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Tuesday, 22 November 2011
Page: 13371

Mr RAMSEY (Grey) (21:10): I rise to speak on the Minerals Resource Rent Tax 2011 and related bills. The deliberately leaked ALP polling that is purportedly telling us that the Australian public is in favour of the government's minerals resource rent tax may well reflect the case. That may be what the public thinks, but just because the public thinks it does not meant that it is a good or an equitable tax. In fact, I think they have been sold some loose information about attacking the big miners and getting their share of the pie, without being given the full facts that underpin the legislation, which favours three players—as against the rest of the mining community—iron ore, coal and the petrochemical industry.

It is a fundamentally badly designed tax that is riddled with inconsistency. The fact is that it taxes only iron, coal and hydrocarbons. Roxby Downs used to be the biggest open-cut mine in the world—a fabulous project, I must say. It will take four years of digging before BHP actually get down to the ore body. It will take four years, using 110 350-tonne dump trucks, 24 hours a day, to get down to the ore body. It is a mine that will last at least 80 years; and, when they do get to the bottom, there is a lot more ore underneath that as well. What a project! But amazingly, it will not pay the minerals resource rent tax. There will be an enormous amount of infrastructure required in the cities of the Upper Spencer Gulf to enable this project. But the government will have to take money from other mining operations interstate and put it back into South Australia, because they have elected to choose just two or three commodities in Australia to tax. That is what I mean about inconsistency.

Mr Crean: Do you support the tax?

Mr RAMSEY: No, I do not support the tax, Minister. I do not support the tax for a number of reasons, which I will come to in a moment. The deal stitched up with the big miners was no doubt a deal to get the big miners' boots off the neck of government. In the lead-up to the last election, when they were running a public campaign which led to the political assassination of the former Prime Minister Kevin Rudd, the current Prime Minister said that this was one of the three things that she was going to fix, and she had to come up with a deal. But a deal did not come cheaply. She has done a deal with the big three miners but she has not done a deal with the rest of the mining fraternity.

It gets even sillier, because the tax was originally designed—this is going back to the former Prime Minister's version, the superprofits tax—to usurp the states' ability to tax their own resources. In fact, the government thought that they were going to be able to get away with that this time around as well. I think they even thought they had negotiated that. They thought they had negotiated the point where only current state royalties would be credited back to the mining companies. But—whoops—they made a mistake in the negotiation. In fact, they are covering off on all future rises of state royalties as well. Now the minerals resource rent tax stands as a green light to the states to raise their royalty rates, because all future state royalties will be refunded to the miners.

Get this, Mr Deputy Speaker, because it takes a bit of getting your head around: increases in state royalties will be credited against amounts due under the minerals resource rent tax. A rise in state royalties will not cost the miners extra; it will be directly funded by the federal government. It is an impossible situation. Why wouldn't the states raise their royalties until the revenues from the MRRT disappear altogether? And what risk does this present to future budgets? Australia has a fundamental imbalance in its federation. The states and local governments spend much more than they raise, and the Commonwealth government taxes much more than it spends.

Clearly this leads to a policy disconnect: the states spend money that they have not worn the political consequences of raising. Nowhere could the consequences of the state spending someone else's money be more adequately demonstrated than in the BER projects.

At the other end of this imbalance is the Commonwealth, where the government raises the money but does not get to claim credit for the expenditure. The most obvious example I can think of here is the APY Lands, where there is precious little to show for a lot of government expenditure—more than $100 million a year—but what little there is the state takes full credit for. There is new housing and the provision of police stations, but in reality the money has come from the Commonwealth.

Amazingly, 53 per cent of the South Australian government income comes from the Commonwealth. It raises a whole group of questions about federal and state responsibility in services like education and health—but it is not strictly relevant and I do not have time to tease out the detail today, so I will come back to it at a future time. But, notwithstanding the government's inability to stop the states raising their royalty rates up to the level of the MRRT with impunity, the tax is designed to deny the states the ability to more adequately match their revenue raising to their outlays to centralise tax collection.

The states do not have a lot of ways to raise taxes. Many of them are inefficient and impose economic penalties on businesses. The growth taxes they do have—property taxes, payroll taxes and stamp duties—all have significant negative impacts on the wealth generators in our communities and disadvantage businesses across the nation and across state borders. They also disadvantage businesses in comparison with overseas producers. We all know that these special taxes on employment and entrepreneurs are bad for the economies and most state governments would like to get rid of them, but their choices are limited. The grab by the government to fill a budget black hole because this government cannot stop spending actually impedes the states' abilities in the future to more adequately match their revenue raising to their expenditure, and I think that is a weakness in our federation that will have to be addressed in future years.

To come back to the government's need for a minerals resource rent tax, it is worth considering the recent history. In 2007, when we had a change of government, there was $20 billion in surplus and $45 billion in saving, and the government has had a tax-and-spend four years. Now we have borrowings at $200 billion plus, we have net debt of at least $110 billion and there is every expectation that the MYEFO—which almost certainly we are not going to get during this sitting of parliament but will be released once we have gone away and are unable to shine the spotlight on the result—will show a deterioration of at least $10 billion in that budget. No Labor government in 22 years has produced a surplus, and there is not much chance of one now. The government's forecasts have been woeful and always overly optimistic. So why are things in reality always worse than the government's forecasts? All that can be is spin.

There is an inherent danger in a government relying on profits based on a minerals resource rent tax to underwrite new spending programs, and it relates to the volatility in resource prices. Sure, money is good when prices are up; but it can be non-existent when prices are down. Treasury has calculated these tax dividends going forward in a time of high prices. It is the worst time to calculate what you might be getting from a tax, and that is what the government has done. In fact, they have even spent more—$4 billion more—than they calculate they will raise from this tax. It is a familiar story.

But I think it is worth having a look at iron ore spot prices over the last five years, because, after all, that is what the minerals resource rent tax is based on: iron, coal, oil and gas. In November 2007, average spot price for iron ore was $186 a tonne. In November 2008, it was $72 a tonne. In November 2010, it was $164. By February 2011, it was $190. It is currently around $133 a tonne, and there is a reasonably pessimistic outlook for the price. It may come as a surprise to the government, but the halving of returns is not the halving of profits; the halving of returns is the obliteration of profits.

The one significant company in this space in my electorate—OneSteel, who are exporting around six million tonnes of iron ore a year—has been in the news quite a lot lately. OneSteel said only two days ago that their first-half profits had fallen by 70 per cent, owing to the sharp fall in iron ore in recent months. If we look at those prices, in recent months iron ore has come off about $55 a tonne or 30 per cent. It does not stretch the imagination that far to think it could come off 50 per cent, and then there would be no profit at all.

There are risks to the industry in this, but there is an extra risk to the government to design a budget around a tax that might be there one year and not there the next, the year after that or the next three. I used to be a farmer and I understand a bit about these droughts and famines, and it takes a fair bit of managing to run a national budget on that basis. I would not like to have to run the national budget based on the idea that farmers are always making a steady profit each year.

Where the mining tax might make some sense in my mind is if Australia were to place the returns of the mining tax into a sovereign wealth fund where you accumulate money. Of course there is not much danger of a sovereign wealth fund being created at the moment, because we have $110 billion in back debt to pay off, but the point is that you could accumulate money in times of high prices. It would pay interest that you could rely on. Then, when times were tougher, you would rely on the interest and would not draw down the rate.

But, as I said, there is very little chance of establishing a sovereign wealth fund in Australia in the near term, because of course we have great debts to pay off.

So the impact of the tax on small to medium miners is also quite apparent. As I said, there is currently only one company in my electorate affected and that is OneSteel. It is a time when OneSteel is really under pressure. The government has trumpeted the steel transformation package but I would point out that, as far as Whyalla is concerned, OneSteel could in fact take the money and run, because it could fulfil its requirements under the steel transformation package and still exit the Whyalla steelworks. The government wants to put another tax onto this company, which is trying to survive at the moment—and, sure, last year it made $500 million out of mining, but it lost $185 million out of steel making.

Interestingly, when it comes to the mining tax, after the AGM that OneSteel had two days ago, its chairman Peter Smedley said, 'There was not sufficient certainty around the outcomes to provide guidance on the financial impact of the tax.' I beg your pardon. It had been negotiating this tax for two years and now this significant miner still does not know how the tax will affect its bottom line. Two years of negotiation and it does not know. So that tells you where this important company was in the negotiation process—well outside the room.

Can we assume for the purposes of this matter that, if OneSteel made a profit of $523 million last year on mining—and I remind you that they lost $185 million on steel making—that 22½ per cent of that would be taken away by the mining resource rent tax. That is $100 million from a company that is losing $185 million a year on steel making, employing 3,000 Australians in doing so. It seems to be a very dangerous assault.

There is great expectation around the electorate that South Australia will emerge as a medium-size supplier of iron in the world market. The small start-up companies I have talked to are all redoing their sums at the moment in the light of both the carbon tax and the mining resource rent tax. One of the things they are telling me is that they are very concerned about the compliance burden because, while they will not be paying tax in the initial years, they are actually going to have to run separate accounting systems because the mining resource rent tax is calculated in a different way to their annual returns because it stops at the mine dump.

One company is seriously considering building a port and, in this case, the pipeline—it is not a railway; it is magnetite—for the calculation of the mining resource rent tax will not be deductible against the costs of developing the mine. The company will have to keep those records going into the future for when they reach the point when they will have to inform the government that they are now starting to make a profit out of this tax. They will run these dual accounting systems for all that time. (Time expired)