Philip Hamilton, Politics and Public Administration
The emergence of the data economy poses challenges for current legal frameworks that govern commerce, taxation, and privacy. Recent Government initiatives have aimed to address these challenges.
In preparation for a broader Consumer Data Right (CDR) to be established sector-by-sector, from 1 July 2019, the big four banks will participate in a pilot of Open Banking. With both major parties supportive of the CDR, a CDR Bill may be reintroduced in the 46th Parliament. However, there may be momentum for further consideration of how the proposed CDR framework may operate.
A number of countries are considering a Digital Services Tax (DST). Following consultations, in March 2019, the Government decided against a DST, preferring ongoing engagement in multilateral processes. OECD options are likely to be discussed at a meeting of G20 Finance Ministers in June 2019.
Data is transforming many aspects of society.
This paper introduces the data economy—a part of the economy that has developed with the emergence of data and data analytics as tradeable commodities in their own right.
Data as a tradeable commodity
As noted by an Australian lawyer working at the intersection of data, technology, commerce and privacy, the emergence of data and data analytics as tradeable commodities poses challenges for governments and legal frameworks that, until recently, have only had to accommodate trade in property, goods, rights or services. Data does not fit neatly into existing frameworks for ascribing value or taxation to an asset, because of the following attributes:
- data has little inherent value, its value being largely dependent on the quality of analysis applied to it
- analysis can involve data adding value to other data, for example when insights are generated by the combination of different datasets
- use of data does not result in data being ‘used up’ and
- data can be easily reproduced for minimal cost.
These characteristics highlight the challenges that data can present to commercial regulatory frameworks, for example, in relation to: data rights; privacy and security; competitive advantage; and taxation.
This brief highlights a range of data economy issues likely to be of relevance to the Parliament.
Productivity Commission report
A key document in the development of an Australian response to the challenges of the data economy has been a March 2017 Productivity Commission (PC) report, which discussed ‘the benefits and costs of options for increasing availability of and improving the use of public and private sector data by individuals and organisations’. In early 2018 the Coalition Government’s response adopted the three key features of the PC’s proposed framework:
- a new Consumer Data Right to ‘give citizens greater transparency and control over their own data’
- a National Data Commissioner (NDC) to ‘implement and oversee a simpler, more efficient data sharing and release framework’ and
- new legislative and governance arrangements for data sharing and release (DSR).
The NDC and DSR are discussed in the
article ‘Public sector digital transformation’
in this Briefing Book.
Consumer Data Right
In November 2017, the Coalition Government announced that a Consumer Data Right (CDR) would be established sector-by-sector, beginning in the banking, energy and telecommunications sectors. From 1 July 2019 the big four banks will participate in a pilot program to test the performance, reliability and security of Open Banking (the name for CDR in the banking sector). Consultation about a CDR in the energy sector commenced in February 2019.
A CDR Bill introduced in February 2019 lapsed in April 2019 with the ending of the 45th Parliament. The Explanatory Memorandum for the Bill stated that under CDR ‘individuals and businesses [would have] a right to efficiently and conveniently access specified data in relation to them held by businesses’. Brief outlines of the proposed CDR framework have been provided by the Parliamentary Library (in a Bills Digest on the CDR Bill) and by an article by a private law firm.
According to the Second Reading speech on the CDR Bill, ‘improved access to data will support better price comparison services, taking into account their unique circumstances, and promote more convenient switching between products and providers. It will also leverage new technology such as artificial intelligence and allow consumers to make more informed decisions on where they spend their money’.
The Bills Digest noted a range of concerns expressed by stakeholders, also observing that although ‘most submitters [to a Senate committee inquiry on the CDR Bill] supported the concept of a CDR there were differing views about the implementation process with some criticising the compressed time frames for consultation’. The Senate committee’s report noted that ‘Labor Senators are supportive of the broad policy intent of the consumer data right but do hold concerns about the government's current proposed framework’.
During the election campaign, those concerns about the framework became clearer as the ALP emphasised an interest in ensuring the benefits of CDR are available to all banking customers, regardless of net worth or capacity to pay for services. Media reporting on the ALP’s position also observed that, although ‘there aren’t many specifics’, the ALP appeared to want ‘a much bigger discussion about how data can be harnessed for social and public good rather than just used to drive competition between already clearly profitable institutions’.
With both major parties supportive of the CDR and with the Open Banking pilot program commencing on 1 July, a CDR Bill may be reintroduced in the 46th Parliament. However, there may be momentum for further consideration of how the proposed CDR framework may operate.
Current internationally-agreed arrangements for the taxation of multi-national companies (MNCs) are based on the assumption that the permanent establishment of a company’s assets in a country provides that country with a valid justification to tax income or profits earned from sales in that country. The US Congressional Research Service (CRS) has explained how digital services provided by some MNCs challenge those location-based arrangements because, when services are internet-based, no physical presence of assets may be necessary for the conduct of income-producing activities in a particular country.
In addition, the CRS noted that ‘in the digital economy, it is common for firms to operate in two-sided markets, where they sell or provide services to two sets of customers’. The CRS gave an example in which a social media company could ‘use revenue earned from customers on one side of the market (advertising sales to businesses) to subsidize the free provision of services to customers on the other side of the market (individual platform users)’.
In Australia, the Department of the Treasury undertook a consultation in late 2018 about the digital economy and Australia’s corporate tax system. A Treasury discussion paper explored ‘options to move towards a fairer and more sustainable tax system for the digitalised economy’, including outlines of European and UK proposals (as does the CRS). In March 2019, the Coalition Government noted ‘stakeholders overwhelmingly supporting [sic] Australia continuing to engage in the ongoing multilateral process led by the OECD and the G20’. In this context, the Government decided to ‘continue to focus … efforts on engaging in a multilateral process and not to proceed with an interim measure, such as a digital services tax, at this time’.
In February 2019, it was reported that ‘the next major public testing of the viability of [OECD] proposals will likely be the June 2019 meetings in Japan of G20 Finance Ministers and Leaders’.
For more information, see the article
‘Multinational taxation and the digital
economy’ in this Briefing Book.
The US CRS defines cryptocurrencies as ‘digital money in electronic payment systems that generally do not require government backing or the involvement of an intermediary, such as a bank’.
In December 2018 the CRS concluded that ‘the future role and value of cryptocurrencies remain highly uncertain’, with possible concerns including ‘its alleged facilitation of crime’, consumer protection, ‘the level of appropriate regulation of the industry, and cryptocurrency’s potential effect on monetary policy’. In addition, The Economist magazine has highlighted that ‘mining’ for cryptocurrencies (that is, using computers to maintain a cryptocurrency’s transaction ledger) is a highly energy-intensive activity.
Recent initiatives in Australia have addressed particular problems associated with cryptocurrencies. In early 2019 the Treasury undertook a consultation process about initial coin offerings (ICOs). In April 2019 the Australian Taxation Office announced that it is ‘collecting bulk records from Australian cryptocurrency designated service providers (DSPs) as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax’.
The availability of data facilitates the development of Artificial Intelligence (AI) and Machine Learning (ML). Useful introductions are provided by the US CRS in its Artificial Intelligence and National Security and by the Brookings Institution in its Artificial intelligence primer.
Around the world, AI is seen as a key technology in economic development, with media reporting noting that China and the US are considered to be leaders. The European Commission is developing a coordinated, ‘human-centric’ AI plan.
In Australia, recent government initiatives have looked to address both the technical and the ethical aspects of AI. The 2018–19 Budget provided $29.9 million over four years from 2018–19 to ‘strengthen Australia’s capability in Artificial Intelligence … and Machine Learning … supporting … business innovation in sectors such as digital health, digital agriculture, energy, mining and cybersecurity’.
As one outcome of this Budget measure, in April 2019 the CSIRO’s Data61 published Artificial Intelligence: Australia’s Ethics Framework (A Discussion Paper).
New technologies, rights and freedoms
The Australian Human Rights Commission is undertaking a project that ‘explores the impact and opportunities of new technologies to protect and promote our rights and freedoms’, including: ‘the challenges and opportunities for human rights of emerging technology’; and ‘innovative ways to ensure human rights are prioritised in the design and governance of emerging technologies’. A Discussion Paper will be published in mid–2019 and a Final Report will be published ‘by early 2020’.
In early 2019 the University of Sydney hosted a conference on the ethics of data science. The conference program provides an introduction to current issues in data science and AI, as identified by leading practitioners in law, commerce, and technology.
P Leonard, Is data your most valuable asset that you never owned?, Gilbert and Tobin Lawyers, 2018.
M A Neilsen, Treasury Laws Amendment (Consumer Data Right) Bill 2019, Bills digest, 68, 2018–19, Parliamentary Library, Canberra, 2019.
S Lowry, Digital services taxes (DSTs): policy and economic analysis, Congressional Research Service, 2019.
D Dawson et al, Artificial Intelligence: Australia’s Ethics Framework (A Discussion Paper)
, Data61 CSIRO, 2019.
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