Mr RAGUSE (2:27 PM) —My question is to the Prime Minister. Prime Minister, why are profit based taxes like the Resource Super Profits Tax superior to production based taxes like state resource royalties?

Mr RUDD (Prime Minister) —I thank the honourable member for Forde for his question, as I know he is concerned about his local small business community and his community in South-East Queensland. I note in passing to the member for Forde that the secondary schools in his electorate stand to be directly punished as a result of the opposition’s policy to cut funding to trades training centres. In fact, there are a number of secondary schools in his electorate which stand to be punished as a result of that.

Opposition members interjecting—

Mr RUDD —I notice from the reaction of those opposite that there is a degree of sensitivity about the cuts to trades training centres in schools.

Mr Pyne —Twelve out of 2,650!

The SPEAKER —The member for Sturt has finished? I hope so.

Mr RUDD —The strength of the Australian economy depends on three core factors. One is keeping this economy out of recession, and that is what we have done together as a nation in response to the global financial crisis. The second is bringing the budget back to surplus, back in black, three years early, three years ahead of time, and in just three years time, and halving the net peak debt of Australia. The third is a program of economic reform. That is where tax reform comes into play.

This government is committed to the importance of tax reform, because this package of measures boosts Australia’s global competitiveness because of the reduction to the company tax rate and the assistance to small business. Secondly, it boosts Australia’s level of overall national savings some $85 billion over the decade ahead. It boosts the individual retirement incomes of working Australians to the tune of some $108,000 in the case of an average 30-year-old worker and it also boosts our investment in infrastructure—rail, road and ports.

On the question of a profits based tax regime, can I say to those opposite and the parliament at large that this government is committed to the principle of bringing in resources tax reform because we believe this principle is right. Firstly, it is right as we move towards a system of resource taxation which taxes profits, not production. The existing system of state royalties is inefficient. Royalties tax production unfairly disadvantage miners who have high costs upfront, in particular high extraction costs. Furthermore, the proposed Resource Super Profits Tax, as a tax on profits, shares the risk between companies and the government.

Let me go to what that means in particular. The government effectively contributes 40 per cent of the cost of the investment through deferred tax credits—that means to offset the initial investments by a company. Furthermore, as that company goes through its initial years of operation this deferred tax credit continues to be drawn upon. If for whatever reason the venture fails, then the company in question can transfer that to a further project or have the remaining amount refunded by the government. Furthermore, the government then takes 40 per cent of super normal profits to the extent that those super normal profits exist. Finally, and most critically, the government then fully refunds the existing state production based royalties. This is the core architecture of a profits based regime. That is what the government is seeking to bring in.

What is the overall effect on the economy? Why is this a worthwhile reform? Firstly, it means less profitable mining companies will actually pay less tax. For example, Treasury modelling indicates that, for a typical project, a company earning less than 10 per cent returns will pay less tax. Secondly, it is a flexible system because, as commodity prices change over time, a company will pay more during boom times and less as commodity prices moderate over time. The crude blunt instrument of a volume based tax does not do that. Thirdly, what we have also is a system which enables companies to rely upon a tax system which replaces the patchwork quilt of an inefficient existing state based royalties regime. That also enables companies not to be subjected to individual decisions by state governments to jack up royalties regimes in a manner not consistent with the profitability returns of the companies in question. That is a further reason why this is a good reform for the economy. Finally, this system would introduce minimal distortions to production decisions by companies developing their resource simply because it is a tax on profits and not a tax on production. It is for these reasons that, under an RSPT scheme, mining investment is projected in the Treasury’s modelling to rise by 4.5 per cent, jobs within the sector by seven per cent and mining production by 5.5 per cent, because this is an efficient tax based on profit, not on volume.

Others who are engaging in this debate have seen the merit of this. I referred yesterday to comments by the former Treasurer, Peter Costello. I referred to comments by the former Leader of the National Party, Tim Fischer. Even the Minerals Council of Australia has come out today and accepted the logic of a profits based system. It said:

So says the MCA. On the merits of a profits based tax system, these individuals are not alone. Enter the member for Tangney. The member for Tangney was asked this very basic question this morning—I notice he is not seeking to engage our attention here: ‘But economically it is more sensible to have a profits tax rather than a production tax. I mean that’s just economics 101, isn’t it?’ The member for Tangney’s immortal reply was:

In other words we have from the great state of Western Australia over there the member for Tangney endorsing the fundamental tax principle which underpins this government’s proposed tax reform. But there is more. Enter the shadow minister for finance. This was pretty interesting. What we have from the shadow minister for finance is a statement which says:

In other words, from the shadow finance minister and the member for Tangney we have a fundamental endorsement of the principle of a profits based tax system. Can I say to those opposite that this actually raises a deep question for the Leader of the Opposition. He has had three different tax policies in three days: on Monday it was ‘There was just enough tax’, on Tuesday ‘Not enough’ and on Wednesday his policy was that there was far too much. Does the opposition leader support of shadow minister for finance in embracing a profits based tax regime? We are all ears.

The SPEAKER —Order! The Prime Minister will resume his seat. Has the Prime Minister concluded?

Mr RUDD —Yes.

Mr Pyne —Mr Speaker, on a point of order: I ask the Prime Minister to table the speech from which he was reading.

The SPEAKER —Order! Under standing order 201, the Prime Minister can be asked to table a document relating to public affairs.

Mr Ruddock interjecting—

The SPEAKER —I will get around to the side titles. Whilst I know that the member for Berowra is taking the advice of somebody that he respected very much in parliamentary life to try to get my notice, and I usually try to ignore him, his interjection relates to a standing order that does not exist. Was the Prime Minister quoting from a document relating to public affairs?

Mr RUDD —Yes.

The SPEAKER —Is the document confidential?

Mr RUDD —Yes.