Monday, 1 September 2014
Minerals Resource Rent Tax Repeal and Other Measures Bill 2014; Second Reading
As I was saying: updated costings for the bill we are introducing today reveal that removing the failed mining tax and all related expenditure improves the budget position by nearly $17 billion over the current forward estimates. Updated estimates for protected mining tax revenue reveal that it is expected to raise just $668 million over the same period.
This bill seeks to repeal or rephase more than $17 billion of legislative expenditure. The government cannot afford to keep borrowing money to pay for this kind of unfunded spending. By repealing or rephasing the measures related to the mining tax, this bill is a necessary step in repairing the damage caused to the nation's finances and it puts the budget on a more sustainable footing going forward. The application dates of the measures in this bill will be fixed by the Treasurer's proclamation once royal assent is received.
Schedule 1—repeal of the MRRT: Australia's mining tax has had a long and tortured journey. It was, of course, borne out of the Henry tax review, which was commissioned by the first Rudd government. One of the key recommendations was for a resource super profits tax, the RSPT. The original RSPT was forecast to raise $49.5 billion over a five-year period from 1 July 2012. This was to be a big hit to one of Australia's most successful industries. Ultimately, the announcement, consultation and handling of the RSPT was a large contributing factor to the demise of former Prime Minister Rudd. In taking over the prime ministership, former Gillard government famously struck a deal with three of Australia's biggest miners—RIO, BHP Billiton and Xstrata—and from this the minerals resource rent tax was born.
The new version of the mining tax also included an extension of petroleum resource rent tax to onshore projects. Forecast revenue on the new version of the mining tax was significantly revised down when compared to the original resource super profits tax. It was forecast to raise $26.5 billion compared to $49.5 billion over the five-year period from 1 July 2012.
Following the second version of the mining tax, there were three further variations, and forecast mining tax revenue has been written down in nearly every subsequent budget and MYEFO update. The government received just $600,000, net of refunds, for the June 2014 quarterly instalment of the mining tax. As previously mentioned, the mining tax, if allowed to continue, would be expected to raise just $668 million over the forward estimates. The mining tax has many design flaws which will preclude it from raising meaningful revenue, particularly when government administrative costs are taken into consideration.
We persistently called on the former government to explain how key details of their mining tax worked, particularly in relation to the upfront tax deduction from the market valuation method which is used to calculate tax liabilities for the minerals resource rent tax. A common statement thrown about by those still clinging to the failed tax is that the mining tax was necessary to have the industry pay its way. In 2011-12 the mining companies paid more than $24 billion in company taxes and royalties.
The mining tax is a flawed tax; and what is worse is that it imposes large administrative costs on operators in the resources sector trying to comply with the complex tax. The repeal of the minerals resource rent tax will save millions of dollars in compliance expenses for small, medium and large entities. So far in the two years of its existence, less than 20 taxpayers have contributed to paying the net $340 million raised by the mining tax but more than 125 miners have been required to submit mining tax instalment notices while making no net payments. That is around 125 taxpayers who are all complying with the mining tax legislation but not actually paying any tax. Therefore not only is the MRRT a complex and unnecessary tax which has failed to raise the substantial revenue predicted by the former government; it imposes a significant regulatory and compliance burden on the iron ore and coalmining industries and damages business confidence, which is critical to future investments and jobs.
Some have been complaining that just because the mining tax has raised so little revenue it could not possibly damage investor confidence. This argument ignores the importance that foreign companies place on investment decisions, especially in high-cost countries such as Australia. Unexpected costs in imposts imposed on business with no warning and unnecessary ongoing compliance burdens are deterrents for foreign investors, and that is exactly what the mining tax is.
The repeal of the mining tax will restore confidence and promote activity in the mining industry, creating jobs and contributing to the prosperity of all Australians. It sends a clear signal that Australia is determined to remain a premier destination for mining investment, and is once again open for business—as we have heard the Prime Minister say so many times.
Mining companies in Australia will continue to pay their fair share of tax through state royalties and company tax. We need to do what is responsible and repair the budget—that is what we were elected to do—and the removal of the mining tax and its associated expenditure is another step in the right direction.
Schedule 2 deals with loss carry-back. Schedule 2 of the bill repeals the mining tax related loss carry-back provisions that enable companies making a tax loss of up to $1 million to recoup taxes paid on an equivalent amount of taxable income in a prior income year. Companies will not lose access to their tax losses; rather, consistent with arrangements prior to the MRRT related amendments, companies will carry their tax losses forward to use as a deduction for a future year. The removal of this measure will improve the budget position by $1.3 billion over the forward estimates.
Schedule 3 deals with the small business instant asset write-off threshold. Schedule 3 of the bill amends the instant asset write-off threshold provisions. The instant asset write-off amount was increased to $6,500 in two stages as part of the mining and carbon tax packages. The mining tax package dealt with the increase from $1,000 to $5,000 whilst the carbon tax package dealt with the increase from $5,000 to $6,500. This legislation before the House returns the write-off amount back from $6,500 to $1,000, effective from the income year in which proclamation occurs. Consistent with arrangements which existed prior to the MRRT related amendments, small business entities will still be able to deduct the value of a depreciating asset which costs $1,000 or over but over a longer time frame. the single small business pool arrangements will be preserved to maintain lower business compliance costs. Under these arrangements, assets costing $1,000 or more will be allocated to the existing general small business pool and depreciated at a rate of 15 per cent in the first year and 30 per cent in subsequent years.
If the value of the general small business pool is less than $1,000 at the end of the income year, the small business can claim a deduction for the entire value of the pool. The improvement in the budget position from reducing the instant asset write-off from $6,500 to $1,000 will be $3.2 billion over the forward estimates.
Schedule 4 deals with deductions for motor vehicles. The bill also provides that motor vehicle purchases made by small business entities will no longer be eligible for an accelerated deduction of $5,000. Motor vehicle purchases by small business entities using the simplified depreciation rules will instead be treated as normal business assets under the concessional capital arrangements available under subdivision 328-D of the Income Tax Assessment Act 1997. Under these arrangements, they will be depreciated at a rate of 15 per cent in the year in which the asset is first used or installed for use and then 30 per cent for all subsequent years. If this bill is passed without undue further delay, the taking away of this measure will improve the budget position by $550 million over the forward estimates.
Schedule 5 deals with geothermal energy. The bill will repeal the extension of the income tax exploration provisions to geothermal energy exploration so that geothermal energy exploration and prospecting expenditure is not immediately deductible. Instead, normal capital depreciation rules will apply, simplifying a company's compliance expectations and requirements. Amendments are included to provide a capital gains tax rollover in cases where a geothermal exploration right is merely exchanged for a geothermal extraction right relating to the same area. This ensures that a capital gains tax liability will not be inappropriately incurred, consistent with the treatment of other mining rights. The removal of this measure will improve the budget position by $15 million over the forward estimates.
Schedule 6 deals with the superannuation guarantee charge percentage. The rate of the superannuation guarantee will be paused at the rate which is presently legislated for the proclamation year. The Treasurer will by a non-disallowable legislative instrument have the power to amend the superannuation guarantee charge percentage, which will allow the Treasurer to pause the rate for the following three income years and then increase the rate in increments of 0.5 per cent percentage points each year until the rate reaches 12 per cent. If this bill is passed without undue further delay, this measure will result in the SG rate being paused at the 1 July 2014 rate, which is 9½ per cent, and remain at that rate until 1 July 2018 when it will increase to 10 per cent on 1 July 2018 and then by 0.5 per cent every year thereafter until the rate reaches 12 per cent on 1 July 2022. These amendments to the superannuation guarantee will improve the budget position by $2.6 billion in cash terms over the forward estimates.
Schedule 7 deals with the low-income superannuation contribution. Schedule 7 of the bill abolishes the low-income superannuation contribution. The government will revisit concessional contribution caps and incentives for lower-income earners once the budget is back in a strong surplus—and we all need that. The white paper on the reform of Australia's tax system to be prepared before the next election provides an opportunity to consider the appropriate taxation of superannuation contributions, including for low-income earners. Low- to middle-income earners may be eligible for the superannuation co-contribution to boost their retirement savings. The removal of the low-income superannuation contribution will improve the budget position by $3.6 billion in cash terms over the forward estimates.
Finally, schedule 8 deals with the repeal of income support bonus—this is not final; it is the penultimate. The coalition made very clear in the lead-up to the last election that, if elected, we were committed to getting rid of the mining tax and all of the unfunded spending promises, including the income support bonus. Participation in the workforce is the best way to ensure economic stability and the payment system is geared to promote this while ensuring that a safety net exists for those requiring help. This bill will abolish all future payments of income support bonus from a date fixed by proclamation following the passage of the bill. Removal of this measure will improve the budget position by around $1.3 billion over the forward estimates.
Finally, schedule 9 of the bill repeals the schoolkids bonus.
Ms Macklin interjecting—