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Tuesday, 22 November 2011
Page: 13218


Mr CRAIG KELLY (Hughes) (10:21): I rise to speak on the Minerals Resource Rent Tax Bill 2011 and related bills, including the Superannuation Guarantee (Administration) Amendment Bill 2011. Firstly, the coalition opposes this bill. We opposed the original version of the mining tax unveiled by the former Prime Minister, and we oppose the second version of this tax, now known as the MRRT. This version 2 of the mining tax is a poorly developed and poorly designed tax which, when it is all boiled down, is nothing more than a lazy tax grab which will have dire consequences for our mining industry. It is bad for jobs; it is bad for investment. It is simply a bad tax, conceived out of a flawed process. Therefore, the coalition says no to the bill.

In saying a resounding no to this new tax, it is worth remembering a quote from one of the true entrepreneurial geniuses of our generation, the late Steve Jobs. Steve Jobs said of the secret of success:

… it comes from saying no to 1,000 things to make sure we don't get on the wrong track or try to do too much … it's only by saying no that you can concentrate on the things that are really important.

The coalition says no to the bill as it is a badly flawed bill that will take our country down the wrong track and prevent our nation from concentrating on the things that are truly important, such as improving our nation's productivity, encouraging investment, improving equality of opportunity for all firms, large and small, and reducing red tape. What is important is making sure we have a stronger economy to build a stronger nation. Unfortunately, our government fails to understand this. It fails to understand that no country has ever taxed itself into prosperity and no country has ever built its wealth by adding tax after tax after tax, as we have seen this government do.

This tax is being sold by a series of myths. We have seen the government up to their old tricks in peddling this bill to the public using a series of misrepresentations and untruths. The first misrepresentation and untruth peddled by this government is the line that Australians are not getting their fair share of the profits of the stuff being dug up out of our own backyard. Anyone listening to speakers from the government on this debate would get the impression that we have hoards of foreign mining companies invading our shores, ripping out our mineral wealth and chipping it out of the ground without paying anything. But the facts are that mining companies do pay royalties, and these royalties are set ad valorem rates, so as the price of the minerals go up, so do the royalties that the mining companies pay to the states.

Likewise, as profits of the mining companies go up, so does the company tax they pay the federal government. Then there is the payroll tax paid by mining companies, the superannuation they pay and the thousands of other small companies that benefit downstream from the investment from the mining companies and the industry. In fact, in 2007-08 mining companies paid $14.8 billion in taxes and royalties to the federal and state governments. Fast-forward just three years to 2010-11, and it is estimated that mining companies will pay $23.4 billion in taxes and royalties to the federal government—an increase of 58 per cent in just three years.

As a nation we should be recognising that we are currently receiving windfall taxes from the mining industry, and as a nation we should be using these funds to pay off government debt and to build up a surplus again, a surplus that was wrecked and wasted by this current government through their reckless spending. Instead, we see this government, instead of banking these windfall profits and taxes received from the mining industry, still borrowing over $100 million a day to fund its reckless spending.

The second myth that is being peddled is that this new tax will help small business. Of course, everyone wants to help small business; it is a motherhood statement. But these bills will force all small businesses across our nation to have to find an extra three per cent of their payroll in superannuation. This will result in the majority of businesses being worse off, even after reduction of the company tax rate. An analysis of the government's own figures demonstrates that these bills are nothing other than a tax grab.

According to the government's own figures, in 2010-13 it is budgeted that these new taxes will raise $4 billion. But they will only give back in that year $1.1 billion. In the following year, 2013-14, the government's own figures show that this tax is budgeted to raise $6.5 billion. But, again, it will only give back $2.5 billion. That is a $2.9 billion tax grab in 2012-13 and a further tax grab of $4 billion in 2013-14. These figures expose the true intent behind this mining tax and these bills. It is nothing other than a shameless tax grab, designed to create the illusion of an early surplus, deceptively dressed up and marketed with a falsehood of helping small business when it simply has the aim of plugging holes in this government's budget and making up for its reckless spending and failures.

When we look at the process of how this policy and how these bills evolved, it is a textbook example of how not to do it. Firstly, following the debacle of the mining tax version 1, we had a new Prime Minister promising to negotiate with the mining industry. However, instead of negotiating with the mining industry, this government did a secret deal behind closed doors with our three biggest mining companies—BHP Billiton, Rio Tinto and Xstrata—and excluded their more than 320 smaller competitors. BHP Billiton, Rio Tinto and Xstrata must not have been able to believe their luck when dealing with this government. Talk about come in spinner!

The same geniuses that negotiated GroceryWatch with the big supermarkets and our 'five for one' people swap with the Malaysians rolled up again with our three big mining companies to negotiate the mining tax version 2. No wonder the result is that these three big companies like the tax. They know that it will give them an unfair competitive advantage in the marketplace against their smaller competitors who were locked out of this negotiating process. These bills were a policy done by deal rather than a policy developed through extensive consultation and detailed consideration, and they are an example of what happens when business gets the better of slow-witted politicians without commercial knowledge.

We have seen, in just a few months, how the assumptions relied on by the Treasury carbon tax modelling are not worth the paper the modelling is written on. This legislation is badly flawed also, because it relies on modelling using a highly-volatile commodity cycle. I will give a couple of examples. In June this year, iron ore prices hit close to US$200 per tonne, but last month the spot price had collapsed to US$116.90 per tonne. Look what happened to iron ore prices following the GFC. They simply fell off a cliff, going in a very short period from close to US$200 per tonne to less than US$70 per tonne. Coal prices fell off the same cliff with the GFC. But this is not unusual, and it should not have been unexpected. This is how commodity cycles in prices have risen and fallen over the last 200 years. To think that the future will be any different is naive.

While it is possible that for a short time the commodity cycle may continue to defy gravity, the weight of our 200-year history is against it. If a contraction in China's economy does not send prices crashing down, there is a flood of new supplies of iron ore and coal coming online from around the world, and our competing producers will force the prices down. You would need more than a crystal ball to be able to predict where iron ore and coal prices will be next year, let alone where they will be in five years. Therefore, because of the modelling used by this government—the secret modelling that no-one has been able to see—it is highly questionable whether the tax will deliver the streams of revenue that the government claims it will.

The ideology behind this tax also demonstrates that we have a government which fails to understand the concept of superprofits. These only occur in the short term in a competitive market. Superprofits are the reward for human ingenuity and entrepreneurship. Superprofits drive innovation—the innovation that creates our wealth and prosperity. But the government, with their socialist tendencies, see superprofits as simply windfalls for evil capitalists. Mining, like all other industries, relies on entrepreneurial insight for success. It is a risky business, where superlosses are just as likely as superprofits. The current mining boom is no accident. Australian miners were not simply sitting on their hands when Chinese and Indian businesses decided to go on their current buying spree and drive prices up. Australian miners have spent time, money and effort in searching out mineral deposits and developing the capacity to exploit these resources. Had there been no demand for these resources—had the increased demand from China and India not occurred—these miners would have lost much of their investment.

The ability of exploration and mining companies to raise equity and capital for future projects is critical to the development of our nation. There is a real threat from this tax that smaller miners will find it even harder and more expensive to raise funds to invest in the first place. At a time when dark storm clouds are gathering on the economic horizon, the very last thing this government should be doing is hitting our exporters with a big new tax which our overseas competitors do not have to pay. Make no mistake: this tax will make investing in Australian coal and iron ore projects less attractive than investing in those overseas and less attractive than investing in resource projects that are not subject to the tax. Compared to the current situation, it will penalise high-risk projects.

With this legislation, Labor has announced a range of policy changes that all seem on the surface to be very favourable—an increase in compulsory superannuation, small business infrastructure spending and a cut in the company tax rate, for example. But what happens if the mining tax does not raise these funds as expected? On the current estimates, between now and 2020 the cost of the initiatives that Labor says are funded by the mining tax adds up to $58 billion. But, according to the Treasury's own estimates—estimates for which the modelling is hidden—the mining tax will raise less than $39 billion. The key assumptions remain secret. A structural deficit has been built in through this tax.

These bills also demonstrate the commercial naivety of members of the government, who, although well credentialled in economic theory, are simply clueless when it comes to the real world of business. The flaw in this tax is that, unlike with royalties, multinational companies have the ability to use transfer pricing—shifting overheads, debts, expenses and profits from country to country—to reduce their taxation liability. Further, this new tax, because it only applies to coal and iron ore, gives large mining companies involved in mining other minerals the ability to shift expenses and profits between different mines. Although transfer pricing is not permitted in Australia and the ATO has wide powers to determine whether companies are engaged in transfer pricing, there remain many perfectly legal ways that companies can achieve the goal of shifting revenue to foreign tax havens. Further, the ATO's ability to act against transfer pricing was only weakened recently when the ATO lost a Federal Court case against a French company over its purchase of chemicals from its parent company. The ATO also went on and lost the appeal. This has significantly narrowed the basis on which the ATO can act on transfer pricing, which undermines the fundamentals of this tax.

Finally, I go to the hypocrisy of the government about superannuation. They have not put one single cent into the Future Fund since they have been in government. (Time expired)