Senator Alan Eggleston

Speeches

18

Almost two years ago to the day, I stood in this chamber and likened the mining tax to a piñata: no matter where you stood, it was pretty easy to take a swipe at it. But, while piñatas are fun, the mining tax has been nothing but disadvantage to Australians, who were led down the garden path by the previous government. Last week the media reported the ALP was standing by its disastrous tax. When pushed by Sky News for a straight answer, opposition leader Bill Shorten was reported as saying:

… the principle … is a good principle and one which Labor supports. 

This is notwithstanding the fact that the minerals resource rent tax has been held responsible for increasing the sovereign risk of investment in Australia and has led to international miners diverting their investment to other parts of the world, particularly Africa. Australia as a nation has lost out very heavily, because mining was one of the key pillars of our economy.

The Labor government conceived this tax in secrecy as a result of a deal with the big three mining companies: BHP, Rio and Xstrata. We were told at a Senate economics committee inquiry held last year that there were no Treasury officials present when Julia Gillard and Wayne Swan met with the people from Xstrata, BHP and Rio; they were on the end of a phone. When the mining companies proposed that the costs of development of their mines be offset against the tax, Julia Gillard and Wayne Swan wagged their tails and agreed. But, if they had rung the Treasury, they might not have been quite so happy about it, because they failed to understand the billions of dollars which it costs to develop these large mining projects, which Gillard and Swan had just agreed to allow to be offset against any tax liability. This really explains why the returns from the tax have been so small. As Andrew Forrest of Fortescue Metals Group said back then: 

… it is amusing that … [Don Argus] - former chairman of BHP - chaired the so-called independent committee that developed the plan for the MRRT. This crafty plan was concocted by three big companies to service their own interests while, in its operation, it very severely damaged the smaller miners. 

And what a plan it was, as the three big miners got the naive government representatives to agree to the costs of development of their mines being offset against their revenue. It is like having a negatively geared house: you can offset the interest against the rental income and in the end you have a lower income, which means you pay less tax. Very similar to negatively gearing a house, the miners were offsetting the whole cost of development of their mines against their revenue and, as I have said, the cost of development of the mines was billions and billions of dollars, which the government representatives did not quite understand. 

In July 2010 we were told the tax would raise an estimated $10.5 billion over the first two years—but things changed. Later, in the MYEFO document of that year, revenue was downgraded quite substantially, by almost $3 billion, to $7.4 billion. In the 2011 budget, however, the revenue from total tax raised magically increased to $7.7 billion in the first two years—this is projected revenue—and to $11.1 billion for the first three years. But these projections proved to be quite wrong. In fact, the tax delivered just $232 million—not billion dollars, but million dollars—when the original promise from Labor was, as I have said, some $6 billion in this year alone. 

This year, 2014, the tax will be lucky to raise some 10 per cent of what former Prime Minister Julia Gillard said that it would be more than 3½ years ago. The only thing the tax bred was red tape through an exorbitant series of compliance costs. As The Australian reported on Friday, the cost of the Greens' and Labor's failure to support abolishing the mining tax will reach something like $900 million this year. Failure to repeal the tax will burden every single Australian man, woman and child with the equivalent of an extra $1,800 a year in debt. The opposite, ridding the nation of this scourge, this mining tax, will result in $13.8 billion in net budget savings. To my mind, those numbers are pretty clear as to which option the Senate should be taking. We surely should be abolishing this tax for the benefit of ordinary Australians. 

Andrew Forrest's FMG—Fortescue Metals Group—is one of the world's largest iron ore producers and seaborne traders in iron ore. In its first full year of operations, FMG mined, railed and shipped more than 27 million tonnes of iron ore to customers in China and other parts of South-East Asia. Mr Forrest is on the public record as saying that his company, FMG, would not have even got started if the MRRT had been in place when he established his company. That statement should ring alarm bells in every Labor member's and senator's office because clearly the mining tax was seen as an impediment to investment in Australia, and that means an impediment to the creation of new jobs. 

In 2012, the then shadow Treasurer, Mr Hockey, said that it was nothing short of 'economic vandalism' for the government to be imposing this mining tax on Australian industry, and on the mining industry in particular. He warned that both the mining and carbon taxes stood to decimate business activity and destroy jobs, ripping at the heart of the Australian economy and leaving in its wake a trail of bankrupt businesses and struggling families. During questioning at a Senate Economics Legislation Committee hearing into the mining tax legislation in February 2012, representatives from the Association of Mining and Exploration Companies, AMEC—an industry body for smaller Australian mining companies based in Western Australia—said the design of the tax created a bias which favoured the three big companies who negotiated this mining tax deal. By contrast, it negatively impacted on the smaller miners. It negatively impacted on the smaller miners because the smaller miners did not have the same level of development costs to trade off against the tax on the mining operations. 

AMEC's chief executive, Simon Bennison, said the tax represented an injustice against emerging companies, who would pay a higher effective tax rate of four to six per cent above the large companies such as BHP, Rio and Xstrata. The small and emerging companies are a very important sector of the mining industry. It is the smaller companies that go out and find new mineral deposits and, as they grow into bigger enterprises, they continue to put Australia on the mining map of the world. FMG, which I have referred to already, is an example of this, as is Atlas Iron, which began as a very small mining operation in the Pilbara and is now quite a substantial company. The mining tax has been a disincentive to these smaller miners to go out and find new deposits of various minerals, and in that sense it has very much been a disadvantage to the future development of the mining industry in Australia. 

This point has been reinforced by an independent study undertaken by the University of Western Australia, which shows the mining resource rent tax is not competitively neutral between emerging mining companies and mature mining companies and that it does in fact discriminate very heavily against emerging mining companies. As I have said, this means that there will be fewer new mines developed because these smaller mining companies are not going to have the financial capacity to go out and develop new mines. Dr Pietro Guj, a research professor at the Centre for Exploration Targeting at UWA, has written: 

Financial modelling of the iron ore mine development example provided by the Commonwealth in their MRRT legislation Exposure Draft and Explanatory Material, indicates that there may be significant differences between the Net MRRT and consequently the total level of taxation (corporate income tax + Net MRRT + Royalties) paid by projects which existed before 2 May 2010 (when the MRRT was first announced) and those that will start after the introduction of the MRRT on 1 July 2012. 

Research has also pointed out that part of the tax's design allows a mature miner to claim large starting base allowances as a tax shield for some 25 years. I have referred to this already as the larger, well-established companies being able to offset their costs of development against their income from mining at the present time. The then Labor government seemed to have forgotten the fact that BHP and Rio had deducted their capital outlay once already and received stamp duty discounts. The ALP government, perhaps unwittingly, with great generosity was offering these companies a second opportunity to deduct their development expenses from their profits. I doubt very much whether the ALP intended that, but that is what they did, and I suppose one can only wonder at their naivete in agreeing to such an arrangement. 

It has always been far from a level playing field in the mining industry. The question must be asked :

what message does Labor want to send to new and potential investors? Does it want to stifle competition and promote monopolies in the mining industry rather than seeing many new developments occur? New developments will, as I said, be inhibited by this mining tax. The then government needed only to look at the impact that even talk of the tax had had on investment in the sector to understand that the MRRT was seen as a negative to the development of future mining. Even in the lead-up to the tax's introduction, an increasing proportion of new funds raised in Australia were flowing offshore to mineral projects in Africa, South America, Canada and other jurisdictions. 

In a media release issued in November 2011—again, prior to the tax's introduction—AMEC said its members were already experiencing problems raising capital for projects in Australia. The CEO said many small and emerging miners were looking to transfer their work overseas to similarly resource rich but less hostile environments. Even Treasury admitted during questioning that the mining tax was a highly volatile revenue source which could potentially be downward trending. For example, in 2011, there was an almost 30 per cent drop in the iron ore price. This tax was already making Australia uncompetitive in the international arena, yet Labor persisted with the tax, and today it is the Australian economy and the Australian people that have paid the price for Labor's foolishness. My friend and former Treasurer Peter Costello summed it up nicely when he said: 

… there was the dog with no bark, the pub with no beer and now the tax with no revenue. 

If Labor and the Greens have any credibility, they will not be the parties with no sense and they will vote to repeal this mining tax.

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