One of the issues I am very passionate about is Australia’s part in the global effort to tackle extreme poverty. Right now 1.3 billion of our world’s population live in extreme poverty, which is defined as living on less than US$1.25 a day. I support several local organisations in organising events and raising funds aimed at combating or raising awareness of extreme poverty. Some of the organisations I have worked with include A Fairer World, Results International, Oaktree, the Global Poverty Project and a variety of local schools working on antipoverty projects and campaigns.
My staff and I have participated in Oaktree’s Live Below the Line, a fundraising initiative in which participants spend no more than $2 a day on their food and drink. In fact, only last weekend I held an event in my office for Results Tasmania to support them with their fundraising. They do not receive any government funding and in Tasmania they raise $20,000 a year to help keep their organisation going.
The work that antipoverty organisations do provides a valuable supplement to Australia’s foreign aid contribution. There are two good reasons for Australia to provide overseas development assistance. The first is that it is in Australia’s national interest to do so. Poverty can lead to political instability which, in turn, leads to violence and unrest. Development assistance is an excellent way to promote stability in our region, not only through lifting the living standards of people in our region but also through improving our diplomatic relations with our neighbours. The second reason why Australia should provide overseas development assistance is simply that it is the right thing to do. It is the right thing for a good global citizen to do. People living in extreme poverty are our fellow humans. They are suffering and they need our help. I believe we have a moral obligation to join with other developed countries in finding sustainable solutions to the problem of global extreme poverty. However, overseas development assistance is only one weapon in our armoury against global extreme poverty.
In June this year four representatives of the Christian antipoverty lobby group Micah Challenge visited my office to discuss the grave problem of multinational tax avoidance and how it contributes to global poverty. In an increasingly globalised world, commerce and trade take place across national borders. This allows multinational companies to artificially reduce their tax bills by shifting their profits to low-taxing countries. In doing so they are taking advantage of the failure of many countries to ensure their tax laws keep pace with the practice of international profit shifting. The rapid growth in e-commerce has made keeping up with the game of international profit shifting even more difficult, because electronic transactions can take place in almost any jurisdiction.
Multinational tax avoidance is such a big problem for developing nations that tackling it effectively could possibly do more for combating poverty than increased aid contributions from developed countries. While the world’s annual aid contribution is $135 billion a year, research by the UK charity Christian Aid estimates that multinational companies cheat developing countries out of $160 billion a year in tax revenue. Let us put that in perspective. That is enough money to save the lives of 350,000 children from disease, malnutrition and lack of safe drinking water.
Clamping down on tax avoidance in developing countries is effective in alleviating poverty not just because of the amount of money directed at the task; tax is a more reliable and predictable source of revenue than aid. It promotes self-reliance and increases the accountability of governments to their own citizens, whereas aid can potentially make them captive to the interests of donor countries.
To illustrate the ludicrous outcomes that result from multinational profit shifting, the representatives from Micah Challenge who I met outlined a case study from the town of Mazabuka in southern Zambia. Caroline Muchanga operates a market stall in Mazabuka. She works 15 hours a day seven days a week and on a good day earns the equivalent of US$4. Isaac Banda, a seasonal cane cutter just outside Mazabuka, earns a wage of US$14 a day. He would need to earn about half as much again to afford basic provisions for his family of six.
Isaac works for Zambia Sugar, a subsidiary of Associated British Foods and the largest sugar mill in Africa. Zambia Sugar has recorded annual profits of US$18 million over the past five years. Despite Zambia having a corporate tax rate of 35 per cent, between 2008 and 2010 Isaac and Caroline paid more tax in absolute dollar terms than Zambia Sugar. That is because Zambia Sugar did not pay any tax at all—not one cent.
This profit shifting by multinationals is unfair not only to governments trying to collect revenue for essential public services but to ordinary workers, like Isaac Banda, who are paying their fair share of tax and to small business owners, like Caroline Muchanga, who are trying to compete on a level playing field. Being able to reduce their tax bill and avoiding paying their fair share of tax means that multinationals not only are able to unfairly boost their after-tax profits but can lower their prices, thus gaining an unfair competitive advantage against other businesses.
There are a number of clever and complex arrangements that companies have for shifting their profits from high- to low-taxing jurisdictions. One of the most common schemes is to locate the headquarters of the company in a low-tax jurisdiction or a tax haven. The international subsidiaries then pay huge sums to the head company in the form of loan repayments, intellectual property licences or management fees, effectively shifting any profits they make locally to the head company. The effectiveness of these profit-shifting schemes explains why a tax haven like the British Virgin Islands has 34 companies registered for every inhabitant.
Micah Challenge’s advocacy is part of the global campaign run by the Tax Justice Network. The Tax Justice Network has recommended three measures that are critical to tackling tax avoidance by multinational companies. These measures are: the automatic exchange of information between tax authorities in different countries; a public register that lists the owners and beneficiaries of companies, trusts and foundations; and requiring multinational companies to break down their financial reporting on a country-by-country basis. Automatic exchange of tax information is already supported by Australia, which provides information on tax matters automatically to over 40 countries and receives reports from 20 countries. Australia is well advanced when it comes to other reforms to tackle multinational tax avoidance but there is still much work to be done both in our domestic policy and in multilateral negotiations.
The upcoming G20 meeting in Brisbane is an excellent opportunity to put the topic of multinational tax avoidance and its impact on global poverty firmly on the international agenda. Having the presidency of the G20 and hosting the next meeting should put Australia in a strong position to take the leadership role on this issue. However, for Australia to take a leadership role we must lead by example. Unfortunately, Australia under the Abbott government is not moving forward on this issue but instead is actually moving backwards. In fact, as my Labor colleague in the other place and shadow Assistant Treasurer, Dr Andrew Leigh, has pointed out in various articles and speeches, since coming to government the coalition has announced that it will scrap multinational profit-shifting measures worth $1.1 billion over the forward estimates. These measures include repeal of Labor’s tax transparency reforms, which required Australia’s largest companies to disclose their total income, taxable income and tax paid. They also include not proceeding with reforms to tighten the offshore banking unit regime announced by Labor in the 2013-14 budget.
This is a government which, despite talking tough about cracking down on multinational tax avoidance, has done nothing since coming to office except water down Labor’s reforms. These are incredible moves from a government which has until recently been claiming to be dealing with a budget emergency. Surely clamping down on multinational tax avoidance is a better alternative to the cruelty of some of the Abbott government’s budget measures. Isn’t getting large multinational companies to pay their fair share of tax a far better alternative to cutting the income of families and pensioners, taxing sick people when they visit the doctor or cutting Australia’s foreign aid? Clearly not for this government, which has its priorities all wrong.
In closing I would like to thank for representatives from Micah Challenge who visited me to discuss this important issue: Cecilia Ng, Michael Coman, Alex McWhirter and Mike Hobson. I would also like to thank the hundreds of other representatives from Micah Challenge who visited Canberra to progress this important issue and the thousands of other people throughout Australia in various community organisations who are engaged in the campaign to combat global poverty. It is through the drive and passion of people like them all around the world that we have the power to end extreme poverty within a generation.