Topics: Corporate tax avoidance, RET, superannuation, pensions.
E&OE…
David Speers
Good evening, welcome to the program. Well, how much is enough to retire on? Perhaps more specifically, how much should taxpayers support in the way of retirement income. There’s been a lot of debate this week about multinational corporations dodging tax, however the reality is that real budget repair isn’t going to come through tightening those rules, it’s going to come through reining in what is sometimes called middle class welfare. It is the superannuation tax breaks, the assets and the assets test for the pension that are now squarely in the Government’s sights.
Joining us tonight, Senator Ryan, he is the Parliamentary Secretary for Education and Training, former New South Wales Liberal Leader, Kerry Chikarovski, former Labor adviser, John Whelan and Labor MP and former Speaker of the House, Anna Burke. Welcome to you all.
I want to start on this issue of retirement income which the Government is now getting stuck into, and presumably we’ll see something before or in the Budget on this. Senator Ryan, do you think if we start with superannuation, for example, there is a problem with the tax rules at the moment?
Senator Ryan
Well, I think that we need to take into account a couple of factors. I think that the first point that we have to make is that those who have made plans for their retirement under rules that were in place at the time, I think that we do need to respect that. It is very difficult to change rules effectively, retrospectively for people that have set up retirement income streams and based their plans around laws that are in place.
Speers
But are you talking just about those who have retired? Or… (interrupted)
Ryan
Yes, I’m talking about those who are currently retired. I think that we do need to consider changes or policy proposals in the context of changes for those of us who are yet to retire…
Speers
So you quarantine those who are (inaudible)
Ryan
Well I think that we don’t make them effectively retrospective. With superannuation there has been a lot of misleading discussion. The Greens and some in the Labor Party have been running around with the Treasury’s tax expenditure statement saying that there’s $32 billion of tax forgone, for example, in superannuation concessions. That is simply not true, even in that document the Treasury makes clear that would not collect anything like that amount of tax if the rules were changed. The tax expenditure statement is not something that says: this is how much revenue the Commonwealth’s giving up. It just doesn’t work that way, people would restructure their affairs. And in fact some have said that you would actually collect dramatically less if you changed the rules, and I think we’ve got to start from that point.
Speers
Sure. But you’d collect something, you may not collect the full $32 billion or whatever the tax break is because you’re right, people do change their behaviour, but there is clearly some ground to be made there.
Ryan
Let’s also remember that we don’t have a choice, particularly those of us who aren’t on either the old politicians’ or judicial schemes where our retirement’s guaranteed; that doesn’t apply to me. I’m not criticising those people, but the Government does force us to give up part of our income that we can’t use today for everything from buying a house, to paying the school fees, to living expenses. And it has always been taxed concessionally, reflecting the fact that the Government’s forcing you to give up your income now; and I don’t think anyone would suggest that we, except the Greens perhaps, that we don’t tax superannuation on a concessional basis.
Speers
Anna Burke, do you agree with that? Do you believe that there’re too many generous rules at the moment around superannuation?
Anna Burke
Well one of the difficulties is that the Government, when it came into power, actually took away one of the concessions that would help people in their retirement, the co-payment for low income earners, and have now frozen the rate at nine percent which everyone will tell you isn’t enough to retire on. So unless you’re topping it up yourself, and a lot of people can’t as we’ve said – because they’re trying to buy homes in the Sydney and Melbourne market, and you know if you’re trying to give away more of your income towards super. So, we all know at the moment if you’re just doing nine percent, it’s not going to be enough for retirement. When we first introduced pensions, when we first introduced super, people were retired for fifteen, twenty years tops. Now people are retired for thirty, forty years. The Intergenerational report, the wonderful brand new document which just mirrors what Costello did fifteen years ago, we’ve known we’ve got this problem of people needing to have retirement income. So we need to deal with it, we need to deal with it sensibly and rationally. And I agree entirely, you can’t keep changing the rules. Both parties actually went into the last election saying that we’re not going to mess with super, we’ve got to have a system where people know how to invest and you’re going to have something to retire on. But there are too many concessions at the top of the tree, and the people down the bottom are missing out and we need to work those through sensibly. And I think Labor is very committed, we’re the party that introduced compulsory super because we recognised, as Government in the long run, we’re not going to have enough of a tax base, because of our aging population, to give everyone a pension, and you’ve got to be self-funded in some respect. But some people, and certainly this generation of retirees, aren’t. They haven’t had enough money so we can’t penalise them, we’ve got to look at it rationally, sensibly. But you know, somebody who is sitting on $100 million in super, why are the taxpayers giving them a break?
Speers
Well there probably aren’t too many on $100 million in their super, but there are about a hundred thousand that have $2 million or more. Kerry Chikarovski, there are two ways to pay tax, the tax that you pay on the way in when you’re contributing during you’re working life, and then the taxes that you pay or don’t pay…
Kerry Chikarovski
…when you’re taking it out to live on. Look I think that we have to be really careful in this debate because if we only focus on that group, we will lose the greater argument; and the greater argument is that we have to incentivise people to look after themselves when they retire. Now, how you do that I will leave to greater minds than mine to actually work out what the incentives need to be to encourage people, because to be perfectly honest if you had $2 million in super now and retired, living for the next thirty years, you’re probably still going to run out. I mean that’s the reality, you could easily run out if you lived for thirty years with $2 million in super. So we need to be very conscious of the fact, as Anna has just said, that people as they retire now…I mean I can’t imagine how anyone would think that retiring at fifty five is a good idea these days, because you’re going to have a very long time which you’re going to have to look after yourself. But if you are going to retire at fifty five, then you are going to need a substantial amount of money to live comfortably for thirty years. So be very careful about how you discourage people about acquiring a $2 million balance. Now, I know that there not a lot of people who can do that off the top of their head, working people, but one of the things people talk to me about is that you do get those sudden bonuses when you get to fifty, fifty five; and I hate to say it, it’s because your parents die or whatever. And rather than blowing it on whatever, a holiday, there should be incentives so you can put that into super, so you can look after yourself when you’re a lot older.
Speers
John Whelan, what do you think is the answer here to reining in benefits, tax benefits, for the wealthy?
John Whelan
Look, I think we have to do it. Notwithstanding what Scott just said, there is a sustainability question on the tax concessions, because under the current rules the cost to the taxpayer has blown out by about twenty five percent in five years. So, the cost projected for this year is about $30 billion, sorry $40 billion up from thirty five years ago, up from $30 billion five years ago, that’s a lot. But also, I also really agree with Kerry as well that superannuation has worked, it’s been very successful for this country. And indeed, one of the reasons that our pension is actually sustainable, as a proportion of GDP, is because superannuation has incentivised people in the right way. But, it’s not calibrated right… (Interrupted)
Speers
But is that born out of the number of people relying on the pension? Has that come down?
Chikarovski
To be fair, my generation – which is considerably older than your generation – my generation are the generation that started to think about these things. So, it’s the Baby Boomers. If the Baby Boomers are able to look after themselves in retirement, then there is a substantial impact on the pension (inaudible)
Burke
If you think about it from ’87 when compulsory super came in, so that’s when the majority of people, up until then it was really only public servants or bank employees who had it. So, at the moment you can’t measure it but it is probably from the next five years on, where more people will have the super to retire on – it won’t be enough actually to live the thirty years, but more and more are going to be there. So, we’re in that period now where we really need to get the numbers right.
Speers
So, John, what do you think there answer is then? Where would you target
Whelan
I think the answer is a lot of hard work over the next number of years; the best actuary we can and understand the relationship between superannuation and the pension because we don’t want to incentivise people in a way that causes us problems with pension in the out years. I think the tax concession needs to be reduced, but let’s figure out what the beset level is because it’s a price signal; it’s ultimately a price signal.
Speers
What’s the best way of tackling this do you think?
Ryan
I also think we’ve got be careful about all that talking about people with a million or two in super. We have an incredibly progressive tax system in this country, so if we just look at income tax. The top two percent of taxpayers pay more than a quarter of all income tax.
Speers
But it’s not progressive for superannuation?
Ryan
No, no. But my point is that when we talk about the people with $2 million in super, or even $1 million in super-which as Kerry rightly pointed out is not necessarily going to sustain people until the end of their life when they retire even at sixty or sixty five-these are people who are often already closer to the top end of the income stream. They’re already paying a large amount of tax. The top quarter of taxpayers in Australia pay more than two thirds of all tax. The top two percent, less than three hundred thousand taxpayers actually pay nearly twenty percent of all tax; that’s three hundred thousand Australians out of nine million taxpayers. I think we need to have a discussion about: how much do we expect, how progressive do we expect our tax system to be? It is already highly progressive, but we’re talking about… (Interrupted)
Speers
I mean when you talk about our progressive tax system, with superannuation for example, someone earning a million dollars through their working life, you know a high income earner, pays fifteen percent on their contributions. Someone earning only $50,000 also pays fifteen percent.
Ryan
And under Labor’s changes, of course, after you hit a certain balance in your superannuation you pay a higher degree on your earnings; but you’ve also got to remember that the people who save, save other people who can’t save. So, you need to incentivise those who can save in order to do so. Anna mentioned the fact that we stopped, or delayed, the superannuation guarantee from nine and a quarter to twelve. The reason, one of the reasons to do that, is to, as Ken Henry said: when you force people to have higher superannuation contributions from their employer that means lower wages. Ken Henry was quite explicit about that when he recommended against it. It doesn’t help people at that lower end of the income spectrum to say that we’re going to make you struggle now in order to hope that you’re a bit better off in thirty or forty years.
Speers
So why is the Government going to proceed with this at all?
Ryan
Well this started as a discussion about the biggest challenge the country still faces, which is that of Budget sustainability. We inherited a disaster which saw deficits as far as the eye could see, so we had a proposal in last year’s Budget to change the indexation rate, that hasn’t gone through the Senate, so now the Government has made clear that we’re going to look at alternatives.
Speers
Sure, but based on your arguments, should we get to twelve percent compulsory contributions at all?
Ryan
I think when the Budget can afford it, because it does come at an immediate cost to the Budget. But we do actually also need to understand that it comes at a short to medium cost to the employee, because they’re not going to get as high wage rises, and this is the very reason that Ken Henry said that he doesn’t support, in the Henry tax review, going to twelve per cent.
Speers
Now I want to talk about the pension, as well. ACOSS, the peak social welfare lobby, has looked at the assets test in particular. At the moment you can have your own home, which isn’t part of the assets test and can be worth as much or as little as it is. And then on top of that a couple can have $1.1 million in assets before you lose the pension all together. ACOSS have come in and said $800,000 would be more appropriate. I guess you’d save $20 billion plus over the decade if you did that. Anna Burke, do you think that’s a good idea?
Burke
Well again, I think that we’ve got to look at all these measures sensibly and within a sustainable way, and again not to traumatise people who are there, in the system at the moment. But, yeah there is a whole lot of people who are getting a part pension who probably don’t need it. Originally when the pension was introduced everybody got it. I can still remember to this day my grandmother getting it and us sitting around and thinking: why would you give it to our grandmother living in Brighton? Sorry, and then they took it off her and she noticed no difference. So from a tax base, you’ve got to go where the best bang is for our bucks? Taxation is about civilising our society; it’s about supporting those who can’t look after themselves, particularly those who are older. And if you can look after yourself, that’s what you should be doing. So we should be setting up a sensible super system so we actually have that, so less and less people are relying on the pension. But we shouldn’t have this downward envy that I’m missing out, that I’ve paid my taxes all my life. Yeah, but it’s not a saving mechanism; it’s a mechanism to provide something for those who can’t supply it for themselves.
Ryan
One of the things though, that our country creates that incentive, is access to things like health concessions and energy concessions and they’re very black and white. So if you access a health concession, for example, you get you prescriptions at five dollars. Then, I think, after a couple of dozen or twenty eight you get them for free. If you don’t get that, you might be a couple of thousand dollars over the limit, you then suddenly go to a thirty eight dollar co-payment…
(Interjection)
And I think in a lot of areas in our welfare system, over the years inadvertently, we’ve built up these quite big thresholds where there’s quite a big jump between qualifying and not qualifying. And I think, my personal view is, that over the medium term if we look at some things like those, particularly from my generation because I’ve got time to plan and I have a relatively good income and I have time to save, and I think that is something we can do for future generations in particular.
Burke
That’s why you need the twelve per cent, though. That’s the argument for why you need the twelve per cent. With compound interest, you need to do it when you’re younger, not when you’re older, and that’s what everyone misses out on.
Ryan
But if you’re living week to week like people I know, and you’re struggling to pay the mortgage or don’t have a mortgage, and you’re being told all of a sudden that you’ve got to sacrifice another three percent of your income. That might be the only wage increase you were expecting over the next few years, and that’s going to be put aside for you in thirty or forty years trusting that a future government’s not going to tamper with the rules again. I actually think that’s an issue because we’re taking income off people, a lot of people who need it.
Speers
Well, Kerry, just back on the pension though. As a couple, with their own home and about a million in assets, do they need a part pension?
Chikarovski
I think you’ll have to exclude their own home. I mean I don’t think that comes into it David because, I think with older people in particular, it’s the emotional attachment to that house which keeps them there. I mean a lot of… (Interrupted)
Speers
I agree largely that’s probably true, but are there some cases where it might actually trap people in a home they don’t want or need?
Ryan
What traps people at home, and I know this from my own family, what traps people at home in a city like Melbourne, it will cost you $60,000 in stamp duty and moving costs to move…(interrupted)
Chikarovski
I actually had that as a policy when I was Leader of the Opposition which never went public, which I said we should abolish stamp duty on people downsizing.
Speers
If you’re getting older and rattling around in the big family home, you’re not going to sell it because if you do, and downsize to a townhouse or whatever, because if you do then suddenly you’d lose your pension…
Chikarovski
Well, that’s partly the reason because that’s exactly what happened to my father when he sold his big house, because he suddenly had cash, and he went and bought an apartment but his pension was impacted…(interrupted)
Burke
I’m not sure that that stands up any more in Melbourne or Sydney, and prices in my neck of the woods, a Labor seat, median house price $1.3 million. If you want to stay within the suburbs that you know and love, and your family, your doctor and your friends are there downsizing isn’t actually a cheap option. Even to buy into …
(Inaudible)
But even just the house prices at the moment, so I think it’s not as straight forward as people make out. I’ve got a lot of pensioners who are, what I say is metro Melbourne, asset rich and cash poor. There’re sitting in a house in Oakleigh that they bought for next to nothing and suddenly it’s worth a fortune just because prices have gone up so much.
Speers
So if you keep the house out of it, that’s not counted towards you assets test. What then about what you’ve got in super or elsewhere?
Chikarovski
I think your question just raises the whole issue that you can’t actually look at these things in isolation. You can’t actually say that we’ll tinker with the pension here and we’ll tinker with superannuation here. You actually have to take a long term view. You have to take into account the people who are already within a system, and you say we’ll quarantine them. But in future, what we’re going to do, holistically looking at both of them, because to tinker with one or the other without getting an outcome which we’re looking for twenty or thirty years, which is basically what we need to do at the moment. We need to address your Budget issue, we need to address your fairness issue. We actually need to say that the system we’re looking at now, hopefully with bipartisan support, would actually set this country up and its citizens for the next twenty to thirty years. Now, I can’t say you take this bit out of the pension or throw this bit into super, I think the whole debate needs to be done holistically.
Speers
There are two ways, John, of approaching the pension issue. There’s the assets test and whether you bring that back from $1.1 million or the deeming rate, and the Howard Government in its last year or two in office essentially made it a lot more generous, the deeming rate which tapers out what pension you’re going to get based on the assets that you’ve got. Is one better than the other here in terms of approaching this?
Whelan
I like the ACOSS proposal, which is essentially the former; I think that works better. I think it targets the right group and it’s certainly superior, David, to the indexation changes that were being suggested in the last Budget that were knocked over in the Senate because that targeted every person.
Speers
Well, even the most vulnerable pensioners on the full pension.
Whelan
That’s right. So I agree with Kerry, look at holistically that the ACOSS proposal has merit because it does target precisely the right group. At the moment, the proposal that was defeated, thankfully, targeted everybody, and that’s why ACOSS and combined pensioners and superannuants groups were so negative about it. That was a bad idea and I’m glad that’s been defeated.
Speers
So it sounds like there’s agreement that there needs to be an overarching pensions, super, retirement income. What is the best way to do this? I mean, is it the Productivity Commission? Is it a parliamentary committee? What’s the best way that’s actually going to, because I get too that bipartisanship’s important on this, people want some certainty regardless of which side’s in power. Because you are making some long term decisions here. Who’s best to look at all of this?
Ryan
My personal view here is, and this is well outside my portfolio, is that we have to give people some certainty and that’s why I started with idea of giving people time to plan, but to a certain degree quarantine those who have already planned and made entirely legitimate decisions. Look at what is the incentive for people with particular pensions or particular qualifications. I mean, I’ve heard a lot of stories in my office about things like access to pharmaceutical benefits and bulk billing. Is there something that can be done in that space, but you can also address the pension space? People were once critical of the Howard Government accessibility to that with the Seniors’ Health Care Card, but that could actually be a very successful way to remove the incentive to jump on pensions. Look, I think politics has changed a bit, so I think you’re going to have to have a multi-pronged approach which will include elected representatives and experts. I don’t think there’s the one track policy any more of sending it off to just a White Paper process or just a Productivity Commission. When we’re looking at generating wide community consent and trust for long term reforms, I think you need to involve elected and expert representatives.
Chikarovski
And I’ve sat at this table a number of times with you, David, and as far as I can recall this is the first time that we’ve actually got both sides of the table agreeing that we need to have an approach that is sustainable in the long term, and both sides of the House actually want to come to a conclusion about this, they want to work together. So I think whether you have, I don’t know if the Productivity Commission is exactly the right group, but because I do think there is some politics around this as well and I don’t know if they are actually going to consider the politics.
Speers
Sure there is politics around it, and you make the point that we’re hearing broad agreement on the need to make change – but ultimately when you do it you do get to the politics of it. We’ve seen the Prime Minister saying Labor just wants to grab taxes on this, you’ve seen Chris Bowen and others on the Labor side continuing to rail against the Government’s proposed changes from last year on the pension; clearly Labor doesn’t want to let go of that. The politics could well stymie all of this in the end.
Chikarovski
I think that the Australian community will be very jack of that, because you’re talking about a very large cohort, like the whole voting public will be affected by this eventually.
Burke
And I think that the difficulty with the Budget issue about the indexation of the pension, again it was out of nowhere. There was no discussion about it, then suddenly pensioners, over the long term, are going to be $80 a week worse off. They know that, the budget papers say that, don’t think this group of people aren’t savvy.
(Inaudible)
Speers
The Government still hasn’t actually dropped that policy.
Ryan
No, no. but I think it’s also important to remember that we face a choice here between a larger group of people potentially making a smaller sacrifice as some people proposed, basically taking people out of the system all together. And one of the reasons I thought that the Budget proposals last year had a particular logic is that it changed the indexation, but it actually meant that it kept up with the cost of living, which is a reasonable proposal. It mean that they didn’t potentially go up by as much as wage growth or other aspects of our economy, but it did guarantee that the pension kept up with the cost of living, and I think that’s a highly rational proposal.
Burke
The difficulty was that there’d been a previous review that said CPI isn’t actually keeping up with the costs that people actually experience. And, you know, anyone who walks into your office is going to tell you that CPI nowadays doesn’t actually measure what it would cost to stay afloat.
Speers
Do you acknowledge you’ve lost that debate though?
Ryan
Well it’s not going to get through the Senate by any construction of what I see…(interrupted)
Speers
Would it help you politically to say ok, we’ve ditched that?
Ryan
Well I think we’ll have to wait and see what’s in the Budget. The key point has to be that we need to make difficult decision as a country to balance this Budget, we can’t keep going on the way we are. I sat in the Parliament and saw promise after promise from Wayne Swan of budget surpluses, they were never delivered. We’ve tried to legislate choices, we’ve even tried to legislate some difficult choices that Labor announced before the election and they’re all being blocked. We are going to continue because that’s our focus. We know this Budget has to be balanced.
Speers
Alright, just before we wrap this issue up, John Whelan, in terms of moving this forward and finding a way to review the whole retirement income system, what would you suggest is the best way to tackle this?
Whelan
I do sense some bipartisanship and I think the moment should be grasped, so perhaps a bipartisan committee, it could be a Senate committee or indeed let’s consider even some elder statesmen and women on both sides of politics precisely because there is such concern about getting this right. And also because ultimately, whatever polices are produced will be so complex, they’ll be born of the work of actuaries in Treasury. It’s going to be an incredibly complicate policy discussion. The current political environment, said very respectfully to the politicians around the table, may not be able to handle it. So, in order to generate as much bipartisanship in the policy formulation as possible…
(Inaudible)
Speers
An excellent idea.
Chikarovski
And can I just add that at the moment there is a lot of public debate not being conducted by politicians, for example this debate about the $2 million in superannuation has been led by the Association of Superannuation Funds. They put out a paper, which my understanding is that not everybody in the Government was very thrilled about. But, they’re an independent organisation which are leading a debate and challenging people to think about these issues, and not only politicians. David, I know that the people you talk to or email your program are really conscious of this debate. They’re so conscious of this debate, which is why I’m absolutely convinced that both sides of the Parliament need to actually come together and work out a way that they can put a bipartisan policy to the community because there is so much talk out there about it.
(Inaudible)
Speers
But it’s also an issue where you can make sizeable and legitimate budget savings, and we know that we need to make budget savings over the next few decades, but it’s going to need some bipartisanship unless people are going to get really scared about it all. We’ll move on though, we’ll take a quick break and be back with more. Stay with us.
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Speers
I suggested earlier that this next area isn’t one that’s going to fix the Budget suddenly, however every bit helps. Multinational corporations and the tax they pay in. Labor’s already got a costed proposal out there that goes to, without getting too complicated here, the amount of debt that multinationals can carry in Australia, saying that they shouldn’t be able to carry any more here than amongst their global operations. The Government, we heard today Joe Hockey saying that legislation is being drafted, but exactly what we don’t know. Senator Ryan, to you first on this one, we saw Apple, Google, Microsoft grilled by a Senate committee yesterday over this and they all seem to use a structure that sees their revenues generated here booked in Singapore. Are you comfortable with that?
Ryan
Well I think it reflects what the Treasurer said when he released the tax white paper, which was the economy’s profoundly changed. I mean, ten or fifteen years ago we were talking about not paying GST when you bought something from Amazon whereas now we’re talking about people making purchases of a good that isn’t physical in any sense, and it’s happening more and more with globalised supply chains. I think this illustrates what Joe said about how the tax system needs to be looked at to see how it keeps up with the modern digital economy. But it also illustrates how complex these things are and how we need to have a degree of international cooperation to actually address them, which is exactly why Tony Abbott and Joe Hockey launched the process through Davos and the G20 last year.
Speers
But in an ideal world, for example, would you like to see the GST paid on movie downloads, song purchases, downloading an app that you might do from Apple?
Ryan
I have to admit that I thought my iTunes account was already billed GST, but I think the guiding principle is that I think that where the purchase is made and consumed, if you’ve got to add a goods and value added tax, that is where it should be levied. But we do have to be careful not to fall into the rhetoric of either my Senate colleague Sam Dastyari or some of the Greens in their bidding war, because there are complexities here and we don’t want to see Australian companies double-taxed overseas either. There’s international work underway both under the OECD and the G20 to actually ensure a degree of international cooperation; and that information, for example, that wasn’t shared a couple of years ago is now being shared between countries.
Speers
Do you think that’s really going to happen? That there’s going to be some global agreement on this?
Ryan
Well there doesn’t necessarily have to be a global agreement, we can deal with these things through bilateral agreements, we have a lot of double-taxation information sharing agreements with other countries. And that’s underpinned by not only Australia collecting tax, but also the overseas expansions of Australian companies like our resource giants and other companies that are truly multinational and Australian like CSL.
Speers
John Whelan, how do you see this issue? It’s been talked about for years, and Senator Ryan makes a good point, it’s becoming a bigger problem since the online world has evolved.
Whelan
I’ll answer your earlier question if I can. I’m completely uncomfortable with what’s going on in the corporate sector. I couldn’t believe some of the figures coming out of the Senate enquiry, the ATO figures at around $60 billion annually being sent offshore for tax purposes. That’s a lot. At the same time, to see the ATO lose 4,700 staff and 2550 out of its…
(Interjection)
… and 250 out of its International and Corporate Tax Division, I think the Government just got that completely wrong.
Speers
Well, Labor started that process.
Whelan
Sure, sure. In terms of finding efficiency dividends, fine. But if you’re going to find them, don’t find them in this division where there’s such a significant problem. So I think that needs to be recalibrated. I mean let’s get 15% of that $60 billion, that’s actually the cost of a second Sydney Harbor crossing, or two and half times the size of the New South Wales Police Force, so it’s a significant problem.
Speers
Sure, but how do you do it?
Whelan
I think that there are things you can do in advance of simply waiting for the international agreements to be sorted through. They certainly need to be sorted through, and there’s no doubt about it, and a lot of international law in this space has not yet been written, but you can beef up your investigation, you can look at new laws. Looking at how profits are being sent overseas, but debts are being carried here, but also the idea, and I think it’s sensible, the idea of prospectively, so from now on, naming and shaming is a good idea….
Ryan
No.
Whelan
Because we live in the age, and we’ve seen it with United Airlines, we’ve seen it with Starbucks as well, where you can mobilise large groups of consumers, and they can impact on the bottom line.
Speers
Ok, what’s wrong with the idea of naming and shaming?
Ryan
Let’s be clear, at that Senate Inquiry earlier this week, and all the coverage I read of it, no one made any accusation of illegal activity. So tax evasion is illegal, we’ve got strong laws against that. Tax minimisation is entirely legal, and famously Kerry Packer encouraged every Australian to undertake it, and I’m sure every Australian does when they fill out their tax returns. In the middle we’ve got…
Whelan
But we actually don’t know…
Ryan
It’s not $60 billion being moved overseas for tax purposes, we don’t know that. The point of…
Whelan
That’s the point Scott, we don’t know.
Ryan
The point that, we would get the ATO, where no one has been investigated, no one’s been charged and no one’s been convicted, to start naming and shaming corporates and individuals. Even today, the Fairfax Press had to correct an article it wrote alleging another corporation was engaging in tax avoidance…
Whelan
All the more reason to get it right.
Ryan
But announcing things…(interrupted)
Whelan
If I can, all the more reason to get it right, that’s why I’m saying you wouldn’t do it retrospectively. But the problem here is that we don’t have the weaponry to deal with it. This is a practical way of actually mobilising people to have an impact upon the bottom line for people who are doing the wrong thing.
Speers
But you’ve got to prove they’ve done the wrong thing, that’s the key.
Whelan
That’s right. I’m not saying there’s not a lot of work to be done, right. But I don’t like the idea that we just rule this out, especially since we don’t have…
Speers
But wasn’t Sam Dastyari talking about naming and shaming those who are under investigation or under a major audit, they haven’t actually been found to have done anything.
Chikarovski
That is just insane…
Whelan
Let’s work through it, but there is a lot of money being earned in Australia by organisations that are enjoying the benefits of our society, who aren’t paying the tax that they need to.
Speers
Sure, but who are you naming and shaming? Who are you actually naming and shaming?
Whelan
The people who are doing the wrong thing.
Speers
The people who have been found to have done the wrong thing?
Ryan
And what are we going to see? Mobs turn up on their home doorsteps or their business doorsteps, harassing staff as they turn up to work? This does happen outside the resource company head office(s) in my head city where you’ll get a protest, and they’re hassling staff on their way in and out. If there’s evidence to charge people, then charge them. The Commissioner’s got very substantial Part 4A powers to declare an activity for the primary purpose of avoidance, and therefore levy a new tax assessment. If we need to then have a debate about whether the rules change, by all means have that debate. But the idea that we would use speculative information to say ‘well we’re not going to say they’re evading tax, we’ve got no evidence to charge them, but we’re going to set the public mob on them.’
Chikarovski
But you’d also be compromising investigations…(interrupted)
Whelan
I’m not saying that, I am saying let’s work it up. But let’s talk about evidence. Look at Starbucks for example, found in the United Kingdom not to have paid any corporations tax on ?400 million worth of sales, right. Now there was a social against that because people were so concerned about it. For the first time, between 2013 and 2014 Starbucks’ sales actually went down, for the first time in their history in the United Kingdom. So it works, now we are talking about creating incentive to do the right thing, at the moment people are getting away with doing the wrong thing. We’re talking about mobilising the power of the consumer, and do it through a legal process, but don’t just rule it out.
Ryan
But naming and shaming’s not a legal process.
Burke
But you talk about a hot-button issue. We’ve just talked about changing rules about tax and pensions, you talk about a hot-button issue, you go talk to anybody out there. Why aren’t the multinationals paying their fair share for the money they earn in Australia? Why aren’t they? This isn’t a new issue, we’ve been talking about the Tobin Tax for as long as I can remember, that’s been on the table for years and years and years. The UN, the OECD, all the NGOs talk about it, they’ve all looked at this, you know, you go look at that space.
Ryan
All the tax-exempt NGOs?
Burke
Well, exactly right, and fair point.
Ryan
Some of them have a lot of revenue, some of these NGOs are not small local organisations.
Burke
Sorry, let’s look at… (inaudible) no, no, there’s a point to that as well. But what most of the public, who you said, are on a progressive tax scale, who are earning their money as PAYE tax payers, they pay their tax. Yes, they find their exemptions, that’s reasonable, we all do – it’s all legal. But why, is the PAYE taxpayer propping up multinationals by having to find savings in their pensions and super, and we’re not taking tax from them earning money here.
Whelan
Exactly
Chikarovski
I don’t think anybody would dispute…(interrupted)
Burke
But we’re not doing anything about it.
Ryan
Yes we are…(interrupted)
Chikarovski
Hold on, we’ve actually got Joe Hockey saying today that the legislation is being draft to address some of these things. So I think it’s not fair to say we’re doing nothing about it. I don’t think anybody would dispute that companies should pay their fair share of tax, and I’m not going to have that argument with anyone, I think that’s absolutely correct. What I have a problem with though, is the concept of going out and saying ‘these companies are now being audited because we think they might be bad.Two things happen as a result of that, the first thing, forget about what your consumers might do…(interrupted)
Whelan
It happened today.
Chikarovski
But the problem is that is, if you’re being audited by the Tax Office, one of the things the Tax Office needs is for you to cooperate, and everybody I know in business who’s been audited by the Tax Office says ‘thank you very much, come in, here’s my books.’ If the Tax Office is now going to say ‘oh by the way, we’re now naming and shaming you because you’re being audited, and we’re going to ruin your business in the meantime’ it’ll be absolutely, absolutely much more difficult I think for those companies to feel confident in cooperating with the Tax Office, because they’re going to say ‘well hold on, you’re actually damning us before you’ve made a determination.’ That’s completely unfair.
Speers
Just on this, because those tech giants Apple, Google, Microsoft, for all intents and purposes, they have been named and shamed, they’ve been dragged before a Senate Inquiry, they’ve been splashed all over the media, they’ve been subjected to a lot of questions and insinuations, at least, that they don’t pay what they should in Australia. Do you reckon anybody has stopped going to Google? I certainly haven’t. Has anybody stopped downloading apps on Apple? Has anybody stopped using Microsoft? I can’t see in this world that these tech giants are really going to be impacted by this, are they?
Whelan
Let’s see, let’s see. And Kerry, just to your point if I can, a CEO just today declared that they were being subjected to an audit.
Chikarovski
Which is good, if they’re happy to do it that’s fine. But if you’re actually going to put people in a public arena… because if you self-declare then obviously saying that you’ve got nothing to be concerned about. But if people are going to be put in because they happen to be audited, and by the way, the Tax Office audits a lot of people, then you are actually, I believe, are absolutely going to make the Tax Office’s job more difficult.
Whelan
I think it’s quite difficult at the moment, sorry Anna, excuse me, but David further to your question, we do live in an age where consumer power, by virtue of social media, is more intense, more powerful than it’s ever been. So why not take advantage of that opportunity to put pressure on companies to do the right thing, it’s a simple proposition. How you actually develop it and at what point people and companies might actually be named and shamed, let’s work through it, but we’ve seen it have an impact on sales of corporate tax avoiders overseas, a substantial impact. Let’s see how we go.
Burke
The other impact has got to be on the countries that are offering these ridiculous tax havens. So we’ve seen Ireland turn around and say ‘we’re getting rid of the double Irish sandwich,’ whatever that means, or however that works. They have actually shut that down themselves because of the human black hole, the bananas that go around the world, that start out as fifty cents here and you know, the Uniting Church has got this great indicator of how a banana ends up costing a country a small fortune in lost tax revenue. Because one of the other things we haven’t talked about in this space is that we’re cutting an aid budget, and the people who a lot of these companies are hitting, are developing nations, when they’re not raising their own tax revenue, as well. It’s not an easy argument, but Ireland’s shut down one of its revenue loopholes, it was in the inquiry. One of them, I’m not sure which company, where their profits are all made in Ireland and the individual said ‘have you ever been to Ireland?’ Well, no.
Speers
Well isn’t the flipside of this that yes, they might shut down the double Irish sandwich, but they still have a corporate tax rate, as does Singapore, as does all of these places, that’s so much lower than Australia.
Chikarovski
So maybe that’s the solution. Let’s make ours as low as theirs and everybody will pay it.
Speers
Inevitably, isn’t this going to be the only way that we stop this, is that we’re going to have to see company tax rates come down.
Ryan
We know that the burden of company tax falls on wage earners and it falls on investment. Every tax review that has ever been done has outlined that a high corporate tax rate means lower wages and less investment, which means a lower economic growth. We have a high corporate tax rate, in fact the US has a bigger problem, they have a higher tax rate, and Apple has tens of billions of dollars held offshore, effectively in cash, because it doesn’t want to repatriate it. High tax rates lead to greater incentive for avoidance but I think everyone will accept that if there’s a zero rate, someone will always run to that, so there is a legal consideration here which the Government said it’s looking into. But tax competition is always going to happen. The famed double Irish Dutch sandwich is actually the result of European Union encouragement of Ireland to have a lower tax rate, subsidies to do that, and using legal processes in Ireland and the Netherlands, entirely legal processes.
Speers
Before we leave this, can anyone explain what the double Irish sandwich is?
Ryan
I read an explanation today that was three paragraphs, and it effectively involves money going to Ireland, a royalty payment going to the Netherlands, because both of those are tax free, repatriating income and royalty payments…
Speers
So a company here has a status in Ireland…
Ryan
… books revenue in Ireland, makes a royalty payment or some form of payment to the Netherlands, which is also tax free, but then the IP is held back in Ireland, and it goes back to Ireland because they have a tax free arrangement for IP payments. That’s a simple explanation.
Burke
But the bottom line is, a business earns money in a country. Pay your tax there.
Ryan
But we also have to be careful here, there are Australian companies that actually repatriate, like CSL, repatriates significant IP from for example, the cervical cancer vaccine that it invented and that started here. So we’ve also got to be careful, we have our own multinationals, we have resources companies. The reason international coordination here is so important is we don’t want to hit our own people and actually see less revenue potentially coming back from our own companies.
Speers
Alright, we’re going to take another break, we’ll be back right after this. Stay with us.
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Speers
So the energy white paper from the government was released this week as well by the Industry Minister Ian MacFarlane and it looks at the energy future for Australia, not a lot of discussion about climate change and admittedly there will be a government position on this prior to the Paris summit at the end of the year. But Kerry Chikarovski let me start with you on this, do you think it is putting the cart before the horse a little if we don’t know how much renewable energy for example we going to have to have in the mix if we don’t know what our emission targets are going to be, I mean these are the things that are going to change our energy consumption overall, after all.
Chikarovski
Well renewables will presumably change our energy consumption, presumably things like smart meters, if we decide to introduce those, which I understand are part of the paper will change our energy consumption I mean I think it makes great sense to have a system where by you charge people a lower amounts if they are using at off peak, I think that will hopefully change energy consumption.
Speers
Do they work by the way, do you think, smart meters, I mean they have been rolled out in Victoria?
Ryan
I don’t believe we have time of use pricing yet but it is coming soon
Speers
What do they tell you at the moment then?
Ryan
Well it has a flashing light on it at the moment instead of a dial but they haven’t introduced time of use pricing because I don’t think the rollout hasn’t been completed statewide yet, although it would be close.
Burke
It would almost be finished.
Speers
And once that is done then you will get what 7pm light flashes to say it won’t be expensive to turn on the dryer.
Ryan
I think the way it will work, because it will then need to be connected to the telecommunications network which is the second step, then you will be able to have a choice, you will be able to stay on the flat tariff or you will be move to use to a time of use of tariff. Victoria is a highly contestable market, so everyone will get electricity offers the way we get mobile phone offers, in our letterbox on a monthly basis.
Chikarovski
Technology might actually help energy consumption and may have a flow on effect in terms of emission targets and those sorts of things. I think you have to again look at all those things at once and you can’t decide that you’re not going to do anything about your renewable energy targets until you get to Paris and you need to be thinking about what we need to do as a nation now and I’m not surprised that they have put out a paper now and I’ll be interested to see how the target you are looking for now, we have 32,000 on one side and 33,500 on the other, you need to ask our Senator friend here whether he thinks you can get this through the crossbenchers with the 32,000.
Speers
Well, the point is you want to deal with the Labor party, yes you might be able to get something through with the crossbench but industry needs to know whoever is in Government what this target for 2020 is going to be, right, so, that’s why I think that both sides are trying to do a deal between the two parties. The government is stuck on 32,000 gigawatt hours of renewable energy; Labor has now come down to 33,500.
Ryan
Well come down, I mean to be fair that was the first offer, we started… (Interrupted)
Speers
Well no, they were saying for months, mid to high 30’s… (Interrupted)
Ryan
Well they weren’t coming up with a number, mid 30’s can mean anything to from 35 to 39.5; we started more than 6 months ago. The 20 per cent target to which everyone in principal agreed works out to be about 26,500 gigawatt hours. The target in the legislation now, not only is it unachievable, but it would lead to, on some research I saw, you will need another 2,500 wind turbines up and running by 2020. Now that was never going to happen. Now we have moved from 26 to 32 and are firmly of the view that anything more than that basically can’t be built and that we will be back in 3 years or 4 years’ time debating what to do about huge (inaudible)
Speers
Can you explain this to me, if 32,000 is doable then why is 33,500 going to break the system?
Ryan
Well because we are of the view, we started a lot lower and have come to the point that 32,000 is as much as the system can cope with. We also need to remember here that there is also a cost burden. The higher the target, the higher the cost on home owners and the higher the cost on businesses users. Because none of this debate affects home rooftop solar, none of this debate…(interrupted)
Speers
Well not according to your own Warburton review last year.
Ryan
Well there were multiple sets of models done, it all depends on the assumptions that go in. The truth is, if renewable energy was cheaper than what we already have it wouldn’t need the cross subsidy that the renewable energy target actually involves. Wind power is more expensive, we’re not going to build any new massive hydro plants by 2020, so it’s going to be wind. But importantly this doesn’t touch home rooftop solar that is completely exorcised. This is only about effectively how many wind turbines we are going to build by 2020.
Speers
Well I’m still confused, for both the parties, as to why 33,000 is ok in your perspective but 32,000 is not and vice versa, they just seem so close together.
Ryan
If you are at the limit of what we think the system can cope with, if you are at the limit of what, well you even have the AWU out there saying that thousands of jobs are at risk in energy intensive industries like aluminum smelting because of the cost burden that this puts on those businesses…(interrupted)
Burke
They’re exempt.
Speers
They’re Exempt, even the AWU backed the 33,500 so have all the business groups by the way.
Ryan
And sorry, well they have said they want a deal. And what we’ve said is that we have moved from 26 to 32 and we think that this is what the system can cope with. There are a lot of other energy intensive industries, and you speak to anyone involved in manufacturing particularly in Victoria and South Australia and the increase in energy costs in recent years has actually been a major driver in their competitiveness challenge.
Burke
Well the bottom line is we are now sitting on a report from the Clean Energy Council who recommends the amount that we have put forward, so this is not an amount that Labor has dreamt up, this is the amount that…(interrupted)
Ryan
But the Clean energy council…(interrupted)
Burke
This is the industry in cohort with other parts of the industry; it’s not just the clean energy council.
Ryan
So you’ve got an industry that is a beneficiary of a substantial subsidy saying we would like this level of subsidy. It is like going to the automotive sector and actually saying what level of subsidy or tariff would you like.
Burke
Oh and yeah we won’t give you a subsidy and we will scare Ford and Holden off you know.
Ryan
No we don’t.
Burke
This is what this is all about, about certainty in an industry, you went to jobs, it is about jobs, it is about growth, it is about creating jobs in a sector we need. And we are not talking about the elephant in the room, Climate Change. The RET is actually one of the driving forces, Howard introduced the original RET.
Ryan
At 2%, and there is a very big difference between a 2% target…
Burke
Yes but Howard introduced it…
Ryan
… and a 20% target.
Burke
…for actually Climate change. For the future of our environment.
Ryan
He introduced it in order, he introduced it in a very different way than the 20% RET. The 20% RET is actually an industry support mechanism. The 2% RET…
Burke
I’ve been very kind.
Ryan
…was about actually providing seed capital to develop an industry in Australia.
Burke
I’ve been very kind, so we still got a white paper…(interrupted)
Chikarovski
There goes the bi-partisanship.
Burke
…it is gone. Had to happen. At the moment, we have started out the whole debate today about certainty and where to go. And we’ve got the biggest issue that nobody wants to address. Leave aside what we are going to do if we ever get to Paris. Nobody wanted to talk about it at the G20, the biggest issue, climate change. That’s what this is about. It’s not, you know we have got the so called “Minister for Environment” the only thing he ever talks about is electricity pricing. What’s it about. It’s about signal to change. We actually want people to change. We actually want people to use less energy. We want to drive down prices in this so we actually create a cleaner environment. Isn’t that what this is all about?
Ryan
Well no.
Burke
No, see.
Ryan
The renewable energy target, that’s not going to solve the world’s climate change problems, what…(interrupted)
Burke
No but it’s a factor in it.
Ryan
It imposes costs on households and imposes costs on businesses…(interrupted)
Speers
Why have one at all?
Burke
Why never do it? When are we ever going to address the issue?
Ryan
Because you respect policy settings that have been put in place. 41,000 gigawatt hours is utterly unachievable.
Speers
But if the whole thing is driving up power prices and it’s not going to solve the world’s climate problems in your words, why have a renewable energy target at all.
Ryan
Well, because it has been in place for a long time, so you have to respect policy settings. We do things….(interrupted)
Speers
Hang on with respect?
Ryan
Yeah
Speers
Because it has been…
Ryan
…Because people have made long term investments. We’ve got a debate in Victoria about a road tunnel and I respect contracts that have been signed and people have made long term investments.
Burke
Two weeks before an election is held.
Speers
Why not say ok let’s wind this thing down because that was one of the other recommendations of the Warburton review, say over a certain period of time we will wind this thing down. If you don’t think it is going to help the environment and only drive up power prices why can’t you?
Ryan
But it can provide other benefits. We do things socially and economically that actually cost us money that are social goods or that we think are worthwhile support to particular industries or that we are respecting contracts or other past policy settings.
Speers
And that’s what this is?
Ryan
And in this case we have said 41,000 is unachievable, nobody except the Greens think it is. Two days ago Labor came out with their first ever number, first ever number in more than 6 months. We’ve moved from 26,000 gigawatt hours to 32 and we don’t believe any more can be built by 2020.
Speers
Ok, we are nearly out of time but Kerry and John what would you do if you were in the Government’s shoes?
Chikarovski
How about 33 and get everybody and keep everybody happy, I mean seriously. I understand absolutely your point Scott but I mean you’re so close, you know split the difference?
Speers
Get it off the table ?
Chikarovski
32,750, there you go.
Whelan
For the second time this evening, David, I am supporting Kerry.
Chikarovski
I am going to be thrown off the coalition side.
Whelan
The lack of certainty is killing investment in the renewable energy sector.
Burke
Hmmm, it is.
Whelan
Killing it, killing it and its costing jobs as well. In terms of price as you alluded to earlier, the Warburton report, find the prices go up and then they come down. And they don’t go up by very much either, it’s about 4 to 5 per cent on growth household expenditure on electricity. The government has got this completely wrong.
Burke
And householders are happy to move.
Speers
We’ve got to go, we’re out time. I think somehow in the next few weeks we will see this outcome play out.
Chikarovski
Can we have the bet that now that 32,750 is the figure?
Speers
Something like that. Thanks all for joining us tonight, good discussion. Thank you for your company at home as well, we’ll be back next week see you then
(ENDS)