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Abbott Government's Commission of Audit Select Committee - 15/04/2014 - Commission of Audit established by the Commonwealth government

PEARSON, Mr Brendan, Chief Executive Officer, Minerals Council of Australia

SORAHAN, Mr James, Director of Tax, Minerals Council of Australia

Committee met at 0 9 : 46

CHAIR ( Senator Di Natale ): I declare open the sixth public hearing of the Senate Select Committee into the Abbott Government’s Commission of Audit, which will focus on tax concessions and subsidies. This is a public hearing, and a Hansard transcript of the proceedings is being made.

Before the committee takes evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as contempt. It is also contempt to give false or misleading evidence to a committee.

The committee prefers all evidence to be given in public but under the Senate's resolutions witnesses have the right to request to be heard in a private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question, the witness should state the grounds upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground that is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

On behalf of the committee, I would like to thank all witnesses appearing today for their cooperation with this inquiry.

I would like to welcome Mr Brendan Pearson and Mr James Sorahan of the Minerals Council of Australia. Thank you very much for attending today.

Information on parliamentary privilege and the protection of witnesses and giving evidence to Senate committees has been provided to you. I invite you to make a short opening statement and at the conclusion of your remarks I will invite members of the committee to ask questions.

Mr Pearson : The Minerals Council welcomes the opportunity to address this hearing. There is no doubt that Australia faces a serious budget challenge. The outlook for the budget deficit and looming fiscal pressures make long-term budget repair essential.

This ground has been well covered elsewhere so I will not go into detail except to note that the deterioration in Australia's fiscal position over the last few years should be seen predominantly as a spending problem not a tax problem. Over recent decades, growth in government and Commonwealth spending has outstripped economic growth in Australia. We have seen Commonwealth spending continue to rise as a share of GDP, while the tax burden has also grown. We have seen spending growth accelerate in the 2000s, funded in no small measure by tax revenues generated by the mining boom. Dr Stephen Anthony of the modelling firm Macroeconomics calculates that, between 2003-04 and 2011-12, the Commonwealth budget bottom line was bolstered to the tune of around $160 billion, courtesy of the mining boom. Between 2007 and 2013, our industry, the minerals industry, is estimated to have tipped more than $117 billion into federal and state coffers just from company tax and royalties. That is before new taxes like the minerals resource rent tax and the carbon tax. Since the election, the Abbott government has announced three additional tax measures that will target the mining industry and will raise $3.7 billion over the next four years.

Against this backdrop, the Minerals Council of Australia have consistently supported a full-scale review of Commonwealth expenditure, especially as the last such exercise was conducted some 18 years ago. We therefore support the mandate of the National Commission of Audit to conduct a 'thorough review of the scope, efficiency and functions of the Commonwealth government'.

Given what I anticipate will be one line of questioning, I would also like to take this opportunity to address the erroneous claim that the mining industry in Australia receives significant government subsidies. These claims persist despite clear, unambiguous, official evidence to the contrary—evidence from both the Productivity Commission and the Treasury. Every year, the Productivity Commission conducts an exhaustive analysis of industry assistance. In the most recent Trade and Assistance Review, the Productivity Commission concluded that budget and tariff assistance to the mining industry was 'negligible'. But some groups, pursuing a thinly disguised anti-mining agenda, continue to claim that the mining industry unfairly receives so-called fossil fuel subsidies. These claims are just plain wrong.

First, the fuel credits scheme, in place for nearly 60 years, applies to a wide range of sectors, including agriculture, manufacturing, health services, construction, and arts and recreation. It was designed to ensure that the road user charge does not apply to the off-road use of diesel. Some of the activities that rely on this scheme include heating, lighting and cleaning services for hospitals and aged-care facilities; the use of emergency vehicles; and domestic household fuel use. Second, the purpose of the scheme is to reduce or remove the incidence of excise paid on a key business input. They are not the Mineral Council's words; they are the words of the Commonwealth Treasury. This is precisely the same tax principle that underpins the GST. Third, the Commonwealth Treasury itself has made the point unambiguously:

Fuel tax credits are not a subsidy for the use of fuel.

Furthermore, the Commonwealth Treasury has separately reported to its G20 partners that the Australian government 'does not provide significant budgetary or other sectoral assistance' to the fossil fuel sector.

Chair, Australia does face a budget repair challenge, which is why the National Commission of Audit is timely. But, equally, we need to recognise that the means by which fiscal repair is achieved will have a major bearing on growth, investment and job creation. Higher taxes are not the answer to Australia's budget challenge, especially at a time when the economy is growing below trend and mining investment is set to fall. In our view, the government has rightly focused its attention on spending and rightly put an emphasis on 'no surprises' when it comes to tax, with the Prime Minister stating:

The only thing we will do in this term of parliament when it comes to tax is what we said we will do prior to the election.

The process to consider tax changes is in the forthcoming white paper on tax. We are happy to take your questions, Chair.

CHAIR: Thank you very much, Mr Pearson. We appreciate your opening statement. I would just like to get a bit of context before we drill down into some of the detail. What were the total pre-tax profits earned by mining firms operating in Australia in the most recent financial year? Can you give me a sense of the sort of scale that we are talking about?

Mr Pearson : I will have to come back to you on that.

CHAIR: I have in front of me a statement that says that, according to ABS stats, if we are looking at the 2011-12 financial year, pre-tax profits by mining firms operating in Australia were worth more than about $84 billion.

Mr Pearson : Senator, I can help you on this. Taking together the ATO statistics and the royalty payments that our companies make, the effective tax rate of mining companies is around about 43 per cent. It is a bit higher in the coal sector, at about 48 to 49 per cent. I think that is the best measure by which you can judge and compare the tax contribution of sectors vis-a-vis others. I can tell you that, in terms of corporate tax, the mining industry accounts for about eight per cent of GDP and accounts for 24 per cent of corporate tax receipts. So I think those numbers tell us the story that the mining industry is paying its fair share.

CHAIR: So eight per cent of GDP, okay. What proportion of mining companies operating in Australia are foreign owned? Do you have that information off the top of your head?

Mr Pearson : No. There is a significant share of foreign investment in Australian minerals companies; that is true. That has been a feature of the Australian mining sector since its inception.

CHAIR: But we are talking ballpark 80 per cent or so?

Mr Pearson : I am not sure that it is especially relevant to this exercise.

CHAIR: I am just asking to give a bit of context so that when we talk about some of these issues we can relate that back to how profitable the industry is and what proportion of those profits are of benefit to Australians and what is heading offshore.

Mr Pearson : Senator, one thing I can tell you is that in the high 90 per cent of profits generated by the mining sector in the decade to the end of 2010 were funnelled back into investment in this country. I can certainly give you more information on that.

CHAIR: But, in terms of foreign ownership, we are talking roughly 80 per cent or so, are we not?

Mr Pearson : I will have to come back to you on a precise foreign investment figure. But I would emphasise that I do not really think it is relevant to the purpose of this exercise. There are major shares of foreign investment in every sector, and I think foreign investment has been a good thing for this country.

CHAIR: I am not making statements about whether it is good or bad; I just want to get a sense of the industry in the country. That is the only reason for raising it. Perhaps we can talk specifically about the subsidies and tax concessions, as some people will describe them.

Mr Pearson : Treasury cannot identify a single subsidy that goes to the mining industry.

CHAIR: Let us look specifically then—we will not put labels on them but we will talk about the fuel tax credits that the industry is the beneficiary of. Have you got the value of the fuel tax credits as of the most recent data? Can you tell me what it is worth?

Mr Pearson : The fuel tax credit scheme across many sectors—

CHAIR: No, I am talking specifically about the industry.

Mr Pearson : Let me answer the question. Fuel tax credit across many sectors is around about $5 billion—

Mr Sorahan : $5½ billion.

Mr Pearson : And the minerals share of that is about $2 billion.

CHAIR: How does that rate compare to the next-biggest beneficiary of the fuel tax credit?

Mr Pearson : About 60 per cent of the benefits of the fuel tax goes to sectors other than the mining sector. There are about 668,000 claimants of the fuel credits scheme.

CHAIR: So, roughly, we are talking over $2 billion? Have you got an exact number for me?

Mr Sorahan : I have got some figures here. For the 2011 year, it was $2.3 billion. That information is publicly available on the ATO website.

CHAIR: Great; thank you. What about deduction for capital works? Have you got the most recent tax expenditure statement? Do you have an assessment of what that is worth?

Mr Sorahan : No, I do not. By 'capital works,' are you able to elaborate on precisely what you mean?

CHAIR: In the tax expenditure statement 2012, page 110, I have deduction for capital works expenditure 2012-2013 at $495 million.

Mr Sorahan : I do not have that figure in front of me.

CHAIR: Deductions for exploration and prospecting; do you have that figure in front of you?

Mr Sorahan : No.

CHAIR: Again, from the tax expenditure statement 2012, page 108, I have that at $550 million. Does that ring true?

Mr Sorahan : I do not know. I would not be able to give you—

Mr Pearson : One of the changes that I referred to in the opening statement is that there are changes to deductions on exploration credits that will cost this industry $1.1 billion over the next four years.

CHAIR: Granted that there may be some changes—

Mr Pearson : We do not support those changes.

CHAIR: I am just getting a sense of what those tax expenditures are to the industry at the moment. From the tax expenditure statement 2012, I have deduction for capital works expenditure at $495 million and exploration and prospecting deductions at $550 million.

Mr Pearson : As I indicated, the best measure of budgetary assistance and other forms of industry assistance to this industry and any other industry is the work conducted by the Productivity Commission every year. The most recent version of the annual Trade and assistance review indicated that the mining industry receives negligible budget assistance and that is the best measure of budget and other forms of assistance to any sector in this country.

CHAIR: I am sure you would be aware that it is a measure that you believe reflects accurately the level of assistance provided to the industry.

Mr Pearson : That is correct.

CHAIR: There will be others who will argue that there are different measures and that some people would look at tax—

Mr Pearson : It would be the most independent measure.

CHAIR: I have not finished, Mr Pearson. I am more than happy to engage in a discussion, but let us give some time for each other to finish.

Mr Pearson : Sure, go ahead.

CHAIR: The tax expenditure statements, released annually, give a summary of tax expenditures or concessions given to specific industries. I am just trying to ensure that the numbers that I am talking about here are as reflected in the papers, whether they are accepted or disputed by the industry. We have also got R&D tax concessions, as released in the Trade and assistance review2011-12, valued at $370 million. Is there any reason to dispute those figures?

Mr Pearson : R&D tax concession is available to all sectors.

CHAIR: We will be talking to a range of industries throughout the day. You will be pleased to know that the Minerals Council are not the only witnesses for the day. We will be interrogating some of those other witnesses with regard to some of these numbers as well.

Mr Sorahan : Also, as you are probably aware, there is a proposal by the government to remove eligibility from the R&D tax concession for large corporate taxpayers.

CHAIR: I am aware of that but, as of 2011-12, we are talking $370 million. I just get a sense that the industry does not have any reason to dispute those figures.

Mr Pearson : I could not verify that right here and now but, if it is in the Trade assistance review, I assume that is reasonably accurate.

CHAIR: Good. There are other, smaller things as well—the Coal Sector Jobs Package, for example, which was worth—

Mr Pearson : That will go at the end of the carbon tax. The carbon tax will go unlamented by the industry.

CHAIR: Yes, particularly because there will be an increase in the benefit from the fuel tax credits of an extra 6c in the dollar. Is that correct?

Mr Pearson : The carbon tax equivalent on diesel will be removed. That is a good thing.

CHAIR: I appreciate that is your view on that.

Mr Pearson : The fuel credit excise is designed as a road user charge. We do not use diesel on roads. We use them off site and we build our own roads off site. So we do not use roads. We only claim diesel for off road use. We only claim that rebate for off road use.

CHAIR: That is probably a good place to take the discussion to look specifically at the issue of subsidies—in particular, the fuel tax credit subsidy and the rationale for that. Do you have a view that subsidies are used as a way of supporting industries at times when they are financially vulnerable and that there is not a good case to provide subsidies like this to industries that are doing well, that are thriving and where there might be a more efficient use of providing those subsidies to other industries or to other areas of the economy?

Mr Pearson : The question is based on a false premise. It is not a subsidy. The fuel tax arrangements in this country have been in place since 1920. The fuel tax credit scheme applies to a wide range of sectors. It provides an exemption or a credit on diesel that is used off road. It provides a credit against the road user charge. If you do not use the diesel on roads, you are not required to pay the road user charge. Your proposition, Senator, is like someone being forced to pay the airport tax when they stay at home. We do not claim for the use of diesel on roads; therefore, we are not subject to the road user charge. As I said, there are 668,000 claimants under the fuel credit scheme and 60 per cent of the value of those credits are claimed by sectors outside the mining industry. Charging the minerals sector for the road user charge when it uses diesel off road in power generation and in major pieces of equipment would represent an enormous new tax on regional, rural and remote Australia, because that is where not only our companies but other sectors use diesel because grid electricity is not available.

CHAIR: I will address that in a moment. Just to tease that argument out, there are many of us who pay the Medicare levy who do not access medical care. There are many of us who pay income tax for services that they do not use. That is the principle of our taxation system. The argument—

Mr Pearson : That is not a principle, Senator.

CHAIR: that taxation is simply there to provide services for the user in every instance is not actually the basis of our tax and transfer system.

Mr Pearson : I think you are re-inventing tax policy on the run, Senator. This is a road user charge designed for the use of diesel used on roads. We do not use the diesel on roads, and nor do many of the other sectors that take advantage of this scheme.

CHAIR: Let me ask you—

Mr Pearson : Can you let me finish, Senator.

CHAIR: Sure.

Mr Pearson : That principle has been recognised by governments of both political persuasions for a very, very long time. I would make the subsidiary point that not applying taxes to the use of business inputs is also a very longstanding tax principle.

CHAIR: I think the—

Mr Pearson : It is supplied in the GST, for example.

CHAIR: length of time the policy has been in place is not actually a justification for continuing the policy. In fact, we have seen changes in terms of subsidies to the motor vehicle industry that have had for a long time bipartisan support. So I am not sure that that is justification for continuing on with the particular form of public policy. But let's look at some other areas. The mining industry does benefit from publicly funded infrastructure; I think you would agree with that. That statement is not arguable, is it?

Mr Pearson : I think the mining industry makes an outsized contribution to the functioning of many communities all throughout Australia, because we operate mainly in remote and regional areas of Australia. In many cases the mining industry provides electricity for towns. We build towns, we build railroads, we build communities. So, I think the mining industry makes more than its fair share of contributions to communities around this country.

CHAIR: I am not arguing that the mining industry does not contribute, In fact, we all benefit from many of the outcomes of the industry and what the industry does. So I am not arguing that. But I do want to, again, just establish that the industry does benefit from significant public investment in infrastructure. There are a number of rail projects. There is the Hunter Valley Corridor Capacity Strategy, which is looking at spending close to $1 billion on upgrading the rail networks in the Hunter Valley, which will benefit the export of coal from the Hunter Valley, and that is significant investment of public moneys.

Mr Pearson : The mining industry pays for its use of railways.

CHAIR: But the infrastructure has been provided by government.

Mr Pearson : And those payments are calculated to ensure that the infrastructure is more than paid for.

CHAIR: Are you suggesting that you do not benefit from any investment in public infrastructure?

Mr Pearson : All sectors of this economy benefit from public infrastructure. I would suggest and submit that the mining industry makes an outsized contribution to the development and production of infrastructure. It is forced to by the fact that it is located in many communities and has to build new communities across this country and has done for many, many years and decades.

CHAIR: But for me the heart of the matter—and I take your point; I think that industry in many areas does contribute to infrastructure and also benefits from public moneys—is that we are talking about an industry that, in pre-tax profits, earned $84 billion in 2011-12. And it is benefiting from a fuel subsidy—I will call it a subsidy, and you will call it something else—worth $2.3 billion in 2011-12. So, we are talking about $84 billion in pre-tax profits and a subsidy of $2.3 billion in the form of a fuel tax credit. You do not feel it is a legitimate argument that that tax credit is effectively money that could be spent in other areas of the economy and could be of greater benefit?

Mr Pearson : I will make a couple of points on the industry's tax contribution, which you raised. As I said earlier, the mining industry is roughly eight per cent of GDP and pays 24 per cent of corporate tax. The effective tax rate for the mining sector is about 42 or 43 per cent, and it is 48 or 49 per cent for the coal sector. That is a long way north of most other sectors. The fuel tax credit scheme is not a subsidy. And it is not me saying that; it is the Commonwealth Treasury.

CHAIR: I take your point that there are different views on that.

Mr Pearson : Well, it is the most independent. The Productivity Commission says that the mining industry receives little or no assistance. The Treasury says it is not a fuel subsidy. They are relatively independent, known for their integrity. I think we have to acknowledge their views and their analysis.

CHAIR: I acknowledge that there are different views on that. But I do not know that that helps us, necessarily, with the discussions.

Mr Pearson : And there has been a bipartisan commitment, I should say.

CHAIR: So, let me just perhaps talk about the impact of the subsidy in the context of the incentive around fuel use. Obviously you are aware that we are having a big debate about the impact of climate change and the incentives around the use of fossil fuels. Do you have any concerns that by providing a subsidy that encourages the use of fuel by reducing the price of that fuel, which is effectively a fossil fuel, we are creating a perverse incentive to increase emissions and therefore exacerbate climate change? Is that of any concern?

Mr Pearson : The question is based on a false premise. It does not reduce the price of fuel. It simply does not apply the road user charge, because we do not operate on roads. Secondly, as I have indicated before, for many of our operations there is no choice but to use diesel. We operate in remote areas where there is no on-grid electricity and there is no alternate fuel for major pieces of equipment. Now, I can tell you that many of our companies are looking to alternative fuel sources, and some of them involve renewable sources where possible. But in many cases it is the only option for the mining industry, just as it is the only option for aged care facilities, for emergency services, for the construction sector, for tradesmen, who also use this credit scheme, because they use the diesel off road.

CHAIR: But you have just addressed, again, what is at the heart of the issue around the competing choices that might exist around generating power. The incentive to look for alternative sources of fuel is reduced when one form of fuel is cheaper than the other. And as the increasing cost of diesel that would result from abolishing the fuel tax credit, surely it makes renewables in areas where those things can be used much more competitive.

Mr Pearson : I do not think it is a good thing for us to seek to drive energy costs up, if that is your proposition. That would be the effect of your proposition: let's drive energy costs up until a currently uncompetitive technology, whatever it is, becomes the best option. That is the sort of approach that has seen household and industrial electricity costs in this country go up by nearly 100 per cent over the last five years, at considerable cost to industrial activity in this country and at considerable cost to householders in this country.

CHAIR: Are you suggesting that the increase in power prices—that 100 per cent increase—is the result of pricing pollution? Is that what you are suggesting.

Mr Pearson : That has plainly been the case in the last two years.

CHAIR: You are suggesting that the increase has nothing to do with other factors, such as transmission and the investment in transmission?

Mr Pearson : There are other factors, sure. But there are voluntary measures that this country has taken that have increased energy costs over the last—

CHAIR: Those voluntary measures you are talking about no doubt relate to carbon pricing. What proportion of the increase in electricity prices are from carbon pricing?

Mr Pearson : I can tell you that some of our member economies face an 11 per cent increase due to the renewable energy target alone. They face an increase of 10 per cent or more in energy costs due to the carbon tax alone.

CHAIR: But your earlier comment was that there has been a 100 per cent increase in the price of electricity, and you sheeted that home to policy issues like carbon pricing.

Mr Pearson : My point was that it does not make sense to raise energy costs for no other reason than that you want to make some other technology competitive, and that was your proposition.

CHAIR: No, my proposition was to abolish the subsidies that make some form of generation cheaper.

Mr Pearson : There is no subsidy. Treasury said there is no subsidy, and the Productivity Commission has not found one.

CHAIR: And there are many, many other people on the other side of the argument. I think it is much better than trying to get bogged down on whether this is a subsidy or not to try to work out whether in fact this is a productive use of taxpayer money.

Mr Pearson : Well, you are the one who keeps repeating it, Senator.

CHAIR: I want to talk to something you said in your opening statement about the need to reduce spending and to ignore the revenue side of the equation. That actually flies in the face of much of the evidence we have heard through this committee. In fact, the trend in Commonwealth expenditure has been downward since the mid-1980s. It has fallen from a peak of about 28 per cent of GDP to about 24 to 26 per cent of GDP in recent years. In comparison to other similar developed nations, Australia has a very small and efficient public sector. On what basis do you justify the statement you made in your opening remarks that we should not be looking at government revenue but should be focusing on government expenditure?

Mr Pearson : I will say a couple of things. Spending, as a share of GDP, is currently 1.4 per cent above the 20-year average. Let us also analyse the per capita spending of the Commonwealth, in real terms, over a number of decades. In the early-seventies, spending per capita was about $6,000; by the end of 1998-99 it was up to $12,000; today it is about $15,000; and on current projections we will reach $20,000 per person. That is one measure of how spending has increased in real terms over a period of decades. There are a number of other different measures. As I said in our opening remarks, growth in Commonwealth spending has outstripped economic growth in the last decade. The fact that we are now facing our sixth successive deficit might also indicate that there is some work to do on the spending side.

CHAIR: I do not think we have had anybody use per capita spending as a measure of Commonwealth expenditure—because it is meaningless relative to GDP. Commonwealth spending has gone up and down over recent decades but it has been relatively stable. So it depends on where you draw the cut-off. To use the 20-year average, simply because it allows you to demonstrate a one per cent increase, is really being a bit tricky with the numbers. Commonwealth spending has been relatively stable. If you make the cut-off point somewhere else, such as the mid-eighties, there has been a significant decrease in Commonwealth spending. So I would suggest that you are using your argument there in an effort to ignore the responsibility of other areas of the economy where there are significant tax expenditures that are going to areas—in the industry, for example—that are of much greater benefit than focusing on Commonwealth expenditure, particularly as it relates to government services.

Mr Pearson : Spending as a share of GDP is 1.4 per cent above the 20-year average. That is a simple fact.

CHAIR: Yes, and it is lower than the 30-year average.

Mr Pearson : We are facing another deficit. The empirical data suggests there is work to be done on spending—I do not think anyone can deny that. As for our contribution—and I have been through it before—we paid $117 billion in tax contributions between 2007 and 2013. We pay an average effective tax rate of around 42 or 43 per cent—and it is 48 to 49 per cent for coal. We are eight per cent of the economy, yet we pay 24 per cent of corporate tax. I think that is not a bad contribution. We face further additional tax measures in this current year that will add a good share of $3.7 billion over the next four years to the mining sector.

CHAIR: And of course the competing view is that you are an industry with $84 billion in pre-tax profits that benefits from a $2½ billion fuel tax credit.

Mr Pearson : Is that a question?

CHAIR: Well, I think we have ventilated those different perspectives on this issue. I might hand over to Senator Lundy and perhaps return after that.

Senator LUNDY: Thank you very much, Chair. Mr Pearson, do you agree with the head of Treasury that the investment phase of the mining boom has passed and we are now in a transitional production phase?

Mr Pearson : It is an inescapable fact that there has been a large ramp-up in production over the last several years, and that has expanded the productive capacity of the sector. So we will see good volume growth over the next several years but perhaps not the significant investment in new projects that we have seen in the last several years.

Senator LUNDY: You have anticipated my next question. I want you to outline for the committee your expectations for the changing characteristics of that production phase in the mining industry. You have mentioned a couple already, but are there other significant indicators?

Mr Pearson : If we take a five-year outlook and settle on the top five mining commodities—namely, iron ore, thermal coal, metallurgical coal, gold and copper—those exports are currently worth about $120 billion. Our commodity forecaster, BREE, expects those exports to increase to $180 billion over the next five years, but that will be principally through expanded production. The expectations of commodity prices are flat or difficult. What that means is that, even though prices will be lower, the sector will be working extremely hard to increase its productivity so as to deliver compound export income growth of around five per cent over that period across those commodities. It will be a similar story, I think, for other commodities.

Senator LUNDY: Is it correct that the production phase requires lower employment than the investment phase? Perhaps you could answer in the context of the five per cent compound growth.

Mr Pearson : There has certainly been a rebasing of industry costs over the last few years. The Minerals Council have analysed developments in the sector over the last few years and we have found that we were struggling with our cost competitiveness vis a vis our competitors. So the industry is seeking every form of cost reduction it can find. Some of that has been in labour. We have lost 12,000 people from the sector, although our numbers are starting to increase again. Our projections, though, are that we need more people over the next five years—18,000 according to one joint industry analysis. So, even though we are working more productively and with a lower cost base, we would hope that we can continue to expand employment in the sector over the next five years.

Senator LUNDY: So how would that look? Is that likely in the fourth and fifth year, looking at the current outlook? Can you give a little bit more definition to what you have described as quite a significant increase in workforce.

Mr Pearson : By definition, one of the areas which will contract will be mining related construction. You would presume that, as the mining sector's investment share as a percentage of GDP falls from seven to, say, four per cent, it is the construction phase that will be hardest hit. Having said that, there is a sequencing issue here; our colleagues in the oil and gas sector are continuing to invest over that period, so they might take some of that construction slack. If you look at the numbers as we project forward, volume is up, overall margins are tighter, but I do not think employment numbers will necessarily be down.

Senator LUNDY: Is it correct to assume that, due to the design of the MRRT, there would be lower revenue in the early years of the scheme but more significant revenue in the later years of the scheme as time goes on?

Mr Sorahan : You might be referring to the starting base which was implemented to ensure that the tax was not retrospective given the value of the investment at May 2010 when the RSPT was first announced. It would really be a question for Treasury as to forecasts of the tax. It depends on a lot of things—of course, commodity prices being probably the main one.

Senator LUNDY: We will have the opportunity to ask Treasury, but I am asking the Minerals Council if they have a view on that.

Mr Sorahan : I do not have a view in terms of longer term forecasts. It will just come down to commodity prices. It is a very volatile tax, like any profits based tax, so providing forecast for ideas as to where it might go is quite fraught.

Senator LUNDY: What about on the basis that we have just heard—that commodity prices are likely to remain flat? Are you able to offer the committee an opinion in that scenario?

Mr Sorahan : In terms of costings, no.

CHAIR: Mr Pearson and Mr Sorahan, thank you very much for your time. We are grateful that you agreed to participate in today's hearing.

Mr Pearson : Thank you.

Proceedings suspended from 10:32 to 10:45