Thursday, 26 June 2014
Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2]; Second Reading
I rise to speak on the important issue of repealing the minerals resource rent tax. Today and at previous times, I have heard, endlessly, members opposite banging on about programs that will be cut. There is a schedule of programs that will be cut. One needs to ask oneself: why will these programs be cut? The reality is: of the revenue that was supposed to be raised by the minerals resource rent tax—to pay for things such as the loss carry-back, the small business instant assets write-off threshold, deductions for motor vehicles, geothermal energy, superannuation guarantee charges, low-income support contributions, the repeal of income support bonuses and repeal of schoolkids bonuses, plus infrastructure—only $340 million has been raised since its inception by this failed tax.
I just want to name one project, in infrastructure, that was funded by the money to be raised from that tax, and that was the ring road around the Perth airport—a good project, costing $480 million. Well, this tax has only raised $340 million to date, and yet the funding for the other programs continues. This is typical of the budgeting ability of a Labor government.
I heard the member for McMahon, the shadow Treasurer and former Treasurer, talk about all these cuts and how terrible it was and how good this tax was, and how we as Australians deserve to share in the mineral wealth of this country. Well, can I tell you: these programs are leading to a deficit in this country, because the tax is not raising revenue that it was designed to raise. If you, members opposite, want to mount your argument about Australians sharing in the mineral wealth of this country, you should at least have a look at the state governments, who actually place the royalties on the minerals coming out of the ground. That is how we share the mineral wealth in this country, as the states actually own the minerals. When the minerals come out, a royalty is placed on them, and that royalty can move up and down as market conditions demand. I have heard some ironic arguments in this place in my time here since 1996, but none more ironic than the one against cutting spending on programs that are funded out of a tax like this when the tax has not even raised enough to pay for one of the projects that it was being raised for.
It concerns me that members opposite argue to keep this tax and the carbon tax. It concerns me because, across Australia, we are seeing mining jobs under threat—not only direct mining jobs but indirect jobs as well. Yet members opposite, those who have coal in their regions, including the member sitting at the table opposite, the member for Cunningham—
Ms Bird interjecting—
I know you're there! She has not spoken a word about supporting the mining industry, when Illawarra coal is cutting jobs in her electorate.
Ms Bird interjecting—
I am honest enough to admit that the jobs are going primarily because of the amount that they are getting per tonne. But the difference in making a profit is the cost of extraction as against the sale price. One of the costs of extraction is the amount paid in the carbon tax, and, given that only 20 of the mining companies are actually paying the minerals resource rent tax, there are 145 companies that have to go through the auditing process, and that auditing process is another cost to the bottom line of minerals extraction.
Headline after headline after headline is about job losses and potential layoffs in the mining industry. This week, we have seen BHP over in the west put out an announcement that 500 jobs were going—100 at their headquarters—and possibly 3,000 jobs. That was a report from ABC News by Graeme Powell updated yesterday. This concerns members on this side of the House because we know that we need a viable mining industry to sustain this nation.
The mining industry was expected to contribute $49.5 billion through the original resource super profits tax over five years, and then, in 2010, that was replaced with the MRRT, and that was destined to raise $26.5 billion over five years. Let us go forward in time: it has raised $340 million in net terms. Yet the previous government had locked in $16 billion of expenditure over the forward estimates. I have heard Labor stand up and talk about their economic credentials, and there was all that talk when they were in government about posting surpluses. But this displays their understanding of how to put a tax together, as against expenditure; this displays why Labor should never be in government and never be in control of the books.
I do not call for a one-party state, sunshine, but what I call for is economic reliability and sustainability and sense—and you failed on all three fronts. You produced deficits the likes of which were never seen in this country.
All through my electorate, workers in the mining industry have been affected, whether from the shutdowns at various mines throughout the Hunter or, indeed, the layoffs, or the indirect flow-through to places like WesTrac and Sandvik which have laid off people and have potentially more layoffs to come. And why? As I said, at least I am honest enough to admit that it is at least in part because of commodity prices, but it is also because of the cost of production. And the minerals resource rent tax and the carbon tax are both contributors to the cost of production.
There are around 265,000 people, according to the ABS, employed in the mining industry across Australia. If you add the indirect to the direct, they say that it could be roughly a million people employed in our mining industry—that is a lot of jobs. That is about eight per cent of our national workforce. And eight per cent of our national workforce deserves the support of both sides of the House, through removing this insidious tax which raised nowhere near the revenue—nowhere near the revenue, thank God—that it was intended to. I mentioned the member for Cunningham earlier. The Peabody mine at Helensburgh has lost 42 jobs locally and the company has lost 400 nationally.
It is not just confined to New South Wales. If you look at the Northern Territory, the member for Lingiari's Frances Creek iron ore mine is becoming unprofitable and jobs will go. Why? In part because of the cost of production. There are 20 companies that are paying the MRRT but there are at least 145 that have to go through the auditing processes and submissions, which cost an awful lot of money. I will go through some of the job losses that have occurred. At the Glencore Xstrata Newlands Northern coalmine, 50 jobs will go in the next couple of days. Bradken Foundry is shut, with 1000 jobs lost. At Wollongong Coal, formerly Gujarat NRE, there were 47 voluntary redundancies; the workforce dropped by 20 per cent. At Aurizon workshops, jobs were cut in June; 480 jobs will go by 2017. At Arrium, 120 jobs, or 20 per cent of the workforce, are to go at the Newcastle Warratah site. At Gindalbie Metals, admin jobs were cut at the Karara project in Western Australia. BHP Illawarra Coal will cut 36 jobs by 30 June. Glencore Ravensworth coalmine is going into care and maintenance in September with 17 redundancies and possible redeployment for another 110 people. The Vale Integra coal complex at Camberwell and Glennies Creek will cut 500 jobs. Forge went into administration, cutting 1,370 jobs. The Anglo American Drayton coalmine has 500 employees for the chopping block by 2017. BMA's Saraji coalmine in Queensland will lose 230 jobs. Rio Tinto announced job cuts to come at the Hail Creek coalmine earlier this month. Joy Global's machine maintenance services at Rockhampton has lost 25 jobs. The LDO Chain Valley colliery, in the member for Charlton's seat, has cut 73 jobs in March; sixty were already retrenched from Ravensworth. It goes on. There have been 4,230 recorded job losses since January this year, according to an article from AustralianMiningon 26 May.
Mining is the backbone of our communities. I come from a mining area and I understand how that flows through the whole economy. In fact, there was a very good article written by Ian Kirkwood in the Newcastle Herald which focussed on the flow-through effect of the mining industry and how it affects everyone from car retailers to cafes and sandwich shops—businesses across the whole of the community.
This Labor opposition would rather see jobs go; and be mindful that most of the jobs going in the mining industry are those of members of the union movement. It is not only that they are not standing up for jobs—they are not even standing up for the jobs of the people who contribute their union fees to their political party, and that is disgraceful. They have deserted these people in their hour of need.
If we could get rid of this tax, at least it would be one more barrier to growth out of the way. Commodity prices will come and go, and we can all speculate on them. But what we need to do is make sure we keep our industries in Australia competitive. Mining capital is very fluid capital. It will take the path of least resistance and currently that is going to other countries, not into Australia. We need to see, and to demonstrate as a government, that we are open for business—that we will support the mining industry. We will maintain environmental standards but we will cut red tape and help reduce input costs so we can keep those jobs here in Australia. It is part of our bright future. Our nation deserves it and our economy needs it because, without a successful mining industry, our debt position will continue long into the night. That debt position—let us be abundantly clear about it—was created by a miserable Labor government that had no understanding of the nation's economy, how to budget or indeed even how to tax properly. They were very good at expenditure; they were excellent at expenditure. They gave themselves AAA for expenditure but, as far as revenue collection and design go, they got a big F. To raise $340 million, to date, while putting down $16 billion worth of expenditure shows me they have no economic credentials with this nation.
I commend these repeal bills to the House. It is about time the Labor Party stood up for its workers, particularly those union members in the mining industry, and did something to support them.
We have just seen the government's economic illiteracy writ large. Here we have a government that is arguing—at the same time, in the same debate—that this tax is hurting industry so much that industry is closing down, and also that it is not raising any revenue. You cannot argue those two things in the same week, let alone in the same speech, as we have just heard from the member the Paterson. The member for Paterson listed a number of mines where there are job losses and somehow tried to say that the tax, which he argued is not raising any revenue, is at the same time the cause of those job losses. That is absurd.
The job losses are due to commodity prices. For example, 18 months ago, coking coal was $330 per tonne. Today it is $120. That is what is having an impact on those mines. The stupidity we have just heard argued does nothing in terms of proper analysis, which should be about building confidence in our industries. The problem for this government is not just that they talked down the national economy every day, when the coalition turned into the 'noalition' while they were in opposition; the worse sin is that they are talking down the economy now that they are in government. What message does that send to those who trade with us internationally? And we heard about the triple-A rating on expenditure; no, the triple-A rating is the one given by the three agencies to the former federal Labor government. We hear a lot of rhetoric from those opposite about the MRRT and this legislation but we hear nothing from the member for Paterson or from any of the other speakers for the government about royalties and the jacking up that has occurred from the Western Australian, Queensland and New South Wales Tory governments. They are jacking up the royalties but we hear nothing from them about that.
When you get rid of all the political rhetoric from those opposite, there is a fundamental question that this legislation relates to. It is whether Australians should have a share of the profits gained from the sale of the minerals that every Australian owns. In other words, when it comes to deposits of iron ore or coal that formed over millions of years due to complex geological processes, should governments simply hand them over to their mates in big business? Or when the possession of these minerals drives mega profits, should governments apply tax on those mega profits on behalf of the community? Labor's position is simple: our minerals are part of our nation's Commonwealth. And the Commonwealth should benefit every Australian. We believe we are blessed with these resources and that we should all benefit. There is a particular reason as well; it can only be dug up once—we are talking about non-renewable resources.
Businesses that take the risk to extract and market these resources deserve to reap benefits from their investment. But since the profits come from assets that are owned collectively, Labor believes that Australians have the right to a share of these profits in times of boom. So when the vagaries of international commodity prices and exchange rates deliver mega profits, the people of Australia should receive a share of those windfall profits. It is very simple.
We also believe that some of the proceeds of this huge boom should be invested in spreading the benefit to other sectors of the economy so that when the non-renewable resources are delivering less productivity to the national economy, the other sectors can fill the void. It is a fundamental proposition of sensible economics—one that was recognised by Ken Henry—which is why you had this concept coming out of the Henry tax review.
So I will be voting against this bill because this bill is more about simply vindicating the Prime Minister's three-word slogans and the pre-election scaremongering than it is about sensible policy. The Prime Minister ran a whole campaign based upon three-word slogans. They did have a plan to get into government but they do not have a plan to govern, and we see that in the chaotic way in which this government's non-agenda has been out there blowing in the breeze since they were elected last September.
Our position is based upon findings in the tax review. Ken Henry argued that current resource charging arrangements levied at export volumes through royalties were inefficient. It would be more efficient to tax profits. It is a pretty fundamental policy of serious structural reform. Indeed the big miners who are paying this tax said they could afford to pay this tax. They were not out there calling for these discussions.
So there was a range of benefits and this legislation seeks to make a number of changes. It allows for the removal of the significant tax breaks that were there for small businesses in the loss carry-back scheme. The policy intent of this change was to spread the benefits of the mining boom to parts of the economy outside the mining sphere. It was pretty sensible policy. There was help for low-income earners via the low-income superannuation contribution to provide up to $500 to augment the retirement savings of Australians earning up to $37,000. This was of particular value to women in our community. There will be 2.1 million Australian women who will be affected by this change. Why is it that there are all these tax incentives for high-income earners to contribute to their superannuation, but low-income Australians do not have the same incentives? What that means is in the longer term that is one of the structural problems with the budget. As we have an ageing population, it makes sense to boost superannuation, boost retirement savings and, therefore, make the intergenerational impact of the budget more secure in years to come.
There is the schoolkids bonus to help Australian families with the costs of education with payments of $410 for primary school students and up to $820 for high school students. Again it is about broadening the opportunity and broadening the benefits. We want to make sure that every child in this nation has access to the same opportunity. The schoolkids bonus is designed to help parents out. As we all know, many families in the electorates we represent struggle at the beginning of the year to buy textbooks, to buy clothes, to get their kids to school. So that is going as well. The impact of that is very significant indeed.
So we have with this legislation small businesses missing out, families missing out and low-income earners, particularly women, in the community missing out. We had from those opposite this bizarre logic of saying it is not raising enough money at the same time as they were arguing that it is raising too much money and destroying the industry.
But, of course, the whole design of the tax is about profits, and what we have been through in recent years is the construction phase across a range of resources projects. We have not moved into the production phase, and the profits come when you sell the resources, not when you build the infrastructure to extract the resources. One of the things that we were very keen on doing to smooth out the cycle was to make sure that infrastructure in regional communities could be built—projects like the Peak Downs Highway in North Queensland.
We know from going to communities like Karratha and Port Hedland. As the Minister for Regional Development and Infrastructure I had a firsthand look at the problems that exist in those communities—problems where they rely upon a fly-in, fly-out workforce, problems where there is no community infrastructure in terms of schools, hospitals or childcare centres. I opened a childcare centre in Karratha and asked them: 'How's it going? When will you be full?' They said, 'We were full on the day it was announced.' They were queuing up to put their name down to get access to child care in that community.
And, of course, the impact on families of the failure to have infrastructure in those local communities is significant indeed. We need to make sure both hard infrastructure like roads, railways and ports and also community based infrastructure benefit those communities as well, because they have such a major impact. With regard to the Regional Infrastructure Fund I have heard the government saying there were not enough resources put in to build the infrastructure that was being bought with the money. They completely failed to understand the fundamental concept, which is that you smooth out the cycle. You build the infrastructure with projects like Gateway WA to alleviate the impact that the growth in the resources sector has had on the roads and infrastructure around Perth Airport, Peak Downs Highway or the Great Northern Highway in Western Australia. There was work in a range of projects to assist resources, including a project like Maldon-Dumbarton in the area of the Illawarra in New South Wales—a project building railway line to the port that has been abandoned by those opposite just as it was abandoned when the Liberals took over the New South Wales government after it had begun.
How is it that a government that says it understands anything about future productivity is abandoning in the budget a project that would directly boost the ability of the industry to get goods to the port of Wollongong through the rail system rather than on the roads? A project that was abandoned in the budget is more efficient, better for the environment, better for road safety and better for the national economy.
Our view is pretty clear: mineral wealth is common wealth. By that I mean that all Australians own a share of our mineral resources. We cannot all dig them up and sell them—that is the business of mining companies—but governments can and should ensure that, when international commodity prices and exchange rate fluctuations drive profits to record levels, the Australian people can share in that good fortune. Governments should use that money to enhance equity and justice while also building the infrastructure required to generate further prosperity down the track. That is Labor's principle. The government, on the other hand, is happy to allow the full benefit of windfall profits to go straight into the pockets of just a few people. That is an irresponsible approach. It denies the community any benefit from its stake in the common wealth of our nation. While it might suit the government's anti-union, pro-big business rhetoric, it is the antithesis of nation building. We can only sell these assets once and we should ensure that, when they are sold, something comes back to the national interest.
At the outset I would like to take up a couple of points that Labor members have made. First, the member for McMahon stated quite categorically that the MRRT is in no way linked to the schoolkids bonus when in fact former Prime Minister Julia Gillard on 13 May 2012 said:
… the Schoolkids Bonus before 30 June this year and then it can become an (inaudible) part of how they meet the costs of getting the kids to school.
It's part of what we did in the Federal budget to make sure we're spreading the benefits of the boom, spreading opportunity to every part of the country.
Former Minister for Finance Penny Wong on 6 June 2012 said:
I think it’s about making sure we use the benefits of the boom wisely. And I think the Government’s approach with the mining tax and making sure the benefits of that flow through to families, particularly low and middle income families through the School Kids Bonus, where people get assistance for kids’ education costs.
We also heard a couple of doorstop interviews where former Treasurer Wayne Swan informally linked the schoolkids bonus to the MRRT, to the mining boom. Certainly the member for McMahon, who belongs to a party that is a wholly owned subsidiary to the Greens should know that.
I take up a point that the member for Grayndler said when he was arguing you cannot argue job losses and low revenue at the same time. You can argue both because it is called sovereign risk. The damage done by the MRRT to Australia's international investment reputation from the former government's decision to implement a mining tax on an industry completely and unexpectedly scared off visitors—investors, sorry. Well, it did scare off visitors: visitors who were coming here to invest in our mining industries. The coalition supports states' rights to raise royalties.
This bill repeals the minerals resource rent tax and discontinues or rephases measures that the former government introduced following the announcement of the mining tax. Funding for these measures was tied to forecast mining tax revenues which were never realised, forcing the government to borrow billions upon billions of dollars to pay for them.
The failure of the mining tax to generate any meaningful revenue whatsoever, together with the additional expense of the measures associated with its introduction—all those expenditure items that the government promised—poses a significant risk to the budget, not just now but going long into the future. They would pose a risk 'as far as the eye could see,' as the Prime Minister would, quite correctly, say.
The cost of the mining tax and its associated measures will significantly exceed the revenue raised by the mining tax over the forward estimates and way beyond. While the mining tax was originally estimated to raise $26.5 billion by 2016-17, to date it has raised only $340 million in net terms. This is less than $20 per Australian compared to the more than $700 per Australian in linked expenditure over the next three years. The repeal of the mining tax package will contribute more than $12.6 billion to the budget's bottom line, on an underlying cash basis, by 30 June 2017. The repeal of the mining tax represents a significant step towards repairing some—just some, but a significant sum—of the fiscal damage inflicted by the former government on our nation's finances. All Australians know how dreadful that was.
Schedule 1 of the bill repeals the Minerals Resource Rent Tax with effect from 1 July 2014. Repealing the mining tax is an election commitment. The coalition has consistently opposed this tax because it undermines confidence in Australia as an investment destination and as a secure supplier of resources. Mining companies in Australia will continue to pay their fair share of tax through state royalties and company tax, but they will no longer be subject to the unreasonable and unnecessary regulatory and compliance burden that the MRRT imposes on the Australian mining industry.
I hear the member for Durack saying, 'Hear, hear!' She would certainly know because it would be affecting her very large electorate quite significantly. This burden is stifling jobs—especially in Durack—future investment and economic growth right across this great nation. For the future prosperity of all Australians it is time to remove this impediment to activity in the mining sector and secure a structural improvement in the budget. The repeal of the mining tax will restore industry confidence and will have a positive impact on the level of mining investment in Australia going forward. That is certainly so in the electorate of the member for Durack.
Schedule 2 to the bill repeals the mining-tax related loss carry-back provisions which enable companies making a tax loss of up to $1 million in the 2012-13 income year and subsequent years to recoup taxes paid on an equivalent amount of taxable income in a prior income year. The bill provides that, from the 2013-14 income year, companies can only carry their tax losses forward to use as a deduction for future taxable income, consistent with arrangements prior to the mining-tax related amendments. The removal of this measure will improve the budget position by $950 million by 30 June 2017.
Schedule 3 to the bill amends the instant asset write-off threshold provisions. The instant asset write-off limit increased from $1,000 to $5,000 through the mining tax package and lifted again from $5,000 to $6,500 through the carbon tax package. These increases are very unaffordable, unwanted and needless. The legislation before the Senate deals with a decrease from $6,500 to $1,000 effective from 1 January 2014. Consistent with arrangements which existed prior to the mining-tax related amendments, small business entities will now be able to immediately deduct the value of a depreciating asset costing less than $1,000 in the income year the asset is first used or installed ready for use. The single small business pool arrangements will be preserved to ensure the continuation of 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 a small business entity's 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. Reducing the instant asset write-off back to $1,000 will improve the budget position by $2.6 billion by 30 June 2017.
Schedule 4 provides that from 1 January 2014 a $5,000 accelerated deduction for motor vehicle purchases made by small business entities will no longer be available. 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, and 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. The removal of this measure will improve the budget position by $450 million by 30 June 2017.
Schedule 5 to the bill repeals the extension of the income tax exploration provisions to geothermal energy exploration with the result that geothermal energy exploration and prospecting expenditure will not be immediately deductible. Geothermal companies will now be required to depreciate relevant assets over time, which is consistent with the general treatment of non-exploration assets. This schedule removes an additional layer of tax law complexity and therefore decreases compliance costs for affected business.
Schedule 6 to the bill re-phases the increase in the superannuation guarantee. Superannuation guarantee contributions will remain at 9.25 per cent until 30 June 2016, and then gradually increase to 12 per cent by 1 July 2021. Given that increases in the superannuation guarantee are funded largely from reductions in take-home wages or business profits, re-phasing the superannuation guarantee could boost near-term economic activity. Any reductions in businesses' overall wages bills would lower their operating costs, whilst workers could also receive more take-home pay in the near term. Further changes to the superannuation guarantee schedule announced in the federal budget will be introduced as an amendment to this bill. These changes would not have been required if the bill had not been blocked by the opposition in March.
Schedule 7 seeks to abolish the low-income superannuation contribution. The bill ensures that the LISC is not payable in respect of concessional contributions made on or after 1 July 2013. The government intends to revisit incentives for low-income earners once the budget is back into strong surplus
Although this bill will repeal the low-income superannuation contribution, low- to middle-income earners may be eligible for the superannuation co-contribution to boost their retirement savings. Individuals who make personal after-tax super contributions may be eligible for a government co-contribution of up to $500.
Schedule 8 gives effect to the government's election commitment to repeal the income support bonus as part of its legislative package to repeal the mining tax. The income support bonus was announced by the previous government in the 2012-13 budget and was expected to be funded by the anticipated revenue from the mining tax. In repealing the mining tax, the government's election commitment was to cease the associated expenditure measures to achieve the government's required fiscal position. The repeal of the income support bonus will improve the budget position by around $950 million by 30 June 2017. The delay in the passage of this bill has reduced the projected savings to be achieved by the measure by more than $170 million.
Schedule 9 repeals the schoolkids bonus. This will ensure that the family payments systems is sustainable into the future. The government intends to offer a more efficient, targeted approach to improving education outcomes for students through effective education policies rather than bonus payments to individuals. The removal of this measure will improve the budget position by $3.9 billion by 30 June 2017. Finally, I would like to thank all those members who contributed to this debate. With that, I commend the bill to the House.