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
The detail of the Minerals Resource Rent Tax Bill 2011 and related bills has to date been adequately explained by a range of speakers. I will therefore limit my remarks to the strategic policy importance of the legislation, but I will also in passing address a number of issues concerning Western Australia. Fundamentally, these bills represent a change from royalty tax based on volumes to tax based on profit—that is, a profit beyond what might be considered a reasonable rate of return allowing for all development costs. The fundamental principle is that the resource being mined, sold and realised is a public asset and therefore the public ought to share in any excessive income or windfall gain. My impression is that this principle has been very well received by the Australian community—not just for the policy, of course, but also for the benefits to be provided by way of increased superannuation for retirement so funded.
Of course, we all know it is not supported by some sections of the mining industry. True, this is a very different paradigm to that operating traditionally in an industry often regarded as speculative and high-risk and subject to continuing volatility in world metal markets, not to mention difficulties in securing capital and sales in secure markets. I do think it is fair to suggest, however, that some of this risk has diminished simply through the emergence of China and the strength of Asian economies. The reward, though, is proving extraordinary. Some say this is only a temporary phenomenon, but I beg to differ. It is said that prices are falling and that capital is going elsewhere. It is said that other countries such as South Africa or countries in South America will become more attractive over time. There is no doubt that South Africa has enormous potential, but it remains very high-risk—governments with guns. But such potential competition will not reduce demand for Australian minerals. These are ad hoc and convenient arguments peddled by those antagonistic to the principles behind this legislation. They just do not stack up when examined.
I spoke recently in this place on the findings of Port Jackson Partners. I have also spoken on the importance of this growth for Western Australia, which is already enjoying the benefits and suffering the stresses. Port Jackson Partners acknowledges price reductions going forward, but in the face of ballooning export volumes it still confirms massive growth in export earnings from mining. These findings are also repeated in the Senate Economics Legislation Committee report which supports this legislation. The report, however, quotes not just Port Jackson Partners but also the Secretary of the Treasury, Dr Parkinson, as well as the Deputy Governor of the Reserve Bank. In summary, capital investment in mining is estimated by the Bureau of Statistics to increase this year by 50 per cent to $87 billion. The shift in the global economy away from Europe to Asia and its burgeoning middle class is already providing massive new demand for our minerals. The current reported slowdown in Chinese growth for the next financial year means that growth is down from nine per cent to eight per cent—hardly catastrophic. As for the competition, Australia's transport proximity, security of investment and longstanding regulatory frameworks remain outstanding strengths. True, there is some inevitable hedging in investment internationally; however, it does not alter the basic equation of long-term growth and stability for the Australian mining industry.
Some also question the stability of the revenue stream from the MRRT legislation. That is the 'boom and bust' mentality which has long been a feature of mining in this country. According to the best analysis, however, it is highly unlikely to be the case in the coming decades. Over the past decade the average iron ore price has increased from around $33 a tonne to over $140 a tonne and perhaps come off 10 or 15 per cent in the last three months. Export earnings from mineral and energy resources are forecast to reach $206 billion this year, a 15 per cent increase on last year. In addition to this massive growth in investment, it is also predicted that export revenues could reach $480 billion per annum by 2030. In fact, mining profits have increased by 262 per cent in the last 10 years alone. Further, to achieve those sorts of investment returns, an investment of over $1.3 trillion will be needed. In short, I think the naysayers' analysis should be ignored and confined to history.
Let me return now to the policy principles of this legislation. The MRRT is called a resources rent tax—that is, where public assets are being exploited, companies are entitled to a return on their investment, given the high risk, but only to a sufficient level to maintain that investment incentive. Allowance is made for all labour costs, capital investment, land use and enterprise needed to produce a more than healthy return to shareholders. Royalties paid to state governments can be deducted. Many mines, in fact, will not reach the margins which trigger this tax—that is, a threshold, for example, of $75 million profit per annum. Some projects may return a loss, which can be offset later. In fact, it is estimated that, within the entire mining industry, only 320 companies are affected. I might also mention in passing that the rate of this tax is only 22½ per cent, and this allows significant surplus to accrue to the companies affected over and above normal expectations. It is thus a fairer means of taxation and will not in any way deter future investment. In fact, it is much fairer than the current royalty regime much pushed by some states. Royalties of course make no allowances for investment costs such as exploration, infrastructure development, mine operations or risk, not to mention higher admin and compliance costs. Dare I say it? There is a clear advantage in one single uniform tax like the MRRT in place of the royalty regime operated by the states. However, tonight, we will not go there. It is in fact disappointing to consider just how much of the efficiency in tax collection, especially many of the suggestions of the Henry review, are compromised by these difficulties of Federation.
This legislation has been thoroughly examined by the Senate Economics Legislation Committee, which I chair. The committee noted the extensive consultation which has been undertaken. The committee received 32 submissions from a broad range of people both from industry and the wider community. In short, the legislation has had an excellent hearing, with very, very strong support. The committee fully considered the revenue projections, as well as arguments concerning the likelihood of change in future investments. It considered and supported the extension of the petroleum resource rent tax, which is also dealt with to regularise and simplify that tax. Most importantly, the committee fully considered the purposes to which the MRRT revenue will be put. It is not just funding for the increase of the superannuation guarantee to 12 per cent, and related improvements; there are changes to small business taxation and write-off provisions. There is also simplification of depreciation rules and deductions for car purchases. The policy is sound and represents an important paradigm shift from the past. It represents the sort of innovation in government policy, especially tax policy, which is long overdue. It is rational, transparent and simple to administer. It is flexible such that it will always reflect circumstances in the economy and the market place with neither adjustment nor fiddling. Most of all, it is fair to the industry and provides significant benefits to the community as a whole.
Let me now turn to the controversy generated in Western Australia, as contrived by Mr Barnett, Premier of that state. Let us look at the facts. Western Australia is already under severe stress from the demands of the mining industry, especially labour shortages, which are not improving. Companies are reporting record profits—last year totalling almost $93 billion nationally. Massive amounts of capital are being invested. Let me give you some examples just in the north-west of Western Australia alone: $11 billion for BHP's floating project Prelude; $7½ billion for the Jimblebar Mine development in the Pilbara; $6 billion to be invested by Rio Tinto on new projects in the Pilbara; a $1.7 billion investment in the Hope Downs project; and $2 billion for the Argyle open pit transition and Cape Lambert port expansion.
It is worth noting in passing that BHP Billiton returned a profit result of $22.48 billion in 2010-11, representing an 86 per cent increase in profits. Rio Tinto announced first-half profits of US$7.6 billion, representing an increase of 30 per cent from the year before. Other projects in the pipeline are the Wheatstone LNG project, valued at $29 billion; the new Shell oil and gas project at Browse Basin, valued at over $12 billion; and the Fortescue iron ore project, Solomon Hub, in the Pilbara of $2.6 billion—which, I notice in passing today, raised over $2 billion in a bond issue at a coupon rate of 8¼ per cent. So there is plenty of money going into Fortescue. Finally, there is the Anketell port project at $3.1 billion, not to mention the beauty yet to come—the massive Gorgon project, costing $43 billion. In all, there are around 40 projects located in areas as diverse as the North West Shelf, the Pilbara and the south-west of the state. None of them are threatened one iota by the MRRT. All of them have the capital committed, some are well underway, and none of them will be changed, altered, withdrawn or slowed down in any way by the passage of this legislation next Monday.
Let me also repeat the economic impact that this massive growth in the mining industry will create in Western Australia. Economic growth is averaging over 5½ per cent but, after the GFC, is likely to stabilise at the miserly figure of 4½ per cent per annum. Employment in the mining industry has grown from 26,500 to 100,000 in 10 years. Investment is growing at an annual rate of 20 per cent and is almost 30 per cent of the total national investment in a state which represents barely 12 per cent of Australia's population. The value of exports out of Western Australia has doubled over the last five years and the output from mining and gas continues to grow. For example, iron ore production is up by almost nine per cent and LNG production is up by over eight per cent on prior years.
The demands of all this on both capital and skilled labour are obvious. It is estimated, for example, that Western Australia will need almost half a million extra workers between 2010 and 2030, right across all the relevant industries. Of this growth, only 16 per cent is for the mining industry, with the remainder being largely in the service sector—that is, the support industries. Again, the MRRT bills we are discussing will not affect any of this. The service sector, in fact, employs more people nationally than the mining industry does directly. This includes engineering services, construction, communications, finance, accountancy, transport, shipping, insurance and the total range of government and commercial services across the board. In fact, these services are now clustering around the mining export industry specifically. They are not casual or incidental in any way, they are a direct reflection of investment in mining. It is a rapidly expanding sector in its own right, especially in Western Australia.
However, while the mining industry is good for Western Australia, not all Western Australians are currently seeing the benefit. North-west townships are struggling to provide basic services and facilities. It is difficult, and continues to be difficult, to attract doctors, nurses, teachers, police and other essential service providers when housing stock is so limited and very expensive. There are townships without cafes and other entertainment venues because local businesses cannot compete with mining wages. These are the sorts of issues that should be at the forefront of state government thinking. It is the state governments who employ doctors, nurses, teachers, police and council workers.
The silver lining, however—and there is a silver lining to this area of shortage—is the potential of local Indigenous people, whose participation is rapidly increasing. This is now becoming clear in the official statistics, although it is not yet well-understood outside of Western Australia. It is heart-warming stuff, simply because much of the past empty rhetoric is now becoming fact. Despite the optics of fly-in fly-out activity, Indigenous people offer permanence. They also offer the reality of more sustainable regional and urban development. It is a complete paradigm shift from the remoteness and isolation we too often assume is normal in that part of the world. Given the skills and the values and rewards of employment, there is no reason at all for local people not to assume a much greater role, assisted enormously by the now obvious fact that mining in the north-west has a strong sense of permanence—permanence that is going to build townships and provide jobs for 10, 20 and 30 years. Mining companies, it must be said, are now making a serious effort in skills training and in opening up employment opportunities, particularly to local Indigenous communities. Everyone involved in this very gratifying task should be congratulated.
As far as the federal government goes, we will ensure that Western Australians benefit from this boom. For example, like all other Australians, those in the west will benefit from the increase to superannuation. Western Australians will similarly see their employer contributions increase from nine per cent per annum to 12 per cent. For a 30-year-old worker this is worth an extra $100,000 in retirement benefits. Small businesses—and they are growing in their thousands in that state—will benefit from the streamlining of taxation, especially those benefiting from the current growth. The instant asset write-off alone will benefit 273,000 small businesses in Western Australia. They will also be able to write off every asset worth up to $6,500 and the first $5,000 of a new car. The Commonwealth will be able to invest in benefits for the people of Western Australia, and that includes mining communities struggling to get basic services. Royalty payments will not be affected, though the Premier's recent increase will inevitably backfire and will be the subject of discussion and conclusion, I am sure, in the GST distribution report, even though state revenue is not affected in any other way.
Let me remind those listening that the MRRT taxes companies with profits over $75 million. It does not tax states, it does not tax regions, it does not tax individuals, it does not tax small companies and it does not tax partnerships. It taxes only companies with profits above $75 million. Of course, much of the revenue created will be returned to Western Australia by way of the Regional Infrastructure Fund. Projects like Gateway WA will deliver significant benefits to the roads around Perth Airport, with Commonwealth investment of $480 million on top of the $3 billion being spent by the Gillard government on transport infrastructure projects in Western Australia.
These bills represent overdue reform of the taxation system as it affects mining. They reinforce the principle of public ownership of natural resources. For too long these resources have been regarded as open slather, simply available for private exploitation—a finders keepers mentality. But, more importantly, they illustrate the benefits accruing to Australia which we need to manage carefully, invest carefully and not squander. Finally, we need to accept the economic shift. We need to understand the new industry and investment and social paradigm which the mining industry offers. These bills are part of that shift and I fully support them.