Four years $1.9 billion lost tax
Labor plans to raise $1.9 billion from multinational businesses by cracking down on their use of debt to avoid taxes and making transparent their ties to global tax havens under a plan to be unveiled on Wednesday.
Shadow treasurer Jim Chalmers and Labor’s finance spokeswoman Katy Gallagher will also reveal plans to cut public service outsourcing to contractors, labour-hire firms and consultants by $3 billion, aiming for a 10 per cent reduction in their first year in office.
The plan, to be released in Canberra, also confirms Labor will not adopt the Coalition’s 23.9 per cent tax-to-GDP cap, arguing no Labor government has ever come close to the target, which is unlikely to be reached until next decade.
Last month’s federal budget showed a deficit of $80 billion this financial year to be followed by a $78 billion shortfall in 2022-23. Gross debt, currently $883 billion, is on track to reach $1.2 trillion by 2025-26.
Based on the Coalition’s own forecasts, the budget will remain in deficit for the rest of the decade and beyond with spending pressures growing in areas such as the National Disability Insurance Scheme, aged care, health and defence.
In their “economic plan and budget strategy”, Chalmers and Gallagher state the economy and nation’s finances need to be repaired and strengthened to deal with growing domestic and international pressures.
“As we emerge from the pandemic, Australia is unprepared for the most pressing economic challenges – rising inflation, falling real wages, and not having enough economic benefit to show for a trillion dollars in public debt,” they said.
Throughout the early stages of the campaign, Labor has stated it will tap multinationals for more tax to help pay for some of their pledges.
Over four years, it expects to raise $1.9 billion by building on already agreed principles put in place by the OECD that are aimed at protecting government finances.
Chalmers and Gallagher argue their measures address tax minimisation while also improving the budget bottom line.
They include supporting the OECD’s global 15 per cent minimum tax policy on the profits of large multinationals, particularly digital companies, limiting debt-related deductions by multinationals to 30 per cent of profits and limiting the “abuse” of tax treaties when holding intellectual property in tax havens.
The policy also includes new transparency measures around reporting requirements including beneficial ownership, tax haven exposure and connections to government tenders.
It commits to “sensible and staged savings” from outsourcing arrangements which Chalmers and Gallagher said will reduce spending by $3 billion over the next four years.
Some of those savings will be spent on an expansion of the public service with an extra 1080 frontline staff for Services Australia, the Department of Veterans’ Affairs and the NDIS.
The Coalition has attacked Labor for not adopting its 23.9 per cent tax cap which was introduced by Scott Morrison. No government since John Howard in 2004-05 has breached the cap.
Crack down
Critics say two thirds of Western Australia’s offshore gas projects still pay almost no tax and the tax office has told parliamentary inquiries that some will never be liable.
Chalmers and Gallagher will argue the cap has been breached on four occasions since Federation, all by Coalition governments.
“Labor is not attracted to the current cap and does not believe it needs to be revisited, given that both sides will not approach it in the forward estimates,” they said.
“The Morrison government is using it as a tool to distract from the fact that it is the second highest taxing government of the past 30 years, after the Howard government.”
Chalmers and Gallagher said the tax cap reflected an assumption that governments would return bracket creep to taxpayers when financial circumstances allowed.
They said this would also guide their approach to tax cuts.
“We will always prioritise working families and measures that stimulate growth in sectors that can unlock economic growth and opportunities,” they said.
Labor has also committed to an “internal audit” of what it describes as the Coalition’s “rorts and wasteful spending”. In 2013, the incoming Liberal government of Tony Abbott commissioned its audit of spending which contributed to its controversial 2014 budget.
Tycoon Tax
To encourage exploration, companies have been allowed to deduct all exploration expenses in areas covered by the Petroleum Resource Rent Tax (PRRT) regime that dates back to the 1980s.
Prime Minister Scott Morrison announced $40 million in taxpayer money
to Woodside Energy for the implementation of Carbon Capture and Storage (CCS) technology.
Last financial year, Woodside recorded a $1.6 billion profit.
CCS has widely been panned as an ineffective means of reducing carbon emissions, with the Clean Energy Finance Corporation banning finance to CCS projects as they support fossil fuel production.
A tycoon tax would end breaks for corporations profiting from Australian gas and spread the wealth among communities, under a Greens’ plan.
The Greens pledged on Wednesday to end the “brain-dead, trickle-down” taxation of oil and gas under past governments if they win the balance of power at the May 21 election.
To encourage exploration, companies have been allowed to deduct all exploration expenses in areas covered by the Petroleum Resource Rent Tax (PRRT) regime that dates back to the 1980s.
“WA is being taken to the cleaners by big coal and gas corporations, and Australians are being ripped off,” Greens Leader Adam Bandt said, hitting the campaign trail in Karratha, the powerhouse of the Pilbara.
“Woodside, Chevron and Exxon get free gas from this tax rort and then make obscene profits that they send offshore.”
The tax regime was designed for profitable and easier-to-assess oil projects, not the vast LNG fields that take longer to turn a profit but have evolved into world-leading projects wrapped in confidential long-term supply contracts.
The Greens say they would repair the “broken super-profits tax” on the profits of those operating in the Gorgon, Wheatstone, Pluto and Prelude gas fields and levy new royalties.
“Our state currently gets more revenue from car registrations than we do from the multi-billion dollar gas industry,” Greens Senator for WA Dorinda Cox said.
Revenue raised through wiping tax credits and new royalties would fund hospitals and housing, get dental and mental health into Medicare, make childcare free, raise welfare payments and erase student debt.
The federal government has tweaked the design and operation of the tax regime to fix some design flaws, passing legislation two years ago it said would rake in an extra $6 billion over the following decade.
Under the original PRRT, tax revenues were in decline because gas projects could make large losses on paper even as they were exporting gas at high prices.
Officially, the PRRT is levied at a rate of 40 per cent of a project’s taxable profit.
Woodside says it has paid more than $10 billion in Australian taxes and royalties since 2011 as one of the country’s largest taxpayers, and has shared information with Senator Cox.
In 2020, Woodside paid A$473 million in Australian company tax and a further A$234 million in other taxes and royalties, including LNG operations on the Burrup Peninsula near Karratha that support the Pluto and Xena fields.
But critics say two thirds of Western Australia’s offshore gas projects still pay almost no tax and the tax office has told parliamentary inquiries that some will never be liable.
The Greens’ plan has been costed by the independent Parliamentary Budget Office (PBO), which found it would add more than $92 billion to the fiscal balance over the decade.
Tax avoidance or tax rorts?
More than one third of Australian companies have again failed to contribute to Australia
Grovelling governments keep falling over themselves in eagerness to please their masters. What’s required is endless tax cuts and corporate welfare for the rich, either deliberately unfunded or partially funded by slashing social welfare and public program funding for everyone else.
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