Tuesday, 22 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
It was the great German statesman of the 19th century Otto von Bismarck who said: 'Laws are like sausages. It is better not to see them being made.' I am reminded of this quote as I rise to speak on the Minerals Resource Rent Tax Bill and the 10 related pieces of legislation. Flawed from the start and deficient to the end, the government's plan to introduce a mining tax at the federal level has been characterised by incompetence writ large. Secrecy and confusion have become bywords for a process that has not just alienated investors and the industry but also contributed to the downfall of a Prime Minister who miscalculated the toxicity of a tax across the Australian electorate. Now the government stands desperate to ram this legislation through the House, cobbling together last-minute deals in the backrooms with the Independents, while denying its own members an opportunity to speak on the bills—all because it fears the political consequences of subjecting such flawed legislation to further scrutiny and debate.
There are three major reasons this legislation should be opposed, so damaging as it is to our economy and our country. First is the flawed process. The minerals resource rent tax now before the House finds its genesis in the resource super profits tax announced by the Rudd government in May last year. The RSPT was the brainchild of the Henry tax review and was one of only a handful of recommendations from the 138 offered by the review that was ultimately adopted and subsequently announced without any consultation with those stakeholders most affected. This 40 per cent tax was on profits which exceeded the 10-year government bond rate. This was seen as a particularly punitive rate of tax and would have had retrospective application to projects where investment decisions were initially made on the basis that no such tax would ever exist.
The hue and cry was both expected and understandable. But far from learning the lessons of this failure, the new Prime Minister, Julia Gillard—desperate to be seen doing something on the eve of an election—proceeded to enter into exclusive new negotiations with the three biggest miners, leaving many small- and mid-tier players out in the cold. Led by the Prime Minister herself, the Treasurer and the Minister for Resources and Energy, Treasury officials were not invited, leading to the obvious conclusion that this was to be a political not an economic settlement. Again subject to stinging criticism of its process, the government adopted a policy transition group, headed by former BHP Chairman Don Argus, to provide further advice. Its 94 recommendations were subsequently accepted and the result is the MRRT, which is a project-based tax on taxable resources—iron ore, coal and some gases—at a rate of 22½ per cent.
Extending to more than 500 pages, the legislation is extremely complex and has even been subject to question as to its constitutional validity, opening up new avenues of uncertainty. What is more, the MRRT deviates from Dr Henry's original recommendation to do away with state government royalty schemes, preferring to leave them intact. Even the number of companies that the government claims will be subject to the tax has shrunk dramatically. Originally the RSPT was to apply to more than 3,000 miners. Last year, the Prime Minister claimed the revamped scheme would apply to around 300. And now, in the last few days as the threshold has been changed in a deal with the member for Denison, we have the government saying that it will apply to around 30.
It would seem that the mining tax, so important to the government as a matter of principle, has been sacrificed on the altar of political expediency. All the government wants is simply a deal to say it is done. Groucho Marx would be proud of Prime Minister Gillard's actions, for it was he who once said:
Those are my principles and, if you don't like them ... well, I have others.
But if one thinks that the flawed process that led to this tax is bad, then one should consider the detrimental impact it will have on jobs and investment in the mining sector.
Australia's resources sector employs directly more than 200,000 Australians, many in regional areas. The flow-on impact for jobs in construction, mining services and manufacturing is also significant. In 2010-11 mining constituted around 40 per cent of all business investment in Australia, with that number only going upwards from here. As an income earner it is without parallel, with the resources sector contributing around $160 billion in export earnings in 2009-10. We cannot afford to put this kind of investment, job creation and wealth generation at risk—but with the mining tax it is at risk.
Other commensurate resource rich countries like Canada, Brazil, Indonesia and South Africa do not have such a punitive taxation regime. When one adds the carbon tax to the equation it is not hard to see foreign companies and market investors deciding to put their money elsewhere. It is with this in mind that the chief executive of South African miner Anglo Gold Ashanti, Mark Cutifani, said recently at a forum for Commonwealth business leaders 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.' Such a damning statement must be a cause for concern.
We have to understand that we may be in possession of over 10 per cent of the world's coal and iron ore reserves, but this is not a monopoly position. The resource industry is competitive and sentimentality has no place. Investors are looking for returns on their capital and if Australia does not provide such a conducive environment they will go elsewhere—and our resources will ultimately stay in the ground and the potential economic dividend to the nation will never arrive. A third and final downside to the government's MRRT legislation now before the House is the detrimental impact it will have on the budget's bottom line. It is estimated this mining tax and the PRRT will raise $11.1 billion over the forward estimates. But, with the recent increases in state royalties by the New South Wales and Western Australian governments, this number has fallen to $8.1 billion. With volatile commodity prices—iron ore, for example, has dropped nearly one-third in recent months—there could be an even bigger black hole in the government's revenue projections.
Not withstanding these factors, the government has committed to using these proceeds on a range of measures, including changes to the company tax rate, superannuation age guarantee and the creation of a regional infrastructure fund. These government promises will create a structural deficit, with the Senate inquiry into the mining tax estimating that the net cost to the budget over the next decade will be at least $20 billion.
This country is enjoying its best terms of trade in nearly 140 years. But, despite these economic times, the government have an extremely poor economic record which has seen them quickly squander their golden inheritance from the Howard and Costello years of no government debt and $50 billion in the bank, so that this government now have a net government debt position of $107 billion and rising and an interest bill of nearly $20 million a day—enough to build five teaching hospitals in Australia each and every year.
In light of this poor economic record, the mining tax before the House tonight will only make Australia's budget situation worse. This mining tax is the child of a flawed process. It will increase sovereign risk, it will deter investment and send jobs offshore, and ultimately it will produce a structural budget deficit position which will hurt the Australian people in the long term. For these reasons and many others, the legislation before the House tonight cannot be supported. There must be a better way.