Penny Wong (SA, Australian Labor Party, Leader of the Opposition in the Senate) Share this | Hansard source

The opposition supports the Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014 and the Excess Exploration Credit Tax Bill 2014. There are obviously a number of schedules in the bills before the parliament which deal with a range of issues such as the making of excess non-concessional superannuation contributions, the management of tax investigation and complaint-handling functions, the exemption of certain compensation payments from CGT, and other matters. In my remarks today I want to briefly focus on schedule 6, which introduces an exploration development incentive to encourage investment in small mineral exploration companies which are undertaking greenfield mineral exploration in Australia. It provides Australian resident shareholders of junior explorers with a refundable tax offset.

I will make some observations about this point. This is a measure which has been mooted for many years in Australia. In fact, there are several of these facilities which are already in place. I note that the minister's second reading speech in the other place alluded to the fact that these measures are designed in part to reverse the slump in exploration for mineral resources, and I want to make just a couple of points about that. Obviously, the opposition recognises the importance of exploration activities to Australia's resources sector and to our economy more broadly. These activities not only drive the exploration economy but obviously also are critical to the development and ultimately the production and export of these resources. We also understand the length of time which is associated with many of these projects. Western Mining found uranium in Olympic Dam, in South Australia, my home state, I think in the early 1970s, 1974 or thereabouts, and we recall that the first ore was not extracted until the mid-1980s.

When the Labor government was in office, there was an estimated $270 billion in committed capital investments, and direct employment in resource operations across our country was some 250,000 people. In the first year of this government, we have seen this reduced to employment of under 230,000. We have seen significant decreases in mining exploration. If the government were in opposition now, no doubt it would rail as to why this was entirely the government's fault. I would make this point: the exploration cycle, the exploration economy, is largely driven by the commodity cycle, and no amount of partisan posturing by those opposite can get away from the fundamental economics, which are these. The incentive to explore, for example for iron ore, is high when the iron price is high, and clearly, when the iron ore price is dropping to the levels we have seen, there is not only pressure to contain costs but also less financial incentive and economic incentive for exploration activity.

In Australia we had a flow-through share scheme similar to this in the 1950s, which was subsequently curtailed in 1973. Another scheme was introduced in the late seventies under the Fraser government. It was wound up in 1985. Those schemes over that period were based on providing tax deduction on funds invested in resources companies for the purpose of exploration. The scheme was abolished because it was used for tax avoidance, and inquiries found that it contributed little towards mineral exploration. The flow-through share scheme, which operated in the period 1978 to 1985, was predicated on the provision of a rebate.

Labor is supporting the measure before the chamber. We want to make clear that we want this measure to work. We also recognise, however, the economics and the cost pressures which are currently facing the industry. These are amply demonstrated by the Resources and Energy Quarterly issued by the Department of Industry last year, which showed that exploration expenditure declined by some 29 per cent year on year in the September quarter as lower commodity prices encouraged firms to look at cost reduction, including reduced exploration activity, across the mineral sector. The report says:

With lower commodity prices forecast in 2014-15, a rebound in exploration expenditure appears unlikely in the short term. While minerals exploration declined, exploration for petroleum increased.

That fact was driven by many different factors, some associated with coal seam gas extraction on the east coast. The report also notes:

... the rapid decline in oil prices may affect petroleum exploration expenditure over the remainder of 2014-15.

Exploration at new deposits fell 47 per cent compared with the September quarter of 2013, while exploration at existing deposits fell 18 per cent. In the September quarter alone, exploration expenditure in Western Australia fell 25 per cent, year on year, to less than $860 million. The only jurisdiction showing a difference to that was the Northern Territory, where exploration expenditure increased by 43 per cent. Every other state has shown large declines in exploration expenditure.

The exploration economy is ultimately driven by global markets and prices. Whilst a tax break may make policy sense and economic sense, fundamentally the economics of global markets and prices will be the fundamental drivers of exploration activity.

The slump in the price of iron ore and the significant increase in Australian supply—which have been well documented—have reduced the incentive to search for new deposits. Based on forecast lower prices in 2015, projected expenditure for exploration for iron ore may not rebound in the short term.

If we look at other commodity groups we see similar stories. If we look at coal, we see Australia's coal exports in thermal coal under pressure on price and on industries and businesses performing. But Australia's coal exploration expenditure in the September quarter was around $80 million—about one per cent lower than the preceding quarter and 27 per cent lower than the September quarter 2013. Lower coal prices self-evidently reduced the incentive to invest in exploration during 2014.

It is interesting to note that partisan politics by some in this place and in the other place have seen government senators and members assert that exploration has fallen off because of the former Labor government's policy settings. That is inaccurate, and it is another example of this government's partisan politics, demonstrating their willingness to engage in a fear campaign and in political partisanship rather than understanding the economic issues at hand. The real reason exploration dollars have been held back is that commodity prices have fallen.

Ultimately, exploration activities are not driven by the taxation regime—a point made ably by my colleague Mr Gray in the other place. Exploration activities are driven by a belief that there are minerals out there which can be found and that there are customers who need those minerals, and by a great belief in the mission that our explorers have to do their jobs as well as they can and as safely as they can.

Minerals exploration in Australia has been supported by innovative and creative programs that have been put together by Geoscience Australia and, through Geoscience Australia, by state government exploration programs. In South Australia, the PACE program drove the discovery of the Carrapateena resource in 2006. It is an impressive resource discovery—a copper-gold formation near the Woomera Prohibited Area and near Roxby Downs in northern South Australia. It is one of the discoveries that we hope will drive new minerals production through the coming decade and, hopefully, for 20 years. But, obviously, it was not discovered as a consequence of a tax break. It was discovered because of the prize or the outcome, because of the economics, because of the international commodity price cycle, because of the belief by minerals explorers that their understanding of the geology was superior, and by their scientific conviction that they could find a resource in the area in which they were looking. This is the spirit that drives exploration.

Labor will watch with great interest how the mechanism before the chamber works in practice. It is a thoughtfully constructed mechanism. It is also expensive. It costs a significant amount of money, but it is a mechanism that we hope will add some incentive to an industry that is currently facing some challenges for the economic reasons that I have outlined.

Exploration for minerals does drive significant economic development. It is one of the most substantial ways in which regional development can occur. The discovery of nickel, gold or copper, the discovery of a new iron ore belt or the discovery of uranium can drive the construction of a town, a locality or a region. It is work that has enabled many lives to be enriched. It has enabled prosperity through employment for local communities and because of investment in infrastructure and the like.

The opposition does support these bills before the Senate. We look forward to their prompt passage.