Thursday, 26 June 2014
Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2]; Consideration in Detail
The House Economics Committee held an inquiry into the Minerals Resource Rent Tax Bill when it came before the parliament. As part of that inquiry we interviewed Mr Julian Tapp, from Fortescue Metals Group. I asked Mr Tapp about the corporate tax paid by FMG, then a $20 billion company. My question to him was: 'In terms of corporate tax paid, it would not be correct to describe Mr Forrest as a taxpayer, would it?' The response was: 'Mr Forrest is not a company. Fortescue Metals Group is a company.' I then said: 'But, as things currently stand, it would not be correct to describe'—and the reply from Mr Tapp was: 'We have not cut a corporate tax cheque to date, no.' So FMG, despite describing itself as a taxpayer, was not at that point a corporate taxpayer.
It was in that context that Labor put in place the minerals resource rent tax—a tax which recognised that, from the early 2000s up until the height of the boom, the share of mining profits returned in tax had fallen from one dollar in three to one dollar in seven. Indeed, it was the Minerals Council of Australia itself that went to the Henry review and put forward a submission arguing for a profits based tax. The Minerals Council of Australia did so not because it is a secret commonest haven but because the Minerals Council of Australia recognised, as did so many serious economists around the world, that profits based taxation is a fairer form of taxation.
Let us be honest, the way in which royalties have been administered since the start of the boom has had a profits based sense about it. Queensland and Western Australia have increased royalty rates as the world price has gone up and they have done so because they have recognised that the rise in the world price is not due to the ingenuity of our miners. Australian miners are ingenious and have put in place a range of new technologies that are at the cutting edge of minerals extraction, but they are not responsible for changes in the world price of iron ore, which has gone up to a large extent due to increased demand, principally in China but also in India.
Honourable members: Korea.
And Korea, I hear an honourable member interjecting. The increase in that world price ought to be captured in part by Australian taxpayers—and it has been through the increase in royalties—and a profits based tax represents that principle. That is why the Minerals Council of Australia asked the Henry tax review to consider a profits based regime. That is not a controversial notion around the world. A little known politician by the name of Sarah Palin made her name as Governor of Alaska championing profits based taxation. She did so because, as she argued, profits based taxation was the right solution for Alaska.
When Australia put in the petroleum resource rent tax in the late 1980s, there was much ado about it. Over two decades later the petroleum resource rent tax has brought billions of dollars of revenue into Australia, and it has done so through the principle of profits based taxation—a fair and reasonable principle, grounded in sound economics, recognising that scarce minerals can be extracted only once. On the principle of equity we should support it, but not just on the principle of equity. A profits based tax should be supported on the Burkean grounds that many of those opposite would champion. Edmund Burke took the view that we are here not just for the generations of today but informed by generations gone and inspired by the needs of generations to come. Generations to come will not thank us if we do not ensure that minerals extraction is done at a fair rate of tax—not an exorbitant rate of tax, not a rate of tax that shuts down the industry, but a rate of tax which over recent years has seen expenditure on private minerals exploration go from $5.7 billion in 2009 to $7.8 billion in 2012-13.
I am pleased to speak on the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 [No. 2], which is of acute importance to my electorate of Durack, which incorporates the Pilbara, mid-west and Kimberley regions, the town of Port Hedland and the remainder of the great mining province of the north-west. Mining, primarily of iron ore, is critical to the economy and to the wellbeing of the people of Durack and of the Australian nation. We are all well informed of the impact of additional regulatory burdens introduced by Labor on the sustainability of the mining industry, as we have seen companies choosing to reduce their investment or move offshore as a consequence of an uncertain and irresponsible policy regime introduced by Labor. These companies have chosen to pursue their activities in an environment where they have determined there is less risk and greater support for their endeavours. We must reverse this impression and restore confidence to ensure growth, development and sustainability of Australia's great mining and resources industries.
Those opposite say we should all share in the spoils of mining. That is a matter of opinion but, if that is what Labor intended, they have failed miserably to achieve that objective as history has shown. This is typical of Labor—create an ill-conceived tax that raises little revenue but commit to spend money that it hopes, wishes and prays will somehow be available to fund their commitments. Is it any wonder that Australians are now lumbered with a $1 billion monthly interest burden, which mostly flows overseas, and we are now using a credit card to pay the interest on the credit card? So this government is left to fix the economy and return confidence to the Australian people. Repeal of the MRRT and associated expenditure will improve the budget bottom line over the forward estimates.
The sovereign risk associated with the misguided MRRT is clear to even the doubters. As we have witnessed, it deterred investment and forced even Australian companies offshore to invest in places like Africa. How ridiculous! It is quite something when mining companies start to think it is easier to do business in Africa. How embarrassing! The repeal of the mining tax will have a pivotal impact on the perception of international investors, leading towards restored confidence. The importance of this cannot be overstated.
Let us look at this very sad and sorry history. The original tax, promoted by Labor as the resources superprofits tax, was calculated by Labor to raise more than $40 billion over five years. It has been more like the superdud tax. In 2010, with the introduction of the MRRT, this was calculated down to $26.5 billion and then again to $16 billion. As we all know, a net of just $340 million has been raised by fewer than 20 taxpayers, whilst another 145 miners have been required to produce their MRRT instalment notices.
Having worked in the iron ore sector in Western Australia, I know firsthand that the regulatory burden of the mining tax cannot be overstated. Even though there are only a few companies that, as it turns out, had to pay the mining tax, there are numerous other mining companies who employed staff to comply just with the MRRT legislation. Because of the complexity of this legislation, mining companies around Australia were employing expensive accountancy and legal firms to provide them with an understanding of just what this mining tax meant to them. As we now know, in the end the time and cost taken to understand and comply with this ill-founded legislation was all for nothing, given it raised so little revenue for the Australian people, and it could have been spent on more productive aspects of a mining business.
Getting rid of this ill-thought-out tax will see mining companies around Australia breathe a sigh of relief, confidence restored and foreign investors having faith that Australia is back in the hands of the adults. The repeal will have a significant impact on administration and compliance costs—indeed, millions will be saved by small, medium and large entities. Clearly, the matter was not given due attention by Labor. It was not thought-out, verified or evaluated. This is an appalling approach to doing business. We must repeal this tax and its associated encumbrances and costs.
I am very passionate about this issue. I was born in Kalgoorlie and experienced the booms and busts of the gold and nickel industries. It is not always easy to make a quid out of mining. For Labor to make it harder for mining companies and, by extension, the good people who live in these mining towns is plain irresponsible. Today I stand here not as the girl from Kalgoorlie but as the representative of Durack, which of course is the economic and mining powerhouse of Australia. Let us put it in perspective: Western Australia contributed, in 2012-13, 58 per cent of all mining outputs and 97.5 per cent of the total iron ore produced. One other statistic just to finish off is that in Port Hedland we see that it is anticipated that some 350 million tonnes of iron ore will pass through that port in a financial year, and some 400 million tonnes is well within its sights. Western Australia is significant, and it can only get better once we get rid of this tax.
And certainly, Mr Deputy Speaker, you would not have heard it in relation to the iron ore companies in Western Australia, which have certainly been doing very well. It is with pleasure that I take this opportunity to get up here and speak on the mining tax and the reason why I support very, very strongly the fundamental principles of a resource based tax. I have been grossly verballed by the other side from time to time on this matter, and I want to just take this brief opportunity to set this out.
There is no doubt that, when you look rationally at the taxation system and the best way to bring to account the value for the Australian community out of the resources industry, it is as the Henry tax review says. It says that we should replace the current royalties based system with a uniform, rent based tax, legislated for and administered by the Australian government. I agree with that. And that, indeed, was the position that was put by the Minerals Council in their submission informing the Henry tax review. I want to make it very clear that I totally support that principle of a resource based tax.
I guess my view is that I do not think that you can put this just on top of a royalties regime. I think that, if we are going to solve this problem, in the long term we need to work with the states and to come together with a composite and uniform system, which was indeed the vision of the Henry report. I think that must be the way that we go down.
But I want to address this nonsense that we hear from the government all the time that somehow or other this tax has been bad for Western Australia. I can set out why it has not been bad for Western Australia, but I also just want to make sure that I get this opportunity to acknowledge that I think that really, fundamentally, Labor lost the public relations battle on this one. So, when after the 2013 election I suggested from time to time that I thought it was time to let it go, it was not that I in any way thought that this tax was an improper tax or that this tax had in any way curtailed the development of Western Australia. I do not believe it did, and I am very confident that it did not do that.
I just want to give some facts associated with this. Let us have a look at iron ore production in Western Australia. Iron ore production in Western Australia in 2011, when the tax was introduced, increased by 15.9 per cent. In 2012, it increased by 12 per cent. In 2013, it increased by 13 per cent. So we see this massive growth in volume after the introduction of the tax. And we look at the value of iron ore sales. From 2011 to 2013, it went up first by 15.8 per cent and then, in the following year, by 23.3 per cent. There is absolutely no way that this hampered the performance of Western Australia. Rio Tinto's full-year profit was $3.7 billion. BHP Billiton's was $7.8 billion. FMG's half-year profit was $1.7 billion.
Let me quote here. There was this idea, this nonsense, that the industry was going to wander off and go off to Africa. I want to quote here the report of Dr Stephen Grenville, who is a former RBA member and a former OECD and IMF member. In response to a statement by the then chief executive of Rio Tinto that Australia represented his main sovereign risk, he says this:
Now, with some hindsight, the absurdity of this argument is obvious.
Would Rio have gone elsewhere? He says:
Its painful experiences with Riversdale coal in Mozambique, Simandou iron ore in Guinea and Oyu Tolgoi copper in Mongolia were assuaged only by colossal Australian iron-ore profits.
I put it to you that, on any rational analysis, this tax has not had a negative impact on Western Australia. Am I disappointed that we did not get this right, that we perhaps could have introduced this in a better way? I am, but this tax has not—
I have to say that that last little bit was pretty entertaining—a sort of little mea culpa: 'We could have done this a little bit better.' Remember, at the time you had the world's greatest Treasurer! Do you recall that? It takes the world's best Treasurer to be able to devise a tax that not only does not raise any tax but actually creates a liability. That is a pretty impressive effort. I can see him out there now, touting his CV: 'Yes, I've devised my own taxes. I could do really well for you as your CFO or perhaps as a chairman or as a board member. I could show you how to lose money, how to create a liability, at the same time dressing it up as something that is going to create an income.' That is pretty damn impressive! I am not quite sure that it is going to cut the mustard, though, when you are out there in the real world where people have to make real profits.
It is quite extraordinary. Here we are at the death knell of this pathetic tax, and we have the member for Perth, who, as I recall—and I think I quote you accurately; please feel free to interject if I get this wrong—said this to her colleagues. I presume that the member for Lilley, the former Treasurer, was there at the time. She said:
I think it would be fair to say that the mining tax hasn't done the job that it was designed to do …
Have I got that right? Have I got that right, Member for Perth?
You certainly did make your contribution. These are the sorts of perils that the Labor Party left the coalition to clean up: mountains and mountains of legislation failure; put on top of that expenditure for revenue that was not raised; and the coup de grace was to devise a tax that actually creates a liability for the Commonwealth. That is pretty special effort, and to be able to achieve that you have to wear moniker of being the 'world's greatest Treasurer'. Well, I tell you what, when he is out there in the real world I ask him to tout that. That is when the rubber hits the road. When the soon to be former member for Lilley fronts up and touts his wares, the people of this nation—who create the jobs that produce the taxes that allow us in this place to distribute those taxes evenly and equitably around the country—will just shake their heads, scratch their brows and wonder how the hell it is so. I tell you what else they will do. They will realise what a mammoth task the coalition has in trying to right the wrongs of six years of Labor.
This monumental failure is there at the forefront. To think that nearly 12 months after the election they are still trying to defend the indefensible. Why not walk away from failure and admit that you got it wrong? We all make mistakes. This just happened to be a pretty big one. The member for Perth belled the cat and said this probably did not do the job it was designed to do. It did a lot worse than that. It actually created long-term liabilities in the form of expenditure that was never going to be matched by income. It also provided a windfall directly to some of our largest miners while damaging the prospects of our middle-income miners and those who are trying to grow jobs in less than rich resources, I guess you might say.
I want to share one last thing which goes to how much damage the Labor Party did. This is a true story. A small mining company here in Australia, wanting to mine in Tasmania, raised capital in the UK. In that capital raising the people that gave this Australian company the money said that the money 'may only be used in your Mozambique mine, it cannot be used in your Australian mine' because 'Australia is too much of a sovereign risk'. Isn't that an extraordinary thing to hear, that Australia was too much of a sovereign risk? These are the true consequences of incompetence, and not only incompetence but that when you stick to it you do not learn by your mistakes, you continue to defend those errors and try to paper over what you have done to this great economy and to this wonderful industry for Australia which underpinned the tax cuts that the Howard government was able to deliver over a 12-year period which gave us surpluses—
Madam Speaker, I raise a point for clarification. Can I confirm that there are no amendments before the House on this bill. The parliamentary secretary in introducing the bill indicated there would be government amendments. I want to confirm that there are no amendments.