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Monday, 19 March 2012
Page: 2103


Senator JOHNSTON (Western Australia) (13:22): I commence my address on the Mineral Resources Rent Tax Bill and related bills by reciting section 114 of the Australian Constitution, which says:

A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

The Commonwealth shall not impose any tax on property of any kind belonging to a state. Many High Court cases have dealt with this. There is a dichotomy between a broad and a narrow interpretation. In taking this tax as close as it does to the mine gate and taxing the minerals in a saleable form, it ties this tax to the resource.

I remind the Senate that minerals are contained within Crown land in Australia—that is, Crown land in right of each of the Australian states. That is why there is a very distinct different set of mining legislation and administrations throughout Australia, each controlled by the individual state mining ministers. Accordingly, each of the states exercises its proprietary entitlement over such mineralisation through the imposition of royalties. In Western Australia, the royalty upon iron ore is at a rate of 7.5 per cent ad valorem.

State mining royalties are one of the principal sources of revenue for each of our Australian states. Mining royalty payments to the Western Australian state government reached some $4.8 billion in 2010-11. Next year, it is predicted they will reach $5.8 million. This is based on the 2010-11 total value of WA mineral production of $101 billion, which represents 95 per cent of Western Australia's total merchandise exports and 41 per cent of Australia's total merchandise exports. No other state or state economy is as dependent upon mining as is Western Australia. Indeed, 65 per cent of this mining resource rent tax revenue comes from my home state of Western Australia.

I have been extremely surprised in listening to this debate that almost every Labor senator has come into this place and, in dealing with this important legislation, has said that the minerals in the ground belong to all Australians. Not only does such a statement disclose an alarming degree of gross ignorance of the specific tenor and terms of the Australian Constitution and, indeed, their own state constitutions—and I am not surprised about that—but they fail to acknowledge one of the principal constitutional tenants which brings them to hold a seat in this chamber: our Federation and its legal and historical foundation. Let us just pause to be in no doubt about one thing: the government senators in this place have no concern whatsoever about trampling upon the very basis for their presence in this place. They are trampling upon the Australian Constitution and its federal structure. Minerals in Australia belong to and are the property of the states. As such, Western Australia has to provide roads, airstrips, communications, hospitals, schools and services to one-quarter of the area of our country in support of mining industries in the Pilbara, the Kimberley, the Murchison, the north-eastern goldfields and the goldfields.

The other myth that has been brought to this chamber by ALP senators, put as politely as I can—some might call it a barefaced lie—is that the Australian mining industry does not pay its way in tax. Currently, the total tax take from miners in the last four years averages 41 per cent, with the estimated tax payable by miners in 2010-11 at $23.4 billion. The minerals resource rent tax will lift Australian mining tax rates above that of competing countries comprising exploration and development and act as a massive disincentive to investment in this very important economic sector in our economy. It should be noted that mining pays a 41 per cent effective tax rate compared to agriculture, fishing and forestry taxation at 29.06 per cent, manufacturing at 30.25 per cent, construction at 28.62 per cent and retail trade at 31.24 per cent. Across the board, mining is already paying a clear 10 per cent more tax to government than any other sector of our economy.

This government believes that it can impose a significant new tax on a capital intensive industry with no consequence to production. Mining investment in 2010 made up 40 per cent of total private investment within the Australian economy. At 41 per cent, Australia will be the highest taxed mining industry against our principal competitors. In the USA they pay 40 per cent, in Brazil they pay 38 per cent, in South Africa they pay 33 per cent and in Canada they pay 23 per cent. All of them are celebrating this tax. All of them are ripping the corks out of their champagne and saying that this is going to be a real kick in the guts for the Australian mining industry.

It all began from a budgetary perspective that saw us with a deficit of $57 billion in 2009-10 and a $41 billion deficit in 2010-11. What is this year's deficit going to be? My bet is it will be about $45 billion. It is an absolute scandal that the mining industry, which has done amazing things in outback Australia, has been the target of this government seeking a bailout for its economic incompetence.

The original Henry plan was to simplify the current royalty system across six regimes. The Henry taxation review concurred with the prevailing economic view that a simplification and a reduction in taxes on corporate income would not only attract investment but encourage innovation and entrepreneurial conduct. In turn, national income would be increased as larger and more productive capital stock was developed and would improve the productivity of businesses and employees. The government has taken the Henry tax review and advice and has headed in precisely the opposite direction while telling us all that a one per cent reduction in the corporate tax rate is a modern-day miracle. A one per cent reduction in the corporate tax rate is a modern-day miracle from this government while knocking over a 30 per cent hike, over and above 41 per cent tax paid to government, to the mining industry. The government, quite obviously, as has been said to me by Western Australian ministers, does not understand the industry and how it is administered by the states. Their ignorance was exposed in factual form during the process when the Western Australian government increased royalties for lump iron ore from 5.5 per cent to 7.5 per cent. This caused a $2 billion hit to the revenue to be raised in this tax.

I need not say much more about what Queensland will do and what New South Wales has already promised to do. Even Tasmania is saying it will increase the royalties. The Henry proposal sought to alleviate this problem by refunding the royalty to the states. This mining resource rent tax model and the revenue it generates will be reduced by state royalties. Having been painted into a corner by principally Western Australia, the Treasurer, in his really pathetic ignorance, then threatened the states with a reduction in their GST revenue to punish them for increasing those royalties. Again, his stupidity does not account for the fact that all states are likely to hike their royalties. Of course, the Commonwealth has to return all GST revenue to the states. If they all put up their royalties, who is going to get punished? None of them will be punished, because the Treasurer does not understand the system and he does not understand royalties.

Turning to the way this tax works practically, it is complex in the extreme, sailing, as it does, in completely uncharted waters. The most crucial thing to remember and consider, in addition to the matters I have set out on a constitutional basis and the fact that it is not reform in any shape or form, is that it is not going to raise any revenue. It will not be revenue positive. Why do I say that? Because the resource super profits tax has been completely watered down and the whole tax is premised on the day-to-day, month-to-month price of miner­als. Currently, minerals prices are coming back at a thousand miles an hour. They fluctuate. Anybody from Western Australia knows minerals fluctuate wildly in price. This is a measurement taken on the saleable value, as close as possible, to the mine gate. You only need a few percentage points in price reductions and this tax is out the window. It is completely phoney. It is clear that the reconfiguration of this mining resource rent tax has substantially more limi­ted scope than its predecessor, the resource super profits tax. The mining resource rent tax, levied on current valuations of assets in contrast to the historical written-down values, removes a substantially lucrative element of retrospectivity which applied to the previous tax in its previous form. When considered in light of the fact that it only applies to iron ore and coal now and that it has been reduced from 40 per cent to 30 per cent, and then, taking account of the 25 per cent extraction allowance, the irresistible inference and conclusion is that it will not raise anything near what the government is saying.

If it were going to be revenue positive, you would think the government would be able to present the figures. If it were such a great tax and the formulas were irresistibly in favour of a positive revenue outcome for the Commonwealth, the government would be busting a gut to get the documents on the table for all of us to see and analyse. They will not show us the modelling. They will not show us the predictions of what this tax will generate in the out years. Why? Because they know it is not revenue positive and it is completely hostage to mineral prices.

With respect to iron ore, there is the removal of state royalties with the tax to be levied as close as possible to the point of extraction in its first saleable form—a calculation before the inclusion of royalties and yet including processing. This requires a quantum calculation that substantially reduces the available revenue in this tax. Treasury says that the mining resource rent tax will take only $1.5 billion less than the resource super profits tax. There is nobody in the industry or in economics who thinks that is a credible statement. The government has argued that this new tax would provide miners with increased assurance that the future tax regime will be more stable. Indeed, Senator Wong has said that the mining resource rent tax would 'strengthen the Australian economy, increase producti­vity and increase mining output'. You have got to be kidding. Treasury even have the audacity to insult people's intelligence by claiming its modelling showed that the resource super profits tax, as it was then, would lead to an incredible 5.5 per cent increase in the resource sector's output. You have got to be kidding. Labor has, as always, a wonderful history of explaining how black is really white when it comes to taxation, rivalled only by the spin and the untruths of Labor's economic ministers.

I pause to deal with something that happened in Western Australia some two weeks ago. Under the headline 'WA should pay ES bills: Greens'—ES being eastern states—the West Australian newspaper of 9 March said that Greens MHR Adam Bandt had said that more revenue had to be raised from the mining states to fund stimulus packages for South-East Australia. You have got to be kidding. The article went on to say:

Mr Bandt's plan would be on top of the Commonwealth Grants Commission's recommendation to take $600 million of WA GST payments in the coming financial year.

What I really want to know is whether Senator Siewert—who I note is now in the chamber—and Senator Ludlam support this. I want to hear Senator Siewert stand up and say that she supports Adam Bandt's requirement that, over and above the $600 million coming off the bottom line for Western Australia this year, the resources tax be increased and that the money be redistributed to Victoria and Tasmania. Western Australia's share of GST is somewhere below 70c in the dollar. This crazy plan will take it to 55c in the dollar. I want to hear the two Western Australian Greens justify that. I want them to come in here and tell us that it is what they want to do to Western Australia. More importantly, I want to hear the Labor senators from Western Australia come in here and tell us that it is what they want to do, because that is what this tax does.

Turning to the mining industry, in 2008-09 it had an eight per cent share of GDP compared with finance and insurance, which had 12 per cent, and manufacturing, which had 10 per cent. Services in the Australian economy accounted for more than 60 per cent of GDP. As of May 2010, 179,000 people were directly employed in the mining industry in comparison to some 74,000 10 years ago. More than 60 per cent of these jobs are to be found in Western Australia and in Queensland. They are good jobs with high pay rates for skilled workers—something we would want in this country, surely. The mining workforce consists of drillers, miners, shot firers, metal fitters and machinists, engineers, truck drivers, metallurgists, plant operators, chemists, geologists, geophysicists, accountants and project managers to name a few. Nearly two-thirds of the workforce have completed education beyond high school.

The process of this tax has been staggering. The states were not even consulted. Only the three largest mining companies were consulted, with some 340 other producers left out in the cold. This is a competitive industry—iron ore and coal have to be marketed—and the government took advice from only the three biggest players. It is offensive, it is unfair, it is absolutely outrageously poor governance and it derogates and corrupts the process. Let us talk about an emerging industry in Australia—the magnetite industry. We have millions of tonnes of low-grade iron ore: around 30 per cent compared with haematite's 65 to 75 per cent. This industry requires capital. We will never get it going with a bottom line that is grossly and adversely affected by this tax.

I pause, as I run out of time, to say that Atlas Iron is a great Western Australian company. It has grown from a zero value 10 years ago to more than $3 billion today. It produces about six million tonnes currently and will produce about 46 million tonnes by 2017. With a workforce of 440 and more than 29,000 mum-and-dad shareholders it is, in my view, a great story of hard work, innovation and victorious commercial struggle. I admire this company, its founders and its vision—all of us on this side of the chamber do. We admire these commercial people who got off their butts and risked their capital. The shareholders and investors put $400 million into this business, and they got their first dividend last year, with 3c a share, or $26 million across those 29,000 shareholders. It is a great Western Australian story.

But what has happened to this company? It has been pilloried by every Labor senator who has come in here. It has been attacked as if it is a bludger. It pays $155 million in tax every year, starting from zero, and Labor senators come in here and pillory these people. I know who the parasites in this country really are, and they are not Atlas Iron. Atlas Iron are a paragon of virtue. They are a great example of what could be and what might be with innovation and imagination. I take my hat off to them. (Time expired)