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
Hot on the heels of the carbon tax passing the Senate, the Gillard government has rushed another swathe of bills into this place that continue a tradition for this government. A wealth redistribution bent is becoming entrenched in all Gillard government policies—quick-fix tax grabs that move to plug budget black holes and pay for idealistic policies that aim to solve every problem for every Australian.
The minerals resource rent tax is another piece of legislation formulated without due consideration of the true impact it will have not only on industry but also on wider society. Tax the rich to give to the poor, says this government, and all our problems will suddenly go away. But, like any fairytale, it is not quite that simple. As the Select Committee on the Scrutiny of New Taxes stated in its interim report:
The Gillard mining tax is divisive, complex, unfair, fiscally irresponsible and reduces our international competitiveness ... It gives an unfair competitive advantage to the three largest miners and makes federal budget outcomes hostage to decisions about royalties by state and territory governments.
Surely this is a lesson not to introduce a new tax. There is little in these bills worth saving. The government must start from scratch and pursue a genuine tax reform agenda to achieve a lower, fairer and simpler tax system through open, transparent and inclusive engagement with all stakeholders. Failure to do so in the case of this mining tax will only reinforce the current iron ore oligopoly, lock potential new smaller and mid-tier producers out of the market and act as a significant disincentive for new developments and diversification in the future. Failure to do so will also cast questions on the way this government does business with the private sector.
Recently, while on these shores and standing in this place, President Obama spoke of freedom, prosperity and liberty. The alternative Prime Minister echoed these sentiments, as did importantly our Prime Minister—importantly because this philosophy is ignored in the mining tax legislation. A nation cannot express its fundamental principles in ideologue but forget them when it comes to writing the laws of the land, which it should go without saying must always be in the best interest of all citizens. This government has divided the mining sector by making the three biggest miners co-signatory in the design of this new tax.
The Prime Minister afforded Xstrata, BHP Billiton and Rio Tinto an unprecedented position to act on behalf of the entire industry. Three big miners with well-established projects have written every advantage into the negotiations they can with offsets and tax deductibilities galore. But it leaves us with legislation that illegitimately disadvantages smaller operators. The disadvantages are due to lower economies of scale and consequently higher unit costs of production and their often single-project status which prevents the transfer of unutilised losses and royalty allowances to related projects. This delays cash flows, reduces profitability and introduces a risk that some losses will never be recovered. And their higher risk profile reduces the availability and increases the cost of both equity and debt.
This would only be aggravated by the higher level of taxation due to the MRRT. The Henry tax review, from which the idea of the MRRT stemmed, was supposed to be about root-and-branch tax reform to deliver a simpler fairer tax system. Instead, the Gillard mining tax is more complex, less fair and continues this government's trend of ignoring its own advice with a view to economic expediency. The Henry tax review recommended a lower tax burden for smaller mining ventures, to help start-ups grow and prosper and to keep mining ventures in their decline phase alive longer. Instead, smaller and mid-tier mining ventures will pay a higher effective tax rate. These companies feel understandably aggrieved that the mining tax will make it harder for them to compete with those big multinational, multicommodity companies.
With consideration of the government's own modelling as outlined in the Treasury's second exposure draft, an emerging producer starting after 1 July 2012 will pay a much higher level of total taxation—corporate income tax plus net MRRT and royalties—compared to an identical project which was already in existence prior to 2 May 2010, when the MRRT was first announced. There will be a time lag before the project which was in existence before 2 May 2010 will pay the same effective annual rate of total tax as that on a new project starting after 1 July 2012. These bills have fundamental unworkable flaws. It would be most acceptable for the government to expand the scope of its analysis of the impacts of this tax beyond the Select Committee on Scrutiny of New Taxes. Further inquiry would demonstrate the government should take measures to establish a higher degree of competitive neutrality in the MRRT legislation.
The mining sector is hugely important to Australia's continued prosperity. It is an industry where Australia has an international comparative advantage for now. Mining accounts for nearly two-thirds of the value of Australia's exports of goods and one-half of Australia's total exports of goods and services. Mining directly employs 224,000 Australians and there are tens of thousands of additional Australians in manufacturing, mining services, construction and infrastructure working to support the mining sector. In 2010-11, mining accounted for almost 40 per cent of all business investment in Australia. Forward estimates suggest mining will account for over half of all business investment in 2011-12. That makes the sector a major driver of growth today. Investment in this sector will add to Australia's economic activity for many years to come.
Australia is competing for scarce capital and jobs in the world market. There are plenty of other countries seeking to develop their mining sectors. At this time of global economic uncertainty, governments and public policy makers around the world are focused on saving old jobs and creating new jobs. Why then is this government introducing job-killing legislation? You do not win a game by hampering your best player. With the MRRT there will be a strong incentive for companies with diversified operations to place new capital in countries where they will get the highest return after tax. This will reduce the flow of capital to the higher-taxing countries and those higher-taxing countries may soon be Australia.
The mining tax is not the cure-all serum the Treasurer is searching for to bring the budget into surplus by 2012-13. Treasury projections of MRRT revenue to 2020 indicate that Treasury expects revenue to reduce over time as commodity prices come back to more normal levels. Over the first year since the mining tax was announced, revenue estimates have jumped around from $12 billion, up to $24 billion, back down to $10.5 billion, down again to $7.4 billion and up slightly to $7.7 billion. But the cost of measures the government has attached to the MRRT will continue to grow strongly over time against these declining revenues. Over the next decade, the Senate inquiry into the mining tax has conservatively estimated that the net cost of this tax will be $20 billion. The cost of the proposed increase in compulsory super to 12 per cent alone is expected to rise to $3.6 billion in 2019-20. That same year, the Treasury projection of MRRT revenue is $3 billion.
These deficits could be significantly reduced or eliminated by legislation that does not illegitimately disadvantage a significant proportion of the mining sector. More fundamentally, these are deficits that Australia could rally against if the federal government revisited its contract with the Australian people. Taxation is one of the most complex and delicate policy areas entrusted to law-makers. Taxation reform must be an ongoing process. It must not to be targeted at one industry in isolation in an attempt to profit from private enterprise success. Australia needs genuine taxation reform, not lazy tax grabs. Australia needs taxation reform which is focused on delivering lower, simpler and fairer taxes. Australia needs tax reform aimed at improving our productivity and international competitiveness to encourage increased workforce participation and enterprise, and to attract investment.
Genuine tax reform must be accompanied by a serious effort to reduce government spending and waste. Asking if the measures require the funding of this new tax is something the executive powers section of the Constitution charges the federal government with involving itself in. Or are these issues best left to the private citizen to tackle with income that should be left in their back pockets? The goal of tax reform must be to reduce the overall tax burden of the Australian community.
I return to the words of the President of the United States of America, the Prime Minister and the alternative Prime Minister last week: 'Freedom, prosperity, liberty'. These words were echoed in this chamber by all leaders as the very values by which our nation has prospered. This freedom is also freedom from taxation, freedom from social engineering and freedom from unjust wealth redistribution. We cannot forget this when speaking to legislation and ultimately casting our vote on bills that so clearly subvert these ideals. The current ad hoc nature of taxation reform in Australia must be consolidated into a coordinated framework that focuses on spending reform. The work of the Henry tax review would be reconsidered and all state and territory governments would be actively engaged.
I wish to speak now with specific reference to my state of Western Australia. To this day there has been no consultation with any of the state or territory governments about the implications of the mining tax. This is despite resource royalties representing 20 per cent of WA state government revenue. At the time the government signed the deal with the big three miners, Treasury assessed that the MRRT would raise around $38.5 billion annually. About 65 per cent of that revenue, or $25 billion, is expected to come from iron ore production. With almost all the iron ore production taking place in Western Australia, the MRRT is a massive and disproportionate national tax impost on this state's economy. WA Premier Colin Barnett also questions why the tax will not be applied universally to all mining operations—namely, high-grade haematite and low-grade magnetite.
This tax is a further intrusion of the government into the revenue sphere, autonomy and budget flexibility of the states and territories. While the mining tax is envisaged to operate alongside state royalties, with a tax credit available for state royalty payments, I suspect there is a significant risk that states will effectively be crowded out of this revenue base. Industry is also likely to bring pressure to bear on the states to abolish their royalties so that companies need comply with only one regime rather than two. Such an outcome would increase WA's reliance on Commonwealth grants and exacerbate the already high vertical fiscal imbalance between the Commonwealth and WA. The absence of a Commonwealth, state and territory agreement was always going to expose the federal budget bottom line to future royalty increases in any state or territory. How the federal government ever thought they could 'reform' resources taxation and royalty arrangements without actively engaging the states and ultimately reaching agreement with the states is beyond belief. After all, the resources belong to the states, not to the Commonwealth.
The government has made a mess of its attempts to reform our tax system. It should cut its losses and start again. Genuine tax reform can be achieved only through an open, transparent and inclusive process involving all stakeholders, including state and territory governments. The combination of highly volatile revenue from the MRRT expected to reduce over time and the increasing cost of associated measures over time, as well as state and territory royalties being credited by the Commonwealth, creates a fiscally irresponsible combination. There is no need for a multibillion dollar new tax on top of the existing mining taxation framework to ensure an appropriate return for the community. The government's MRRT will handicap Australia in the global competition for scarce capital and jobs. It carries significant risks for Australia's long-term economic prosperity. The coalition opposes this mining tax.