The Lowy Institute analysis 'Making the Most of the G20', which argues the G20 should be at the centre of Australia's approach to economic engagement, explores many of the themes that will be aired in this debate.
Sitting alongside some of our key economic partners at the G20 finance ministers and central bank governors meetings, and IMF and World Bank Spring meetings, I was reminded how Australia’s place in the world economy is truly remarkable. We have a relatively small population (53rd in the world, ranking us somewhere between Madagascar and Cameroon), we are one of the world’s most geographically isolated countries, and yet we have the 13th largest economy and play a critical role in the global economic architecture. The Australian footprint is strong, with investments around the world worth around $2 trillion. Foreign investment in Australia is at a record high of $3 trillion.
Despite being relatively small and remote, we are leaders and partners alongside the world’s largest economies. In global forums, where the challenges of an unsettled present and an uncertain future loom large, we have a seat at the table and a voice in the conversation, not only because of the size of our economy but also because of our strong economic policy record.
Our agenda for the April Spring meetings covered the global economic outlook, including the ambition of raising collective G20 GDP by an additional two per cent by 2018, the risks facing the global economy, and ways to strengthen the global financial safety net and reform the IMF. But one of the most pressing topics of discussion (inside and outside the meeting rooms) was the recent release of the Panama Papers, which raised questions about international tax evasion and avoidance arrangements, and the capacity of authorities to monitor and act on such activity. As the world’s attention was caught by what these papers revealed, there was a particular onus on the world’s finance leaders to respond.
Importantly, Australia had already acted, taking a lead role in developing measures to improve tax integrity across the globe during our presidency of the G20 in 2014 and in partnership with the OECD. We championed the joint OECD/G20 project on Base Erosion and Profit Shifting, known as BEPS. The project is primarily aimed at preventing multinationals from artificially shifting their profits away from where they are earned to lower-taxing jurisdictions. Potential revenue losses from BEPS alone have been estimated at between US$100 billion and US$240 billion annually around the world — or between 4% and 10% of global corporate income tax revenues. [fold]
Given the Australian Government has led the crackdown on tax avoidance, I was well placed to argue strongly in Washington that global efforts toward cooperation and transparency must be implemented and better integrated.
There was a firm consensus that collective action was needed. This was a promising sign but the focus turned to ensuring countries that have signed up to tackle tax avoidance can act quickly, and put the right systems and processes in place. This included one commitment, by all jurisdictions, to follow through on the common reporting standard for the automatic exchange of tax information.
Australia had already fulfilled our commitment. with the Turnbull Government putting the common reporting standard into law in March 2016. We have turned our attention to helping other countries in the region to implement the standard. The finance leaders also agreed to identify and consider action against non-cooperative jurisdictions that are not making progress. It is simple; the more jurisdictions that implement a common reporting standard, the greater the level of global transparency and the ability for tax authorities to ensure taxpayers pay the right amount of tax.
Australia also argued for greater standards on tax transparency, standards that all jurisdictions should apply. The Turnbull Government is committed to greater transparency, including through publishing the ATO’s corporate transparency reports in December 2015 and March 2016. These reports disclosed details of Australian public and foreign owned companies with total income of $100 million or more and Australian owned private companies with total income of $200 million or more. This is further evidence of the Government’s commitment to tax transparency.
The government has also taken steps to further bolster Australia’s anti-avoidance laws. Last year the government passed legislation to help target multinationals that use complex arrangements to avoid tax by booking revenue offshore; doubled the penalties for companies that engage in profit shifting or transfer pricing schemes; and implemented the OECD’s Country-by-Country reporting and new transfer pricing standards. In this year’s budget, we announced the introduction of a diverted profits tax which is also aimed at multinationals that shift profits offshore; a 100-fold increase in the maximum penalty for failing to lodge tax documents on time; and a doubling of penalties for making false or misleading statements.
Australia now has the toughest anti-avoidance laws we have ever had and some of the strongest in the world. We also have the greatest capability we’ve ever had to detect evasion and avoidance, with tax exchange arrangements with over one hundred countries and targeted resources in the Australian Taxation Office in the form of a new Tax Avoidance Taskforce. Again, we have found ourselves leading the way and helping to set the global standard.
There’s no question Australia benefits from our global economic engagement, but on the other hand we do have a lot to offer. Our economic experience and credentials, as well as our drive and pragmatism, help us play an important role on the world economic stage. It is a role the Turnbull Government takes seriously and will continue to play to ensure that Australia continues to be a global leader, upholding tax integrity, and combatting tax evasion and multinational tax avoidance.
Photo: Getty Images/Darrian Traynor