Multinational tax avoidance a threat to budget bottom line:Leigh

The federal budget bottom line could be irreparably damaged if multinationals and large businesses continue to use “dodgy” behaviour to avoid tax,the assistant treasury minister will warn as the government readies new laws to publicly embarrass companies into paying their fair share.

Andrew Leigh will use a speech to the OECD on Thursday to reveal the October budget will contain details of thegovernment’s planned overhaul of multinational company tax,including its extension to large businesses tendering for substantial government contracts.

Assistant Treasury Minister Andrew Leigh he will argue that ensuring multinational and large businesses pay their fair share is pivotal to funding services to ordinary voters.

Assistant Treasury Minister Andrew Leigh he will argue that ensuring multinational and large businesses pay their fair share is pivotal to funding services to ordinary voters.Alex Ellinghausen

Labor went to the May election promising minimal adjustments to tax except around multinational companies. It plans to raise $1.9 billion from 2023-24 through changes including limiting debt-related deductions to 30 per cent of profits,reducing the use of Australian tax treaties where a business holds intellectual property in a tax haven and changing reporting requirements.

Leighwill tell the OECD’s international tax forum it is estimated between $500 billion and $600 billion in corporate tax revenue worldwide is lost every year as profits are moved through low or no tax jurisdictions.

With company tax accounting for 19 per cent of the nation’s revenue base,he will argue that ensuring multinational and large businesses pay their fair share is pivotal to funding services to ordinary voters.

“In Australia,as in many other advanced countries,the corporate tax is under pressure. Debt-shifting,royalty payments and tax havens pose a challenge to the ability of countries like Australia to use company taxes to fund vital social services,” he will say.

“What’s at stake here is nothing less than the future of the corporate tax itself. I believe it is good economics to save corporate tax,but it will take deft policymaking and proper tax administration to do so.

“It threatens to disturb the economic equilibrium of our society when our wealthiest companies refuse to pay their share.”

This week,shadow treasurerAngus Taylor signalled the Coalition may consider reforms to the tax and welfare system to reduce high effective marginal tax rates for those who receive government payments.

In a speech to the Centre for Independent Studies on Tuesday,he said the Coalition was committed to a 23.9 per cent cap on tax as a share of GDP while accusing Labor of planning tax increases in future budgets.

Anthony Albanese has been accused of failing to rule out tax rises as the Labor leader unveiled his multi-billion-dollar plan to improve aged care.

Leigh will reveal the government’s tax changes will include much more transparency around significant global businesses,publicly listed companies and those that tender for large government contracts.

He will argue that improving multinational tax transparency will increase public pressure on companies to pay their share of tax and level the playing field for local firms competing against overseas businesses that are gaming the international tax system.

“Among the shenanigans we’ve seen are shell companies created in low or no tax jurisdictions,allowing multinationals to funnel huge profits into secret locations where they have zero employees and no physical office,” he will say.

“The government’s focus is to invite a behavioural change among large and highly profitable corporations about how they view their tax obligations,including their decision-making around tax planning strategies.

“Enhanced public scrutiny of tax information will help provide the community with a better understanding of how much tax multinationals pay relative to their activities.”

Treasurer Jim Chalmers will on Wednesday release the final budget outcome for 2021-22,which is expected to confirm a near-$50 billion improvement in the$79 billion deficit forecast by former treasurer Josh Frydenberg in March.

Much of that improvement is due to higher prices for commodities such as coal,iron ore and oil.

The government was expecting to raise a record $111.5 billion in company tax last financial year,but the figures to be released on Wednesday will show much higher collections.

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Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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