Wayne Swan joins economic big-wigs fighting global tax cuts

RN Breakfast - Separate stories podcast

Thursday 19 April 2018

with Fran Kelly

With the Federal Budget just three weeks away the government is piling pressure on Senate crossbenchers to get its $35 billion corporate tax cuts over the line when parliament returns in May.

The government and business groups have been making the case that cuts to the US corporate tax rate in December means Australia will become uncompetitive if it can't slash its own rates.

But a group of globally renowned economists, including US Nobel laureate Joseph Stiglitz and the French rock star economist Thomas Piketty, are warning countries not to follow the US example — they say that would trigger a race to the bottom and be especially damaging for developing nations.

The group is called the Independent Commission for the Reform of International Corporate Taxation and this morning it announced former Australian Treasurer and Labor MP Wayne Swan as its newest commissioner.

Please listen to the interview here

Please read the interview's transcript :

SUBJECTS: Appointment to Independent Commission for the Reform of International Corporate Taxation; Turnbull’s Company Tax Cuts; ALP Membership.

 

FRAN KELLY: With the Federal Budget less than three weeks away now, the Turnbull Government is piling the pressure on the Senate crossbench to back its plan to cut corporate taxes for bigger businesses when Parliament does return in May.

 

The government and business groups have been making the case that cuts to the US corporate tax rate back in December mean Australia will become uncompetitive if we don’t follow suit. Though that argument hasn’t yet persuaded the likes of Centre Alliance Senator Stirling Griff, who we spoke with here on Breakfast yesterday.  

 

Well now a group of globally renowned economists, including US Nobel Laureate Joseph Stiglitz and French rockstar economist Thomas Piketty are warning countries not to follow the American example. They say that will trigger a race to the bottom and be especially damaging for developing nations. This group is called the Independent Commission for the Reform of International Corporate Taxation and this morning it announced that former Australian Treasurer Wayne Swan will be its newest Commissioner. Wayne Swan, welcome back to RN Breakfast.

 

WAYNE SWAN, MEMBER FOR LILLEY: Good morning Fran.

 

KELLY: And congratulations on your appointment. You're in some pretty lofty company there. What's this Commission do? What's its goals?

 

SWAN: Well it's an honour and a daunting responsibility, because you see there are very powerful vested interests out there that are supporting these levels of tax avoidance and evasion that are eating away at the revenue foundations, if you like, of modern society. You simply can't have a successful 21st century economy and society without adequate and effective taxation revenue, and with a system of international tax that gets rid of international tax evasion. 

 

KELLY: The group that you're on warns that if other countries follow America down the lower corporate tax rate – or the lower tax regime – path, it will undermine the UN Sustainable Development Goals.

 

SWAN: Absolutely.

 

KELLY: Is that the primary message, or is it in fact a message about tax avoidance and tax evasion?

 

SWAN: Well it's both. You need an adequate level of taxation to provide the basics of a civilised society. The Sustainable Development Goals are about lifting many people not just out of poverty, but ensuring many people in the developing world achieve higher living standards over time. For that, they need jobs, they need health and they need education. And that cannot be achieved without adequate levels of revenue. Take a country like Indonesia, for example. So when countries around the world start cutting their taxation rates and eroding the revenue base, they threaten the achievement of the Sustainable Development Goals across the world. But also in a country like the United States, which has a low revenue base, which has the highest inequality in the western world, they are condemning that country to a future of polarisation, which in the end, I think, will threaten the very basis of democracy. 

 

KELLY: They're two separate things in a way. Can I just clarify though – are you saying and have we seen proof that – is this the finding from the group, that by having a race, basically, a global race to cut taxation, it's threatening or undermining the UN Sustainable Development Goals because these western or developed countries then don't have the money available to invest in developing countries and those Goals. Is that what you're saying?

 

SWAN: It's not just that. They've forced down rates right across the world.

 

KELLY: I see.

 

SWAN: So then they threaten the revenue bases. But also there's the overall level of tax you need for a civilised society. But also, then, when companies engage in outright avoidance and evasion, what they do is create further polarisation within their countries. And there's an enormous amount of avoidance and evasion within the United States and across the western world. And we have to deal with that with some new international rules. We don't believe the BEPS [Base Erosion and Profit Shifting] process, which has been established by the OECD, is sufficient. So the reason I'm joining this group is basically to beat the drum about the dramatic impact of low tax levels, if you like, across the world, the danger to the Sustainable Development Goals. But more than that, that tax evasion erodes the foundations of support for modern democracy. Because essentially, when people on modest incomes sit back and see some of the wealthiest and most powerful companies in the world completely avoid their tax responsibilities, that really raises levels of distrust and disgust with society and with government. The OECD, for example, says up to $240 billion a year is lost to the global economy through tax avoidance and tax evasion.

 

KELLY: Again, I say these are two different points.

 

SWAN: That's right.

 

KELLY: So let's deal with them separately. Let's stay with the cuts to company taxes and the cuts to the tax take generally, if I can for a moment longer, because I understand that one of the reasons you've been invited onto this Commission is because the Commission wants to expand its presence into our region. And part of that reason is because, according to the Commission, there are a number of countries in our region, obviously, that haven't powered ahead, like the Asian Tiger economies. But isn't that an argument for cutting taxes? If you look at Singapore, one of the Tiger economies, it cut its tax rate very low – its corporate tax rate is 17 per cent, which helped it develop economically and helped lift people out of poverty – isn't that the outcome there?

 

SWAN: Well, only in Singapore.

 

KELLY: Indeed. 

 

SWAN: Singapore is effectively a tax haven and its activities are threatening the tax base of Indonesia, over 240 million people, with one of the lowest tax bases in the western world. The activities of Singapore threaten the tax bases, not only in countries like Indonesia, but right across the Asia-Pacific. And it's a classic example of where the world must not go if we want to avoid extreme inequality – not just in the advanced world, but in that part of the developed world which is rising up the income scale. Singapore is very much on the nose in Asia with its Asian neighbours, by its tax haven activities, and threatens the revenue base in a country like Indonesia. I was up in Indonesia talking about this with Ministers only a few months ago.

 

KELLY: And yet – and I'll come back to the tax evasion argument, or position – yet here the argument coming from the Business Council and others for cutting our company taxes, which is what our government wants to do, is because now that America has acted for instance, if we do not do that, companies will take their investments to countries like the US, where they'll get better returns. Cutting company taxes will provide the sorts of jobs that you said earlier, is what we need to be able to do.

 

SWAN: Well the Business Council and the government have not provided any evidence for those claims. The truth is that many of the large multinational companies that are arguing for these tax cuts are already paying far less than the 30 cent nominal rate. Many of them are paying far less than 24 cents in the dollar. And if they're not investing in jobs and growth at 24 cents in the dollar, they're certainly not going to do it when many of them get a free kick off the government for a cut in the company rate, either here or in the US. Essentially, Malcolm Turnbull and Donald Trump are leading this race to the bottom in corporate rates. And it will not end well. The arc of history will not judge this race to the bottom in corporate tax rates very well at all.

 

KELLY: You're listening to RN Breakfast. Our guest is Wayne Swan, former Australian Treasurer and a new member on this international Independent Commission for the Reform of International Corporate Taxation. Back onto tax evasion. Is the argument, and what this Commission is looking at – as much the race to the bottom on taxes – as it is about whether companies are paying their taxes, the tax evasion? And also whether the right taxes are put in place in these developing economies as they come on board?

 

SWAN: Well all of the above. How tax is raised is just as important as how much tax is raised. Because if tax is raised in a progressive way, that will power growth. If we have a fairer tax system, it will mean stronger growth. If we have an unfair tax system, it'll mean weaker growth. That's the finding of the International Monetary Fund and in many ways it's just common sense. But if you have this race to the bottom, and at the same time, tax evasion and avoidance is not addressed, then the revenue bases across the world are severely weakened. So doing something about some fundamental change to get rid of the tax termites who are working away at the sustainability of the tax system is absolutely critical to ensuring that the economy grows—

 

KELLY: Ok.

 

SWAN: —and we don't have the political polarisation we're beginning to see around the world.

 

KELLY: Wayne Swan, we just have a minute to the news, could I ask you finally – because you are in the running, there's four people in the race for the ALP's Presidency; you're one of them – Bill Shorten two years ago pledged to lift the ALP's membership base, but as we've seen this week, it's stagnant, if not dropping. What would your message be to membership to try to turn that around?

 

SWAN: Well I can't canvass the issues in the ballot; we have some rules about that. But I'm really keen to take on this job, to meet all of the challenges, including the membership challenge. But over and above that, we've got a set of rules. My opponent is abiding by them, I'm abiding by them, so I can't really go into it Fran!

 

KELLY: Alright. Wayne Swan, thank you very much for joining us and congratulations on this appointment.

 

SWAN: Thank you.


KELLY: Wayne Swan, former Australian Treasurer, and as of today a member of the Independent Commission for the Reform of International Corporate Taxation, building I guess on the message we heard from former Head of PM&C Michael Keating earlier in the week.

 

ENDS

 

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Authorised by Noah Carroll, ALP, Canberra

 

ICRICTWayne Swan