Senator FIFIELD (Victoria-Manager of Opposition Business in the Senate) (16:52):
If Senator Milne’s speech at the National Press Club was in effect the decree nisi for the political union between the Greens and the Australian Labor Party then the decision to debate the Minerals Resource Rent Tax Amendment (Protecting Revenue) Bill 2012 at this time represents the decree absolute. Senator Bishop in effect gave expression to that here today. But the thing that confuses me greatly is why this political marriage between the Greens and the Australian Labor Party happened in the first place. I am certain it is something that confounds Senator Bishop as well-as one of the clearer-thinking members of this chamber. He is turning red, as I know he often does when I speak.
What also confuses me is that, when the Prime Minister assumed that office, one of the three policy areas that she said she would fix was the situation around the mining tax. The Prime Minister went to the election. Subsequent to the election, with the support of the Australian Greens, she formed government. Subsequent to that the Prime Minister had that now famous civil union ceremony with former Senator Brown where all the participants and witnesses were sporting sprigs of wattle in a festive spirit. At the time that the Australian Greens entered that union with the Labor Party, the Prime Minister’s intentions were known in relation to the future of the minerals resource rent tax. At the time that the legislation went through the parliament, the union between the government and the Greens was formalised and the Greens had access to full and comprehensive briefings from their alliance partners on this legislation. So the Greens came into this chamber to support the MRRT legislation with their eyes wide open. It was with complete knowledge that they entered this arrangement-certainly more knowledge than the opposition had as to the background of the negotiations behind this legislation. The Australian Greens are in effect co-authors of the MRRT legislation. I think Senator Bishop was quite right to express his surprise that a little more than a year after the legislation passed this place the Greens are now walking away from their own creation. I wanted to give a little background as to the confusion that I have as I stand here today.
Our proposition has always been that the minerals resource rent tax is a bad tax. It has always been that it came out of it an improper process, it came out of a bad process and it came out of the process that the Greens fully, completely supported. Labor’s mining tax, we have long contended, is so inefficient, so distorting and so bad for investment in a very important industry for Australia, so bad for our economy and so bad for the budget that it should be scrapped and not further expanded. The bill before us would make a bad tax even worse.
The coalition, not surprisingly, emphatically rejects this bill-for different reasons to the government, obviously. But we do call upon the Senate to oppose this legislation in anticipation of a bill after the next election-should the Australian public bestow the privilege of government on the coalition. After the election we would scrap the MRRT altogether.
The basic premise that this Greens bill is based on is fundamentally flawed. The bill seeks to disregard any increases in royalties after 1 July 2011 when calculating royalty credits for the MRRT. This is of course inconsistent with the commitment the Prime Minister and the Treasurer made in the mining tax deal that they negotiated personally, exclusively and in secret with the three biggest miners, when they promised that all state royalties would be creditable against the mining tax. Despite attempts by the government to revisit the definition of ‘all’ in relation to state royalties, even Ms Gillard and Mr Swan had to recognise that ‘all’ meant all and that ‘all’ included any future increases in state royalties.
It is, of course, not particularly competent that Ms Gillard and Mr Swan signed up to such a commitment without engaging the states and territories first and without seeking their formal agreement in relation to the royalty arrangements. This is not the fault of the states, it is not the fault of the territories and it is not the fault of the miners. Royalty arrangements are a matter for the states. There is nothing the Prime Minister and the Treasurer can do to stop the states from increasing their royalties as they see fit. In fact, their mining tax deal provided a direct incentive to state and territory governments to increase their royalties. The idea advanced by sections of the Labor Party and the Greens that state royalty crediting arrangements and market based depreciation arrangements are actually loopholes in the MRRT is completely wrong. To present these as loopholes is more than wrong; it is dishonest.
These are not loopholes; they are deliberate design features of the MRRT. They are the government’s design features and the Australian Greens supported them in this place.
There is much that is wrong with the mining tax deal that the Prime Minister and the Treasurer negotiated, exclusively and in secret, with the three biggest miners. It is important to consider how this all started. Why is it that the royalties are credited under Labor’s mining tax in the first place? Even though Labor’s mining tax was never anything other than an attempt at a grab for more cash to support the reckless spending of this government, it was sold as important long-term reform designed to make the system simpler, fairer and more efficient. Instead, it made resource taxation arrangements more complex, less fair, more distorting and less efficient. The Henry tax review recommended that a national profit based resource rent tax would replace state and territory royalties. The argument was that royalties were inefficient because they were imposed on production irrespective of profits, whereas a profits based tax would only apply if there were profits.
The problem was that, for a number of states, royalties represented a significant part of their own source of revenue. Yet the Treasurer, whose deficits, I should add, are more than fiscal, never even talked to the states about the implications of the mining tax for them. Instead of replacing royalties, Ms Gillard and Mr Swan came up with complicated crediting arrangements. As soon as they promised to credit all state and territory royalties, they provided an incentive to states and territories to increase their royalties, as any increase in royalties would be creditable against the MRRT. In fact, the MRRT deal removed any incentive for states to keep royalty rates low or provide discounts to attract investment to their states, as part of competitive federalism, because any benefit from discounted royalty rates would go to Canberra through increased MRRT revenue and not actually help attract investment to particular states.
So the entirely rational and predictable result was that five out of six states, including the Labor states of Tasmania and South Australia, have increased royalties on iron ore or coal since the mining tax deal was signed by Ms Gillard and Mr Swan. Every increase in royalties since the deal was signed did, of course, blow a hole in Labor’s mining tax revenue estimates, as any increase in royalties courtesy of the deal reduced MRRT revenue.
Labor’s mining tax is more complex, distorting, inefficient, costly to administer and costly to comply with than the previous resource taxation arrangements based on state royalties and company tax. The MRRT is a failed tax which came out of a bad and now widely discredited process. The MRRT should be scrapped; it should not be expanded. It is a distorting, inefficient tax grab which inappropriately targets an important industry. As I have said already, it is bad for investment and bad for the economy.
Two previous Senate inquiries into the mining tax have clearly exposed the many deep flaws of Labor’s mining tax. Those inquiries predicted the mess that would ultimately result and the fiscal train wreck that it would be. Ironically, as we debate the bill, the Greens have established an inquiry to look at the flaws in the tax which they helped to pass and which they are now trying to make even more economically destructive. The Greens’ supposed fix to the MRRT is a grab for more tax by punishing states for the flaws in the Gillard-Swan mining tax design. I repeat: the MRRT is a bad tax because it is bad for investment, bad for the economy and bad for the budget.
It is a complex and distorting tax-I cannot say that often enough. It is designed in a way that favours the bigger miners, who were given the opportunity to sit around the table, at the expense of the smaller miners, who we would want to be the success stories of tomorrow. It has failed to raise any meaningful revenue, when the government have already spent all of the money they thought it would raise and more. When the MRRT deal was announced on 2 July 2010 by the Prime Minister and the Treasurer, they said it would raise $4 billion in year one and $22.5 billion over the first four years. In the 2012-13 budget, that shrank to $3 billion in year 1 and $13.4 billion over the first four years. In the most recent Mid-Year Economic and Fiscal Outlook, it then shrank to $2 billion in year 1 and $9.1 billion over the first four years. Those were net revenue estimates-that is, they took the company tax effect into account. Given the MRRT is a tax deduction for company tax purposes, 30 per cent of whatever gross revenue came from the MRRT would have been collected anyway.
We now know that the MRRT raised only $126 million in gross revenue in the first two of three instalments for 2012-13. Once we take the company tax effect into account, that becomes a $88 million net revenue figure, which is comparable to the budget estimates. Once we take the $53 million in ATO administration costs for the MRRT into account, that becomes $35 million. Once we take the $38.5 million the government allocated to the RSPT advertising campaign into account, the taxpayer is actually $3.5 million short from the MRRT.
The premise of the MRRT was false from the start. The proposition that the mining industry does not pay its fair share of tax is false. This financial year, iron ore and coal miners will pay more than $8 billion in state royalties alone. They will pay more than $20 billion in royalties and company taxes.
The previous system worked: the more profitable a company, the more tax they would pay; the more valuable the non-renewable resource, the more royalties they would pay under the ad valorem royalty system. Labor’s profit based resource rent tax concept is flawed, because the practical consequence of it is that, without profit, miners could extract the valuable non-renewable resources from the ground for nothing-and that is wrong.
Ms Gillard and Mr Swan’s handling of the mining tax negotiations was incompetent. They never knew what the cost of the market-value based appreciation arrangements were when they signed the deal, and they still do not know what the cost is. If you are going to have a mining tax-which we do not think you should-then to be internally consistent you would have that feature of the mining tax deal. But a competent government would have had it properly costed before spending the revenue the MRRT would raise. Incredibly, when it came to costing the impact of some of the key features of their mining tax deal on mining tax revenue estimates, they forced Treasury to fly without vision. As the Treasury secretary, Dr Parkinson, made clear in Senate estimates, they were unable to consider the cost impacts of changes in market-value based appreciation and net-back arrangements because they could not see them. These and other matters do deserve scrutiny and report from a further Senate mining tax inquiry because the government have consistently hidden the truth behind the numbers.
The Prime Minister and the Treasurer have persisted with their dishonest talking points, blaming commodity price volatility, exchange rates and state royalty increases as the reasons why revenue from the MRRT came in more than 90 per cent below forecast. Those assertions were comprehensively discredited by Dr Parkinson at Senate estimates. Dr Parkinson made clear that Treasury were able to take commodity price volatility, changes in volumes and in exchange rates, and increases in royalties, into account when revising their MRRT revenue estimates. That is why estimated MRRT revenue went from $4 billion in 2012-13, when the MRRT deal was announced, to $3 billion in the last budget and to $2 billion in the last MYEFO-they could not take the change in cost of the value-market based depreciation arrangements and net-back arrangements into account. Yet, despite that very clear, compelling and independent evidence, the Treasurer continues to peddle his spin on what is to blame for lower-than-predicted mining tax revenue collections.
The other lie is that the people cannot possibly complain about the damage the mining tax has done to the important mining industry because, after all, they did not have to pay much tax. That is false. The mining tax was very much disruptive at a challenging time for an important industry, an industry that helped keep Australia going post-GFC. The tax is complex and costly to administer. Smaller miners alone had to spend more than $20 million in administering increased red-tape requirements under the MRRT while the ATO spent more than $50 million administering the tax.
The bad tax, the tax that was improperly negotiated, has had a detrimental effect on our sovereign risk profile as an investment destination. And, of course, the tax has hardly raised any revenue, when all the money the government thought it would raise-and more-has been spent. That is why we are now dealing with this bill. And for so long as this ineffective MRRT is on our statute books there will be other bills to try to expand the MRRT in one way or another, I am sure.
The MRRT is, as I have said, a bad tax because of the way it was negotiated. The MRRT is a bad tax, as I have said, because of the way that it was designed. The MRRT is a bad tax because it is a red-tape nightmare. And the mining tax is a bad tax because it is a dagger at the heart of Australia’s mining prosperity. It introduces a new tax on an important industry on top of existing royalty and income tax arrangements, and that makes our tax system more complex and less fair. It reduces our international competitiveness as an attractive investment destination. It gives an unfair competitive advantage to three big multinational, multi-commodity and multi-project companies, who were given the exclusive opportunity by the government to negotiate the design of this new tax, with all their competitors and other stakeholders locked out.
We need to make sure that our mining industry continues to prosper, that high-paid mining jobs are preserved. The government’s poorly designed MRRT will not be fixed by trying to penalise the states to benefit the Commonwealth. The mining industry pays the states for extracting the resource and pays the Commonwealth through company tax. The Greens bill reveals them, and by association the government, for what they really are: desperate for cash from an industry that they have always hated.