Coalition Senators' Dissenting Report

Overview

1.1The legislation presented to this committee, like all elements of the Future Made in Australia plan, appears closer to a slogan without detail. Indeed, it seems the main thing the government will be manufacturing in the future are the details of how the plan will work.

1.2It is alarming that a government seeking re-election is building its second term agenda on a slogan, not a policy agenda. This is more confounding when looking at the stark reality of Labor’s failures on economic management:

(a)Prices have risen by around 10%, and approaching 18% for working families, with trimmed mean inflation remains outside the RBA’s target band.

(b)Real wages have fallen by 1%, and significantly more for working families.

(c)Labour productivity has collapsed by 6%.

(d)Australian living standards have collapsed faster than any other advanced economy.

(e)Consumer and business confidence remain at recessionary lows.

(f)Australia is experiencing record business insolvencies, and rising business costs – with 1 in 2 businesses considering closing.

1.3In this context it is important to note the following about this legislation that was undisputed by Treasury officials, supportive witnesses, and hostile witnesses to this policy:

(a)The tax credits do not come into effect for over two years.

(b)There will be a compliance cost of up to $100,000 just to claim the tax credit, and an ongoing cost each year of up to $22,000.

(c)A failure to comply with the Community Benefits Principles will lead to a reduction in the tax credits available.

(d)The Community Benefits Principles could range from union agreements, duplicative environmental or Indigenous consultation practices, onerous tax disclosures, and . There are significant concerns that even if these principles aren’t embedded in the rules, the threat of compliance could be used to induce such outcomes.

(e)The Community Benefits Principles will be decided by a Minister at the stroke of a pen, and the government has failed to produce guidance on what will be included in those regulations.

1.4Alarmingly, all these points have been disputed in the press by government ministers, who have variously called such assertions “fear mongering” and “[lies]” and “[made] up”.[1]The Ministers are at odds with their officials and witnesses to this hearing and express clauses of the legislation and the explanatory memorandum, put to witnesses in this hearing, specifically paragraphs 1.48 and 1.51 of the explanatory memorandum and S419-145 and S421-45 of the Bill. This raises serious questions if the Ministers understand the legislation in the same way as their officials and the witnesses who appeared at this committee.

1.5The AMWU were clear in their evidence to this committee on the Future Made in Australia Act that in their view, the Community Benefits Principles should extend to union agreements being made in exchange for taxpayer support.[2]

1.6Witnesses confirmed that the Government has failed to respond to consultation concerns about the practice of the Community Benefits Principles, and failed to provide clarity about what will be included in the final rules.

1.7Tying the value of the tax credit to the Community Benefits Principles raises an important policy question: what is actually being incentivised here?The Community Benefits Principles mean the tax credits are intrinsically linked to social objectives, not economic ones. If the policy objective is to support the growth of new industries, tying them down in red tape and compliance costs seems at odds with the policy objective.

1.8This not only adds significant complexity, but it reveals the lack of vision for what Labor’s Future Made in Australia is trying to achieve. This legislative design is complex to the point where it appears to be deliberately opaque – and the lack of clarity will do nothing to support investment or drive new business creation.

1.9This stands in stark contrast to the Coalition’s commitment to make the Instant Asset Write Off permanent, which will remove the complexity of depreciation schedules and support 98% of Australian businesses with tax relief when they invest. Similarly, the Coalition’s simplified meal deductions will remove complexity of FBT administration for 98% of Australian businesses who accrue hospitality meal expenses in the course of legitimate business activities. Both these initiatives have significantly lower fiscal costs than the legislation before this committee, will come into effect sooner, will support a wider range of businesses – yet are opposed by the Labor party.

1.10Further, noting the complexity of the legislation and the lack of clarity of the policy objectives raised by Coalition Senators and witnesses, the government has not been cooperative with this committee with its inquiries. Officials from Departments of the Treasury and Department of Industry, Science and Resources have failed to respond to questions on notice in time for this report, despite the due date being communicated to them at the beginning of their evidence. This is an egregious failure of accountability of the executive arm of government to the Parliament. Collectively, the government promotes that these measures are estimated to cost $22.7 billion of taxpayers money over their operation. Parliamentary accountability is a foundational concept of our democracy, particularly on tax legislation. It is not sufficient to rely on consultations conducted under the non-disclosure agreements, particularly when the evidence to this committee was that many concerns raised during the consultations – particularly regarding the Community Benefits Principles – were ignored.

1.11The Future Made in Australia agenda has been criticised by economists, the Productivity Commission, and business groups.[3]Labor has a failed record of industry policy interventions. The Rudd Labor government spent billions of taxpayers’ money on manufacturing subsidies to offshore companies, yet saw 1 in 8 manufacturing jobs lost, a collapse in manufacturing businesses, and declining manufacturing exports.

1.12This legislation does nothing to support Australian businesses in the next two years. Its opaque and deliberately complex design is adding complexity to our tax system, not simplifying it. The government has failed to answer basic questions about its operation, and the policy is incentivising social objectives, not economic ones.

1.13For all these reasons, the Coalition believes the legislation should not be passed and the Community Benefits Principles provisions amended to expressly preclude requirements for union agreements, duplicative environmental approvals, or Indigenous consultations.

Detailed Comments

1.14The bill amends the Income Tax Assessment Act 1936, Income Tax Assessment Act 1997 and Taxation Administration Act 1953 to establish a hydrogen production tax offset and to establish a critical minerals production tax incentive; and the bill amends the Aboriginal and Torres Strait Islander Act 2005 to enable Indigenous Business Australia to borrow money.

1.15Through the inquiry, the overarching criticism of the bill has been its total lack of clarity regarding the Community Benefit Principles (CBPs), including:

The potential requirement for union agreements;

Uncertainty regarding non-compliance penalties;

Increased, potentially duplicative regulatory burden that will likely increase project costs and deter investment.

1.16Among other key concerns raised were the risk of an increased number of tax disputes, given the Australian Tax Office’s potential role in determining eligibility, similar to past disputes over R&D incentives, and why the bill must pass the Parliament before the 2025 election, when financial incentives do not take effect until 2027

Compulsory Union Agreements

1.17There is concern that the CBPs will include compulsory unionism and increased industrial relations complexity, which has the potential to deter investment and unnecessarily increase costs of production.

1.18Senator Smith questioned witnesses about their knowledge of a union agreement requirement:

Senator SMITH: "The AMWU has told this committee, when it was considering the Future Made in Australia Act, that these requirements—the CBPs—would include a requirement for a union agreement. Is that your understanding of the CBPs, and would you agree with that?"[4]

1.19The Minerals Council of Australia was emphatic about the risk these agreements would pose:

Mr Lyons: "No, and that's quite concerning. I wasn't aware of that. I don't know whether my colleague Matt Denyer has any comment on that, but it would be a concern. It would certainly add a lot of complexity."[5]

Risk of Regulatory Burden

1.20The lack of clarity regarding CBPs may significantly increase project costs.

Senator SMITH: "Can you both share with the committee whether or not you consider yourself to have a mature, detailed understanding of how the CBPs will work or whether your understanding is very broad and shallow?"

Ms Freeman: "I would say that we have a broad understanding of what the CBPs are in general, and we support the intent of those principles. My understanding is that there will need to be work done on the rules in terms of how this will be applied, and it is important that there is ministerial engagement on that. One issue we raised in our submission was that investors will need some clarity about how those CBPs will be applied and what the expectations will be at the outset of the project—what is involved in meeting them."[6]

Mr Lyons: We also remain concerned about the potential duplication of process created by the CBPs. We support CBPs, but the processes may create further barriers and uncertainty as to project eligibility. These concerns are not ours in isolation; they've been raised by the Western Australian government and other industry groups. We encourage the government to consult with industry in relation to this important aspect of the bill.[7]

1.21The Minerals Council of Australia also noted the duplicative administrative burden in their inquiry submission:

The Australian minerals industry produces critical minerals utilising world leading sustainability standards, including best practice environmental management and community engagement…

We understand that the requirement to comply with 'community benefit principles' is an overarching requirement of the Future Made in Australia Act. However, there are already extensive and rigorous approvals process that mining and mineral processing projects must adhere to makes this an unnecessary and duplicative feature of the CMPTI.[8]

1.22The Australian Chamber of Commerce and Industry also noted this in their submission to the inquiry:

"The additional engagement processes required by the community benefit principles parallel existing requirements of the planning and approval process. This is simply adding a further layer of administration and compliance, without any clear benefit." [9]

1.23Treasury acknowledged during the inquiry hearing that the lack of detail contained within the bill, leads to high compliance costs for businesses – with as much as $22,000 a year and $100,000 in its very first year.

Senator SMITH: "What is the compliance regime to look like, and have I understood the regulatory impact statement correctly when it says that there's a $100,000 application fee and a $12,000 annual or per-year fee? How do those two costs work?"

Mr Robinson: "I will ask Mr Gebers to respond to that."

Mr Gebers: "The $100,000 is an estimated compliance cost. There's not currently a fee. That regulatory impact statement cost that you reference is an estimated amount that it might cost a business as part of that process for their internal application fees. I understand that includes seeking tax advice and legal advice and completing that registration process. Then there is an ongoing regulatory cost as part of that."

Senator SMITH: "And the ongoing regulatory cost is $12,000?"

Mr Gebers: "I will be corrected; I understand it might be $22,000 though."

Senator SMITH: "Does the Treasury have full confidence that they will be the costs in 2027?"

Mr Robinson: "These are estimates of the cost of compliance. We routinely estimate these types of costs in relation to new policies. There's uncertainty, and of course costs might vary from business to business."

Senator SMITH: "So they could go up?"

Mr Robinson: "It may vary from business to business. It may be lower for some businesses."[10]

1.24The Chamber of Minerals and Energy of Western Australia said the CBPs would provide no benefit while providing additional costs to businesses:

"Introducing CBPs with separate reporting requirements under the Future Made in Australia will introduce additional compliance burden and duplication without enhancing the benefits to Australian communities." [11]

1.25During the inquiry hearing, Treasury and Department of Industry, Science and Resources officials, did not rule out that the Community Benefits Principles would duplicate compliance.This raises concerns the bill will increase the regulatory burden upon businesses and investors.

Senator SMITH: "Do officials from the Treasury and other departments that are present expect the removal of any regulatory processes or regulatory requirements in order to give effect to the CBPs? Will there be a net reduction in approvals as a result of the existence of the CBPs and the requirements that are contained in the rules?"

Mr Chesworth: "It's probably too early to tell—I may have gotten the wrong end of the question. We don't know how many approvals there are going to be, because the system isn't in place yet and that sort of thing."

…

Senator SMITH: "Has the government asked that the stock of regulation be decreased as a result of giving effect to the CBPs?"

Mr Robinson: "As I mentioned before, we're still in the process of design work, and we will obviously need to—"

Senator SMITH: "Is it a design expectation that there be a reduction in the stock of regulation and regulatory approval?"

Mr Robinson: "I don't know that there have been any specific requests around a reduction in the stock. I think the government would probably want to take the opportunity to see what is being proposed."[12]

Uncertainty on Community Benefit Principles Enforcement

1.26Treasury remains uncertain on how CBPs will be measured, monitored and enforced. CBPs are a novel and untested framework, and represent potential risks and uncertainty for businesses.

Senator SMITH: "You talked about the reciprocal obligations that are contained in the community benefit principles. Can you provide to the committee an understanding of how they will, firstly, be monitored and then, secondly, enforced?"

Mr Robinson: "As I mentioned earlier, we are currently going through the work in Treasury to consider how the community benefit principles might be developed and applied in practice, so it's probably a little bit early to be getting into detail around things like monitoring arrangements or how they'll apply in practice. What I would just emphasise, as I mentioned earlier, is that we will be going through a public consultation process to work through those issues. I imagine that monitoring and those sorts of things would be part of that."

Senator Dean Smith: "Is the Treasury modelling its approach on any pre-existing arrangements that might exist across the federal government, or is it creating a whole new model?"

Mr Robinson: "What I would say is that we're certainly very mindful of not wanting to duplicate things that are out there. I know that a number of the submissions, both to the Treasury process and, I see, to this committee's process, have underscored the importance of avoiding duplication. We will be drawing on existing frameworks, I would imagine, where possible, to avoid any duplication, but in some respects this is a novel approach, in having a framework underpin those broad supports."

Senator Dean Smith: "When I hear the word 'novel' I think of risk and uncertainty. Is that unfair?"

Mr Robinson: "I don't know that I'd characterise it that way. I think maybe I would describe 'novel' as a way—we're thinking about how we can bring a lot of these elements together under a single framework." [13]

1.27Concerns about the lack of detail on potential financial penalties for non-compliance with CBPs, were shared by industry bodies, and what the associated financial penalties will be.

Senator SMITH: "Do you expect that non-compliance with the CBPs will incur financial penalties?"

Ms Freeman: …I don't know. I guess there is no clarity, really, at the moment.I may have missed something in terms of how that would work, but presumably that will come forth as part of the consultation.[14]

…

Mr Lyons: “We've spoken with Treasury and expressed grave concern that the penalty for failing to meet one of the prescribed community benefit principles, if it's going to mean that someone becomes ineligible for the incentive, will just cut across the entire purpose of the incentive.[15]

1.28The Association of Mining and Exploration Companies said that the uncertainty of how CPBs will be applied, might outweigh the incentives:

"The legislation is largely silent on how the Future Made in Australia CBPs will be applied… [leading] to…speculation among industry and fear within the industry that the CBPs will be onerous to the extent they will undercut the appeal of the critical minerals PTI." [16]

ATO Decisions May Lead to Potential Disputes

1.29Witnesses expressed concern about the ATO’s enforcement of the complexities around the CPBs would lead to tax disputes and stymie investment:

Senator SMITH: “Mr Lyons, in your remarks, do you expect the complexities and uncertainties that exist in the research and development incentives to be replicated in this initiative with regard to engagement between proponents and the Australian Tax Office?"

Mr Lyons: "Unfortunately, I do because of this concern about having to identify costs that have a nexus with the project, particularly for people who have a mine and then a facility. Generally, in the costs within a company, there will be crossovers of people that are working on both, there will be costs that relate to both, and there will need to be allocation in portions. I suspect that there will be disputes between taxpayers and the ATO in relation to trying to solve those issues."[17]

Government is Rushing Legislation Before the Election

1.30Despite the lack of clarity on key points and other problems raised by stakeholders in relation to the bill, the Albanese Government is clearly rushing to pass this legislation in the lead up to the 2025 election.

1.31There is evidently a hope that Treasury will resolve any uncertainties regarding the bill after the fact, which not only cannot be guaranteed, but disregards its potentially costly consequences.

1.32Senator Smith questioned hearing witnesses on whether it might be more prudent to insist on greater clarity before the bill is passed:

Mr Lyons: That was the view that we put to Treasury.

Mr Grist:…We have expressed serious concerns about the CBPs and yes, we’d like greater clarity on them.

Senator SMITH: If I understand the evidence from the MCA and ACCI, there are actually two significant risks that give rise to the argument that the bill should not be passed until these two risks are resolved—that is, the complexities that arise with regard to the operation of the research and development incentives and, in addition to that, the risks that arise from unclarified, possibly complex and definitely duplicative CBPs approach. Is that a fair summation of the evidence?

Mr Lyons: I wouldn't agree that the complexities should necessarily stop the bill, because there are other ways they could be dealt with in terms of ATO rulings. That is often the way things are dealt with, in terms of the ATO and Treasury working with taxpayers to come up with rulings that can be used and followed to determine the nexus issue. But we would be hopeful that the community benefit principles issue could be dealt with ASAP so that this bill can be moved forward.

Senator SMITH: What’s your level of confidence that it will be dealt with ASAP?

Mr Lyons: Treasury were very responsive in consultation last year, but this was one sticking point that never got addressed and continuously sat there. So I really couldn’t comment.[18]

1.33It is important to note that the Albanese Government’s intention to pass the bill as soon as possible, in an effort to bolster its legislative record prior to calling the election, still will not deliver the tax credit benefit until 2027.

Senator SMITH: "Let me be clear that the commencement date at the moment is 2027, and submissions made to bring that forward by a year have not been accepted by the government."

Mr Robinson: "As I mentioned, the legislation, as you know, has a start date of 1 July 2027."

Senator Dean Smith: "So no business in Western Australia will get the benefit of this tax incentive until 2027?"

Mr Robinson: "That’s correct."

Senator SMITH: "No business in Queensland will get the benefit of this tax incentive until 2027?"

Mr Robinson: "That’s correct."

Senator SMITH: …"No single business in any state in Australia will get the benefit of this tax incentive until 2027?"[19]

Concerns for Western Australia’s competitiveness

1.34Western Australia faces unique challenges in competing for critical minerals investment, from increasing global competition. Renewed commitment and technological advancement in the US, Canada, South Africa, Indonesia, and China, presents serious challenges to Western Australian critical mineral projects.

1.35Evidence to the inquiry suggested WA is losing out to global competitors who are already implementing incentives like those in the bill. WA is at risk of falling behind the US and Canada, among others, if it cannot compete on cost and investment certainty.

Mr van Drunen: "Since 2010, globally there have been at least 1,500 market interventions to secure domestic development of critical minerals...

Accordingly, the government needs to do more to lower investment risk and development and operating costs, provide greater certainty on risks and reduce timeframes to market to make Australia a more competitive place to go downstream. [20]

1.36It is important to note, however, that the tax credit is not available until 2027 and that this characteristic of the bill actually creates a further competitive disadvantage for WA.

1.37Western Australian projects already face significant regulatory delays, which the bill fails to address. It was noted during the inquiry hearing that the bill does not present a remedy to WA’s long project approval times, making WA less attractive for investment.

Mr van Drunen: "Australia has long approval timeframes, land access issues and high construction costs. The Production Tax Incentive (PTI) must be paired with serious regulatory reform to reduce the regulatory burden faced by companies developing projects."[21]

1.38It was further discussed that WA's resource sector needs more than tax credits—it requires streamlined approvals and infrastructure support.

Mr van Drunen: "If Australia wants to diversify and achieve its aspirations to further downstream critical minerals, a PTI will make Australia more competitive. However, introducing PTIs will not be sufficient by itself."[22]

1.39WA’s high existing regulatory standards make the CBPs an unnecessary regulatory burden for the state. WA mining firms already adhere to strict regulations, so CBPs represent both unnecessary bureaucracy and costs to Western Australian projects. This was discussed during the inquiry hearing.

Mrs Logiudice: "CME believes that the WA resources sector is already meeting the intent of the stated CBPs. As a result, the implementation of the CBPs should not introduce additional duplication and administrative burden."[23]

Findings

1.40There is a concerning lack of clarity regarding the CBPs, with considerable uncertainty about how they will operate and the risk of penalties.

1.41Major questions remain about the potential requirement for union agreements, with multiple industry representatives unaware of this issue when questioned.

1.42The potential for disputes with the Australian Tax Office determining eligibility, have been identified, drawing comparisons to past disputes over R&D incentives.

1.43Labor has not provided an explanation as to the bill’s urgency, when financial incentives won’t take effect until 2027.

1.44Multiple industry bodies identified that duplicative regulations that may increase costs and deter investment.

1.45Further industrial relations obligations may impose excessive burdens upon businesses and investors.

1.46Treasury’s response to industry concerns must have greater transparency.

1.47That the bill not be passed.

1.48That the community benefit principles cannot include union agreement requirements

1.49That the community benefit principles need urgent clarification

Footnotes

[1]Katina Curtis, ‘Ministers label Michaelia Cash a liar on production tax credit union claim,’ The West Australian, 6 December 2024. https://thewest.com.au/politics/federal-politics/ministers-label-michaelia-cash-a-liar-on-production-tax-credit-union-claim-c-16994471 (accessed 31 January 2025).

[2]Mr Steven Murphy, National Secretary, Australian Manufacturing Workers Union, Committee Hansard, 28 August 2024, p. 21; AMWU, Submission 36, p. 5.

[3]Senate Economics Legislation Committee, Senate Economics Legislation Committee. Future Made in Australia Bill 2024 [Provisions] and the Future Made in Australia (Omnibus Amendments No. 1) Bill 2024 [Provisions], September 2024, pp. 61-72.

[4]Senator Dean Smith, Member, Australian Senate, Committee Hansard, 23 January 2025, p. 4.

[5]Mr Ross Lyons, General Manager, Taxation, Minerals Council of Australia Committee Hansard, 23January 2025, p. 9.

[6]Ms Anna Freeman, General Manager, Advocacy and Investment, Clean Energy Council, Committee Hansard, 23 January 2025, p. 3.

[7]Mr Lyons, Minerals Council of Australia, Committee Hansard, 23 January 2025, p. 6.

[8]Minerals Council of Australia, Submission 3, pp. 1–2.

[9]Australian Chamber of Commerce and Industry, Submission 48, p.6.

[10]Mr Marty Robinson, First Assistant Secretary, Corporate and International Tax Division and Mr Adrian Gerbers, Director, Production Tax Incentives Unit, Department of the Treasury, Committee Hansard, 23 January 2025, p. 32.

[11]Chamber of Minerals and Energy of Western Australia, Submission 15, p. 5.

[12]Mr Peter Chesworth, Head, Minerals and Resources Division, Department of Industry, Science and Resources, and Mr Robinson, Treasury, Committee Hansard, 23 January 2025, p. 30.

[13]Mr Robinson, Treasury, Committee Hansard, 23 January 2025, pp. 29–30.

[14]Ms Freeman, Clean Energy Council, Committee Hansard, 23 January 2025, p. 4

[15]Mr Lyons, Minerals Council of Australia, Committee Hansard, 23 January 2025, p. 9.

[16]Association of Mining and Exploration Companies, Submission, p. 3.

[17]Mr Lyons, Minerals Council of Australia, Committee Hansard, 23 January 2025, page 9.

[18]Mr Lyons, Minerals Council of Australia, and Mr Peter Grist, Director, Economics, Industry and Sustainability, Australian Chamber of Commerce and Industry, Committee Hansard, 23January2025, p. 10.

[19]Mr Robinson, Treasury, Committee Hansard, 23January2025, p.31.

[20]Mr Niel van Drunen, Action Chief Executive Officer, Association of Mining and Exploration Companies, Committee Hansard, 23 January 2025, p. 11.

[21]Mr Niel van Drunen, Action Chief Executive Officer, Association of Mining and Exploration Companies, Committee Hansard, 23 January 2025, p. 11.

[22]Mr Niel van Drunen, Action Chief Executive Officer, Association of Mining and Exploration Companies, Committee Hansard, 23 January 2025, p. 11.

[23]Mrs Anita Logiudice, Assistant Director, Policy and Advocacy, Chamber of Minerals and Energy Western Australia, Committee Hansard, 23 January 2025, p. 12.