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Tuesday, 24 February 2015
Page: 1184


Mr GRAY (Brand) (20:37): I should say at the outset that the opposition supports the bill in all of its parts. Schedule 1 reduces the tax penalty for making excess, non-concessional superannuation contributions. Schedule 2 transfers the tax investigation and complaint-handling function of the Commonwealth Ombudsman to the Inspector-General of Taxation, while schedule 3 establishes a legislative basis for the longstanding practice of exempting certain compensation payments from capital gains taxes. Schedule 4 ensures that the individuals whose superannuation contributions are involuntarily transferred to another fund are not disadvantaged through the transfer. Schedule 5 allows taxation officers to record or disclose protected information to support or enforce a proceeds-of-crime order, and schedule 6 introduces an exploration-development incentive to encourage investment in small mineral exploration companies undertaking greenfield mineral exploration in Australia. It provides Australian resident shareholders of junior explorers with a refundable tax offset. Sech ule 7 of the bill makes a number of miscellaneous amendments to the taxation and superannuation laws.

The opposition supports this bill. I would, however, like to make some observations about the exploration tax credit. It is a measure which has been mooted for many years in Australia and over the years in fact we have had several of these facilities in place, most of them finding their way out of the legislation books as a consequence of the way in which companies had manage them or as a consequence of the measures themselves not working as designed. I believe that the government has put a lot of work into this measure, and I certainly commend the minister, Minister Macfarlane, for the tremendous amount of work that he has put into this measure over the years.

It is said and it was repeated in the speech in which this bill was presented that these measures are designed in part to reverse the slump in exploration for mineral resources. Exploration activities are critically important to Australia's resources sector. Exploration activities drive a whole economy that is around exploration—discovery, defining a resource and then pursuing a development option. Even the quickest of our projects takes years from discovery to development. I can recall being in high school the year that Roxby Downs was discovered by Western Mining and the discovery of the uranium find at Olympic Dam, which we now refer to as Roxby Downs, took place in about 1974. The first ore was extracted from that mine in the mid-1980s. Sometimes we reflect on that now and think that that was actually pretty quick time, but in reality speed to market is a key to making both our exploration and our minerals production sector more and more powerful and more and more capable.

At the end of the Labor government there was an estimated $270 billion pipeline of committed capital investments and direct employment in resource operations across our country was 250,000 people. In the first year of the Abbott government we have seen this reduced to an employment of under 230,000 people and we have seen significant decreases in mining exploration. This has been largely driven by the commodity cycle. There is no point going out to explore for iron ore when the iron ore price is dropping below $70 and the cost of extraction can frequently be in excess of $50. The commodity cycle itself has driven a certain amount of the drying up of exploration activity. I therefore do not imagine or envisage this measure unleashing a massive avalanche of investment in exploration.

In Australia we had a flow-through share scheme similar to this in the late 1950s, and that was curtailed in 1973. The scheme that was introduced in the late 70s by the Fraser government was wound up in part by my father-in-law in 1985, when he was the federal resources minister. The schemes that were operating in the period 1958-1973 were based on providing tax deductions on funds invested in petroleum and mining companies for the purposes of exploration. The scheme was abolished because it was used for tax avoidance, and inquiries found it contributed little towards mineral exploration. The flow-through share scheme that operated in the period 1978-1985 was based on providing a rebate of 27 cents in the dollar of share capital subscribed to a petroleum or mining company. The concession applied initially to offshore exploration but was later extended to onshore exploration and it was abolished in 1985.

As we introduce and confirm this bill into the statutes of our land, we need to understand that this parliament should pay very careful attention to how it works and those companies that are utilising it. We want it to work. The latest statistics from the industry department, the Resources and Energy Quarterly, issued by the chief economist in the last quarter of last year, showed that exploration expenditure had in fact declined by 29 per cent year on year in the September quarter as lower commodity prices encouraged cost-cutting programs, including reduced exploration activity across the mineral sector. The report says:

With lower commodity prices forecast in 2014-15, a rebound in exploration expenditure appears unlikely in the short term while minerals exploration has declined, exploration for petroleum increased.

However, that was driven by many different factors, usually associated with coal seam gas extraction on the east coast. The report also notes:

… the rapid decline in oil prices may affect petroleum exploration expenditure over the remainder of 2014-15.

The reality is that around the world we now see exploration rigs in the oil and gas industry lying idle and we see programs being suspended for a good reason—the global price of oil has come down. It has come down significantly and it has come down as a consequence of demand-and-supply factors. Importantly, it has also come down because of conservation measures.

When we look at exploration, we do not really see an activity that can be driven by tax measures in the way that I believe is envisaged by the construction of this bill. That is one of the many reasons that throughout 2013, whenever I was invited to speak on this subject, I spoke openly and publicly about my opposition to this measure. I will add that, at that very same time in the election campaign of 2013, Ian Macfarlane spoke long and hard in favour of this measure. As a consequence of this being one of the policy commitments of the then Liberal opposition, the then shadow minister for resources, and the government having changed and argued this case, it is my belief that this bill should be supported—and it will be.

Exploration at new deposits fell 47 per cent compared with the September quarter 2013, while exploration at existing deposits fell 18 per cent. In the September quarter alone, exploration expenditure in Western Australia fell 25 per cent year-on-year to less than $860 million. The only jurisdiction showing a difference to that was the Northern Territory, where exploration expenditure increased by 43 per cent. Every other state had shown large declines in exploration expenditure. I believe that a lot of that exploration in the Northern Territory was driven by shale gas exploration.

When we look at the other side of this cycle and look at what is actually happening in the global marketplace for our commodities, we see a salutary lesson—and it is an important lesson for policymakers looking at the indicators for the health of our economy. If you just focus on the exploration economy, you can resolve that there is a problem and that problem should be fixed by a tax break. But when you take yourself up to a higher height and look at the whole of Australia and look at the full palate of minerals and commodities that we explore for and export, you see the following picture. We see, for instance, that alumina in the last year had seen a reduction in volume of almost nine per cent. A price change was significant there, but our production volume had dropped by nine per cent. With aluminium itself, we dropped by over 16 per cent and there was a price fall of nearly 10 per cent.

But the big commodity is iron ore. In iron ore we exported an additional 100 million tonnes last year. It is worth bearing that in mind, because in 2000 the total iron ore production of Australia was 100 million tonnes. But last year we increased our production from 651 million tonnes to 774 million tonnes—virtually a 100 million tonne expansion and an increase in volume of almost 15 per cent. But, at the same time, we saw a reduction in price for iron ore of close to 25 per cent—23.7 per cent, to be precise.

So what we see in the global marketplace are healthy prices for our commodities but prices that are still substantially less than what they were at their peak. At its peak, iron ore was fetching in excess of $160 a tonne. Today, iron ore is fetching the better part of $80 less than that. If we look at thermal coal, we see a reduction in price of thermal coal in the order of 10 per cent and we see a three per cent price change for metallurgical coal. So our commodities are struggling in the international marketplace because of price changes that have happened over the course of the last year, not because of the lack of a discovery of a new Roxby Downs, a new Broken Hill, a new Mt Isa or new goldmines. The lack of exploration is driven by the commodity cycle.

Again in this report from the Chief Economistwe note that Australia’s iron ore exploration expenditure had decreased 40 per cent in the September quarter year-on-year. The Chief Economist says:

The slump in the price of iron ore and the significant increase in Australian supply have reduced the incentive to search for new deposits. Based on forecast lower prices in 2015, exploration expenditure for iron ore in Australia is not expected to rebound in the short term.

If we look at other commodity groups we see identical stories. If we look at coal, we see Australia's coal exports in thermal coal under pressure on price and industries and businesses performing but, on exploration, Australia’s coal exploration expenditure in the September quarter was around $80 million—almost one per cent lower than the June quarter and a whopping 27 per cent lower than the September quarter 2013. Lower coal prices reduced the incentive to invest in exploration during 2014.

I make these points because they are based in fact, they based in information and they are based on terrific work done by very, very good Public Servants. For those of us who care about our minerals economy and about our resources sector—as I know the minister for resources does and I know we all in this place do—it is all too easy to fall for a very easy argument that says that exploration has fallen off because of the Labor government's mining taxes or exploration has fallen off because of the Labor government's taxes on carbon. That has been said in this place, and it is a shame. The real reason exploration dollars had been held back was that commodity prices have fallen.

If I look at gold, we see that Australia’s gold exploration expenditure totalled $90 million across all states in the September quarter 2014. That was down 13 per cent from the previous quarter and a whopping 32 per cent relative to the September quarter 2013. Gold exploration has decreased in Australia as gold producers, like most mining companies, are more focused on cutting costs and enhancing productivity in response to lower prices than identifying new deposits. I had the great pleasure just a few weeks ago of spending time at AngloGold Ashanti's Tropicana goldmine—a well run, safe goldmine; a goldmine run by very, very good operators in a remote part of Western Australia; a goldmine that is outperforming its production targets and which has benefited from a falling Australian dollar and from an increased gold price; a goldmine which, a few years ago, could have been doing it tough will this year and next year do very well. That is not because of any policy settings by any government but because of the commodity cycle—because of what is actually happening in gold prices.

Perhaps closer to the bone in Western Australia is nickel. Nickel has had a tough ride these last few years—from highs of in excess of $25,000 through to prices now that are often closer to the $15,000 mark per tonne. But, when we look at nickel and cobalt, we see that Australia's expenditure on nickel and cobalt on nickel and cobalt exploration in the September quarter had declined 36 per cent year on year to $24 million, although prices were higher for much of 2014. Again, the benefit of the declining Australian dollar had translated into a much better story for our nickel producers. Nickel producers tend to be at the smaller corporate end. They tend to be at the end where a dollar is a dollar, where companies have to be so cost conscious, so cost focused and so efficient at what they do that every single opportunity counts. It is in nickel that we first saw Western Australia's mining companies reducing wages not just in the corporate offices, where they laid off people and laid them off because they had to cut costs; but out on the sites they were also in the business of everyone taking a cut. There are some nickel producers in Western Australia where wage cuts in the order of 10 per cent ran through their companies in 2012-13. Those companies have done well, but exploration that was much higher in 2012-13 has seen substantial falls in the course of the last year.

Increased production in response to higher prices is expected to be achieved through the restarting of some mines that are currently in care and maintenance. That is a great story for nickel. There is a great story out there also in copper and a terrific story out there in lead. Zinc is an important commodity export for Australia and in response to higher prices exploration expenditure for zinc, lead and silver had increased by 27 per cent in the September quarter, driven by a much better price cycle. These commodity price cycles control everything in our resources sector. They control whether or not an exploration target can be developed and they control whether or not the exploration targets development will run for the natural life of that mine and whether or not some brownfield exploration might be conducted also to extend the mine life.

I cannot emphasise enough my personal belief that these exploration activities are not driven by the taxation regime. They are driven by a belief that there are minerals out there that can be found, that there are customers out there that need those minerals, and they are driven by a great belief in the mission that our explorers have to do their jobs as well as they can do them and as safely as they can do them.

Minerals exploration in Australia in recent years has been largely supported by innovative and creative programs that have been put together by Geoscience Australia and through Geoscience Australia through state government exploration programs. Those exploration programs in South Australia like the PACE program drove the discovery of the Carrapateena resource in 2006, quite possibly the most spectacular resource discovery in Australia in the past decade. Carrapateena, a copper-gold formation near the Woomera Prohibited Area and near Roxby Downs in northern South Australia in the electorate of the member for Grey, is one of the discoveries that will drive new minerals production through the coming decade and hopefully 20 years. But it was not discovered as a consequence of a tax break for the people who went out exploring for it. It was discovered because of the prize, because of the international commodity price cycle, because of the belief of an explorer that he and his team understood the geology better than anyone else and had a scientific conviction that they could find that resource or something like it in the geology in which they were looking. That is the spirit that drives exploration. I have yet to find the explorer whose activity was driven by tax.

Having said all of that, it is with great interest that we will watch how this mechanism works. It is with great interest because it is a thoughtfully constructed mechanism. It is an expensive mechanism—it is about $100 million. But it is a mechanism that we hope will result in an industry getting more life and more vigour, that will keep more rigs at work, that will keep more of our skilled geologists and more of our exploration teams at work looking for gold, looking for copper, looking for lead and looking for those minerals that will be the future of our mining industry, and that will sustain a vibrant and capable exploration sector in Australia.

It is interesting to note that the exploration for minerals is often the best way to drive regional development. The discovery of nickel, gold or copper, or the discovery of a new iron ore belt or the discovery of uranium can drive the construction of a town, a locality or a region. You only need visit the Surat Basin or the Galilee Basin in Queensland to see how regional communities from Chinchilla through to Dalby have had new life breathed into them through first the exploration and then the production of gas through the coal seam methane industry.

This work really does create lives and gives purpose to our communities and, importantly, in the context of those discoveries and that production of coal seam methane through Queensland, will see the generation of in excess of a billion dollars to benefit the people of Queensland through royalties paid out of that industry that will build schools, roads and hospitals in Queensland, benefiting Queenslanders for future generations—for many generations to come.

In Western Australia, the iron ore mines generate royalties that support schools, roads and hospitals. So in tough times, the state of Western Australia has to be deeply conscious that the miners themselves are under massive cost pressures, cost pressures that are driven by the global marketplace, by virtually $80 or $90 per tonne being taken out of the price of every one of the near 750 million tonnes of iron ore that will be produced principally out of Western Australia in the current calendar year.

As we put in place measures that support exploration and support the resources sector, we should not ever lose sight of how tough that industry is. While we have in our minds how tough the industry is at this time, we should also have in mind the great and courageous steps that have been taken by those companies currently in production to keep their businesses in place, the tough work being done by companies like Atlas or BC Iron and the tough work being done by our minerals producers to ensure that jobs are kept in place for the course of the next five, 10, 15 and 20 years. I commend this bill to the House. The opposition support this bill and we look forward to its passage through this House.