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Tuesday, 21 August 2012
Page: 9406


Mr MORRISON (Cook) (18:01): I rise to speak on the Tax Laws Amendment (2012 Measures No. 4) Bill 2012 and place on record my strong concerns as shadow minister for immigration and citizenship about the government's handling of the proposed changes to the living-away-from-home allowance, particularly as they apply to 457 visa workers who are existing in the country as opposed to those who may come after, who will be aware of and informed of these changes before making their decisions. Labor's failure to consider the ramifications of these changes for existing 457 visa holders and the industries that rely on temporary skilled labour, let alone investigate transitional options for those temporary workers who are already here, is particularly alarming. It demonstrates a complete lack of understanding of how the businesses that rely on these workers operate and the challenges facing, in particular, the minerals and resources sector, with many standing at a decision point when looking to how they will be investing funds in this industry in the years ahead in terms of the minerals boom. This government does not understand that those looking to invest in Australia, and our resources projects in particular, may simply decide to take their money and go somewhere else.

There are currently more than $500 billion worth of mining and resource projects in the pipeline, which the Treasurer likes to talk about so often. The issue is: how many of these projects will actually be realised? The June Business Outlook by Deloitte Access Economics stated that the 'current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line'. Of the 393 resource projects listed in April, 75 per cent remain uncommitted, with a combined potential capital expenditure of $243 billion. The Newport Mining business outlook report for 2012-13 found that just 25 per cent of companies surveyed are planning to invest in major capex projects this year, in comparison with 52 per cent last year.

According to DFAT, planned and committed investment by Australian companies in African resources projects now exceeds $50 billion, with Australian resources companies having more projects in Africa than any other region in the world. They note there are at least 230 Australian companies with around 650 projects in mining exploration, extraction and processing throughout 42 countries in Africa.

The Chinese are also increasing their focus on Africa. The China Mining Association says China is pouring more money into Africa while backing away from traditional markets like Australia mainly because of the cost. Chinese investment in Africa's mining sector in 2011 was $15.6 billion—10 times more than the previous year. China's mining investment in Australia plunged to $1.3 billion in 2011, a 70 per cent drop on the previous year. In the first half of the year, China's total mining investment in Australia was just $140 million.

As an indication of the increased competition we face, Australia's global share of capital raised for mining projects has dropped from 21 per cent to 15 per cent since 2008. While the value of capital raisings in Australia increased slightly from $4.3 billion to $4.5 billion between 2008 and 2011, in Africa it was up 26 per cent, in Canada it was up 31 per cent and in South America it was up 59 per cent.

The lesson in all of this is that our minerals and resources sector cannot be taken for granted—the coalition understands this—yet those framing public policy in the government, who write about this area of policy and spend the funds raised from it, continue to not understand these matters. If the Treasurer does not change his taxing ways, he will turn the investment pipeline for future projects which he likes to boast about into a pipeline to nowhere.

The LAFHA changes effectively amount to a retrospective tax on Australian companies for employing foreign workers—another punishment tax from this government that will fall disproportionately on the minerals and resources sector. Once again it has been sold by a Treasurer addicted to the envy rhetoric he used to sell the mining tax and the carbon tax, arguing the LAFHA changes would stop 'rorting' by 'highly paid executives and foreign workers at the expense of Australian taxpayers'. This is just another example of poorly executed policy from an inept government that chops and changes policy at the drop of a hat, with often disastrous consequences. This is how Labor has introduced sovereign risk into the investment equation for Australia.

I note, as my colleagues have done, that the government has introduced late-hour amendments, largely in response to the recommendations of the House of Representatives Standing Committee on Economics, which seek to ensure the living-away-from-home allowances will be taxed entirely within the FBT system rather than in the personal income tax stream or a combination of both. This will ensure the requirement to pay tax and understand the tax rules remains with the employer and should hopefully create greater consistency with the treatment of other benefits. These amendments will also expand the definition of fly-in fly-out and drive-in drive-out workers and ensure that provisions which prevent people from accessing transitional treatments if they 'vary' an existing arrangement will only apply to 'material variations', not normal salary increases or things of that nature.

It is for the government to guarantee that these last-minute amendments will in fact do what they say they will and will not have unintended consequences. However, I remain concerned about the government's apathy towards temporary workers and employers whose livelihoods depend on being able to access temporary skilled labour where positions cannot be filled with specialised employees from within Australia's workforce, including the minerals and resources sector.

Our nation's prosperity over decades has been in no small part due to our skilled and productive workforce. Despite the very small number of foreign workers in Australia on 457 visas, their economic contribution to this country continues to be substantial. In May there were 90,280 primary 457 visa holders in the country, with 7,500 working in construction and another 5,200 in mining. The 457s account for less than one per cent of our labour force, yet Access Economics suggests that 457 entrants in the 2010-11 program year will generate $2.2 billion over three years, which works out to be more than $27,000 for each position. Similarly, permanent skilled migrants generate a net fiscal impact of $22,000 each across the space of three years.

A research paper by the American Enterprise Institute for Public Policy Research and the Partnership for a New American Economy found that two primary categories of temporary foreign workers in the US are associated with strong job creation for Americans. The study found:

States with greater numbers of temporary workers in the H-1B program for skilled workers and H-2B program for less-skilled non-agricultural workers had higher employment among US natives. Adding 100 H-1B workers created an additional 183 jobs for US citizens. Adding 100 H-2B visa class workers created 464 jobs for Americans.

The coalition does not see temporary labour migration as a threat to Australian jobs. Rather, it is an important tool to secure the future of businesses to ensure they can employ more Australians. A business that has to close because it cannot get the employees it needs employs no-one. It is lose-lose every time for everyone.

Of course we need safeguards. The coalition will retain the sanctions and penalty regime implemented following the Deegan review, and we will come down hard on those who abuse the system we would operate if we were elected. An employer abusing the 457 program can expect the same tough stance from a coalition government as anyone else seeking to undermine the integrity of our immigration program, including on our borders. But circumstances arise where gaps open up and demand for skills cannot be met as swiftly as required by project deadlines. It was the coalition who introduced 457 visas and we believe temporary migration remains a useful tool to manage labour market fluctuations. We have consistently made the point that our migration program should be a supplement, not a substitute, for the Australian workforce, to fill gaps that open up by the way our population grows naturally.

Companies behind large resource projects need security guarantees for their investors to ensure access to the skilled workers they need to operate these projects viably in Australia. That is why the coalition supported the government's enterprise migration agreements policy when it was included in the 2011-12 budget. In principle, it is a sound policy designed to safeguard investment in our country and protect Australian jobs. If backed up and competently implemented, enterprise migration agreements are good policy.

Sadly for the Roy Hill project, the first to engage this new policy, the government's EMA policy has so far proved to be a mirage. Despite bipartisan support, the government still managed to score an own goal on this policy. On the day of her own government's announcement of the Roy Hill EMA, the Prime Minister amazingly claimed to be 'furious', caving in to union pressure and hanging her immigration minister out to dry, casting doubt over the arrangement and the policy. DIAC officials testified at estimates:

… a lot of those businesses are waiting for the first application to be approved to see what sorts of concessions the government has approved before they make a decision to proceed.

The Roy Hill EMA is the first experiment and so far it has only set a precedent for uncertainty.

Our Prime Minister cannot be trusted not to change the rules on projects like this once an agreement or investment has been made. The living-away-from-home allowance debacle I think is a case in point. Historically, the living-away-from-home allowance has been one option used by employers as an incentive to attract skilled workers to Australia. This is particularly important for the resource and mining sectors. Businesses and employers need to have confidence that they can make important decisions about future investment and projects that might have a three- to five-year life, without the government changing the rules every few minutes.

Despite the impact these changes will have on existing 457 holders and reliant industries, the government has made no transitional arrangements available for these temporary residents. What is even worse is that it was revealed in answers to questions on notice posed by the House committee investigating these bills that Treasury had not even been asked to look at running a model over such a possibility. The coalition requested this bill be referred to the House Standing Committee on Economics to seek further clarification on the potential for unintended consequences to arise. The committee received widespread submissions from industry highlighting the damage this would do to Australia's reputation and the hardships this could cause for current and prospective 457 visa holders.

Introducing this change midstream runs the risk of triggering great doubt for temporary migrants and potentially damages Australia's attractiveness as a destination for temporary skilled migration, and the bill will be paid by Australian companies employing these workers who will have to pay the gross amount. So make no mistake: this bill will create a tax burden in addition to what is already being paid by these companies, simply for the fact that they currently have temporary 457 workers on their books. This is particularly pertinent in the mining sector, where guaranteed labour supply of skilled workers is time critical in providing investor security to get megaprojects off the ground and ensure long-term investment in Australia and Australian jobs.

Extensive consultation with industry has consistently raised concerns that these measures will create widespread uncertainty and may dissuade people from pursuing temporary visas in Australia and leave many industries with chronic skills shortages and gaps. You just cannot go changing the rules all the time and expect people to believe you when you say they are not going to change again.

The other issue I wanted to raise was that in the report tabled last week coalition members of the committee, including me, expressed concern in supplementary comments to the majority report over the lack of consideration given to the flow-on effects for 457 visa holders and, consequently, Australia's sovereign risk. The government has estimated the measure will provide $50 million in 2012-13 and $217 million in 2013-14. An additional $353 million is expected in 2014-15 and just under $400 million in 2015-16. Treasury admitted in response to coalition questions that, given the uncertainty around how individuals choose to respond to the policy, there is a high degree of uncertainty about the respective contribution of different revenue components to the total fiscal impact.

The coalition put to Treasury two scenarios extrapolated from Department of Immigration and Citizenship data, as opposed to ATO numbers, which suggested the additional tax revenue of this scheme could exceed $550 million per financial year. These figures suggest—and I put it on record here—that this measure could have a significant tax windfall for the government, and they have failed to investigate it. And, knowing that there was potentially additional revenue here, the government did not seek to address the retrospectivity issues of this bill. As a result it has allowed the perception to now be confirmed that the government will change the rules on you midstream.

When asked whether, based on those models, the department agreed the revenue was likely to exceed their estimates, they answered, 'No; the Treasury modelling has been informed by data provided by the ATO.' Treasury noted that 'revenue from 457 visa holders is not expected to increase significantly year on year', yet no further details were offered as to modelling scenarios that may have involved fluctuating 457 numbers, given this visa program is market driven.

Treasury indicated that for the purpose of modelling it was assumed that around 50 per cent of employees will convert LAFH allowances and benefits into salary wages. However, they have not indicated how this was arrived at. Treasury have indicated that costings were modelled 'on the notion of average rate of LAFH allowances or benefit, which reflected a range of family compositions'. However, Treasury did not indicate what the ATO considered to be the average rate of LAFH allowance or the nature of family compositions. Furthermore, Treasury have not provided their costings in calculations relating to food and accommodation allowances, and there are many different permutations and combinations that could result from the removal of the living-away-from-home allowance. What all this adds up to is that the Treasury did not model parallel transitional provisions for 457 visa holders. When asked about this, the Treasury simply did not have the costings for these scenarios.

What is concerning here is that when you make changes you should always avoid retrospectivity, because retrospectivity is not a taxation principle that, I hope, anyone in this House would support. The impact of this retrospectivity is just another big tax on the mineral and resources sector in particular. It is a tax from this government on people who have employed foreign workers.