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Friday, 21 May 1965

Senator HENTY (Tasmania) (Minister for Civil Aviation) . - I move -

That the Bill be now read a second time.

Honorable senators will need no reminder from me of the importance of the gold mining industry in the economy of the Commonwealth, and, in particular, in the economy of the State of Western Australia. The annual value of gold produced in Australia and the Territories is currently about £15 million, practically the whole of which represents an addition to our international reserves. Also, centres of population in outlying areas, particularly in Western Australia, are heavily dependent on gold mining for their continued existence. The purpose of the Bill now before the Senate is to provide for continued assistance to the industry which at present receives Commonwealth financial assistance under legislation which is due to expire on 30th June 1965.

The gold mining industry in Australia has to contend with two major difficulties. The first, which is shared by gold producers in other countries, is that there has not been any increase in the official price of gold for very many years. The second is that of declining production of gold because of the gradual exhaustion of the better grades of known ore resources and the consequent gradual fall in the average grade of mined ore.

The mines have done much to help themselves. Most mines, including the large Kalgoorlie mines, have been able to offset cost rises to a large extent by increasing efficiency of production. Cost savings have been brought about by increased mechanisation, the introduction of cheaper and more efficient mining aids, and other forms of managerial action. However, despite these cost savings the general trend is one of gradually increasing costs per ounce of gold produced. Indeed, if financial assistance for the industry were withdrawn, there is little doubt that a sharp contraction in gold mining activity would be inevitable on the basis of the present world price of gold. In this situation, the need for the continued provision of financial assistance to the industry is self evident. The Government has given careful consideration to the form the financial assistance should take after the present legislation expires on 30th June next, and in this connection we have had the benefit of consultations with representatives of the industry. The Bill before the Senate embodies and gives effect to the conclusions we have reached.

Before coming to the proposals in the Bill, I believe it will be helpful to honorable senators if I briefly outline the main provisions of the present legislation. The existing legislation takes two forms - a subsidy scheme and a development allowance scheme. The two schemes are alternative means of assistance; a mine may claim either subsidy or development allowance, but not both.

The subsidy scheme, which is embodied in the Gold Mining Industry Assistance Act 1954-1962, provides broadly that mines with a cost of production of more than £13 10s. per ounce of fine gold are eligible for subsidy equal to three-quarters of the amount by which their average cost of production in a subsidy year exceeds £13 10s. per ounce, subject to a maximum rate of subsidy of £3 5s. per ounce and a 10 per cent, profit limitation test. Small producers generally those with an output of not more than 500 ounces a year - are eligible for a flat rate subsidy of £2 8s. per ounce irrespective of their costs of production and profits.

The development allowance scheme was introduced in 1962 and is embodied in the Gold Mines Development Assistance Act 1962. Its detailed provisions are complex, but the guiding principle is that development allowance is payable to the extent that a .mine's expenditure on approved development in a year exceeds a defined base expenditure - generally the average annual amount spent by the mine on development during the three years preceding 1962-63. For the purpose of the scheme, development means, broadly, exploration of the mining property and the preparation of ore bodies for mining operations. The scheme was designed primarily to meet the needs of some of the large Kalgoorlie mines which did not then qualify for subsidy and whose longer-term prospects would be improved by the provision of assistance to enable them to increase the amount of work they were doing on development.

There has been a substantial change in the industry's circumstances as compared to those which gave rise to the introduction of the development allowance scheme. With the steady rise in the average cost of producing an ounce of gold, most of the mines have reached the stage where their costs have risen above £13 10s. per ounce, which is the commencing point for eligibility for subsidy. Since the subsidy scheme is generally of more value than the development allowance scheme for mines in such a position, provided they are not affected by the 10 per cent, profit limitation test, the mines concerned have tended to become claimants for subsidy rather than development allowance. Moreover, the development allowance scheme has in practice been of rather less benefit to the industry than was anticipated because of the physical limitations encountered by the mines concerned in stepping up the rate of their development work. In other respects, also, the development allowance scheme has been found to have some unsatisfactory features, particularly so far as its administration is concerned.

The Government has therefore decided that the development allowance scheme should not be renewed after the present legislation expires on 30th June next, and that future assistance for the industry should be provided through continuation of the subsidy scheme in a liberalised form. The liberalisations have been devised having regard to discontinuance of the development allowance scheme as such, the effect being to absorb to some extent the development allowance scheme into the subsidy scheme. In addition, of course, the liberalisations have due regard to the deterioration in the industry's general financial position since the question of assistance was last reviewed some three years ago.

The two main ways in which the Bill provides for liberalisation of the subsidy scheme are. first, abolition of the 10 per cent, profit limitation test that at present qualifies the subsidy entitlement of large producers and. second, an increase in the maximum rate of subsidy payable to large producers and in the flat rate subsidy payable to small producers.

As honorable senators will be aware, inclusion of a profit limitation test is a usual feature of Commonwealth subsidy legislation, and it derives from the thoroughly sound principle that the taxpayer should not be called upon to provide assistance which results in a more than reasonable level of profits for the recipients. In the case of the gold subsidy, however, there are other provisions embodied in the scheme which provide safeguards against the making of unreasonably high profits - namely, the gearing of the subsidy rate for large producers to a particular mine's costs of production, and the fixing for subsidy purposes of the selling price of the subsidised product. Having regard to those distinctive features of the gold subsidy scheme, and after considering representations made by the industry about the undesirable effects that retention of the test could have in particular sets of circumstances, the Government has decided to remove the profit limitation test from the subsidy scheme in its extended form. It is estimated that the immediate cost involved will be in the vicinity of £50,000 per annum, but it is expected that the cost will rise significantly above that figure over the period of the renewed legislation.

Commencing with the financial year 1965-66, the maximum rate of subsidy payable to large producers is being increased from £3 5s. per ounce to £4 per ounce. This is a substantial increase, but the Government has decided that it is warranted in view of increased per ounce costs of production since the rale was last reviewed and further cost increases that are in prospect. With regard to small producers, who are eligible for a flat rate subsidy rather than a rate of subsidy determined by reference to their costs of production, the practice ever since the subsidy scheme was first introduced in 1954 has been for the flat rate subsidy to be three-quarters of the maximum rate for large producers. The Bill provides for continuation of this practice, so that the flat rate subsidy for small producers will become £3 rather than £2 8s. per ounce as from 1st July next.

The existing subsidy scheme contains a special provision under which a producer with an annual output of more than 500 ounces can, if he wishes, elect to be treated as a small producer. If he does so elect, the rate of subsidy payable on the whole of his production is the flat rate subsidy for small producers reduced by one penny for each ounce by which his production exceeds 500 ounces. An appropriate adjustment is being made to this provision by reason of the increase in the flat rate subsidy payable to small producers. The amount of one penny to which I have referred will become one and one-fifth pence - or one cent when decimal currency is introduced. The effect of the adjustment can be illustrated by taking the case of a producer with an annual output of 740 ounces who elects to be treated as a small producer. At present, the rate of subsidy payable to such a producer is £1 8s. per ounce - £2 8s. less 240 pence - or an annual total of £1,036. As from 1st July, it will be £1 16s. per ounce - £3 less 288 pence - or an annual total of £1,332. The immediate cost of the foregoing increases in subsidy rates is estimated to be between £20,000 and £25,000 per annum. The cost will, however, rise substantially as and when additional large producers become eligible for subsidy at a rate in excess of the existing maximum rate of £3 5s. per ounce.

In addition to the two main liberalisations I have outlined, the extended subsidy scheme provided for in the Bill contains some liberalisations which are of rather lesser consequence but which are nevertheless still of significance. Chief among these is a provision under which a large producer will be able to include in his costs for subsidy purposes one-half of costs incurred in approved exploratory diamond drilling elsewhere than on his mining property. For the purpose the yardstick for approval will be whether the diamond drilling, if it resulted in the discovery of gold bearing minerals of payable grade, would contribute to the continued production of gold bearing minerals in, or in the vicinity of, an existing gold mining area. At present, none of such costs can be included in the determination of subsidy entitlement. Bearing in mind that in the long run the future of existing gold mining communities will be influenced by the success or otherwise of efforts to locate and open up new ore bodies, the Government has decided that inclusion of the provision 1 have outlined is desirable.

The Bill also provides for the removal of two restrictive provisions in the present Act. In the subsidy scheme as it stands, a large producer's entitlement to subsidy is subject to reduction if his expenditure on development exceeds a certain amount or if the grade of ore being mined falls below a certain level. In the present day circumstances of the industry, and having regard to the discontinuance of the development allowance scheme, we believe that these two restrictive provisions should not be renewed. Instead, we have concluded that a producer's entitlement to subsidy should be subject to reduction only if, and to the extent that, he fails to observe good mining practice. The Bill accordingly contains a provision to the latter effect.

Finally, I wish to point out that the Bill provides that the renewed subsidy scheme will on this occasion operate for a period of five years. In accordance with the usual practice with respect to Commonwealth subsidy legislation generally, the gold subsidy legislation has in the past been enacted for maximum periods of three years at a time. The industry requested that the current extension be for a longer period so that the mines would be able to plan their expenditure and funds raising programmes on a more secure basis as to the duration of the extended scheme of assistance, and the Government has decided that in the industry's particular circumstances the request should be granted. The gold mining industry occupies an honoured position in the history of the development of this vast continent. The Government believes that the revised measures of assistance provided for in the Bill should meet the industry's reasonable needs for the period of five years covered by the Bill and, in particular, will serve to stabilise for that period the financial position of gold mines on which centres of population in outlying areas are so dependent. I commend the Bill to the Senate.

Debate (on motion by Senator Cant) adjourned.

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