Ian Macfarlane (Groom, Liberal Party, Minister for Industry and Science) Share this | Hansard source

I am being positive. The end of the story is positive. This was a tax which caused the mining industry a great deal of concern, and it took a coalition government to be elected to remove that tax. Unfortunately, it was almost too late. In fact, it was too late in terms of the budget position, because, as we know, not only did they introduce a tax which did its best to kill off investment in the mining industry in Australia, but of course that tax did not raise the money it spent.

That is typical of Labor. They introduce a tax; they spend all the money before they get it. And of course the tax did not raise anything like the money that they had predicted. Again, we should not be surprised by that. The end result was detrimental to not only the mining industry and the investment industry in Australia; it was also extraordinarily detrimental to the budget.

Over the past decade, our national prosperity has been sustained on the strength of a sector that has generated billions and billions of dollars in export revenue, and it accounts for about 10 per cent of our GDP and around 270,000 Australian jobs. The Bureau of Resources and Energy Economics, BREE, projects Australia's earnings from resources and energy commodities to increase at an average rate or seven per cent a year from 2013-14, to a total of $274 billion by 2018-19. While we owe much of our economic strength to exploiting our mineral riches, we cannot take the sector's continued prosperity and economic drive for granted.

The investment boom has tapered off—there is no doubt about that—and the industry is facing significant challenges, which again reinforces the value of rescinding the MRRT, the minerals resource rent tax. While the sector's estimated $157 billion contributed to the GDP was around 10 per cent in 2013-14, we expect exploration expenditure for the same period to decrease by around 12 per cent compared to 2012-13.

A 0.4 per cent increase in petroleum exploration expenditure was more than offset by a 32 per cent drop in mineral exploration. That reflects the confidence, or lack of confidence, that the industry has in terms of commodity prices and where they may be going.

Our government, the Abbott government, is determined that the impetus in our exploration industry is restored. The exploration development incentive, known as the EDI, delivers a commitment made before the last election—and, true to our word, that is a commitment delivered. We made that commitment because we acknowledge that the future prosperity of the mining sector in the Australian economy is dependent on our ability to make more mineral discoveries and new mineral discoveries. It is entirely reasonable for the government to address the barriers to private sector investment in one of the country's most important sectors. A strong resource exploration sector is a key to economic growth—that is a given. It is a key to stronger regions, which is crucially important to people on this side of the House but doubly important to someone who grew up in regional Australia, still lives in regional Australia and represents regional Australia with a passion. And of course the resource sector is a key to stronger regional employment, and that is what puts people into towns in rural areas, such as we have seen particularly to the west of Toowoomba, where I currently live, and to the south of Boondooma, where I grew up.

We are seeing that area repopulated by the resource sector. As the farming industry became more and more efficient and required less and less labour, towns were literally dying on their feet. But with the growth in the resource sector, particularly in the area between Toowoomba and Roma—and particularly with coal-seam gas—we have seen new families come to the district and we have seen young people stay in the district and go on not only to work in the industry but to work as professionals with degrees from universities, staking their claim to being long-term residents of the region.

To have a resource sector that continues to expand in Australia we need the junior mineral exploration sector to generate greenfield exploration activity in Australia. This is the R&D of the industry; this is what they do best. The small exploration companies go out and find these resources and then either joint-venture or, more often, are taken over by larger companies which then develop them.

The junior mineral exploration sector in Australia has been struggling, as I said, for two main reasons. The junior companies face a tax disadvantage relative to larger mining and exploration companies. They face a significant time lag between the expenditure—that is, the money they are putting out—and deducting those costs from eventually assessing earnings. And so, unlike a large company, which is already in production and which can deduct its exploration costs against its income, smaller exploration companies do not have that advantage. And, of course, in an increasingly tight capital market, this risk—in what is already a high-risk investment—is resulting in difficulty in attracting capital needed to conduct the exploration. We need to address that.

There was a time not long ago when resources stocks dominated the IPO statistics. However, analysis undertaken by the business advisory and accounting group, HLB Mann Judd, found that falling commodity prices and reduced investor sentiment impacted negatively on the resource company IPOs in 2013. We should not be surprised by that: they had six years of being battered by a Labor government. But also—as I said—the commodity fall has certainly impacted on confidence. HLB Mann Judd said that the low volumes reflected the difficult conditions that the sector faces, and this continues a downward trend that has been evident for several years—in fact, more than a decade.

In 2012 the number of small IPOs was over 50 per cent lower than in 2011, and capital raising fell by more than 63 per cent on 2011 levels. We as a government recognise the potential of the overall sustainability of the broader resource sector as capital becomes difficult to raise and greenfield exploration suffers as a result. The Exploration Development Incentive proposed under this amendment will be available to junior mineral explorers incurring eligible greenfield exploration expenditure in Australia. Greenfield exploration that will be eligible for the tax offset will be limited to onshore minerals exploration. For the purposes of the EDI, the term 'greenfield' relates to exploration and prospecting in an area that does not contain mineral resources with a level of confidence of inferred or greater as assessed under the Joint Ore Reserves Committee Code—or JORC Code as it is known. An 'inferred mineral resource' is a resource where the quality and grade are estimated on the basis of limited geological evidence in sampling.

In simple English: this initiative is aimed at finding new resources for new jobs in Australia. It is not aimed at proving up resources that already exist or which we can be reasonably assured exist. Perhaps one of the great examples of greenfield exploration is BHP Billiton's Olympic Dam mine in South Australia, which was discovered in the 1970s by Western Mining Corporation. It is now considered one of the world's largest mineral deposits.

The EDI will not apply to exploration for quarry materials; or petroleum exploration, including exploration for natural gas, coal-seam gas or shale oil; or for geothermal energy resources. The EDI is capped at $100 million. The cap will apply through an ex-post modulation process—something I have used before in another part of my industry portfolio. Participating companies will notify the ATO of the lesser of the exploration expenditures and the tax loss for the financial year. In terms of those who will be eligible to claim a tax benefit under this legislation: a greenfields mineral explorer is an entity or an affiliate entity that has not carried out any mining operations in the relevant year.

The EDI is not without precedent. One of the issues that we faced is that other countries—particularly Canada—have had flow-through share schemes for some time which have been incredibly successful. In Canada we have seen that scheme raise over $5 billion for exploration since 2006. Our goal with this scheme is that once this initial fund is used we are in a position to assess how we can improve the scheme and how it can continue so that we can emulate the fantastic success of the Mineral Exploration Tax Credit program in Canada.

The Canadians do have a great eye for opportunity. We are, of course, fierce competitors and the best of friends. In fact, this table was given to this parliament by Canada. But that does not mean we just sit in awe of them. We want to emulate and improve on their scheme, and we want to see industry bodies consider the EDI to be a long-term investment strategy for the Australian mineral sector. And they are optimistic that the scheme will work. They have been part of us working up the proposal, and as we continue to do that we will ensure that opportunities are there for all Australian exploration companies and that, of course, we create more jobs for Australians.

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