The New Zealand public want action on multinational tax dodging, and the Australian Government is showing the way, with their Budget announcement of a diverted profits tax, more commonly known as a Google Tax.
This tax is aimed at cracking down on multinational corporations that are paying little to no tax by shifting their profits to countries with lower tax rates.
The tax works by creating an incentive for corporations to declare their profits in the countries where they do business by applying a higher tax rate to profits which have been diverted. In the UK, for example, diverted profits are taxed at a rate of 25 per cent while the standard UK corporation tax rate is 20 per cent. The UK "Google Tax" acts as a 5 per cent penalty to discourage businesses from diverting their profits abroad.
Yesterday, the Australian Government showed that unilateral action to stop multinational tax dodging is possible. As Australian Treasurer Scott Morrison said, "Those seeking to do the wrong thing will be left with no doubt that deliberate tax avoidance and evasion will not be tolerated." New Zealanders want similar decisive action from our Government.
Along with the Google Tax, last night's Budget gave the Australian Tax Office more resources to deal with corporate tax avoidance. Stronger protections for whistleblowers who expose tax avoidance are also part of the Australian approach to combating the issue. Together these measures are expected to raise an additional A$3.9 billion ($4.2 billion) in revenue over the next four years. As in the UK, Australia is targeting large multinationals, with the new tax applying only to companies with global revenue of more than A$1 billion and Australian revenue of more than A$25 million.
We know the Government has taken advice on implementing a similar tax in New Zealand. On March 29, in response to a question in the House, Revenue Minister Michael Woodhouse said that the Ministry of Finance was getting advice on whether to implement a diverted profits tax in New Zealand. This came in the wake of a Herald investigation that found the 20 multinational companies most aggressive in shifting profits out of New Zealand paid virtually no income tax, despite recording nearly $10 billion in annual sales to Kiwi consumers.
Last week a nationwide poll showed more than two thirds of New Zealanders are concerned about multinationals not paying their fair share in tax and want the Government to take action to stop corporate tax dodging. On Friday, ActionStation released UMR polling data showing 69 per cent of New Zealanders are concerned that multinational companies are organising their finances so they pay tax in countries with very low tax rates which means in turn they pay very little tax in countries like New Zealand, where they do business. This is much-needed money that could be going to our health and education systems.
The Government has said this problem needs to be solved at the international level, with Woodhouse asserting "the OECD is the best place in which to have that analysis". Clearly there is an essential role for an international response to this problem, but New Zealanders also expect to see leadership on this from our own Government.
Tax expert Sol Picciotto has observed that the UK's decision to take unilateral action despite OECD efforts to address this issue suggest they think OECD efforts may fail, or that the likely outcomes may not suit the UK.
The time has come for the New Zealand Government to take similar action to close the profit-shifting loopholes that these corporations are exploiting in our country.
The poll also asked how people think our Government is doing tackling the problem. More than twice as many respondents said they think the Government is handling the issue poorly (39 per cent) than those that think it is handling it well (14 per cent).
ActionStation members are calling for the Government to follow Australia - and the United Kingdom's - lead and bring in a diverted profits tax to counteract the arrangements used by large multinational corporations that result in the erosion of the NZ tax base.
With Budget 2016 looming, people want to know whether this Government will act in the interests of ordinary New Zealanders by acting to close these tax loopholes, or will they allow multinational corporations to continue to get away with cheating New Zealanders of essential tax dollars that we badly need to fund basic social services, or to meaningfully tackle child poverty in our country.
Marianne Elliott is co-founder of ActionStation, a member-funded campaign for a fairer society.
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