I spoke in parliament yesterday about the argument for a profit-based mining tax.
Mining Taxation, 13 February 2013
There is a lot of overheated rhetoric and debate around the mining tax, so I thought it might be useful to the House to return to the origins of the mining tax that is being discussed today: the Henry review's extensive report into the Australian taxation system. It discussed the principles behind a profit-based mining tax. It said:
'The finite supply of non-renewable resources allows their owners to earn above-normal profits (economic rents) from exploitation. Rents exist where the proceeds from the sale of resources exceed the cost of exploration and extraction.'
It goes on to say:
'In most other sectors of the economy, the existence of economic rents would attract new firms … However, economic rents can persist in the resource sector because of the finite supply of non-renewable resources.'
That is the underlying reason a profit-based tax is a more efficient tax in the mining sector.
We have had profit-based taxes in other contexts as well, the Petroleum Resource Rent Tax introduced by the Hawke government being the classic. When that was announced back in 1987, industry members took out front-page ads. We said back then that a profit-based tax would be anti-capitalist, and those on the conservative side of politics opposed a profit-based tax for the petroleum sector.
But what has been the history of that? Under the PRRT there have been substantial increases in production in that sector. Crude oil levies and royalties were hurting the sector, because when the price was low the tax impost became unsustainable. Now more than 20 years of oil production and 30 years of gas production remains in Bass Strait. But the PRRT revenue is volatile. We saw PRRT revenue drop by two-thirds during the global financial crisis. Profit-based taxes are inherently volatile taxes, but they ensure that Australians get a fair share, and they do so without decreasing the incentives to invest in the mining sector. Before the last mining boom, Australians were getting $1in every $3 of mining profits through royalties and resource charges. But as mineral prices went through the roof, in some cases increasing 10-fold, the share of mining profits that were being collected in tax went down to one dollar in seven. Profits went up by $80 billion, but the government only collected another $9 billion in revenue over the period 1999-2000 to 2008-09.
It was in that spirit that the government took on the recommendation put forward by the Henry review for a profit-based mining tax. It was backed by many sensible economists from widely across the political spectrum. As members of the House with an interest in US politics will recall, Sarah Palin made a name because as Alaska governor she introduced a Petroleum Profits Tax. So in order to oppose a profit-based mining tax you have to be to the right of Sarah Palin. Indeed, it was the Minerals Council of Australia who, in their submission to the Henry review, said that Australia ought to have a profit-based tax on minerals. They argued for a shift from royalties-based to profit-based taxation in their November 2008 submission, because they recognised that that was the right way of taxing minerals.
Now, some of those opposite will say: 'What about company taxes? Aren't company taxes enough?' But when the House Economics Committee considered the mining tax in late 2011 we had Fortescue come to see us, and I asked executives from Fortescue how much company tax Fortescue had paid, and the answer was zero—none at all; not a cent. So, when those opposite speak in their opposition to the mining tax, they are effectively saying that when world prices go up Australians should not get more. They are on record. The shadow Treasurer said, on 25 May 2010, when asked about mining company tax, 'Well, I think they pay a fair share.' The Leader of the Opposition said, on 26 May 2010, that mining companies ‘are paying more than their fair share of tax’. Despite the fact that commodity prices had gone through the roof and mining profits were going through the roof, the Leader of the Opposition thought mining companies were paying too much tax.
And then in 2010 we had this overheated rhetoric, reminiscent of what was said before the introduction of the carbon price, about what a profit-based tax would do to the industry. The Leader of the Opposition said it would 'threaten thousands of jobs in Western Australia and threaten investment'. The shadow Treasurer said it would 'discourage investment and cost jobs'. The Leader of the Opposition described the mining tax as a 'penalty tax almost guaranteed to kill the mining boom stone dead' and said that 'it will kill the goose that's laid the golden egg for Australia'.
Let's see what has happened to that mining boom—to those golden geese. Since July 2010 the Australian economy has created over 380,000 jobs in total; 67,000 jobs in mining. There has been over $152 billion of capital expenditure in mining. Capital expenditure in mining has increased by nearly 160 per cent. Total business investment increased by nearly 45 per cent. Expected mining capital expenditure for 2012-13 is more than three times what it was in the year before the MRRT was announced and the resource investment pipeline has more than doubled since the MRRT was announced. It is difficult to see a mining boom that has been killed stone-dead. It is difficult to see a goose that has been killed. In fact, the only geese appear to be those who are honking the interests of the mining magnates.
Getting a profit-based tax in place is not only economically efficient it is also an equitable way of sharing the proceeds of the boom. Fundamentally, the difference here is that those on the conservative side of the House believe that the minerals belong to those who have the mining licences. But that is not the case. These minerals are owned by all Australians. When the world price goes up it is not going up because of the sweat of the brow and the ingenuity of Australia's mining magnates. Whatever else you can say about Gina Rinehart or Clive Palmer, you cannot seriously argue—no-one in this House has seriously argued—that they are responsible for increases in the world price of commodities. Therefore, the question is: when that world price goes up—in some cases tenfold—shouldn't you maybe increase the rate of tax which those firms are paying? Wouldn't it be fair to increase the rate of tax those firms are paying? That is fundamentally what we are debating here in this House.
Those opposite argue against the mining tax. They argue that it ought to be scrapped, despite the fact that none of their prophecies of doom have come to pass over recent years. Yes, mining tax receipts will be volatile. That is because commodity prices are volatile. It is also—and I think this is a point that is too rarely acknowledged in this debate—because profits in the mining sector depend on the investment stage. So as we move through the three stages of the mining boom—that price boom through to the investment boom through to the output boom, which we are now seeing, in which total extraction is significantly above what it was—we are going to see different levels of profits. At a stage when firms are doing significant investment, we are going to see lower profit levels. At a stage when volumes are up, we are going to see higher profit levels.
The question for all of us here in the House is: if we believe the minerals are the birthright of all Australians, if we believe that the world price is not set by any of us here, then surely we should believe that a profit-based mining tax is the right thing to do—a profit-based mining tax that is backed by economists across the political spectrum, just as a price on carbon pollution is backed by economists across the political spectrum. It is a good tax, and one of which I am proud.
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