Deborah O'Neill (NSW, Australian Labor Party, Shadow Assistant Minister for Innovation) Share this | Hansard source

The Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017 introduces the junior minerals exploration incentive, a slightly modified reincarnation of the three-year exploration development incentive that was introduced in 2014 and lapsed with the 2016-17 tax year. The junior minerals exploration incentive, as with the 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's only available to junior exploration companies with no assessable income in a tax year, and it excludes companies that 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. Treasury says there are approximately 700 small firms that are eligible.

The scheme, as indicated in the material provided by the government, is capped at $100 million over its four-year duration. The aims of the scheme are to encourage exploration of greenfield areas, a task usually undertaken by junior minerals exploration companies. The member for Blaxland, in his speech in the second reading debate, noted:

Over the five years to 2015-16, expenditure on greenfield exploration around Australia dropped by 70 per cent.

This trend is concerning to the Labor Party, because we know success in mining ventures creates jobs, and good jobs for Australians will always be a concern for the Labor Party. We understand that smaller companies are riskier—that's in part because of the delays from exploration to discovery—and they can find it difficult to attract capital to undertake greenfields mineral exploration.

Tax law allows immediate deduction of the full value of any depreciating asset, broadly an asset with a limited useful life, where it is first used for exploration or prospecting for minerals and also when the taxpayer carries on mining operations—or proposes to carry on such an operation—or incurs the expenditure in the course of the business of exploration or prospecting for minerals. However, smaller companies engaged solely in exploration for minerals may earn less assessable income in a given income year than they outlay on the exploration or prospecting. Such companies, therefore, will generally have a tax loss for that income year. This tax loss will not provide any benefit unless the company earns sufficient assessable income in a future income year against which the loss can be deducted.

Uptake of the previous exploration development incentive was less than the capital outflow. Industry argues that this was due to a complex modulation of claims, which is a way of sharing the credits fairly. The new scheme's first come, first served approach, with a five per cent maximum entitlement per 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 greenfields mineral explorer in that income year.

Labor has circulated an amendment to this bill. The amendment will require the minister to instigate an annual impact assessment of the measure with provision for public consultation, particularly including the industry. The amendment will also require the Commissioner of Taxation to make publicly available the ABN and name of an entity receiving credits and the amount of credits given. This amendment will enhance transparency and rigorous policy evaluation to ensure these initiatives work as intended. I will discuss Labor's proposed amendment in further detail during the committee stage.

I also take the opportunity to note that we will be supporting this bill. I want to add some final points, however, about this measure's relevance to Western Australia in a broader context.

The Prime Minister announced the Junior Minerals Exploration Incentive in September last year whilst in Western Australia at the WA Liberal state conference. The timing is interesting. I note that the government continues to foster great uncertainty about the GST distributions for Australian states and territories. I also note that the government announced early in January that it would delay the Productivity Commission's final report on GST distribution. Such announcements are a reminder that it's only a Shorten Labor government that would actually have a plan to help fix Western Australia's unfair GST revenue share. As my colleague the shadow Treasurer said at the time:

Let's be clear, today's announcement by Scott Morrison of a delay in the final Productivity Commission report, snuck out during the holiday period, is designed to 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, Scott Morrison firmly embraced the Productivity Commission's draft recommendations which would see South Australia lose $256 million and Tasmania lose $77 million in funding.

In contrast, Labor has a very clear plan to give WA its fair share—without punishing the people of Tasmania and South Australia, who, in a remarkable coincidence, happen to have had elections before the new reporting date for the GST review.

In recent times, the share of the GST pool going to WA has collapsed—in fact, to historic lows—and it's clear that this is not sustainable, and certainly it is not fair. At a time when WA is struggling to regain economic momentum after the sharp fall of mining related activity, the Abbott-Turnbull government, after four years in office, has still refused to act. Western Australia is receiving an extremely low share of the GST relativities, with the current year, 2017-18, at 34c in the dollar, topped up in the budget to 37.6c. That's the lowest that any state has received since the GST was introduced. This means that Western Australia is receiving 60 per cent less than what was the previous lowest rate received by any other state: 86.5c in the dollar by Victoria in the period 2004-05.

Federal Labor will allocate $1.6 billion in Labor's first budget to establish the Fair Share for WA Fund, which would bring Western Australia up to the equivalent of 70c in the GST dollar from 1 July 2019, based on current relativities. This legislated fund would include a statutory obligation to invest all proceeds into Western Australian projects, helping to create jobs and boost economic activity for that state. All projects would be agreed upon between the federal and Western Australian governments. Federal Labor will also work closely with businesses, with unions and with community organisations in identifying projects that will boost the WA economy. This funding would be additional to current Commonwealth commitments to Western Australia, including the $2.3 billion package of projects announced in the 2017-18 budget and previous commitments such as NorthLink and the Mitchell Freeway extension.

This is the first time that a federal government or opposition has put forward a tangible policy response to resolve what has long been acknowledged: a problem with WA's share of the GST revenue. Federal Labor will also consider the final report of the Productivity Commission review of the GST distribution formula. But that's not an excuse for refusing to take action and provide funding certainty for WA now. Labor is able to make this investment as a result of policy announcements that make our tax system fairer and improve the budget position. These include reforms to negative gearing and capital gains tax concessions, closing loopholes for multinationals, dividend imputation reform, and limiting tax minimisation through income splitting from discretionary trusts.

In conclusion, Labor will be supporting the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill. We'll be moving amendments to enhance the transparency of the measure in this bill. And I'm sure that, in ways, it will be a very significant assistance to WA, while the government continues to twiddle its thumbs.