Thursday, 3 November 2011
Minerals Resource Rent Tax Bill 2011, Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011, Minerals Resource Rent Tax (Imposition — General) Bill 2011, Minerals Resource Rent Tax (Imposition — Customs) Bill 2011, Minerals Resource Rent Tax (Imposition — Excise) Bill 2011, Petroleum Resource Rent Tax Assessment Amendment Bill 2011, Petroleum Resource Rent Tax (Imposition — General) Bill 2011, Petroleum Resource Rent Tax (Imposition — Customs) Bill 2011, Petroleum Resource Rent Tax (Imposition — Excise) Bill 2011, Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011, Superannuation Guarantee (Administration) Amendment Bill 2011; Second Reading
Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source
Just ignore him, as his electorate will, Madam Deputy Speaker. The government was still downloading parts of the bills and the explanatory memorandums this morning, and now it wants us to have a properly informed debate. Well, let's give it a good shot.
The first two of the 11 bills implement the new minerals resource rent tax and extend the petroleum resource rent tax to cover all Australian oil and gas projects, whether they are onshore or offshore. The next two bills—the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011 and the Superannuation Guarantee (Administration) Amendment Bill 2011—implement changes to the personal income tax provisions and superannuation. The remaining seven bills deal with administrative and technical issues, which this House will not have the opportunity to properly consider.
The new taxation arrangements for the mining sector will apply from 1 July next year, and there are two elements. The minerals resource rent tax regime will apply to the mining of iron ore and coal in Australia, and the petroleum resource rent tax regime will be extended to all Australian onshore and offshore oil and gas projects, including the North West Shelf. This will capture emerging projects such as converting coal seam gas to LNG. The new taxes will apply to Australia's most important commodities: iron ore, coal, oil and gas. The government has struggled with a number of variations of this tax to get it right—one of the reasons why we wanted to have a properly informed debate and a proper opportunity to have a look at the 11 bills. But no: this government, with typical undue haste, gets the details wrong. The big, sweeping statements it comes out with are not backed up with attention to detail. This tax in particular has been a salutary lesson in how not to introduce a new tax.
The original proposal for a resource super profits tax emerged from the Henry tax review in May of 2010. Dr Henry recommended a uniform resource rent tax on non-renewable resources, replacing existing state government royalty systems. The government's original RSPT—resource super profits tax—effectively nationalised 40 per cent of the revenue stream from the mining industry. This government nationalised Telstra again, so why would they stop now? They wanted to nationalise 40 per cent of the Australian mining industry. They would take 40 per cent of the superprofits—profits which in their view exceeded the 10-year government bond rate—and wear 40 per cent of the losses. Of particular concern for business was that the tax applied retrospectively in that it applied to existing business operations which had been developed in an environment with no Commonwealth mining tax. The RSPT was estimated to raise $12 billion over the forward estimates. Of course, there were various changes to that during the course of discussions.
There was, as we know, furious opposition, and it proved the last straw for the then Prime Minister, Mr Rudd. Less than two short months later, he was stabbed in the back by the current Prime Minister, Ms Gillard. The new PM offered the mining industry a truce and fresh negotiations. As it turned out, although we did not know this at the time, this was an olive branch to three major miners in the lead-up to the last election. There were no Treasury officials present. The new minerals resource rent tax was announced just two weeks later, in early July. The announcement was long on rhetoric and actually quite short on detail. In fact, the two-page memo which is the heads of agreement on the minerals resource rent tax is signed by the Prime Minister, the Treasurer, the Minister for Resources and Energy, the head of BHP, the head of Rio Tinto and the head of Xstrata—no other mining companies and no other agreements. It is unprecedented in the Australian taxation system that there is not even a cabinet decision on this but that a government negotiated an agreement for a multibillion-dollar tax with three players when the tax would apply to the industry. I seek leave to table the heads of agreement.
The MRRT applies to fewer minerals and at a lower rate, but it still has retrospective implications. It was estimated to raise $7.7 billion over the same forward estimates as the RSPT, a revenue reduction of $4.3 billion. The smaller miners—the rest of the industry other than the big three—were unhappy, understandably, at not being consulted and believed they were unfairly hit while the big three got off relatively lightly. The government eventually conceded the new tax had not been thought through properly, with the announcement in early September 2010 of a policy transition group to be headed by Don Argus, the former chairman of BHP, to refine the details. The group reported in December 2010, so this is version No. 3 of the mining tax—in fact, version No.4. The first one was what Ken Henry recommended, the second one was what the government announced, the third one was the deal with the mining companies and now we have version No. 4, which the former chairman of BHP is actually engaged in consulting on.
The group reported in December 2010. It made 94 recommendations on the technical design of the new resource tax arrangements. In March this year the government accepted all the recommendations of the group, just showing that the various iterations before were totally flawed as well. In March this year, when the government accepted all the recommendations, they could not get the job done even then, and the government then had to appoint a resource tax implementation group to help with the drafting of the legislation. So there have now been two versions of the draft legislation for the MRRT. One was released in June this year. That version was followed by a revised exposure draft, which was released for comment on 18 September. The government, without notice, then introduced the 11 bills yesterday and expects everyone to sign off on them today. This is a tax that is extraordinarily complicated and fundamentally flawed. The industry, from the big companies to those that can least afford it, is being burdened with considerable costs in having to implement new internal systems to identify and record expenditure in order to ensure compliance. Planning for this new tax—whether with the assistance of external consultants or the redeployment of existing personnel—will be immensely expensive.
Let us deal with the bills before the House. After all this time we would have expected that the design of the tax would be settled and the industry would understand it. But there remains furious opposition. Taxpayers with amounts of MRRT assessable profits—that is, $50 million per annum—will be excluded from the MRRT. The MRRT will apply at a rate of 30 per cent. New investment will be allowed to be written off immediately rather than depreciated over a number of years. A project will not pay any MRRT until it has made enough profit to pay off its up-front investment. The MRRT will carry forward unutilised losses at the government long-term bond rate plus seven per cent. It will provide transferability of deductions. This supports mine development, arguably, because it means the taxpayer can use the deductions that flow from investments in the construction phase of a project to offset the MRRT liability from another of its projects that is in the production phase.
The MRRT will provide a full credit for state mining royalties. That was a point of disagreement after the heads of agreement, which was signed by the three ministers together with the three heads of the mining companies. There was a dispute about whether state mining royalties would be credited in full. Western Australia was the first to move, removing the discount for iron ore fines and therefore increasing their royalties. In its last budget New South Wales also moved to increase royalties. The net cost of that is $3 billion over the forward estimates. That is $3 billion that immediately comes off the bottom line of the MRRT.
The MRRT will provide recognition of past investments through a credit that recognises the market value of that investment. It is written down over up to 25 years. It will recognise the particular characteristics of different commodities by applying a taxing point close to the point of extraction and using appropriate pricing arrangements. It will provide a 25 per cent extraction allowance to recognise the value add and capital that mining companies bring to mineral extraction.
As you can see, it is a complicated tax. It is quite unlike other taxes such as income tax or GST. Those taxes are based on the activities of the company as a whole. The accounts of the company form the starting basis for working out the particular tax liability. Contrast that with the MRRT. It taxes profits from a part of the entity's operations, from mining projects that the entity carries on. There will be increased accounting administration, therefore increased costs to businesses, in measuring results at the project level. Resources put to use more productively will have to be deployed in dealing with this complexity. It will add to the cost of mining in Australia.
The Assistant Treasurer's second reading speech stated that the package of bills was 'developed in partnership with the resources sector', that being just three miners. It went on to say the package 'is a direct result of the strong cooperation of industry in the legislative process'. Fair dinkum—this is just spin and gross exaggeration. Take one example. Since the first material was released by the government, the mining industry has been concerned that the complex tax—which requires the application of novel concepts and principles in working out the liability—will mean the miner is faced with uncertainty in calculating the liability. So, when the government appointed the policy transition group chaired by Don Argus, it recommended that in developing the explanatory memorandum to the MRRT bill—which by the way was still being downloaded on the internet this morning—the drafters should provide clear explanations and examples.
The Minerals Council of Australia felt strongly about the need for certainty. In their submissions on both the first and second exposure drafts, the MCA asked that it be made clear in the bill that the explanatory materials and examples should be taken into account to confirm the meaning and interpretation of the legislation. They also wanted the minister's second reading speech to highlight the importance of the explanatory material to the interpretive process. So, despite the Assistant Treasurer's lofty claims about a partnership, the industry itself—even those that signed the heads of agreement—obviously has concerns about the process.
We also now have details of the petroleum resource rent tax changes for the first time, even though the tax has been in place from 1 July 1987. It will be extended to cover all Australian oil and gas projects, whether they are onshore or offshore, at a tax rate of 40 per cent. There is a range of uplift allowances for unutilised losses and capital write-offs and immediate expensing is available for all expenditure. All state and federal resource taxes will be creditable against current and future PRRT liabilities from a project. You do not win a game by hampering your best performing player with a bad and complicated tax like this. The mining sector is important for Australia's prosperity. It is an industry in which Australia has an international comparative advantage. It employs directly 224,000 Australians, and most of these are in regional areas. In 2010 it accounted for 40 per cent of all business investment in Australia, and that is rising dramatically. The sector is a major driver of growth.
The rules of the game have been changed by the government, and Australia is competing for scarce capital and jobs in a world market. There are plenty of countries seeking to develop their mining sectors—from Brazil, Chile and Canada right through to a number of very poor countries in Africa and Asia—so there is an additional element of sovereign risk associated with these bills. But, more importantly, this illustrates the government's incompetence in making a decision.
We have had numerous versions and numerous drafts and then, when the legislation finally gets to the House, we have less than 24 hours to consider 11 new bills. No wonder the chief executive of South African gold miner AngloGold Ashanti said on 26 October at the Commonwealth Business Forum in Perth that Australia is:
… one of the top sovereign-risk countries in the world on the basis of government policy and its demonstrated behaviour in terms of taxation policy and its inconsistency in policy.
He said that about our country.
The constant changes and confusion on this tax have made international investors more wary of investing in Australia. Of course, the biggest driver of investment in Australia, the biggest pipeline of investment in Australia, is the mining sector, and the head of one of the biggest mining companies in the world identifies inconsistency in demonstrated behaviour in terms of tax policy as one of the reasons there is sovereign risk in investing in Australia.
This is a bad tax. It will reduce investment and jobs. It will reduce the wealth and retirement incomes of everyday Australians. It will hamper Australia in global competition for scarce capital and jobs. And at a time of heightened global uncertainty this is precisely the wrong time to introduce a complicated tax. There have now been four different sets of projections of revenue from the mining tax. The offsetting expenditures as identified in a Senate report are going to create a black hole. This tax will not raise the money that the government is claiming. It will not raise the money! And yet the government claim to have offsetting expenditure. The offsetting expenditure will grow when this tax fails to deliver the revenue that they claim.
The bottom line for Australia is that this tax not only creates a black hole for the Australian mining industry but is going to create a black hole in the budget—and it is all going to be the responsibility of the Labor Party and the Independents. (Time expired)