Few things excite a treasurer more than tax avoidance.
The idea conjures up fantasies of great pots of untaxed money — money the government is morally entitled to but for one reason or another (the weakness of previous administrations, probably) is being denied.
No surprise then, as his budget savings fade away into nothingness, Joe Hockey has turned his mind to the old corporate tax avoidance chestnut.
On the weekend in Cairns the G20 finance ministers agreed to tackle "base erosion and profit shifting ... to make sure companies pay their fair share in tax". Our very own Hockey, as G20 host, is leading the charge.
Profit shifting refers to the fear that multinational firms are structuring themselves to route profits through lower-taxing countries.
Base erosion is the fear that this profit shifting is eroding the tax base, starving governments of funds.
The Organisation for Economic Co-operation and Development (OECD) started focusing on base erosion and profit shifting last year, pushing it to the front of the G20's agenda.
They've been amply backed up by breathless newspaper stories about the complex tax structures of firms like Apple that have divisions in Ireland and the Netherlands.
All very interesting except for one thing. The profit shifting problem isn't that much of a problem.
It's true that in the 1990s, when economists and policymakers first turned their mind to how multinational firms plan their tax liabilities, they looked at aggregate country-level data and concluded (as one of the first major studies said) "companies locate a sizable fraction of their foreign activity in tax havens".
This early work implied profit shifting was both real and substantial.
But now economists are working with more fine-grained data specifying how firms structure their internal debt around global affiliates. And as they look closer at those affiliates, the evidence is telling a very different story.
A 2014 overview of the empirical literature by one of the major scholars of global tax avoidance, Dhammika Dharmapala, concludes "in the more recent empirical literature, which uses new and richer sources of data, the estimated magnitude of (base erosion and profit shifting) is typically much smaller than that found in earlier studies".
There is even, as Dharmapala points out, some evidence to suggest profit shifting has been declining in the last decade, not increasing.
We're now talking about multinational corporations shifting somewhere between 2 per cent and 4 per cent of their profits to tax havens.
Two to 4 per cent is not nothing, of course.
But these lower numbers help resolve the big profit shifting puzzle. If the corporate tax base is being eroded, then why is revenue from corporate tax going up?
Between 1965 and 2007 corporate income tax revenue increased from 2.2 per cent of GDP to 3.8 per cent of GDP in OECD countries. (Revenue fell somewhat during the Global Financial Crisis but is on the rebound.) This despite the fact that corporate tax rates have been lowered over the last 40 years.
Even the OECD, in its 2013 paper Addressing Base Erosion and Profit Shifting, thinks the stability of corporate tax revenue is a bit odd (see here, page 16).
Perhaps the answer is simple: profit shifting isn't as big a deal as newspapers and treasurers think.
At least, if nothing else, those facts ought to engender some scepticism about whether there really is a profit shifting crisis. Let alone one that requires urgent, internationally coordinated action.
So where is that scepticism?
We've seen how quickly commentators look for self-interested political motivations behind government pronouncements on national security and foreign policy. This is healthy. But all that valuable distrust seems to disappear when we talk about crackdowns on corporate tax — a field where political self-interest is blindingly obvious.
Hockey admitted earlier this month Australia has "amongst the strongest anti-avoidance laws in the world".
Like many other countries, Australia has a general anti-avoidance rule, a catch-all law that allows a court to override any scheme it believes is designed primarily to produce a tax advantage.
Our anti-avoidance rule is incredibly broad and creates enormous uncertainty. But it is also extremely powerful. If there was really a tax avoidance problem in Australia the authorities would be well equipped to handle it.
Multinational corporations have to make choices when deciding where they should base themselves. Different countries have different labour costs, workforce skills, levels of infrastructure, protection of the rule of law, and, of course, different tax rates.
The G20's real gripe is that they are being forced to compete for the tax affections of the world's biggest companies.
You can understand why the treasurers of the world think tax competition is harmful. They want to maximise their government's revenue.
It's not obvious why we should share their concern.
At the end of the day, consumers and workers benefit when corporate tax rates are low and attractive. Anything that pressures our governments to keep those rates low is a good thing.
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