Thursday, 15 March 2012
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
Labor's mining tax is a bad tax which came out of a deeply flawed process. It is a tax which will be bad for the economy, bad for investment in the mining industry and bad for jobs. Labor's mining tax is more complex, more distorting and less fair than the status quo. It is a tax that is so deeply flawed that it cannot possibly be fixed by any amendments. The government should scrap this tax and the Senate should vote against this tax. We call on the government to start from scratch with a more competent, more serious, more considered, more open, transparent and inclusive genuine tax reform process rather than sit down exclusively, in secret, behind closed with a few of the big mining companies to design a tax that favours them at the expense of all their competitors. We need a tax reform process which is inclusive, which deals with all stakeholders fairly and equally and which also includes, in the important area of resource taxation reform, the state and territory governments as part of the process. We have to remember where this process all started. This process started with the Henry tax review. This process started with then Prime Minister Kevin Rudd's commitment that the Henry tax review would be a root-and-branch reform of our tax system that would lead to a simpler, fairer tax system. In relation to resource tax reform specifically we were promised that it would remove distortions and improve the situation for smaller and newer mining projects to help them become the success stories of tomorrow.
Of course, the legislation that is here in front of us is the exact opposite. Rather than making our tax system simpler it manifestly makes it more complex. Rather than removing distortions for smaller and newer mining projects it increases distortions for smaller and newer mining projects. Rather than replacing our state and territory royalties with a profit-based national resource rent tax it imposes a new, massive additional tax on top of the current state royalty and company tax arrangements that continue as before. And smaller and newer mining projects will be absolutely hampered by this particular tax.
I will just pause here for a moment, because in recent times we have seen yet another outburst from our Treasurer—the Yosemite Sam of Australian politics. He is out there, shooting along, fresh from his rush of blood having got stuck into former Prime Minister Kevin Rudd. There he was getting stuck into what he calls 'the mining billionaires'—like the Andrew Forrests, the Gina Rineharts and the Clive Palmers of this world. We now know what his real motivation is behind this mining tax: the real motivation behind this mining tax is that we have a Treasurer here in Australia who has a deep resentment of success. We have a Treasurer here in Australia who does not like it when people actually do well.
I just pause here for a moment to reflect on what Andrew Forrest has done, for example. Andrew Forrest started the company FMG in 2003 from nothing—from nothing. He took risks along the way and he made significant investments, in particular in infrastructure because the big established mining companies like BHP and Rio Tinto were not prepared to give him access to their railway or infrastructure. He built a company that now has a market capitalisation of about $17 billion and employs 3½ thousand people. That is a fantastic success story. It is a fantastic Western Australian success story and it is a fantastic Australian success story. We on this side of the chamber encourage and celebrate success. We want to see more of it. I am very concerned that, as Andrew Forrest made very clear, if this mining tax had been in place back in 2003 there would be no FMG today. There would not be a company which has a market capitalisation of $17 billion, which will pay $1 billion worth of tax next year and $2 billion worth of tax the year after, and which has created 3½ thousand new jobs.
We on this side of the chamber believe in a tax system and in a policy framework from the federal government's point of view that actually encourages people to stretch themselves, to reach their full potential and to contribute to the economic success and prosperity of our nation. We know on this side that, as companies like FMG and others are successful, grow and prosper, the whole economy grows and prospers and we are able to increase federal government revenue by increasing and growing our economy rather than having to whack on one new ad hoc tax after the other.
We know that, true to form, this whole mining tax development process has been one big shemozzle. It is a complete dog's breakfast. Of course, at the heart of it is one of the most incompetent treasurers in the history of the Commonwealth. It was Wayne Swan as Treasurer who received the Henry tax review report back in December 2009, who sat on it for five or six months and released it in a complete breach of faith at the same time as announcing the details of the then resource super profits tax without any consultation with anyone and without even talking to the states or any of the stakeholders about it. Everybody was taken by surprise. That is just not the way to develop tax policy in a serious way.
What should have happened at that point in time is that the Henry tax review should have been released and there should have been a public debate about what the tax reform priorities for Australia should be. There would have been an opportunity for everyone to have a good go at it, and I am sure that at the end of a 12-month public debate process through a green paper or a white paper—you name it—we would have come up with a more sensible approach. Instead what happened—it is a matter of history now—was that there was a big outcry, as was to be expected. It contributed to Prime Minister Rudd losing his job—and the person responsible for the stuff-up, Treasurer Wayne Swan, actually got a promotion. So Mr Rudd got the boot and Mr Swan, who was responsible for the stuff-up, got a promotion. That is the way things work in the Labor Party.
Then we get this process where the Prime Minister, the Minister for Resources and Energy and the Treasurer sit down behind closed doors and, exclusively and in secret, negotiate the design of the tax with the managing directors of the three biggest mining companies: BHP, Rio Tinto and Xstrata. What do you think these companies are going to do when they get this sort of access? Do you think they are going to push for the design of the tax that is going to be in their commercial interests and is going to give them the competitive advantage that is going to make things better for them compared to their competition? Of course that is what will happen, and that is exactly what happened. It is quite extraordinary that the government negotiated the design of this tax in this sort of forum without any input or involvement by public officials. There were no officials from the Prime Minister's department and no officials from Treasury part of the negotiations. When I asked the Prime Minister's department in Senate estimates about what their involvement had been, they said very quietly, 'Well, on this occasion the Prime Minister took advice directly from the Treasurer.' That says it all. This was a dirty deal done behind closed doors where, quite frankly, a Prime Minister who was worried about the election that she was to face two or three months later was desperate to sign whatever deal just to get the big three miners off her back. She was not worried about what good policy was, she was not worried about the mining industry as a whole and she was not worried about the national interest. All she was worried about was getting the three big mining companies and their advertising campaign off her back so that she could go into the election not having to worry about that particular distraction. This is a very bad tax. The reason we know that this is a bad tax is that to this day the Treasurer keeps bending over backwards to avoid releasing very important detail about the tax. I believe that the Treasurer himself knows that this is a bad tax. I think the Treasurer himself is embarrassed about the dodginess of this mining tax, because if he were not then why wouldn't he share with us the basis for his mining tax revenue estimates?
I predict that the MRRT that is before the Senate today will not raise the $10.6 billion that the government tell us it will. I will just give a quick outline of the reasons for that. When the RSPT was announced, we were told it would raise $12 billion over the first two years of the tax. Then the government made all these concessions. They agreed to reduce the rate from 40 per cent to 22½ per cent. They agreed to reduce the scope of the tax from all mineral resources to only iron ore, coal and—in relation to the onshore extension of the PRRT—petroleum oil and gas. Of course, the government also offered up a massive upfront tax deduction by making available the market valuation method to depreciate the value of the assets based on the market valuation method as the starting base—to be depreciated over a period of up to 25 years, but even shorter. There were all these concessions, yet the government wanted us to believe that the net fiscal impact of all these changes was just $1½ billion. It just seemed weird. It seemed quite extraordinary that all of these concessions did not have a more significant impact on the budget bottom line.
Of course, it sounded too good to be true and it was, because when we started to scrutinise what had happened it turned out that behind closed doors they not only designed the tax with those big three miners but also massively changed the various mining tax revenue assumptions—the commodity price, production volume and exchange rate assumptions and so on. When we asked the government to tell us what the commodity price assumptions had been under the old tax and under the new tax, we were told, 'You can't have it.' Why? Because, in part, the information is based on material provided by the big three. So this really adds insult to injury and makes this a highly, highly improper process.
What the government is telling us is that those big three miners are not only the only ones allowed to help design the tax—and I am told that the MRRT heads of agreement was actually typed up on a BHP computer—but also the only ones allowed to know what revenue assumptions the government is using. So never mind all of the other companies out there—all of the other smaller, newer projects that are aspiring to be the success stories of tomorrow and to help Australia grow. Stuff them. This government just wants to do a deal with the big three. This is just completely inappropriate.
Not only is this a tax that is bad for the economy, bad for jobs and more complex, more distorting and less fair than the status quo; it is also a tax package that leaves the budget worse off. Only the Labor Party can come up with a multibillion-dollar new tax that leaves the budget worse off. We have had the carbon tax package, which we know leaves the budget worse off to the tune of at least $4 billion over the forward estimates, and the mining tax package is the same. In fact, the mining tax package is worse over the medium to long term, because what we have here is a highly volatile revenue source. The revenue from the mining tax—the tax on iron ore and coal—will be highly volatile because it will change with commodity prices, with exchange rate fluctuations and on the basis of a whole range of variables.
Currently we have the best terms of trade in 140 years. If you look at the revenue projections that were released by Treasury under FOI—the revenue projections around the MRRT that were made by Treasury at the time the MRRT heads of agreement was signed—you will see that Treasury expects the revenue from the MRRT to come off over time. Of course, that is what you would expect, because when you have high commodity prices, as we have at present, you can expect that there will be a global supply response, and as there is a global supply response commodity prices will come off from their higher levels. That is what is going to happen, and we are going to have this revenue which is going to be highly volatile and downward trending. Then we have the cost of all of the measures and promises that the government has attached to it, which have a fixed cost and which will continue to increase over time. We know that the government know this, because when the government introduced these 11 bills one of the promises that it attached to the mining tax had miraculously disappeared.
Whatever Labor's rhetoric about wanting to pursue a company tax cut is, do not trust them. You cannot trust the Labor Party. They talk about a company tax cut but they never, ever had any plans to deliver it, because if the Labor Party had really been serious about pursuing company tax cuts related to the mining tax then surely they would have been part of this package of 11 bills before us now. Most of the other measures are there with it. We know that the government were clearly never fair dinkum about this company tax cut; it was just one other sneaky vehicle that this sneaky government used in order to try to get some public support for what they know is a very bad, complex and poorly designed tax.
I am mindful of the time, but there are just a few other things that I want to bring to the chamber's attention. Part of this tax package that has not been widely talked about is the onshore expansion of the PRRT. We currently have a petroleum resource rent tax which applies in Commonwealth waters offshore, and of course that is in an environment where there are no state and territory royalties imposed, so the offshore arrangement in terms of petroleum taxation is exclusively in the Commonwealth domain. The Treasurer says the petroleum resource rent tax has been in place for all these years and has worked well. Let me just disagree with the Treasurer on this. The petroleum resource rent tax has been in place for more than 20 years, and ever since it has been put in place we have not had one single new project come on stream that is today paying the petroleum resource rent tax. The only project that is paying the petroleum resource rent tax offshore is the Bass Strait project, which of course was moved into it by the Hawke government. It has taken more than 20 years for us to have new offshore petroleum projects coming on stream that might at some time in the very far future start paying the petroleum resource rent tax. In terms of the onshore application or the onshore extension of the petroleum resource rent tax, that also comes on top of state and territory royalties, so it is an additional tax. What does the government tell us about how much revenue they expect to raise from this onshore extension of the petroleum resource rent tax? They do not know. The revenue from the onshore extension of the PRRT is unquantifiable, according to the government's own explanatory memorandum. When I asked during the Senate inquiry when they expected the petroleum resource rent tax onshore to start bringing in some revenue, they did not know. So here we have a massive new tax which is going to tie up a significant industry, the petroleum industry, onshore in massive additional red tape and the government cannot even tell us whether and when it will raise any revenue. How reckless and how irresponsible is that—to inhibit important development?
I make a prediction. The prediction is that the Labor Party's minerals resource rent tax will go the same way as their dodgy Malaysia people swap deal—that is, it will be thrown out by the High Court. Sadly, the way things work in Australia is that you cannot actually test the constitutional validity of legislation until after it has been passed by the parliament. If a government puts a piece of legislation forward which is in contravention of the Constitution, the only way you can test it is after it has been passed. Let me make this prediction: this mining tax legislation breaches our Constitution; it is in contravention of our Constitution. The minerals resource rent tax is a tax on state property, and the way this package has been put together discriminates between states.
Now let me just flesh out why I think this is a tax on state property. The government tells us it is a tax on profit. But let us be very clear; the mining tax is a tax that is imposed at the point of extraction. At the point of extraction there is no profit. At the point of extraction iron ore has no value. The only way iron ore has value is if you can bring it to market—if you can put it on a railway and into a port and ship it somewhere where somebody wants to buy it and put it in a furnace and change it into steel. At the point of extraction there is absolutely no value, there is absolutely no profit. So what does this government do? It comes up with this complicated methodology, this complicated formula, to come up with an artificial construct of what profit is. But whatever bureaucratic, Canberra-like formula the government tries to come up with, there is no way around the fact that this is a tax on state property.
There are a lot more flaws that I would like to talk about but time is very short. I just want to make two more observations. The government is trying to make us believe that the superannuation increase will come out of Andrew Forrest's or Gina Rinehart's pockets straight into the workers' superannuation bank accounts. Nothing could be further from the truth. The increase in compulsory super will be funded by the workers and by the small businesses across Australia; let us be very clear about that.
Before I close, let me say that the government have been keeping a lot of information secret that should have been provided. They have ignored a lot of Senate orders requiring them to table information. I will now move a second reading amendment to the effect that we should not as a Senate continue to consider this bad piece of legislation until such time as the government have complied with all of the outstanding orders for information. With those words, on behalf of the coalition, I move:
At the end of the motion, add:
but the Senate:
(a) notes that the Government has not complied with:
(i) the order of the Senate made on 1 November 2011, ordering the production of information relating to the cost of all measures attached to the mining tax over the current forward estimates; and
(ii) a number of other outstanding orders in relation to mining tax revenue estimates and related assumptions; and
(b) declines to consider the bill further until:
(i) the Government publicly releases all information it holds relating to:
(A) the commodity price and production volume assumptions it has used in respect of its mining tax revenue estimates; and
(B) the updated estimates of the cost of all measures associated with the mining tax over the forward estimates; and
(C) the cost estimate of its commitment to credit all State and Territory royalties against the resource rent tax liabilities; and
(D) the cost estimate of the upfront tax deductions able to be claimed by mining projects subject to the Minerals Resource Rent Tax on the basis of the market valuation method; and
(ii) the Senate has passed a resolution that the bills may be listed for debate.