Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

The Treasurer today put the government’s case for a great big new mining tax on Australians. He has locked the government in. He has emboldened the government’s case for the tax. So be it—the battlelines are drawn. The coalition believes that this is a bad tax. We will oppose it as an opposition and we will rescind it in government.

The government’s case for this new tax is built on an enduring untruth. The economic rationale behind it is that it is an inefficient royalty system that is being replaced with a more efficient resources rent tax. It is claimed this will lead to greater investment in the industry and stronger growth. This argument might make some sense if the total tax take from the mining industry was unchanged, but this is not the case. The government’s own projections suggest that the new tax will increase net tax revenue by $3 billion in 2012-13 and $9 billion in 2013-14. This is a huge additional impost on the resources sector.

The ATO tables which I sought to table today but which the Prime Minister refused to recognise—the actual tables that record the dollars received by the government from the mining industry—tell the truth about the state of the contribution of the mining industry more generally. ATO table 8 states that the mining industry paid $8.1 billion in company tax in the 2007-08 financial year. In that year they also paid $3.9 billion in state government royalties. While company tax can be expected to rise over the next few years as a result of higher commodity prices and higher mining company profits, the additional tax take of $9 billion a year net represents a very significant additional impost on these companies. It is something like a 100 per cent increase in the contribution of the mining companies to the federal government. This is the bottom line. This is where the debate is at. The government will mouth weasel words about all sorts of transitional arrangements, but understand this: the bottom line is the government collecting nearly 100 per cent more in revenue from the mining companies each year as a direct result of this tax.

I note the government does not have the agreement of the states to abolish royalties. Royalties will still exist. We have been advised that companies will need to maintain four sets of books. Even though royalties will be rebated in part, the inefficiencies will remain. The royalty rebate applies only to royalties in place or foreshadowed on 2 May 2010. There is absolutely nothing to stop the states from lifting royalties from current levels. The government has not committed to refunding any additional royalties. If it does not, then the mining companies will pay twice and pay more—a much forgotten piece of the policy debate at the moment.

There is much debate about rates and transitional arrangements. It is still the case, even by the Prime Minister’s own claims, that anything above the long-term government bond rate of around six per cent is deemed a superprofit. The fact of the matter is that the long-term bond rate is seen as a riskless investment by investors. It is AAA rated and a six per cent return is clearly insufficient. Investors I have spoken to in the United States and the United Kingdom about international benchmarks declare that in the US they are looking for a 15 per cent after-tax return on investments and outside the US it is about 20 per cent in returns.

Even the appearance of Australia Post before Senate estimates today was quite telling. My colleague Senator Cormann asked, ‘Does that put Australia Post in the category of earning superprofits?’ Australia Post replied, ‘I wouldn’t have thought so, Senator.’ Senator Cormann then asked, ‘So you don’t think a return on capital of 12.2 per cent is a superprofit?’ Australia Post responded, ‘I wouldn’t have thought so, Senator.’ Senator Cormann asked, ‘Why not?’ The reply was, ‘I think it is a reasonable return on equity.’ So it is okay for Australia Post to have a return on equity of 12 per cent, but for anyone involved in mining where of course there are significant risks, which I will allude to a little later, that is deemed to be a superprofit.

The government claims that increasing the total tax take from an industry will lift investment and growth. It seems difficult to believe that lifting the tax take will lift economic activity. If that were the case, it would seem to be a simple policy decision to increase Australia’s economic growth through the simple expedient of raising taxes. There would be few commentators, if any, who would agree with that proposition. Indeed, I refer to BHP Billiton’s notice to the Australian Stock Exchange that in the year to 30 June 2009 their effective tax rate, including company tax royalties and production taxes, was 43 per cent. The average between 2004 and 2009 was 42 per cent. The government would have us believe that it is somewhere between 13 and 17 per cent. CEOs of small, medium and large sized companies have an obligation under section 181 of the Corporations Act to act in good faith—to tell the truth, effectively—and their statements to the Stock Exchange, from the larger ones at Fortescue right through to the smaller players, are all warning of the real impact of the government’s tax on declared projects. We can also look at the experiences of other countries which have suffered loss of investment and growth in the face of regulatory uncertainty.

This would all appear to indicate that an increase in taxation will be negative for the mining industry. The government’s own rhetoric seems to contradict its claims that an increase in taxation is to the benefit of business. The Treasurer notes that the cuts to company income taxes:

… promote growth across the entire economy, giving some of our other industries a better chance to compete on the world stage.

The coalition would not disagree with that. However, reducing taxes leaves more money in the hands of business for them to invest and create jobs. Reducing taxes lowers the dead hand of government on business. It seems inconsistent for the government to claim that increasing the tax take from the mining industry will lift investment and growth at the same time they claim that they have got to lower company taxes to stimulate investment and growth.

The Treasurer says that in the last week he has travelled across Australia discussing the government’s changes to taxation. I have also travelled across Australia over the past week discussing the proposed new super mining tax and I have received a very negative reaction to the tax. This was not just from the mining companies but also from the industries which service this sector such as manufacturing and services, from the workers who are employed in mines and associated activities such as transport, and from local government and state government officials. They were all very concerned about the impact of this tax on investments and jobs. I noted the Premier of Western Australia being repeatedly and outrageously verballed by the Prime Minister during question time today in that regard.

All of these business people, from small business to large business, are very concerned about the impact of this tax. They do not accept that this great big new tax will be good for their businesses or for their employment. The new tax will apply to all mining activities. It is not just the big companies which mine minerals in strong demand from offshore, such as coal and iron ore; it will also apply to gravel, sand, clay for bricks and rock for aggregate—the base materials which feed directly into Australian industry. Increasing the taxes on companies involved in other areas will reduce their profits. This will either cause them to absorb it or increase their prices—a simple equation. The increased prices will feed into the costs of building homes and factories. They will impact on every Australian. Unquestionably, it will lift the price of building homes, factories and infrastructure.

The government claims the mining industry does not pay its fair share of taxes. Data provided by the mining industry and based on ATO data shows that the mining industry’s average corporate tax rate on income was 27.8 per cent. Including royalties, that was lifted to an effective tax rate of 41.3 per cent, the highest of all industry sectors. This compared with an average across all industry sectors of 27.18 per cent. I note that the finance and insurance services sector—basically the banks—paid 21.5 per cent. Therefore, if this is a tax that other industries think will only apply to mining under Labor, they should think again.

The Treasurer claims the intention of the changes to the tax system is ‘to build a broader, stronger economy’. We certainly support that objective. During our last term in government, the coalition doubled the size of the economy. We did that through real tax reform, with the introduction of a broad based consumption tax and the elimination of a raft of inefficient state taxes. Reducing the number of taxes is real reform. Labor is not reducing the number of taxes; it is increasing the number of taxes. The coalition also boosted economic growth by keeping taxes low, by running surpluses, by repaying Labor’s debt, by reducing the regulatory drag on business and by reform of the financial system. Most importantly, we maintained an environment which encouraged foreign investment in Australia.

Since the announcement of Labor’s resource tax, there has been considerable disquiet expressed from commentators offshore. Moody’s Investors Service said on 17 May that the government changes to the taxation of the mining industry ‘could reduce earnings for firms by nearly a third after it takes effect in mid 2010’. They went on to say:

Australia’s mineral resources will stay put, but global producers such as BHP, with half its assets in Australia, and Xstrata, with a third, can decide whether to extract the minerals or shift some operations to lower-cost countries to avoid the higher tax regime.

The government has cast this tax as a justified way of recouping income from foreign shareholders who are in some way—outrageously, according to our Prime Minister—taking something that belongs to Australians. On 4 May, the Prime Minister was quoted as saying:

These massively increased profits … built on Australian resources are mostly in fact going overseas.

That is what the Prime Minister, who is meant to be encouraging investment, said.

The Treasurer continued this assault on the miners with his comments today that mining executives were either ‘lying’ or ‘ignorant’. I do not think this is the right way to treat someone from whom we want investment or dollars. The greatest bone the government is throwing to people it wants to invest in Australia is, ‘If you lose $100, we will give you $40 back.’ Anyone who has been on a roadshow, as I have, knows that, when you ask someone for $100, you want to give them more than $100 back. It is in fact no incentive at all to give someone the line: ‘Good news, guys! If you lose your money, you’ll get 40 per cent of it back.’ That is not a sell job. That is not something you can say to international investors, nor to Australian investors for that matter.

What the government forgets is that Australia is critically dependent on foreign capital. Australia has never had sufficient savings to finance the investment we need to build the country, to build business. Australia is currently importing $17 billion of capital every quarter from overseas investors. It is critically important that Australia do everything it can to preserve faith in Australia as a safe and dependable place to invest and do business.

We the coalition believe that you do not win a game by hampering your best-performing player. The mining sector is hugely important to our prosperity. It is an industry where Australia has an international comparative advantage. Mining accounts for nearly two-thirds of the value of Australia’s exports of goods and half of Australia’s total exports of goods and services. Mining directly employs 172,000 Australians. Most of these are in regional areas. In 2008-09, mining accounted for fully one-third of all business investment. The crucial importance of this for the Australian economy overall has been recognised by the RBA. In its May statement, it said:

… mining investment has been at record levels as a share of GDP and further increases are expected, with very large projects in the LNG, iron ore and coal sectors. This pick-up in investment will support growth in the Australian economy at a time when the boost from the earlier expansionary policy settings is diminishing.

Beyond these direct advantages of mining, there are huge economic benefits for associated industries such as manufacturing and various mining services. This new tax does not just hurt overseas shareholders—it hurts Australians. If you use a conservative industry price-earnings ratio of 10 to one, taking $9 billion a year from the industry’s earnings will reduce the net worth of companies which comprise the industry by around 10 times that number or $90 billion. This reduces the value of shares held by Australians.

The new tax regime also carries significant fiscal risk. The revenue gained from the resources industry will vary according to the cycles in demand and prices for commodities. The industry is currently riding a period of strong demand and high prices, but it is not always so. It was only 10 years ago, at the beginning of the 2000s the Treasurer referred to, that demand was weak and prices were low. The government has tied this new tax to a regime of spending which will inevitably rise over time. This is the point I made at the Press Club. This mismatch between ever-rising spending and cycles in resource revenue is building a structural imbalance into the budget. This is not responsible nor sensible fiscal management. In this respect, I note that the Treasurer said in his address today that he:

… wants to take the Australian people’s share of mining profits back to around where it was in the early 2000s.

That was a time when the mining industry was in the depths of one of its regular cyclical lows and there were plenty of mining engineers and geologists driving cabs around Perth. The industry has advised that this was a time when it was barely recovering the costs of its investment capital. This period is hardly a rational benchmark for determining an appropriate share of profits. We do not agree that entrenching that state of affairs would be good for the resources industry or for the nation.

There is another aspect to this new tax regime which increases the risk to Australian taxpayers—the proposal for the government to share in the losses as well as the profits from resource operations. The reason why we are reluctant at this stage to get into a debate about modelling is that the government keeps talking up transitional arrangements, which adds to the uncertainty for investors and leaves everyone wondering whether the government truly knows what it is doing. The best illustration of that is its commitment to pay for 40 per cent of the losses. The government will refund accumulated RSPT losses at the 40 per cent RSPT rate when projects are closed.

In the 2008-09 financial year, one major company closed an unsuccessful project with a write-off of US$3.6 billion. Under the Treasurer’s plan, this would have rendered the Australian taxpayers liable for up to US$1.6 billion of that loss. Note that in the parliament the week before last I asked the Treasurer exactly how much money is budgeted for to allow the government to write out cheques to those businesses that fail. The Treasurer refused to answer the question. The fundamental question is: is this Treasurer being honest with the Australian people? We know he is not, because a motion was passed by the Senate:

That there be laid on the table by the Minister representing the Treasurer, no later than noon on Thursday, 13 May 2010, all modelling, costings, consultancy statements and other relevant documents used by the Government to inform its response to the ‘Henry Review’ (Australia’s Future Tax System report).

The government has not done that. So the government is happy to provide us with a model without any inputs. It is happy to claim that it has modelled our taxes, but it will not release any modelling of what it wants to do to the Australian people. This illustrates that the government has failed to think through this scheme. The government has failed to think through the impact of this new tax on Australian jobs or on foreign investment. It is one thing to talk about economic modelling, which might appeal to all the tax boffins, but the fundamental issue is whether people have confidence to invest in the mining sector in Australia as a result of this government’s tax. Emphatically, the people who actually run the companies, the people who employ people, are saying ‘Not with this tax’ and the coalition joins them in that charge.

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