Senator RYAN (Victoria) (13:25): Before I go on to make my contribution to the Minerals Resource Rent Tax Bill 2011 and related bills, I would like to clarify and address a few of the myths propagated by those opposite, including the previous speaker. When we hear about superannuation and the increase in the superannuation guarantee levy from nine to 12 per cent, and that it is somehow linked to the mining tax, let’s clarify one thing: not a single dollar of this mining tax pays the superannuation contribution of anyone other than a government employee. Every single contribution that comes from a small business, a medium business or a large business comes out of the pockets of those businesses. The government is intentionally trying to conflate these two issues to mislead people into somehow thinking that this misguided tax is going to pay for their increased superannuation. All it does is account for the increased tax liability to the Commonwealth. Every single small business in this country is going to face an increase in labour costs through the increase in the superannuation guarantee levy and the superannuation guarantee charge. That is where the money comes from. It will make it harder to employ people and it will make the cost of employing people more expensive.
We heard the previous speaker talk about how we want to see businesses all around Australia prosper. If someone can explain to me how making it more expensive to employ someone actually helps address that or helps address this so-called two-speed economy, then they will be teaching me economics that I am not familiar with. The government is intentionally trying to mislead people that somehow this mining tax pays for their increased superannuation. It does no such thing. It comes from the pocket of their employer, as it always has.
No-one can disagree with the fact that we want to see a prosperous Australia. I come from Victoria. Victoria and my home city of Melbourne were built on the back of the gold rush. That is a nice introduction to this topic, because, quite frankly, what we are seeing now in Australia is the greatest resources boom since the gold rush. But what the Commonwealth government seeks to do is seize this revenue and squander it. I will go into that in more detail shortly. What is the antithesis of this particular policy? Firstly, the antithesis remains that this government has an enormous budget black hole to fill. Spending in the Commonwealth budget has risen from $260 billion to $370 billion per annum in just four short years. That is $100 billion, mainly borrowed, that is being pulled out of the pockets of future Australian taxpayers. Every dollar borrowed is a dollar that will be paid back through higher taxes in future years. There is no magic money tree, despite what Labor wish to say.
This tax comes from what was described at the time by Treasurer Swan as a root and branch reform of the tax system, which is what the Henry review was supposed to be. The government of course released it the week before the budget in 2010 and instantly knocked on the head virtually any serious tax reform. The one thing it seized was the so-called resources super profits tax. This tax was designed to try and seize revenue from both the states and the mining sector in order to plug the government’s black hole. It was dressed up around trying to address a two-speed economy and it was dressed up around trying to get a fair return on resources for Australians, but it did no such thing. This tax is a so-called brown tax—a tax that is based on profits and rates of return. It is a very complex tax. It is a tax that exists nowhere other than in economic textbooks. There is nowhere in the world that has a fully functioning so-called brown tax.
I am not dismissing something because it is in a textbook—this is no bad thing—but when such a theoretical model is being put into place you would think there would be some consultation with people in that sector. When you are taking something out of a 1960s economic textbook and saying, ‘We are going to be the first country in the world to apply this,’ you would think that you would actually consult with the only levels of government in Australia that currently tax resources through royalties: the state governments. You would think that you would actually consult with not just the large and entrenched mining companies but also the mining companies who are more in the exploring phase and are trying to find the next big thing in resources extraction in Australia.
But the government did not do that. The government merely came out with what it thought was a perfect theory and said to the Premier of Western Australia, amongst others—that is, the mining companies—’Take it or leave it.’ We know what happened next: the Labor Party then told the then Prime Minister to leave it. None of this serious consultation was undertaken, and this lack of consultation with the states is actually one of the most critical issues because this is what the real agenda of this mining tax, and what originally started out as a resource super profits tax, is.
One of the things that the Commonwealth government has done in the review of GST distribution is specifically to ask the two people conducting that to look at penalties that can be applied to states if they increase their royalties in respect of GST distribution. That betrays the real agenda of this government. The resources are owned by the people of Australia. They are owned by the people of Australia through the states in which they are citizens: it is like the case of the state of Victoria when it was a colony in the Gold Rush days, or the states of Western Australia and Queensland today—they are owned by the people of Australia. What the Commonwealth is seeking to do and what the Labor Party and their Greens allies are seeking to do is to seize ownership of those and to make Canberra the dominating power.
It is important to note, and I say this as a proud Victorian, that every time Western Australia increases its mining royalties Victoria sees a benefit. Victoria sees a benefit because of the way we go into something called horizontal fiscal equalisation, a topic that is guaranteed to put everyone listening in the gallery to sleep if I go into it in great detail. It means that through the Commonwealth Grants Commission we know that when we take into account the tax capabilities of the states and the costs of delivering services, that some states, like my home state, have a relatively lower cost of delivering services than, for example, Western Australia, because of the relatively compact nature of our population. For nearly a century we have equalised funds across the states to try to ensure that the people of Victoria have the same access to health, education and law and order services as the people of Western Australia.
I think that the system is far from perfect and that it can be improved dramatically, but one of the complaints about it at the moment—coming from Western Australia no less—is that as Western Australia increases its royalties its share of the GST funding pool is dropping. We can discuss this. There are legitimate complaints about this. But if we put those to one side for a second, we know now that the very complaint of Premier Barnett in Western Australia is that as he increases royalties he gets less back on the GST. What does that mean? It means that the royalties and the GST are being redistributed through the other states. So after a period of three years when Western Australia increases its royalties, those royalties are effectively redistributed through the GST funding pool on a per capita basis and come back to places like Victoria, which does not have a large mining sector at the moment.
That is a very important point because it means that every time a state government does increase royalties on coal or iron ore that the people in the non-mining states actually do see a benefit. More money comes to Victoria for nurses, teachers and cops because of Western Australia increasing its royalties. But it does not go via Canberra. It is not in the gift of the Commonwealth government; it is not in their ability to put a tied grant on it or to use for its own purposes, like when they had this dream of seizing hospitals for control by Canberra. The most important thing about this attack on state royalties is that it seeks to remove royalties from the state funding pool. And that does not just hurt Western Australia. It hurts everyone in every state, in every territory, in every town and in every city in Australia because when Western Australia increased its royalties in last year’s budget, in two years those will be redistributed around the country on a per capita basis to every other state. That is the nature of Premier Barnett’s complaint. But on the flip side it also has to mean that Victorian taxpayers and people in non-mining parts of Australia are actually seeing a direct benefit. They are seeing a direct benefit, it is just not going through Canberra. That attempt to undermine profoundly what remains of state fiscal independence is one of the most worrying aspects of this legislation and this agenda of the government.
To go back to the antecedents of this tax—and we heard from the previous speaker—we have this flawed logic that somehow these resources are limited. We have to extract value from them while they are limited because they can only be used once. That is true, but there is no shortage of coal or iron ore on this planet. There is absolutely no shortage of coal or iron ore anywhere in the world. What is in short supply is the capital that gets that to market. The scarcity involved in mining coal and iron ore is not like mining a rare precious earth, and it is not like mining a precious mineral. The real difficulty is in actually putting the capital and the infrastructure in place to take these products to market. Coal and iron ore are everywhere. The hard bit is how much it costs to get them out of the ground, to get them to market and to get them there cheaply, quickly and reliably.
That is actually what Australia has excelled at. Credit must be given to former Premier Sir Charles Court in Western Australia for his investments at the time and foreseeing this. We are in this case the beneficiaries of some long-term planning, and I hasten to add that none of it came from Canberra. In fact, when the Western Australian government was implementing these investments it would have had a penalty under the then fiscal equalisation rules, because it is not something that was taken into account when we were considering the provision of services equally across Australia. So every Australian is now benefiting from decisions made and taxes paid by people in Western Australia, Queensland and other places many years ago.
The real shortage here is about how we attract enough international capital and continue to attract enough international capital to develop and service these huge resource projects. The previous speaker referred to these incredible profits. They are incredible profits, but I think we have to put in context the incredible investment and the incredible risk of capital that goes into place. We are talking about tens of billions of dollars of shareholders money. And that is billions of dollars of money from people’s superannuation funds, overseas investors and a whole range of people. It is not like these profits are somehow exorbitant when we consider the sheer scale of these investments. Many people who propose and support these taxes fail to talk about the scale of investment that these resources projects involve.
When we get to the logic for this mining tax the Labor Party seems to forget its own past. I have heard ministers refer to the petroleum resources rent tax, and one of the differences with petroleum as opposed to coal and iron ore is its relative scarcity. There is no scarcity of coal and iron ore; there is a relative scarcity of petroleum. But one of the designers of that tax, Peter Walsh, a former member of this place and a former finance minister—a Labor senator from Western Australia—wrote, ‘There is rarely, if ever, any economic rent in iron ore.’ They are his words.
He wrote that because he knew that there was a risk of scaring off international capital and of seeing lower levels of exploration and investment, which is what this tax will entail, because Australia has no shortage of these resources. We are seeing at the moment a supply response to quite substantial increases in international demand.
The economic illiterates who support attacks like this seem to think that we should not use up all these resources quickly, because they might not be there for a future day. Mr Acting Deputy President Back, I put to you and to the chamber that while prices are this high we should want to get as much of this stuff out of the ground and overseas as we can. Australia should be taking advantage of every single opportunity to shovel as much of this stuff onto boats and trucks as it can and to move it as quickly as possible, because we know that prices are not necessarily going to stay this high. We know that every time we see increased demand and increased prices we will see a supply response. We are seeing it all over the world. We are seeing a supply response coming from South America, from Russia and particularly from Africa, because people know there is now more money in coal and iron ore than there was 20 years ago. We should be moving as much of this as fast as we possibly can because of the lack of scarcity of this. There is no scarcity of these products whatsoever. This is basically economics 101: demand goes up, price will follow and supply will follow as well. There is no guarantee that we will continue to see these price levels.
This gets to an important point about this mining tax: the government refuses to publish projections and forecasts on volumes and prices. How can this place and the Australian people know that this is a well-designed tax that meets the objectives the government sets for it? How can we measure the claims the government makes for it? How can we have any faith in it when the government will not do what the Western Australian and Queensland governments do? They publish volume and price forecasts in their budget papers, but we cannot get the same information from the Commonwealth Treasury. That reflects the flawed design process of this. We started off with the RSPT and we ended up with this MRRT. We know from submissions to the Senate hearings into this that the industry itself has had admissions from the government: ‘Yeah, there are problems with it, but we’re gonna fix it with another tax law amendment bill.’ That is extraordinary. We have before us some of the most complex legislation that this parliament will see, but which the government has admitted is flawed. We cannot see the modelling on which it is based and we cannot see the projections on which it is based. We are not even going to get information about what amendments are going to be put forward, because the government does not even have faith in its own legislation. That shows exactly what this is: a money grab. It is a money grab to fill a black hole and to try to seize revenue and fiscal autonomy from the states.
This tax and the way it was put together will condemn the Labor Party for a long time. After rolling their own Prime Minister and the previous model of this tax, flawed as it also was, and failing to consult with industry they decided they had better actually consult with someone, so they consulted with those who helped them roll the previous Prime Minister. They got the three big ones in a room—the same ones they are vilifying as being foreign owned—and cut a secret deal that excluded all the people who are actually exploring. They excluded all the small miners and the medium miners, including some Australian champions like Fortescue. They simply tried to cut a political deal. That is something we are still seeing, because we do not know what the final form of this legislation will be.
That process is the equivalent of the previous coalition government negotiating the GST with Coles and Woolies, and not thinking about the interest of any small business in the country. Can you imagine what the outcry would have been? We have a government that has been desperate for a political solution, desperate for a temporary fiscal solution, to achieve a confected and contrived budget surplus in the next financial year. We will believe that will happen when we see the final budget outcome at the end of next year. They excluded the next generation of large miners. This mining tax also punishes those who are potentially large miners, those who are in a different phase of the business, because it penalises them by going after people based on a rate of return. The problem with that is that mining is not like any other industry; it is high risk and it involves huge capital outflows. We need to find ways to encourage those businesses. But this tax, by effectively allowing a grandfathering of the older companies—the government still needs its revenue—is going after those companies that will have high rates of return in the immediate future. The problem is that the next generation of miners are therefore going to face a higher cost of capital because of the higher level of taxation.
We saw earlier this week that Australia’s share of global exploration investment is starting to fall. The government will trumpet numbers about how it is still about $5 billion, but the problem is that it should be going up. Everywhere else in the world exploration is shooting through the roof. Unless anyone here thinks we are getting close to running out of coal and iron ore in this country, exploration should be skyrocketing. We have a proven track record, we are close to major customers, we are a stable political environment that, until Labor got into office, had no issue with sovereign risk and we have a lot of infrastructure in place near a lot of the places where we should be exploring. But our share of exploration is actually dropping.
I could speak on this for hours, but I will not subject people to that. I will conclude on the point that the performance of our Treasurer over the last few weeks in vilifying mining companies, in vilifying—
Senator Colbeck interjecting—
Senator RYAN: Quite correct, Senator Colbeck, I should not put the Greens to one side. I just bundle them in with Labor these days—it is easier. The vilification of those involved in the sector by those opposite and by the Greens in the corner of this chamber is nothing short of a disgrace. How dare the Treasurer stand up and vilify people based upon their industry, encourage economic xenophobia by talking about their being foreign owned companies and accuse people of rent seeking simply for asking for the law to have stayed the same as it was? They are not asking for any special favours; they simply think this is a bad public policy outcome. They did not deny that it would actually mean higher taxes for them. They pointed out the levels of tax they already paid—the relative level of tax compared to others around the rest of the world—and for that they were vilified.
The sheer hypocrisy of the Labor Party, which is a 50 per cent owned subsidiary of the trade union movement and which represents in this place a retirement home for trade union officials, accusing someone else of rent seeking when it is itself explicitly set up to represent sectional interests in this parliament is nothing short of a disgrace. A Treasurer should have both the intellectual fortitude and the intellectual capability to mount his case. Because he has failed to mount his case he has resorted to vilification.
This is a bad tax. It is a tax the coalition will repeal. It is a tax that will actually lead to lower economic growth in the future. Yes, the argument occasionally is complex but we will not resort to the shrill vilification and economic xenophobia of those opposite.