Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's advisory report on the Minerals Resource Rent Tax Bill 2011 and related bills, incorporating a dissenting report, together with the minutes of proceedings. I ask leave of the House to make a short statement in connection with the report.

Leave granted.

Mr Speaker, the committee reviewed the Minerals Resource Rent Tax Bill 2011 and the four related minerals bills; the Petroleum Resource Rent Tax Assessment Amendment Bill 2011 and the three related petroleum Bills; the Superannuation Guarantee (Administration) Amendment Bill 2011; and the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011. The committee reviewed the bills against the backdrop of an unprecedented mining boom with high levels of investment and profit. Mining companies generated profits of $92.8 billion to June and plan to invest $430 billion to expand their industry. In the last decade mining profits have jumped 262 per cent. The Australian government has taken the view that the massive profits of the mining sector should be more fairly taxed and the proceeds returned to all Australians. This is consistent with the evidence the committee received during the inquiry. United Voice stated:

There is a substantial gulf between the perceived benefits of the mining boom and some of the actual impacts on our economy, environment, health and the day-to-day lives of working Australians.

The minerals resource rent tax will be a tax on mining profits. The proceeds of the tax will fund critical infrastructure and a cut in the company tax rate for small business, and make it possible to increase the superannuation guarantee from nine to 12 per cent. Resource rent taxes are much more efficient than royalties. The Australia's Future Tax System review found that royalty regimes were the most distorting taxes in the Federation.

The package of bills implement important reforms to the Australian economy. They apply a 22.5 per cent minerals resource rent tax on the profits that mining companies make on iron ore and coal on their mining activities only. This excludes value-adding activities such as transportation and concentration.

They also extend the petroleum resource rent tax to the North West Shelf and the Australian mainland.

The bills increase the superannuation guarantee from nine per cent to 12 per cent, remove the age limit of 70 for the superannuation guarantee, and implement a superannuation contribution for low-income earners of up to $500 annually.

Finally, the bills give small businesses simplified and greater upfront tax deductions for assets.

Although not formally a part of the package, the government has also announced that it will decrease the company tax rate for small businesses from 30 per cent to 29 per cent.

These reforms recognise that mineral resources belong to all Australians and it is only right that the profits from the mining boom be shared more widely.

During the inquiry there were differing views on how the tax would affect emerging miners, compared with established miners. Emerging miners believed that they would be paying a large amount of the revenue under the minerals resource rent tax and that large miners would pay very little, due to the larger starting base that established miners have available to them as a deduction against the tax. However, Treasury advised the committee that:

The value of the resource, to the extent that it is reflected in the starting base, will be reflective of the expected future cash flows from the exploitation of the resource, so they will be proportional. If you have a large starting base you would expect to have large revenue flow, and if you have a small starting base you will have a smaller revenue flow.

The committee is confident that the MRRT will operate as intended.

Importantly, the other elements of the package deliver significant benefits to the Australian economy as a whole. Small business confirmed that the improved deductions will help them with their cash flow and make it easier for them to obtain finance to invest in their businesses during the two-speed economy. Business Enterprise Centres Australia said:

… we have small business, which is the backbone of the economy, struggling. There has to be a redistribution of that wealth.

The MRRT will also fund substantial infrastructure investment in regional Australia through the Regional Infrastructure Fund.

The superannuation industry confirmed that Australians support compulsory saving for their retirement and that the bills will help address the savings gap that currently exists for the great majority of Australians. The Financial Services Council stated:

… the current SG rate is at nine per cent and that will fail to provide people with their expectations of a comfortable retirement.

Low-income earners stand to significantly gain from the bills. Unlike the majority of Australian workers, 3.5 million Australians on low incomes receive little or no tax benefit from contributing to super because their marginal income tax rate is equal to, or below, the 15 per cent tax applied to superannuation. The low-income superannuation contribution in the legislation will distribute superannuation tax concessions more equitably.

The bills implement important long-run reforms to the Australian economy and ensure that all Australians will benefit from the mining boom. They should become law.

I would like to thank the organisations that assisted the committee during the inquiry through submissions or participating in the hearings in Canberra. I also thank my colleagues on the committee for their contribution to the report and acknowledge the extraordinary work done by the secretariat on a very short time frame. I commend the report to the House.

Kelly O'Dwyer (Higgins, Liberal Party) Share this | Link to this | Hansard source

by leave—I rise to speak on the minority dissenting report on the Minerals Resource Rent Tax Bill 2011 and 10 related bills. These bills contain some of the most complex tax changes ever introduced into the parliament. There are 11 bills in total and they account for more than 525 pages of legislation. You would think that, in these circumstances, the government would be keen for proper scrutiny of these tax changes. You would think that the government would want to evaluate the impact of these tax changes on employment, on investment, on Australia's international competitiveness, on the Commonwealth budget position, on state and territory revenues, on whether the tax changes have a disproportionate impact on smaller miners versus larger miners. But no, it is clear that the government does not wish to look at these elements in detail. Despite the government's high-minded rhetoric on undertaking tax reform to make laws 'simpler and fairer', it appears that the government does not want to hold to this test. It is simply interested in the revenue that will flow from any tax changes made. This is clear from the fact that the Treasurer allowed only 12 business days to conduct this inquiry and report. There were only three business days on which people could make submissions to the inquiry.

This tax has been flawed from the very beginning. It has been flawed in its design and in the consultation process that led to this design. I will quote from Mr Yasser El-Ansary, from the Institute of Chartered Accountants in Australia. He said:

If there was an international prize for the best worst policy consultation process in a sophisticated open market economy, Australia's efforts during the course of 2010 would win hands down.

Speaking about the consultation process after the RSPT that occurred in secret between the three big miners and the government, he went on to say:

It would not be unreasonable to say that that represented a low point in Australia's economic and political history. It is a low water mark which most Australians would prefer not to see repeated in our lifetime. I think you would be hard pressed to find anyone to support the view that that is a good way to make public policy decisions.

We are very concerned about how this tax has come about and, specifically, about a number of elements of the tax. We outline those in the minority report, but for the purpose of this speech today I will highlight one element: the revenue and fiscal position of the government and the revenue implications of the tax.

When the government came into office, it had been left with a very strong fiscal position. The coalition left a surplus of $20 billion and a $60 billion investment in the Future Fund, having paid back $96 billion of the government's debt when it was previously in office. In the May budget, the Treasurer announced his fourth deficit—a fourth deficit in four years. He has, in fact, announced an accumulative deficit of over $100 billion.

It is clear that the goal of the MRRT is to try to obtain revenue for the government because of the fiscal position that it finds itself in. Yet, despite the goal, it is clear that the revenue raised by the MRRT is highly volatile and sensitive to changes in such things as commodity prices and production volumes. The government has chosen to introduce the package of bills that include both revenue and expenditure measures. In so doing, the spending will continue to grow as a permanent feature of the architecture of the bills, yet there is no guarantee that the revenue will also continue to increase. In fact, the evidence provided to the committee gave cause for alarm because, according to Treasury's modelling, the MRRT and extended PRRT will raise $11.1 billion over the last three years of the forward estimates.

Since the government released its numbers, New South Wales and Western Australia have announced increased royalties over this period of $1 billion and $2 billion respectively. These royalties will be credited against the revenue of the mining taxes. This means that net revenue to the federal government will be reduced to $8.1 billion. Under the government's numbers, there is a shortfall in revenue relative to spending of $2.8 billion over the forward estimates. This black hole blows out to $5.7 billion after crediting the royalties of New South Wales and Western Australia.

Both the RBA and Access Economics have suggested that commodity prices in terms of trade have peaked and are declining more rapidly than expected. This created further downside risks for the mining tax revenue. It is clear that the spending side of the package is locked in but the revenue side is subject to the vagaries of the international market and state royalty changes. The MRRT package will significantly worsen Australia's structural budget deficit over time, with the government's proposal underfunded beyond the forward estimates.

The coalition members of the committee also have serious concerns about the transparency of the government's modelling. It was pointed out on a number of occasions in the testimony provided to the committee that the government had not provided the assumptions behind its modelling, making it very difficult for miners to determine the amount of MRRT that they would be subject to. It also goes to the accuracy of the revenue projections by the government when it was revealed that Treasury had not done a calculation on a project-by-project basis. This also concerns coalition members. We think there is no reason for the government not to be completely transparent about the assumptions behind its modelling. This is something that is commonplace in the WA treasuries and is something that we would commend to the government.

The coalition members were particularly concerned about some of the sovereign risk concerns that had been raised in the course of the testimony provided to the inquiry. Those concerns were outlined in a number of the submissions. I will not go through all of those in detail but they are referred to in our minority report. The coalition members were also concerned about issues raised by the smaller miners in relation to thresholds and the impact of the regulation impost that would be applied as a result of the MRRT. Again, we highlight that these issues are not issues that have been properly and duly considered by the government in its design of this tax. As such, due to these reasons and others as outlined in our report, the coalition members recommend that all 11 of the bills in this package be rejected and that the Minerals Resource Rent Tax Bill 2011 and the four related minerals bills, the Petroleum Resource Rent Tax Assessment Amendment Bill 2011 and the three related petroleum bills, the Superannuation Guarantee (Administration) Amendment Bill 2011 and the Tax Laws Amendment (Stronger, Fairer, Simpler and Other Measures) Bill 2011 be rejected.