Rick Wilson (O'Connor, Liberal Party) Share this | Hansard source

I rise tonight to express grave concerns about a misguided tax policy in my home state that would damage the resources sector, particularly the iron ore industry. Last month the WA Nationals announced a plan for a tax grab in WA that simply seeks to extract more dollars from the resources industry with no commitment to apply any discipline or restraint on government spending. The Nationals have decided to revisit a number of state agreements in an easy and popular way to raise more cash for WA.

Nationals leader, Brendon Grylls, who claims these agreements favour the industry, seems to have forgotten he was a key cabinet minister when they were renegotiated six years ago. In 2010 BHP and Rio Tinto reached an agreement with the state government to pay higher royalties on iron ore fines and to make a one-off payment of $350 million to the state Treasury. Forty years ago, when those state agreements were drafted, iron ore fines were not in demand on the world market and as a consequence the state government of the day applied a concessional royalty rate. By 2009, however, iron ore fines were an important part of the seaborne iron ore trade and the Barnett government decreed that concessional royalties were no longer permissible. The state government agreed to vary the agreements held by BHP and Rio to allow greater flexibility in those companies and how those companies ran their operations. BHP also divested back to the state government some land held in the vitally important Port Hedland port area. The $350 million one-off payment I referred to earlier was quarantined by the state government for the construction of the new Perth Children's Hospital, now close to completion. From 1 July 2010 BHP and Rio Tinto's royalty rates on iron ore fines changed from 3.75 per cent to 5.625 per cent to bring them into line with other iron ore producers in the Pilbara. Those royalty rates have since risen further to synchronise with the royalties on the majority of other forms of iron ore exports at 7.5 per cent.

The reason I raise this sequence of events is to highlight the fact that Brendon Grylls was a senior member of the WA cabinet that signed off on this reform package. Mr Grylls did not raise the issue of land rents at that time. He was clearly happy to take the money and then proceed with the Royalties for Regions program, which was described by the Nationals candidate in O'Connor, John Hassell, as Brendon Grylls private slush fund. Now that cash flow from Royalties for Regions is threatened, Mr Grylls and the Nationals have simply cast around for a new tax system. There has been no suggestion from the Nationals about finding efficiencies in government spending or cutting back on programs that are wasteful. I have no doubt that placing another tax on the resource sector will damage business confidence and potentially drive investment away from Australia to other resource provinces around the world.

What makes this poor policy is that it proposes increasing taxes when iron ore prices are significantly lower than they were in 2010, the last time royalties were increased. Another key weakness of the National's plan is that, if the plan were to be implemented, much of the additional revenue would be redistributed away from WA in the form of a reduced GST share to the west. Poor performing state governments, such as Tasmania and South Australia, would be the beneficiaries. They would simply sit back, do nothing to develop local industry or resource projects and be rewarded for it. Some analysts have already calculated that 90 per cent of the additional revenue would flow to other states. Mr Grylls knows that, but his policy is simply a ploy to position the Nationals before the state election.

At the WA state Liberal conference last month the Prime Minister made a commitment to reform the GST distribution formula. This will include placing a floor in the formula which will ensure that no state can receive less than the agreed minimum of GST revenues collected in that state. I will be arguing for a 75 per cent floor by the 2019-20 financial year. Time lags in the GST distribution have resulted in a perverse situation from 2014-15 to 2016-17. The impact of historical royalty collections is still reducing WA's GST distribution. At the same time, royalty collection in WA has trended downwards, creating big problems for the WA state government in seeking to cater for population growth largely driven by the expansion of the resource sector. The Prime Minister's commitment to fix this problem is welcome.

WA has done the right thing over many years by developing the natural resources within our state boundaries to generate export income for the nation and facilitating the development of oil and gas resources offshore. The resource companies, large and small, have in turn generated huge wealth for employees, shareholders and the states and Commonwealth governments in the form of royalties, payroll tax, company tax and the petroleum resource rent tax. Surely this is a classic case of looking to kill the goose that laid the golden egg.

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