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
The coalition opposes the Minerals Resource Rent Tax Bill 2011. This is a flawed tax derived from a flawed process and it will have a detrimental impact on our economy through its multiplier effects and unintended consequences. It is being imposed on one of the most important sectors of the Australian economy—one that until now was succeeding, despite the federal government's poor and reckless management of the Australian economy. This tax is a result of an extremely flawed process. The resources super profits tax, the predecessors of what we are debating today, was announced with no consultation with industry and no consultation with stakeholders. There was no consultation with the state governments and no consultation with territory governments, despite the tax having significant impacts on their own revenue—the revenue which funds our schools, hospitals and local roads.
There is no doubt that this tax has an impact on the states' revenue, as the Henry tax review recommended that this tax replace state and territory royalties and, as such, the Commonwealth government should negotiate the financial implications of this tax with the states. However, the Gillard government did not take this direct approach, did not put in the hard yards of negotiation that would result in a defined funding arrangement—like the coalition government did with the introduction of the GST.
Instead of genuine reform, we have seen a series of discussions which have led to a complex, complicated and convoluted system that is to be introduced under this scheme. Further, when consultation did take place, it was an extremely closed-door process involving only the Prime Minister, the Treasurer, the Minister for Resources and Energy and the managing directors of the three biggest mining companies: BHP, Rio Tinto and Xstrata. The managing directors of all other mining companies, the competitors of these three big miners, were excluded. The inclusion of only three companies, any three companies, in the development of such fundamental change for the whole of an industry is treacherous. Understandably, any economically rational managing director would be looking out for their own interest. This has become apparent through the inclusion of the market valuation system used to calculate applicable deductions, as this design gives the three big companies a significant tax shield that is not available to small and mid-tier companies.
The government's proposal also means that smaller miners will either pay the minerals resource rent tax sooner or they will continue to pay royalties on production, while also being subject to increased compliance burdens. This burden on the smaller miners is in direct contradiction to the Henry tax review, which recommended a lower tax burden for smaller mining ventures to help start-up ventures grow and prosper. The closed process in which the government chose to engage is questionable and leads me to view the development of this tax scheme as a very flawed process.
And still there has been no consultation with state and territory governments. Australia has a federal structure—yes, we have a central Commonwealth government—but you cannot have a federal structure unless the regional governments, our state and territory governments in Australia, have powers that the central government cannot render inoperative and unless the regional governments have the ability to provide themselves with the necessary finances to enable their powers to be exercised.
Any funding that affects the revenues of the states and territories should be discussed with those governments. That is their right. To not discuss this tax proposal which will have significant implications for GST sharing arrangements around the country, and will have significant impacts on state royalties, is really quite an outrageous and arrogant move by this government. Resources royalties make up six per cent of the New South Wales government's revenue, nine per cent of the revenue of the state government of my home state of Queensland and 20 per cent—one-fifth—of the Western Australian state government's revenue. Changes that affect such large amounts of funding really must be discussed with states and territories. However, this government has failed to undertake that consultation.
Real reform of resource taxation cannot take place without consultation with the states and territories. We have seen the results of this lack of consultation already. The Western Australian, New South Wales, South Australian, and Tasmanian governments have already increased royalties on iron ore and coal in light of the uncertainty now surrounding resources, and this is translated into a $3 billion hit to the Commonwealth government budget so far. The Queensland government has reserved its right to raise royalties in the future.
The MRRT affects state budgets, and state decisions regarding resources affect federal budgets. It seems clear that discussions should take place between the two parties, but the federal government simply did not include the states and territories as part of their plan.
It also seems that the government is keen to stifle debate, with the legislation moving to the second reading just 24 hours after it was introduced and just weeks before the House Standing Committee on Economics is due to report on its findings into the tax. The full explanatory material was only fully uploaded onto the parliamentary website on the morning that the second reading began.
There are also serious questions which should be raised about the constitutional validity of this mining tax. Dr Ken Henry himself has confirmed that the Commonwealth government did not seek advice with regard to the Constitution. Resources are the jurisdiction of the states, and the mining resource rent tax imposes a tax on a resource at the point of extraction. Whilst the Constitution disallows interstate custom charges—Queensland cannot impose a tariff on goods entering or exiting their ports—it is currently unclear whether the MRRT is in fact imposing a tax on state property, which is prohibited by the Constitution. By not seeking advice on the constitutional validity of the MRRT, the government has already caused a situation where a number of mining ventures and the Western Australian state government have announced High Court action if the MRRT legislation should be passed by parliament.
The MRRT is already proving to be divisive. The actions the government has taken have seen the industry split between the big three companies, which were included in the policy development, and the rest, particularly the small and mid-tier firms which are aspiring to be as successful as these three big companies and provide the jobs and wealth to Australia that would come out of such success.
It is also dividing the states. Since Federation we have seen contention over state funding arrangements; however, under the MRRT scheme 65 per cent of the revenue would come from Western Australia alone. This was confirmed by Dr Henry in evidence to the Senate mining tax inquiry. It is astonishing that one new national tax would raise 65 per cent of revenue from one state alone—an estimated $25 billion of $38.5 billion of total revenue over the next decade.
I have spoken about the flaws of the process of developing the MRRT. Equally as worrying, however, is the effect it will have on the budget. The MRRT will significantly worsen the structural deficit of the budget over time. The government seems to think of it as their own magic pudding—a never-ending source of revenue. Much of their expenditure on new programs is dependent on this legislation being passed. However, while Australia is experiencing a mining boom—and we are fortunate to be a resource-rich nation—at the end of the day our resources are finite and the decision to link a volatile revenue source to programs with ever-increasing costs puts fiscal policy in a very tenuous position.
A prime example of this was found during the Senate inquiry into the mining tax. The proposed increase in compulsory superannuation alone, once fully implemented, will every year cost more than the MRRT will raise, according to Treasury estimates. Overall, conservative estimates show that approximately $57.6 billion in government spending has been linked to the revenue of the MRRT. However, Treasury estimates that $38.5 billion will be raised by the MRRT. This points to a $19 billion shortfall before any of these programs are introduced or a $21 billion shortfall once the reduction from the Western Australian royalties decision is taken into account. This is simply irresponsible. It is yet another example of this government's poor and reckless financial management.
Mining counts for two-thirds of the value of Australian exported goods. Mining employs 224,000 people and many tens of thousands more in industries supporting and supplying the mining sector. In 2010-11, mining accounted for 40 per cent of business investment, and on forward estimates will account for half of investment in 2011-12—a huge contributor to economic growth in Australia. However, the MRRT changes this. Mining is an industry with long-term leases. It takes many years to achieve a fully operational mine. This government's actions have created a cloud of uncertainty not only about the effects of the MRRT but about how the government may decide to change the rules halfway through a project's life. Mining companies that established themselves 10 years ago would not have included the MRRT into their forecasts, so why should they now believe that their industry will not change again and again?
It is naive to think that, by introducing a tax which will impose great costs on this industry, we will not see projects, jobs and investments go offshore. Australia may be resource rich, but we do not hold all the mineral resources in the world. Nations such as Canada, Brazil, Chile and the continents of Africa and Asia are all currently developing their resource sectors and would be happy to take the extra investment that will be driven out of Australia. Capital can move, and a company which sees that a country has high sovereign risk will choose another option for their new projects. The MRRT risks that situation.
As I have just said, the actions of this government have already caused uncertainty, and companies will take the impact of government decisions and imposts on their projects into account when deciding whether or not to pursue a project in Australia. The constant changes and confusion surrounding the development of the MRRT has already affected investment decisions and will continue to do so. This, of course, negatively affects Australia's economy at a time when we are one of only a few countries actually keeping our heads above water.
And it is not only the mining industry that will hurt under the MRRT. Four hundred thousand Australian small businesses will be affected by changes to the entrepreneurs tax offset that are part of the package the government intends to impose. The stripping away of this tax incentive will take $150 million from small business; and, as a former small business owner myself, I know just how hard this loss will be for Australians trying to support themselves and their families. When the bills come in, it is the small business owner who gets paid last. If the weekly earnings do not stretch to cover those small business owners, they simply do not get paid. We are not talking about big multinational companies; we are talking about restaurants, service providers and corner shops. The Treasurer said just today that small business is the driving room of Australia. How does he then justify the effects of abolishing the ETO?
The minerals resource rent tax is flawed—flawed in its development and flawed in its outcomes. It is an impost with far-reaching effects, and the revenue it is expected to raise has already been flagged for projects that have an expected shortfall even before they have started. The minerals resource rent tax will have a detrimental effect on this key industry. It will have a detrimental effect on investment. It will have a detrimental effect on jobs. And it will have a detrimental effect on the economy. The coalition cannot and does not support this flawed legislation.