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Wednesday, 2 June 2010
Page: 5063


Mr GIBBONS (10:21 AM) —I would like to start my contribution to the debate on the appropriation bills by congratulating my colleague the Treasurer on this budget. This is the third time in three years that he has brought down a budget for its time, the third time in three years that he has responded appropriately to the dramatically changing economic circumstances and the third time in three years that he has demonstrated economic management skills that are the envy of those opposite. The tax reforms announced in the budget will strengthen the country’s economy and make the tax system fairer and simpler for working Australians and businesses.

The Howard government failed dismally to capture the benefits of the previous commodity boom for the nation, but Labor’s reforms have been carefully designed to make the most of the opportunities presented by the current boom. There is help for small business in the form of a cut in the company tax rate, down to 28 per cent. The many small businesses in my electorate will welcome the head start they will be getting with this new rate cutting in from 2012-13. They will also benefit from the new instant write-off for assets worth up to $5,000. The simplification of other depreciation rules will also cut red tape and provide more upfront tax relief.

The budget provides the biggest package of incentives for Australians to save since the Keating Labor government introduced compulsory superannuation. These measures will help ensure that, instead of us squandering the benefits of the current commodity boom in the short term, we will save for the longer term and for more secure retirements. The progressive increases in the superannuation guarantee will mean about 3½ million lower paid Australians will receive concessions on their superannuation guarantee contributions for the first time. And it will be easier for those over 50 with smaller amounts in their super accounts to make catch-up contributions.

A decade of inaction by the Howard government allowed the nation’s infrastructure to become a bottleneck for our resource companies. The new resource state infrastructure fund will now make infrastructure spending a permanent feature of Commonwealth and state budgets. It will invest $700 million in 2012-13 and more than $5.6 billion over the next decade in improving our ageing infrastructure, particularly in the resource-rich states. And there is further encouragement for small resource companies to seek new mineral deposits with a resource exploration rebate, which will benefit the many gold exploration companies operating in my electorate.

The mining sector is now enjoying the benefits of a second commodities boom in little more than a decade. In particular, the big end of the industry has benefited from soaring world commodity prices and the billions of dollars of tax concessions they get from other Australian taxpayers. These include generous tax breaks available for mining investment. Other companies have to depreciate their capital equipment over its expected life, but mining companies can deduct the full cost of exploration immediately. There is preferential treatment for oil and gas companies that effectively increases depreciation rates for assets like oil rigs. While all companies pay company tax, these concessions mean that the effective rate of the tax that resource companies actually pay is well below the headline rate of 30 per cent. And then there are the fuel tax credits. While working Australians pay about 38c per litre in excise when they fill up, the likes of BHP Billiton and Rio Tinto get nearly all of this back through tax credits. In fact, the mining industry is the largest beneficiary of the fuel tax credit scheme and gets about $1.7 billion per year back from the taxpayer.

Independent analysis and some of the more informed media are starting to see the campaign by the Minerals Council and the opposition for just what it is—a great big bag of hot air. In fact, as I said in the MPI debate, I think it represents the greatest con job since the Fine Cotton ring-in scandal all those years ago. Last week in Senate estimates, the Secretary to the Treasury exposed the miners’ misleading claims about the rate of tax they are currently paying.

This week one of the world’s most respected energy consultants, Wood Mackenzie, revealed that the combined earnings of Australia’s coalmining companies between 2012 and 2016 would fall just 15 per cent, from $97 billion to $82 billion, under the new tax. Dear me, they will only make $82 billion in the midst of a global economic downturn instead of $97 billion! Also this week Reuters reported:

… it’s still business as usual in the booming Pilbara where the plans aren’t expected to result in significant losses of future production.

The reality is that the resources sector gets very generous benefits from Australian taxpayers when compared with other companies. Paying company tax does not entitle mining companies to extract the nation’s natural resources free of charge. Entirely separate from company tax is the amount that the resource companies pay the nation for the right to extract and sell its natural resources. These royalties are the price at which the nation sells its resources to the mining companies. If you like, they are the mining companies’ costs of raw materials.

The amount they are paying the nation for those raw materials has not kept pace with the soaring prices at which they are selling them to China and other developing nations. In fact, a decade ago the taxpayer received about $1 for every $3 of profit that mining companies made from selling our natural resources. Today that has fallen to $1 in $7. The nation is clearly not receiving anything like the same benefits from the resources boom as the mining companies and their executives.

The resource super profits tax will ensure that Australians get a fair share from our valuable non-renewable resources. Despite all their misleading claims, miners will not pay this new tax on top of existing ones. Not only will they receive a full rebate for the state royalties they pay but the RSPT will be deductible for company tax purposes. The Henry review recommended this as a better way to tax resources because it only taxes profits and fully recognises the large investments made in resource projects.

The significant reforms in this budget will build sustainable growth with low inflation. They will address potential capacity constraints in our economy and ensure that the proceeds from our mineral resources are dedicated to the best outcome for our economy and for all Australians. The budget changes are expected to increase the GDP by 0.7 per cent and real wages by 1.1 per cent in the long run. This reform dividend will be equivalent to an extra $450 per year in the pocket of a full-time worker on average weekly earnings. The changes are consistent with Labor’s conservative management of the economy and will not detract from our ability to return the budget to surplus and repay the debt.

Of course we have seen the expected scaremongering—the sky will fall in on the mining industry as a result of the RSPT. We saw much the same scare campaign over 20 years ago when a similar four per cent profits based tax was introduced on petroleum. Of course, that industry went on to grow and flourish. We saw a similar scare campaign over the repeal of Work Choices legislation and the abolition of Australian workplace agreements. We saw a similar scare campaign over the Carbon Pollution Reduction Scheme.

Let me reiterate a few points in response to the claims of the scaremongers. The combined figures for company tax and royalties that the mining lobby are bandying around are essentially meaningless. All companies in Australia are required to pay company tax and very few, as I said before, receive such generous treatment as our resource companies. The amount the resource companies pay the nation for its non-renewable resources has not kept pace with the soaring prices that the commodities are sold for. As I said before, no other industry would have the nerve to argue that just because it pays company tax it should get its raw material for free.

I have already said that mining companies operating in Australia get a big discount on the company tax they pay because of the very generous tax concessions they get at the expense of Australian taxpayers. In our current tax system an ordinary Australian who earns an extra dollar through their hard work pays higher tax, but a mining company that earns massive amounts of profits pays the same flat low rate of company tax.

10:29:41

Let us look at some of the other wildly inaccurate claims that are being made. The first is that the RSPT will reduce investment. This is absolute rubbish. Replacing an inefficient tax like royalties with an efficient tax like the RSPT will drive future investment, growth and jobs. OECD Secretary-General, Angel Gurria, has said that Australia would remain an attractive destination for investment because:

…what drives investors is not necessarily that they are going to pay higher or lower tax but the availability of raw materials.

The Commonwealth Bank has produced some interesting analysis of the RSPT:

… the key factor in a project getting backing is whether it generates a sufficient rate of return.

…            …            …

Banks and other financiers know that there are risks of failure, and take account of those downside risks in deciding whether to provide finance. Some projects don’t generate enough return to justify their riskiness, and they are the ones that don’t get financed.

But the RSPT will help more marginal projects get off the ground.

The Commonwealth Bank’s analysis shows that the RSPT:

… reduces the rate of return that a mining project needs to generate for it to be a viable investment.

This means that more mines will be able to get financing under the RSPT than under royalties and that mining output will be higher under the RSPT than under royalties—at any commodity price level. This should benefit the many prospective goldmining ventures in my electorate. The Commonwealth Bank’s economists concluded that the RSPT promotes growth and more productivity in the economy by more equitable and efficient taxation of resources.

There are claims that the RSPT will harm existing projects but, as the Treasurer stated, mining companies will receive due recognition of their past investment costs and there will be generous transitional arrangements to the new system. There is also a scare campaign that the RSPT will cause consumer prices to rise. However, independent modelling by KPMG Econtech shows that the RSPT will not increase prices, largely because the vast bulk of the minerals subject to the RSPT are shipped overseas at prices set by world markets.

The Department of Resources, Energy and Tourism has also advised that it expects there will be no significant effect on electricity prices from changed tax arrangements under the current contracts between coalminers and electricity generators. In fact, KPMG modelling shows that the government’s tax reform package, including the RSPT and the cuts to company tax, will actually reduce the price of food and housing over time by making our economy more competitive.

Finally, there is the outrageous claim that the RSPT is a triple tax on mining, coming on top of royalties and company tax. The fact is that the RSPT effectively replaces royalties as companies will receive a refundable tax credit for the amount they pay in royalties. If a miner’s royalty payments are higher than its RSPT liability, it will actually get a cash refund of the difference. This is one of the reasons why the less profitable projects, including those marginal projects where there is some uncertainty as to whether they go ahead, will be better off under the new arrangements.

Who is running this latest scare campaign from the resources industry? Who exactly are these people who are arguing that they should not pay the nation a reasonable price for its natural resources? It will come as no surprise to learn that they are some of the richest people in Australia. At a time when many working Australians are facing financial uncertainty and struggling to make ends meet, BRW magazine revealed in March that the 200 highest paid executives of Australian companies saw their personal wealth increase by 72 per cent in just 12 months and that 47 of these 200 executives are employed in the resources sector.

One of the loudest voices against the proposed new mining tax is Fortescue Metals Group, whose chief is Andrew Forrest. He is the second richest executive of a public company in Australia. According to Business Review Weekly, he is now worth $4.79 billion—twice as much as the year earlier. The figures in the Business Review Weekly survey are only the value of the shares that executives own in their own companies. They do not take into account the obscene salaries they are paid. For example, Marius Kloppers, Chief Executive of BHP Billiton, was paid more than $12 million last year according to the company’s annual report.

Tom Albanese, CEO of Rio Tinto, was paid $10.7 million according to Bloomberg Businessweek. Another vocal opponent of the RSPT, Woodside Petroleum’s Don Voelte, saw his remuneration leap from $6.9 million to $8.4 million last year. What have they done to earn these obscene amounts of money? Really, not very much. They have ridden on the back of the demand from China and India for raw materials, something over which they have no control. They have benefited from the Rudd government’s economic management that has shielded Australia from the worst effects of the global recession and they have continued to take millions in handouts from the public purse.

These overpaid Gordon Gekkos of the Pilbara and North Queensland have to realise that the party is over. They have to front up to the hangover and learn how to be good corporate citizens. They have been profiteering while their fellow Australians do it tough, doubling their personal wealth during a global recession and awarding themselves long-term employment contracts worth millions of dollars while they whittle away the job security entitlements of their employees. You only have to read an article in the Age newspaper early this week to see what is happening in the real world. There has been a 200 per cent explosion in personal bankruptcies among working Australians. As a financial counsellor at Uniting Care told the Age on 24 May:

I thought in the past we were seeing a lot of people with mortgage stress, but it’s just gone through the roof this year … Every second client has mortgage stress.

He said that casualisation of the workforce is a major contributor to mortgage stress. What he calls casualisation is what the leaders of business and the Leader of the Opposition call flexibility—the flexibility to hire and fire at a moment’s notice when the business cycle temporarily changes, the flexibility that was the Howard government’s euphemism for a return to employment conditions of the 19th century and the flexibility that was enshrined in Work Choices and the individual workplace agreements that the mining industry lobbied so hard for. Those are the same Work Choices that former finance minister Senator Nick Minchin said did not go far enough and the same Work Choices that the Leader of the Opposition has made clear he will bring back if the coalition is returned to government.

Why is the opposition dancing to the tune of the wealthy mining executives? For years we have seen the mining industry and executives pouring money and resources into political lobbying and other activities against the interests of ordinary Australians. They have funded extreme industrial relations lobby groups like the HR Nicolls Society. They have funded the arch climate sceptics at various societies, and for many years the likes of BHP Billiton, Western Mining, Caltex, Esso, Shell and Clough Engineering have funded the Institute for Public Affairs and have poured money into the coffers of the Liberal Party.

To understand why the first port of call after the announcement of the RSPT was the Leader of the Opposition’s office, you need look no further than the financial disclosures published by the Australian Electoral Commission. These show the biggest donor to the Liberal Party last year was none other than billionaire Queensland miner and scaremonger-in-chief, Mr Clive Palmer. Now these paymasters want a payback on their investment. They had the opposition dancing to their tune, a tune designed to benefit some of the richest people in the country at the expense of every working Australian. Fortunately, there are more reasonable voices in the resources industry.

The government promised there would be genuine and mature consultation with the mining companies within the framework announced in the budget and the Resource Tax Consultation Panel has been engaging with the industry since the announcement of the RSPT. The Rudd government will not be deterred by the scare campaign from getting the best outcome for both the mining sector and the Australian community. No-one should doubt the government’s resolve to make sure that the community gets a fair share of the mineral resources that belong to the Australian people, not the mining companies.

The government has determined to manage this next mining boom better than our predecessors managed the last. That is why we have started down the long road to tax reform, with a resources super profits tax that will ensure all Australians get a fair share from our valuable non-renewable commodities or resources. The proceeds from this tax will be used to increase superannuation savings on behalf of working Australians, including older workers; lower the rate of company tax for all companies to 28 per cent by 2014-15; give small business a head start, with a cut in their tax rate to 28 per cent in 2012-13 and an immediate depreciation write-off for assets costing up to $5,000; and invest in Australia’s pressing infrastructure needs, particularly in the resource-rich states. This budget is fiscally responsible. It builds on the Rudd government’s recognised achievements in shielding Australia from the worst effects of the global recession and it is another significant achievement by the Treasurer. I commend it to the House.