Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to 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—

Tony Smith (Speaker) Share this | Link to this | Hansard source

The member for Fenner will refer to members by their correct titles.

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

May I seek clarification from you? In quoting a member who has referred to a name, is it necessary at that moment to use the title? I'm asking simply because I'm uncertain on that point.

Tony Smith (Speaker) Share this | Link to this | Hansard source

I can see that that's the case. You'll find in the practice that by merely quoting something you won't get around the rules of this place. It is a grey area, but I'm asking the member for Fenner to bear that in mind. You can't use a quote to use unparliamentary language—that's quite well-established. I'm just pulling him up now. It's something that I try to enforce rather rigorously. While we're at it, so that you're clear, so that you're under no misapprehension, whilst your second reading amendment refers to Western Australia, as a pious amendment, the subject of this bill, unless the member for Fenner wishes to explain, does not deal with GST distribution or the Productivity Commission.

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

Thank you, Mr Speaker.

Tony Smith (Speaker) Share this | Link to this | Hansard source

So I hope that's clear.

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

It is crystal clear, Mr Speaker. I'm grateful for your guidance.

Tony Smith (Speaker) Share this | Link to this | Hansard source

No, you're actually grateful for my ruling.

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

For your ruling, Mr Speaker. Let's be clear, the announcement by the Treasurer of a delay in the final Productivity Commission report, snuck out during the holiday period, is designed do one thing—to try and hoodwink the people of South Australia and Tasmania that there won't be cuts to the GST revenue that help fund their hospitals and schools. The uncertainty that will result from this delay will jeopardise the funding of services across the country. In October, the Treasurer firmly embraced the Productivity Commission's draft recommendations which would see South Australia lose $256 million in funding. In contrast, Labor has a fair plan to give Western Australia its fair share without punishing the people of South Australia and Tasmania who—

Tony Smith (Speaker) Share this | Link to this | Hansard source

The member for Fenner, there's no need to resume your seat. This won't take long. I've cautioned you on being on the subject of the bill. I think we've both dealt with the tax bills a lot. The GST distribution and the Productivity Commission are not matters for this bill. It could well have been if the second reading amendment had perhaps dealt with those issues but it merely refers to Western Australia.

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

It does, Mr Speaker. I'm speaking to the second reading amendments, but I'll confine my remarks to the taxation implications. The distinction that I'm firmly drawing here is that this bill has been characterised by the government as an attempt to provide for Western Australia. And yet, this bill provides remarkably little for Western Australia, in contrast to the government's failure to address directly the matter of GST distributions.

Labor will support this bill, but we do so with a firm eye to its impact on mining exploration. Our intent on this side of the House is to ensure that taxpayers get good value for money and that expenditure, which is made on encouraging exploration, encourages greater exploration. We want to see Western Australia get its fair share and we do not believe that the government can simply use this junior minerals exploration measure as a fig leaf to address the broader challenge of Western Australian GST distribution.

Tony Smith (Speaker) Share this | Link to this | Hansard source

Is the amendment seconded?

Jason Clare (Blaxland, Australian Labor Party, Shadow Minister for Resources and Northern Australia) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Tony Smith (Speaker) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fenner has moved an amendment. The question now is that the amendment be agreed to.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I'm pleased to speak on the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017. You are correct, Mr Speaker, it is very difficult to see how the member for Fenner during this debate could bring in anything about the GST. Yet from his speech it is very clear yet again that Labor believes in 'magic pudding economics'. A magic pudding redistribution of the GST is one where they give more to one state without taking away expenditure from other states. But back to the specifics of the bill—and this bill has one purpose: it is to continue the jobs growth and the wealth creation in our Australian economy that we have seen over the past two years and especially over the last 12 months under this coalition government.

Last year, over 400,000 new jobs were created in this economy. We can fill the MCG four times over with the number of new jobs in our economy in just 12 months—and 300,000 of those 400,000 new jobs were full-time jobs. More than 70 per cent were created in the private sector. In the coming months or, perhaps, even the coming weeks, we are going to pass the million new jobs mark. So, since the coalition government was elected back in 2013, this economy will have grown to one million new jobs. That number will be surpassed, as I said, most likely in weeks rather than in months.

Speaking on this bill, the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017, gives us the opportunity to reflect on how important the mineral sector is to our economy. We know, from the numbers for 2015-16 alone, that our mining sector contributed $12 billion directly to Commonwealth and state government Treasury coffers. That's what pays for our schools, our hospitals, our aged care, our disability services and our pensions. Yet we see the curious inconsistency that those who are most vocal about demanding more government expenditure happen to be the same people who are most vocal about putting delays in place and about closing down and preventing our minerals sector from creating wealth in this country. Those who stand and protest about mining in this nation must understand that it is the wealth from those mines that pays for everything that we, the government, need to finance.

When it comes to our mining sector, it is important to encourage our junior miners. Unfortunately, in this parliament, many members who sit on the other side of the House like to go out and discourage our mining sector. I give the example of none other than the member for Port Adelaide, the shadow minister for energy—someone you would think would take every opportunity to talk up and encourage investment in our mining sector. But, no; the shadow minister for energy said last year: 'We need to be honest. There is no demand for additional thermal coal. Demand for thermal coal exports around the world is in rapid decline.' That's the kind of encouragement that members of the Labor Party give to our mining sector.

Let's just see how that prediction unfolded. Remember, this is the Labor shadow minister for energy saying, 'Demand for thermal coal exports around the world is in rapid decline.' He said that in the middle of last year. Let's just have a look at what actually happened last year. We will start with Australia. Although Labor believed that coal was in rapid decline, last year Australia's exports of coal hit an all-time record of $56.5 billion. It was an increase of over 30 per cent on 2016 and actually broke, or smashed, our all-time record, set back in 2011, of $46.7 billion. Of those exports, 20 million tonne was thermal coal and 172 million tonne was coking coal.

But it wasn't just Australia that had their coal exports increase, against the predictions of the best minds of the Labor Party. What happened in the USA last year?

According to the US census data, released only last week, US coal exports increased 60.9 per cent—a 60.9 per cent increase in US coal exports, yet the best brains in the Labor Party are telling us that coal exports around the world are in rapid decline.

Take Japan: what happened in Japan last year in contrast to the great predictions of the Labor Party? Here we are: on 24 January, a report from Reuters said that Japan's thermal coal imports rose to a record level last year:

Thermal coal imports rose 4.3 percent from a year earlier to 114.5 million tonnes in 2017, surpassing the 113.8 million tonnes imported in 2015 …

So there were record coal imports in Japan.

How about China? What happened in China last year in comparison to Labor's prediction of the rapid decline in thermal coal exports? A Reuters report on 8 February from Beijing said:

China's coal imports hit their highest in four years in January, customs data showed …

…   …   …

Thermal coal prices on the Zhengzhou Commodity Exchange touched a record-high of 679.8 yuan ($107.96) a tonne …

And they noted:

Seaborne coal shipments from Indonesia rose to 11.06 million tonnes last month, the highest since November, 2016, while coal arrivals from Australia climbed to their highest in months, according to data compiled by Thomson Reuters Supply Chain and Commodity Forecasts.

Yet the experts in the Labor Party tell us that coal exports are in rapid decline. But it doesn't stop there. South Africa last year also recorded record thermal coal exports. It was the same in Indonesia: Indonesia this year forecast that their coal exports would be up seven per cent, and Indonesia expects their domestic demand for thermal coal to increase 17.5 per cent this year. And it goes on and on and on. Even the International Energy Agency has forecast that world demand for coal would hit a record 5.5 billion tonnes in 2020, up 300 million tonnes from the current levels of 5.2 billion. That is, it is forecast that 300 million more tonnes of coal will be consumed in four years time than today, yet Labor members of parliament—none other than their shadow minister for energy—are trying to talk down Australia's coal sector.

What do some of the experts in the industry say? Let's have a look at this report from TheSydney Morning Herald in January this year quoting New Hope Chief Executive Officer Shane Stephan, who told Fairfax Media:

We're seeing strong demand for higher quality Australian thermal coal in Asia, and that is what's driving the price.

They report that Rio's 'production was up eight per cent quarter on quarter, and up four per cent for the December 2017 half year'. Whitehaven's chief executive Paul Flynn is quoted as saying:

What we've observed is very strong demand out of Asia fuelled by their demand for high-quality coal to fuel their supercritical power stations.

'Very strong demand out of Asia'—yet we have the Labor shadow minister for energy telling us that demand is falling. We've even got MineLife's Gavin Wendt saying there is a very healthy price outlook for thermal coal.

Our encouragement of our mining sector is so important to the economic prosperity and job creation of our nation. To have Labor members continually running an anticoal rhetoric damages our economy and job creation. It damages wealth creation and undermines our nation's ability to finance the very important things that we continually hear whinged about in this place, from schools to hospitals to aged care, that we are not spending enough on. The only way that we can sustainably increase spending in those areas is to encourage those wealth creation industries, yet those who want the greatest government expenditure do everything they can to talk them down.

I'm sad to say that this anti-mining, anti-coal rhetoric is not confined to the Labor Party and the Greens. Unfortunately, it has affected some of our major banks. I'm talking here about the National Australia Bank, which put out a press release just before Christmas saying that they will no longer finance new thermal coalmining projects. We have record thermal coal exports around the world. We have the International Energy Agency predicting that the world will need 300 million more tonnes of coal than was consumed last year, yet here we have one of our major banks going out and issuing a statement that they will no longer finance new thermal coal mining projects. This is extremely disappointing. This is the greatest indication that our banks have far too much market power. To have such politically correct nonsense being put out in a press release by one of our major four big banks, talking down one of our nation's most important exports and our most important industries, is extremely disappointing, to say the least.

This coalition understands what creates wealth in this nation. We understand what creates jobs. We got the runs on the board over the last 12 months. We're going to continue that this year, because we understand that the best way to create jobs is not through big government, not through more regulation, but through taking the handcuffs off the entrepreneurs of this nation, getting rid of the red and green tape, so that they can go out there and invest with confidence and create jobs, knowing there is a government that will support them. That is what has worked in the past. That is what worked last year. That is what created those 400,000 new jobs. That is what will see this economy surpass one million new jobs under the coalition in the coming weeks. With that, I commend this bill to the House and I would ask members of the Labor Party to consider what is best for the nation, to put aside their anti-coal rhetoric and to get behind the mining sector and the wealth creation sectors of this nation.

Jason Clare (Blaxland, Australian Labor Party, Shadow Minister for Resources and Northern Australia) Share this | Link to this | Hansard source

Minerals exploration is important. We live in a world where it's easy to forget that so much of what we use, so much of what we depend upon, is made from things that are found and dug up. The best example that I can think of that is this the mobile phone, the smart phone, which almost everybody has and which is made up of more than 25 different metals, all of them mined here in Australia—everything from silicon, to make the screen, lithium and cobalt, in the battery, silver and gold, in the electronics of the phone, to aluminium, which is used to make the case. You can't have the benefits that these devices provide without the resources that are needed to make them. This phone is just one example of that.

The plates that we use to eat off every day have zircon in them. The glasses that you see here at the table are made from silica. The sunblock that we use when we go to the beach to protect us from the sun has zinc and ilmenite in it. This microphone projecting my voice has copper in it. Minerals are all around us, hiding in plain sight. They're not easy to spot here and they're not always easy to find beneath the earth's surface either. It's hard work. Exploring for minerals is a slow process, and without a proven resource it's always possible that you won't find something worth developing. It's expensive and it's hampered by unpredictable commodity prices. These factors add a lot of risk, and for that reason it can be difficult for junior minerals exploration companies to generate the capital that's needed to undertake the exploration of undeveloped regions.

Over the five years to 2015-16, expenditure on greenfield exploration around Australia dropped by 70 per cent. In 2014, to try to encourage more exploration, the government introduced the Exploration Development Incentive. This was a $100 million scheme which was supposed to incentivise greenfield minerals exploration. Unfortunately, the incentive was not fully used by industry, and the decline in greenfield minerals exploration investment has continued. The feedback from the minerals exploration industry is that one of the reasons that the incentive wasn't fully used is that it was too complex to access. The legislation that we're debating here tries to fix that. It makes a number of changes to the incentive. It implements a first-come-first-served approach and introduces caps on how much individual companies can access.

The trend of declining investment in greenfield exploration is a concern to the Labor Party. I'm sure it's a concern to all members here—at least it should be. That's why we're supporting this amendment to this legislation. We think it could help junior minerals exploration companies to attract capital and finance for greenfield exploration. Around 700 junior resource companies could be eligible under this scheme, and it has the potential to drive engagement and growth in greenfield exploration. The proposed incentive is only available to junior exploration companies with no assessable income in a tax year, and it excludes companies that have commenced resource production or that are connected to another company that has commenced resource production. We think that this draws a reasonable distinction between junior exploration companies and larger resource companies and that this incentive is targeted towards the companies that are serious about greenfield exploration.

The explanatory memorandum to the bill notes that it's the government's intention that the Department of Industry, Innovation and Science will review the operation of this scheme by 30 June 2020 to assess both its uptake and its efficacy in attracting investment. That's a good thing, but we think that this legislation could go one step further. We think there should be an annual impact assessment of the scheme and it should be a legislated requirement and publicly available. The member for Fenner foreshadowed that in his contribution a moment ago. It is our intention to move amendments in the Senate that would require an annual impact assessment to be conducted, the objective being to identify whether this legislation and these amendments result in additional exploration or prospecting. In addition to that, the Commissioner of Taxation would make publicly available the ABNs and names of entities receiving credits and the amount of credits given. We think this is important. If we're providing an incentive to business, it's important that we understand what the impact of that incentive is—whether it's worked or not, whether it's encouraged more exploration or not and whether it's delivered value for money to the Australian taxpayer. That's how we develop evidence based policy: assess it, pressure test it and make it public, and, if it doesn't work, change it. As I said, the shadow minister has foreshadowed our intention to move amendments to this effect in the Senate. I understand that the government is currently considering that, and I would encourage the government to support this amendment when it gets to the Senate.

Michael Sukkar (Deakin, Liberal Party, Assistant Minister to the Treasurer) Share this | Link to this | Hansard source

Firstly, I want to take this opportunity to thank all members for contributing to this debate. As has been discussed, this bill provides a tax incentive for investment in small minerals exploration companies undertaking greenfield exploration in Australia. The government understands that the future prosperity of the mining sector is ultimately dependent on our ability to make new minerals discoveries, and the new junior minerals exploration incentive will help encourage investment needed to pave the way for resources sector prosperity long into the future.

It's small minerals exploration companies that undertake most of the exploration in greenfield areas for new discoveries. Exploration for minerals often involves significant expenditure and, ultimately, risks. While larger established mining companies are generally in a position to fund activities from their own activities and profits, smaller companies which focus solely on exploration are dependent on attracting investment to fund their exploration activities. However, the lack of certainty on exploration success can make it naturally difficult for these companies to raise the necessary capital. Australian resident investors of these companies will therefore receive a refundable tax offset where the companies choose to give up a portion of their tax losses relating to their exploration expenditure in an income year. The total value of the incentive available to new investors over four years will be $100 million from 2017-18.

The new incentive builds on the former exploration development incentive with improvements to address some of the issues that affected the take-up of the previous scheme. Eligibility for the investment is limited to investors that purchase newly issued shares. This ensures that the benefit of the incentive only goes to those investors who contribute new capital to fund, importantly, new exploration activities. Further, the incentive is allocated between eligible exploration companies using a first come, first serve process which will be faster than the previous scheme. Small exploration companies will know with certainty up-front just how many credits they have been allocated by the Commissioner of Taxation. The amendments to the excess exploration credit tax will ensure the fairness and integrity of this very important incentive. I, therefore, commend this bill to the House.

Lucy Wicks (Robertson, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this, the honourable member for Fenner has moved an amendment that all words after 'that' be omitted with a view of substituting other words. The question is that the amendment be agreed to.

There being more than one voice calling for a division, in accordance with standing order 133 the division is deferred until after the discussion of the matter of public importance.

Debate adjourned.