Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

I move, at the request of Senator Fifield, this motion standing in his name:

That the Senate notes the Gillard Government's failure to implement a sound fiscal strategy.

Both the Rudd and Gillard Labor governments have been governments that spend too much, borrow too much and then, of course, have to tax too much. The Gillard government is a government that has com­pletely mismanaged our public finances. We have to remind ourselves that this is a government which inherited a very strong fiscal position. It is a government which inherited a budget with no government net debt, a budget which was $22 billion in surplus. It is a government that had billions of dollars invested in the Future Fund, billions which this government, whatever it wants to say, is trying to use now to make its budget figures look better—and more of that later. This is a government which has delivered four successive deficit budgets. It is a government that wants to tell us now that it has rediscovered fiscal discipline. It is a government that is trying to make us believe that, because they keep spending below a target of two per cent in real terms moving forward, somehow this is new evidence of fiscal rectitude. But what they have not been telling us is that, under the Labor administration, spending has gone up by 17 per cent in real terms over their first two financial years. That is Whitlamesque. For them to now suggest keeping spending growth to less than two per cent from an inflated base—one that has gone up by 17 per cent in their first two years—is a ridiculous proposition. Because this government spends too much, because there is too much waste and mismanagement and because they are so reckless with the taxpayers' money, they have to forever look out for yet another ad hoc tax grab. That is why this government cannot pursue genuine tax reform.

We have had, of course, the Henry tax review. Remember the Henry tax review, the once-in-a-generation opportunity for root-and-branch reform of our tax system which was going to make our tax system simpler and fairer? What was the only thing we got out of that? A multibillion dollar new tax to be imposed on an important industry for Australia which—and this is the ridiculous part which demonstrates yet again how bad this government is at managing the fiscal affairs of this nation—would help the government create the illusion of an early surplus in the short term but leave the budget in a worse position over the medium to long term. When the mining tax was first announced it was supposed to raise $12 billion, but that was over the second half of the forward estimates and there were only two years of the forward estimates for which there was going to be mining tax revenue—importantly, the 2012 and 2013 financial years. Most of the cost of the related measures—things like increasing com­pulsory super and the company tax cuts and various other bits and pieces that the government was proposing to do—only start the year after; that is, the final year of the original forward estimates.

But there is more. The proposed increase in compulsory super starts off very slowly—a quarter of a per cent in the first year that that comes into effect—and the mining tax revenue starts to be collected on 1 July 2012, with hardly any costs related to that particular measure in that first financial year. So the government can collect all of that revenue to make its fiscal position look better and then in 2013-14 various measures kick in slowly, in particular the proposal to increase compulsory super from nine to 12 per cent. In the first year that increases by a quarter of a per cent and it takes all the way until 2019-20 before that measure actually is fully implemented. In that financial year, according to the government's own budget papers last year, that measure alone would cost $3.9 billion.

Treasury modelling released under FOI indicates that by that time the MRRT is expected to raise $3 billion. The compulsory super measure on its own is going to cost more than the mining taxes expected to be raised in that particular year. In fact, conservatively, the Senate's mining tax inquiry has estimated that over the next decade the mining tax will raise about $20 billion less than the cost of the related measures.

Let us just look at the short term and let us look at the government's own budget figures. In 2013-14 the increase on the compulsory superannuation levy from nine per cent to 9.25 per cent will cost $240 million; the superannuation tax rebate for low-income earners, $830 million; the 50 per cent discount on interest income, $480 million; the increase in concessional contribution caps for over-50s, $785 million; phasing down interest withholding on financial institutions, $70 million; small business instant asset write-off, $1 billion plus $30 million; standard deduction for work related expenses, $410 million; lowering the company tax rate, $1.4 billion; and the Regional Infrastructure Fund, $866.8 million. That is $5.2 billion worth of expenses. There is a cost of $5.2 billion in 2013-14 against an expected revenue that financial year of $4 billion. So the mining tax is going to raise at least $1.2 billion less in 2013-14 than the cost of the related measures.

Only the Labor Party can come up with a new tax that is going to leave the budget worse off. Surely when you come up with a new tax because you have spent too much, borrowed too much, your debt is going up too much. If you are going to come up with a multibillion-dollar new tax which is going to have a significant impact on an important industry for Australia, on our economy, on jobs, on investment in the mining industry, you would at least want to make sure that the multibillion dollars of new revenue is going to leave the budget in a better position, that it improves our fiscal position. But, no, this is a government that just always chases more cash to feed its spending addiction. Yet, after all of that, the budget is still in a worse position.

Just bear in mind that Treasury, towards the end of last year, already observed in an independent assessment that the Australian government is likely to be in structural deficit until at least 2019-20. That was before all these multibillion-dollar new taxes, which actually leave our budget in a worse position. Increasing taxes, introducing new taxes and still having the budget in a worse position than when you started, because of all of the spending commitments and all of the related measures that you have attached to it, is not sound fiscal management.

Of course, this is before the absolute farce—the crediting of royalties under the mining tax deal that was signed by the Prime Minister, the Treasurer and the Minister for Resources and Energy with the three big mining companies. Instead of doing the hard yards on tax reform, instead of talking to state and territory governments about the federal-state financial relations implications of the proposed new national tax, they completely ignored the states. The Prime Minister was happy to have a tete-a-tete with Marius Kloppers and various other CEOs of the big mining companies, but, no—no conversations between government and government. That is not the way to run the country. Here you have the Prime Minister, the Treasurer and the federal Minister for Resources and Energy signing on the dotted line, promising to those three big mining companies—in the shadow of a difficult election, clearly under political pressure—a promise to credit all state and territory royalties against any mining tax liability. It was a promise which included any future increases in state and territory royalties.

You would think that any competent government—any government that was focused on sound fiscal management, any government that was focused on making sure that its budget management was under control—would have picked up the phone to some of the premiers and said, 'What are your intentions? We are about to sign this deal. We're in a bit of a political pickle. We're in a bit of a mess. We've stuffed this thing up. We've lost a Prime Minister over it. And we now want to do a deal with these three big mining companies.' Surely somebody around that table would have said, 'Let's pick up the phone to Colin Barnett or Kristina Keneally, or to the state government in Tasmania or in South Australia and let's find out what their intentions are in relation to state and territory royalties.' Nobody did. Instead they just went ahead and gave this open cheque promise to credit all state and territory royalties against the mining tax liability, which of course had the obvious consequence.

The obvious consequence is that now state government after state government is either removing longstanding royalty concessions or increasing royalties. People on the other side have said, 'Oh, well, that's just all these Liberal-National Party governments.' That is not true. Look at what the South Australian state Labor government has done; look at what the Tasmanian state Labor government has done. Because 99 per cent of iron production happens in Western Australia, because 65 per cent of the mining tax revenue is expected to come out of Western Australia, if the government in Western Australia makes a decision to remove a concession on royalties, which has the effect of increasing the royalty rate payable, that has a more significant impact on the federal budget bottom line—courtesy of the mining tax deal this government has entered into. But the principle is the same, whether it is a $2 billion hit on Wayne Swan's budget courtesy of a decision in Western Australia to remove a royalty concession on iron ore fines, or whether it is a $1 billion hit on the federal budget courtesy of a decision in New South Wales to increase royalties on coal production, or whether it is an impact of a couple of million dollars because the state Labor government in Tasmania decides to increase royalties on iron ore in that state. The principle is this: we had a promise from this government that the Henry tax review would lead to a once-in-a-generation opportunity for genuine root-and-branch reform of our tax system. Let us go back to what the then Treasury Secretary Ken Henry and his committee actually recommended. They recommended a national profit based resource rent tax to replace state and territory royalties. I happen to think that is a bad idea, but let us just bear with the argument for a moment. Here is the Henry tax review recommending to the government a national profit based resource rent tax to replace state and territory royalties. The argument went that, if you are a small mining venture that is not making a lot of profit, having to pay state royalties on production irrespective of profits would cause you to either not get up in the first place or, if you are in the decline phase, to close down sooner. The argument went that a profit based tax would remove those distortions from investment and production decisions.

Is this what we got from the Gillard Labor government? No we did not. All these state and territory royalties are still there. All these smaller mining ventures, in their start-up phase or in their decline phase, will continue to pay the state and territory royalties without getting any refund in relation to the mining tax at all. Only if your mining tax liability is higher than the state and territory royalties that you have paid will you get a refund. If you are in the decline phase you can accumulate credits for as long as you want, but you are never going to get a refund because you are never going to have an MRRT liability that will exceed the state and territory royalties that you have paid. Clearly this is more complex, less fair and less simple than what we had before. Here is the next recommendation from the Henry tax review: the Australian government should negotiate with state and territory governments about the implications of all of this. It never happened. That is the reason for yet another significant fiscal mess of this government's own making.

This is not the only example, because then we got the carbon tax. On budget night Senator Wong and I were on Lateline sitting next to each other. I was listening very carefully to what Senator Wong was saying and she changed the language on the budget impact from the carbon tax ever so slightly. You might recall that our criticism of the budget was that the budget was not worth the paper it was written on because it did not include the information about the carbon tax. Our argument was that, without the information about the carbon tax, the budget was wrong. The revenue figures were wrong. The expenditure figures were wrong. The CPI figures were wrong. The jobs assumptions were wrong. A whole lot of information in the budget was wrong, which meant that the consequent information in relation to all of these matters in the budget were wrong, so it was not worth the paper it was written on. What did the government say at that time? It said the carbon tax was not going to have any impact at all; it was going to be budget neutral. But on that night on Lateline this is what Senator Wong said, 'The carbon tax is going to be broadly neutral.' My ears pricked up and I thought: 'What does broadly budget neutral mean? What is the difference between being broadly neutral and actually being budget neutral?' We now know it is at least $4.3 billion, and probably more.

We now have another tax, the carbon tax. We are told the carbon tax is going to raise $24.7 billion over the forward estimates, but the government is going to spend at least $4.3 billion more than what it is collecting. Here we have two massive new taxes. We have the mining tax, which is going to leave the budget worse off because of the increasing cost of the related measures, which are going to increase way beyond what is going to be raised by the mining tax. In fact the mining tax revenue, if anything, is going to come down over time. We are currently experiencing record terms of trade. As the Treasurer himself said, 'These are the best terms of trade in 140 years.' So the revenue expectations from the mining tax are really high and, if anything, I expect them to come down over time. Not only are they expected to come down over time, the revenue estimates from the mining tax are actually highly volatile. They change according to commodity prices. They change according to exchange rate changes. They change according to what happens with production volume. They change in relation to a whole range of things. It is all information that the government is keeping secret.

The mining tax is a tax that has not even been legislated yet. It is a tax that has not even been introduced, yet we have had about half a dozen different revenue estimates. It was $12 billion to start off with. Then the government was trying to make us believe that all of the concessions they made only cost $1½ billion in revenue. We found out that they had been fiddling with the assumptions and that, if the same assumptions had been used for the RSPT as were being used for the MRRT, it would have actually raised $24 billion over the first two years rather than $12 billion. We now know that Treasury thought that, over a decade, the RSPT would have raised $100 billion, rather than the $38.5 billion from the MRRT. Since the announcement on 2 July we have had the $10½ billion estimate, then we had the $7.4 billion estimate and now we have had the $7.7 billion estimate. It just keeps bouncing around. This is a tax that has not even been introduced yet. It is completely fiscally reckless to link the cost of measures that are going to continue to increase, in particular over the medium to long term, to this mining tax package revenue, which is going to be volatile and downward trending.