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Monday, 19 March 2012
Page: 2078

Senator GALLACHER (South Australia) (11:27): I rise to speak in support of the mineral resources rent tax. This debate is bringing out the best and worst speeches of parliamentary debate—and perhaps the most entertaining as well after the contributions from Senator Sterle and Senator Boyce. I would like to address three main points in this debate: one is in relation to price competition and supply for iron ore and black coal; the sovereign risk, which has been alluded to at great length; and, finally, spreading the wealth.

One of the most valuable resources in the parliament is the Parliamentary Library, and I will pay tribute to their facts in relation to iron ore statistics. Australia and Brazil dominate the global iron ore export market. Quite obviously, China dominates the global import market. Iron ore exports have increased from 966 million tonnes in 2009 to 1,081 million tonnes in 2010—clearly, an increase of 12 per cent. Companies which we are mainly competing against—Brazil, India, South Africa , Canada, Russia and Kazakhstan—are all in the iron ore trade. Of total global exports, Australian and international companies in Australian exported 427 million tonnes, or about 40 per cent of the global market, followed closely by Brazil, with 311 million tonnes or about 29 per cent. Competition then fell away to India with 104 million tonnes or about 10 per cent of the global market and South Africa with 48 million tonnes or four per cent.

The average export price of iron ore in early 2005 was around US$30 per tonne. It steadily increased until the GFC and then, due to the severe scaling down of international trade associated with the GFC, the average price fell from mid-2008 until the middle of 2009, before increasing again in 2010. Since then they have increased substantially. By mid-2011 the average price peaked at US$145 a tonne before a slight decline. Australia has mostly exported in recent times, from 2009, at around US$60 a tonne, which was the higher priced end of the market. Brazil exported at around US$40 a tonne. In 2009 India's export prices were around US$60 a tonne.

In the first seven months of 2011 most of Australia's exports were priced between US$140 and US$160 a tonne. Our competition, Brazil, exported at US$130 a tonne, while India's export prices were US$120 to US$140 per tonne. Thus, prices have more than doubled in the past few years for iron ore, and that has been associated with much increased demand from China. The price differential, which much is made about, is generally based on the quality of the iron ore that is being produced in each country. So there we have the situation with respect to iron ore: there has been a steady increase in demand, at about 12 per cent or more per year; there has been a doubling of the price; and we are still at the top end of the market, based on our price competi­tiveness and the quality of our product.

In relation to black coal, on the supply side of the global market, companies in Australia are mainly competing against companies in Indonesia, Russia, Colombia, South Africa and Kazakhstan. Of total exports of 1,090 million short tonnes in 2009, companies in Australia exported 289 million short tonnes or about 27 per cent, followed closely by Indonesia with about 24 per cent, Russia with 12 per cent, Colombia with about seven per cent and South Africa also with about seven per cent. So, once again, we are leading in the number of tonnes exported.

We compete with countries right across the globe—Indonesia, Russia, Colombia, South Africa, United States, China, Canada, Vietnam, Kazakhstan and others—but, importantly, we are right at the top in supplying our coal to the rest of the world. In the market for coal exports, our most important customer is Japan. Unfortunately and tragically, Japan has had an energy crisis resulting from the Fukushima disaster, but clearly that is not going to diminish their demand for energy, whether it be in the form of gas or coal. Eighteen per cent of our global exports go to Japan; followed by China, 15 per cent; South Korea, 11 per cent; and India, seven per cent. Clearly those markets are all emerging, growth, high-value economies. Their demand for resources is unlikely to be diminished. So we lead the tables both in iron ore and in coal.

World coal prices were volatile in the wake of the global uncertainty. However, with the increased demand of China, the average price of thermal coal in October 2011 was 14 per cent higher than a year earlier, reaching a record high of US$134 per tonne following eight consecutive weeks of increases. The expectation of a coal supply shortage and surging demand is expected to push prices up further. As the world's largest coal consumer, China consumed 2.28 billion tonnes of coal in the first nine months of 2011, a 10.3 per cent increase year on year. China became a net importer of coal in the first nine months of 2011, with net imports of 111 million tonnes. During the month of September 2011 the country imported 19.12 million tonnes, up 25 per cent year on year.

So the picture is becoming very clear. We are right at the top of world exporters in terms of quantity, we are achieving a competitive price, our product is of the highest order, our supply chains are able to meet the demand and, thus, we are in a boom cycle and the capacity to pay the minerals resource rent tax is evident from even a cursory glance at the underlying price pressures. I will say that again: clearly, if you look at the supply, the quality of the resources, the supply chain efficiency and the competitiveness amongst our peer group, we really are in a boom cycle and the capacity to pay the minerals resource rent tax is evident with only a cursory glance at the underlying price pressures.

Much has been made recently in this debate about sovereign risk. I find it absolutely appalling that those opposite could raise the issue of sovereign risk. There are countries out there striving to provide proper systems of law, justice and infrastructure and facing enormous social challenges with respect to improving the situation for their people. They should not be used as cannon fodder in a debate in the Australian parliament. If a West African nation is able to attract investment and get an iron ore field up or a coalmine going, we should be applauding that. We should not be coming into this place acting as if it were somehow detrimental.

Australia is fortunate, very fortunate, and our history will say that we are a safe investment destination. Our reputation is such that there are simply no grounds for making the argument that a resources rent tax will drive investment away from Australia. The quality of our resources, the efficiency of our supply chain, the efficiency of our workforce, the long-standing rule of law and the demonstrated history of returns on investment will simply not give any weight to that argument. For people to come in and use that sovereign risk argument is denigrating Australia, I think, and is not helpful to those countries that may be seeking to get their leg up, if you like, and get some investment in some of their mining and export opportunities.

So the facts are quite simple. Australia can and will continue to be an attractive destination for global miners to invest. The rule of law, as I have said, the certainty of supply, the efficiency of our workforce and the quality of our resources will continue to ensure that. And I would like to put on the record that, clearly, the facts lay out a case that the global miners are not doing it tough. They can choose, and they will, to determine where their investment goes but the quality of our resources, the size and availability of our resources, the continuity of supply and the added features of the rule of law and a demonstrated history of return on investment will continue to ensure Australia's future prosperity in respect of mineral extraction and export.

Spreading the wealth is another consideration. The history of mining in Australia shows that mining companies have always contributed to infrastructure improvements. In fact many of them have built towns, schools, sporting facilities and houses. They operated stores and all of those appropriate things from another age, if you like. With the wider take-up of fly-in fly-out arrangements, that is changing. I happen to believe that fly-in fly-out arrangements are mutually beneficial. Most Australians live near the coast or on the coast or in cities close to the coast and it is fair enough. If you work hard, you want to go home and enjoy all of the benefits of your labour and all of the things that make you happy in your lifestyle, so people fly in and fly out. They fly home to a nice place and they fly back into fairly severe accommodation with little or no recreational facilities, and given that most of them work 12-hour shifts, there is probably not a lot of time for any recreation anyway.

Conversely, the mining companies now have less demand on them for provisions of facilities on mine sites. There is less demand on them for the provision of stores, social clubs, football ovals and the things that I have seen in mine sites all round Australia from the previous generation. Why then is it not fair and reasonable to take some of the increased profits that these mining companies are making and spread them around a bit? They have a vastly reduced cost for infrastructure. The Minerals Resource Rent Tax will spread the wealth created by a resource owned by all Australians. There is the significant tax cut for small business, for almost 5,000,000 Australians working in 2.7 million small businesses. Small business will benefit from the instant tax write-offs, going from $1,000 up to $6½ thousand. The Minerals Resource Rent Tax will fund new roads, bridges and important infrastructure.

Most importantly, the MRRT will allow the superannuation guarantee to increase from nine to 12 per cent. Much has been made of the use of these funds but, just on this particular point, what better use than building a national pool of long-term savings owned by Australians and invested by Australians in the best interests of their retirement outcomes? A national savings pool would stand at almost a trillion dollars now and with the addition coming from the nine to 12 per cent, it will increase perhaps threefold. What better use than to put in the long-term savings accounts of Australians significant amounts of money? It will be there for their retirement income but along the way, for the 30-year horizon that most people will be in the workforce, this national savings pool will grow to dominate the investment markets of Australia. It will provide funding for infrastructure and the myriad capital requirements in our great nation's future. I can think of no better use than increasing the nation's savings pool, because that is long-term capital. It is Australian capital and we will start funding our own ventures and will be less capital-reliant on the rest of the world. We may even be able to use some of that capital to help out our near neighbours and perhaps provide some capital for investment in mining in Indonesia or wherever it may be. But I can think of no better use than to build the long-term national savings of the nation. That is what superannuation has done. If the Mineral Resources Rent Tax is remembered for only one thing, that it increased the foundation stone of our national savings pool, it will be well worth it and generations of future Australians will long remember that.

Mining companies, boisterous individuals though they are with all of the frailties of human nature, have only one thing in common—self-interest. Their opposition to this tax is self-interested and it is their right to be self-interested. It is what makes great nations and great countries. But the government's self-interest in this is the national interest. Mining companies have had increased profits over the last 10 years of 262 per cent. I commend the legislation and in the national interest suggest that it is absolutely the right course to follow.