International taxation

A desperate need to increase tax revenues only strengthens those incentives and magnifies the danger of tax grabs that reduce efficiency in the longer term. That taxing multinationals is far less painful than reducing deficits by cutting spending, while the efficiency losses it causes are rarely visible, then adds to the risks.

It is therefore crucial that the costs and benefits of proposed changes be carefully scrutinised; yet there has been very little of that to date. The rushed, highly politicised nature of the G20 process discourages that scrutiny; and Australia’s efforts have not been much better.

For instance, the scoping paper Treasury issued in July, Risks to the Sustainability of Australia’s Corporate Tax Base, has a general discussion of the efficiency aspects of the taxation of the income from international investment; but those concepts largely vanish when it turns to the specifics. The result is an evaluation that gives greater weight to revenue extraction than to economic efficiency.

But raising revenues is not an end in itself: it is a means to a prosperous society and should be pursued in a manner that does not unnecessarily compromise that goal. And few things undermine prosperity more surely than punishing multinationals, while demonising them along the way. The Coalition knew that when it was in opposition; it would be disappointing if it forgot it now.

So yes, as it chairs the G20, the government should ensure the pressing challenges of international tax are tackled.

But the aim must be to advance long-term economic growth, not to help profligate governments get a revenue sugar hit.

via Taxing question as global firms exploit the gaps | The Australian.

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