Tax. It’s a dirty word for many.
But it’ll be on the lips of all the G20 finance ministers at this weekend’s meeting in Cairns (20 & 21 Sep), as they forge ahead with the next steps towards reforming a global tax system tied together around a multitude of loopholes.
Tax shouldn’t be a dirty word, but rather the price of our collective contribution to a fair and decent society. We all have to pay it – don’t we?
Well, that depends.
I do. You do. Small businesses do. But for a multinational business operating in a number of countries, that is an open question. There are many legal loop-holes wide open for companies to exploit in order to avoid paying their fair share.
As Apple has infamously done, multinationals have the means to shift their profits to a low-taxing country and declare their losses in a high-taxing country.
This is called ‘profit-shifting’. In Australia, Apple has managed to pay just 0.7 per cent of its turnover since 2002 by using tax minimisation strategies such as this.
Another thing some multinationals and some very wealthy individuals do is hide millions from the tax office, through the use of shell companies and off-shore bank accounts.
This ensures that such wealth goes largely untaxed and facilitates money laundering, denying government budgets vital funds that could be spent on health and education, or other investments to drive economic growth.
As an international development agency, Oxfam is concerned about illicit flows of large amounts of capital from the poorest countries.
According to Global Financial Integrity, our closest neighbour, Papua New Guinea, lost on average US $232 million a year from all forms of illicit financial flows between 2002 and 2011.
In a country where more than half of the population lives on less than US$1 a day, many lack access to basic services or transport, and large numbers of women die in childbirth, this seems like a terrible injustice indeed.
There is strong evidence that profit-shifting by multinationals to avoid paying taxes occurs more in developing countries than in developed countries.
Estimates suggest that $110 billion (US $100 billion) of tax revenue is lost by poor countries each year.
Tax-dodging contributes to the ever-growing gap between the rich and poor, a trend in developing and developed countries, like Australia.
There’s evidence that extreme inequality threatens the strength and sustainability of economic growth – a matter of concern for the G20 and its mission to boost growth.
The G20 can take a concrete step towards tackling inequality if finance ministers crack down on tax avoidance by multinationals at this weekend’s meeting.
There are some positive signs that they will agree on new measures that should require businesses to disclose their taxes to tax offices in each country that they operate.
This is a big step forward – but unfortunately we won’t get to see this information.
The G20 should go further and make this information available to the public too so that the community can see if companies are really paying their fair share of tax, and call them to account if they are not.
We know these measures would be popular. New research released this week by the Tax Justice Network shows that Australians are increasingly concerned about corporate tax avoidance and support making corporate tax in Australia more transparent.
Overwhelmingly, we think it’s time to get it all out in the open.
Another concern is that, despite recent comments from the Treasurer Joe Hockey that he wants tax reform to deliver a fair system for developing countries too, there is a risk it won’t.
This is because poor countries have so far had precious little voice in decision-making by the OECD-led process.
This seems a bit rich, given they’re the ones that bear the biggest burden of tax avoidance and have the greatest need for tax revenues.
We hope this changes when Finance Ministers consider how low-income countries can participate in the next phase of global tax reform.
As an agency that works in countries around the world to help people lift themselves out of poverty, Oxfam hopes whatever steps taken this weekend are enough to address the massive looting of budgets that for years has drained resources from those who need them most.
Finally, it’s time to fix the gaps in tax.
Jo Pride, Oxfam Australia Policy Manager
This opinion editorial was first published in The Courier-Mail on 19 September 2014.