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Economics Legislation Committee
Minerals Resource Rent Tax Repeal and Other Measures Bill 2013
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Economics Legislation Committee
Dastyari, Sen Sam
Pratt, Sen Louise
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Economics Legislation Committee
(Senate-Wednesday, 27 November 2013)
CHAIR (Senator Bushby)
- Mr Lyons
Content WindowEconomics Legislation Committee - 27/11/2013 - Minerals Resource Rent Tax Repeal and Other Measures Bill 2013
CONSTABLE, Ms Tania, Head of Resources Division, Department of Industry
GABBITAS, Ms Ruth, Manager Contributions and Accumulations Units, Treasury
HEFEREN, Mr Robert, Executive Director Revenue Group, Treasury
MARTIN, Ms Stephanie, Deputy Commissioner Resource Rent Tax, Australian Taxation Office
NAIKAR, Mr Sidesh Shivam, Head Income Support Group, Department of Social Services
O'TOOLE, Mr James, Manager Resource Tax Unit, Treasury
REAKES, Mr Joshua, Manager, Taxation and Analysis, Uranium, Taxation and Radioactive Waste Branch, Resources Division, Department of Industry
CHAIR: Good afternoon and welcome. Thank you for coming along this afternoon to assist us. I might just ask a couple of questions to kick off, if that is okay.
The explanatory memorandum to the Minerals Council's submission to this inquiry made the point that the compliance costs that will be saved by repealing the MRRT will be in the order of about $10½ million per annum. They submit that this is a conservative figure and that ongoing compliance costs savings for industry, attributable to the repeal, would be even higher. That is consistent with what we have heard from their representatives today. How do those statements reconcile against your estimates?
Mr Heferen : As far as compliance costs go, and the costs that firms incur to comply with a piece of tax legislation, I suspect it is usually the case that the firms themselves would be in the best place to identify what those costs are. When you think about compliance costs there is always the challenge of those which the statute forces the taxpayer to occur and those which the taxpayer voluntarily incurs in order to get the best outcome they can under that system. Obviously we would not be saying that taxpayers should keep compliance costs to a minimum by paying the largest amount of tax—I am not suggesting that at all—but it is very difficult to quantify compliance costs because of that. Also, when you look at a few firms you think may be typical in this area, there will always be firms with different business structures, methods of operation, and management styles and approaches which will all have an effect on their particular costs of compliance. I do not—
CHAIR: There is not necessarily any conflict. It is more that you put forward your best estimate, but the reality may be a bit different for a variety of reasons.
Mr Heferen : That is correct. As with all these things we try to exercise our judgement. We take into account information that is available, submissions people have made and discussions with our colleagues at the ATO and come up with a view. We would never pretend that it was exact. It will always be our best estimate. Mr O'Toole might have a comment or two to add.
Mr O'Toole : As noted in the regulation impact statement, the estimates were determined using the business cost calculator and the tax cost calculator. But following on from Rob's point, I would add that our estimates come from piecemeal information which fed into those. We did consult with both AMEC and the Minerals Council in developing those estimates.'
CHAIR: And are they a reflection of the results of those consultation or have you put your own flavour into it as well?
Mr O'Toole : It is one element to be taken into account and it is a reasonable reality test to see whether we are in the same ballpark.
CHAIR: The Minerals Council submission also made the point that in the 12 months to April 2013 iron ore and coalmining projects worth $29 billion were cancelled or delayed, excluding associated infrastructure such as rail and ports and Olympic Dam. Is Treasury aware of any projects that have been placed at risk from the mining tax or that may not have proceeded, or at least in respect to which the mining tax was an important factor?
Mr O'Toole : I am not aware of any specific representations to us about specific projects that have not proceeded. We normally take the view that global price is the determining factor. As I said, it has not been brought to my attention, but that is not to say that it is—
CHAIR: What about the Department of Industry?
Ms Constable : We have been keeping a good eye on a whole range of factors that are contributing to the slowdown in the mining sector. MRRT falls to a small number of mining companies within the overall scheme of things. It certainly has had a small impact but there are a suite of factors, and Rob mentioned global prices as being one of the major issues, industrial relations issues. But normal supply and demand factors are contributing more than the mining tax.
CHAIR: But it is one of the cumulative factors for some decisions.
Ms Constable : I would say it is a very small factor in the scheme of things. It has been mentioned that compliance costs are one factor but it is not an overriding factor in the slowdown of the mining industry.
CHAIR: On loss savings should the mining tax repeal bill not pass the parliament prior to 31 December this year, Treasury noted that savings would be reduced on the schoolkids bonus element by $727.9 million in underlying cash terms. What would also be the public debt interest cost on this amount over the forward estimates?
Mr Heferen : In relation to the PDI effect of any of these measures, on behalf of my colleague from the Department of Social Services I could take it on notice because the same answer, I suspect, will apply across the board. Given that the schoolkids bonus is under the administration and stewardship of the Minister for Social Services, it would be really up to the minister to provide that PDI cost. But I think in relation to PDI, public debt interest, cost of all the measures, we would need to take that on notice.
CHAIR: You do not have any idea of what the interest cost would be over the forward estimates? I think the mining tax package is about $13.4 billion in terms of savings. What would the interest cost be if that package did not go ahead?
Mr Heferen : Obviously it would be a positive. There would be a cost. It is probably best not to speculate. We should take that on notice and provide a thorough answer. We can do that and make sure in a timely way so that the committee will have it in time for its report.
CHAIR: My rough calculations suggest it could be heading up towards $1 billion over the forward estimates. Am I in the right ballpark? Would that be reasonable?
Mr Heferen : We would have to work through the numbers—
CHAIR: In terms of scale, though, I am not completely out.
Mr O'Toole : Are you talking about the entire package?
CHAIR: The entire package, yes.
Mr O'Toole : It sounds in the ballpark but we will take that on notice.
CHAIR: Thank you. Can Treasury please comment on the volatility of the mining tax revenue versus the structural balance and the cost of the measures that have been put in place from the proceeds of this tax? I am asking whether the removal of the tax and its associated measures would be a step in the right direction in terms of addressing some of the structural imbalances that currently exist in the budget.
Mr Heferen : I think in our submission on page 13, table 6, it goes through our estimates of, if you like, savings from not proceeding. Perhaps savings is not the right expression; it is the increased tax revenue that would occur because of the repeal of a range of measures. It is fully articulated there and it is contrasted with the revision of the MRRT revenue from the latest figures we have from the pre-election economic and fiscal outlook from a few months ago. Table 5 on page 12 looks to the total over the forward estimates period being in the order of 3.3 to 2016-17. Then the total at the table I mentioned, table 6, is $13.9 billion. Obviously there is a difference in that and that difference is positive to the budget bottom line. Hopefully the answers the chair's question.
CHAIR: It certainly highlights that it improves the budget outcome, but my question was more directed to the ongoing structural balance in a longer term. Presumably the associated measures that are being repealed have ongoing fixed and potentially increasing impacts on the budget, whereas, on the other side, the mining tax revenue is volatile and hard to predict and, even in good times, is by no means certain to cover the costs that the associated measures will incur.
Mr Heferen : Certainly the fundamental point, particularly about measures that are associated with the personal tax system—forgone revenue out of the personal tax system, the super guarantee and the low income super contribution—or increased outlays from the income support bonus or the schoolkids bonus, is that they tend to be very predictable and fairly stable. Regarding the measures around company tax—and not just company tax—such as the small business write-offs, accelerated depreciation of motor vehicles and the loss carry-back, the loss carry-back will be quite predictable because that is capped, but those other ones will be less certain.
CHAIR: It would depend to some extent on how successful they were.
Mr Heferen : That is true, and those do tend to go much more in a business cycle, whereas the personal tax ones and the outlays are far more predictable. As you say, the revenue from the MRRT is not, and given that the design is broadly around a profits tax or a rent tax it is inherently volatile.
CHAIR: But it is quite clear, despite the volatility in some of the associated measures and the clear volatility with the tax itself, that the passage of the bill would positively address issues in the structural budget on an ongoing basis.
Mr Heferen : Yes, by definition.
CHAIR: Would the abolition of the low income superannuation contribution be considered a structural save, in terms of the budget?
Mr Heferen : When you say a structural save, I am just conscious that that is one that is the subject of quite a bit of public and political discussion, so I do not want to—
CHAIR: Forgive me if I am not using the right term. I may have that wrong, but my understanding of the use of the term 'structural save' is that it is an ongoing save that is built into the budget, in a sense.
Mr Heferen : If I could just slightly rephrase it: if the low income super contribution were to stay, the revenue forgone out of paying that amount of money—so the cost of that measure—would be fairly predictable over a period of time.
CHAIR: Can Treasury quantify the number of entities currently complying with the MRRT. Of those, how many entities are actually paying the mining tax?
Mr Heferen : As to the latter, I am unsure how far we can go on that.
CHAIR: I suppose there are big ones, and it starts identifying them by numbers, I guess.
Mr Heferen : It does, just given the broad secrecy.
CHAIR: It is probably a very low number.
Mr Heferen : In relation to the number of entities, one of my colleagues may have that information.
Mr O'Toole : One hundred and sixty five were registered, I believe—or 265. Do you have actual figures on that, Steph?
Ms Martin : We have a number of taxpayers that have registered, but that is not the total number that are subject to obligations under the MRRT. There are about 100 that are due to lodge starting base and annual reports in the coming months, up to 1 December, and then there are another 200 that are due to lodge from then through to June 2014.
CHAIR: What was the total there?
Ms Martin : It is about 300 in total. We have just provided an extension of time for lodgements, which will mean that, roughly, fewer than 20 will be lodging in the coming months and the others have a further extension.
CHAIR: But those you have provided the extension to will still need to comply and lodge in accordance with the extended time period you have provided.
Ms Martin : Yes, eventually.
CHAIR: So they will still need to go through the compliance and the cost of doing that.
Mr O'Toole : Just to assist, in the regulation impact statement and in the explanatory memorandum on page 53 we have the figures there. It is around 235 companies that are registered and, as Stephanie said, they are expecting another 65 to take it to around 300 payers. We have rounded figures, obviously, because of tax secrecy arrangements, but it is fewer than 20. It is in paragraph 3.38, on page 54.
CHAIR: So it is fewer than 20. Public discussion in the past has been that there are probably fewer than 10 or maybe even fewer than five that had been. Are you able to tell me whether that has significantly changed?
Mr Heferen : I think that, in the public discussion around the tax once it was in operation and who was paying instalments and how much they were paying, it was quite tricky to get a handle on how much was right—well, it was not tricky to get a handle on it; very little of it was right. In fact, I would say none of it was right. It is compounded by the secrecy, so some taxpayers will be quite willing to share their—
CHAIR: Fortescue have indicated they have not paid any.
Mr Heferen : Yes, they were quite clear.
CHAIR: They did that this morning.
Senator DASTYARI: They have spoken to media to that effect, as I understand it.
CHAIR: Yes, they have, and they have done it many times, I think.
Senator DASTYARI: They are quite proud of it.
Mr Heferen : There are other taxpayers—at least one in particular I am aware of—who stated also that for the first six months they had not paid any. I think other taxpayers have suggested that they either have or would, but there are a number of other taxpayers who just do not participate in the public debate, so it can be quite misleading.
CHAIR: But, regardless, it is a small percentage of those that have to comply with the MRRT—fewer than 20.
Mr Heferen : Yes, fewer than 20 out of possibly 300.
CHAIR: Is there any expectation that the number of mining companies who have not been paying on current levels of activity will need to in the near future—without giving any indication of who?
Mr Heferen : In a sense, with the change of government and the very explicit commitment to repeal the tax, I think it is fair to say we have not provided any meaningful resources into thinking about those sorts of issues.
CHAIR: I do not know whether the ATO is aware of that. The tax applies until such time as it is repealed, and there is no certainty. We would like to see it repealed before Christmas, but it may or may not be, depending on the decision of parliament, and until such time the obligations of taxpayers continue. I am just interested in whether the number, whatever it might be—currently fewer than 20—is increasing or decreasing or where current indications suggest that is heading.
Ms Martin : I would say it is fewer than 20 and it probably will not vary significantly. But that is not to say there will not be any increases. We are in the early part of the second year, or the last year of payment, and as it gets further through that year your ability to look at the price and cost is much clearer. At this stage it is still somewhat unknown.
CHAIR: Thank you.
Senator PRATT: What analysis has Treasury done on the impact of the superannuation measures on aggregate savings and individual retirement if this bill is implemented?
Ms Gabbitas : Treasury has done some analysis and some cameos looking at the aggregate impact of the rephrase of the super guarantee and the low-income super contribution. As an example, a 25-year-old on an income of $30,000 could retire with about $15,000 less in real terms based on a consumer price index deflation. Similarly, a 45-year-old on the same income could retire with about $7,600 less.
Senator DASTYARI: Are you reading from a table? Could it be presented to the committee?
Mr Heferen : We will take that on notice.
Senator PRATT: I agree, that would be useful.
Mr Heferen : Obviously we want to assist the committee in any way we can and oftentimes issues that we raise might be in the context of advice we have provided to the government, so in that case we have to go through that process.
Senator DASTYARI: No, I understand that.
CHAIR: For the benefit of witnesses, I hope to have a report for circulation to committee members by Friday. So, when taking things on notice, it would be appreciated if we could address that fairly quickly to ensure that that evidence is considered as part of the report process.
Senator PRATT: In that context, if information could be provided in each category of income that is affected by this change to retirement savings, that would be terrific.
Mr Heferen : We will provide that and we will provide the qualifiers when we provide the advice, but it kind of goes without saying that these things are highly contingent upon the assumptions when we are looking at overall retirement savings—
Senator PRATT: You will have to make those assumptions clear in the advice provided.
Mr Heferen : We will.
Senator PRATT: Has Treasury done any work on the long-run impact of those changes on revenue—for example, pension outlays, superannuation or tax earnings?
Mr Heferen : Again, I will take that on notice.
Senator PRATT: So you do not know if Treasury has done any work on that or not?
Ms Gabbitas : I do not think we have, but we will confirm that.
Senator PRATT: Looking objectively at these changes, though, what changes to long-term revenue are there likely to be? With lower superannuation revenues and increased age pension outlays as a consequence of the superannuation measures in the bill, what impact are they likely to have on the budget position?
Mr Heferen : Again, we will need to do some serious calculation, but, intuitively, the increase in the super guarantee will mean that, all other things being equal, the personal income tax take is less because more money is going into super rather than in wages. Given that when superannuation money is in the super fund, the effective tax rate of super funds, whilst the statutory rate is 15, is often a lot lower, in part because of the accessibility of franking credits and the fact that super funds invest heavily in domestic Australian companies. Typically, over time there is a balance with the effect on revenue. The more that goes into super, the less income tax revenue there is, which is not made up for on the superannuation tax side.
Offset against that down the track is the effect on the outlays from the age pension. That is what we will have to take away and look at, but, intuitively, you would suspect that the effect on the personal tax base would be more pronounced than the associated reduction in the age pension.
Senator PRATT: You have provided a table in your submission that shows savings from these measures, but those factors have not been accounted for in those savings. I know they are long-run, but, clearly, those changes in the budget bottom line are not reflected in this, are they?
Mr Heferen : Sorry, in relation to the saving effect on the age pension?
Senator PRATT: Yes.
Ms Gabbitas : No, they are not.
Mr Heferen : That would be a very long run effect.
Senator PRATT: It is a long run, I know. What tax concessions will low-income earners retain on their superannuation guarantee contributions if the LISC is abolished?
Mr Heferen : Relative to tax concessions in absolute?
Senator PRATT: On their super contributions.
Mr Heferen : The key tax concession provided would still be the earnings tax. So, when the money is in superannuation it is subject to a lower rate of tax than other vehicles. Essentially there are two tax concessions; there is the contributions tax and there is the earnings tax.
Senator PRATT: How does that compare with higher income earners and their tax concessions? We had a fairly lengthy exchange about this earlier in the day, so I am drawing on my learnings from then and trying to draw it out. If the LISC is abolished what tax concessions would be available for low-income earners as compared to higher income earners who have the capacity to make additional contributions towards their superannuation accounts? It is the equity issue that I would like you to comment on.
Mr Heferen : If the tax concession is measured against what the statutory rate would be to the extent that anyone who has an income—and the contributions tax is 15 per cent—and who has a marginal rate above 15 per cent, as soon as money goes into super from pre-tax income, there will be a concession. The higher the marginal rate the higher the concession. If one adopts a different benchmark then it would be a different calculation, but the benchmark that would be typically adopted would be: is the personal tax schedule in force. There are particular rates that would apply. So, the top income earners are on a rate of 45 plus the Medicare levy and a contribution tax of 15 per cent as the concession that is available.
Ms Gabbitas : On contributions there are, I guess, two categories in the low-income component. There are those are below the tax-free threshold where they will not get a concession, and there are those above the tax-free threshold who will still continue to get a very small concession because they would be on an effective marginal rate of 19 per cent, so they will still receive it. What my colleague was trying to add is that some low-income earners will not always be low-income earners. The earnings tax, as your savings accumulate over time, becomes more relevant as your balance grows. For that proportion the earnings tax concession could be quite significant. In addition, from 1 July 2012, the higher income earners who earn income above $300,000 have had their tax concession reduced by virtually paying an extra 15 per cent tax on their contributions. The government has committed that, when the budget returns to a strong surplus, they will revisit concessions for lower income earners. I think there is an acknowledgement that further work needs to be done when there is capacity.
Senator PRATT: The Henry tax review tackled some of these issues and identified the need to do something about the state of superannuation for low-income earners. Isn't abolishing the low income super contribution contrary to that objective which was identified by the Henry tax review?
Mr Heferen : The tax review took a few steps with superannuation. One was that it advocated the model of, very roughly, having a standard rebate on the contributions tax. In other words, the tax concession was kept consistent irrespective of whether one was on the lowest marginal tax rate, on the highest marginal tax rate or somewhere in between. Importantly also the tax review was very clear about the SG, and had very firm recommendations about the SG, as it did about the earnings tax. If one is looking at super, it is easier to partition bits out and look at particular elements. The ARS review went through it quite thoroughly and looked at it from those different angles: the effect of compulsory super on after-tax take-home pay; the effect of the lack of progressivity of the contributions concession; and, also, the earnings tax.
Senator PRATT: The schoolkids bonus is being entirely abolished within this bill. But my recollection—and it was certainly drawn on in evidence this morning—is that the schoolkids bonus was only ever partially funded, nominally, through the minerals resource rent tax. In part, that was because there was an already existing tax concession which was the savings measure that was converted into this particular policy application. Is that correct?
Mr Hefferen : The submission we have made is based on the bill, and the bill clearly repeals the entirety of the schoolkids bonus.
Senator PRATT: But part of the argument that the government have put forward is that there are a range of things they want to repeal because they were brought in as part of the minerals resource rent tax. The schoolkids bonus was never attributed in its entirety to the minerals resource rent tax, was it, in terms of the work Treasury had done on it previously?
Mr Hefferen : I do not think I can add to what I have said. The bill deals with the repeal in total, so our submission deals with that. I do not think we can go further than that.
Senator PRATT: Was the low-income superannuation contribution a result of the minerals resource rent tax at the time?
Mr Hefferen : When you say 'as a result'—
Senator PRATT: It was brought in as a package of measures at the time.
Mr Hefferen : Our submission tries to go through the process from the original proposal for the RSPT.
Senator PRATT: Yes, that is very helpful.
Mr Hefferen : It steps through to where the legislation is at the moment and what the bill before the Senate does. As you can see, going through, some various issues came in and went back out as various legislative problems were encountered by the previous government.
Senator PRATT: It did have a number of iterations, which is why I am seeking clarity over the schoolkids bonus and the low-income superannuation contribution.
Mr Hefferen : I take the committee to table 1, on page 6 of our submission, on the low-income super contribution.
Senator PRATT: It was part of the original RSPT.
CHAIR: Is Treasury aware of this statement by the then Finance Minister Penny Wong on 6 June, reported on when officials were being interviewed on 891 ABC Adelaide Drive: 'I think the government's approach with the mining tax and making sure the benefits of that flow through to families, particularly low- and middle-income families, through the schoolkids bonus.' Are you aware of statements like that from the previous government linking the schoolkids bonus to the mining tax and sharing the dividends?
Mr Hefferen : Yes.
Senator DASTYARI: On one level, this bill is not a surprise. In fairness to the government, they were quite clear when they went to the election that this was something they were going to implement. As I understand it, it was costed by the PBO and it made up part of the costings they went to the election with. I want you to confirm my understanding of this. Obviously the Senate will make a decision on this legislation, and it looks like there may be a vote of one kind or another before Christmas on the bill that we are discussing. The schoolkids bonus gets paid in January, doesn't it?
Mr Naikar : Yes, it does.
Senator DASTYARI: I will propose a hypothetical. If this bill is not passed before January—the last date to pass the bill is mid-December—the schoolkids bonus will be paid at the start of next year. Is that correct?
Mr Naikar : Yes.
Senator DASTYARI: If it is not repealed before then, it is paid by next year.
Mr Naikar : If it is not repealed before the pay date, which is 1 January—
Senator DASTYARI: There were PBO costings done. We have all seen them. You have obviously encountered this issue already. This idea that this was going to be repealed is not a new thing. This did not come out of nowhere. For a year and a bit there was discussion around it. What does that do to the budget bottom line if they have costed in these savings that they are not going to be able to achieve? It gets paid in full at one point in time, doesn't it?
CHAIR: It makes it much harder for us to get back to surplus; absolutely.
Mr Naikar : The schoolkids bonus gets paid in two instalments. In reference to your question as to the impact on the budget bottom line I would have to take that on notice.
Senator DASTYARI: Are you able to get the figures for us?
Mr Naikar : I should be able to.
Senator DASTYARI: I will ask you a slightly broader question. It is of a slightly broader scope. I apologise because it does not go directly to your submission. We had a gentleman here this morning—Mr Ross Clare from the Association of Superannuation Funds of Australia—and he was making a policy observation which I thought was quite interesting. I would not mind getting your opinion on it. I note that you are specifically looking after the Revenue Group. He said that there was a trend that we have moved towards on a policy level. The senator touched before on this issue about having a debate about whether the schoolkids bonus was or was not linked to this particular piece of legislation. Perhaps sometimes what we do wrong is to have a debate which does not look at revenue measures based on their own merits and expenditure measures based on their own merits; there is an increasing trend, in a policy development sense, to try and link things together that should be assessed on their own. I know that is probably broader than the scope that you are looking at but I am interested to get your take on it all. It is something that I am sure you have seen. I am fairly new to this and I have certainly seen it happen more and more. There is a need, every time we have a bill about expenditure, to have the revenue with it and vice versa. It creates slightly odd relationships at times, where things that seem quite disparate are somehow connected.
Mr Heferen : This is probably going to a policy issue and a presentational issue. We are probably not all that qualified to speak on it. Suffice to say that when we provide advice to ministers we would do what you have implicitly advocated—look at the merit of the particular tax proposal and the merit of the particular outlay proposal and try and deal with them on their own merits. Very few things in the tax system are specifically hypothecated—that is, the revenue must be used for a particular—
Senator DASTYARI: These are not specifically hypothecated; they are just in the same bill.
Mr Heferen : The measures were never specifically hypothecated. The notion of hypothecation would be that the outlay is contingent upon the revenue being raised. Needless to say, these were never specifically hypothecated.
Senator DASTYARI: They were just in the same piece of legislation.
Mr Heferen : It comes down to a presentation about how something could be made more tractable for stakeholders to grapple with.
Senator PRATT: I was asking before about Treasury modelling on incomes and age pensions et cetera. I am interested to know whether you have done any modelling on the likely impacts on investments of discontinuing the loss carryback and changing the instant asset write-offs threshold. Has there been any assessment of whether small businesses are more or less likely to invest in assets and equipment and their business as a result of these changes?
Mr Heferen : No.
Senator PRATT: There has been no assessment of that?
Mr Heferen : No.
Senator PRATT: And what about any assessment of the impact of that on the car industry?
Mr Heferen : None.
Senator PRATT: Is it likely though that an assessment of this would show that it is a measure that would hit nonmining investment?
Mr Heferen : The notion the immediate write-off is just a timing issue. Over time you would expect very little, if any, change.
Senator PRATT: That is an 'over time' question though, isn't it?
Mr Heferen : In the normal course of events, a lot of these things would be written off over three, maybe four years depending on the value. Writing off over the first year brings in a cash flow benefit, obviously, for the business. When things are introduced there may be some element of a bring-forward—not over longer terms; I am not talking over 10 or 15 years but over a two- or three-year horizon. I am really just looking at a timing implication over the period that something has depreciated.
Senator PRATT: Surely though, we are in a different environment currently. The Treasury has actually talked publicly about the fact that we need to look to pick up nonmining investment for the next few years in order to compensate for the fall in mining expenditure and activity. If we are looking to invigorate activity within the small business sector, it would be logical to say that stringing out those asset write-offs over a longer period of time is going to hit that investment particularly small business.
Mr Heferen : That is a very tricky issue. We are going back to the economic debate about when an economy like Australia's, which at the moment is not at its full potential, has a need for transition out of the mining to nonmining, and whether that is most efficiently facilitated through depreciation write-offs or through some other course of action. That is a pretty contested debate in that respect.
Senator PRATT: The question is not what you would most efficiently do in a hypothetical sense. The fact is that these measures take time to implement and we have a measure here that actually would have that effect, surely.
Mr Heferen : I would not be so confident. You may be right but I certainly would not be able to say.
Senator PRATT: But clearly, you have not modelled it, okay.
Mr Heferen : No.
Senator PRATT: This one can probably be taken on notice. I am interested in the underlying cash balance impact by spending revenue in the current financial year and scrapping the associated expenditure and revenue items in this legislation.
Mr Heferen : We will take that on notice.
CHAIR: I have got a couple more questions just to follow up with. Firstly, one of the witnesses earlier today made some comments about the extent to which investment in the mining industry in Australia comes from foreign investment and, though not specifically stated, it was suggested that that is not necessarily the best thing for Australians in that Australians do not share in the benefits to the same extent they would if it were domestic investment, and saying that that is one of the reasons why a rent tax of some sort is absolutely required. Setting aside the intentions behind the implementation of the RSPT/MRRT, how does active investment in the mining industry in Australia through foreign investment flow through to benefit Australians both directly through government, and directly to Australians?
Mr Heferen : There are a number of transition mechanisms—
CHAIR: You have probably spent all afternoon telling us this.
Mr Heferen : We have probably got a number of transition mechanisms. National income has increased, the inflow of investment will increase the capital stock in Australia.
All other things being equal, that will change the capital-labour ratio. It will flow on to increased wages and increased output. There will be spin-off benefits. To the extent that foreigners bring money in to invest in Australian resources or whatever it might be, other things need to occur. So there will be positive spillovers from that or second-round effects or whatever one might choose to call them. There will be a boost to construction, a boost to service sectors—a number of mechanisms that will flow through. Behind the question is the observation—and I did not see the earlier session where that proposition was put or that question was asked—about the foreign investment somehow being different from the domestic investment—
CHAIR: Without wanting to misquote, the comment was that 87 per cent of the investment in mining comes through foreign investment and querying the benefits for Australians—that the profits are going offshore—and I think there was even a suggestion of Australians not working on them, and all sorts of things.
Mr Heferen : Clearly profit does not go offshore in the sense that the investment comes in and then income is earned in Australia, and once it is earned in Australia it is taxed in Australia under the company income tax system. Now there are ongoing debates about how much of that can be shifted out of Australia. Clearly when you are digging rocks out of the ground and shipping them off somewhere it is pretty hard to push too much of that value out of Australia, so there is some clear benefit to Australia from that point of view.
CHAIR: So, direct tax is raised through company tax and through income tax from the employees on the sites, and there is the land tax and payroll tax at state levels.
Mr Heferen : All those revenues as well—the fact that the money that comes in is being spent on, in part, people's wages, which makes them richer and better off, and obviously that is a good thing.
CHAIR: Putting aside the argument about the benefits or otherwise of a tax like the MRRT, there is plenty of benefit, under the pre-existing regime, from foreign capital coming into the country and developing Australian mines.
Mr Heferen : From just a tax revenue point of view, yes. I would encourage the committee to go further than just the tax revenue point of view; there are other benefits to the economy at large that are extremely significant.
CHAIR: I have one final question. A couple of witnesses have raised the issue of the retrospectivity in terms of the low-income super contribution. Is this measure retrospective in effect, if it is repealed?
Mr Heferen : The term 'retrospectivity' is bandied around in a number of ways. At a very strict reading one could argue that anything that takes effect before the particular piece of legislation receives royal assent could be considered to be retrospective. There are other arguments saying that anything that takes effect before the date of announcement could be considered retrospective. I must say, in the tax world that is probably more the working definition of 'retrospective', even though the legal purists would argue that it falls short and you should still go to royal assent. But if we take the working definition for tax—that is, it retrospectively takes effect an income year before the date of announcement, and I think in this case the announcement that the low-income super contribution would be repealed along with the repeal of the MRRT—that I guess has been a proposition that has been in place for quite a period of time. So from that point of view one can mount the argument that it is certainly not retrospective.
Senator PRATT: It was not public in the election, though.
Mr Heferen : On the other hand, the proposition that if one was to take the strict legal view that something is retrospective if it commences before the date of the royal assent of the particular legislation, then—
CHAIR: But in tax law, as you say, that is the general approach that is taken, as I understand it, because there are potential changes in behaviours that can occur once announcements are made which could distort outcomes in between the announcement and the actual implementation of the change.
Mr Heferen : That is right.
CHAIR: But in terms of this particular measure, my understanding is that payments of the 2013-14 LISC will not be made until 2014-15. Is that correct?
Mr Heferen : That is correct, whereas the 2012-13 ones will be made.
Ms Gabbitas : And if I might add: typically, you make your contributions in a financial year and then normally in the following two financial years you receive the actual payment of up to $500. So for the contributions that people are making in this financial year they would never have received a payment until after the end of this financial year.
Senator PRATT: They were told they were receiving a payment though.
CHAIR: But that is not actually taking money from them that they already have, or—
Ms Gabbitas : No, because they still pay the contributions tax in the fund at the moment.
CHAIR: Okay. So it does not actually impact anything other than what they were led to believe the outcome would be. It does not change anything that has happened to them at this point?
Senator PRATT: It changes what they were advised.
CHAIR: But we are talking about retrospectivity here—that is why I am raising it.
Ms Gabbitas : It does not actually take back money that they currently hold.
CHAIR: No, so in that sense it is not retrospective.
Senator PRATT: They will not get spare superannuation until they are 55 anyway.
CHAIR: Yes. There are no further questions, so thank you very much for your assistance, and with that I close the hearing.
Committee adjourned at 12:56