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Monday, 7 July 2014
Page: 4255

Senator FIFIELD (VictoriaManager of Government Business in the Senate and Assistant Minister for Social Services) (17:38): I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This Bill repeals the Minerals Resource Rent Tax (MRRT), as well as discontinuing or re-phasing those measures that were introduced by the former Government on the expectation that their cost would be met by mining tax revenues.

These related measures came at a very significant cost to the Budget, and the failure of the MRRT to return any meaningful revenue meant the former Government had to borrow money to pay for these unsustainable commitments.

By repealing or re-phasing the measures related to the mining tax, this Bill seeks to make a start on repairing the damage caused to the nation's finances and put the Budget on a more sustainable footing going forward.

Together, the measures contained in this Bill will improve the Budget position by over $12.6 billion by 30 June 2017.

Schedule 1 Repeal of the MRRT

Schedule 1 of the Bill repeals the Minerals Resource Rent Tax with effect from 1 July 2014.

The repeal date for the MRRT of 1 July 2014 simplifies administration by aligning the repeal with the financial year reporting period. Taxpayers will not accrue any further MRRT liabilities from this date.

Australia's mining tax has had a long and tortured journey.

It was of course borne out of the Henry Tax Review, which was commissioned by the first Rudd Government.

One of the key recommendations was for a Resource Super Profits Tax (the RSPT). The original RSPT was forecast to raise $49.5 billion over a five year period from 1 July 2012.

This was to be a big hit to one of Australia's most successful industries. At the time, the reaction from those in the resources sector could only have been expected.

Ultimately the announcement, consultation, and handling of the RSPT, was a large contributing factor to the downfall of former Prime Minister Rudd.

In taking over the Prime Ministership, former Prime Minister Gillard made it a key benchmark of her leadership to resolve the impasse with the resource sector which had enveloped her predecessor.

The former Gillard Government struck a deal with three of Australia's biggest miners, RIO, BHP Billiton and Xstrata, and from this the Minerals Resource Rent Tax was born. The new version of the mining tax also included an extension of Petroleum Resource Rent Tax to onshore projects.

Forecast revenue on the new version of the mining tax was significantly revised down when compared to the original Resource Super Profits Tax. It was forecast to raise $26.5 billion compared to $49.5 billion over the five year period from 1 July 2012.

Following the second version of the mining tax, there were three further variations, and forecast mining tax revenue has been written down in nearly every subsequent Budget and MYEFO update.

In February last year, the former Treasurer and current Member for Lilley was forced to release just how much the mining tax had raised to that date - after being in place for 6 months it had raised just $126 million.

Since its inception from 1 July 2012, the mining tax has raised only $340 million in net terms.

The mining tax has many design flaws which will preclude it from raising meaningful revenue, particularly when Government administrative costs are taken into account.

We persistently called on the former Government to explain how key details of their mining tax worked, particularly in relation to the upfront tax deduction from the market valuation method which is used to calculate tax liabilities for the Minerals Resource Rent Tax.

The mining tax is a flawed tax.

And what is worse, it imposes large administrative costs on operators in the resources sector trying to comply with the complex tax.

The repeal of the Minerals Resource Rent Tax will save millions of dollars in compliance expenses for small, medium and large entities.

So far, in the almost two years of its existence less than 20 taxpayers have contributed to paying the net $340 million raised by the MRRT but around 115 miners have been required to submit MRRT instalment notices while making no net payments.

That is around 115 taxpayers all complying with the MRRT legislation, but not actually paying any tax.

Therefore, not only is the MRRT a complex and unnecessary tax which has failed to raise the substantial revenue predicted by the former Government, it imposes a significant regulatory and compliance burden on the iron ore and coal mining industries, and damage business confidence which is critical to future investment and jobs.

The repeal of the MRRT will restore confidence and promote activity in the mining industry, creating jobs and contributing to the prosperity of all Australians. It sends a clear signal that Australia is determined to remain a premier destination for mining investment, and is once again open for business.

Mining companies in Australia will continue to pay their fair share of tax through State royalties and company tax.

The mining tax is also a fiscal disaster.

The former Government had linked over $16.5 billion of expenditure to this tax over the four year period to 30 June 2017.

The repeal of the mining tax and associated measures will improve the Budget's bottom line by over $12.6 billion by 30 June 2017.

The benefits to the Budget would have been larger if the Bill hadn't been blocked by the Opposition in March.

Australia can no longer continue to borrow money to pay for these measures.

We need to do what is responsible and repair the Budget, and the removal of the mining tax and its associated expenditure is a step in the right direction.

Schedule 2 Loss carry back

Schedule 2 of the Bill repeals the MRRT related loss carry-back provisions that enable companies making a tax loss of up to $1 million in the 2012-13 income year and subsequent years to recoup taxes paid on an equivalent amount of taxable income in a prior income year.

The Bill provides that, from the 2013-14 income year, companies can only carry their tax losses forward to use as a deduction for a future year, consistent with arrangements prior to the MRRT-related amendments.

The removal of this measure will improve the budget position by $950 million by 30 June 2017.

Schedule 3 Small business instant asset write-off threshold

Schedule 3 of the Bill amends the instant asset write-off threshold provisions.

The instant asset write-off amount was increased to $6,500 in two stages as part of both the Mining and Carbon Tax packages.

The MRRT package dealt with the increase from $1,000 to $5,000, whilst the Carbon Tax package dealt with the increase from $5,000 to $6,500.

This legislation before the House returns the write-off amount back from $6,500 to $1,000, effective from 1 January 2014.

From that time, small business entities will be able to immediately deduct the value of a depreciating asset that costs less than $1,000 in the income year the asset is first used or installed ready for use. This is consistent with arrangements that existed prior to the MRRT related amendments.

However, the single small business pool arrangements will be preserved to maintain lower business compliance costs.

Under these arrangements, assets costing $1,000 or more will be allocated to the existing general small business pool and depreciated at a rate of 15 per cent in the first year and 30 per cent in subsequent years.

If the value of a small businesses' general small business pool is less than $1,000 at the end of the income year, the small business can claim a deduction for the entire value of the pool.

The improvement in the budget position from reducing the instant asset write-off from $6,500 to $1,000 will be $2.6 billion by 30 June 2017.

Schedule 4 Deductions for motor vehicles

The Bill also provides that from 1 January 2014, motor vehicle purchases made by small business entities will no longer be eligible for an accelerated deduction of $5,000.

Motor vehicle purchases by small business entities using the simplified depreciation rules will instead be treated as normal business assets under the concessional capital arrangements available under Subdivision 328-D of the Income Tax Assessment Act 1997.Under these arrangements they will be depreciated at a rate of 15 per cent in the year which the asset is first used or installed for use and then 30 per cent for all subsequent years.

The removal of this measure will improve the budget position by $450 million by 30 June 2017.

Schedule 5 Geothermal energy

The Bill will repeal the extension of the income tax exploration provisions to geothermal energy exploration so that geothermal energy exploration and prospecting expenditure is not immediately deductible.

Amendments are included to provide a capital gains tax (CGT) roll-over in cases where a geothermal exploration right is merely exchanged for a geothermal extraction right relating to the same area. This ensures that a capital gains tax liability will not be inappropriately incurred, consistent with the treatment of other mining rights.

This measure was announced by the former Gillard Government as part of the final design of the mining tax. It was raised in discussions between the former Gillard Government and the Policy Transition Group, which was set up to advise on the technical design of the Minerals Resource Rent Tax.

The Policy Transition Group did not include this change as a specific recommendation but, rather, made an observation about the anomaly of the inconsistent treatment for geothermal exploration, noting that the issue was outside the parameters of the terms of reference.

The removal of this measure will improve the Budget position by $10 million by 30 June 2017.

Schedule 6 Superannuation Guarantee Charge percentage

Schedule 6 of the Bill delays further increases in the superannuation guarantee rate by two years. The super guarantee rate remains at 9.25 per cent until 30 June 2016 and then rises to 9.5 per cent on 1 July 2016. It then increases in increments of half a per cent a year until it reaches 12 per cent on 1 July 2021.

Further changes to the superannuation guarantee schedule, announced in the Budget, will be introduced as an amendment to this Bill.

These changes would not have been required if the Bill hadn't been blocked by the Opposition in March.

Schedule 7 Low Income Superannuation Contribution

Schedule 7 of the Bill abolishes the Low Income Superannuation Contribution (LISC).

The Bill ensures that the LISC is not payable in respect of concessional contributions made on or after 1 July 2013.

The Government will revisit concessional contribution caps and incentives for lower income earners once the Budget is back in a strong surplus.

Low to middle income earners may be eligible for the superannuation co-contribution to boost their retirement savings.

The removal of the low income superannuation contribution will improve the Budget position by $2.7 billion in cash terms by 30 June 2017.

Schedule 8 Repeal of income support bonus

The Bill repeals the income support bonus. The bonus was funded from the anticipated revenue from the MRRT.

Participation in the workforce is the best way to ensure economic stability and the payment system is geared to promote this while ensuring that a safety net exists for those requiring help.

This Bill will abolish all future payments of the Income Support Bonus from Royal Assent of the legislation.

The removal of this measure will improve the Budget position by over $900 million by 30 June 2017.

Schedule 9 Repeal of schoolkids bonus

The Bill also repeals the schoolkids bonus. The Government intends to offer a more efficient, targeted approach to improving education outcomes for students through effective education policies, rather than bonus payments to individuals.

The removal of this measure will improve the Budget position by almost $4 billion by 30 June 2017.


The Government has consulted with key industry stakeholders since the repeal of the MRRT was announced as a priority election commitment of the Government, including a round of public consultation on the exposure draft legislation.

Full details of the measures are contained in the explanatory memorandum.

Debate adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.