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 Opinion Pieces
 
Why we need to wind back Gillard's damaging legislation on company tax disclosure

Published: Tuesday, 16 June 2015
Author: Hon Josh Frydenberg MP
Publication: The Australian

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In 2013 the Gillard government passed a piece of damaging legislation that was opposed by the then Coalition but largely escaped the public’s view.

It requires the Australian Taxation Office to publish the total income, taxable income and tax payable of all companies — public and private — with Australian income greater than $100 million.

Gillard’s law was a breach of faith with the Australian community and contradicted repeated Labor commitments to protect confidential taxpayer information.

It also ignored the concerns of key stakeholders, went against international best practice and will have damaging commercial and reputational ramifications for the individuals involved.

It seems that the only reason Labor sought to act was because of pressure from the Tax Justice Network and its strong union membership led by the ACTU, AEU, NTEU and Victorian Trades Hall Council.

Ironically, these unions enjoy an exemption from income tax.

What is clear from the Tax Justice Network’s submission on the legislation is that their primary focus was on the “public transparency of the tax affairs of multinational corporations”.

Significantly, tax commissioner Chris Jordan has said, “If you look at the history of the matter, it was really for multinational companies operating here”.

In light of this, the Abbott government has released for public comment draft legislation which will exempt around 820 Australian-owned private companies with income above $100m from these disclosure laws.

There are four good reasons for doing so.

First, there is a fundamental right to confidentiality.

As former assistant treasurer Bill Shorten told the parliament: “The taxation law has long recognised that such protection is fundamental to ensuring that taxpayers maintain their confidence in the operation of the tax system.”

A point reinforced by the OECD’s own Guide on the Protection of Confidentiality of Information Exchanged for Tax Purposes, Keeping It Safe, which says, “Taxpayers need to have confidence that the often sensitive financial information is not disclosed inappropriately.”

It must be understood that this information Labor now wants made public is already in the possession of the ATO.

Its release to a wider audience will not in any way enhance the ability of Australian tax authorities to collect additional revenue.

Second, releasing this information will neither better inform the public or enhance the quality of debate.

Instead, it will create confusion as it will only provide a misleading and incomplete indication of a company’s tax position.

For example, the public will not have any idea about the legitimate deductions or costs incurred by a company in earning the reported income or the large number of state taxes it pays including on its payroll and land.

Third, much of the disclosed information is commercially sensitive and by virtue of its release could disadvantage the company.

For example, a company which sells to only one or two major customers could find that the information is used to work out its profit margins, putting it in a weaker position during price negotiations.

In the words of one of Australia’s best known food manufacturers, details such as their total income and tax payable are “not otherwise available to our competitive suppliers which has the potential to be used in a manner that will cause real financial damage to our business”.

Four, we should not trivialise nor ignore the reputational or personal safety concerns should this confidential information be made public.

In Japan, where they had a similar disclosure regime for public and private companies, it was abandoned in 2005 after a recommendation from the Japanese Tax Advisory Commission, which found that there were “various reports of the disclosure being a factor in causing crimes and harassment”.

While the Labor Party now seeks to downplay the concerns by pointing to the publication of the BRW Rich List, they fail to understand that it is different.

One cannot compare a magazine’s best estimate of someone’s wealth to the release of detailed official tax payer information by the ATO.

Once this information is in the public realm, it will only fuel the politics of envy and be socially divisive.

No doubt this is why comparable jurisdictions like the US and Canada have not gone down a similar path.

Like so much of the legislation passed by the previous government, these tax disclosure laws will, unamended, have significant adverse consequences.

This is why a diverse and long list of highly reputable groups, including the Law Council of Australia, the Tax Institute of Australia, the Institute of Chartered Accountants and the Australian Industry Group, were all highly critical.

This broad opposition was best summed up by the independent not-for-profit Rule of Law Institute of Australia, which labelled the legislation “oppressive, unjust and inequitable” and a breach of fundamental rule of law principles.

Strong ground from which to reverse Labor’s ill-conceived and damaging legislative overreach.

Josh Frydenberg is the federal Assistant Treasurer.

 

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