Mr GRAY (Parliamentary Secretary for Western and Northern Australia) (4:27 PM) —The tax proposal to which we are referring today is the superprofit tax on resources companies. We are having this debate because the government has determined that it would be appropriate to discuss and propose an arrangement for an increased tax on our resources sector. Many years ago—30 years ago—I was a student at the Australian National University doing economics. I first heard of the idea of rent taxes—pure profit taxes—in the late 1970s and early 1980s when I was a student. The idea is simple: you tax the economic rent from a project or an entity and in doing so you do not compromise optimal economic decision making by that entity. It is very simple and it is very straightforward. Normal returns are preserved.

In the mid 1980s, the then Labor government proposed the petroleum resource rent tax. It came in with a long-term bond rate and a five per cent uplift factor on production and with a long-term bond rate plus 15 per cent uplift on exploration. It is a tax that has operated quietly for 25 years. It is wrong to think that its quiet and successful operation was not controversial. At the time of its introduction, we had had a move to global oil pricing in Australia—so-called world parity pricing. We had had the debate among states about their own excise regimes and royalty rates and about what we would do in the face of increased global energy prices. The inefficiencies in the oil taxation system in our country were significant.

At that time the resources minister sat down with his adviser—now a minister in this government, Craig Emerson—under the advice of Professor Ross Garnaut and discussed the proposal for a resource rent tax on the petroleum sector. It was not an easy discussion. The minister at that time has since told me of the reaction of the oil industry. It is true, as the shadow minister reflects, that BHP—nowadays BHP Petroleum but in those days BHP—understood the arithmetic that underpinned the idea of a rent tax, but not everyone did. He tells me of the oil entrepreneurs who would call him to their offices to receive their own corporate view of how damaging this new oil tax would be. He told me of how he as the Minister for Resources would refuse to go to their offices and would ask them to come to his. They came to his office and they received both a lesson in politics and a lesson in economics.

I do not think anyone these days, despite the 25 years of successful operation, seriously contends that the resource rent tax on the petroleum sector is not a good tax. But let me make you aware of this: no-one in the oil industry likes it; everyone in the oil and gas industry hates it. When I was an executive in Australia’s largest exploration and production company we would regularly face tirades from senior executives or board members who wished to get rid of that tax, who spent a lot of money doing research on how to get rid of that tax and who would argue that that tax must constrain the development of projects. But in a decade it was not possible to identify one project—not one project—that would have gone ahead if that tax had been removed.

Of course, the Minister for Resources and Energy has told us today of the investment decision by Woodside to go ahead with the Pluto project in a resource rent tax regime and the decision by Chevron and its partners to go ahead with the Gorgon project, a $40 billion plus investment in a resource rent tax regime. We know that the particular form of taxation that we are proposing here is not an exact replica of the resource rent tax. It is not. It contains a number of elements that are in many ways substantial improvements on the resource rent tax. It allows portability of expenses. It allows for incentives for projects into the future. But, most importantly, I was reminded just 24 hours ago of the review of taxation being conducted for those opposite—the opposition—by Henry Ergas, formerly, as I understand it, a department of finance officer. For 15 months or more the coalition has sat on its own tax review. We are told via media reports—one published in February of this year—that the Ergas report recommends a resource rent tax. We are told—and this is the quote: ‘There are significant benefits to the Resource Rent Tax approach because it tries to quarantine tax to economic rents.’ You would only tax above a normal rate of return.

What does that tell you? It tells you that the coalition’s own economic adviser and author of its own tax review has championed the idea of a resource rent tax. We also know that, of the 25 years of quiet operation of the resource rent tax, 12 were under opposition—coalition—governments. And we know that the tax was not dismantled, removed or taken away. We know that the government appreciated the integrity of that tax and we know that the government enjoyed the revenues from it. How do we know that? We simply look at the record.

I remind people again of the quote from Henry Ergas that there are significant benefits to the resource rent tax approach. What does that mean? The tax is structured so that it does not change any of the fundamental project economics behind an investment or an operation. We know that the Minerals Council of Australia supports the tax model, and we know that the Minerals Council of Australia has supported this tax proposal because it creates harmony of the taxation system between the states. We know that bauxite mining in Queensland, the Northern Territory and Western Australia face different taxation regimes. If you are a resource owner looking at tenements in any of those three states, you know that you face different taxation regimes and charges across the board. For iron ore in Queensland, the Northern Territory, Western Australia and South Australia, different royalty regimes operate. For coal in Queensland, New South Wales and Western Australia, again substantially different rates of taxation apply. So it is not surprising that the bosses of the mining industry associations in Queensland, in South Australia, in Western Australia and elsewhere have asked for certainty in the fiscal arrangements and not for political squabbling. They have asked for certainty in the way in which the taxation regime works.

In the course of the last seven or eight days since the announcement of these proposals we have also had substantial industry interaction with the government to negotiate, to understand, to get it right—to engage in dialogue to get the taxation system right. I sometimes wonder if members opposite are at all interested in getting the taxation system right. I have thought that for a long time. Sometimes they will find a good tax and just stay with it because it is a good idea, as they did with the resource rent tax in the petroleum sector. But sometimes they just see a good earner and they lock onto it. Sometimes they see a good idea for party fundraising and they get in behind it with both paws. I quote from a story in today’s Australian:

Here we go: we are supposed to be having a debate here about taxes. We are supposed to be having a debate around resource taxes. We are supposed to be having a debate around a resource super tax. But no, what we actually have here is an opportunity to fundraise. Let us not kid ourselves. The debate here is not about a resource tax; the debate here was appropriately pinged in the Australian this morning. The angry miners said they were unlikely to tip a bucket of money to the coalition’s war chest. Do you blame them? They said it would be unwise. Of course it is unwise. It is unwise because the miners fundamentally are most interested in getting a taxation system right. They have been wound up into fever pitch sometimes by their own supporters—fever pitch designed to create less serious consideration around the proposition for a tax. If they can, they will knock it out and not pay it. As I said, I worked for a company that worked very hard to try to get this tax ameliorated, changed or removed because companies—guess what?—just do not like paying tax. The other thing we learn from the newspaper today is that they just do not like making donations to the Liberal Party either. (Time expired)