Dean Smith (WA, Liberal Party, Shadow Assistant Minister to the Shadow Treasurer) | Hansard source

This bill is presented as tax reform, but it is nothing of the sort. Instead, it is a package of higher taxes built on broken promises, bad economics and a fundamental misunderstanding of how investment creates prosperity. Under this bill, the government has proposed to abolish the longstanding 50 per cent capital gains tax discount for many investors and replace it with an inflation indexation model that could see capital gains taxed at rates up to 47 per cent. It also proposes to restrict negative gearing on rental property to newly built homes. These are not modest adjustments. They are fundamental changes to Australia's investment framework.

Before the election, the Prime Minister repeatedly promised Australians there would be no new taxes. Instead, Australians have been handed higher taxes on investment, higher taxes on housing, higher taxes on enterprise and higher taxes on aspiration. This is a government that cannot manage spending, cannot manage inflation and cannot manage the budget, so it's coming after the savings and investments of ordinary Australians. Rather than growing the economy, Labor has chosen to tax it. Rather than encourage investment, it has chosen to discourage it. That is why this is such bad legislation.

The government claims these changes are about housing affordability and intergenerational fairness, but the housing market is already delivering its verdict. Across Australia's capital cities, auction clearance rates have collapsed below 50 per cent for the first time in six years. More homes are now failing to sell than selling. Buyers are retreating, vendors are losing confidence and investors are sitting on the sidelines. Housing markets run on confidence. Labor's changes to capital gains tax and negative gearing will inject even more uncertainty into an already fragile market. The government's own budget papers acknowledge these changes will result in fewer homes being built. Treasury expects lower house prices than otherwise would occur, while economists warn investor demand could fall sharply and market turnover by as much as 20 per cent. This is not a housing strategy; it is a confidence strategy in reverse. The tragedy is that Labor has completely misdiagnosed the problem. Australia does not have an investor problem; Australia has a housing supply problem. Taxing investors will not build a single extra home. It will simply mean fewer rental properties, less investment and greater pressure on renters already struggling through a cost-of-living crisis.

But the damage does not stop with housing. The evidence before the Senate Economics Legislation Committee made it abundantly clear these changes will reach well beyond the housing market. They will discourage productive investment across the Australian economy, they will weaken small business, they will undermine entrepreneurship, and, for my home state of Western Australia, they threaten one of Australia's greatest economic success stories, the resources sector. Western Australia has been the engine room of the Australian economy for decades. Iron ore, gold, LNG, lithium, rare earths and critical minerals have generated hundreds of billions of dollars in exports, sustained regional communities and funded public services across Australia. Last year alone, Australia's resources sector generated around $383 billion in export earnings. None of that happened by accident. Every operating mine began as an exploration project. Every major discovery began with someone prepared to take a risk. Before there is a mine, there is a geologist, a drill rig, an exploration company with no income or certainty of success, and investors prepared to provide patient capital over many, many years. That is the investment pipeline this legislation now puts at risk. During the Senate inquiry, the Association of Mining and Exploration Companies made one fact abundantly clear: around one in every 1,000 exploration projects becomes an operating mine. Think about that: one in 1,000. That tells us two things: first, that mineral exploration is one of the highest risk investments in the economy; and, second, that investors require an incentive to commit long-term capital.

That is precisely why the capital gains tax discount matters. It recognises risk and it rewards patience. It encourages Australians to back projects that may take 15 years to deliver a return or may never succeed at all. Labor's proposed changes weaken that incentive. Less investment means fewer exploration programs, fewer discoveries, fewer future mines and, ultimately, fewer exports, fewer jobs and lower government revenue. That is not productivity; that is economic self-harm.

Perhaps the most extraordinary aspect of this legislation is the government's inconsistency. Last week, Labor announced a carve-out for eligible technology startups. The government accepted that early-stage, high-risk businesses relying on patient capital deserve special treatment, but it refused to extend that same recognition to junior mineral explorers. Why? Can the government explain? Mineral explorers are the original startups. They are pre-revenue. They rely entirely on patient investment. They create enormous national wealth when successful. The similarities are obvious. The inconsistency is impossible for the government to defend. If innovation deserves support, surely discovering Australia's next generation of critical minerals deserves it as well.

The contradiction becomes even greater when the government's own rhetoric is considered. Labor talks constantly about critical minerals. It talks about future industries. It talks about the energy transition. But none of those ambitions happen without exploration. There can be no new lithium mine, no new rare-earth project and no new copper discovery or critical minerals industry without someone funding exploration today. You cannot be championing critical minerals while taxing the very investment needed to find them. Western Australia has more at stake than anywhere else. Nearly three-quarters of Australia's mineral exploration occurs in Western Australia. Regional contractors, drilling companies, local suppliers, country towns and future mines are all part of the pipeline this legislation now puts at risk.

This legislation follows another damaging decision made by the government. Only 18 months ago, Labor abolished the Junior Minerals Exploration Incentive. Independent analysis showed that every dollar of tax credits generated about $2 of private investment, $6 of exploration expenditure, billions of dollars in future mineral production and hundreds of millions of dollars in additional tax revenue. Labor removed that successful incentive. Now it proposes another measure that the industry says will further discourage investment. It is little wonder that confidence is deteriorating. AMEC told the Senate committee that 75 per cent of retail investors regard the capital gains tax discount as either very important or extremely important when deciding whether or not to invest, and about half of them indicated they would reconsider future investment if the discount disappeared. Those warnings should concern every senator in this chamber. The damage will not appear overnight. Exploration decisions made today determine whether Australia has producing mines 15 years from now. If you get this wrong today, the consequences will be felt for decades. There will be lower exports, fewer regional jobs, weaker economic growth and less government revenue. Those outcomes are entirely avoidable.

Even the Western Australian Labor government appears to recognise this. Premier Roger Cook and Rita Saffioti came to Canberra yesterday, all the way from Perth, to warn the Prime Minister and the Treasurer not to undermine the investment that drives WA's resources sector. The Premier made an important point: exploration companies do not generate income in their early years. They depend on Australians being prepared to invest in high-risk projects while knowing that success may be many years away or may never come at all. This bill weakens that incentive while granting concessions to other high-risk industries and leaves junior mineral explorers way behind. When the WA Labor premier and treasurer are asking the federal Labor government to rethink its own tax policy, the Prime Minister should listen. This legislation taxes risk, it taxes investment, it taxes productivity, it taxes aspiration and it taxes one of Australia's most successful export industries. Whether it is young Australians investing to build a house deposit, a small-business owner building a company or an investor backing the next mineral discovery in Western Australia, Labor's instinct is always the same: tax risk instead of rewarding it.

The same legislation that is weakening confidence in Australia's housing market is now also weakening confidence in Australia's future resources industry. In both cases, Labor is discouraging the investment Australia needs most. That is why the legislation is fundamentally flawed. It will not make Australia more prosperous; it will make Australia less competitive. By contrast, the coalition believes Australians who take risks, build businesses, create jobs and invest in Australia should be encouraged, not punished. The government still has time to correct its mistake. It should listen to the evidence. It should listen to the resources industry. It should listen to Western Australians. It should provide junior mineral explorers with the same carve-out it has already granted to other high-risk, early stage industries. If it refuses to do so, it will tax away the investment needed to discover Australia's next generation of mines and make west Australians poorer for it. That would be a profound economic error.

Acting Deputy President, I foreshadow that I will move a second reading amendment regarding mineral exploration matters.