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Tuesday, 22 November 2011
Page: 13364

Ms O'DWYER (Higgins) (20:35): Tonight I rise to speak on the Minerals Resource Rent Tax Bill 2011 and related bills and I do so to talk about three particular issues. The first point is that this tax, as designed by the government, has been flawed from the very beginning. The second point relates to the impact that this tax will have on Australia's international competitiveness and potential investment. The third point is the impact of this tax on the budget position.

First and foremost, this is incredibly complex tax legislation. The 11 bills before us consist of around 525 pages of some of the most complex tax changes that have ever been introduced into this parliament. It is particularly interesting that the government was not all that keen for too much scrutiny of these bills. The reference provided by the Treasurer to the House Standing Committee on Economics to review these pieces of legislation was given to the committee on Wednesday, 2 November for a report on Monday, 21 November.

This is clearly not a substantial amount of time for a proper inquiry to be conducted and analysis to be made. It did restrict the witnesses that could be heard by the committee, which was, I suggest to the House, one of the intentions behind such a short reporting period. The consultation process on these taxes and the implementation and design has been flawed from the very beginning. It was flawed not only after the Henry tax review, where the government made its very first announcement on a mining tax with the RSPT, but also on the MRRT, which is the subject of these bills this evening.

The MRRT was designed by the government and the three big miners in secret. A deal was done between the government and these three big miners—BHP, Rio Tinto and Xstrata—and, very interestingly, no consultation occurred with any of the 350 other miners who would be affected by the new tax. This leads to some key questions about whether certain advantages have been provided to those negotiating the tax in the first instance to the detriment of those smaller miners who were left out of that consultation process. It is also significant that when this tax was designed the consultation did not involve state governments, whose royalties were central to the concerns raised in the Henry review—that state royalties were leading to distortions in investment and production decisions. No consultation occurred at the state level. We hear the tax was designed by the government in secret with the three big miners without consultation with key stakeholders and, we learned, without any officials present. I think that the view on just how flawed this way of designing a tax is is best summed up by Mr Yasser El-Ansary of the Institute of Chartered Accountants in Australia, who gave evidence to the House Standing Committee on Economics. He stated:

The government's approach to consultation and policy design in respect of the new resource tax arrangements during the course of 2010 can only be described as abysmal ... If there was an international prize for the best worst policy consultation process in a sophisticated open market economy, Australia's efforts during the course of 2010 would win hands down.

While the consultation process around the original resource superprofits tax announced in early May 2010 was bad, the subsequent consultation process that involved striking a deal behind closed doors with three key mining groups in July 2010 was even worse. It would not be unreasonable to say that that represented a low point in Australia's economic and political history. It is a low-water mark which most Australians would prefer not to see repeated in our lifetime. I think you would be hard pressed to find anyone to support the view that this is a good way to make public policy decisions. We certainly agree with that on this side of the chamber. It is a very poor way to make public policy decisions. In fact when you look back to the past where complex tax changes have been made and you look at the consultation process involved in those changes, you see a very different process. The GST springs to mind. The implementation of the GST in the late 1990s and the early 2000s was a much more comprehensive package that was presented, tested and modelled. People were given an opportunity to look at the impact that the new tax would have on them and the subsequent benefits that would flow from that tax. It was properly modelled and that model was transparent. It was clear that the impact on the economy and the prices in the economy were things people could see upfront. Because of that, it stands in complete contrast to the conduct of the process with the MRRT.

A secret deal has been done in secret with modelling that has not been properly released. The government has said on a number of occasions that under FOI it has released its model for the MRRT. Yet when questioned by the House Standing Committee on Economics on whether all the information had been released, if the assumptions on which that model was predicated had been released, Treasury officials were forced to concede that in fact those assumptions had not been released. This stands in very significant contrast to the way that models are put together by the WA Treasury and the Queensland Treasury: their assumptions are made public so that they are in full public view for proper and critical analysis. The government should release the assumptions behind their model and they should do that forthwith.

The second point I make tonight relates to the potential impact on mining investment and the impact on Australia's international competitiveness. One of the issues that came up time and time again when this matter was being discussed before the economics committee was that of sovereign risk. Sovereign risk is not a phrase that is traditionally associated with Australia, yet it is one that is very much associated with this tax. Who can forget the front pages of the New York Times and the Wall Street Journal that link Australia and sovereign risk together as a result of the tax that the government wants to bring forward?

Mr Hooke of the Minerals Council of Australia made a statement that the MRRT has had a very significant impact on Australia's position from being previously one of the safest places to invest. He quoted a study by the Fraser Institute of Canada, which is independent and surveyed some 400-plus CEOs around the world. It looked at 51 jurisdictions of resource-rich nations and broke them down into provinces. Through that debate, Australia dropped from being 18 out of 51 to being 31 out of 51 in what the institute calls the policy potential index. It is of concern that potential investors in Australia would see Australia as a risky proposition. Concerns have also been raised that a number of decisions have been made not to invest in Australia as a result of the announced tax, and evidence was presented in relation to that.

It is useful to look at what other people are saying about Australia and sovereign risk. At the October Commonwealth Business Forum in Perth, the Chief Executive of the South African gold miner AngloGold Ashanti, Mr Mark Cutifani, stated that Australia is 'one of the top sovereign-risk countries in the world on the basis of government policy and its demonstrated behaviour in terms of taxation policy and its inconsistency in policy'. We on this side of the chamber note that the perception that Australia is subject to sovereign risk will damage its ability to attract capital investment and thus damage the economy—and that is of concern.

My third point relates to the revenue and fiscal position of the government and the fact that the MRRT will have a very significant impact on the fiscal position of the government. As everyone in this chamber is aware, this government inherited a very strong fiscal position from the previous, coalition government. Unfortunately, though, this great economic legacy has been squandered by Treasurer Wayne Swan in just four short years. We are now looking at a position where our gross debt ceiling has been raised to $250 billion and we now have a net debt of $107 billion and a deficit of around $49 billion. Clearly one of the intentions behind the government's MRRT is to try and raise revenue. The reason the government need to do that is they are reckless spenders.

This government has had a very consistent reputation over the past four years for raising and introducing new taxes. This is the 19th of those raised or increased taxes and it is most definitely a big one. Despite the fact that the goal behind the MRRT is to raise revenue, it should be noted that it is incredibly volatile to changes in such things as the historic high commodity prices and production volumes. The MRRT package of bills before us includes both revenue and expenditure measures. The way that the government has constructed these bills is that the spending will continue to grow as a permanent feature of the architecture of these bills, yet there is no guarantee that the revenue will also continue to increase.

The modelling that was released shows that this tax is expected to raise $11.1 billion over the last three years of the forward estimates, but since the government released that model the New South Wales and Western Australian treasuries announced increased royalties over that period of $1 billion and $2 billion respectively. These royalties will be credited against the revenue of the mining tax, which means the net revenue to the federal government will be reduced to around $8.1 billion. According to the government's numbers, there is a shortfall in revenue relative to spending of around $2.8 billion over the forward estimates, but this blows out to $5.7 billion when crediting the New South Wales and WA royalties. We can probably foresee a situation where royalties will increase in the future.

It is clear that the spending side of the bills package is locked in, but the revenue is subject to the vagaries of the international market and state royalty changes. Both the Reserve Bank of Australia and Access Economics have suggested commodity prices in terms of trade have peaked and are declining a little more rapidly than expected, creating downside risks for the mining tax revenue. In effect, this package will significantly worsen Australia's structural budget deficit over time with the government's proposal being underfunded beyond the forward estimates period.

These are just three of the concerns that the coalition has with the MRRT package of bills brought before this House. We call on the government to take heed of them. (Time expired)