 companies over the last decade has been 23 per cent, the report found. Had corporations paid the statutory rate, the report says annual government revenue would have had an additional $8.4 billion to spend on services.
In a year that has focused on cuts to government spending, the report suggests more attention should be paid to government revenue and ensuring the statutory corporate tax rate is enforced.
“It’s a fairness issue,” says Mark Zirnsak for the Tax Justice Network. Mr Zirnsak also works for the Uniting Church’s justice unit and with Christian advocacy group, Micah Challenge.
“But ultimately this is also about what kind of society we want to live in. As Christians, we are called to care for our neighbour, and that means the vulnerable in our community.”
Mr Zirnsak says you could ask any church agency working to provide community services like emergency housing and food assistance or mental health support whether they need more resources and they’ll tell you, “There’s grave need”.
“Clearly, this is a good reason to care about those who aren’t paying what they should under our tax system,” he said.
The report comes prior to the November G20 meeting in Brisbane, where tax avoidance is set as a key focus.
“As the current president of the G20, Australia has a responsibility to meet local and international expectations for serious reform to the global tax system,” says the report.
It also states the practices of Australian multinationals can have global implications. “Tax revenue lost in developing countries due to multinational corporate tax avoidance far exceeds all global spending on foreign aid.”
“The Australian Government must lead by example and change domestic tax laws, increase enforcement and mandate greater corporate transparency and disclosure.”
Earlier this month, Treasurer Joe Hockey announced Australia will implement the automatic exchange of information on tax matters, as part of a new global standard. It is one step in the right direction, according to Mr Zirnsak.
“Sharing information automatically between tax authorities will make it harder for companies to shift profits and count on one tax authority not knowing what another knows,” he says.
Micah Challenge also welcomed the Treasurer’s announcement, but said there was still much to be done.
“Multinational corporations should be required to publish accounts that outline their operations, income, expenditure, taxes owed and taxes paid for every country in which they operate. This will allow for governments to better hold multinationals accountable for paying their fair share of tax, and citizens would be better able to hold governments accountable for using this tax revenue to reduce poverty,” said John Beckett, national director of Micah Challenge.
The report today also called for multinational corporations to report financials on a country-by-country basis.
“So, if a company was to say we have a subsidiary in the Cayman Islands and it’s got two employees and is making 50 per cent of our profits, and there’s no business activity going on in the Cayman Islands, it’s going to be pretty obvious that that corporation’s operations aren’t quite right,” says Mr Zirnsak.
The report estimates that, in the last financial year, $47 billion flowed from Australia to “secrecy jurisdictions” (tax havens).
“The frequent use of subsidiaries in secrecy jurisdictions in combination with the shifting of debt and profits is resulting in lost tax revenue in Australia and overseas where it should be paying for essential services to help lift people out of poverty,” says Mr Zirnsak.
“There are positive steps being taken by the G20 to address tax avoidance, but more needs to be done to ensure Australia leads by example and Australian companies contribute their fair share.”