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 coalition opposes this raft of bills. This raft of bills, the Minerals Resource Rent Tax Bill 2011 and related bills, will strike at the very heart of the Australian economy. This package of bills will seek to legislate the sort of politics of envy that those on the other side revel in. Make no mistake: Australia has benefited very greatly from the resources boom. We happen to call it the 'resources boom' because we accept that this situation will not last forever. Indeed, the resources sector is well known for its cycles—for its downs and its ups. There is no doubt that at the moment Australia is benefiting from one of the up cycles. But as a result Australia is getting a huge dividend via company tax and via royalties. And this is the important thing here: the states are entitled to the royalties. The value of the minerals actually belongs to the states in our federal system, and the mining companies do the bargaining with the states in relation to the royalties. After that is done, the profitability of the company is taxed via Commonwealth legislation.
The Commonwealth legislation is appropriate to have a company tax levied on the profitability, but this concept of a superprofits tax is once again an indication of the thinking of the Greens-Australian Labor Party alliance that you can dumb down the economy, that anybody that makes a profit above whatever predetermined rate it may be should be taxed extra hard and more heavily. Are we going to start applying that to our banks and financial institutions? Are we going to start applying that to the local corner store? Are we going to start applying a superprofits tax to other areas of the economy? Why would we seek to levy an extra tax on those businesspeople who are able to run their companies and businesses more efficiently and effectively than their competitors down the road? If we start taxing innovation—if we start taxing the entrepreneurial spirit—it will simply dumb down the Australian economy. And of course that is what those with a socialist bent on the other side, being the Greens-ALP alliance, actually believe in. We in the coalition do not. We do not want to see the killing of the goose that is laying the golden egg for the Australian economy.
And make no mistake: the buyers of our resources as we speak are looking to South America, are looking to Africa and are looking to Asia to source these raw materials. Why are they doing so? Because, once the Australian government started signalling quite heavily that they were going to levy an extra tax, why would they bother to continue to invest in Australia? Sure, the impact of this may not necessarily be seen in the Australian economy tomorrow, the next day or, indeed, next year, but in a decade's time people will start asking, 'What happened to the once-proud Australian resources sector?' They will be able to look to Brazil in South America. They will be able to look at the continent of Africa. They will be able to look at Asia and say all the people decided that they would invest in those continents because, believe it or not, Indonesia now boasts less sovereign risk for resource companies than Australia courtesy of this mining tax.
One of the reasons we as a coalition oppose this mining tax is that it was a deal struck by the government with the three largest miners. There are 3,000 Australian mining companies. This is another example of big government doing deals with big unions and big business and small business is simply trampled on, forgotten, dismissed as being of no consequence. We as a coalition say those other 2,997 smaller miners were entitled to be heard, were entitled to be listened to—but for the Greens-ALP alliance they are of no consequence.
Out of this terrible economic policy that is the mining tax the government is seeking to make a virtue by saying small business will get a tax reduction. But let us analyse that. No. 1, tax reductions are not really tax reductions if you are taxing somebody else. One of the things that you learn, I would have thought, in Economics 101 is that, if you want to pay something to somebody, you have got to take it off somebody else in the first place. This is not about reducing taxes; this is simply about taking it off one to pay another. The myth that small business will benefit is exploded when you have a look at the beneficiaries of these so-called cuts. It is companies and companies only. Seventy per cent of small businesses that are sole proprietorships or partnerships miss out on this so-called tax deduction for small business. Yet we had Senator Wong and Senator Lundy during question time today delivering answers asserting that which is false: that small business generally would get these reduced rates of taxation. It is only those in a company structure. What it suggests is that these companies are making substantial profits as we speak.
There was the excellent question from Senator Scott Ryan, who I know has a passion for small business. He was able to provide to Minister Lundy the horrible, horrible statistics of small businesses going bankrupt in Australia as we speak—one of the highest rates of bankruptcy. Those that are not going bankrupt are struggling. They are not making much of a profit; therefore, they are not paying much of a tax. Therefore, promising them a decrease in their rate of taxation, when they are running at a loss, is of cold comfort to them. What these small businesses would like is a dynamic resources sector that is able to pay and play into the wider Australian economy. That is the way you share the wealth. You do not share the wealth by having government scooping it away from business and then redistributing it and saying, 'What jolly good fellows we are.'
We know that the dead hand of government, in taxing enterprises, does not assist the economy. It does not assist, especially when this is all about a redistribution of wealth—as is, might I add, the carbon tax. This is a government that is addicted to big spending and to big taxes. We now have a huge list—quite frankly, I could not even remember them all now—of all the extra taxes this government has levied on the Australian people since it came into office. There is the carbon tax, the mining tax, and, of course, there is now, in effect, the extra tax in relation to private health insurance that the Senate so shamefully passed just a few minutes ago—and that was in circumstances where the Prime Minister herself said, 'I'm sick of saying this: we will not fiddle with the private health insurance rebate.' She has and she has broken yet another promise.
The Australian Labor Party and the Greens are trying to make a virtue of the suggestion that they are redistributing the wealth within Australia because mining companies are making big profits. As I understand it, the three big companies that they dealt with may well not be paying any for quite some time, because they are still in the investment stage. I have a funny feeling that these companies are having a bet both ways; many a company unfortunately does this. They are willing to say to the current government, 'Yes, we'll sign off on this', knowing they will not need to pay for a year or two and hoping that there will be a change of government, which will see the repeal of this legislation. As a result, they sort of win both ways and keep faith with both the opposition and the government. But can I say that, in having signed off with the government, those three big companies did a huge disservice to the other 2,997 mining companies. I believe they betrayed those companies in that deal, and the government also betrayed those companies by doing a deal only with the three big players.
We are told that somehow out of this mining tax the Australian population will get an extra superannuation dividend. That is also false. We are told that small businesses are going to get a reduced rate of taxation on their company tax, so that it is only that 30 per cent, to help offset that which they will have to pay in increased superannuation contributions. Make no mistake: not one red cent of the minerals resource rent tax will go to assist any private business in paying that extra superannuation levy, because every single company that is struggling as we speak, without making a profit, will have to pay that extra superannuation levy without any assistance from government whatsoever.
This is where Labor is yet again engaged in spin and deceit, where this government seeks to make a virtue out of that where there is no virtue but is, in fact, riddled with deceit and deception. This extra superannuation levy will not be funded by the mining tax; it will be funded out of the pockets of the businessmen and women in Australia. Let us be quite clear on that, and I trust that government senators will come clean during this debate rather than simply mouthing the mantra that the minister's office has undoubtedly given to them all for their speaking notes. I trust that they will come clean and not simply dutifully read out that which they have been told to read.
On behalf of the coalition, can I indicate our very strong opposition to this legislation. It is short-sighted and it will do untold damage to the long-term welfare of the Australian economy.
Sitting suspended from 18:30 to 19 : 30
I rise tonight to discuss what sort of future we aspire to have in this country, because, whilst the specific is the Minerals Resource Rent Tax Bill 2011 and associated legislation, the context in which we are debating this tax is what sort of vision do we have for Australia in the next 20, 30 or 50 years. How you raise the money and where you spend it will determine that kind of country, because the future is actually an extension of the present and it is shaped by the decisions and actions we make.
When I go around Australia and talk to people, they say they want Australia to be a clever country. They want Australia to be a country in which people are well educated and have equality of opportunity, where everybody can aspire to good health care—including good dental health—where there is a sense of social cohesion, because we are an equitable and egalitarian nation and we are happy people. That is the kind of nation that people talk about aspiring to.
We are talking about that vision for Australia in the context of the major crises facing the nation now: the global climate crisis, the global energy crisis—including peak oil—a food security crisis and a water crisis. All of those things are coming together and every nation, including Australia, has to face up to them. The challenge here is how to deliver this clever, equitable, well educated, healthy, socially cohesive country in the face of those challenges. The clear answer has to be that we cannot continue on the path we are on. One option for Australia is to continue the current economic strategy of digging up, cutting down and shipping away, of failing to invest in education and innovation. It is, as Ian Lowe once said, the 'steady as she sinks approach'. In the steady as she sinks approach, you have a situation where people start to grasp for the returns that they can get while they can get them without thinking about what that means for the nation in the longer term. In that scenario we will continue to sell our resources, sell our industry and even sell the land itself, and with the land its water resources.
We cannot have that. We do not want to become a bleak backwater of big holes in the ground, married to a strategy of driving increased greenhouse gas emissions through massive increases in coal mining with declining commodities prices over time, a loss of cohesion in community and a willingness to see a declining number of tourists come here as our natural resources decline in the face of the crises that I am discussing. We need to make sure we maximise the benefits of the mineral exports boom that we are experiencing and invest those profits in making Australia the clever, equitable country that we want it to be as we move into this century.
In order to do that we need to maximise the amount we raise from our resources and not just give it back willy-nilly in tax cuts, as the Howard government did in the midst of the last boom. In 2006 I stood here in this Senate saying that it was disgraceful to be giving back in tax cuts all over the place the benefits of the boom in what was described as 'manna from heaven', 'rivers of gold' flowing out into the community via tax cuts, but at the same time failing to invest in education, training, innovation and research. During those years we lost some our best young people overseas and risked losing our intellectual property in the longer term. It was a bad way to go and we do not want it to happen again.
At the moment we are facing unprecedented growth in China with its re-engagement with the global economy and that has led to huge commodity prices, but, as I indicated in the Senate today, that is not likely to continue. We need to recognise that China is an incredibly clever country in that they are investing in the low-carbon economy and those new technologies. They are going to cap coal in 2015 and that sends a very strong signal about where we will be wasting money if, for example, we go massively into spending public money in supporting infrastructure development in an industry which has such a limited life in the face of global warming and peak oil.
We have a windfall gain now and that has led to huge increases in mining profits, but there has not been an exceptional increase in production and productivity has actually fallen. Most of the mining profits that are generated are going to shareholders overseas as the mining companies are predominantly around 80 per cent foreign owned. The benefits of the mining boom have been the subject of rather exaggerated claims about the economic benefits, but if you consider the nation as a whole a lot of people are hurting around Australia because of the impacts on our economy of the mining boom. Mining itself only employs about two per cent of the workforce, far less than agriculture and a quarter of manufacturing. The mining boom has led to an appreciation of the Australian dollar, higher interest rates, and shortages of labour in certain regions and particularly in certain skills. We know that a number of skilled workers have left the manufacturing sector to try to maximise their incomes in mining towns. These impacts are leading to lower profits and lower returns to shareholders and fewer jobs in other industries, such as manufacturing and tourism. The mining boom is also having adverse implications for greenhouse gas emissions, both during the mining in Australia and when the exported coal is burnt overseas. It is extraordinary that the expansion that is to be generated in the Galilee Basin in Queensland, for example, is going to wipe out the emissions reductions from our clean energy package by a factor of at least two or three. This is an absolutely shocking trend in terms of where we are with the global environment, with the State of the climate report 2012 from the CSIRO and the Bureau of Meteorology coming out yesterday pointing out that, with greenhouse gas emissions rising, it has to stop. Yet we are driving those global emissions with those coal exports.
Furthermore, we are seeing appalling dredging operations to expand the ports in the Great Barrier Reef. That increased shipping is damaging the Great Barrier Reef and the marine environment, and the implications are not just for tourism and fisheries but for the intrinsic value of the reef itself. The Australian Great Barrier Reef is of world heritage significance, it is of outstanding universal significance to humankind, yet we are prepared to dump the spoil from dredging in Gladstone Harbour and into that reef and destroy those areas forever. That is what I mean about saying we are not a clever country if we are prepared to damage biodiversity, damage the reef and damage our global status in terms of world heritage simply to rush the facilitation of a huge expansion of coal mining. I see today that the companies are calling for an acceleration of the infrastructure build in Queensland to get that coal out of the country faster, get those ships turned around faster and drive greenhouse gases faster. That is the current scenario.
We are also seeing coal and coal seam gas putting at risk quality food-producing land and water supplies. We are witnessing what is going on with farms, farm income and the appalling depression in a lot of farming communities as they see land which they have nurtured and cared for over generations, and water supplies, being compromised by this absolutely mad rush for expanded coal and coal seam gas. It is also damaging community cohesion. As I mentioned before, there have been lots of local government people in the media talking about the lack of cohesion in some of the communities in which the mining boom is occurring as we see the increasing use of fly in, fly out workers and a lack of support for community services in the towns themselves.
Australians have led the world in thinking about the impacts of resources booms and have looked at the optimal taxation treatment of them. We should be setting an example to the world in the implementation of an efficient tax to ensure that people get a fair share of the returns from their natural resources. That is why the Greens have said that we should have a sovereign wealth fund. As I said, if your aim is to use the boom to actually make the transition to the low-carbon economy, to make this investment in education, to make the investment in national disability insurance and to actually change society to get it to where you want to be, then you need to maximise your returns in the national interest and invest them wisely. That is why in the original Henry review there was a proposal for the resources superprofits tax and that is why the Greens supported it. We wanted to see Australia have the capacity to make the transition that we need to have. But, under duress from a ferocious and misleading advertising campaign by the large mining companies, the government replaced the superprofits tax with this minerals resource rent tax, which is a severely compromised version of what we should be achieving and will raise around $100 billion less over the next decade than the superprofits tax would have done.
The Greens are totally opposed to forgoing, largely into the pockets of the overseas shareholder base, that $100 billion which could be invested in education, health, disability, dental care and so on. Over $80 billion of the lost revenue will go to those overseas investors, and much of the other $20 billion will go to the wealthier members of the Australian community. This is money that could fund initiatives in all the areas I mentioned, including public transport and the very fast train. Can you imagine what a different society Australia would be, what level of excitement there would be in the community, if we actually saw a real return from the resources boom being invested in a very fast train, in dental care, in a modern public transport system—if we actually saw our cities become competitive and productive again instead of being congested and losing a lot of their liveability because we have failed to invest in decent public transport?
Whilst the mining industry are running a scare campaign about the impact on them of paying more tax, their actual and planned investment and spending on exploration continues to reach new record highs. The Greens want to see some improvements in this bill. We want to restore the mining tax to close to the level recommended by the Henry review. We want to make sure that the mining companies pay their fair share of tax for the resources that are owned by all of us. This is in the national interest. These resources belong to the people of Australia. They do not belong to a few wealthy people, a few companies and a whole lot of other overseas shareholders. They are our resources; they are non-renewable, and therefore they need to be used in the national interest. At an absolute minimum, the goldminers, who are garnering windfall profits from an unanticipated near-record price for gold, should be brought under this tax along with coal and iron ore miners. This change alone would add almost $2 billion over a decade and, better still, it would be able to restore the coverage to most minerals, including copper, nickel, rare earths and uranium.
The rate of the tax should be restored to the 40 per cent proposed in the Henry tax review, rather than the 22½ per cent in this minerals resource rent tax. That would double the revenue raised. The OECD commented that the proposed tax is set at a relatively low level and therefore the taxation of profits of mining companies is likely to remain much lower than before the mining boom. That is worth considering in the context of what we are doing here.
The federal government also cannot continue to provide a blank cheque whereby state governments raise royalties and then the federal government refunds the companies. That is the most ridiculous part of what has occurred with this tax. Giving the states the capacity to keep raising their royalties—and expecting the Commonwealth to refund that—while not being able to fund in the national interest the Gonski review findings of putting $5 billion into education and our National Disability Insurance Scheme and Denticare because we are giving it back to the states are all flawed parts of this. The other changes incorporated in the tax, such as the higher uplift rate and other generous provisions, also need to be reviewed.
In relation to the company tax rate the Greens have made it very clear that we do not support tax cuts for big business. We have made that extremely clear. That would be one way the Greens would fund these initiatives in the public interest to get the clever country to fund innovation in the way that is necessary and to fund education and training. We are the only party in here saying, 'We are prepared to impose that higher level of taxation during the boom so that we can fund education, disabilities and Denticare'—unlike the coalition's aspirations. They would rather not give that money to the Australian people. They would rather give it back to the mining companies concerned.
The Greens recognise that, if you are going to fund the $5 billion additional funding for Gonski—and everywhere I go people want money spent on schools—$3 billion going into public education would make a massive investment in the future. It would also make a massive investment in equity in Australia—equitable access to education—and that is essential. The high-speed rail link from Melbourne to Sydney to Brisbane would connect 18 million people. As I indicated, the National Disability Insurance Scheme needs to be funded—as does the sovereign wealth fund that we have suggested—so that we can start making long-term plans to deal with our future.
In terms of superannuation and how the government intends to spend this money, the Greens have indicated on several occasions that the miners are now saying that they want some of this money back for infrastructure projects. They complain about paying the tax but they have their hand out for everything from accelerated depreciation to massive investments in their infrastructure—and that is unacceptable. Infrastructure should be in the public interest, not to subsidise the profits of mining companies when they are not even prepared to pay the tax as is recommended.
Yes, the mining tax will allow an expansion of the superannuation scheme by covering the additional costs to revenue that result from the tax concessions offered to super contributions and earnings. The Greens are supportive of the superannuation increase but we want to take this opportunity to address the inequities in those tax concessions. Those concessions should not be giving the same benefits to high-income earners as they do to low-income earners. The Greens propose replacing the flat 15 per cent tax on superannuation contributions with a tax at the employee's marginal rate, less a fixed amount of around 15 percentage points. The best technical approach for doing this should be recommended by the superannuation roundtable.
We are also interested in the recommendations that came out of the tax summit last year and the working group that is now looking at other ways to support small business. If the parliament would take up the Greens' view that we give the tax cuts to small business but not to big business then we would have $4.3 billion to further facilitate these outcomes including supporting the backbone of the economy, which of course is small business.
I return to where I began. We will support this tax, recognising that it could and should have been a much better outcome for Australia. The disappointment I have with it is that there is no vision surrounding it. There is no articulated vision for what sort of country we want Australia to be in 2050. How are we setting in place, now, the kind of investment that will lead to that future? If we are to increase productivity in Australia, we will not do it through use of more oil, more resources, more land and more water. We will do it by investing in education, innovation, science, research, maintaining our own intellectual property and selling services around the world. That is the way we will do it. We will do it by getting to the low-carbon economy with all the enormous innovation and opportunity we see, and we will do it by investing in public transport, the very fast train and Denticare. Through all of those investments we will have a happier, more equitable, better educated, healthier country which has a vision of itself as a clever country, a wise country, connected in our region and connected globally by the strength of our intelligence, and all that comes from that, with the kind of intellectual input that I am suggesting. We will not get there through digging more holes, cutting down more trees or giving out the money to everybody to buy votes in the short term and ending up without the clever— (Time expired)
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.
Australia is experiencing an unprecedented boom in our resources sector, specifically in iron ore and coal, which has delivered record profits to mining companies year after year. I want to take this opportunity to praise the great work of Australians who work in the mining industry. On the North West Coast of Tasmania, where I am from, many people work in the mining industry and related industries both in Tasmania and as fly-in fly-out workers. Mining is a success story and we need to celebrate it. But we must also recognise that our mineral resources are nonrenewable and that, together with the resource, a large share of the profit is actually shipped off overseas—resources that can only be dug up once, resources that can be sold overseas only once. All Australians should benefit from the sale of our resources, not just the few who are directly involved in the mining industry. It is vital that the community—who own the resources 100 per cent—gets a fair return on these resources, to strengthen our whole economy for the future.
As the mining industry is extremely capital-intensive, it actually only employs about 1.9 per cent of Australian workers. And, while profits in the mining industry grew by 262 per cent over the last decade, the mining industry has contributed only seven per cent to Australia's jobs growth over the period. The number of new jobs in health and social services was almost four times that of mining during the decade. And, while the manufacturing industry continued the decades long trend of employment decline, it still employs over four times as many people as the mining industry. The metals manufacturing industry, which includes smelting, refining and producing metal products, has not been a significant beneficiary of the mining boom. Increased competition from Chinese smelters and refineries, higher energy prices and the appreciation of the Australian dollar saw value-added in the metals manufacturing sector flat through most of the last decade. The export volume of processed metals fell over the decade as some processing facilities were shut down, with the weakness broad based across a wide range of refined metals. Further, the mining of bauxite, copper, gold, lead, nickel and zinc did not perform as strongly over the last decade as mining in iron ore and coal.
Because of the small number of employees in the mining industry and its capital-intensive nature, the share of the mining boom that has gone to workers is significantly smaller than if the boom had been in a labour-intensive sector. The mining industry is crowding out investment and pushing up labour costs across the economy. While this is great news for those who are investing in mining companies or have been lucky enough to secure employment with a mining company, for the rest of the population it means that the cost of finance is higher and the cost of employing staff is higher and therefore profits are lower. We need to find the right balance in promoting greater equity in our society without reducing economic growth.
Labor's answer is to take some of the super profits in such a way that it does not distort investment. The minerals resource rent tax is a step down this path. It shifts Australian mining from royalty taxes to a profits based tax. We will move to tax the economic rents that accrue to mining companies rather than simply the amount of minerals a company extracts. When prices rise, mining companies will pay more tax. When prices fall, mining companies will pay less tax.
A resource rent, or super profit, is the profit that is over and above a normal return on invested capital. In competitive markets like iron ore, coal and coal seam gas, the cause for this super profit is normally a combination of the rents that arise from three things: a mining company's skill in extracting minerals; the fact that some minerals are cheap to mine; and the fact that high prices arise when there are only a few suppliers of high-demand commodities. The first is due to the skill of the miner, the second and third are not. The 30 per cent tax has therefore been reduced by 25 per cent to 22.5 per cent to account for the miner's specialised skills. This is a fair approach.
This is a fair tax that addresses the problem that the Howard government could not 'fess up to. During the tenure of those opposite, royalties as a percentage of mining profits decreased from around 40 per cent to about 15 per cent. It works out to about $35 billion dollars that could have been invested for the benefit of all Australians. Instead, Labor is delivering tax reform to spread the benefits of the mining boom to all Australians and to strengthen our economy for the future.
Labor recognises the value of superannuation for both the dignity of working Australians in retirement and in building up our national savings. Our national superannuation savings pool is a tremendous asset to this country and we must continue to build it up. We are using the mining tax to boost the superannuation savings of low-income Australians by up to $500 per year by removing the tax on super for people earning up to $37,000. This will assist 3.6 million low-income earners, including 2.1 million women, in saving for a decent retirement. These low-income earners previously received minimal tax benefit from contributions to superannuation given that the 15 per cent superannuation contribution tax is above or equivalent to their income tax rate. This is a tax reform that helps those who need it most to save for their retirement.
We are lifting compulsory superannuation to 12 per cent for all Australian workers, increasing retirement savings by around $500 billion dollars by 2035. This proactive measure will assist around 161,700 people across my home state of Tasmania, and will continue this government's strong record of dealing with the long-term challenges of Australia's ageing population. The challenge is that people will spend longer in retirement and that there will be fewer workers relative to retirees. Acting now to boost the superannuation of 8.4 million Australians will ease pressure on the government's fiscal position in future years and, as the increase will be phased in with small increments over the next eight years, businesses will have time to adjust to the additional costs.
Labor is also using the revenue to boost critical infrastructure across regional Australia, including upgrades and expansions to make sure we can get the wares of all Australians to market. We are moving to cut company tax to 29 per cent for small businesses from July this year, and for all businesses in 2013-14, and to increase the small business instant asset write-off from $1,000 to $6,500. These measures will put $1 billion back into businesses nationwide and increase their capacity to create jobs.
We need a tax system that assists small businesses to grow and to create jobs across our whole economy, and being able to instantly write off assets valued up to $6,500 will be of significant cash flow assistance to those small businesses. Further, as the small business is growing, we will take less in company tax to enable it to reinvest the money and create jobs. It is remarkable that those opposite are so bent on being the 'no-alition' that they will not even support tax cuts to Australian small businesses and businesses that are not in the fast lane of the mining boom.
While Labor moves to provide these benefits to all Australians, the mining industry continues to flourish. Expenditure on mining exploration hit a record $1 billion in the three months to December 2011. Specifically, iron ore exploration expenditure was more than double the amount spent a year earlier and coal exploration was about 80 per cent higher. There is no evidence to suggest that the announcement of the minerals resource rent tax has materially affected investment and activity in the Australian mining industry.
I turn now to how the tax will work. A mining company calculates profits as revenue minus expenditure and allowances for each mining project at the extraction point. The extraction point is the point between upstream—the mining—and downstream—the refining and smelting processes. Profits for the purpose of the MRRT are calculated at this point to ensure that only the extraction of minerals and not any improved value of the resources is taxed through the MRRT.
Miners receive allowances in a number of areas, including state government royalties, to ensure there is no double dipping, for times when the mine has run at a loss and in immediate deductibility for their new investments to encourage miners to continue to grow. After this, if the miner's total mining profit from all its projects is above $75 million it will be subject to the 22.5 per cent MRRT, with a concession for those companies with profits between $75 and $125 million.
This reform continues Labor's tradition of being the party that encourages regional development and that governs in the interests of all Australians—not in the interests of a few mining magnates. This tax will see the benefits of the mining boom shared across our community because it is our community that owns the resource and our community that should receive a fair share of the economic rents realised from extracting this resource. We will give a much needed boost to the retirement savings of Australians, particularly low-income Australians, and while we are at it we will give small businesses a tax cut and invest in much needed infrastructure in regional Australia. Labor understands that, for a stronger Australia, we need to bring all Australians along together. That is why I am very happy to support this legislation.
I will support with some reluctance the second reading of the Minerals Resource Rent Tax Bill 2011 and related bills, and in all likelihood I will support the third reading, although the passage of these bills is largely a foregone conclusion. I think it is important to set out the reasons for my reluctance, the concerns I have and the importance of monitoring the implementation of this tax.
Firstly, I reflect on Donald Horne's great book The Lucky Country. That is what Australia has been called ever since Donald Horne—
Senator Farrell, for whom I have great regard, has interrupted with a completely irrelevant interjection. Donald Horne called us the Lucky Country but he said so with a great sense of irony. He said we were the Lucky Country but we deserved better leadership. He said our leadership was not up to the task of governing the country—and that was back in the 1960s. I wonder whether that description should also apply now.
I think it is important that we should harness that luck from the minerals boom, but we should not kill the goose that lays the golden egg. I firmly believe that the mining boom ought to bring tremendous benefits to all Australians, but it is important that we do not squander those benefits. It is also important that this bill be implemented appropriately. If this bill has a number of unintended consequences, particularly for smaller and emerging miners as some have suggested, we ought to adjust or amend the bill as a matter of urgency.
The mining sector is generating huge amounts of wealth, as the Senate Economics Legislation Committee sets out in its comprehensive report. Profits in the mining sector have jumped 262 per cent over the past decade, and there is scope for the mining sector to pay more tax. But the design of that tax needs to be right. Senator Urquhart, in her comprehensive contribution, set out what a rent tax is. In common parlance it is basically a tax on super profits well above the average ordinary return on capital. That is what the Henry tax review initially raised. The Henry tax review is an important document which, sadly, the government has largely ignored.
I do not agree with assertions that this tax will drive mining companies away from Australia to other resource-rich countries. There is a clear worldwide trend of countries moving towards and increasing resource rent taxes. For example, Brazil, one of Australia's major iron ore competitors, has proposed a 25 per cent special participation tax. However, I am concerned that the government needs to get the balance right. I do not think it has done so in the design of this tax. But I also believe in the phrase 'the perfect should not be the enemy of the good'. This legislation is far from perfect, but I would not want us to throw away the potential benefits to Australians of mining companies paying a fairer share of tax.
It is also important to look at the effect on the budget bottom line. Senator Cormann touched on this in his contribution, and I think it needs to be reflected on. He asked whether this government has been responsible in the way it has harnessed the mining boom to date and dealt with the budget to date. Peter Hartcher, a senior writer for the Sydney Morning Herald, wrote about the mining boom in a column just a few weeks ago. I think it is worth reflecting on what Mr Hartcher said. He is a well-regarded and balanced commentator. He was critical of the opposition's policies and planning and of the Leader of the Opposition. Mr Hartcher wrote:
… that's not to absolve the government, either. Its budget policy is clearer than the opposition's, and so it should be—it's the one running the country. But its budget performance is feeble. Yes, Australia's projected federal government deficit of $37 billion this fiscal year is tiny by international standards. Yes, Julia Gillard and Wayne Swan promise to have the budget out of deficit and back into surplus next fiscal year. On the current plan, it'll only just be a surplus—$1.5 billion for 2012-13—but a surplus none the less.
How can this be feeble? Consider our circumstances. First, the Labor government inherited surpluses and zero net debt, thanks to Peter Costello.
Second, look at the commodity windfall. The Reserve Bank runs an index of commodity prices. The Howard-Costello government produced 10 budget surpluses when the index was between about 40 and 50. Since Labor has been in power, the index has been between about 80 and 150. It now stands at about 140. In other words, this is a time of extraordinary bounty for a commodity exporter.
If Peter Costello could produce a surplus when the commodity price index was at 40, why is it so hard for Wayne Swan to produce one when it's at 140?
Peter Hartcher is a responsible commentator who has done the analysis. I think we should be concerned that we do not squander the benefits of the mining boom and that the proceeds are spent wisely.
I am also concerned about whether there has been adequate transparency in the design of the MRRT. Its underlying revenue assumptions seem to be best known by the three big miners and the government. It would be preferable for the government to release more information so that these assumptions can be tested. It would be preferable that there be greater transparency in the process. It is vital that we see just how much revenue will be generated so that we can make the best of it, especially if it turns out to be much less than the Treasury modelling of $10.6 billion over the first three years of its operation.
Another matter is the way that the tax was designed. We know that smaller and emerging miners are concerned that they will be disadvantaged and there will not be competitive neutrality in the mining sector. That concerns me. I do not want us to kill the goose that lays the golden egg. I think it is important that the effect on small miners is monitored and those small miners who could turn into big players in the future are not stymied and do not go elsewhere.
It is also important that we have a debate in this country about a sovereign wealth fund. It is too easy to blow the mining boom on spendthrift policies. We need to put money away for the future. The mining boom will not last for ever. The resources can only be dug up and sold once. But by putting this revenue in a sovereign wealth fund, we can ensure the benefits of the mining boom last for generations to come. As Senator Sinodinos said in his maiden speech:
Such a fund could also kick-start a genuine venture capital market … so that more Australian inventions and innovations can be commercialised here.
The member for Wentworth, the Hon. Malcolm Turnbull, has acknowledged:
Many countries, particularly those dependent upon single finite resource commodities, already have such funds—globally they are estimated to hold up to $4 trillion in assets.
This is the time for us to have a debate on a sovereign wealth fund. Given that our mineral resources are finite, why would we not want to preserve some of the wealth for our future rather than taking an approach which I believe is not fiscally responsible for generations to come?
It is also worth considering how revenue from the MRRT can be used to support small businesses. I believe there ought to be a bias towards small businesses. I agree, to a degree, with my colleagues in the Australian Greens that there ought to be a greater emphasis on giving more assistance to small businesses. This tax is supposed to facilitate small business tax cuts, but the sting in the tail is that it will only apply to businesses of $2 million a year in turnover. Some would say that is too narrow, too small a definition, and for fledgling businesses $5 million would be more reasonable. We know that small businesses are the driving force of job creation in this country. They are so significant in creating literally millions of jobs in this country. I think we ought to ensure that it does not apply just to incorporated bodies. It also should apply to sole traders, partnerships, family farms and a whole range of other small businesses, 70 per cent of which will not benefit from these tax cuts—and I think that is important.
The Henry review recommended that the company tax should be cut to 25 per cent. This bill will facilitate a package of measures much more modest than that. What concerns me is the huge number of small businesses run as trusts, sole traders or partnerships which would miss out on any benefits from the tax cuts. A whopping two-thirds of small businesses are not incorporated and thus will not benefit from the cuts. We need to give small businesses a break, but not just a select group of small businesses. It needs to apply to small businesses whether incorporated or not. The small business corporate tax cut was summed up perfectly by the executive director of Independent Contractors Australia, Ken Phillips, who described it to a news outlet as 'political fluffery'. So I am worried that we will not be restructuring our tax system in a way that gives maximum benefit to those that need it most.
I am concerned also about the way the tax was negotiated with the big mining companies, and I note that Treasurer Swan was quite critical recently of three mining magnates. I have never met Gina Rinehart or Clive Palmer, though I have met with Andrew Forrest. It is important to note that those three mining magnates were not responsible for derailing the government's earlier tax, its Resource Super Profits Tax, in the sense that it was not Gina Rinehart, Clive Palmer or Andrew Forrest but BHP Billiton, Rio Tinto and Xstrata that derailed the RSPT—which I think is now acknowledged to have been a very flawed tax in the way it was structured. I note that Mitch Hooke, from the Minerals Council, a formidable lobbyist and advocate for his industry, supports this package of bills—I think it is not with any great enthusiasm, but it is better than the alternative. That is a fair summary, I think, of Mr Hooke's position.
I am concerned about the fact that the states could play a role here—they could increase their royalties and that could distort this tax. If this bill is passed, we face a situation where, if states increase royalties, mining companies could reduce their mining tax bills. State governments in Western Australia, New South Wales, South Australia and Tasmania have either increased their royalties or announced plans to increase royalties. This will have an impact on expected MRRT revenue, as I understand it. We can all imagine the fight that will ensue if revenue from the MRRT is less than expected because of states increasing royalties.
Mining magnate Clive Palmer has announced, I think as recently as last night on 7.30and we all know the program we are talking about—that he will challenge the constitutionality of the MRRT on the basis of it being a tax on states.
He loves the courts. The government may well be confident that its legislation will stand up to any challenge, but the government was also confident about its Malaysia solution.
Just a few months ago I had the pleasure of speaking and giving awards at the annual Tim McCoy Memorial Dinner in Melbourne, commemorating a brilliant young community legal service lawyer who died far too young. As part of that night I gave out awards to David Manne and his team from a community legal service that took on the federal government on the Malaysian solution. I spoke to them after the awards. I think it was about 35 days from the time they got a call from asylum seekers on Christmas Island to the time of the High Court's decision, and they worked around the clock. Now if a dedicated bunch of community legal service lawyers and barristers can overturn legislation that the government was very confident about, I dread to think what Mr Palmer, with his seemingly limitless resources, can do in challenging this legislation.
That is why I think there ought to be some transparency in the legal advice. It is important that we are reassured by the government with, at the very least, a substantial precis of the government's legal advice concerning the robustness of this legislation. After all, if this matter does end up in court, presumably that legal advice will form the basis of arguments that will be put to the judges of the High Court, and in that case I can see no prejudice for the government to outline its arguments in terms of any potential challenge to this legislation.
Senator Cormann is right, it cannot be the subject of a challenge in our system until after the legislation has been passed. Unlike other countries we do not have a system in which you can have a construction summons whereby before legislation is passed, before it is implemented, it can be the subject of judicial review or challenge on the grounds of constitutionality. I think the government will end up with more than egg on its face if Clive Palmer is right and the government is wrong on the legal position.
I would also like to hear from the government about the impact of the tax on small miners, particularly those emerging miners, and future investment. What modelling has been done? Does the government consider that there is not necessarily competitive neutrality in the basis of this tax? We can see that in the opportunity the bigger mining companies have to depreciate the significant market value of relevant project assets over a period of up to 25 years. This can be seen to give them a significant advantage.
I have reservations about this tax and a whole range of measures associated with it and its potential constitutionality. I hope that it does withstand a constitutional challenge because I think it is important that we derive the revenue from the mining boom for the public good. But I am also concerned about unintended consequences that could crimp investment in the mining sector, particularly among smaller miners. But, on balance, it is important that we harness some of this mining boom for the broader public good. It is important that it be monitored on a regular basis to ensure that unintended consequences are dealt with expeditiously. I hope that this bill will deliver the benefits to Australians that it is intended to and that Australia continues to remain the lucky country, despite the obvious flaws in the structure of this bill. I believe that the perfect should not be the enemy of the good. While this bill is far from perfect, I believe it ought to be passed.
It is with the greatest pleasure that I rise to speak in support of this package tonight. My major contribution will be on the two superannuation matters. Most of the focus of this package has been on the proposed mining tax. In this new mining tax we have an important tax reform that will have important and positive consequences for the Australian economy. A lot of the attention has focused on the Minerals Resource Rent Tax Bill 2011 and the associated mining tax legislation and not on the package of tax reforms. The mining tax has received significant public commentary and debate, but this package, and the revenue that is derived from the mining tax, funds a number of very important tax reforms that will have a positive impact on the broader economy, tax cuts that are delivered in a range of different measures. This funds a cut to company tax for small, medium and large companies. It funds what is called a standard tax deduction, so millions of Australians will be able to claim a standard tax deduction of $500 and $1,000 in the second year. This standard deduction will do away with the need for millions of Australians to fill in complex tax returns.
I have to correct Senator Xenophon. The mining tax does not just fund the company tax cuts—and I accept that only about two-thirds of small business are incorporated—it also funds the very important measure of the improvement in small business write-offs. Write-offs for small business will improve from $1,000 to $6,500. That is a substantial tax cut for small business. It has not had a lot of attention in this debate.
What is important is that this package of reforms is properly funded. Unlike the Liberal-National Party who run around talking about cutting taxes here, there and everywhere but do not have any way of paying for it, this represents an appropriately funded package. We have a set of tax cuts, which I have summarised, that is funded by the introduction of a mining tax. This approach is fair and reasonable. It is reasonable in the case of mining resources that are covered by the mining tax. These resources are owned by the Australian people and, where mining companies are experiencing a significant increase in profits as a consequence of the mining boom that they did not project five, 10 or 15 years ago, it is only reasonable that the broader Australian community should benefit.
The mining boom does create strains in the Australian economy. I will not go into the details, but they are well-known and have been debated. This mining revenue tax gives us the capacity to strengthen the Australian economy through cuts in company tax, through improved write-offs for small business and through the increase in the superannuation guarantee and some associated tax cuts. This is fundamental and major tax reform that is fully funded, that will strengthen the Australian economy, strengthen savings, lead to additional employment and assist in growing the broader Australian economy.
I have a quick comment about costings. When I was Assistant Treasurer sitting in estimates, Senator Cormann peppered the officials with questions about costings. This is a costed package, costed by Treasury—
and Finance. It was costed in exactly the same way and usually by the same people in Treasury and Finance as costed taxing provisions under the former Liberal-National Party government. Senator Macdonald, if you had bothered to look at Senator Cormann's questions at Senate estimates, all of the future budget estimates projections have been released publicly in exactly the same way that Treasury have released tax estimates in the past under the previous coalition government.
Let me go to the two superannuation measures. As colleagues know I have had a long involvement with superannuation in my almost 22 years in this parliament. I had the privilege of being in this chamber when we passed the original superannuation guarantee charge, as it is known, and to be chair of the Senate superannuation committee back in 1992. Of course, compulsory superannuation was passionately—and irrationally—opposed by the Liberal and National parties. They have had a road to Damascus conversion on that measure. They have said that, whilst they will oppose it here, they will not reverse it should they ever be elected to government.
We had all sorts of doom and gloom predictions from those opposite about the introduction of the nine per cent superannuation guarantee—it would destroy the economy and socialise it; union officials would take control; it would destroy real wages. We had all sorts of horrendous predictions—somewhat similar to the predictions we had on the mining tax, which turned out not to be true, and somewhat similar to the predictions we have had on the claimed impact of the carbon tax—but they did not happen.
In fact, compulsory superannuation is a very important social measure because for the majority of Australians it is a social gain, an addition to what is by any international standards a comparatively low basic government pension. Compulsory superannuation has added to the retirement savings of the six out of 10 Australians who had no superannuation. So it has a very important social policy impact.
But in the economic sphere it has been a fundamental strengthening of the Australian economy. We now have, if you include Future Fund assets, almost $1.4 trillion in savings in superannuation. In fact, I think it is the fourth largest pool of aggregate retirement savings anywhere in the world. That savings pool of $1.4 trillion is approximately equal to the size of the Australian economy. It has had a very important positive impact on the economy. It has led to additional net savings, which is important in terms of growing the Australian economy. We are a capital-importing country. We need imported capital. We need to maximise savings to grow the Australian economy. So it has been a very important positive for the Australian economy and, in turn, has been very important in generating employment in this country.
I am pleased to say the Liberal and National parties have discovered the superannuation positives. It has been a bit half-hearted: they will oppose the changes here but have said they will not reverse them. Senator Xenophon and others in the public debate about the mining tax have pointed out that we need a sovereign wealth fund. We already have a sovereign wealth fund. What we have is $1.4 trillion in savings in superannuation that we would not have had without compulsory superannuation. That is long-term, future diversified savings for the future of individuals in this country. In effect, it is almost identical to what would be known as a sovereign wealth fund. So we already have that through superannuation in this country, and we are adding to that pool of savings with the measure in this package to increase the superannuation guarantee from nine to 12 per cent over the next seven years from 2010. It is estimated that increasing the superannuation savings from nine to 12 per cent for 8.4 million Australian workers will by 2035 result in an extra $500 billion—that is an extra half a trillion—in savings in superannuation that would not otherwise have occurred. In fact, the projections are that by 2035 we will probably have between $6 trillion and $7 trillion in superannuation. Depending on the growth rate of the Australian economy, that will probably be well in excess of the total value of the Australian economy.
Of course, this measure has to be paid for. An increase in the superannuation guarantee paid by employers does cost the government revenue because of the tax concessionality of superannuation. It will cost the government about $740 million in 2013-14 and 2014-15. So it has to be paid for, and one of the uses to which revenue from the mining tax is being put is the increase in the superannuation guarantee. It is critical to increase the guarantee from nine to 12 per cent because it will take the majority of Australians, together with their age pension—we have a means tested system—over time for the moneys to accrue, close to or in excess of 70 per cent of their preretirement income. Seventy per cent—about two-thirds of preretirement income—is the actuarial estimate of what is required for people to live in relative comfort in retirement. So it is an important social policy but also an important economic policy, as I have highlighted.
There is one other important change in this package that I want to highlight, and that is an important tax change which, in many respects—certainly in the short- to medium-term—is more valuable in respect of superannuation than the actual increase in the superannuation guarantee. This relates to an important tax cut for low- and low middle-income Australians. What happens at the moment is that, when superannuation contributions go in, everyone is taxed at 15 per cent on their contributions regardless of income. So obviously that is highly concessional for higher income earners and not quite so much for middle-income earners, but there is no tax concession relative to income tax treatment for low- and low middle-income earners. That is grossly unfair.
I notice the Greens have had a shot about tax concessions on superannuation, and there is validity in the criticism of the inequitable tax treatment of superannuation, but I point out to the Greens and to those listening that what we have in this package of bills is an important fairness measure. It effectively removes the 15 per cent contributions tax for those Australians earning less than $37,000 a year. They will receive a maximum payment, effectively a rebate of their tax up to $500. This means that some 3.6 million low-income Australians, who pay a 15 per cent contributions tax and overwhelmingly pay no effective income tax, will effectively no longer pay tax on their superannuation. Of these 3.6 million low-income Australians, 2.1 million—two-thirds of them—are women because of their income status. This is a very, very important fairness measure and, I have to say, it is an issue that I have mentioned from time to time in the public debate and I am particularly pleased to see tonight that we are redressing the tax imbalance and the unfair tax treatment that applies to 3.6 million low-income Australians.
As I have mentioned, we have a funded tax package. What about those opposite? They are running around promising tax cuts here, there and everywhere, except in one area. They claim that they are going to introduce, as re-affirmed last week, a rolled-gold—no, platinum—benefit in terms of paternity leave. How is that to be funded? By an increase in company tax. But perhaps I should stand corrected; they have called it a 'levy'. When the Liberal Party increase taxes they do not call it a tax; they call it a levy. They hate to fess up that they have decided to increase a tax so they call it a levy. In the distant past, if my memory serves me correctly, when they wanted to tax superannuation they called it a surcharge. So the Liberal Party have delivered a tax increase promise, an increased company tax to pay for their platinum-plated parental leave scheme.
The Liberal Party do face some pretty essential contradictions. They say they are going to repeal the mining tax. They are going to give the $10.6 billion back to the mining companies, who actually want to pay the tax. They have agreed to pay the tax, but the Liberal Party want to give it back to them. At the same time, what do the Liberal Party do when they lose $10.6 billion? They will have agreed to an increase in the superannuation guarantee, they will have agreed to a cut to low-income earners' superannuation for 3.6 million low-income earning Australians. By the time of the next election I hope we will have approved the reduction in company tax, and I certainly hope we will have passed the tax reduction, the improvement in write-offs, for almost 2.7 million small businesses.
So what are the Liberal Party going to do? They are going to get rid of the mining tax, so they say. Are they then going to remove and effectively increase the superannuation contributions tax for 3.6 million low-income Australians? Are they going to increase company tax beyond what they promised? Are they going to increase tax on small business? If they do not reverse these measures and they repeal the mining tax, where are they going to get the $10.6 billion from? It will be interesting, certainly in the context of fiscal responsibility. I see my good friend Senator Mason over there grimacing. He knows the challenge of the Expenditure Review Committee in the opposition. They have got to find not just $70 billion in cuts; they have also got to find another $10.6 billion to make up for the lost revenue that they want to give back to the mining companies—who, as I say, have agreed to pay for it. They want to give those billions of dollars back.
Compulsory superannuation is a very, very vital and fundamental economic and social reform, and I have touched on some of the key elements. I do want to pay tribute to a number of people and I think it is important to put it on the record. Back in 1986, Bill Kelty and Garry Weaven were heavily involved in the test case for the initial three per cent. I want to pay tribute to them, and of course Paul Keating, who announced the superannuation guarantee. I am very proud to have worked with him. He had enormous vision. He was lambasted by the Liberal and National parties, as I said earlier. There were all sorts of absurd criticisms about destroying the Australian economy, cutting real wages and socialising the Australian economy. It did not come to pass, of course. In fact, compulsory superannuation was a significant positive for the economy. I looked at some comments by former Treasurer and Prime Minister Keating the other day. He said in 2007:
When you hear conservatives these days speak of superannuation as a tax on employers they are either ill-informed or they are lying. The fall in unit labour costs and the upward shift in the profit share during the period of the Superannuation Guarantee Charge is simply a matter of statistical record. It is not a matter of argument.
Indeed, during the periods of increase in the superannuation guarantee it did not implode or destroy the Australian economy, it did not result in higher unemployment—all of the claims that the Liberal and National parties made at the time. Indeed, the Liberal and National parties makes the same claims about the mining tax. Even with the mining industry now, if you look at their commentary, there are constant announcements about increases in investment. Investment has continued to grow despite the debate about the mining tax and what I am confident will be the passage of this legislation here on Monday. So when it comes to the hard yards, the macroeconomic reform, tax reform, superannuation reform and carbon tax, there are lots and lots of criticisms by the Liberal and National parties but history shows that they are wrong. These reforms will strengthen the Australian economy.
) ( ): I rise this evening to speak about the Minerals Resource Rent Tax Bill and associated bills. One cannot address the mining tax and the effect it will have on mining and our economy without also speaking about the carbon tax, at least in passing. The mining tax and the carbon tax can be seen as part of the same project. They are part of a package that one would expect from the Australian Labor Party, the same old social democrat project. The party is one that is addicted to spending and to borrowing, addicted to debt and to taxing. If you need any reference, just look across at western Europe. The last thing Australia needs now or ever is Social Democrat economics or social engineering. The last thing we need is another re-run of European social democracy. With the carbon tax and the mining tax, Labor is trying to lead Australia down the path which, as the European experience shows, ultimately leads to decline and crisis. We know that.
In times of depression or when I need to be amused—I like to amuse myself—I open my drawer and I pull out an article from The Monthly, 'The Global Financial Crisis' by Kevin Rudd, published in February 2009. It is one of my favourite curios from the past. You might note its comforting sepia tones. It is hard to believe now, but just over three years ago, when Mr Rudd was Prime Minister, he argued that social democracy had to save capitalism from itself. Remember that? He was going to be the new President Roosevelt, the new FDR, because only social democracy could rescue capitalism.
Haven't things changed in the last three years? We now know that the only thing that can save social democracy, whether here or in western Europe, is a big dose of what they call economic rationalism and what many of us might call capitalism or liberal democracy or free trade. Social democracy cannot save itself. Mr Rudd's article in The Monthly in February 2009 was wrong in its fundamental assumptions that social democracy had to save capitalism, that nothing else could. Now it is the precise reverse. The only thing that will save western Europe and the social democracy project is liberal democracy and capitalism. Isn't that one hell of a change in a thousand days? The Labor Party and the Greens are still stuck in this Western European social democratic project and it is crumbling.
The fundamental problem with the Labor Party, the Greens and social democracy worldwide is very simple: it is structural debt, and that is unsustainable. It is far worse in Western Europe than the United States. Even before the economic crisis hit in 2008, Greece's public debt stood at 110 per cent of GDP; Italy's at 98 per cent. Now the Greek debt is almost 150 per cent of GDP and 18 OECD countries have public debt above 40 per cent of their GDP. Can you imagine that? That is the social democratic project. The experience of the past few years shows clearly that you cannot continue to borrow indefinitely in order to finance social welfare and recurrent expenditure. It is impossible. When the crunch comes, you are gone.
It is true, and the government is quite right to say this, that here in Australia we do not have the same mountain of debt as European social democracies. Why? We are very, very lucky that the Labor Party have only won one in every three elections post World War II. Can you imagine if they had won two out of every three elections since World War II? No matter what they say, always go on their performance in government. You have heard me say this before, Mr Acting Deputy President: what is the Labor Party's record on debt since Federation? Let me remind the chamber, though the Labor Party do not like being reminded about this. Since Federation, since 1901, for more than 110 years, every time the Labor Party are forced out of office they leave Australia further in debt.
If Australia had not been fortunate enough to elect conservative governments, Liberal governments, two out of every three times since World War II and it rather had been one in three as in western Europe, what would be the result of that? It would be mountains and mountains and mountains of structural debt. Thank God, we do not have that. The only thing standing between our country and structural, systemic, systematic debt is the Australian coalition. Thank God, we have won two out of every three elections since World War II, because every time this lot get into office they put Australia further into debt. That is a fundamental problem; that is the DNA of the Greens, the Australian Labor Party and social democracy in the western world. It has never changed and it never will change. That is the fundamental cancer within the Left in the western world.
Not only do they wreck the economy, but the Labor Party love to talk about social justice. What is the great bequest of Labor governments to the next generation? Let us reflect on that for a second. It is unemployment and intergenerational debt. That is what this lot leave to our children and our grandchildren. They have done that for all Australian children and grandchildren since 1901. That is the fundamental thread woven through Australian political history: every time this lot get in, Australia is further in debt when they leave. Senator Sherry can talk all he likes about Mr Keating and Mr Hawke—we will get to them in a minute—but that is the fundamental proposition that this lot can never, ever overcome. It is a problem in western Europe, and this lot reflect that.
If anything, of course, things have been getting worse. You might recall, and I know Senator Macdonald would recall, that it took Mr Hawke and Mr Keating 13 years to build up $96 billion in debt. They denied that we were in that much debt, but it took 13 years to accumulate it. For Mr Rudd and Ms Gillard, it took only four years to borrow even more than Mr Hawke and Mr Keating. That is Labor's attempt to Europeanise Australia, to make structural debt a permanent element in the new social democratic compact. What this does is ensure all interest groups are beholden to the state. They all put their hand out—and they have been doing this in western Europe since World War II—and what happens in the end? There is no money to pay the interest on the debt; they cannot even do that. Again, thank God this lot has only won one in every three elections since World War II. If they had won any more we would not be in this position.
If you do not believe me, Acting Deputy President, you might believe our newest senator, Senator Bob Carr. What did he say in the Financial Review on Friday, 2 March 2012, in an article titled 'Social democracy crisis'? Senator Bob Carr said:
There is not much glow in the Labor past because there was never a golden age for Australian Labor.
Read the article; I am not taking it out of context. He said there was far too much mythology, Senator McLucas. Senator Bob Carr knows, as we all do, that structural debt is the cancer within social democracy. He knows that; anyone with any sense knows that.
For the Australian Labor Party, it is always like 1972 and party time, and they spend our bequest. It was said of the French Bourbons that they had learnt nothing and forgotten nothing. For Labor it is even worse: they learn nothing and they forget everything. That is the problem, and it has been since World War II. For the last 4½ years Labor have been spending, borrowing and taxing. As American journalist Rush Limbaugh famously said, no country in world history has taxed itself into prosperity, particularly if it keeps taxing the most vibrant sector of the economy.
In their clearer moments, Labor correctly think that by raising taxes they can change people's behaviour. They are right; I do not disagree with that. If you tax cigarettes and alcohol, fewer people will smoke and fewer people will drink. I accept that. It is meant to change behaviour; it generally works. But somehow Labor think that by raising taxes you will not change the behaviour of miners—that you can tax them more and you will not change their behaviour. What the Labor Party believe is that, if you tax resources more, miners will keep extracting and exporting as if nothing has happened. Labor think that people, maybe even drinkers and smokers, are smart but miners are dumb and they will not change their behaviour.
Australia does not have a global monopoly on coal, it does not have a global monopoly on gas and it does not even have a global monopoly on iron ore. My colleagues know that. So when the prices of Australian resources become too high because companies have to factor in the carbon tax and the mining tax on top of all the other taxies, levies, royalties and licences and so on that they already pay, our buyers, whether from China, India or elsewhere, will go somewhere cheaper, to places that do not penalise their export industries with carbon taxes or extravagant mining taxes. That is simply a fact of business pretty much anywhere in the world.
On Monday the Australian reported:
Australia's global share of the capital raised for mining projects has sunk from 21 per cent to 15 per cent since 2008 as other countries such as Russia, India and China attracted tens of billions of dollars in additional funding.
… … …
But in the same period, the value of capital raisings rose strongly in Africa (up 26 per cent), Canada (up 31 per cent), South America (up 59 per cent) and the rest of the world (up 78 per cent).
Why would this be happening, I wonder. Why is everyone investing in resources projects in Africa, Canada or South America more than they are investing in Australia? Could it be because people are not stupid?
Senator Ian Macdonald interjecting—
Senator Macdonald is right; people are not stupid, and they are reluctant to invest in a country whose government is hell-bent on making its resources sector less competitive—and that has only been in the past three years, just based on jitters and fears about the future. Just wait for what happens over the next few years when these fears are finally realised, when the mining industry is actually slugged by the double-whammy of the carbon tax and the mining tax.
As I said at that outset, you cannot take the mining tax in isolation; we on our side know that. The carbon tax and the mining tax together are the twin pillars of Labor's new social democratic project, and in time they will have a cumulative, devastating impact on our economy. To paraphrase the Roman historian Tacitus, Labor create desolation and call it reform.
Just as the mining tax is built on a lie that somehow our resources sector is undertaxed, the carbon tax is built on a lie that it is in our national interest to have it, even if no other major country, major emitter or any other nation on earth has a carbon tax. Let me say that again slowly: the Australian Labor Party and the Australian Greens are the only parties in the world that operate in an energy-rich trade-exposed economy and believe that it is in our national interest to have a price on carbon, even in circumstances where no other nation on earth has a price on carbon. That is rubbish. Over time, they will be held to account for this. That is the great lie.
My colleagues, I know, are concerned about the lie told originally by Ms Gillard, that is true, but I think the greater long-lasting lie that will really wreck Australia's national interest is this inane, pathetic belief that, even if no other country on earth does anything with respect to carbon, it is in our national interest to do something. That is the great lie. Everyone else has said no, but the Australian Labor Party and the Australian Greens know better than anyone else on earth. President Obama said no. The Canadians, the Indians, the Chinese and the Russians all said no. But we say yes.
What is it about Labor leaders? For God's sake!
Mr Swan wrote an essay in The Monthly three years after Mr Rudd's effort. I did not waste my money this time, I could not cope; I went to the Parliamentary Library and they faxed it to me. Clearly, Mr Swan wanted to take attention away from the dismal performance of the government, bash the rich and create some sort of class warfare. You can summarise the article pretty well: mining magnates should shut up and pay up. That is what Mr Swan is saying. It is a funny thing though; there is a certain irony in all this. It is quite ironic that Mr Swan, the Treasurer, the man who has wasted more wealth than anyone else in Australia's history, is having a go at people who have created more wealth than anyone else in Australia's history. Think of the irony of that in a piece published in The Monthly. I do not think Labor leaders should do this because it is not good for them. Mr Rudd's piece, the sepia toned piece, became a curio within three years; Mr Swan's within three weeks. I urge the Prime Minister not to indulge in an essay in The Monthly because I suspect it would not last three days.
The problem is this: these bills are just another chapter in the dismal Labor project to tax and to spend. It will not end unless the Senate stops it. (Time expired)
We will come to that. It is essential that we pass on the benefits of the mining boom to all Australians. The legislation we have before us is but a small step to achieving this. Mining companies are doing well and can afford to pay, and it is worth remembering how easy it is for them to pay. Fortescue Metals announced a $1 billion profit, its largest so far. BHP has posted a $22.5 billion profit and much of that came from the minerals boom that is occurring in Australia. The financial pages have stated that the mining giant Rio Tinto has been hit by an $8.9 billion impairment charge relating to its aluminium business. But read on and you find out their underlying earnings rose by 11 per cent to $15.5 billion. So, whatever figure you take, they also can afford to pay the mining tax and, indeed, pay the original super mining tax that died along with the future of the former Prime Minister Mr Kevin Rudd.
As a senator for New South Wales I recognise this is an issue that needs careful consideration. The people and the economy of New South Wales have been on the downside of the mining boom. The impact is seen in manufacturing, tourism and education. We need a tax system that manages the uneven consequences. For New South Wales, and I am sure for many other states, we need a tax regime that promotes manufacturing and helps to manage the high Australian dollar. New South Wales, you could say, is at the bottom of the pack when its economic growth is compared to its decade average, with growth just nine per cent higher. In Western Australia it is nearly 30 per cent higher. There are many dangers associated with such a divided economy but there is little being done to address the problem.
It is vital that we use the boom in the mining industry to sow the seeds for longer term wealth for all. Many economic indicators reflect the uncertain times New South Wales is in. Jobless rates are above longer term averages, housing finance is down, real wages are flat to negative and equipment investment has slowed. The mining tax is a vital potential source of funding for much needed infrastructure in New South Wales. It could allow us to future-proof the economy after the boom. New South Wales has been notoriously weak on planning and weak on delivering infrastructure to the places that need it. Infrastructure is needed in coastal New South Wales—especially in Sydney, where population pressures are overwhelming the state's capacity to provide services. There has been a severe underfunding of new passenger and freight rail infrastructure in New South Wales over the past two decades.
In New South Wales the uneven economy caused by the mining boom is being affected by the loss of jobs, loss of skills, loss of industry capability and loss of state-wide economic activity. With manufacturing accounting for 10 per cent of employment, this area is deserving of considerable government attention. Take one area, transport manufacturing, to illustrate the problems facing New South Wales largely due to the mixed economy. A report, Transport manufacturing at risk: NSW industry action plan, prepared by the Australian Industry Group, the AMWU and HunterNet predicts that New South Wales could lose the capacity to build trains within five years.
The increasing exchange rates mean that it is more attractive to domestic customers to import high-value foreign goods than those made locally. Over time, this decreases the demand for skilled labour as production of high-value goods moves overseas. We would hope that this higher level of taxation can help drive industry plans for Defence manufacturing and transport manufacturing, to give two examples that are crying out for management in New South Wales. A failure to spend money in this constructive way will result in a loss of skill and capacity in the area of transport manufacturing. The result that New South Wales loses the capacity to build trains is becoming a real possibility.
According to this transport manufacturing report, this could leave New South Wales dependent on overseas supply chains for critical transport infrastructure. As Senator Milne said, this tax should be part of the vision for a low-carbon economy where innovation skills and education are valued. Apprenticeships and skilled jobs would flourish if we could ensure that this vision becomes a reality. Governments should use this tax to drive such industry plans and to bring together industry, union and government representatives to review the effectiveness of government purchasing and procurement and to make recommendations to government departments about how to improve the capacity for New South Wales industry to tender competitively for government contracts.
Collaboration between decision makers would help to minimise the damaging impacts of market peaks and troughs, and we should require bidders to engage with local industry and to source components locally where possible. Used wisely, a mining tax would have a wonderful multiplier effect as jobs would be generated at a rate of about three to one throughout the industrial community for the supply of materials and specialty services when you develop transport manufacturing.
I have given emphasis to the manufacturing sector not only because it is important for New South Wales but also because it is a way to bring some balance to our mixed economy. The ongoing focus given to the mining industry continues the process of growing our investment in other sectors of the economy. This occurs as investors take note of the government's continued support and reliance on mining profits. This means that capital continues to flow to this sector to the detriment of others. Allowing this to go unchecked without a mining tax is likely to increase the vulnerability of other Australian exports by increasing inflationary pressure on Australia, leading to rising interest rates.
The mining boom is pushing up the Australian dollar and putting pressure on our major export industries. The energy minister states that last year earnings from energy and mineral exports reached a new level of $175 billion—an increase of 27 per cent on the previous year. Much of that resource wealth comes from New South Wales, and a share of those excess profits should flow back to New South Wales not just to the shareholders of overseas mining companies.
The mining boom threatens blue-collar jobs and the future of many sectors. For many years the Greens have called for a government-led transition away from coal. Coal-fired power has driven the New South Wales economy for more than a century, and on many occasions I have paid tribute to the mine workers who have made such a huge contribution in the mining industry, delivering for the energy systems of our state and, indeed, our country. But these mining jobs are now flatlining or in decline, and we now have the possibility of generating jobs growth at a much greater rate than has been achieved in the mining industry by switching to renewables.
This is the plan that New South Wales desperately needs. Public investment in renewable energy offers so many potential opportunities for manufacturing jobs in New South Wales, but we need serious public investment to realise that potential. This is where there is a real responsibility for governments to drive the transition to clean energy and to the innovation that, again, Senator Christine Milne spoke so eloquently about.
The Labor-Greens climate package under the clean energy future package includes a contracts for closure section that will ensure 2,000 megawatts of coal-fired power generation will be shut down by 2020. The shift away from the coal industry is already starting in New South Wales. It is vital that the government plays a key role in driving this transition. Again, I cannot give enough emphasis to how important it is at this critical stage that the government is very hands-on so that we can ensure that the jobs growth—jobs that will last well into the future—is delivered.
Opportunities from developing alternative energy sources must include local and sustainable manufacturing jobs, not just jobs in technology and research. Tragically, in New South Wales at the moment so many of the contracts have gone overseas—particularly to China, where their manufacturing has meant that their industries in wind turbines and photovoltaic cells are going ahead in leaps and bounds and have left us in the shade.
The mining boom can also push up the cost of receiving a higher education and threaten the quality of that education. As universities experience a decrease in income from the fees of overseas students they need to find ways to cut costs, and too often this results in staff losing their jobs and costs being passed on to domestic students. This is no way to run a world-class education system. Government documents revealed in the Senate last year show that $2.5 billion per annum could fund free tertiary education. The lost revenue from cuts to the government's original planned mining tax would have allowed the government to offer free tertiary education to all Australian university students. There are so many opportunities here—opportunities that this house should be able to debate if the government had been willing to stick with the original fully extended mining tax.
It is essential that we pass on the benefits of the mining boom to all Australians in some way, whether that be education, infrastructure or sustainable new jobs. The expansion of mining across Australia and the massive exporting of our mineral assets is a one-off transfer of our nation's natural wealth. Unless the Australian people are properly compensated in this exchange, we will be short-changing future generations of Australians who are entitled to a stake in the nation's resources. We need to make sure that future generations share in the benefits of the current mining boom. That is the responsibility of government and it is a lead that we should be giving.
I think we should acknowledge that the original premise of the mining tax was advanced by former Treasury secretary Ken Henry and was a clear recommendation from the Henry tax review. I congratulate him for the work that he put in, and I think it is unfortunate that it has not been implemented in its entirety. I think we also need to acknowledge the massive misinformation that has come from the Minerals Council, from Mitch Hooke, from Gina Rinehart and from Andrew Forrest—all out there rabble-rousing for their own self-interest. The name 'Axe the Tax' has become notorious and symbolic for people who put self-interest before the interests and needs not just of the people of our country presently but also of future generations. The mining industry has been a huge donor to the conservative political parties. We see this at a state level and at a national level. That influence is becoming increasingly unhealthy, particularly as some of these mine owners now move into attempts to buy media companies. That is not what a democracy is about. It will just fracture the way our society should be able to operate. What is critical at the moment is that we are on the point of achieving a mining tax. Yes, it could have been stronger, but it is still an important step forward. I support the legislation.
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.
I rise to speak on the Minerals Resource Rent Tax Bill 2011 and related legislation. Ensuring a healthy environment and sustainable economic potential for its citizens, now and in the future, should be a key priority for any national government. Despite confected hysteria about sovereign risk and threats that mining companies will decamp to some other mining nirvana, we have before us this legislation, an extremely modest means of taxing some of Australia's precious mineral resources which are being extracted at an unprecedented rate in 2012.
It is with considerable reluctance that I am supporting this legislation which, in essence, is just a first step towards achieving a more efficient tax system so that Australians are able to share fairly in our nation's commonly owned rich mineral wealth. It certainly contains significant deficiencies. A pale shadow of its former manifestation, the resource superprofits tax advocated by the Henry tax review, it contains an effective tax rate of 22½ per cent rather than the originally proposed 40 per cent. And it fails to tax profits on gold, silver, diamonds, uranium, rare earths, nickel, copper, zinc and bauxite.
In Australia we are fortunate to be blessed with mineral resources that have formed part of our environment for billions of years. But the indisputable reality of these resources is that they are finite, non-renewable and can only be dug up once. Taking billions of years to be formed, they can now be mined, using modern machinery and technology, at a speed hitherto unknown to humankind—and, once gone, they are gone for ever.
The resources boom is generating enormous wealth and enormous disparity in its benefits. Who really pays the price? Some are benefiting hugely with billion-dollar profits. A small handful of mining magnates continue to climb the various rich lists and huge profits flow out of Australia to overseas destinations. Some Australians are benefiting moderately, but there are many others who are paying the price of this unprecedented minerals rush. There are those who are adversely affected by the high dollar and workforce pressures threatening their industries—exporters, manufacturing, farming, and tourism—and those who face increased rents, shortages of services and displacement of their communities in towns that have been transformed almost beyond recognition by the mining boom.
At a time when we see a growing divide between the richest and the poorest Australians, there are many Australians who are being left behind in the two-speed economy generated by the mining boom. There are people who are failing to experience even the remotest trickle from the trickle-down effect. For these reasons it is absolutely incumbent on our generation to wisely and prudently manage the current and future windfall coming from the rapid extraction of our mineral wealth. We are but a blink in the history of Australia and we must understand that we hold this wealth, derived from our shared finite resources, not only in trust for this generation but for the future generations who will not have the benefit of these resources once they are gone. A sovereign wealth fund for future needs would be a prudent and fair way to make allowance for the needs of those who come after us, just as we would have wished if our forebears had had the ability to do what we are doing now.
The failure of this bill to include uranium, gold and copper is a particular blow to a South Australian senator who has recently seen the rushed passage of legislation through the South Australian parliament. This legislation will allow the world's richest resource company to dig not just the biggest mine in South Australia but the biggest hole in the ground ever dug on the face of this planet. Copper, uranium, gold and silver—huge predicted profits—and not one of these minerals will be included in the MRRT. The company, BHP Billiton, is smiling all the way to the bank. Its deal with the South Australian government requires pitifully low royalties, with no guarantee of one extra job in South Australia, and the government footing the bill for infrastructure to boot. The net economic return to South Australian coffers in years 10 to 20 of the project could be as low as $10 million a year, and that is even before millions are given back to BHP Billiton through federal subsidies such as the diesel fuel rebate. I believe that future generations will be disgusted with us for giving their resources away for a pittance and leaving them to deal with the enormous toxic legacy of managing the world's largest radioactive waste dump in South Australia.
The sad truth is that this bill is a wasted opportunity, stymied by a ferocious and hugely well-funded advertising campaign against the original RSPT. As a result we have $100 billion in revenue forgone over the next decade, revenue that could have been used to fund a healthier, fairer, smarter Australia through Denticare, the National Disability Insurance Scheme, income support that allows people to live with dignity, and a fairer quality public education system to ensure that all kids have a chance to reach their potential.
This bill is a first step towards creating a more efficient tax system, so that Australians can share the benefits and returns from their national natural resources. However, there is a long way to go. This bill could and ultimately must be strengthened. But in the meantime, on the basis that, this time, something is better than nothing, I commend the bill to the Senate.
It is with great pleasure that I rise to offer a Western Australian perspective on these bills before us. Unlike my sensationalist colleagues on the other side, I would like to offer a view of how I believe these bills will spread the benefits of the mining boom throughout states like WA and build on the future prosperity of our WA economy and our national economy.
We have heard time and time again all manner of ridiculous claims from the other side about how the Minerals Resource Rent Tax will bring the WA economy down and is driving investment away. Nothing could be further from the truth. I think Western Australians realise just how silly Mr Abbott and the Liberal Party are when they make these claims. Western Australians know that we need to use these good economic times to plan for the bad times and to invest in the future. They know that the MRRT in this package of bills is the best way to ensure that this resource boom has more than a fleeting impact on our economy. No matter how much the state Liberal government in Western Australia keeps denying it—and they do like to deny it—there is no doubt that WA is experiencing an unprecedented mining boom. But this mining boom has meant good things for Western Australia. It has meant low unemployment, healthy wages, and opportunities for regional communities.
But the truth is that it is not all good news in WA. We are experiencing the strains of a patchwork economy just as much as other parts of Australia and in many ways we are experience it even more. Perhaps the biggest victim of WA's uneven economy has been our manufacturing industry, which is experiencing a very significant decline. It is the type of decline that could cause long-term problems for the viability of the manufacturing sector in WA. ABS data shows that we lost more than 13,000 manufacturing jobs in WA between May and August 2011. And to add to the picture, the youth unemployment rate in Kwinana, a major industrial hub in Perth's southern suburbs, has more than doubled since January 2008. The loss of these jobs, and particularly the loss of young people from the industry, means that we are losing a generation of skilled labour that our mining boom desperately needs.
We have a generation of people that are getting quite well paid for unskilled jobs in the mining industry, but they are not undertaking the training they will need to survive in the post-boom economy. It means that a generation of apprentices are out of the manufacturing industry and may never come back in. It means that, in an increasingly competitive global economy, we are about to become more uncompetitive in this crucial sector.
The WA Department of State Development paints a positive future for our state. It says that the $186 billion of projects currently committed to, or under consideration, in WA will create a massive 55,000 construction jobs and 17,000 permanent jobs. This is outstanding economic growth and I think a testament to the good work of my colleagues in the Gallop and Carpenter governments—and I was very pleased to work with them.
However, once these projects are built and in the production stages, what will the excess 38,000 workers do if we have offshored our high-end engineering and fabrication industries during the mining boom? There will no longer be a robust manufacturing industry for them to return to once the projects have moved on. So you can see here that there is a real need to make sure that we keep balance in our economy, which is exactly what these bills do.
This mining boom is also having unintended consequences on regional communities. Indeed, it is putting a major strain on community services and the cost of living in those communities, which are host to the problems of an influx of fly-in fly-out workers without the benefits of a permanent workforce. The Pilbara region in WA is at the centre of our mining boom. It is a place of great opportunity. But houses there are among the most costly on earth to live in. In their submission to the current inquiry into fly-in fly-out workforce practices in regional Australia, the Shire of Roebourne pointed to a mounting number of social issues that have resulted from the mining boom. They point out that, in 2010, the median price for a three-bedroom home in Karratha was $761,000, with average rent at $1,300. Furthermore, when surveying their residents, they found that one in five respondents listed the cost of living as a reason to leave the Pilbara.
It is paramount that government finds a way of mitigating cost of living and housing pressures, but we can only invest in things like affordable housing and other measures if we have the taxation base we need in order to do so. And that is what this Minerals Resource Rent Tax is all about. It is about spreading the benefits of the mining boom to all Australians—as opposed to the Liberals, who think only of a privileged few they would like to benefit. That is why Labor has established the Regional Infrastructure Fund to take the wealth generated by the mining boom and invest it back in resource rich states like WA. That will ensure that our state's infrastructure keeps up with future resource projects, allowing us to take full advantage of new investments, allowing our population growth to keep up and allowing us to invest in the community infrastructure that we so desperately need. Just one example is our $480 million investment in the Perth Gateway Project, which will boost productivity in an economy that is so reliant on our transient workforce as people come and go from the airport. If any of you have been to Perth Airport recently, you will know just how much our infrastructure is in need of upgrading.
On top of that, our decision to increase employer superannuation contributions from nine per cent to 12 per cent will put all workers, and especially our lowest paid workers, in a better position when they retire. Unless we invest now in our state's infrastructure, in our national infrastructure and in our people, we will be limiting our nation's potential. It will amount to a lack of investment in infrastructure and that will mean WA's future projects bottleneck and lack of infrastructure will become too much to cope with. That is why Labor's plan for the Minerals Resource Rent Tax is crucial now.
I have to say that the opposition's campaign on this topic, the campaign of major vested interests, has been a campaign of dishonesty. So I would like to finish my comments by reflecting on what has been, I think, a very dishonest campaign, the most dishonest in recent history—the fear campaign mounted by the Liberal Party and its billionaire mates against this bill. These vested interests prefer to play with their soccer teams and trust funds—and they are more than welcome to do that—but this Labor government is going to get on with the job of governing for ordinary working Australians.
We hear over and over again from the Liberal Party that the Minerals Resource Rent Tax will drive investment away from Australia. That is simply not true. Last year, Fortescue Metals Group announced an $8.4 billion pipeline of new investment which will more than triple its current output. Since July 2010, Rio Tinto has announced $6 billion worth of new investment in its Pilbara operations. The idea that the minerals resource rent tax is going to hurt mining investment in Australia is a pure fiction. Investment in our state of Western Australia has skyrocketed. We had $47 billion last financial year, to $95 billion this year, and that is expected to total $120 billion in 2012-13. We have a massive $455 billion investment pipeline. Just listen to these numbers—they are massive. The resources sector in Western Australia accounts for almost half of this investment of more than $200 billion.
To cap all of this off, we now have the Barnett government rushing through a hike in royalties. The reason for this hike is clear. It is that the Barnett government did not recognise that Western Australia had failed to appropriately tax the mining industry for the benefit of all Western Australians. It failed to manage the emergence of super profits, much of which ended up offshore or in the hands of a privileged few. It is this precise problem that spurred Labor on to institute its minerals resource rent tax to make sure that the outdated system of state royalties was replaced with a modern, profits-based tax.
It is time to return a decent dividend to the nation that owns the wealth and to Australia's people. It is time for a tax that ensures all Australians get a dividend: in tax cuts for business, in superannuation and in the infrastructure that states like Western Australia desperately need to grow. For states like Western Australia to hike royalties now, knowing that the minerals resource rent tax is on its way, is too little, too late. It is plain politics; not good policy. They are trying to close the gate after the horse has bolted. Royalties are volume based, not profits based. They punish miners that are still trying to make a go of it, miners that, under our scheme, have to be compensated under our scheme—and rightly so, because this is actually about balancing the economy in the right and proper way.
To conclude, I think that the state government have rushed to cover up failing to tax effectively for the future. They have a bandaid solution that I think will cost Western Australia in the long run. It is an irresponsible way to govern. I very much support this suite of bills. I think they go a significant way to helping address the problems of a two-speed economy—a two-speed economy that is perhaps more profound in its impact on Western Australia than anywhere else in the country. This is in large part because businesses that are not part of the fast lane in Western Australia and attached to the mining boom are competing for skills, labour, property and capital with companies that are. These companies deserve tax write-offs; they deserve tax cuts. I commend the bills to the Senate.
I rise to speak today on the Minerals Resource Rent Tax Bill 2011 and associated bills. Australia is blessed with natural resources. They have played a large role in the development of our nation and my home state of Tasmania. Tin, gold, coal and iron ore are just some of the resources that hardworking Tasmanians have extracted from our soil. It is these resources, in part, that made colonial Tasmania prosperous and funded the construction of many of the heritage listed sandstone buildings that line the streets of Launceston and Hobart.
Australia once again is riding a minerals boom. Western Australia is blessed with large reserves of iron ore, and Queensland with coal and gas, much like Tasmania and Victoria were blessed with large reserves of gold in the 19th century. While big mining companies are making super profits from the extraction of these resources, it must be remembered that they belong to all Australians, and their benefits should be used to enrich the future of all Australians, not just the mining corporations that extract these resources from the ground.
The Gillard Labor government recognises that all Australians should benefit from their resources. This is why we have introduced the Minerals Resource Rent Tax Bill 2011 and the other associated bills. Australians deserve to have the money raised from the selling of their resources spent on improving conditions for small businesses to grow the economy. Australians deserve to have the money raised from the selling of their resources saved for their futures. Australians deserve to have the money raised from the selling of their resources spent on the critical infrastructure needed to increase productivity and build a better future for all Australians.
The MRRT will apply to all new and existing iron ore and coal projects and will apply at a rate of 30 per cent. A rate of 30 per cent will allow our iron ore and coal to stay internationally competitive. An extraction allowance of 25 per cent reduces the effective rate of the MRRT to 22.5 per cent. Under the MRRT, the government taxes positive cash flows, or mining profits, and allows miners to carry forward and uplift losses—unused deductions—for use in later years. The tax applies to profits attributable to the resource close to the point of extraction and therefore avoids taxing the value-adding of the miner after that point through such efforts as processing or transportation of the resource. As such, it is a tax on a limited portion of mining profits, unlike company income tax, which applies to all income.
The MRRT recognises the majority of upstream costs incurred by the miner in extracting the non-renewable resource. Under the MRRT, new upstream capital expenditure is immediately deductible. Unlike income tax, capital assets do not have to be depreciated over their effective lives. Companies that have existing projects will receive a partial tax shield, called a starting base allowance, in the form of an additional deduction. The purpose of the starting base is to recognise existing investment. The starting base for a mining project may be calculated using the miner's choice of either the market value or book value. The MRRT is designed to provide for the taxation of above normal profits from mining iron ore and coal. The MRRT moves Australia's resource-charging regime closer to a non-distortive, profits based tax that focuses on Australia's most significant bulk commodities. A profits based system will get a better return for Australia from its non-renewable wealth and do it in a better and more efficient way than state royalties.
The proposal to introduce an MRRT has not damaged mining investment, despite Mr Abbott's claim that the mining tax would 'kill the mining boom stone dead'. A number of major projects have been entered into since the announcement of the MRRT, and I heard Senator Bishop from Western Australia in here not that long ago listing a number of those projects and announcing that they had not been jeopardised one iota by the MRRT. So Australia is clearly experiencing a massive increase in mining investment. Taken together, all the available industry statistics point to an extremely positive outlook for the mining sector. Australia's Future Tax System review recommended implementing a resource tax regime which taxes profits rather than production in order to recognise different mining costs across projects.
Under discussion today are also changes to the petroleum resource rent tax. The Petroleum Resource Rent Tax Amendment Bill 2011 will extend the PRRT to all oil and gas projects. This will provide certainty to industry and ensure broadly equitable tax treatment between competing projects. Having all petroleum projects subject to the PRRT will over time increase the amount of tax collected from these projects, improving the return to the community from the use of these valuable non-renewable resources.
The MRRT and PRRT have benefited from an exhaustive consultation process since the announcement of the heads of agreement between the government and industry on 2 July 2010. On 1 October 2010, the Policy Transition Group, led by Don Argus and Minister Ferguson, commenced the consultation process. The PTG travelled across the country for face-to-face feedback, receiving a large number of submissions on key design and implementation details. The legislation now before parliament implements the recommendations of the PTG and the principles outlined in the heads of agreement.
The MRRT draft legislation was released for two rounds of public consultation in July and again in September 2011, and the PRRT legislation was released for public consultation in August 2011. The PTG delivered its report with 94 recommendations to the Treasurer in December 2010. The government considers its resource tax reforms to be the best way of ensuring a better return to the community for the use of its most valuable non-renewable resources: iron ore, coal, oil and gas.
The net receipts from the MRRT are estimated to be $3.7 billion in 2012-13, $3.8 billion in 2013-14, and $3.1 billion in 2014-15. The revenue raised from the MRRT will fund vital initiatives that will help small businesses and individuals. Although the mining boom is resulting in large amounts of revenue entering Australia, it is also causing cost pressures in other parts of the economy. The government recognises that it is prudent to act to support other sections of the economy. I heard Senator Pratt not that long ago discussing the cost of housing and rents in some areas in Western Australia as a result of the mining boom. Revenue from the MRRT will provide a tax break for Australia's 2.7 million small businesses from 1 July this year. Around 2.7 million small businesses stand to benefit from the passage of the $6,500 instant asset write-off that will make their businesses grow.
One of the great reforms of the Keating Labor government was the introduction of the superannuation guarantee. This was a reform with a far-reaching vision for the future. This government also has the vision to see that an increase in the superannuation guarantee from nine to 12 per cent is a fundamental reform that is needed for an increase in the quality of living for retired Australians in the years to come. This government recognises that this is a vital reform for Australia's future, and that is what we are here to deal with: the future of Australia.
Around 8.4 million workers will enjoy a more secure retirement with the increase in the superannuation guarantee, and communities across the country will gain new and better infrastructure. These changes will also be better for the wider economy, with an expected increase in Australia's pool of retirement savings of $500 billion by 2035. This is a large amount of money that can be invested to benefit the economy and the Australian people. I am, however, disappointed that the opposition, the so-called 'party of small business', are opposed to the government's tax breaks for small businesses. They are opposed to the $6,500 instant asset write-off that will make small businesses grow. They oppose superannuation increases—increases that will help build a more secure future for Australians retiring into the future.
They oppose all these things because they are firmly in the grip of the mining industry. Those opposite are the pawns of the mining industry. They oppose giving small business owners a tax cut so they can give Clive Palmer, Gina Rinehart and Twiggy Forrest a tax break instead. They are a party that represents billionaires and vested interests and they should hang their heads in shame that they are willing to allow the resources that belong to all Australians to be sold without a fair and equitable share going back to the Australian people. They should hang their heads in shame that they refuse to support small businesses in Tasmania, they refuse to support the retirement savings of ordinary Tasmanians and they refuse to support their own principles in reducing tax rates for small businesses.
The resource boom will not last forever. The iron ore and coal can only be dug up once, so it is vital that the Australian people get their fair share for these resources. The MRRT will ensure that they do. I commend the bills to the Senate.
If I could only draw closer across the chamber to the Labor members who have spoken in this debate, I am quite certain that I would see little dollar signs flashing in their pupils as they talk covetously of the dollars which this mining tax is going to raise. Already we have heard Labor senators dishing out the benefits of this so-called mining tax to various objects and causes from Western Australia to Tasmania to every corner of the country. If this were some kind of bonanza for the Australian community based on tapping into some untapped resource that Australians had hitherto not gained any benefit from, I would sort of understand the dewy-eyed optimism which they have demonstrated with respect to this new mining tax that they are seeking to impose on the Australian community. But harder, more determined scrutiny of this tax demonstrates very much that that is not the case.
Let us be clear. The Gillard Labor government did not foreshadow this mining tax prior to the 2007 election when it went to the community promising to leave taxation arrangements pretty much the same as they were. At least it did not, as in the case of the carbon tax, expressly promise not to have a tax of this kind, but there was no indication before the 2007 election of a great big new mining tax. This government has now introduced this tax which will operate as a divisive, complex, unfair, fiscally irresponsible and distorting tax that will damage that part of the Australian economy which at the present time is doing extraordinarily well and without which Australia would be in a very much more parlous economic circumstance than it is today. When, during the life of the Howard government, the Labor opposition used to claim that we were not doing enough to capitalise on the mining boom, little did Australians realise—and little did Australia's mining sector realise—that what it meant was that there needed to be new taxes on the mining sector.
Let us be absolutely clear about this. The mining industry is already taxed. Like any business, it pays company tax. Like any business, its employees pay income tax on the money that they earn from being involved in that business. Unlike other businesses, the mining industry pays royalties to state and territory governments for the minerals that are dug up. So when mining companies are successful and make profits which are taxable under the normal arrangements, they are subject to processes which deliver a proportion of those profits to the Australian people. What this government wants to do is to add a new burden on those successful enterprises to create a tax grab which equivalent successful industries elsewhere in our economy do not face.
I pose this question which I hope one of the government speakers can answer for me: why do we have a mining tax on super profits, if you like, by mining companies but no equivalent tax on banking companies that make enormous profits? We have all seen those extraordinary profit statements from Australia's leading banks describing billions of dollars worth of profit from time to time. Why do we especially target the mining industry for this kind of treatment and not other highly successful areas of the Australian enterprise system? There is no logic to this. It is the politics of envy. It is about plucking figures out of the air to justify the sense of envy that some people in the community obviously feel towards the great profits made by the mining sector at some times in its history and at some points in their profitability, without acknowledging that this sector makes enormous losses for long periods of time before it is able to produce those profits.
There are very few sectors which require such enormous and sustained investment in unprofitable activities for such a long period of time before they produce the kinds of profits which can produce benefits to the taxpayer when taxes are paid on those profits. By taking this new approach, which specially targets the profits of this industry and penalises it for making those profits, in a way which we do not penalise other sections of the economy, we run the risk of reducing the likelihood of incentive in the mining sector when times are not as good as they are right now.
There is no question that the Australian minerals and mining sector is extremely successful at the moment. You could probably dramatically increase taxation levels and there would still be incentives to go out and mine. But that may not be the case into the future. When, for whatever reason, some propositions become more marginal and there is a high-tax regime applying in Australia while, in some other countries that are effectively competitors to Australia that kind of regime does not apply and taxes are not prohibitive, Australian industries will miss out. Australian companies will not get the investment in them which they deserve. The Labor Party will have left a legacy which will effectively kill the goose that lays the golden egg.
I do not feel envious of these companies at all. I feel proud of these companies for the investment that they make in the future of this nation. I know that if we allow them to be profitable, to be enterprising and to drive into markets not yet fully developed, then we will have a successful mining sector into the future and it will benefit all Australians. This tax, which serves no purpose other than to retard them in that process and reduce potential investment in the sector, makes absolutely no sense whatsoever.
I think that the Senate should consider very carefully whether it is damaging, at this crucial point in our history, one of the most successful parts of the Australian economy in a way which can only lead to long-term loss of profitability in this key sector.