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Economics Legislation Committee

COWGILL, Mr Matt, Economic Policy Officer, Australian Council of Trade Unions

DAVIDSON, Mr Peter, Senior Advisor, Australian Council of Social Service

DENNISS, Dr Richard, Executive Director, The Australia Institute

LYONS, Mr Tim, Assistant Secretary, Australian Council of Trade Unions

PHILLIPS, Ms Jacqui, Director of Policy and Campaigns, Australian Council of Social Service

RICHARDSON, Mr David, Senior Research Fellow, The Australia Institute

Committee met at 08:37.

Evidence from Mr Cowgill and M r Lyons was taken via teleconference

CHAIR ( Senator Bushby ): Good morning. I declare open the first hearing of the Senate Economic Legislation Committee's inquiry into the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013. The inquiry was referred to the committee by the Senate on 14 November 2013 for report by 2 December 2013. To date the committee has received 23 submissions, which are available on its website. On behalf of the committee, I would like to take this opportunity to thank all submitters for providing submissions at such short notice, as well as thanking all of today's witnesses for agreeing to appear—again, at short notice.

These are public proceedings, although the committee may determine or agree to a request to have evidence heard in camera. I ask everyone to ensure they have switched off their mobile phones. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed it. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may of course also be made at any other time.

I remind members of the committee that the Senate has resolved that departmental officers shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions to superior officers or to a minister. This resolution prohibits only asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted.

A witness called to answer a question for the first time should state their full name and the capacity in which they appear and witnesses should speak clearly and into the microphone to assist Hansard to record proceedings. I now welcome Ms Jacqui Phillips and Mr Peter Davidson from the Australian Council of Social Service, Dr Richard Denniss, who is not here but maybe is on his way—

Mr Richardson : He is in traffic at the moment.

CHAIR: Mr David Richardson from The Australia Institute, and by teleconference, Mr Tim Lyons and Mr Matt Cowgill from the Australian Council of Trade Unions. I invite each organisation to make a brief opening statement, preferably of no more than two minutes, should they wish to do so.

Ms Phillips : Thanks for the opportunity to appear today on behalf of ACOSS. The committee is currently considering two sets of issues: the repeal of the mineral resources rent tax; and the abolition of payments, a set of payments and tax subsidies for people on low incomes. Although we believe these measures are linked in time, we believe that they otherwise have no necessary connection with each other and we oppose the passage of the bill. While we support firm action to restore the budget to structural balance, we believe each measure should be considered separately on its merits. Our commission of audit submission details a range of direct and tax expenditure savings and revenue measures, which we believe could achieve savings more efficiently and fairly than this bill would.

I am going to focus my comments very briefly on the income support supplement and the schoolkids bonus. The abolition of both, we believe, would be very detrimental to low-income households and my colleague Peter will speak briefly about the mining tax and the low-income super contribution. We expect others to deal in more detail with those issues, hence we are focusing on the other two.

I turn to the income support supplement, which is worth the equivalent of $4 a week and goes to the very poorest households—those on allowances which are, as we know, as low as $35 a day. This $4 a week increase is the first real increase to Newstart and other allowance payments in 20 years. The last of those increases occurred in 1994 and was a grand sum of $3 a week. Although it may not seem like very much money, it will make a very real difference, an immediate difference to the lives of those who are living on the least. Its abolition would therefore have a very detrimental effect on those groups and we oppose it strongly.

With regard to the schoolkids bonus, it is important to recall the main purpose of the family payment system which is to play a role in the prevention of child poverty. We know that today there are close to 600,000 children living in poverty, or one in six in Australia, and we know that family payments are falling behind community living standards because of changes to the way that they are indexed. We are on the record as advocating for the redirection and reform of the schoolkids bonus to direct that more effectively to those families who are most in need—that is, low- and middle-income households. We believe that the payment in its current form is poorly targeted, given that a family on $120,000 a year receives the same amount as a family on just $40,000. Nonetheless we oppose the abolition of the payment as it is expressed in the current bill, without it being replaced by an alternative measure which would be better and more effectively targeted.

We believe therefore that the schoolkids bonus should be absorbed within the family payment system, particularly within FTB A, the main payment to help with the cost of children and effectively targeted first and foremost to families on incomes of less than $50,000 a year. If that change were effected, the level of the payment would be doubled for those at the bottom to $32 a week per child because it would be better targeted. We believe that this would be a real difference to child poverty.

We would also like to point out that the link between the schoolkids bonus and the mining tax we believe is more tenuous than some of the other measures being considered today. In terms of the background of the schoolkids bonus, it replaced the education tax refund payment, which cost approximately two-thirds of the cost of the schoolkids bonus. The mining tax, theoretically, only paid for a third of the cost of the schoolkids bonus not the full amount. Should the abolition of the mining tax proceed that should not be used to justify the abolition of 100 per cent of the schoolkids bonus payment. I will now hand over to my colleague Peter to continue.

Mr Davidson : I have a few quick comments on the MRRT and the low-income super contribution. The MRRT is a good idea that was poorly implemented. If we replace taxes on business inputs and ordinary profits with a tax on resource rents, it should improve the efficiency of the tax system and help the economy adjust to the mining boom. The mining tax we have is far from the ideal tax on mining rents; but, if we were to choose to abolish a list of poorly designed, economically inefficient and distortionary taxes, there is a long queue ahead of the MRRT. It is still a relatively good tax, and we need the revenue.

With regard to the low-income super contribution: the contribution is a small step towards a fairer super system. The present system penalises those on the lowest incomes, the majority of whom are women, for saving and gives those on high incomes twice the subsidy paid to middle-income earners. So the tax system for super contributions is upside-down. Ideally, the Henry report reforms would be implemented whereby the flat 15 per cent tax on employer contributions is replaced by taxation at marginal rates offset by a rebate. Still, the contribution is a good start. It means the tax break for people earning less than $37,000 a year is increased from minus 15 per cent to zero. That is not fantastic, but it is a good start, and we think it should be retained. Thank you.

CHAIR: Thank you. Mr Richardson, do you have an opening statement?

Mr Richardson : Yes. I would like to point out that this package as a whole transfers income from something like 10 million Australians, including the poorest, which ACOSS has just spoken about, as well as at any time around 8.2 million wage and salary earners. The main beneficiaries, as we point out in the submission, are a handful of foreign owned corporations that are collectively worth $200 billion. Our submission goes to lots of the measures in the bill; but, since the others are covering the other areas, I would like to concentrate now on the resource rent tax and point out that, sure, it has its faults, but taxing rents is desirable for all sorts of reasons, some of which Mr Davidson has just outlined. We should also note that the petroleum resource rent tax is now part of the furniture and we never hear any complaints about that. I suspect that, if left alone, pretty soon the mining resources rent tax would be treated in the same way.

The other point is that we should learn from our history. While taxing rents is much more desirable than other forms of taxation, if we look at the position now—pure mining rents under the present arrangements—by the time they are received in the hands of the personal investor, they have been taxed at, our submission says, 57 per cent. In the previous resources boom, when we did not have dividend imputation and the top marginal tax rate was 60 per cent, ordinary profits—not super profits—were taxed at 81 per cent by the time they were received in the hands of the individual investor. Not only that; at the time when Howard was Treasurer, most mining projects did not go ahead unless a foreign corporation had at least 50 per cent Australian equity in the project.

The other thing, which I would like to conclude with, is that the mining industry often threatens us that, with Australia's tax system, they will move elsewhere. It is very interesting. We gave evidence to a Senate inquiry earlier, pointing out that especially with the rise of African resource nationalism, there are very, very high effective tax rates in other parts of the world, but not through direct tax arrangements necessarily. Instead, we have compulsory sharing of the product with the state owned mining company and arrangements such as that. There are arrangements in places like Botswana, where you cannot mine something without also processing it locally. We have to take the threats of the mining industry with a big grain of salt.

I will conclude there, unless Richard would like to add something?

CHAIR: Thank you, and welcome Dr Denniss—traffic issues?

Dr Denniss : Traffic and child care—an unexpected and untimely tantrum!

CHAIR: So long as we do not see it here!

Dr Denniss : Not mine!

CHAIR: Bearing in mind the time, do you have any additional opening comments?

Dr Denniss : Just a few. I agree, obviously, with what my colleague Dave Richardson has said. I would just like to emphasise that tax is something that companies often would prefer to pay less of. We should not be surprised about this, in fact, the directors of a company would be remiss in their duties if they did not lobby extensively to pay less tax on the profits they earn. It is their job, of course, to distribute as much money as they can to their shareholders, and paying less tax is a very easy and effective way to do that.

But when we look at the national interest rather than the legal obligations of directors, we have to ask ourselves, 'Well, what's in it for the nation of Australia?' When we talk about GDP—gross domestic product—it is entirely sanguine as to whether an investment is 100 per cent foreign owned and constructed by 100 per cent foreign labour, where all of the profits and all of the labour are repatriated, or whether the project is 100 per cent Australian owned with 100 per cent Australian staff and all of the profits accruing to Australian residents. When we calculate gross domestic product we could not care less who owns it; but if we are interested in the national interest of Australia—I would suspect that most of your constituents are very interested in not just how many benefits the project generated but who received those benefits.

I would think it is common sense to suggest that Australians would like to see Australians as the main beneficiaries of the extraction of Australian resources. Why should we feel proud or even that we have succeeded in something if we sit back like spectators and watch other people dig up resources, sell them to people overseas and repatriate the profits to people overseas and say, 'We don't care; it still went into our national accounts. It still counts in our gross domestic product. Look what we did!' That seems ridiculous to me.

A resource rent tax is a particular kind of tax that economists typically prefer. It is a tax on the profits that are over and above those profits required to attract an investment in your industry. That is a rent tax. The idea that a proponent of a mine would refuse to go ahead with a mine when they only receive a portion of the excess profits is ill founded in economic theory and, I would suggest, in logic. The idea that high taxes make us uncompetitive and low taxes make us competitive might be a good grab for TV but makes no economic sense at all.

Why do people moved from New Zealand to Australia to pay higher taxes? Why do people in Asian countries with low tax rates want to move to Australia? Why do owners of capital in low-tax countries want to come to Australia to invest? The answer is because it is profitable—profitable. The question then is: what do we do with those profits? How much of those profits do we tax? How much of those profits do we leave in their hands? I think the whole debate about the mining tax—the public debate at least—is entirely misguided, and the notion that the only thing that attracts people to invest in Australia is low taxes is ill founded, has no historic precedent and has no international precedent.

CHAIR: Thank you, Dr Denniss. I will ask a couple of quick questions and then we will go to Senator Pratt. Sorry, my apologies—the ACTU, on the teleconference line. If you can keep it brief, please.

Mr Lyons : I will, Chair. In the interests of time, we tend to agree in broad terms with the operation they have made, in particular about the income support approach and the schoolkids bonus. We want to address the mining tax, business tax measures as well as the MRRT very quickly. I should say it is very rare in approaching an omnibus tax bill to not find any redeeming features in respect of any of the measures, but this is such a bill. We say all the elements of this bill are retrograde steps and we reject the bill in its entirety.

In respect of the repeal of the mining tax, you will see from our submission that we supported the original Henry tax review recommendation for the introduction of improved resource rent charging. We think that would have been an important economic reform for the country. We supported the original design of the RSPT. We supported and continue to support the retention of the minerals resource rent tax. We think that taxing non-mineral resources in a way that reflects the nature of those resources and the nature of those projects is important. Notwithstanding some of the difficulties associated with this iteration of the tax, it ought to be retained.

I want to address the loss carry-back regime for companies and I do so, as one of the authors of this particular proposal, as a former member of the Business Tax Working Group. This was an important measure that ended the asymmetric treatment of tax losses. It was an important reform, particularly for small and medium sized businesses, especially in circumstances of an economic downturn. The Business Tax Working Group, which was made up of business groups, myself, academics and tax professionals, had a fair bit of difficulty agreeing on a lot of things but we did manage to agree on this as an important reform. It was a good thing the former government took it up. It is good for    SMEs and it should be retained for the future.

The consequences of repealing this are that over the economic cycle more businesses will fail than need to fail. That will have consequences for not only those businesses but also, obviously, for employment. We also think the increase in the instant asset write-off threshold for small business was a good reform and should be retained.

In respect of the low-income super contribution, let me put it this way: this bill proposes to restore the position where large numbers of low-income Australians pay more tax on their superannuation than they pay on their take-home pay. That is an absurd proposition for money which is compulsory and preserved and in contrast to the enormous tax concessions given to high-income earners. This bill will raise superannuation taxes on 3.6 million low-paid workers, 2.1 million of whom are women. Just as an example, about 360,000 retail workers alone will see an increase in super taxes. It is unjustifiable and unfair, particularly in circumstances where the government has chosen to not proceed with a very modest saving in respect of super taxes on high-income earners.

We also oppose a delay in the phasing of the increase in the superannuation guarantee charge, which was a long awaited measure which had already been factored into wage and salary negotiations. Thank you.

CHAIR: Thank you, Mr Lyons. Dr Denniss, you made the comment that we need to look at national interest, not just the macro figures, particularly in terms of the degree to which Australians are sharing in investments. Do you say that there are no benefits from these? What about land tax, royalties, rates, payroll tax and income tax? The mining companies and their industry bodies would tell us that they contribute tens of millions of dollars through taxes as it is. Even if, as you say and I do not necessarily accept, it is all fine investment with fine workers and there is no other directing input, surely there are plenty of benefits that are flowing through?

Dr Denniss : It is not all foreign investments; 87 per cent are foreign owned. I was using those two extreme examples to highlight that the way we measure gross domestic product is entirely silent on those two extremes. But you are right, 87 per cent foreign owned; 13 per cent of it is owned by Australians. Of course there are some benefits from the mining industry's activity, as there are benefits from the retail industry's activity and the manufacturing industry's activity. The mining industry is particularly good at exaggerating the scale of its benefits. It employs around two per cent of Australians. On average, Australians think that 10 per cent of Australians work in mining—a 500 per cent exaggeration—because the mining industry spends so much time and money talking about the indirect jobs associated with their activities. But, again, the manufacturing industry creates indirect jobs and the retail sector creates indirect jobs—all industries do. But why mining is special is that it is the only industry where we give them their product—that is, BHP, if it is going to sell steel, has to buy the iron and has to buy the coal, perhaps, from itself; a car manufacturer has to buy the steel from BHP. Mining is the only activity where, when they show up, we actually present them with that coal or that iron ore, virtually for free. The royalties are very low. Of course they pay some royalties, but we are talking billions of dollars in a $1.5 trillion economy. So, yes, they pay some royalties, but when the world price of coal doubled the royalties did not double. The massive windfall gain that comes with the commodity boom accrues not to the people of Australia who own the resource but to the people who happened to own the mine on the day that windfall came.

CHAIR: But the flip side of that is when world commodity prices halve, which they do occasionally. The royalties stay the same as well. And the problem with the rent tax that we are seeing recently is that when profits fall—when the heat goes out of the boom—the amount of money that the government receives is not as high as anticipated.

Dr Denniss : That is right, but a mining lease is an option, not an obligation. So, when commodity prices fall, as they did during the GFC, the mining industry sheds all their staff virtually instantly. Treasury estimated that if all industry shed staff as fast as mining during the GFC the unemployment rate would have hit 19 per cent. So you are right: when commodity prices fall, the miners obviously cannot make those profits, so they sack all their staff, they mothball the mine, and they wait until the commodity prices justify being open again. So they have no obligation to continue mining when prices are low, but they make very high profits when the prices are high. And that is why economists overwhelmingly think some form of rent tax—I preferred the RSPT, but some form of rent tax—is an appropriate way to share the enormous windfall benefits that come with a commodity boom.

Mr Lyons : The fact that revenues to the government from a resources rent tax fall when commodity prices fall is actually a positive feature of this tax and one of the points of the design. Far from being a negative of a tax of this design, it is actually one of the positive features and one of the intents of a tax of this design.

CHAIR: Thank you. In view of the time, we might move on the Senator Pratt.

Senator PRATT: I will begin by asking what your assessment is of which interests gain from the repeal of this tax.

Dr Denniss : It is obvious that the only winners out of this are the shareholders of Australian mining interests, 87 per cent of which are foreign owned.

Senator PRATT: Does anyone else have anything to add to that?

Mr Davidson : I think that is the obvious answer, yes.

Senator PRATT: I wanted to ask about the distributional issues that have been touched on with the removal of the low-income super contribution. I think My Lyons expressed some strong points about that. I think that is covered in your submission, Dr Denniss, and also in Ms Phillips'. Could we drill down into the distributional impacts of that, of low incomes versus higher incomes and the inequities in there?

Mr Davidson : I am happy to speak to that. The low-income super contribution targets people who would otherwise pay no tax on their wages, I believe essentially people earning less than $37,000 a year. It is the wage earners on the lowest incomes, so they would lose out from its abolition. In a fairer superannuation system they would actually receive a positive incentive for their compulsory saving rather than what is, in effect, a zero incentive. This is the case with the contribution in place, but at least they are not been penalised 15c in the dollar. We believe that in the end, those super contributions are coming out of wages, so it is not worthwhile for people on the lowest incomes to be compelled to save if they have that penalty of 15c in the dollar for doing so. It is not fair to compel people to save and then penalise them in that way.

Senator PRATT: Could you comment on the comparison between those income earners and higher income earners who, for example, clearly get a higher super contribution to start with and also accrue—what other benefits?

Mr Davidson : They are saving typically over 30c per dollar contributed by the employer. The low-income earner is, without the contribution, losing 15 per cent. The tax break for those on over $180,000 a year is 33c in the dollar or so. The tax break per dollar contributed for the bottom end without this measure is minus 15c, with this measure zero. So the system is still skewed to the top end, it is still inequitable. Apart from the extra 15 per cent tax for a very small proportion of people earning over $300,000, which we believe should be kept, the system is massively skewed towards higher income earners who are unlikely to rely on the age pension in any event. They are likely to save without the incentive in any event. There is really no good reason in public policy to offer that level of subsidy to those people, and certainly no good public policy reason to penalise those at the bottom end for compulsory saving.

Mr Lyons : We could just add one or two points. The important point here, I think, is that the repeal of the LISC would leave those earning less than $37,000 per year as the only Australian wage and salary earners who do not receive a concessional treatment of their superannuation contributions. Everybody else in the economy except these low income workers would receive some measure of tax break, and as Mr Davidson has pointed out, at the top end there are very significant concessions.

Mr Cowgill : If I could just add something to that, I would draw your attention to some analysis by the Treasury of the distribution of superannuation tax concessions. The Treasury analysis shows that in 2009-10 the top decile of income earners received 38.2 per cent of all superannuation tax concessions, which is more than the share of the bottom 70 per cent of income earners combined. To quote the Treasury, they find that the top one per cent of income earners received the most combined support, and by 'a combined support' they mean both the age pension and the superannuation tax concessions. So high-income earners receive greater support for their retirement than low-income earners, even when you take the age pension into account, and we feel that is a grossly inequitable situation.

Senator PRATT: Thank you.

Dr Denniss : Can I just add very briefly to that? To put these percentages into context, if a high-income earner were to put $1,000 into super, they would save $300 in tax. If a low-income earner were to put $1,000 into super, they would pay $150 more in tax.

Senator PRATT: That is pretty extraordinary.

Dr Denniss : The system is obscene. It is obscene and it is bizarre for the parliament to tell itself that this $50 billion a year tax concession for superannuation is 'taking pressure off the age pension system', when the demographic group that will rely on the age pension is penalised for participating, and the people who already have too much superannuation to be even eligible for the age pension when they retire are subsidised. It is obscene.

Senator PRATT: Can I ask you all about your assessment of the nature of public support for a mining resource rent tax?

Dr Denniss : We did some polling on this a few years ago; we could submit it to you. We found that there was overwhelming public support for miners paying extra profits on the superprofits that come from a commodity boom, but I do not remember the numbers. Dave, do you remember?

Mr Richardson : No, I cannot remember the exact figure, except that it was a majority.

Senator EGGLESTON: I wonder if we are not mixing up the need to fund what might be very worthy social policy objectives with the taxing of the mining industry. They are quite separate things. When you look at the original projected income from the mining tax it was around $49.5 billion over five years but, in fact, it has only raised $340 million so far, because that is the way the tax was designed and that is what the outcome is. Perhaps we ought to separate these social objectives from the issue of taxing the mining industry. I think you would agree that the mining industry is largely funded internationally. These public companies do pay company tax. Would you agree with that?

Dr Denniss : Yes, as little as they can, like all companies.

Senator EGGLESTON: That is what companies do, they pay company tax.

Dr Denniss : That is correct.

Senator EGGLESTON: They also buy the minerals from the states by paying royalties. You said that some states would be increasing the royalties. The state I come from, Western Australia, is and so are, I believe, some of the other states. They purchase the minerals, they then set up enormous plants to process them, then they sell them, and they pay a tax on their profits. I think that is perfectly reasonable. They employ a lot of people. Australia does not have the depth in its own capital market to fund these great projects. They would not occur unless there were international investors. The way the mining resource rent tax was constructed meant that the companies were able to offset their costs of development against their profits, and they end up paying very little tax. So, I think we should separate the social policy objectives, which we are obviously very concerned about, from the operation of this tax. I think that the criticism you have made of the mining industry is somewhat unwarranted. They are very successful Australian businesses that should work in a uniform Australian taxation regime for businesses and companies, and they are producing a lot of benefits for Australians, wouldn't you agree, in terms of employment and productivity?

CHAIR: I think you are putting a lot of material before them.

Mr Cowgill : If I may respond to that point.

Senator EGGLESTON: By all means.

Mr Cowgill : You say that it is important to separate the social considerations in regard to some aspects of this bill from the minerals resource rent tax. The point we would make is that they are presented to us as one omnibus bill, if you like, that does tie them all together. The considerations are clearly linked, at least in the mind of the government, so that is why we have responded to them. The second point I would make is in response to your suggestion that mining companies purchase minerals from the states by paying royalties.

That is true, in a sense, but the price they pay for those inputs does not vary when the price they receive that their output varies. So when there is some exogenous increase in commodity prices owing to a boom in China, as there has been over the past decade, the charge for that input—that is now suddenly more profitable—is not increased. It will only be increased as a result of ad hoc decisions by state parliaments. Those decisions apply regardless of the state of commodity prices and the state of the business cycle. We say that is not the most efficient way to charge for the inputs that these mining companies use.

Senator EGGLESTON: But surely that is what happens in any business. If you own a banana plantation in Carnarvon and the prices go up, you paid a price for the plantation and you get a bigger profit if the prices go up and you get a lower profit if they go down. I think the royalty is price that the state concern chooses to sell the minerals to the mining companies for.

Dr Denniss : The difference is that you planted the bananas—

Senator EGGLESTON: The states own the minerals, so—

Dr Denniss : That is right.

Senator WILLIAMS: Could I just correct something there, please, chair?


Senator WILLIAMS: I am sure that in Queensland their royalties are linked to the retail price of the commodity. Once they exceed that—for example, iron ore whatever for $100—the royalties go up. I will check that out for you.

Dr Denniss : I can confirm that for you; there is a threshold, but they are not proportionate increases. You raise an interesting point, because Queensland has just floated the idea that there would be a holiday for royalties for coal extracted from the Galilee Basin. So they are effectively saying, 'We will have a free introductory offer. You can have a coal for free for a while.'

Senator WILLIAMS: I can understand that, because the state is so bankrupt and broke that they are doing anything to try and get some jobs growing and try to get themselves out of disaster and financial trouble.

Dr Denniss : I would suggest that giving it away for free is a strange way to raise revenue. Can I also come back to Senator Eggleston's point. If I made any criticism of the mining industry, I am entirely unaware of that. I pointed out that employs around two per cent of Australians, I pointed out that is 87 per cent foreign owned and I pointed out that the public has a massively exaggerated perception of the amount of employment that flows from it. I did not mean to criticise the mining industry, I merely meant to contextualise it.

You said that the mining industry was a great Australian business. Well, they may be great businesses operating in Australia, but they are not Australian businesses. We need a mining industry; we are sitting here at tables that have metal in them that came from somewhere. The question is not whether the mining industry good or bad, the question is whether it paying its fair share of tax. I would suggest that a resource rent tax is a widely accepted international instrument for ensuring that they do.

Senator EGGLESTON: Just two quick points, if I might. The mining industry is international because Australia does not have the capital resources to develop it. Without international players, we would not have the mining industry that we do now. They do pay company tax on their profits like any other business does. I think that is fair enough.

Mr Richardson : Can I just respond to your example of the banana grower.

Senator EGGLESTON: Yes.

Mr Richardson : That is a perfect example. The price of land that that banana grower uses is going to reflect the productivity of bananas in the area. If your banana grower was renting, then the rent would be high as the landlord captures most of the innate benefit of that piece of land. This is exactly what the resource rent tax should do. That is, tax the innate nature of the resource that the mining company is exploiting so that—like to banana grower—bananas will still be produced there, but the price of rents that they pay or the value of the land they buy will rise to reflect the innate qualities of that land.

Senator EGGLESTON: Is that not a question of royalties, though? The minerals belong to the states, not the Commonwealth.

Mr Richardson : That is an argument between the states and the Commonwealth.

Senator EGGLESTON: It is a constitutional argument.

CHAIR: Mr Richardson, we are short on time and I know that Senator Williams has a question as well.

Mr Davidson : Can I just say one comment on Senator Eggleston's suggestion that the two issues are separate. We agree with that and we therefore suggest that measures such as the allowance bonus and schoolkids bonus should be judged on their merits and not their past link to a particular tax, and therefore the allowance bonus should be retained and the schoolkids bonus should be made more efficient rather than completely scotched. That was our submission this morning. Judge them on their merits.

Senator EGGLESTON: I do not disagree with that.

Senator WILLIAMS: Ms Phillips, you said in your opening address that you support firm action on budget issues and fiscal responsibility. This minerals resource rent tax—the forward estimates was to spend in excess of $16 billion. Are you aware of that? Are you aware how much this tax has collected?

Ms Phillips : Much less than that.

Senator WILLIAMS: Less than that? It would be much less than that—it would be a miniscule amount. This is the most important thing. Our debt last Friday was just a whisker under $299 billion of the federal government's debt. We have a ceiling of $300 billion. So if it goes up the same this Friday as last week we have hit the ceiling. What future do the poorer people of our society—the unemployed et cetera—have if our budget just gets totally out of control when you combine it with the state debts? Here is the problem we are facing. We have a commitment from the previous government to spend all this money, but there is no income. You cannot go on doing that.

Ms Phillips : We would accept that there is a budget challenge we are facing and that there is a growing gap between revenue and the community's reasonable expectations of what government will provide. The Commission of Audit and the tax review process are both good processes for us to participate in and explore those questions and have a broader national conversation about what the community's reasonable expectations are of government and how we meet those, fiscally.

We have made a range of recommendations for how we can raise revenue and make savings in order to meet those social objectives, but as we were just discussing, the social expenditure measures in this bill have compelling social objectives behind them and there are pressing needs to be met in those areas. So the simplistic linking of this tax measure with these spending measures is hugely problematic and would cause great damage in the short term, by the abolition of those payments. I do not think this is the forum in which to do away with a range of measures that were making some, however small, progress towards greater equity in this country—by a knee-jerk abolition of those payments due to a point-of-time link with this tax measure. And, yes, let us have a broader national conversation about how we fund those social gaps.

Mr Lyons : I would like to make one very brief response to that. If the PM is concerned that this government is ensuring the fiscal health of the place then it would not have declined to take the very however modest it was saving that had already been put by the previous government in respect to tax concessions for very high-income earners on superannuation. It would not be proposing to repeat the mining tax despite the short-term limitations on the revenue strain, given that it is a long-term tax and a rebound in commodity prices, which will occur at some point, and removal of the boom to a sustainable production phase that is upon us, which is likely to result in greater revenues from this tax into the future. If the concern is the health of the budget, not proceeding with saves and repealing taxes seems to us an odd solution.

Dr Denniss : I agree entirely. Let us be clear. In 2016-17 the cost of tax concessions for super will be $50,000 million a year, $50 billion, according to Treasury. As the ACTU pointed out, the vast majority of that $50 billion annual expenditure will accrue to the top 10 per cent of income earners, who are probably not even eligible for the aged pension. So if you are worried about the budget, I would not be taking tax concessions off the low-income earners, who will rely on the aged pension. Similarly, if you were to extend the mining resource rent tax to gold, bauxite and wide range of other minerals that should never have been excluded you could collect a lot more revenue. I agree that the MRRT does not collect enough, so let's collect some more. And if you are really worried about the budget then I would suggest $50 billion to build 12 new submarines—to replace the six we have not used yet—would seem like a very good way to save some money.

CHAIR: The issues you raised are things we could probably sit and talk about all day. I have plenty of other questions I would like to ask, but unfortunately we cannot. So thank you very much for your time.