Debate on the Mineral Resource Rent Tax

HON ROBIN CHAPPLE(Mining and Pastoral)[2.28 pm]: In rising to speak on this motion, I point out that, interestingly, I agree with many parts of the motion moved by Hon Nick Goiran; however, I will draw on what is actually needed to be done to fix the problems he has identified. I agree with Hon Nick Goiran’s second reason for suggesting that the tax be scrapped—this is from Hansard—that it was negotiated in secret by the Prime Minister and it caused an error. Unfortunately, those meetings with BHP Billiton, Glencore Xstrata and Rio Tinto meant that the three major mining corporations in this context ended up not really participating in the payment of those taxes. The total revenue of BHP, Rio Tinto, Woodside Petroleum Ltd, Newcrest Mining Ltd and Xstrata for the previous financial year is about $167 billion and the total federal government budget is about $330 billion. So, in effect, these five companies made enough money to fund half of the Australian national budget. Unfortunately, as we have recently discovered, most of those funds go offshore. They do not come to Western Australia or to Australia in general. Part of the problem is that Australia is now starting to import international debt via the major mining corporations, artificially lowering their profit margins in this country. Both sides of Parliament at the federal level are concerned about this and are trying to do something about it.

The companies are not only not paying their fair share, but also not doing enough to ensure that the trickle-down effect flows onto the community. Gone are the days under Sir Charles Court’s leadership when mining companies invested in towns and infrastructure. In the 1970s, when I worked in the Pilbara in the mining industry, the towns, community services, and swimming pools—everything—were developed and supported by the mining industry. Gone are those days and we now have fly in, fly out workforces, which do not bring any economy of scale into regional areas. Royalties for regions money is being used to prop up the very things that the mining industry, under its conditions in the state agreement acts of the 1970s, were supposed to provide; in fact, we are paying more to support the development of those industries.

I need to make something very clear: quite often the former Leader of the House would say that I was opposed to mining. I am a miner. I worked for Lang Hancock and Peter Wright. I worked for BHP and Hawker Siddeley in establishing most of the power stations in the north west. But I am concerned that the mining industry needs to pay its fair share, because we are dealing with a non-sustainable commodity. I turn to the Association of Mining and Exploration Companies 2002 report, which states —

It is this point, the interface between the industry and the community, where mistakes will be made, and indeed are being made right now. Perhaps one of the biggest is by the mining industry in trying to convince its critics that mining is sustainable. Everyone involved with the mining industry want to believe this to be true, and if enough miners and their lobbyists say it often enough, they might even start to believe it themselves.

Sadly, mining is not sustainable, and deep down every miner, like every grade three child, knows it isn’t.

It is not sustainable. The report continues —

Mining is an extractive industry, it’s as simple as that. Dig it up and its gone for good. To pretend otherwise, and to argue that other uses can be found for the minesite after the ore has been worked out is fatuous. Yes, other people might come along and use the mining town, or the open pit as a lake, but the business of mining is over, and the miners have moved on to the next orebody.

We have to realise that Australia, and indeed Western Australia, holds somewhere in the region of 40 per cent of the globe’s mineral resources. We are significant, incredibly significant. But if we just allow this material to go offshore without the companies paying their fair share, future generations will indeed be highly critical of what the current state and federal governments have done to ensure that there is a diverse economy in the future.

I now refer to royalties, something I have had a fair bit to do with. It is quite often trotted out that royalties are a state right—which they are—and are better than a tax. However, after having worked in large and small mining companies, I have found that royalties inhibit the development of small miners because they tax the ore and not the profit. So when a small mine wants to develop its resource, and unless it gets a concession from the government—that is usually only a minor concession—it immediately pays a royalty. If a profit tax is paid, or in this case a super-profit tax, new miners can come onto the ground and start without any fiscal impediment at all. It has been long argued—the Henry report dealt with this—that the taxation of profit rather than royalty is a better way to go. Western Australia has been wedded to royalties for a long time and they are certainly bringing in money to the coffers. The problem with royalties—the former Leader of the House acknowledged this—is that it comes as net identifiable revenue to the state. It is then discounted in our GST allocation at around a rate of 70 per cent. So, in simple terms, if Western Australia earns $10 million in royalties, it gets to keep about $3 million and the federal government, through GST equalisation, gets the other $7 million. This all occurs through vertical equalisation, and we need to understand that whilst royalties help us they also help the other states because that money is equalised through the fiscal budget. I support a tax, but I also support a tax that means Australian coffers can be built up so that alternative technologies and industries can be established for the day when mining no longer exists.

People often say that mining will always exist, but one has only to refer to the industry’s own reports, which refer to iron ore being available for between the next 78 and 200 years. Those two figures are often trotted out. Three major goldmines coming on board are Boddington, the Super Pit and Tropicana Joint Venture, but most of the other goldminers are now in decline or actually closed. KCGM was putting out the scuttlebutt in the Kalgoorlie region recently that it was going to close in 25 years. People would have believed that if it had not been for my research, which looked into its drill logs and identified that in fact it has another 45 years to go. I made that public and it eventually admitted as much. It was scaremongering. KCGM, Barrick–Newmont, Boddington and, indeed, Tropicana will keep going for a long time. However, in the scheme of things, gold will probably be one of the minerals that run out first. This has been identified in the studies at Monash University in Melbourne recently in a number of papers that deal with those matters.

So mining is finite. What we need to do is take a deep breath and understand that we, in this place and in the federal arena, have a responsibility to future generations. That responsibility is to develop infrastructure, a society and jobs into the future. To knock the minerals resource rent tax principally because it has failed in a number of issues, that it should be scrapped, I would disagree with. It has failed in a number of issues because of the ineptitude of the federal government. What we need to do is to restructure what is there, as the Henry tax review has said, and many other people—and I will talk to some of the submissions made to the federal inquiry shortly.

There is another myth that is quite often thrown around in this debate—I am pleased to say that I did not hear it from Hon Nick Goiran—which is, if we tax the mining industry, they will pack up and go away. Well, they will not. I have worked for the mining industry; I have consulted to them—and, just to recount something I did in Esperance. Many years ago, I think it was Portman Mining Ltd who at that stage were going to develop a port in Esperance, and it basically told the community, “Well, we’re going to have an iron ore shipping facility in Esperance.” It was sort of a lump it or leave it approach. The community, the local chamber of commerce, the business sector, and the shire all said no. They said, “If you’re going to develop a port in this town, you’re going to develop it as a dust-free port. We’re not going to be another Karratha or another Hedland.” Portman turned around to the community and said, “Fine, we’re going away. We’re going to go to Kwinana. They don’t mind.” So the community said, “Well, if that’s what you want to do, we’ll accept that. Off you go.” Two days later—not a week, not two weeks—Portman committed to invest an extra $16 million in that port to make it the world’s first iron ore dust–free port. I recall Paul Omodei, the minister, actually put in place a regulation that there would be no dust. Portman was quite happy. It did not affect its bottom line on the stock market or anything else, because all mining companies will do for a long time is give you bluff and bluster that they will take their bat and ball and go away.

As I have already said, the mining industry likes Australia. It has good stable governance; it is far better than anywhere else to mine. The only other place that has anything like the minerals that we have here is the Carajas mine in Brazil. The issue is because we have 40 per cent of the world’s resources here in terms of iron ore and coal; they are not going to go away. But it is really interesting to note that if they do go away, what happens? Somebody else jumps into the hole very quickly. I am reminded about some activity that took place in this house—I have to try to think of the year—in 1971. It is an issue that I became quite familiar with from working for Lang Hancock and Peter Wright just after that period. Many people will not know that for many years Lang Hancock and Peter Wright owned the Pilbara. Basically they had every tenement sewn up. Jimblebar, as we now know it, was called McCamey’s Monster and there were many other deposits—namely, West Angelas, Rhodes Ridge and Marandoo just to name a number of other mines.

What Lang was on about was actually quite interesting. He was very parochial; he did not want international mining corporations in this country taking our profit offshore. He had some quirky ideas. I recall that he wanted to use an atomic explosion on what was then McCamey’s Monster, which is now called Jimblebar; but he did actually want the profits to remain in Australia. It is because of that and the pressure put on by, at that stage—and I will try to come up with the companies—ARMCORP, Rio Tinto and the then Mt Newman Mining companies at that time who, basically from an international perspective, all said to the government of the day, “We want a slice of your cake.”

What the government did, in six days of Parliament, was—this is where I say that if a mineral tenement is taken away, somebody else will jump in quick smart—enact legislation that passed through both houses of Parliament and got royal assent to confiscate just about 90 per cent of Lang Hancock’s tenements from him and hand them over to major multinational corporations. It is telling when we see the government wanting to do things it can do and the mining industries cannot do anything about it. I think we have reached the stage from our involvement with the mining industry where it has become one of a fawning nature; that somehow we feel that they run the country and the state and we dare not upset them. Nothing is further from the truth.

In the establishment of the minerals resource rent tax I started looking at what was happening in terms of profit margins. I know it is sort of a common thing to do these days, but I want to hold up a few charts to show the profit margins. The first one I really want to look at is the total employment by the industry sector. We know there is a flow-on in employment from mining, certainly into the industrial sector, but the mining industry employs in Australia about 1.8 per cent of the population; we are right down the bottom end. Above mining are the following industries: arts and recreation; IT and media; education and training; rental hiring and real estate services; agriculture, forestry and fishing—which I point out is about five per cent of the population—wholesale trade; transport, postal and warehousing; health care and social assistance—that is up at around nine per cent of employment. Therefore, until we actually get to the retail trade, which is up at about 12 per cent, we can see that it is not about being a particularly big employer, but about massive profits.

Then when we look at the profit margins by industry—and this is also telling, I want to touch on this—we see that the retail trade, which we noticed was the highest employer, has the least profit at about 3.9 per cent. The total industries of which we can ascribe a significant percentage to the mining industry are around about 11.2, and the mining industry runs a profit margin of just under 40 per cent at 37.1. Again, it is the smallest employer, the largest profit.

We then need to look at the proportion of businesses that made a profit. This really becomes quite diverse and is interesting to understand. For example, health care and social assistance made a massive 83.8 per cent profit, whereas mining was down at the other end running at 51 per cent. I want to talk about why it occurred and also try to put it in some context. When it comes to the profit margins that I have just talked about in respect of chart 3, only 51.2 per cent of all mining firms were actually profitable in 2008–09, which is the year we have to work on, and is actually the lowest of all industry classifications, even though the industry-wide aggregate profit margin for mining was the highest of any industry classification in Australia, coming in at a whopping 37.1 per cent. Even though the aggregate profit margin for large mining firms is even larger, at 46 to almost 50 per cent, when we balance all of the mining sector we get an anomaly in that the proportion of businesses that actually made a profit was only 51 per cent. None of the miners who do not make a profit are going to pay any tax, because that is the benefit: it actually helps junior miners get up and running; that is the very thing that a junior miner wants—to get on the ground without any costs. The resource super profit tax, as originally envisaged by the Henry review, would affect only the big end of town. What went wrong was the deals that were made with Xstrata, BHP and Rio Tinto, which basically gave exemptions to the three biggest miners.

I turn now to what a number of different people have said during the recent review of the minerals resource rent tax in the federal Parliament. As Hon Nick Goiran rightly pointed out, there were a number of dissenting views about what should actually be happening, perhaps none more important than those the honourable member made mention of—the comments made by Professor Quiggin and Dr Denniss. Unfortunately, the honourable member did not read out in full what has been said about the tax, and I am referring to the dissenting report by the Australian Greens, which makes reference to comments made by Professor Quiggin and Dr Denniss. When we have a high dollar, people do not come to Australia, and therefore Australians miss out and the tourism sector suffers. The agricultural industry, the manufacturing industry—all these industries are experiencing substantial pain as a result of the mining industry’s gain. What happens when the mining industry experiences a boom is the exchange rate goes up, and that crowds out other industries. This is what happens, so I think it is odd that an industry that employs such a small percentage of the workforce would make such exaggerated claims about the rest of Australia riding on its back. There is no doubt that imported cars are much cheaper thanks to the mining industry; I am sure that many Australians are happy about that. Similarly, there is no doubt that people employed in making cars in Australia are quite anxious about that. The idea that what is good for mining is good for Australia, and what is bad for mining is bad for Australia, is simply nonsensical.

Dr Denniss drew on the work of the Australia Institute, which showed that while mining exports increased by around five per cent of gross domestic product since the beginning of the mining boom, non-mining exports have declined by five per cent of GDP, so there is a direct correlation over that period. The Minerals Council of Australia claimed in a submission to the inquiry that any move to further increase the tax burden on the iron ore and coal sectors would undercut the very foundation of modern Australian prosperity. In response to that, Professor Quiggin told the committee on 3 April 2013 that he thought it was a nonsensical claim, and that it was clear that, on the contrary, while the mining sector had generated very substantial returns to investors in the mining industry and some significant benefits—although not gigantic ones—to employees, the foundations of Australia’s prosperity were, as they had always been, in the productivity of Australian workers generally; of whom people associated with the mining sector were only a very small proportion. Balancing these factors, Professor Quiggin concluded that the mining boom had already reached and passed its peak, and that most Australians had seen little or no benefit from the results.

We need to actually fix the tax rather than scrap it. We need to go back to what was originally proposed—the application of a 40 per cent rate, as applied to the petroleum resource rent tax; the extension of the MRRT to all minerals; and rebating only those royalties in place as of July 2011. That is where the federal government made a real hash of the process—I was going to use another word then. By allowing royalties to be offset through the MRRT, as Hon Kate Doust has already mentioned, as soon as the MRRT came into play, we had a number of regulations coming through this place—one would only pick up on this if one monitors regulations—and a lot of minerals were going up from 2.5 per cent, while other minerals were going from a five per cent to a 7.5 per cent royalty. What we had was this government suddenly realising that it could have a discounting effect on the MRRT. The only other thing that we need to do is allow depreciation on only the book value of the amounts actually spent on mining infrastructure, because what we now see is debt being brought into this country from the international marketplace within those major miners.

Whilst I acknowledge that Hon Nick Goiran made a number of very, very salient points about what was going on, he should have been saying, “Let’s fix it”, not, “Let’s scrap it”. What we are trying to scrap at the moment is not really, as Hon Nick Goiran has already said, generating a lot of income, although it was noted in the recent inquiry that it is anticipated that, again using Treasury estimates, it will pick up in a couple of years and get back to that $2 billion mark that was being talked about.

Without reforming the MRRT, the federal government is in danger of wasting the mining boom and allowing the mining industry to ride roughshod over the rest of the economy. My issue in this place has always been: I am not here for me; I am not here for the here-and-now; I am here for the future of Australia and Western Australia. My concern is if we do not think long and hard about where we are going into the future, we will relegate our expanding population and our children and their children to a country devoid of any industry, because we are losing it, and devoid of any plan to develop industry beyond the mining boom.

I have worked in the mining industry; I worked at BHP rail. We had three workshops there: the railcar shop, the normal maintenance shop and what we called the top shop, where immediate repairs were done. The main loco overhaul shop used to have 60 workers in it; that was amalgamated many years ago to a joint between the top shop and the major overhaul shop, and my understanding is that we are now down to about 20 employees, all of whom are on contract and fly in, fly out. When we extract that and go even further, and we start talking about driverless trains being operated by a young lad in an office down here in Perth through a computerised system, that takes another huge sector of employment out of the region. We know that Rio is looking at driverless trucks and expanding that fleet; it has done the experiments and it is working.

Therefore, actual employment in the mining industry will continue to decline as more automation comes into place, and yet the profit margin continues to go up. It is imperative, in my view and in the view of the Australian Greens, that we capture some of the profit, which mainly goes offshore, of the minerals resource which is finite and of which we have 40 per cent—the largest percentage anywhere in the world. It is also imperative that we capture some of those funds and put them in future funds and into developing new industries and new economies for the long haul. I know that this government has done similar things with its future fund, insuring against the future.

I am really concerned about where we will be in the future as a nation and as a state. In my view it is imperative that we look beyond the next four-year fiscal cycle, and I concur with what Hon Ken Travers has alluded to; that is, we, as well as the federal government, are in deep fiscal doo-doo, and we need to know where the state will be in the future.

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