Dissenting Report by Government Senators
Introduction
1.1
Government senators have significant concern with the view taken by the
report of this committee regarding the new Mineral Resources Rent Tax (MRRT).
We also reject the naming of the report, and its recommendations.
1.2
A breakthrough agreement was achieved between the Australian Government
and the mining industry on 2nd July, 2010, on arrangements which will underpin
major economic reforms to strengthen our economy, including an historic boost
to superannuation, new and better infrastructure, and business tax cuts
including an up-front tax break and less red tape for small businesses.
1.3
This agreement provides certainty to the resources industry, to mining
communities around the country, and to the broader Australian economy. These
facts lead us to believe that this policy sends a very clear message to the
world that the Australian resources sector is strong and its future is secure.
1.4
Government senators dissent from the report. We suggest that the report
has not given due weight to the extensive consultation process undertaken by
government, the significant benefits of broader economic reforms of which the
MRRT is a part, responsiveness to concerns raised by individuals in public
debate, and the importance of ensuring a fairer share of Australia’s finite
resource wealth is utilised for the benefit of all Australians.
Consultation
1.5
Government senators do not agree with the assertion that consultation in
the development of the MRRT proposal was narrow in scope. Consultation on the
design of the MRRT was significant, including multiple consultations through
the Australia’s Future Tax System Review (AFTS Review) process; discussion of
resource tax arrangements in the AFTS consultation papers; and formal submissions
to government from the mining industry about the desirability for changes to
resource taxation and the form the industry would prefer those changes to
take.
1.6
Following the ATFS Review process, significant contact between
government and industry was maintained, including many hours of consultations
at ministerial and official levels with miners of different sizes and miners of
different commodities.
1.7
Treasury has noted that there had also been discussions with at least 10
State and Territory departments, including the Western Australian Treasury, as
part of the consultation process that informed the design of the MRRT.
1.8
It should be noted by the committee that as a product of consultation,
the MRRT proposal announced by the government on 2nd July, 2010, has limited
the application of the new regime to iron ore, coal and oil and gas.
Responsive to Smaller Miners
1.9
The new MRRT proposal announced by the Australian Government has also
been directly responsive to the public demands made by the leader of the smaller
miners, Fortescue Metals Group Limited CEO Andrew Forrest, on 29th June 2010.
1.10
Fortescue asked for an open discussion of the headline tax rate. The
MRRT more than delivered on this point, with a 30 per cent headline rate, and a
25 per cent extraction allowance to recognize the contribution of miner
expertise up to the mine gate.
1.11
Fortescue asked for a higher uplift rate. The MRRT provides a higher
uplift rate of the long term Government bond rate plus seven per cent. This in
particular is of more value to small miners than to large miners, because large
miners are more likely to be able to access their deductions immediately by
offsetting them against other profits rather than having to wait and uplift
them.
1.12
Fortescue asked for immediate write-off of new capital investment. The
MRRT delivers this. Immediate write-off of new investment benefits miners that
are about to make substantial new investments in their mines and it means that
mines do not pay the MRRT until they have made enough profits to cover their
initial investment.
1.13
Fortescue asked for transferability of deductions between projects to be
maintained. This is of little value to single project miners, but is valued by
miners with multiple projects as it allows them to immediately access deductions
from one project that is under construction by transferring them against
profits from other projects.
1.14
Fortescue asked for the taxing point to be set at the point of mineral
extraction. The MRRT affirmed that the taxing point would be set close to the
resource, ensuring the arrangements did not tax the profits generated by
downstream activities such as transport infrastructure.
1.15
Fortescue asked for past investment to be valued at double its book
value, for the purpose of resource taxation. The MRRT provides significantly
more generous treatment than the previous model by allowing miners to have the
full market value of existing value of existing projects, including the value
of mining rights, recognized as their starting base.
1.16
Fortescue also asked for the refundability of unused deductions to be
removed, which the new MRRT also reflects.
1.17
In addition, the new MRRT also provides a $50 million threshold to
exempt the smallest miners from the regime.
1.18
We believe that in developing the proposed reforms, the views of smaller
miners have been taken into account by government, including those stated
publicly by Fortescue.
Industry Views on the MRRT Proposal
1.19
The new arrangements were welcomed by industry as improving the outlook
for investment and for jobs.
1.20
Following the announcement of the MRRT on 2nd July, 2010, the Minerals
Council of Australia said that “Today’s proposal on a new Minerals Resource
Rent Tax stands to deliver a positive outcome for Australia and its minerals
industry.” The MCA also stated that “This package is broadly consistent with
the minerals industry’s underlying principles of tax reform: international
competitiveness, sovereign risk and competitive neutrality across company size,
commodity mix and ownership structure.”
1.21
Further, Fortescue CEO Andrew Forrest said investors had a renewed
interest in his projects. On 3 July he said "the healing started almost
immediately. We had emails and phone calls from bankers saying Fortescue, we're
prepared to talk to you again."
1.22
This indicates the fact that broad consultation and responsiveness in
government policymaking has contributed to an arrangement that supports
investment and jobs, while providing the mining industry with much greater
certainty about future taxation reform.
Revenue
1.23
On 2nd July, 2010, the Government clearly stated the implications for
net revenue from the new arrangements. The Government announced that the new
arrangements were expected to raise $10.5 billion over the forward estimates,
which is $1.5 billion less than the previous arrangements had been expected to
raise. The Government also outlined that it would reduce some of the associated
tax cuts, in line with the reduction in expected revenue.
1.24
The Government provided further details of the different contributions
to the revenue figures in an Economic Statement released on 14th July, 2010.
This statement outlined that policy changes had reduced expected revenue by
$7.5 billion, but that parameter variations had increased expected revenue by
$6 billion. The Economic Statement also provided information on the Terms of
Trade assumptions, as has been the practice of successive governments in their
budget documentation. The Treasury has explained that its revenue estimates are
based on the most recent available information, reflect current high prices but
do not assume commodity prices remain at their current levels indefinitely.
Treasury assumes that commodity prices will decline gradually over time as
global supply comes on stream. This is a prudent and conservative assumption.
1.25
Regarding geographic distribution of revenue raised by the MRRT, the
Treasury has explained why it is not possible to identify the revenue raised on
a state by state or commodity by commodity basis with any certainty. “MRRT is a
profits-based tax with tax assessed on a project by project basis and with
losses transferable between projects operated by the same company. As the level
of profits from mining projects is not available on a State by State basis, and
there is no information available on how many mining companies might elect to
transfer losses between taxable projects (which may be located in different
states), it is not possible to determine the distribution of MRRT profits by
State with any certainty.”
1.26
Treasury also noted that “It is not usual practice for government to
release estimates of the revenue impacts of the individual components that make
up revenue estimates for policy measures. To do so would be potentially
misleading due to important interactions between components in determining the
overall revenue implications of a measure.”
A Fairer Return on Resource Wealth
1.27
The new arrangements will deliver a fairer return to the Australian
community for its non-renewable resource wealth. These returns will be used for
much needed economic investments.
1.28
One important area of investment is in infrastructure. Through the last
commodity boom, the mining industry noted that significant capacity constraints
emerged, created by a lack of government investment in infrastructure. We note
that the new resource tax arrangements will fund a $6 billion regional
infrastructure fund to address this need.
1.29
The revenue from the new arrangements will be used in other ways that
also benefit the economy. It will support an increase to superannuation and
cuts to business taxes for all companies and tax relief and simplification for
unincorporated as well as incorporated small businesses.
1.30
The Government has outlined a process for finalising the design details
of the new resource tax arrangements. On 2 July it announced that it would
establish a Policy Transition Group (PTG) led by Resources Minister Martin
Ferguson AM and Mr Don Argus AC to consult with industry and advise the
Government on the implementation of the new MRRT and PRRT arrangements.
1.31
We believe that the government has made significant progress on reforms
to the taxation treatment of resource wealth in Australia. The new Mineral
Resources Rent Tax (MRRT), developed in consultation with the mining industry,
will provide certainty to the resources industry, mining communities, and the
Australian economy.
Senator Steve Hutchins Senator
Don Farrell
Senator Anne McEwen
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