Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

I move the second reading amendment that has been circulated in my name:

That all the words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House notes:

(1)the Government failed to deliver an impact assessment of the previous Exploration Development Incentive; and

(2)has failed to deliver for the people of Western Australia".

This bill introduces the Junior Minerals Exploration Incentive, a slightly modified reincarnation of the three-year Exploration Development Incentive introduced in 2014 which lapsed for the 2016-17 tax year. The Junior Minerals Exploration Incentive, as with the previous Exploration Development Incentive, enables eligible companies to generate tax credits by giving up a portion of their tax losses from greenfield mineral exploration expenditure which can then be distributed to shareholders. It is available only to junior exploration companies with no assessable income in a tax year. It excludes companies which have commenced resources production and companies connected or affiliated with an entity that has commenced resources production.

Entities must be disclosing entities under the Corporations Act, and the Treasury estimates that about 700 small firms are eligible. The scheme is capped at $100 million over its four-year duration. Its aim is to encourage exploration of greenfield areas, recognising that small exploration companies are riskier, in part because of delays and in part because of challenges in obtaining capital and the inherent risk in minerals exploration.

Tax law allows an immediate deduction of the full value of any depreciating asset where it is first used for exploration or prospecting for minerals and the taxpayer carries on mining operations, proposes to carry on such an operation or incurred the expenditure in the course of a business of exploration or prospecting for minerals. Smaller companies engaged solely in exploration for minerals may earn less assessable income in a given income year than they outlay on exploration or prospecting. Such companies would have a tax loss for the income year, but it would not provide a benefit until the company earned sufficient assessable income in a future income year against which the loss can be deducted.

Uptake of the previous Exploration Development Incentive was below the cap. Industry argues that this was due to a complex modulation of claims—a way of sharing the credits fairly. The new scheme's first come, first served approach with a five per cent maximum entitlement for any entity is designed to simplify the fair distribution of claims. Minerals exploration companies must apply to the Commissioner of Taxation and provide appropriate information to be eligible to issue the tax credits. The commissioner will determine whether the entity was a greenfield minerals explorer in that income year.

As the explanatory memorandum notes:

It is the Government’s intention that the Department of Industry, Innovation and Science will review the operation of the JMEI scheme by 30 June 2020 to assess both its uptake and efficacy in attracting investment.

The explanatory memorandum for the bill that introduced the previous incarnation of the program stated:

The Department of Industry will monitor greenfields exploration and the scheme throughout its operation, with a review of the scheme in 2016. Key performance indicators for the scheme, against which the review will be conducted, will be finalised by the end of 2014. Subject to the outcome of the review, the programme may be extended for a further period.

According to the new explanatory memorandum in early 2017, participants in the Exploration Development Incentive scheme and other stakeholders were formally requested to provide feedback on the existing scheme. The explanatory memorandum states the government would engage with industry stakeholder bodies, departments and state governments, but those materials are not public—a sadly common pattern with this government, which frequently chooses to keep non-confidential submissions private. The explanatory memorandum does not detail the impact of the scheme. That's what taxpayers are entitled to know. How much additionality did this scheme produce? How much exploration was done which would not have been done but for the expenditure of that $100 million of taxpayer money?

Labor supported the passage of the previous Exploration Development Incentive bill. We are supportive of this bill, but I reiterate to the House the words spoken by the former shadow minister for resources, Gary Gray, on 24 February 2015. He said:

The opposition supports this bill. I would, however, like to make some observations about the exploration tax credit. It is a measure which has been mooted for many years in Australia and over the years in fact we have had several of these facilities in place, most of them finding their way out of the legislation books as a consequence of the way in which companies had manage them or as a consequence of the measures themselves not working as designed.

Mr Gray went on to refer to the importance of the work of Geoscience Australia in driving exploration such as the Carrapateena resource in 2006—a copper-gold formation near the Woomera Prohibited Area and near Roxby Downs in northern South Australia. As he pointed out:

... it was not discovered as a consequence of a tax break for the people who went out exploring for it. It was discovered because of the prize, because of the international commodity price cycle, because of the belief of an explorer that he and his team understood the geology better than anyone else and had a scientific conviction that they could find that resource or something like it in the geology in which they were looking. That is the spirit that drives exploration. I have yet to find the explorer whose activity was driven by tax.

Mr Gray went on to say:

Having said all of that, it is with great interest that we will watch how this mechanism works. It is with great interest because it is a thoughtfully constructed mechanism. It is an expensive mechanism—it is about $100 million. But it is a mechanism that we hope will result in an industry getting more life and more vigour, that will keep more rigs at work, that will keep more of our skilled geologists and more of our exploration teams at work looking for gold, looking for copper, looking for lead and looking for those minerals that will be the future of our mining industry, and that will sustain a vibrant and capable exploration sector in Australia.

They're the words of Gary Gray, the former member for Brand, one of the most careful thinkers on resources policy to have served in this parliament.

Consistent with these comments and with Labor's strong commitment to evidence-based policy, we will be moving an amendment in the Senate to this bill. That amendment will require the minister to instigate an annual impact assessment of the measure, with provision for public consultation, particularly including industry. I would distinguish between a process evaluation and an impact evaluation. A process evaluation simply ensures that the scheme is being managed with appropriate propriety, that public moneys are being appropriately acquitted and that stakeholders are satisfied with the way in which the program is operating.

But an impact assessment does something else. It looks to assess additionality—what is happening as a result of the expenditure of taxpayers' dollars that would not have otherwise have been happening. At a time when we have gross debt—as the member for Rankin is so frequently pointing out—crashing through the half-a-trillion-dollar barrier, it is important that those in this House are careful stewards of the expenditure of taxpayer dollars. The amendment will require the Commissioner of Taxation to make publicly available the ABN and name of entities receiving credits and the amount of credits given. This is in accord with Labor's belief in transparency and rigorous policy evaluation to ensure initiatives work as intended. We may not be able to conduct randomised trials on everything, but we can raise the quality of the evidence bar.

I also want to inform the House that we have been engaging with the Treasurer's office on the amendment. We understand the Treasurer's office is across the detail and intent. Labor's goal is to provide extra certainty to all stakeholders, including industry and taxpayers, that the measure operates as intended. Rigorous policy evaluation helps guide targeted initiatives in the future to ensure that taxpayers get the best bang for their buck on investment and jobs.

The second reading amendment that I have moved also notes the particular implications of the Junior Minerals Exploration Incentive for Western Australia. The Prime Minister announced this measure while in Western Australia at the Western Australian Liberal state conference. That timing is interesting to those of us on this side of the House, noting that the government has continually failed to deliver certainty about GST distributions for Australian states and territories. The Turnbull government announced early in January that it would delay the Productivity Commission's final report on GST distribution. Such announcements are a reminder that only Labor has a plan to help fix the situation in which Western Australia finds itself with respect to the GST. As the shadow Treasurer said at the time: 'Let's be clear. The announcement by Scott Morrison of a delay in the final Productivity Commission report—

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