The Commonwealth government could alternatively try to get obedience from the States, by enacting special legislation in Parliament, along the lines of MAI, or relating to international investment. If such legislation does not include a clause to make it subject to the Racial Discrimination Act (1975), then all the aboriginal gains from Mabo and Wik High Court decisions will be lost, and the Commonwealth government would have achieved its goal of providing "bucketloads of extinguishment", and mining companies will have non-regulated access to aboriginal lands and heritage national parks. Such legislation would also be aimed at dismantling all regulations that protect workers and jobs, public welfare, domestic businesses, the environment and culture.
Such legislation would inevitably be strongly opposed by the public and consumer groups, and the government may find it hard to pass it through the Senate which in recent years has been antagonistic to legislation of such a controversial nature. But even if such a law were passed through the Senate, it would immediately meet challenge in the High Court, by the States, and possibly by a number of State citizens, companies or local authorities, who would oppose the new law on inter se grounds, as infringing their Constitutional rights.
To try and get obedience from the States through MAI type legislation would seemingly be an almost impossible task, and would inevitably lead to challenge in the High Court.
Standing Before the High Court to Challenge MAI
In what way can approaches be made to the High Court in order to challenge MAI?
A question raised before the High Court may concern official action, but the action in turn has to be authorised, if at all, by a law, and it is the law which has to be tested. In the case of MAI, it is the legislation permitting the Commonwealth government to ratify and sign international agreements which must be tested. Also any special MAI or international investment legislation the government seeks to pass through Parliament, will invite challenge if passed.
When an individual is plaintiff, he must show that the challenged law will require him to act or abstain in a particular way, whereas in the absence of the law he would have been free to act differently. Direct interference with the plaintiff's person, property or liberty of action under authority of the challenged law would be sufficient to provide standing before the High Court. Apprehension of such interference may at times be sufficient.
In Anderson (1932) it was ruled that a member of the public cannot receive standing simply because there is a Commonwealth-State arrangement which he perceives to be unconstitutional. He must show that he is harmed in an individual way by the arrangement or law, over and above the suffering of citizens in general.
Attorneys-General, both Commonwealth and State, have full right to complain to the High Court at any time about Constitutional excesses. The Attorneys can act on their own initiative, or upon the request of an individual. In the latter case, it is entirely in the discretion of the Attorney (that is, of the government in which he is a Minister), to decide whether he will bring action in a particular case or not.
Probable Consequences of Australia's Signing of MAI
The negotiating committee for MAI is due to resume work in October 1998, to finalise the treaty so that it can be ratified. All governments of the OECD nations, including Australia, remain remarkably quiet about the existence, content and progress of the MAI negotiations. It was only in response to vocal opposition in Australia at the beginning of 1998, that the issue was referred to a parliamentary committee in March.
Dion Giles, in Explanation of MAI in a Nutshell, looked at the implications for Australia of enforced parity between national and foreign investors, after rollback of specified exceptions. "National control of enterprises like Telstra becomes illegal. Funding from government to foreign-owned schools, universities, hospitals etc would have to match State funding for such institutions. No more government funding for the ABC unless there is similar government funding for any media enterprises which include foreign capital. No more Australian content rules. No more rules relating to foreign ownership of the media. No provisions that foreign companies must employ Australians or re-invest any of their take in Australia."
All nations intending to sign MAI are invited to "lodge specific reservations" of exemption or special consideration under MAI. In a special Treasury document released Feb 20th 1998, Treasury declared that they had 16 headings of special reservations, which if accepted by the international drafting committee may, perhaps only for a temporary period (the intention is that these reservations should be rolled back according to a set timetable), grant special consideration in these areas. They are;
1. Foreign investment policy,
2. Acquisitions under foreign Acquisitions and Takeovers Act 1975,
3. Role of Foreign Investment Review Board,
7. Immigration policies,
10. Foreign aid contracts,
11. Performance contracts (requiring foreign firms to export a given fraction of their Australian-produced goods),
12. Government grants and subsidies,
13. Social services,
14. Professional and industry standards,
15. Audio visual,
16. Indigenous persons.
These are the only topics. But no details are made publicly available. Some of these topic areas may not be accepted by the negotiating committee in the final MAI draft, and all may be subject to rollback.
In looking through this list, nearly all topics concern Commonwealth areas of government. Which of these topic areas touch State areas of government? Indigenous persons is definitely a Commonwealth responsibility, despite the present Commonwealth government's wish to pass it back to the States. If fisheries and aviation relate to only interstate and international areas, and do not make provision for intrastate fisheries and aviation, then possibly there are no topic areas involving State government.
In the Treasury list, no mention is made of the main State areas of government, such as hospitals, schools, universities, water works, power supply, transport, agriculture, art and culture, betting and lotteries, construction, conservation, health services, consumer affairs, environmental protection, land management, law enforcement, local government, planning, sport and recreation, tourism, and others. In effect, whether by State government consent and complicity, or by the States being kept in the dark, nearly all areas of State government will be subject to MAI and open to legal challenge by multinationals to ensure that State Governments provide multinationals a level playing field.
In future, under MAI, the two first questions State governments will need to ask when choosing to enact legislation or regulation, are;
(a) Do we have the approval of all multinational corporations with investment interest in the given area?
(b) If we regulate in a way that disadvantages investors, are we prepared to pay the immense compensation costs, payment coming from public taxation?
With such immense economic considerations being supreme, the democratic voice of the public during and between elections will become a minor consideration to governments.
It remains possible that after negotiations in October to conclude the MAI are finalised, the Australian government will try to sign the agreement in secrecy, with minimum further public attention.
The most vocal outcry against our joining MAI will in all probability be from the States. They will all of a sudden be faced with possible requirements to subsidise foreign owned schools, hospitals and other institutions, to the same degree that they are funding public institutions. The likelihood may be that half of State institutions will have to close, because of State lack of finances. Under such circumstances, it is inevitable that the MAI agreement will be immediately challenged by the States in the High Court.
Whether the inevitable climax comes from a ruling in the High Court, from the States combining to reassert their control over income tax, from public outcry, or from a backbench revolt in Canberra, the inevitable result must be that Australia will eventually be forced to withdraw from MAI. But should a nation sign, it will not be permitted to withdraw for 5 years, and will be bound by the agreement for 15 more years.
And if the Australian people refuse to withdraw in this partial sense, insisting on total and immediate withdrawal, and refuse to be bound to the agreement for 15 years, then there is an implication that the mega-corporations will attempt to withdraw most foreign capital from Australia to force Australia to Third World status, so to teach other nations thinking of withdrawing from MAI a lesson. Will such threats succeed? Only the future can tell. But one thing is for certain. The number of prominent Australians who consider that it is economic folly to follow the pathway of signing MAI, are rapidly increasing in number.
What Then are the Alleged Positives from signing MAI?
What do proponents of MAI say is good about MAI?
(1) It is claimed that signing of MAI will bring in investment creating more jobs. However the Canadian experience
under NAFTA has been that of $21.2 billion invested, 60% was borrowed from Canadian banks, and only
2.5% went into setting up new operations --- the rest was for buying out existing Canadian companies.
Figures are not available on how many of these were downsized, or on what the net effect on jobs has been.
(2) It is claimed that signing of MAI will enhance opportunities for Australians to invest abroad, under more favorable conditions. How many Australians does this significantly benefit? And if the aim is supposed to be to attract capital into Australia, how does it benefit Australia to help wealthy Australians send capital out of Australia? The net effect surely is that capital is swapped, leading to more capital in Australia being foreign and out of regulation, and more capital in other countries being Australian and also out of regulation.
Direct Action by States
(a) Legal Action
Once MAI is signed, it is inevitable that the agreement will come under such intense opposition in Australia, that investors may actually be frightened away from Australia because of the political instability so caused. That opposition will inevitably force us to withdraw from the MAI, but after what cost to Australia? It is vital therefore that this experiment in foolishness be nipped in the bud at the earliest possible moment. That is, the States should challenge MAI in the High Court as soon as practicable. Certainly, between now and October 1998, the States should give a firm message to the Commonwealth government that they will not tolerate any erosion of present authority of the States to regulate or govern, and any attempt by the Commonwealth to lever pressure on them to abide with MAI will be strongly and directly challenged in the High Court. Such a challenge could use most of the arguments presented earlier in this article.
(b) Political Action
Alternatively, or perhaps concurrently, the States could demand equity with respect to revenue collection and distribution, and most definitely with respect to management of income tax. In this way a new federal and equitable economic arrangement between Commonwealth and States could be inaugurated.
There are three reasons why a new equitable economic arrangement needs to be inaugurated in Australia, and why therefore the States should consider taking immediate effective action.
(1) Taxation Reform. The Goods and Services Tax (GST) that the present Commonwealth government is seeking is no solution at all. Such a tax takes from the poor, and loads small business with excessive paperwork. The GST has in any case been tested before the Australian people before in an election, and it proved to be highly unpopular. The present Commonwealth government is simply refusing to acknowledge the real problem, which is related to rigidities in collection and sharing of taxation revenues. These rigidities stem in part from the federal nature of the Australian Constitution, but most of all from the lack of boldness and vision from our government leaders (both State and Commonwealth) to find a creative solution.
Since the Commonwealth forced the States out of the income tax field in 1942, the States have had two main sources of revenue, both of which have been unsatisfactory and these arrangements have now reached a state of acute crisis.
Firstly the States have a variety of revenue earning avenues available to them, but these are scarcely adequate to meet the huge demands for State expenditure. The extreme inadequacy of these avenues of revenue raising is reflected in the host of problems that have arisen, for example,
(a) in the eighties some of the States ran up colossal debts because they deregulated the State Banks, and
encouraged speculative profiteering from these banks.
(b) Many of the State taxes are finicky and highly unpopular. Take for example the numerous fees made to bank accounts.
(c) All the States have been forced to gain revenues from gambling, lotteries and casinos. Now we are beginning to see the colossal social problems this has created, requiring in turn vast amounts of money to remedy.
(2) Allocation of Revenue. Secondly, the States have to beg from the Commonwealth for special grants. This is a highly unsatisfactory arrangement, as the Commonwealth has asserted a ruthlessly dominant position. We see therefore that the major decisions affecting the State economies are being made by the Commonwealth government. This in turn leads to major problems.
The problem of distribution has risen to crisis proportions this year, with a sad stand-off between the Commonwealth and States on health expenditure. The States understand the problem most intimately, and yet the Commonwealth insists upon the right to impose its own level of grant. Despite the recent compromise, the health system remains financially in crisis.
Similar problems arise when grants are provided to States with conditions of how the money is spent. Overall the States do not have much negotiating power for projects which they must ultimately materialise.
The problem is most evident in Australia's inadequate response to the Aboriginal Deaths in Custody Commission. Since the recommendations have been handed down, the number of aboriginal deaths in custody has actually been increasing. The Commonwealth refuses to take action, saying it is a State issue. And the States take very little action, saying they do not have the finances. And so very few of the recommendations are actually carried out, and the scandal is receiving broad publicity overseas as a major human rights issue. It seems that this tragedy will not be adequately addressed until the States and Commonwealth together find a federal solution.
(3) MAI and International Economic Agreements. The State/Commonwealth crisis with respect to MAI and the secrecy with which it is negotiated, reflects a general problem; that ever since the Commonwealth has asserted financial dominance over the States through the acquisition of the State income tax departments in 1942, the Commonwealth has used its dominant economic position to exclude the States from meaningful participation in International Economic Agreements. The direction this trend is taking us is displayed in the MAI agreement, which if signed would lead to the erosion of State rights and State powers to legislate or regulate.
There is a very real danger in the Commonwealth executive being granted unrestrained liberty to sign agreements which have such profound economic impact as to negate the rights of the States as guaranteed in the Australian Constitution. If Australia were to sign MAI the consequences would be disastrous.
An Ultimatum from the States
It is vital therefore that the State governments approach the Commonwealth government before October 1998, when MAI negotiations recommence, with a firm demand for equity in the economic sphere. If the Commonwealth does not concede equity, then the States should convene among themselves to re-establish State collection of income tax. The tactic is that the States should reassert their legal right, as a temporary measure, in order to get the Commonwealth to the negotiating table over economic equity and a federal economic arrangement.
It is sufficient for one of the Premiers to take the lead, by publicly expressing discontent at the present tax reform and revenue distribution arrangements, publicly claiming that the States have a right to collect income tax, and inviting the other States to a general meeting to discuss joint action by the States.
The Commonwealth would be invited to the meeting of the States only upon its making certain vital concessions;
1) the Commonwealth concedes that the States have a right to collect income tax,
and to be equal partners in all decisions concerning revenue raising for the States, including access to information
concerning tax evasion by multinationals.
2) the Commonwealth agrees that it will involve the States in full participation in the MAI negotiations, as federal partners with equal rights to the Commonwealth, and the Commonwealth government promises not to sign the MAI agreement without full consent from all the States, and not until after 6 months of public release of the final document.
3) the Commonwealth agrees that it will involve the States sharing with them equal negotiating rights in all future negotiations touching international trade, investment and taxation of multinational corporations.
4) The Commonwealth agrees not to sign any future treaties and agreements until after approval is given by the Commonwealth Parliament.
& 5) The Commonwealth agrees to openly and comprehensively disclose taxation details and statistics regarding multinational corporations to the States and general public.
It is vital that the MAI condition be ceded by the Commonwealth, because signing of MAI would initiate the erosion of State powers through an international contract permitting damages, which though claimed against Australia, would in effect be in relation to issues of State rights and powers.
But most importantly the States must insist upon equal negotiating rights with the Commonwealth on all future negotiations touching international investment. The concern is that there are numerous initiatives to de-regulate investment on fronts other than MAI, many of them secretive. This point was emphasised when US MAI negotiators Joe Papovich and Alan Larson invited NGOs to a meeting in Washington DC on 15/July/98. They made it very clear to the NGOs that they were taking their investment de-regulation agenda to other forums, WTO, FTAA and others. They made it clear that investment "protections" that would be available through WTO would be less comprehensive. The US MAI negotiators said that the environment and labor proposals in the MAI were far better than any proposal NGOs could hope for in the FTAA or the WTO. The implication was that it would be far better to submit to MAI now than await the harsh agenda which will come through FTAA or WTO.
The point of concern in Australia, is that even if the Commonwealth government bows to public pressure and does not sign MAI, there are other investment agenda being promoted, largely in secret. The States must make a stand now on all these agenda, not just MAI. At least with MAI, there is a degree of public awareness now, and the Joint Standing Committee on Treaties is now directly involved. But if the present Commonwealth government is to be re-elected, then will they try to get their investment agenda secretively through other avenues? The major issues involve government secrecy on economic/investment issues, and denial of States being given equal negotiating rights on all matters touching economics and investment, matters which touch the States profoundly.
The issue of the Commonwealth acknowledging State rights to share equity with respect to income tax collection, must not be compromised. If the Commonwealth will not release dominance with respect to income tax, then the States can initiate arrangements to re-assert collection of income tax from next July, giving at least 6 months notice of the changeover.
Now the situation of the States having a dominant role over the nation's finances is as unworkable as the present situation of the Commonwealth having dominance. And if ever there should arise a situation of 'hot war' again, such as World War III, there is little doubt that the Commonwealth could use section 51 (vi) to again reassert control over income tax collection.
The aim of the exercise is not for one side to assert permanent economic dominance over the other, but to create a temporary point of tension which leads towards a mutual and federal economic arrangement. Many will be willing to admit that the present situation of the Commonwealth asserting economic dominance has been abused and is no longer tenable.
What sort of federal economic arrangement could eventuate? This is a complicated question, because it has for so long been acknowledged that the Commonwealth has the economically dominant position, that there has been very little discussion and debate in Australia about true economic federalism --- it has simply been presumed that the Constitutional rigidities are insurmountable. So the first thing such a challenge will do will be to start open discussion and debate about the possibilities.
Once the Commonwealth agrees to release its insistence upon economic dominance, and also agrees to share MAI negotiations with the States, and agrees to make the MAI agreement public, any threat by the States to take over income tax collection can be deferred indefinitely (or until the talks with the Commonwealth break down).
It may be that the process of developing economic federalism will be a lengthy process, perhaps taking a decade to finalise, and may involve an elected convention, similar to that of the republic convention.
One approach may be for the Commonwealth to keep the collection of income tax, but for a set of State economic rights to be agreed upon. Once clarified and generally agreed to, these rights could be enshrined in the Constitution by a referendum.
A second idea would be to combine the revenue raising departments of both Commonwealth and State, so that all revenues go into a Consolidated Revenue Fund, owned jointly by the Commonwealth and States. In this way, petty taxes can be dispensed with, and practices of States balancing the budget by providing excessive costs to the Commonwealth (and vice versa) can be eliminated. Then a federally acceptable arrangement is made by which the national revenue is divided between Commonwealth and States.
Setting up a People's Economic Council
True economic equity will only come when at least a majority of States combine together to demand equity and a share in income tax revenues. For this to happen, a single State government must take the lead, and the Premier of that State must be clearly vocal over issues of MAI, income tax, and economic federalism, and go out on a limb by calling upon the other States to join.
Yet the States have always been divided over such issues. What recourse would that State government have if the States once again are divided? There are indeed powerful actions that a single State government can do to facilitate change. The most effective will be to establish a People's Economic Council, with majority participation direct from Non-Government-Organisation (NGO) groups. Such a Council would have no legislative powers, but would be an informal body parallel to the established government upper and lower houses. Such a body would be similar in composition to the People's Assembly recently suggested by the UN Secretary General Kofi Annan; he recommended that the year 2000 be a "Millennium Assembly focusing on preparing the UN to meet the major changes and needs of the world community in the twenty-first century, and be accompanied by a companion 'People's Assembly' ". The election of the UN People's Assembly remains still in the future, and organisational details have yet to be finalised, but the suggestion is that members be elected from the eight major entities in civil society --- religious, academia, local government, business, trade unions, professional associations, media and indigenous.
The proposal is that such a People's Council as established by a State, be given a preliminary mandate to make recommendations with respect to economic affairs. That is, initially, its primary role will be as an Economic Council. In particular, it will be requested to make recommendations on:
(1) the spiritual basis for sustainable economic activity that provides for the good of the whole community. One of its preliminary roles will be to make recommendations for its own future Charter.
(2) though members will be elected within a State, the sphere of economic interest must embrace also national and international economics. Being just an informal body, with no legislative powers, it will not be limited by State boundaries, nor by rigidities within the Australian Constitution, as to its fields of enquiry. It must embrace completely the principle of economic equity between the Commonwealth and the States.
(3) Its role will be visionary, to plan for a sustainable economy for our children and those of future generations.
(4) It will concern itself with the development of a national economic module for the opening of the national economy to positive forces, such as equal opportunity, privacy, freedom of information, access to essential services, and customer service obligations based upon equity, environmental sustenance and protection, guaranteed sustenance of essential services such as electrical grids, rail networks, satellite systems, gas pipelines, maintenance of roads. Planning would be based upon promoting the common good rather than sectional interests.
(5) It would be a council of review with respect to current State and Commonwealth economic policies, particularly with respect to the ethics of Treasury and budget practices.
(6) From time to time, it will be given certain assignments as nominated by State government. One of the first and most important of such assignments will be to make recommendations with respect to practical measures to bring about Commonwealth/State economic equity, and to clarify the possibilities and options for evolving federal economic relationships.
(7) A further important assignment will be to make recommendations to break the impasse in Commonwealth/State relationships that is stopping the implementation of the recommendations of the Aboriginal Deaths in Custody Commission.
(8) Another assignment would be to develop a futuristic planning module for the economic ramifications for Australia in the event of global economic downturn, such as would be initiated by a global warming crisis, global convulsions of the Earth, the emergence of anti-biotic resistant plagues, magnetic pole reversal, World War III, partial nuclear war, or simply the collapse of the stock exchange.
(9) The People's Economic Council would combine in joint forums with People's Economic Councils from other States, if other States choose to follow the example.
It may be that at first no more than one State enters into such a bold initiative. Yet the very establishment of such a visionary body in just one State would sow a seed of hope among the young, and would become a pivotal point for transformation of our nation into the 21st century.
Massive Tax Evasion by Multinationals
The head of the Australian Tax Office's (ATO's) international tax division, Mr Jim Killaly, told the Herald (Paul Cleary, Economics Correspondent, Sydney Morning Herald, October 28, 1996) that in 1993-94, 60 per cent of foreign-owned and Australian multinationals claimed to be in loss and paid no tax, while the "great bulk" of the remaining 40 per cent claimed to be marginally profitable and paid only a small amount of tax. Multinationals, numbering just 7,000, claimed $30.5 billion in interest expenses, or 60 per cent of total interest expenses claimed by all Australian-based companies. Mr Killaly also revealed that this taxpayer group generated transactions with related companies, including financial transactions, of $60.4 billion in 1993-94. The group is defined as companies that have "related-party international transactions", which meant they traded with or shifted funds to related companies overseas. Mr Greg Crough of the Australian National University, a leading authority on transfer pricing who has been engaged by the ATO as a consultant for several years, says that profit shifting costs Australia well over $1 billion a year. In an interview earlier this year, Mr Killaly said a "conservative" several hundred million dollars a year was being lost and that it posed a "significant risk to revenue". But this estimate was based on a sample audit of only 120 companies. Mr Killaly declined to make public his estimate of the revenue loss.
When such a startling revelation comes from the head of the ATO's international tax division, there is reason for concern. Let us therefore examine in more detail the true nature of Australia's policy of taxing internationals.
What is the true level of foreign ownership in Australia? The Australian Bureau of Statistics (ABS) publishes an all-over figure of 42.6% (ABS Code No 5306) foreign ownership, not accounting for equity. This figure is clearly misleading, as it makes no allowance from nominee shareholders. There seems to be a cover-up of the extent of the foreign ownership figures. Treasury has stopped the publication of vital information, in particular foreign ownership figures in the corporate sector from 1986-87. A Treasury informant has advised John Cumming of Austand that the true figure of foreign ownership in Australia is 90%. There is hard copy to back this information, but it won't be published. ATO has further advised (according to John Cumming) "We have the largest foreign ownership in the developed world". If this is true, there is an enormous cover-up by Treasury. ATO is the only organisation other than Treasury, privy to the degree of foreign ownership in Australia, and of course the tax paid by foreigners. Jim Cairns states that foreign ownership in his time was not far off $200 billion, and Clyde Cameron confirms this figure. It is vital that the full degree of foreign ownership be disclosed to the public, providing full sources for statistics, and including details about nominee shareholders.
What are comparable foreign ownership figures for other OECD nations? The latest available figures, now five years old, from Infotech, indicate UK - 10.5%, USA - 10.3%, Japan - 2.1%, EU - 3.5%. And our contact in Treasury has confirmed: Australia - 90%. Why are we told by Treasury that high foreign ownership is good for us?
How many companies are claiming multinational status in Australia? In the Murdoch Press throughout Australia, in an article by journalist Michael McKinnon, Courier Mail, 14th January 1998, it was stated that in 1996, more than 7,700 companies claimed multinational status. The Commonwealth Auditor-General as far back as 1989 (The Australian, February 16th, 1989), revealed that as many as 40,000 companies may be avoiding tax by shifting profits offshore. The Department for the Auditor-General was not able to disclose more information. It is vital that the true figures be made publicly available.
How much tax do foreigners pay? This is highly secret information. But a document from ABS (document No 5506.0, 1995-96) has escaped the secrecy net. In this year the total tax revenue for Australia stood at $115 billion of which foreigners paid only $10 billion. That is, Australians paid 91% and foreigners just 9%. There is clearly massive tax avoidance involved here. In Japan multinationals pay 52% tax on profit (KPMG, chartered accountants and business advisers). Why are foreigners, owning 90% of Australia, permitted to pay so little tax?
How much money goes out of Australia annually? A Treasury informant advised John Cumming of Austand, that in 1986, $80 to $100 billion had gone out of the country tax free. This research was carried out by ABS personnel. Hard copy evidence was available but remains secret. The figure of $80 to $100 billion has been verified, with several chapters providing information, in the book Lucky be Damned, by John Cumming, published in 1992-93. Projecting these figures taking into account assets sales, leads to a figure today of approximately $200 billion. In 1996 Austand received conclusive proof from the Taxation Office to verify the current $200 billion figure. It is vital that this information be publicly released.
What is the national turnover? The national GDP is nearing $500 billion, but this should not be confused with the national turnover. The GDP appears to be a manufactured figure, and the ABS refuses to identify the source of their information for the GDP report. Recently, this report has been less frequently published. The true figure may be more closely reflected by the Australian Financial Report of 1996. This put the nation's turnover at $27 trillion. This figure increased to $32.5 trillion according to ABC News, 24 November 1997. These figures seem to indicate that the $200 billion figure for money leaving Australia each year is an underestimate. It is vital that ABS release full and accurate information about national turnover, including identification of sources.
Why is it so easy for multinationals to take money out of the country tax free? The simple and direct answer to this is that the government and Treasury policy is to let this happen and hide the truth from the Australian public. Their purpose was to encourage transnationals into the service industries. Moreover, to facilitate this, they have enacted special legislation which gives multinationals a free ride, that is it permits them to pay little or no tax in Australia. The Double Tax Agreement Act was passed in 1953 following a Bill introduced to parliament by Sir Arthur Fadden. This Bill was vigorously opposed by the Hon Clyde Cameron (read Hansard, page 601, 26/November/1953), though it was otherwise little publicised. In effect, this Act allows foreigners to avoid paying tax on their earnings in Australia. They avoid tax easily through price transfer (which involves minimising taxation by artificially charging high prices or operating costs to subsidiaries in Australia), royalties, tax havens and such like. In addition, Treasury regularly gives many advantages to foreign corporations --- tax holidays, tariffs and other benefits --- the Treasury code words being 'bestowing naturalising status'.
What is the effect on Australia of this policy? Multinationals are given an open welcome to come into Australia to compete on our markets and take their profits overseas, while paying little or no tax. This in turn creates unfair competition which forces Australian-owned (tax-paying) companies out of business and a loss of income for the Australian Government. Nearly all major accountancy firms, legal organisations, brokers, PR organisations, advertising agencies, media and many others are now controlled by multinationals. The lack of money staying in the country results in lack of money for development, and therefore leads to unemployment. Government runs short of money, and so the simplistic solution is to sell our assets and "privatise". We have the situation now in Victoria where the Kennett government has sold most of their utilities, such as water, power, gas and others to foreigners, and they are going to be in big trouble soon. It is claimed by Treasury that multinational investment provides employment, but in fact the reverse is true. Let anyone make a study of all the countries around the world where multinationals have taken over large proportions of the country's economy, and they will see a comparative rise in unemployment. This is because the multinationals keep staff down and profit up. In Australia, one only has to compare the escalation of foreign investment with the downturn in employment. If we did not give so many favours to internationals, if we were to do our own development, then the money would stay in the country and so would the profit, which would create more employment.
What are the remedies to Australia's economic problems?
(1) It is vital that comprehensive information from ATO, Treasury and ABS be publicly revealed. This will include degree and amount of foreign ownership, amounts of money and profits shifted overseas, amounts and details of tax paid by foreign and Australian ownership, details of interest expenses and transfer pricing, analysis regarding nominee shareholders, national turnover, and comparative impact of the Double Tax Agreement Act. We cannot expect such reform to be initiated by the Commonwealth government. This is not a Liberal-Labor issue. We can recall that it was the Hawke-Keating Labor government that initiated the non-publication of foreign ownership figures and the policy to sell off our national utilities and icons to foreigners. It is a State-Commonwealth issue. Constitutionally, the States have every right to economic equity, and that means a right to have access to all confidential information from Commonwealth Treasury, ABS and ATO, to audit and investigate this information, and publish whatever from it that they deem fit. It is the States that are hurting the most, and if the Commonwealth does not respond, then the States can take action to enforce economic equity by other means as described in this article. At Commonwealth election time, it is the members of State Parliament who should be most intensely lobbied.
(2) The Double Tax Agreement Act needs to be repealed. The entire philosophy behind it is leading Australia deeper and deeper into the mire. In 1996 representatives of Austand met at Austand headquarters with Mr David Lewis, Assistant Commissioner International Tax Division, who explained that they were having difficulty in reaching their tax targets, largely because they were not able to overcome the problem of price transfer. It was suggested by Austand that if the Double Tax Agreement Act was rescinded, there would be no trouble in reaching the target, many times over. Such a move must be enacted however by Parliament. John Cumming noted that Mr Lewis "left the meeting on an optimistic note".
Information on this section about taxation of multinationals has been supplied with permission by Austand. For more information contact Austand, PO Box 173, Noosa Heads, Queensland 4567, phone/FAX John Cumming (07) 5447 2943.
Response to the Liberal-National Tax-Reform Package
The Liberal-National tax-reform package revealed to the public on 13th August 1998, includes a provision that the revenue from the 10% GST tax goes direct to the States with no strings attached as to how this money is spent by the States. This on the surface seems a move in the right direction towards State/Commonwealth equity, though in practice it entrenches various rigidities which must present substantial obstacles against long-term initiatives towards true equity.
Let us consider some of the problems involved with this proposal;
There are two considerations regarding changes to our Constitution by referendum, which should here be noted;
(1) It is particularly important that when the Commonwealth introduces a referendum to change the Constitution for Australia to become a republic, there is not slipped in a clause to hand exclusive income tax collection over to the Commonwealth. The right to collect income tax by the States is the major element of restraint upon the Commonwealth from destroying the States economically. It guarantees at least an element of economic federalism.
(2) There is a grave danger, as illustrated in the MAI process, of the Commonwealth engaging in executive negotiations in secret, and signing agreements which have momentous impact upon the nature of future government. This impact in many cases (as demonstrated by Franklin Dam) leads to a diminution of State control in some governmental area. It is vital therefore that the power to agree to the signing and ratification of treaties should be transferred from the executive to Parliament. It is suggested that the treaty be approved by a simple majority in both houses separately, or if one house votes for signing and another house against, then by a simple majority of a joint sitting of both houses.
Such an arrangement would need to be initiated through a referendum. It is a great concern to the States that the Commonwealth is entering into a habit of secretive agreements with profound impact upon State governments, and then using such agreements to erode State powers under the authority of the external affairs power. This whole process should be far more open. It seems therefore highly likely that the several States would firmly support such a referendum proposal, and so it would be likely to be passed with more ease than most referenda proposals.
Any such change to the Constitution should embrace a clause which makes it clear that the "external affairs" power is not expanded in any legal sense, by the requirement of agreements and treaties to be approved by Parliament. Continued in Appendix