Why is the Australian Government destroying Australian businesses?
In estimates I asked Treasury why they allow foreign investors tax breaks through tax treaties that aren’t available to Australian businesses.
This is a reverse tariff as Australian Businesses have to charge a higher price to make the same profit as the foreign investor. As a result people will buy the cheaper foreign made product sending the Australian business broke.
Same for investment income. If an Australian investor wanted to earn 7% interest, assuming a 30 cent tax rate they would have to charge 10% to earn 7% after tax.
Because the Tax Act gives an explicit tax exemption to foreign banks (128F 1936 ITAA Act) on interest earned they only have to charge 7%.
As a result when Australian companies raise debt they go offshore because they can get cheaper rates of interest than here in Australia. This is why there is no corporate bond market in Australia.
People First is the only political party that understands capital markets including the way financial instruments are taxed and the impact it has on Australia’s sovereignty.
That is why I ask for your support in the upcoming Federal election in order to fix our taxation act and fight for Australian businesses who are being destroyed by their own government.
Economics Legislation Committee
06/11/2024
Estimates
TREASURY PORTFOLIO
Department of the Treasury
Senator RENNICK: My question goes to foreign investment in particular, but I want to touch on some comments made earlier today by Steven Kennedy regarding tariffs. There is this view that we shouldn’t have tariffs, but we do have tariffs in this country. We have reverse tariffs in the form of our taxation system, whereby our withholding tax rates are much lower than the onshore tax rate. We have another tariff in the form of capital investment, whereby the 128F public offer test says that, if Australian companies or banks issue bonds in the primary market, the people who issue those bonds don’t have to pay withholding tax. So foreign banks lend into Australia and don’t pay any tax on the interest income that we pay offshore. Surely, if we want to get serious about retaining our own earnings in this country, shouldn’t we think about abolishing 128F and stop giving the foreign banks a tax break so that we retain our own capital here and reduce the reliance on foreign debt?
Mr Yeaman: That question goes beyond the scope of macro group.
Senator RENNICK: The reason I am asking it is that it goes to capital flows and foreign investment. Effectively, if you have a higher onshore tax rate, you’re not going to receive as much money for your interest. I know, through my work experience, that we would go offshore. I have worked for Australian companies that go offshore and tap foreign debt markets, instead of tapping debt markets here. We don’t have a debt market in this country because we have a tax act that gives a tax break to foreign investors. This is something that the international and foreign investment group should look at.
Mr Yeaman: Certainly.
Senator RENNICK: I’ll give another example, and I’ve quoted this before. A particular multinational in 2022 made $1.4 billion in revenue and shifted $1 billion of that offshore to Ireland. In Ireland there is a withholding tax rate on royalties to Ireland of 10c and a company tax rate of 12½c, and 10 plus 12½ is 22½, so that is less than the 30c onshore tax rate here. So there is a 7½c arbitrage on that $1 billion shifted offshore, which gives a $75 million profit just for the sake of doing a couple of journal entries. Isn’t this something we need to look at? My understanding is that these tax settings were set by Treasury in the first instance. The ATO has to enforce them and administer them, but this is something Treasury should be looking at. We have structural imbalances in this economy that have been built up over the last four decades of so-called ‘having to attract foreign debt’ instead of promoting domestic investment and retaining the earnings from that investment.
Mr Yeaman: As Treasury, we are concerned with the overall settings and how they affect investment flows in and out of the country, what they mean for domestic versus international balances and what they mean for our ability to service the investments in the country that we want to see to support future economic growth. I’ll flag that question with my colleagues in revenue group. They think about this from a range of perspectives, including international competitiveness, which is one of the areas you’ve flagged. They look at it from an integrity perspective and issues around arbitrage that you’ve described. They also have to consider things like the overall fiscal sustainability and other issues of equity and consistency with other parts of the broader tax and financial system. I am not set up to talk in detail about the measures you have described and the impact they are having; I’ll ask our colleagues whether they wish to add anything. But we are certainly concerned about the integrity of the tax system and how that affects investment flows.
