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Friday, 16 March 2012
Page: 2007


Senator EGGLESTON (Western Australia) (10:35): The Minerals Resource Rent Tax Bill 2011 is a very important bill with very grave consequences and I have some important points to make in criticising it. The government's proposed minerals resource rent tax, or mining tax as it has become known, is like a pinata: no matter where you stand, it is pretty easy to take a swipe at, and that is because it has so many faults. And, for good reason, there will be no sweet return for the Australian people, despite what the government would have us believe. This version of the mining tax has been conceived in secrecy as the result of a deal between the three big mining companies BHP, Rio and Xstrata. What cosy company the government keeps, one might say.

Senator Conroy interjecting

Senator Mason interjecting

The ACTING DEPUTY PRESIDENT ( Senator Stephens ): Order! Senator Eggleston, you have the call.

Senator EGGLESTON: According to one newspaper report, Xstrata's representatives—

Senator Conroy interjecting

Senator EGGLESTON: If I might have a little space, Madam Acting Deputy President?

The ACTING DEPUTY PRESIDENT: Yes. Minister Conroy, you need to refrain.

Senator EGGLESTON: According to one newspaper report, Xstrata's representatives even came along to the multibillion dollar deal negotiating table with Danish pastries. One can only say, 'How sweet!'

Senator Conroy: What about the hors d'oeuvres on Gina's plane?

Senator EGGLESTON: I was not there.

Senator Conroy interjecting

Senator EGGLESTON: You had representatives there, but we did not. As Andrew Forrest of the Fortescue Metals Group has said: 'It is amusing that Don Argus'—the former chairman of BHP—'chaired the so-called independent committee' that developed the plan for the MRRT. This plan clearly benefits the three big companies while disadvantaging the smaller miners—a point which I will expand on later in my speech. FMG is one of the world's largest producers of iron ore. In its first full year of production, FMG mined and railed more than 27 million tonnes of iron ore to customers in China. Mr Forrest is on the public record as saying, however, that FMG would not have got started if the MRRT had been in place at the time that it began operations. This statement should ring alarm bells in the office of every Labor member and senator, in my opinion.

The MRRT bill imposes an effective 22.5 per cent tax on the above-normal profits earned by mining of taxable resources. Proposed section 20-5 of the MRRT bill describes a taxable resource as iron ore, coal or anything produced from a process that results in iron ore or coal being consumed or destroyed without extraction, and coal seam gas extracted as a necessary incident of mining coal. Simply stated, under the MRRT the federal government will take a share of both the profits and the risks earned by the iron ore and coal industries. As shadow Treasurer, Mr Hockey, said earlier this month, it is nothing short of economic vandalism for the government to be imposing its new mining tax as well as a carbon tax. Both stand to decimate business activity and destroy jobs, ripping the heart out of the Australian economy and leaving in its wake a trail of bankrupt businesses and struggling families.

In addition, the question has to be asked as to when the Labor government's budget position will dictate that this tax will be expanded to other minerals, such as gold, nickel, bauxite, tin and copper. That is a very interesting question, indeed. Iron ore and coal are just the beginning, one must presume.

Western Australia is the economic powerhouse of the Australian economy, both figuratively and literally. WA annually produces more than $57 billion worth of iron ore alone and, as such, WA is the state most poised to feel the brunt of the mining tax. Senator Cameron in his speech questioned the right of states to impose royalties for minerals. The states, of course, charge royalties as the price of selling the minerals, which they own constitutionally, to the mining companies. The states have every right to do this because Australia is a federation of sovereign states—a fact which Senator Cameron seems to not comprehend. Perhaps he imagines that Australia is like the United Kingdom, with a single central government, or it has been in the past, which has an overriding right to impose laws on everything that moves and exists within the United Kingdom. But that is not the case in Australia and the rights of the states under the Constitution must be respected, especially in this House. The federal government rightfully taxes the profits of the mining companies, as company tax. So the states have a right to charge royalties and the federal government has a right to charge company tax on the profits the mining companies make from processing the minerals, under company law.

Let us take a look at the impact of this tax. Smaller and emerging mining companies will be hit hardest by the unfairly designed and ill-conceived tax. As a result, mining investment will undoubtedly continue to move offshore to countries with taxation regimes more in tune with the globally competitive marketplace of the 21st century. Already capital is moving in very large volumes to Africa and South America. During questioning at the recent Senate economics committee hearing into the mining tax legislation in February, represent­atives from the Association of Mining and Exploration Companies, or AMEC, which is an industry body for smaller Australian mining companies, said the design of the tax created a bias which favours the three large companies who negotiated this mining deal in secret. AMEC chief executive, Simon Bennison, said the tax represented an injustice against emerging companies, who would pay a higher effective tax rate of four to six per cent above the larger companies, such as BHP and Rio. Quite frankly, I find that to be outrageous.

Small and emerging companies are a very important sector of the mining industry because it is these smaller companies who go out and find new mineral deposits and develop into bigger enterprises which continue to put Australian mining on the map. FMG, of course, is a perfect example of this, as is Atlas Iron. As I have said, Twiggy Forrest is on the record as stating that, if this tax had existed when his company was started only a few years ago, FMG would never have got off the ground, and that is something which I believe should concern us all. The mining industry needs to have the energy and enterprise of new players so as not to remain static. But, as I said, as it stands these new smaller companies will be deliberately and differentially hit by this new tax. It will force them to pay a higher tax rate, which is in effect discrimination in the industry and is clearly counter-productive to encouraging new project developments. As Andrew Forrest has said, and I quote him again, 'The people who are just starting out will be slammed by this new tax,' and he asks, 'How is this fair?' It is a very good question.

His point has been reinforced by an inde­pendent study undertaken by the University of Western Australia which shows that the mining tax is not competitively neutral between an emerging miner and mature minors. Dr Pietro Guj, a Perth research professor in the Centre for Exploration Targeting at UWA wrote, in part:

Financial modelling of the iron ore mine development example provided by the Commonwealth in their MRRT legislation Exposure Draft and Explanatory Material, indicates that there may be significant differences between the Net MRRT and consequently the total level of taxation (corporate income tax + Net MRRT + Royalties) paid by projects which existed before 2 May 2010 (when the MRRT was first announced) and those that will start after the introduction of the MRRT on 1 July 2012.

The significance of this cannot be overstated in terms of its effect of discouraging new players in the mining industry.

Research has also pointed out that part of the tax's design allows a mature miner to claim large starting base allowances as a tax shield for some 25 years after the introduction of the MRRT. This is clearly very unfair and unjust when one considers the position of the smaller miners. The government seems to have forgotten the fact that BHP and Rio have deducted the capital outlay for their projects once already and received stamp duty discounts. Now they are getting another bite at the financial pie thanks to our wondrous Treasurer, Wayne Swan, and the Prime Minister, Julia Gillard, both obviously very good friends of very big business.

It is far from a level playing field, and the question must be asked: what message is the government sending to new and potential investors? Is the Gillard government stifling competition and promoting monopolies in the mining industry? That is the question that needs to be asked, but somehow I do not think that we will receive an honest answer.

The government needs only look at the impact that even talk of the tax has had on the investment sector in Australia. As I said, an increasing proportion of new funds raised in Australia are flowing offshore to mineral projects in Africa, South America, Canada and other jurisdictions. In fact, it is said that the head office of most of the new miners in Africa—in West Africa in particular—are actually located in West Perth. That tells a story of its own. In a media release issued in November last year AMEC said that its members were already experiencing prob­lems raising capital for projects in Australia. The CEO of AMEC said that many small and emerging miners were:

… looking to transfer their work to overseas jurisdictions that are also resource rich.

but which have less taxation-hostile environ­ments than Australia.

AMEC provided the House of Representa­tives inquiry with a graph showing the steady decline in capital raising for Australian mining projects since 2009, and another demonstrating a significant increase in capital raising for international projects such as in Africa, Canada and South America. The massive flow of capital offshore for exploration and mining has been ignored in the committee's majority report, but it exists nevertheless and the government should think about the implications of the fact that so much capital is going offshore when considering the revenue they hope to generate from the mining tax.

One of the naiveties of the Gillard government is not to understand that the international nature of mining investments is that capital can be transferred around the world at will. An article in the Australian just this week revealed that Australia's global share of the capital raised for mining projects has sunk from 21 per cent to 15 per cent since 2008 as countries such as Russia, India, China and so on attract tens of billions of dollars in additional funding, much of which could have come to Australia. This tax is already making Australia uncompetitive in the international arena, while the proposed economic revenue-raising benefits that the Gillard government has cited continue to remain uncertain at best. Like the Prime Minister's tenure, the modelling is somewhat flaky.

Just last week it was quoted in an article in the Australian that an Indian power and steel tycoon, Naveen Jindal, had issued a warning that the proposed mining tax could, 'dampen enthusiasm' among international investors for Australia. The week before that, another Indian investor, Gautam Adani, cautioned that the imposition of the mining tax on large coal and iron producers 'could upset the whole of the Australian economy'. Even Treasury admitted during questioning at the mining tax inquiry that it is, at best, a highly volatile revenue source which could potentially be downward trending.

One has to think about the implications of the tax raising less revenue in terms of the government's grandiose claims of what it will be able to do with that revenue. Last year, for example, there was an almost 30 per cent drop in the price of iron ore. If this continues in 2012-13, the alleged revenue the government has us believe the tax will generate will be short of one or two zeros, at the very least. So it is not an unreasonable prospect, given the scale of new Chinese and other funded developments in Africa, that the focus of iron ore mining in particular will shift away from the hostile environment which has been created in Australia by this new mining tax and go to Africa. And the returns to this government will be far, far less than they anticipate, basically because of their naivete in failing to understand the international nature of the mining industry and the fact that investment can be transferred at will around the world, and that is what is happening.

In July 2010 we were told the tax would raise $10.5 billion over the first two years, but that figure has been altered several times since then. All of this means the supposed benefits for superannuation, a reduction in company tax and the elimination of the deficit are in doubt.

Honourable senators interjecting

The ACTING DEPUTY PRESIDENT: Order! Senators, as you know, shouting across the chamber is disorderly. Please allow Senator Eggleston to complete his contribution.

Senator EGGLESTON: The government's alleged approach to tax reform is built on three key elements: to make the economy stronger and the tax system fairer and simpler. The mining tax fails at every turn. It is nothing more than a short-term tax grab that is ill-conceived, discriminatory, punitive and complex. In the interests of average Australians, members of the Australian community as a whole, the Senate should reject this tax.