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Monday, 19 March 2012
Page: 2086

Senator BUSHBY (TasmaniaDeputy Opposition Whip in the Senate) (12:04): I rise today to also speak on the Minerals Resource Rent Tax Bill 2011 and associated bills. It is a suite of bills that are deeply flawed and can only be described as quintessentially Labor. I say that for a number of reasons. First, like so many pieces of legislation we see before us in this chamber, these bills have been poorly drafted with little consultation, particularly across the industry to be impacted by the new tax. It is widely acknowledged that the MRRT was developed through a highly flawed process, completely lacking transparency.

In true Labor style, the details of the MRRT were nutted out behind closed doors, with Prime Minister Gillard only inviting a select few multinationals to join in the consultation process. None of the small or mid-tier mining companies that contribute so much to the Australian economy were even invited to the drawing board. It was only the top three. This invitation was issued by the Prime Minister and the Treasurer only after the Australian mining industry was forced to launch a public campaign against the government, born out of sheer desperation as their pleas to Labor for a thorough consultation process fell on deaf ears. The exclusion of companies like Fortescue Metals, Atlas Iron et cetera from the consultation process not only demonstrates the sheer trademark arrogance of this Gillard Labor government but also has divided the mining industry as the small and mid-tier companies are aggrieved, and rightly so, that their competitors were exclusively invited to devise the tax. It was not just the small and mid-tier companies that were excluded from the consultation process; Treasury and departmental officials were not invited to those closed-door meetings either. Consequently, Labor has devised a truly unjust tax which gives the larger established mining companies a huge competitive advantage over Australia's smaller and developing mining companies.

Also, these bills are quintessentially Labor because, so typical of this government, the bills aim to impose a great big new tax on the Australian economy. Just like the carbon tax, the mining tax is another deeply flawed assault on the Australian economy by the Labor government. Labor claims that a rent tax is a more equitable way of distributing the wealth derived from Australia's minerals resources than the current royalty system. However, a cynic may be forgiven for thinking that perhaps the main issue that the Gillard Labor government has with the current mineral royalty system is the fact that it is paid to the states and not to the government. Despite using the royalty system as the philosophy behind this great big new tax on the mining industry, the mining tax does not actually get rid of it—it just imposes yet another layer of tax on the mining industry—one that goes against the recommendation of the Henry review, which Labor itself commissioned.

The Henry review recommended that the MRRT be a replacement tax and that the federal government should negotiate the details of it with state and territory governments, particularly in relation to the federal-state financial issues arising from any change to taxation policy. But, just to prove to us all how meaningless stakeholder consultation is to this government, Labor failed to discuss the MRRT with the states and instead presented them with a package they had no option but to agree to or reject. This new government imposed double whammy of MRRT and royalties will be extremely prohibitive for start-up miners looking to fund new ventures. This is because the MRRT taxes projects on the basis of their rates of return, so high-risk projects which by their very nature need to have high rates of return will be taxed more heavily than larger, more stable projects which require a lower rate of return in order to be viable. This creates, without a doubt, a disincentive to invest.

There are other options for potential investors looking to put money into mining investments, and Australia is not the only place that has minerals that are accessible on a viable basis. They just have to look at the many countries in Africa, in Asia and, certainly, in South America for alternatives. When an investor is considering where to put their money the rate of return is a highly valid consideration, and in Australia, if this MRRT is passed, the rate of return available to investors will effectively be capped.

At the inquiry into the MRRT bills the committee heard from Atlas Iron. The Executive Chairman of Atlas Iron, Mr David Flanagan, said at the inquiry that it was the aim of Atlas to be the BHP of tomorrow, and then some. Atlas Iron is a successful Australian mining company which is most certainly punching above its weight but which, at this point in time, could by no means be considered large enough to be compared against the likes of BHP and Rio Tinto. Atlas Iron operates in and around Port Hedland, currently producing around six million tonnes of iron ore per year and employing 500 people within Australia. Under the promised MRRT it will be extremely difficult for the Atlas Irons of today to become the BHPs of tomorrow.

I asked Mr Flanagan how much the company had spent in Australia since starting up in 2004. Mr Flanagan estimated that Atlas Iron had spent $800 million in Australia on job creation, wages, superannuation, infrastructure, paying local suppliers and paying Indigenous royalties. Eight hundred million dollars in eight years is a significant contribution to the Australian economy, and this is just one example of how much one small mining company is capable of creating. It is not an $800 million that I would like to have seen spent in Africa, South America or Asia.

I went on to ask Mr Flanagan whether, if the MRRT had been in place when they were looking to start up back in 2004, the tax would have been a disincentive to making an investment of that size in the company. Mr Flanagan stated quite clearly on the record that, had the MRRT been in place at the time, it would have been a prohibitive factor to starting up Atlas Iron. He then explained to the committee, by referring to Andrew Forrest's comments, that even a company like Fortescue Metals Group would have been unable to get up off the ground under the MRRT. What he was saying was that, if the MRRT had been in place, Fortescue Metals, which is now one of the major mining companies in Australia, would not have got up off the ground. I think that is a huge statement to have made.

He then went on to say that if a company like Fortescue had not paved the way for smaller operations—in other words, if it had not got up off the ground and then put in place infrastructure and other facilities—in his opinion Atlas Iron would not have been able to raise the necessary funding for it to get up off the ground. So Fortescue, in a sense, was a catalyst for attracting the funding that made it possible for Atlas and other companies to get up and running. So, if the MRRT had been in place, there goes the $800 million, plus the investments that are likely to be made by Atlas and all those other companies in the future. Presumably, looking forward, the same impact would occur for future companies looking to get up off the ground.

Atlas Iron is no doubt a great Australian success story, and it has done fantastic things since 2004, but the Executive Chairman is adamant that under the tax structure of the MRRT which Labor is proposing, and which we are debating in this place today, the company would not be here employing hundreds of Australians and injecting millions of dollars into the economy. The higher effective marginal tax rate the MRRT will impose on new, high-risk ventures will place significant limitations on Australia's potential. It must, therefore, be extremely difficult for executives in the mining industry who have worked so tirelessly to get high-risk projects off the ground for the benefit of this country and to create jobs for workers and revenue streams for the government to then hear the fruits of their labours referred to by the Gillard Labor government and the unions as windfall gains that must be punished with a higher tax.

As we all know, this Labor government likes to tax success. Treasurer Wayne Swan, through his comments in an article published in the Monthly earlier this month, has left us in no doubt about what he thinks about the stalwarts of Australia's mining industry. Treasurer Swan's comments that successful Australians like Gina Rinehart, Clive Palmer and Andrew Forrest are threats to Australia's democracy are unbelievably ignorant and demonstrate the Treasurer's economic ignorance. Mr Swan went on to try to justify his despicable statements by saying that politicians have to choose 'between standing up for workers and kneeling down at the feet of the Gina Rineharts and the Clive Palmers'. Mr Swan clearly does not realise that without the Gina Rineharts, the Clive Palmers and the Andrew Forrests of this country there would be significantly fewer workers for him to stand up for and far less government revenue for this government to waste.

Mr Swan's vitriolic personal attacks on three of Australia's highest achievers have only served to demonstrate that this government lacks any sort of economic credibility whatsoever. Economically speaking, Mr Swan should know better. As Fortescue Metals pointed out in its retaliation to the Treasurer's attack, years of investment and losses generally precede any taxable income, and for every high-profile successful mining venture there are hundreds—maybe even thousands—that did not make it. It is a high-risk industry. On the contrary, the victims of the Treasurer's crude and obtuse public stoush epitomise the very heart of what it is to be Australian: to work hard, start from scratch and make a go of the opportunities our great country can offer to those who are willing to take the risk and to make the investment and personal sacrifice that is necessary to successfully grow a company—what Mark Latham once described as the 'ladder of opportunity'. Mr Swan's comments proved that the MRRT is a tax on the fundamental Australian belief in a fair go.

Another dubious claim of this Labor government is that the MRRT will alleviate the pressures of Dutch disease on Australia's economy. That is right: in one fell swoop and with one great big tax, they plan to magically alleviate a complex economic problem. The mining tax is not the panacea for the effects of Dutch disease on the Australian economy. Whilst there is no denying that Australia is currently experiencing a two- or even multispeed economy, it defies belief that, instead of identifying and implementing reform for the weaker areas of the economy, Labor would prefer to address Dutch disease by stifling our strongest industry instead. Typical of Labor: bring everyone down to the lowest common denominator rather than build up the worst performers.

Of course the unions have publicly backed this theory. The ACTU in its submission to the Senate Economics Legislation Committee stated that the new system of resource taxation is needed on macroeconomic grounds as the tax and its revenue can be used to ameliorate the negative effects of the mining boom on other industries and deliver a more balanced economy overall. The CFMEU echoed similar sentiments. Amongst claiming it is causing fatigue, family breakdown and alcohol and drug problems in its submission to the economics committee, the CFMEU also claims that the resource boom is causing Dutch disease and that the only way to resolve it is to implement Labor's great big new tax on the resource sector. In fact, both unions claimed in their submissions that the MRRT does not go far enough and that they would have preferred the resource super profits tax just to really drive the final nail in the mining industry's coffin.

Interestingly, though, just last week the Australian Financial Review ran an article referring to a paper in relation to the MRRT written by University of Melbourne economist Professor Max Corden. Professor Corden is considered the father of the Dutch disease theory. He claimed that for the MRRT to curb the resources-driven high dollar enough to stop it hurting non-resource sectors, taxation on mining would have to occur at a level that significantly reduced not just after-profit tax but total output of the industry. But by doing this, Professor Corden is quoted as saying in the Australian Financial Review that the government would indeed be killing the golden goose. Professor Corden is further quoted in the article as saying that Labor should in fact rely less on its mining tax and more on big budget surpluses if it wants to spread Australia's resource riches and reduce the impact of Dutch disease on the economy.

But, as all of us on this side of the chamber know, Labor does not have a particularly stellar record when it comes to big budget surpluses. In fact, Labor's predicted budget surpluses change from one day to the next. So far this financial year, we have been told by Labor that they would achieve not a surplus but a $12 billion deficit. Then it was a $32 billion deficit, and now that figure has been revised to a $37 billion deficit—and this is all in one year. Labor are not in a position to rely on big budget surpluses, because they are incapable of delivering them. Further examination of this year's so-called budget reveals that it is nothing more than creative accounting. Shuffling money, taking spending forward or back and removing items from the budget is not delivering a surplus. It is merely this Labor government confirming how truly inept they are at managing the budget and delivering their promises. So, although Professor Corden's advice makes economic sense, it is not achievable under a Gillard Labor government.

However, what this Labor government lacks in delivering surpluses, it does make up for in imposing high taxes. They have an impeccable record for high taxing. Labor has announced 20 new or increased taxes since 2007. It is Labor's default solution for every problem, and it does not matter what it is. Be it alcohol, motor vehicles, private health insurance, carbon or, in this case, mining, nothing is safe from this government's desperate clamouring to get the budget back to what they can spin as a respectable position before the next election, after years of their waste and mismanagement.

The economics committee also heard throughout the inquiry process from a number of mining companies concerned that the MRRT will significantly reduce Australia's competitiveness for international investment. Witnesses to the inquiry said that their companies had made strategic decisions, based on the impact the MRRT will have, to deliberately invest in places like Brazil and Africa instead of Australia. It absolutely defies belief that Labor has allowed Australia to fall behind regions such as Africa in terms of investment competitiveness. I am simply astounded that in the 21st century Australia is seen in some investment circles as a bigger sovereign risk than some African or South American nations. Other witnesses to the inquiry, such as Megan Anwyl, Executive Director of the Magnetite Network, told the committee how the magnetite industry is concerned about the impact the MRRT will have on unfinanced projects in a relatively new and emerging industry. The fact is that Labor's great big taxes are destroying Australia's reputation as a safe and reliable place to invest.

There is also the issue of the huge compliance costs and administrative burden this tax will place on the mining industry, especially for sectors such as onshore oil and the gas sector that may not have a large liability but will still be forced to comply with the requirements of the tax. The MRRT, like just about everything that this government tries to implement, such as the failed Green Loans scheme, the failed cash for clunkers scheme, the failed solar rebate scheme, the failed pink batts scheme and the failed computers in schools program, to name a few—and I could go on—is set to be yet another calamitous Labor policy failure.

Incredulously, despite getting a significant proportion of the mining industry off side, despite spending millions of dollars on advertising, despite falling polls and significant infighting among the Labor Party, the MRRT will not actually improve the government's budget position. In fact, it will significantly widen Australia's structural budget deficit over time. This is because the cost of Labor's related commitments is significantly higher than the expected revenue raised from the MRRT. Their own figures show that the mining tax will raise about $4 billion less over the forward estimates than is required. For example, Treasury modelling shows that the proposed increase in compulsory super alone will cost more every year, once fully implemented, than the MRRT will raise. This will only get worse over time as the cost of all related measures continue to increase and as the MRRT revenue decreases as the current resources boom dissipates, as it surely will. Only the Gillard Labor government would be foolish enough to use a highly volatile and downward trending revenue stream to fund a number of costly commitments and tax cuts. And let's face it: a tax cut is not a tax cut if it is funded from a great big new tax designed to annihilate the strongest performing sector of the economy. This has been revealed just from the Treasury modelling that we have been allowed to see, because let us not forget that the government has refused to release the entire Treasury modelling undertaken for the MRRT and the assumptions that underpin it.

They are still to release the underlying mining tax revenue assumptions on commodity prices and production volume. And why have they not released them? It is because those assumptions, just like the way the MRRT was designed, is a big secret. By their own admission it is because they based it on information provided to them in their secret talks with the top three and therefore the details of one of the biggest taxes ever imposed on this country is commercial-in-confidence.

The Queensland and Western Australian state governments manage to publish this information in their budget papers so that their royalty revenue estimates may be subject to public scrutiny, but it would seem the Gillard Labor government is a law unto itself. Transparency has never been their strong point and they avoid public scrutiny at all costs, because Labor do not care about how they are perceived by the public. They are too busy trying to appease the faceless men instead. These include not just the New South Wales Right but also, in this case, the Greens. The Greens are increasingly looking to demonise the mining industry and have been very keen to jump on the back of this MRRT. The only hesitation they have shown is that they do not think it goes far enough. In the end though, they will be voting for it.

When the Henry tax review was commissioned the Labor government promised Australians a simpler and fairer system of taxation. The Henry tax review recommendations on resource taxation reform were supposed to make resource taxation arrangements simpler, more equitable across the whole of industry and less distorting. The MRRT does not do this and Labor is flogging a dead horse by trying to say that it does. The MRRT is a bad tax. Like most pieces of legislation from this government, it is poorly designed. It is inequitable. It gives the larger mining companies a competitive advantage and, just like the Gillard Labor government, it is divisive and fiscally irresponsible. The MRRT is a distortion and a number of important questions about the tax remain unanswered. It is only the will of the Prime Minister, the Treasurer, the unions that control the Labor Party and the top three mining companies in the country, and it is distorted by input from the Greens. Mining investment in Australia as a percentage of global investment is already falling and the MRRT will make it much worse.