Prime Minister Tony Abbott has found a new way to plug Australia's budget hole: targeting multinationals. A so-called anti-avoidance law, which his government rolled out in its latest budget, aims to stop multinational corporations from diverting the profits they earn in Australia to low-tax jurisdictions.
It's a sound plan, especially at a time when Australia's debt is rising faster than the euro zone's -- but only so long as Abbott also puts the screws on domestic companies not paying their fair share. In Australia that means mining companies. Sadly, Abbott's government seems inclined to let them off the hook.
Australian Treasurer Joe Hockey hasn't named names when it comes to the multinationals that he says are embracing dodgy tax avoidance schemes (including revenue shifting, internal loans and license fees from the local subsidiary to the parent company). But it's clear enough the Australian government has companies like Google, Apple and Microsoft in mind with its new tax.
The main problem is that Abbott's team is sparing the country's biggest exporters, its mining companies. This is something of a pattern for Abbott. One of his first acts after taking office in September 2013 was to kill mining taxes aimed at raising extra revenue from BHP Billiton, Rio Tinto and others enjoying windfall iron ore and coal prices. Although former prime ministers Kevin Rudd and Julia Gillard had argued that Australia's 23 million people deserve a share of the proceeds from the country's underground deposits, the mining companies' lobbying effort ultimately prevailed.
Like the military-industrial complex in the U.S., the power industry in Japan and the chaebol in South Korea, Australia's mining giants wield tremendous influence. So when Abbott killed a tax on carbon emissions that had made Australia a global leader in efforts to quell climate change, it didn't take a vivid imagination to guess whose interests he was looking out for.
But Abbott's priorities have come at a cost. As resource prices surged in recent years, the country could have been amassing a sovereign wealth fund rivaling those of Norway, United Arab Emirates and Singapore. That fund could have been used to upgrade the crumbling infrastructure hampering global competitiveness, or pay for new education and training programs to raise productivity. Instead, Abbott chose to coast and rely on the easiest possible growth strategy: shipping natural resources to China. (Now that China's economy is slowing, Australia's mining industry has been ailing: The price of iron ore, Australia's biggest export, is almost 70 percent below its 2011 record high.)
Yesterday's budget was as uninspired as Abbott's previous economic policies. Abbott checked lots of boxes -- tweaks to childcare, elderly pensions, small-business taxes and platitudes about smaller government -- but offered no clear strategy. Serious plans to create jobs? Nope. Ideas to halt the hollowing out of the manufacturing industry? Nothing. Initiatives to create a home-grown Google or Apple? Zip.
Having no Plan B, Abbott is mostly leaving economic policy to Glenn Stevens over at the Reserve Bank of Australia. Governor Stevens recently cut interest rates to a record-low 2 percent. But as China wobbles, he's also been urging the government to do its job. A significant downturn, Stevens warns, would send a budget deficit that's now 2 percent of gross domestic product to 6 percent "in a heartbeat."
But -- despite waning consumer confidence, rising unemployment, and surging property values that are widening the gulf between the country's haves and have-nots -- Abbott isn't showing much urgency. Rather than reclaim the reformist mantle of past leaders like Bob Hawke and Paul Keating, who internationalized Australia's economy in the 19890s and 1990s, the current prime minister seems content to play small ball. His half-hearted "Tax Integrity Multinational Anti-Avoidance Law Bill 2015" is a perfect case in point.
(Updates to include full name of legislation in last paragraph.)
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