The Australia Institute welcomes the opportunity to make this submission to the Senate Inquiry on Corporate Tax Avoidance. The issue of tax avoidance by multinational companies has been a research focus of the Institute for some time. While issues of declining PRRT payments and low company tax payments are becoming widely known, particularly due to this committee’s work, another important part of public discussion is the claims by corporations that they are actually large tax payers.
Often these claims are based on reports the companies or their lobby groups commission from economic consultants. These reports use various methods to calculate future tax payments by companies, or future tax revenues that governments could receive from wider economic activity based on clients’ projects. Invariably, the consultants’ work is presented as being certain, precise and scientifically derived by the use of economic models.
However, the future is not certain, economic models are unscientific and often “precisely wrong rather than vaguely right’’. They depend on a huge number of assumptions that are inherently subjective. These assumptions are routinely not disclosed in the modelling reports, let alone the company media statements that follow. In some cases, the modelling reports themselves are not made public, meaning no scrutiny can be given to these claims. Furthermore, the claims in commissioned reports are rarely compared to real world data on recent tax payments by the companies to ascertain whether the models are producing realistic results.
These reports often receive media coverage with little scrutiny and weaken the public’s understanding of tax issues. In this submission we outline some of these reports, their key results and their key flaws.
A driver of this problem is the lack of professional standards in the economics consulting industry. The Australia Institute has long advocated for a code of conduct for economic modellers that would assist with transparency and reporting of commissioned economic modelling. We would be happy to expand on this submission further, either in writing or before a hearing of the committee.