Multinational tax avoidance risks losing citizens’ trust, says Joe Hockey

Multinational tax avoidance risks losing citizens’ trust, says Joe Hockey

G20 working on ‘important reforms which will significantly improve the integrity of the tax system’, Australian treasurer says

The Australian treasurer, Joe Hockey, has warned that citizens will lose trust in the legitimacy of their governments if multinationals are allowed to avoid paying their fair share of tax.

On the eve of the G20 summit in Brisbane, civil society groups called on leaders to make strong commitments to close loopholes that enabled corporations and wealthy individuals to use tax havens.

Tax reform advocates have pointed to the leaks about companies’ minimisation strategies involving Luxembourg as evidence of the need for strong and urgent action.

Hockey said the G20 was working on “important reforms which will significantly improve the integrity of the tax system”.

“It’s not just a matter of economic equity that everyone should pay their fair share,” he said.

“It’s a vital component in people believing and trusting in the legitimacy of their governments. Why should any citizen feel respectful or loyal to a system of government, or be a genuine participant in building a better society, if they feel that they are expected to shoulder burdens which others avoid?”

Hockey said the G20 was halfway through delivering the two-year base erosion and profit-shifting action plan, which would “address circumstances where multinational companies pay little or no tax”.

He said the G20 was also working on the automatic exchange of tax information, using a common reporting standard, from 2017 or 2018 to ensure individuals were no longer able to hide their offshore income from tax authorities.

The treasurer was speaking on Friday at a G20 side event, the Labour 20 summit of union leaders. Hockey promoted the G20’s push to boost global economic growth by an additional 2% by 2018, saying this would create millions of jobs.

“The most important thing governments can do to enhance individual dignity is to provide opportunities and create the environment in which anyone who can work is able to get a productive job,” he said.

The head of the OECD’s centre for tax policy, Pascal Saint-Amans, said “very good progress” had been made on automatic exchange of tax information and efforts to address base erosion and profit shifting.

He said the latter initiative was aimed at “putting an end to double non-taxation”. This is a reference to companies exploiting the principle that the same profits should not be taxed twice in two countries.

Dr Mark Zirnsak, from the Tax Justice Network, said the OECD should be “sticking with the G20’s aim of ensuring taxes are paid where the real business is occurring and the value is created, and not a shift to simply saying profits have to be taxed somehow”.

“We want to be sure that the country that’s providing all the infrastructure and support to the business is the one that reaps the reward by being able to collect the tax,” he said.

Friederike Röder, who represents the anti-poverty organisation One, called for publicly available reports of companies’ key financial information.

The Financial Transparency Coalition said developing countries were losing vast amounts of money as a result of money that was illegally earned, transferred or utilised. “While the G20 may represent 85% of the global GDP, financial transparency standards adopted in Brisbane cannot forget the world’s poorest countries, whose economies are losing billions to illicit flows each year,” it said.

The Civil 20 (C20), which comprises representatives of civil society organisations, urged G20 leaders to commit to promoting “inclusive growth” in the communique to be issued on Sunday. As reported by Guardian Australia, civil society groups are concerned that a draft of the document omitted previous references to the term.

Tim Costello, chair of the C20 and chief executive of World Vision, said inclusive growth was about fairness. He said the test of the pledge to add 2% to economic growth was whether it flowed to the bottom fifth of income-earning households in each G20 nation.

“We think there has been a contest around this because ‘inclusive’ and the word ‘inequality’ is seen by some as too left wing, too bleeding-heart and, this is an economic focus forum, but we think we’ve had an impact in seeing that word ‘inclusive’ reappear in some of the earlier drafts,” Costello said.

The chief executive officer of the Australian Council of Social Service, Cassandra Goldie, said governments must maintain adequate safety nets, including for people who find themselves out of work. She also called for “proper investment to stimulate jobs growth” and ensuring education access for disadvantaged people.

As world leaders continued arriving in Brisbane, two other G20 spin-off groups promoted their plans for action. The Business 20’s recommendations included drawing up long-term infrastructure plans, reviewing financial regulations, and reforming the labour market to make it more flexible.

The Youth 20 called for strong action to address youth unemployment, saying one in six young people around the world were not in employment, education or training.