Deborah O'Neill (NSW, Australian Labor Party, Shadow Assistant Minister for Innovation) Share this | Link to 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.

Andrew Bartlett (Queensland, Australian Greens) Share this | Link to this | Hansard source

I rise to give the Greens' perspective on this piece of legislation, the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017. I note the previous speaker's statement that Labor will be supporting the government on this legislation, so clearly it will pass. Nonetheless, I put on record the Greens' opposition to the legislation, partly because we believe that, as with the original mechanism that it's replacing, it won't operate particularly well, it's likely to be an inefficient use of public funds and it's not the best use of public funds given the investment that is needed in community infrastructure. It's estimated that this proposal will cost over $100 million over the forward estimates, and the Greens don't believe that it is a good, effective use of public funds. There were clearly many significant problems with the exploration development incentive, which this scheme basically replaces, and, whilst this bill may seek to reduce some of those problems, we believe that some of them still exist.

The Greens recognise and support the contribution that appropriate, sustainable mining makes. Indeed, as I hope all senators noticed, just in the last week or two the Greens announced a comprehensive policy, via my colleague Senator Rice, with regard to dramatically accelerating Australia's use of electric cars. Clearly, enabling that to be done—enabling the expansion of our electric car fleet in Australia—requires exploration and mining to provide the resources. Similarly, there are significant parts of the mining industry where there is the opportunity for employment, in our own country as well as elsewhere, and for revenue to be raised out of these public assets, because of the significant boom in, and therefore the demand for, renewable energy. The significant expansion of the renewable energy sector is something the Greens have played a key, practical role in through ensuring the provision of a legislative structure backed by appropriate amounts of public resourcing. In my own state of Queensland we've seen thousands of jobs created as a direct result of the Greens' efforts in this parliament in the renewable energy space. It is creating ongoing, long-term employment opportunities in regional Queensland as well as in many other parts of the country. Of course, renewable energy—whether it's solar panels or whether it's batteries—requires resources that are extracted through mining, so mining is a key part of bringing about the policies the Greens support. What we don't support is taxpayer money being provided, particularly in an inefficient way, to prop up exploration and to enable people basically to have a pay-back for their tax write-offs.

As I said at the start, this bill is going to pass—we recognise that. But one thing we do want to ensure is that this bill, when it does pass into law, doesn't make available any of these subsidies for exploration for thermal coal, and I'll be moving an amendment to that effect in the committee stage of the debate. This legislation already exempts the junior minerals exploration incentive from being made available for exploration for petroleum and shale, so the principle that a particular mineral or resource can be exempt from this new scheme is already there in the legislation. What the Greens will propose is simply that thermal coal also be exempt from this exploration incentive.

This is something, of course, that is the topic of hot political debate around the country, but particularly in my own state of Queensland, where there is continuing pressure and where, as we speak, the state Labor government is offering up another round of tenders for thermal coal exploration in Queensland. There is continuing pressure to open up new coal deposits in Queensland, even though that will actually detract from existing jobs in the coal industry in regional Queensland and in other parts of the country. Workers already employed in the coal industry are already suffering from exploitation by mining companies. Giant multinational corporations are using more and more exploitative employment techniques. They are forcing more and more people onto temporary jobs, using more and more contract labour and forcing down the conditions of workers in the coalmining industry in Queensland and elsewhere, and yet we have this continual push to open up more coal deposits. This is driven, of course, by the fact that the mining corporations are embedded deeply in our political establishment in this country.

So the last thing we should be doing is having a new exploration incentive scheme that provides subsidies for any form of thermal coal exploration. This is a simple amendment that I'll speak to in a bit more detail when we get to the committee stage of the debate, but it's a simple way of sending a clear signal that the time for subsidising coal exploration and coalmining is over. That is close to an economic reality already; the last thing we should be doing is sending any signals that our structures and our mining incentives are still going to be made available for the fossil fuel industry. The legislation already exempts petroleum; it should exempt thermal coal as well.

Can I emphasise again that there is a significant role for the mining and resources industry? I say that as the Greens spokesperson for mining and resources, as well as for the environment. There is a significant problem with the inability—or the unwillingness, as well as the inability—of many mining companies to properly rehabilitate their mines after they've either used up the resource or just gone bust and left it there to fall to bits and to continue, in some cases, to poison the local environment and the local water table. There's a Senate inquiry into that at the moment, which I'm looking forward to seeing the final report on soon. But, clearly, there is a significant problem in adequately rehabilitating existing mine projects and ensuring that there is proper protection when mining does occur, both to ensure that there isn't unnecessary or unanticipated environmental damage and to ensure that there is proper rehabilitation, as should be required at any time a mining project operates. That is beyond the scope of this legislation. I accept that, so I won't go further on that at the moment, but that is a continuing problem and we shouldn't simply be looking to further expand exploration and development of the mining sector without ensuring that the existing problems, which have been well identified for decades now, are properly addressed.

Let me say this again: job opportunities in regional areas are another area where there is significant opportunity in properly rehabilitating existing mines and abandoned mines. There are significant employment opportunities there if mining corporations simply did the thing they were supposed to do, and which they are often legally obligated to do but they nonetheless walk away from. Where they have simply disappeared into the dust, as some of them do, governments could pick up the slack, ensure that in the interests of those communities there is not ongoing poisoning of the local environment, and provide employment opportunities for people in those regional areas.

The Greens do recognise the importance of ensuring that there are viable community-building, sustainable employment opportunities in regional areas. That's why we reject the unviable boom-bust approach that's happened through the thermal coal industry in Queensland and elsewhere; that's why we reject further subsidising of that industry; and that's why, amongst other reasons, we don't support this legislation.

Dean Smith (WA, Liberal Party) Share this | Link to this | Hansard source

I also rise this afternoon to speak on this very important piece of legislation, the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017. It's important because it's of a particular policy significance to my home state of Western Australia. It's hard to overstate the significance of the mining industry's contribution to the Australian economy. The Australian minerals industry's contribution to local communities, regions and the nation is substantial, wide-ranging and enduring. This contribution flows from exploration and development right through to production and ultimately mine closure. It's an industry that contributes at least 10 per cent of the GDP in Australia; provides more than 200,000 highly paid, highly skilled jobs, mainly in regional and remote Australia, and many hundreds of thousands more in supply and service industries across our economy; has also developed productive and rewarding relationships within Indigenous communities across Australia; and is committed to leading practice in innovation, safety performance and environmental management.

However, although Australia has the world's largest reserves of lead, nickel, uranium and zinc, KPMG says:

The mining industry remains heavily dependent upon past discoveries.

This is particularly so in the mine development for new tech metals such as lithium, which is used in smartphones, laptops, digital computers and cameras. Also from the KPMG report, University of Western Australia researchers:

… estimated that within 7 to 18 years, if there are no new discoveries or extensions, about half of Australia's current non-bulk commodities mines will be exhausted.

The UWA paper, called Where are Australia's mines of tomorrow?, says:

Although world mineral exploration expenditure for non-ferrous commodities has been recovering strongly from its low in 2009 and is back on the rising trend which commenced in 2002, Australia has continued to lose ground relative to other global and competitive exploration destinations. Australia's share of global exploration for non-bulk commodities has virtually halved from its peak of 21% in 2002 and it now stands at a mere 12% of the total, while that of Canada, for instance, has increased from 14% to 18% over the same period.

And the KPMG report continues:

The ongoing sustainment of the mining sector's performance will be reliant on sufficient greenfields mineral exploration to enable the development of the "mines of tomorrow".

In addition to this alarming statistic, the Australian Bureau of Statistics has said mineral exploration expenditure was $1.6 billion in 2016-17, up from $1.4 billion in 2015-16. My home state of Western Australia contributed over a billion dollars of this spend, with the gold and iron ore sectors attracting the largest share. Gold exploration expenditure in Western Australia increased significantly from $385.9 million in 2015-16 to $509.5 million in 2016-17. Iron ore exploration also increased, but only marginally at $281.6 million.

However, KPMG also said:

The state of greenfields mineral exploration activity in Australia is not as healthy as the headline figures might suggest. While there has been growth in expenditure, the level of drilling activity in this sector has remained flat over the last decade.

According to figures released by the Australian Bureau of Statistics last week, total metres drilled in the search for new deposits fell by nine per cent from 841,600 in the September quarter to just 766,100 in the three months to the end of December. Total metres drilled in brownfields also fell by 2.9 per cent from 1.45 to 1.1 million. The falls in drilling come despite a 4.4 per cent rise in exploration expenditure to almost $500 million. As AMEC's chief executive, Warren Pearce, was quoted in The West Australian:

… the fall in greenfields exploration as particularly worrying given it was the area from which big new discoveries would emerge.

The fall in metres drilled was also concerning given big new discoveries were more likely to be found at depth, with most shallow deposits already in production or mined out.

Mr Pearce said while the overall picture was positive and he expected the figures to improve this quarter, the pipeline of new projects coming online in the next few years was not strong.

He noted a continuing bias towards exploration around existing deposits, with 67 per cent of drilling happening in already-explored brownfields locations.

"This imbalance must be addressed if Australia is to find the mines of the future," he said.

The KPMG report also said:

A lack of growth in Australian greenfields mineral exploration and deteriorating world market share, both signal an emerging threat to the long-term growth of the Australian mining industry … without some sort of catalyst for greenfields mineral exploration, the level of future mining activity in Australia may—

continue to—

be constrained.

Exploration for minerals involves significant expenditure and risks. While larger established mining companies are generally in a position to fund such activities from their own profits, smaller companies focused solely on exploration are dependent on attracting investment to fund their activities. Such smaller companies are also more likely to engage in more speculative mineral exploration in greenfield areas, rather than focusing on the development of their existing resources.

Part of the problem is that the banking sector has all but disappeared from the junior exploration market, due largely, still, to the fallout from the European debt crisis, forcing many junior miners to seek financing from larger miners or from outside investors. David Harquail, chair of the World Gold Council and chief executive of international mining investment company Franco-Nevada, said:

Since the global financial crisis, the number of project lenders in the mining industry dropped to where you can count them on your fingers. What’s happening now is all the European banks now have just dropped off …

He also said:

Just as big pharmaceutical companies rely on small biotechs to discover new drug candidates, big mining companies need junior explorers to find new deposits.

But just as investors have gone cold on pharmaceutical companies that invest in early-stage drug discovery, so too have they abandoned junior exploration.

So says David Harquail, a clear expert when it comes to the funding and financing of resource exploration.

Arguably, the tax arrangements have not encouraged investment in Australian greenfield mineral exploration projects to date. This junior mineral exploration tax credit arrangement is an incentive for shareholders investing in greenfield exploration companies who undertake new capital raisings. The key benefit of this initiative will be for the ability of certain companies to undertake greenfield exploration, to renounce their losses and, instead, pass future tax deductions to Australian resident investors. Alternatively, companies can choose to retain their tax losses for utilisation when they make profits from a successful mine. The junior minerals exploration tax credit will be capped at $100 million and will be available on a first in, first served basis. Companies undertaking greenfield exploration can elect to give up a portion of their tax losses relating to eligible exploration expenditure in an income year and pass on tax credits to their Australian resident investors. Tax credits capable of being passed to investors are expected to be the lesser of the explorer's tax loss or the greenfield exploration expenditure for the previous income year, multiplied by the corporate tax rate for that year. Similar to the franking system, the credit will flow through to investors and be available for the income year following the one in which the eligible expenditure is incurred by the company. Access to tax credits will not hinge on the investor having taxable income in the relevant year, as excess tax credits are expected to be refundable to certain Australian resident investors.

Unlike the previous Exploration Development Incentive scheme, eligibility for the junior minerals exploration tax credit is limited to investors that purchase newly issued shares and is allocated between eligible exploration companies on a first come, first served basis, subject of course to necessary integrity requirements. The previous EDI was typically applied to all shareholders, which diluted the benefit of the scheme. I think that was widely recognised as a significant flaw in the success of the original model.

Given exploration companies have a choice to use the junior minerals exploration tax credit at the time of capital raisings, it's suspected that companies will be required to make a declaration to the market of the company's intention to retain exploration related losses or to use the JMETC. If successful, the incentive should attract much-needed capital investment to junior explorers undertaking greenfield exploration and, importantly, open up the potential for new discoveries by encouraging explorers to venture into areas they otherwise may not have considered.

As a senator for Western Australia, I support the bill, which will go a long way to securing continued investment in greenfield mineral exploration. I look forward to playing my part in working with colleagues to ensure the Australian mining industry remains a strong and significant contributor to our national economic prosperity and to resource based states like my home state of Western Australia for many decades to come.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I thank Senator Dean Smith, who is from that other great mining state of Western Australia, for explaining the provisions of the Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017 in some detail. Also, I thank Senator Smith for the statistics that he was able to give to the chamber indicating the need for some encouragement to explore for minerals in our great country. I don't want to take a great deal of the Senate's time. I simply want to thank the government and congratulate the minister for introducing this new incentive.

Mining means so much to Australia, particularly Queensland and Western Australia. My state of Queensland, like Western Australia, has been developed on the back of our mining industries. Our mining industries have created huge employment opportunities for Queenslanders, for Western Australians and, indeed, for all Australians. But, over the years, there has been a slowdown in the exploration that's needed to find the mineral resources before we can actually start mining them and creating the jobs. I think it's almost 20 years since there's been a world-class mineral discovery in our country. I remember well the days of 'the Poseidon adventure', as I call it. That was the name of a movie, but the real Poseidon adventure was the discovery of nickel deposits in Western Australia which sparked a share boom and attracted a lot of mum and dad investors into putting money into minerals exploration. But there hasn't been a lot of exploration in recent years; the amount of exploration in our country has suffered substantially. Consequently, when we don't find the resources we can't develop them and create jobs.

Some time ago the coalition government did introduce a scheme to allow the flow-through of losses to shareholder investors in minerals exploration companies. It was a good idea at the time, but it hasn't really worked. Hence we have this new arrangement which I am hopeful will encourage Australians to invest their money in risk investments but with the hope of obtaining big rewards on the discovery of a mineral resource and its subsequent development.

The banks in Australia these days are very shy of any sort of support for mining companies and mining exploration. Because of that, we have to encourage the mum and dad investors and the superannuation funds to invest their equity in junior mining companies that can go out and survey the length and breadth of our vast country to try and find the sort of bonanza—the El Dorado, the Poseidon—that has made Australia great in the past. As a country, we have enormous mineral resources. We are of that age as a geographic entity that there are a lot of minerals somewhere beneath the ground. But what we've got to do is find them and then develop them. Unless we have people who are prepared to invest in that, it's going to be difficult.

This bill is simply about encouraging investors to invest in these junior exploration companies. That gives them the ability to wander throughout Queensland, Western Australia and the Northern Territory looking for these minerals. We hope that some of that exploration will come to fruition and we will be able to establish new mining industries and, therefore, new jobs for Australians. To do that we have to encourage that investment. And by giving tax breaks to the mum-and-dad investors, and even the superannuation fund investors, who are prepared to take these risk investments, that may lead to a worthwhile result in the future.

I'm pleased to be able to support this bill. As a Queenslander, as someone from north Queensland who spends a lot of time out in the mining areas of the north and west of our state, I'm delighted that the government has heeded the call, many calls over a long period of time, for some assistance to encourage more investment in these junior explorers. I congratulate the minister and the government as a whole. I look forward to this particular bill playing a real part in finding and developing new discoveries of minerals in our country.

Zed Seselja (ACT, Liberal Party, Assistant Minister for Science, Jobs and Innovation) Share this | Link to this | Hansard source

I'd like to thank those senators who have contributed to this important debate. This bill provides a tax incentive for small minerals exploration companies to encourage investment and risk-taking, which are needed to help underpin the future strength of our resources sector and the Australian economy.

Australian resident investors in small minerals exploration companies will receive a refundable tax offset where the exploration company chooses to give up a portion of their losses relating to their greenfields minerals expenditure in an income year. To encourage investment, only newly issued shares relating to capital raising for investment in new greenfields exploration activity will be eligible for these credits. Credits of up to $100 million over four years will be made available on a first-in, first-served basis. This improves on the previous program assisting junior explorers, creating a more stable platform for investor confidence to help these explorers raise the capital they need to get on with the job of finding tomorrow's mines.

As part of the incentive, amendments to the excess exploration credit tax aim to deter an exploration company from distributing more exploration credits than they are entitled to. The government will move amendments to the bill to clarify the operation of the scheme. These amendments adjust the period for junior explorers to apply for an allocation, exploration of credits, in the first year of the incentive. The amendments also clarify when a junior explorer has an unused allocation of credits. The government will agree to amendments moved by the Labor Party to provide extra certainty that the incentive operates as intended in encouraging greenfields minerals exploration. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.