Labor leader Bill Shorten has unveiled his first substantial tax policy as Opposition leader, saying Labor could raise almost $2 billion in extra revenue by cracking down on multinational profit shifting and boosting funding for the Australian Tax Office to investigate corporate tax avoidance.
Announcing the policy on Monday, Shadow Treasurer Chris Bowen said it was the "opening salvo in the battle of ideas" with the government, and Mr Shorten said the bulk of his party's revenue-raising measures would come from reducing the amount of debt that multinational companies could claim deductions for in Australia.
But the Abbott government immediately criticised the plan, with Treasurer Joe Hockey saying Treasury advice showed the plan would cost jobs and make the Australia less competitive.
The Business Council of Australia and the Australian Chamber of Commerce and Industry - the two biggest lobby groups for business - were also quick to warn about unintended consequences.
Mr Shorten said his plan had been costed by the Parliamentary Budget Office and would deliver nearly $2 billion to the budget bottom line over four years.
The bulk of the revenue, over $1.6 billion, would come from amending Australia's so-called 'thin capitalisation' rules so multinational companies would no longer be able to claim up to a 60 per cent debt-to-equity ratio for their Australian operations. Instead, deductions would be assessed on the entire debt-to-equity ratio of a company's global operations.
Mr Shorten said he could raise another $100 million over four years by better aligning Australia's rules on hybrid entities with other countries' rules; another $67 million by increasing funding to the ATO; and another $90 million by bringing forward the start date for improved compliance through third-party reporting and data matching of financial information.
But the Business Council immediately questioned the plan, saying although the ideas about hybrid entities, reporting arrangements and the ATO's funding could be "further explored," it had "serious concerns" about Labor's proposed changes to thin capitalisation.
"Some of the company tax measures announced today by the federal Opposition have the potential to slow economic growth and further diminish Australia's competitiveness," BCA chief executive Jennifer Westacott said.
"This would come at a time when, more than ever, Australia needs investment to drive jobs and growth and economic resilience.
Kate Carnell, ACCI chief executive, said the proposal could have "significant unintended consequences" for major project investment and lead to fewer job opportunities.
Treasure Hockey ridiculed the plan in Question Time.
"I asked the Treasury ... 'What does this mean?' And the advice of Treasury was the proposal in relation to thin capitalisation will cost Australian jobs," Mr Hockey said.
"That will cost jobs at Unilever, at Shell, at McDonald, at IBM. That will cost Australian jobs because if you make it more expensive for international businesses to operate in Australia they will simply reduce their operations, as we have seen with car manufacturing companies," he said.
Labor's proposal was supported by the Australian Council of Trade Unions and United Voice.
