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Speech: Oaktree Foundation

Speeches in Parliament
Lee Rhiannon 6 Feb 2013

Adjournment Speech: 5 February 2013

Low-income countries are currently losing about $1 trillion annually, 10 times the amount they receive in foreign aid, due to company malpractice, corruption and tax avoidance, both legal and illegal. These are startling figures, and it is this disparity that is driving organisations that advocate and deliver overseas aid to push for reforms in low-income countries to address tax evasion, fraudulent accounting and illicit money flows.

Christian Aid, Transparency and Accountability Initiative and a number of Australian aid groups have identified that financial transparency and accountability can play a key role in helping to prevent corruption and to develop policies, programs and legislation to give priority to public needs. The Oaktree Foundation is doing some outstanding work in this area. It is Australia's first and largest development agency run by young people. The CEO of the Oaktree Foundation, Viv Benjamin, writing in her blog on this issue, has detailed that East Timor is losing an estimated $3 billion in revenue due to unpaid corporate taxes. The Oaktree Foundation reminds us that these funds could provide urgently needed public infrastructure, schools and hospitals for the East Timorese people. Christian Aid have identified

Christian Aid have identified that in recent decades tax reforms in developing countries have been regressive, with corporate taxes being lowered and consumption taxes, which hit the poor hardest, being increased. The World Bank is playing a key role in pushing lowincome countries to change their laws on company taxes and financial management in ways that attract foreign investors to these countries. Many of these laws are why low-income countries are losing billions of dollars that go into the profits of large corporations. Australia needs to accept some responsibility for this robbery of wealth from low-income countries, because we are a member of the World Bank. Australian aid money goes to the World Bank and we are a voting member of that organisation. In 2012-13, Australia will contribute $189.5 million to the World Bank. Christian Aid in their report Un dermining the poor have brought together some important findings. Latin America has closely followed the World Bank's advice and generous tax incentives in providing generous tax incentives for foreign investors. These are now common. As a result, some countries have extremely poor mineral taxation regimes. There is growing realisation that Peru, Guatemala and Honduras are not getting a fair deal from their mineral tax and royalty contributions. These countries have among the lowest level of royalties in the world. Peru did not even charge royalties in 2004, and now many companies have refused to comply with the new legislation and are therefore not paying the new royalty. Both Guatemala and Honduras charge a paltry one per cent royalty. In Honduras they offer a five-year tax holiday. This has led to their share of the wealth from the minerals in that country being even lower than that of Peru.

The official data that Christian Aid has analysed shows Honduras does not even get the minimal amount it should be due from a one per cent royalty contribution. In 2007, it is reported that the minerals sector, worth US$198 million that year, contributed only US$283,000 in royalties, licences and fees together, giving the government an almost unheard of 0.1 per cent share in the sector's turnover. Christian Aid make the important observation that the World Bank's role in both encouraging inappropriate taxation regimes and investing in mining companies should not be ignored. The World Bank's International Finance Corporation holds shares in the Yanacocha and Antamina mines in Peru. Both these companies have used their tax stability contracts to refuse to pay royalties, costing the Peruvian state US$226.6 million between June 2004 and December 2006.

The World Bank's International Finance Corporation was also one of the first investors in the Marlin mine in Guatemala. While IFC staff were aware of the rock bottom one-percent-royalty rate and the corporate tax exemptions offered to the company, staff still claimed the tax contribution would be substantial—a claim which is far from the truth, according to the analysis of Christian Aid. Christian Aid goes on to observe that it seems the World Bank's public commitment in development forums to raising tax revenue will take a back seat in any internal decision-making process related to investment.

A number of African leaders have also spoken on this issue. They have identified that they should not rely on foreign aid and that their countries need taxation reform. Africa currently has one of the lowest tax-to-GDP ratios in the world. A very low tax-to-GDP ratio makes it difficult for countries to raise funds internally to pay for government operations, forcing them to rely on outside financial assistance such as aid. Dambisa Moyo, a former Goldman Sachs economist, in writing on this problem has identified the associated political ramifications. Ms Moyo has said: … the absence of taxation leads to a breakdown in natural checks and balances between the government and its people.

Back in Australia, many of the young campaigners who are advocating for greater corporate tax transparency will visit our parliament to speak with us about this problem in coming months. The Oaktree campaign has a clear message that the more money developing countries can collect in their tax revenue the less dependent they will be on aid, and that if multinational companies pay their dues the world's poorest nations will be better equipped to sustainably lift themselves out of poverty.

I look forward to meeting members of Oaktree and the other aid groups who are working so hard to ensure our government keeps its promises on foreign aid. I feel their message is inspiring. They will tell us that we can end extreme poverty in our lifetime, that our world has the resources and that transparency can help ensure our aid money, and money raised from progressive tax policies, benefit the people and the environment in low income countries.

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