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Transcript of interview with Paul Murray: 6PR Mornings: 23 November 2011: Minerals Resource Rent Tax

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Minister for Resources and Energy, Minister for Tourism

6PR Mornings with Paul Murray 23 November 2011


Subject: Minerals Resource Rent Tax

MURRAY: The Gillard Government's mining tax is well on the way to becoming law after passing through the Lower House of the Federal Parliament in the early hours of this morning. It will go to the Senate next year, where it appears certain to have the numbers, after the Greens did a deal with the Government last night. Strangely, that deal is confidential, and neither Greens Leader Bob Brown, nor the sole Green in the House of Reps, Adam Bandt, would come on the program this morning to justify the secrecy.

It involves about $100 million in taxpayers' money, which is the shortfall in mining tax revenues from the deal the Government did with the Independents to lift the profit threshold at which the tax kicks in.

The Government has said it will get the $100 million from other sources. And it has clearly told the Greens where the cash will come from. It just doesn't want the rest of us to know at the moment.

Now, Premier Colin Barnett came on this program yesterday, and gave the Gillard Government a real spray over the way it has handled this legislation, including its deal with Independent Rob Oakeshott to once again put state mining royalties on the chopping block in a restructured review of GST payments.

WA is already being raped financially through the paltry return on our GST payments, and now Mr Oakeshott wants the Gillard Government to double the dose by replacing mining royalties with a tax under Canberra's control. Make no mistake - the real agenda of the Oakeshott review is to axe state royalties, once and for all.

My first guest this morning is Resources Minister Martin Ferguson, one of the few Gillard Ministers regarded by the WA mining industry as giving them a fair hearing. Good morning, Martin.

FERGUSON: Good morning.

MURRAY: Martin, should the states give up their resource royalties now that the mining tax is assured of a passage through parliament?

FERGUSON: Look, the mining tax is for the long haul. It effectively means during very good times, the Australian community will get a bigger share of the record commodity prices and the huge profits companies such as BHP, Rio and FMG are actually making.

In terms of the royalty issues, that change would only occur through proper discussion and consultation with State and Territory Governments. But the real process currently underway by agreement with the Prime Minister and the WA Premier, Colin Barnett, is the review of Commonwealth State Grants with a

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panel of three and terms of reference that were discussed and approved by, in essence, Barnett and Gillard. Let's see what comes out of those processes.

You know, in many ways - and I get on well with the Premier - sabre rattling and beating up the Commonwealth has been part and parcel of Western Australian politics, Labor and non-Labor Governments, throughout the history of Federation. The Federation has survived in the past and the federation will survive in the future. In the end, we are one nation and we have to work together and have our differences from time to time, and they are eventually worked out basically in the national interest.

MURRAY: Martin, what response did you expect from Colin Barnett when he sees a letter that Julia Gillard writes to Rob Oakeshott in which she talks to him about finding ways through that review to penalise - that was her word, to penalise states that lift their royalties?

FERGUSON: It's not to penalise, but let's go to the…

MURRAY: That's the word she used.

FERGUSON: Well, let's go to the basis of the MRRT. There was one revenue stream that was to be allocated on a proportionate basis in terms of infrastructure to the states that make the biggest contribution, in essence, out of coal and iron ore. If, as part of that process, states then decide to increase their royalties, which eats into what would have gone to the Commonwealth, then you can't accept that the Commonwealth should then go to consolidated revenue and, in essence, top up what would have come out of the MRRT. So if you actually decide to take a share of what would have gone into the MRRT, that pool that would have been allocated to Perth, you can't then expect to double dip by us digging in to other revenue streams.

MURRAY: Why not? We own the minerals. We've always had a constitutional right to lift our royalty rates whenever we wanted. Why should that stop?

FERGUSON: And the broader Australian community also accepts that we should be sharing the benefits of this resources boom in markets internationally that are important to Australia.

MURRAY: Well, they can mine whatever minerals in their own states they like.

FERGUSON: No, no, but there's also a broader consideration of the impact of the resources boom on the whole of Australia. And, I might say, other industries, such as tourism that are doing it very tough.

In many ways, we have announced publicly how this revenue stream, the MRRT, will be spent to the benefit of all Australians, such as cuts in company taxation for the benefit of all the business communities, especially small business. Support for the tourism sector, which is doing it very, very tough in Western Australia at a small business level, not only with cuts in company taxation, but also the capacity to purchase new capital equipment which they need to, you know, renew their businesses.

It is not as if we are putting this money into a big black hole in Canberra. It is actually being given back to all State and Territory Governments for a support for the business community and investment in infrastructure.

And I must say, as someone who comes to Perth very, very regularly, the first announcement, in terms of the spend on infrastructure, was fixing those damn airport roads, the Gateway Project, in and around Perth Airport, which has been a disgrace.

So the first allocation of money out of the MRRT was to fix the roads in Perth, which are important to the whole of Western Australia, not just the mining industry.

MURRAY: Martin, why is the deal with the Greens on the extra $100 million, which came from lifting the threshold, why is that confidential?

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FERGUSON: Well, it won't be confidential, the Prime Minister had discussions and she'll speak for herself, I'm due to do a media conference with her very shortly. We're in the process deeply, I might say, of a tough budget process going to MYEFO, the mid year economic statement, an update on our budget processes where growth is at the moment, where it's expected to be, and obviously we've got to handle a very difficult economic situation at the moment, in terms of North America and Europe, historically very good markets.

Alternatively, I might say, China's holding up well for Australia, we've got growth opportunities in the future in places such as India, and our traditional markets, such as Japan, have been hit by the earthquake and tsunami, Korea et cetera. So this time of the year we go for a very detailed, tough budget process, and I know as a Minister how tough it is, where we actually tell the whole Australian community where we're up to from a budget perspective.

We will attend to the outcome of the discussions with the Greens last night as part of that process, and it will be announced before Christmas. It will be a very public, accountable document.

MURRAY: Is it going to come from a cut in fuel rebates to the miners?

FERGUSON: Well, don't pull things out of the air and suggest such as a cut in fuel rebates to miners, that's how we're fixing up the Greens.

MURRAY: Well, the Greens have been after that for ages, why wouldn't you accede to them on that, it gets you the money you want?

FERGUSON: They've been after a lot of things, such as closing the petroleum industry in Western Australia, closing down the coal industry at Collie. They've always got a wish list, but there's a difference between the reality of Government, and hard decisions, focused on maintaining the strength of our economy, and trying to keep people employed, and the Greens’ wish list.

The Prime Minister will attend to those issues in due course, and I can tell you what's top of mind from the Prime Minister's perspective, to the benefit of all Australians, including Western Australia, maintaining Australia as a strong, attractive, economic opportunity for investment, and keeping Australians employed, which I think is one thing both Julia and Colin Barnett actually are at one on.

MURRAY: Hey Martin, from this side of the nation, it looks like the Greens have done pretty well out of their wish list, I mean they got you to do a back flip on the carbon tax, because that was on top of their wish list.

FERGUSON: Can I also say, in terms of the Government, tax and energy security is pretty important to us. We actually do need a bit of certainty in terms of what is the price of carbon, to get new investment in electricity.

And I also say a number of those major investors in the petroleum industry in Western Australia, have actually factored into their investment decisions over many, many years, a price on carbon, because they knew we would end up at this particular point in time.

And you know, the partnership between the WA Government and the Commonwealth Government is not insignificant. The Gorgon Project is on land in Western Australia, but that is Commonwealth petroleum product, a $43 billion project, Wheatstone $29 billion Commonwealth project, Pluto, $14 billion. This is about the Commonwealth and State and Territory Governments working to the benefit of all, and…

MURRAY: Well, Kevin Rudd, about Gorgon, Kevin Rudd promised us an extra $100 million out of Gorgon, are we going to ever see that?

FERGUSON: Yeah, well, the Government stands by that agreement, but remember this, under the PRRT, the Commonwealth doesn't get any revenue out of these projects, for years and years, that might be 2023, 2024, because the way the tax system works, a huge gas project is a huge initial capital investment. That

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is written off before we as a community, the taxpayers, people like you and me, actually get a return on these projects, that's the way we attract investment to Australia, and we've got the golden age of gas, and I can assure you, we are very attractive to international investors, because of the PRRT.

But we as a Commonwealth, won't see a revenue stream, Western Australia has benefitted for decades in terms of the revenue stream that goes to Western Australia out of the North West Shelf.

Can I also say we must also remember that we have resource booms from time to time. At the moment Western Australia is doing exceptionally good, but through the history of the Federation, there have also been bad times, when it's actually dependent on the support of other states and territories. That's the rollercoaster of being in the Federation, that's the rollercoaster of the economic cycle, and I might say, the

resources boom, at times exceptionally good to Western Australia, at times very bad.

I can remember going to Western Australia, time and time again, and meeting geologists driving - basically pushing themselves around Perth, driving taxis, because the industry had collapsed. That's the nature of the resources boom.

WA is going exceptionally good at the moment, as the Federal Resources Minister I do work closely, as much as I can, with my counterparts in Western Australia, different political persuasions, so what? So we are supporting one another…

MURRAY: I gave you credit for that at the start. Just one final question, if I can please, Martin?

FERGUSON: Sure, of course.

MURRAY: I understand that you supported magnetite miners, iron ore magnetite miners being excluded from the mining tax, why didn't that happen?

FERGUSON: No, you have a look at the way that we have structured it. At the taxing point, the dirt, i.e. magnetite, is worth very little. That effectively means the magnetite industry will pay little or no tax. But over time, this industry could grow to be a very, very productive, high commodity price industry. When they get to that point, and they're making huge profits, then I think you and I would agree in principle that the tax system actually kicks in.

MURRAY: So you don't think that it'll have any effect at all on the expansion of our Mid West region?

FERGUSON: To be very frank with you, I think what's the biggest worry, having gone through the Argus-Ferguson report is the royalty regime of WA potentially on magnetite, and I've been told that whilst they've potentially got a high royalty regime, there's a capacity for the WA Government, in recognition of the potential difficulties, to give holidays on royalty payments, to magnetite projects, to attract investment.

So fair's fair, I've gone out of my way to actually structure a tax system, with the support of the Treasurer and the Prime Minister, which effectively means, in my opinion, because of where the taxing point is at, the magnetite industry will pay little or no tax.

The real value of the magnetite industry is the processing point past the taxing point, for the MRRT, and that's just the same challenge to the WA Premier. He has jacked up royalties, as is his right, in terms of the magnetite industry, but I think the WA Government now realises they're going to have to give royalty holidays to the magnetite industry to continue to attract investment to Western Australia. It cuts both ways.

MURRAY: Good to talk to you, thanks a lot, Martin.

FERGUSON: Thanks very much. Catch up.

MURRAY: Martin Ferguson, Federal Resources and Energy Minister.

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