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Wednesday, 24 October 1984
Page: 2398


Senator CRICHTON-BROWNE(11.52) —I should not dare to add, Mr President, to the eloquence of the kind comments that have been made about so many people during the last half hour. However, with the indulgence of the Senate, or perhaps in spite of it, I wish to make some comments about a matter of considerable importance in Western Australia-the tax-free status of gold. I rise on the adjournment to remind honourable senators of the importance of maintaining the tax-free status of income received from gold mining and from the sale of the right to mine a particular gold deposit by a bona fide prospector.

This exemption was introduced during the Depression years of the 1930s. It was eminently successful in encouraging the development of gold mining. The production of gold between 1931 and 1940 doubled as compared with production in the previous 10 years. Prospecting and mining for gold is a particularly risky venture because of the volatile nature of the price of gold, the erratic and uncertain nature of gold deposits, and, more particularly, the very high cost in modern times of proving ore reserves and grade.

The tax-free nature of income received from gold mining has been a very important way of improving the returns on gold mining and encouraging enterprises to undertake the extra risks involved. Conversely, of course, any tax imposed upon gold would act as a powerful disincentive to investment in exploration and mining of gold, and that, in turn, would have dramatic repercussions for employment, not just in the gold mines themselves but in many small regional towns which are almost entirely dependent upon the gold mining industry generally for their continued existence.

A recent survey which covered 80 per cent of gold producers found that over 6, 000 people were employed by these companies. Additionally, there are the people employed in exploration work. Conservative estimates number them at about 500. There are thousands more in related jobs or service industries whose jobs depend upon the gold mining industry.

A tax on gold would immediately place jobs at risk. The first to go would be the small prospector whose income from prospecting is very low. Most small prospectors transfer their right to mine minerals which they have discovered to companies with the finance and expertise to develop a large scale mining operation. Of course, the income they receive from such transfers is tax free. To tax it would substantially reduce the incentive for small prospectors to carry on looking for gold that they cannot hope themselves to mine. Small prospectors make a great contribution to the gold mining industry. Their inherent flexibility, mobility and lack of overheads enable them to cover wide tracts of land and exploration which could not be justified by large companies in the absence of promising indications of mineralisation. Their detailed knowledge of particular areas makes them valuable field assistants for professional geologists. The small prospector's role in the industry was perhaps best summed up by the Chamber of Mines in its submission to the Industries Assistance Commission inquiry into gold production in 1975 which said:

The prospector will always be an integral part of prospecting for gold and is an essential and continuing aid to the discovery of minerals of all types.

A tax on gold would detrimentally effect the development of gold mining projects which are currently being studied, particularly the Eastern Goldfields of Western Australia. Many of these projects involve a relatively low grade ore which is now worth mining because of the development of the carbon-in-pulp process-no doubt that is well known to the Australian Labor Party-which enables gold to be extracted from ore that was previously considered to be of insufficient quality.

The imposition of a gold tax would inevitably make many of these projects quite uneconomic, adding several grams to the tonne and grade required to make the mine viable. It would also effect the mines which are currently in operation. Those which mine low grade ores are especially sensitive to any additional imposts and could be forced to close if a tax were to be levied upon gold. Unfortunately, once development has stopped and pillars in the stopes, or pull up levels, are removed that section of the mine becomes too dangerous to re- enter and therefore could not be re-opened. Therefore, mine closures would be permanent and the damage caused would be irreversible and irretrievable.

There is no question that taxation concessions for the industry prop up inefficient operations. The IAC report on gold production in 1975 found that these concessions provided little or no assistance to unprofitable mines and, therefore, would have little effect on decisions to close such mines. However, the report did say:

Production of profitable mines may have been stimulated, and some marginally profitable producers may have extended the operating lives of their mines in anticipation of higher gold prices, increased profits and increased assistance through the tax exemption.

It ought to be understood quite clearly that the price of gold has subsequently gone up. Many mines which in the past may not have been economic are now marginally viable and those which were marginally viable would become uneconomic in the event that there was a tax on gold. I believe that this fact was borne out by a submission from the gold producers themselves. For instance, Central Norseman Gold mines in Western Australia confirmed that the tax exemptions were effective in maintaining net profits above the level at which a decision to close operations might have been made. Central Norseman Gold mines is one of the largest gold producers in Australia. Had it not had this tax free moratorium or exemption that mine would have closed. It would have closed a town of approximately 4,500 people and a town which has a work force of something like 1 ,500 people.

In essence, therefore, the tax free status of income from gold mining sustains a substantially higher level of activity at all stages of the industry than would otherwise be the case. This is not to say, however, that the industry is free from government imposts-far from it. The gold producers must still pay royalties, tenements, mining licence fees, land taxes, water rates, withholding taxes, group tax, payroll tax, sales tax and stamp duty excluding sales tax. Impost paid by gold producers in 1982 amounted to, as best as I am able to determine, $19.3m. The cost of the tax free status of gold in terms of lost taxes to the Government is minimal, especially when one considers the cost of assistance to the manufacturing industry.

In 1982, prima facie tax payable at 42c on gold incomes could have resulted in an estimated $11.5m, a modest $11.5m, in taxation payable by the 80 per cent of gold producers covered in a recent survey. I compare that with the $197.8m spent on Commonwealth assistance to the manufacturing sector in 1982-83. In 1984-85 assistance to manufacturing will be of the order of $286.6m. That puts the assistance afforded to the gold mining industry by taxation concessions in some sort of proper and reasonable perspective. Of course, the potential revenue which could have been gained by levying a tax on gold income would have to be offset against the cost of the economic damage that such a tax would cause. I have already pointed out that well over 6,000 people are directly employed in the gold mining industry. In Western Australia, the goldfields region of Kalgoorlie, Boulder, Coolgardie, Laverton, Leonora and Menzies-perhaps I should refer to my own town of birth, Wiluna-with a population total of over 30,000 depends almost entirely on the income and employment generated by the gold mining industry. There is almost no other source of employment in these areas.

It would be inevitable that people who lost jobs in the gold mining industry would drift back to the city, starting a disastrous chain reaction in the service industries which relied on their income. In addition, declining gold production would result in declining export income from that source. Gold production in 1981-82 was worth $202.7m. Gold exports in 1982-83 amounted to $ 209.1m. I cite that figure in the clear understanding, accepted by the Senate, that of our export earnings 45.2 per cent is used to service our external debt and our external interest payments. I am raising this issue now because it is important for honourable senators to be aware of the damage that a tax on gold income could cause the gold industry. Unfortunately, members of the Australian Labor Party have already indicated their willingness to tax incomes from gold mining. At the oil and gas conference in November 1983, the Minister for Resources and Energy, Senator Walsh, said in regard to the tax free status of gold:

There is a negligible rational economic justification for that tax free status . . . subjecting gold to a rent tax with a threshold near the market rate of interest . . . would have little effect on investment.

With these sorts of remarks emanating from the Minister for Resources and Energy it is little wonder that gold producers are fearful of what action the Labor Party will take in the event that it is re-elected. The Minister for Industry and Commerce, Senator Button, with his inevitable, invariable and admirable frankness, has admitted that Australia will face 'significant budgetary problems ' in 1985 and 1986. If time allowed I would very much care to develop that argument. However that is a proposition Senator Button has put, and it is endorsed by this side of the chamber. A Labor government would be looking for more revenue from all possible sources to support its excessive expenditure. The disastrous effects upon the gold industry, and the towns and jobs which depend on it, of a gold tax would far outweigh any short term revenue gain.

I raise this because it is not without significance to note that in respect of the major export earners of Australia, mainly the primary industry sector which accounts for approximately 40 per cent of our export earnings, there is expected to be an aggregate reduction in income of 29 per cent this year. In respect of the export earnings of metals and minerals, which account also for approximately 40 per cent of our export earnings, there is a dramatic reduction in their level of revenue. The 1984 indices to 4 September show a decline of 20.4 per cent. Copper is at its lowest level in 30 years. The price of iron ore has reduced by 50 per cent in the last two years. The spot price of uranium is the lowest in history. The price of lead is the lowest in very many years. One could go through all these items and find without exception that there is dramatic decline in our capacity to earn income dollars from the mining, metals or farming sectors. As I said earlier, if one accepts that combined they provide something like 80 per cent of our export earnings, and those export earnings are absorbed by 45 per cent in terms of our repayments, we understand the difficulties that we have.

While Senator Button may be inclined to tell us that the manufacturing sector is being stimulated at present, that appears not to be the case. As one looks pragmatically and realistically down the road one quickly realises and appreciates that the economy in the next 12 to 18 months will be in great difficulty. For that reason I have grave concern, particularly given that Senator Button has told us in the last two or three days that there will be a total review of the taxation system in Australia. One can only assume, on the premise, on the bases and on the conclusions that can be drawn from the observations of and comments made by Senator Button and Senator Walsh, that there is no practical, pragmatic, realistic or economic argument that they would put forward which would exclude tax on gold. On that basis I put forward the submission that that is a grave risk to that industry and I trust that the Labor Party will seriously reconsider before it goes down that path. However, clearly it has not come out in any real form and denied the prospect of a tax on gold. It is on that basis that tonight I challenge the Government to tell me categorically that there will not be a tax on gold in the next three years.

Thursday, 25 October 1984