The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

24 March 2011

Joint Press Conference

with

The Hon Martin Ferguson MP

Minister for Resources and Energy

Minister for Tourism

Press Conference

Canberra

24 March 2011

SUBJECTS: Resources Taxation; Covered Bonds; Tax Reform

TREASURER:

It's good to be here today with Martin to announce that the Government has accepted all 98 recommendations of the Policy Transition Group otherwise known as the Argus Committee. Now this agreement reflects the groundbreaking agreement that was made with the mining industry in July last year and it means that we will be able to deliver certainty, investment and jobs, but also, as importantly, a fair return to the Australian people for the resources that they own 100 per cent and to use the revenue from that to invest in building up superannuation, particularly for low paid for workers, and to reduce taxes, particularly for small businesses, but also to invest, particularly in Western Australia and Queensland, in the vital infrastructure that is required in those regions which are experiencing a mining boom.

And it's really instructive just to have a look at what's going on with mining investment in Australia today. Last year $34 billion was invested in resources. It's expected to be $55 billion this year and then expected to be $76 billion next financial year. So the investment pipeline here is very strong and it's continued to strengthen even in the middle of all the debate that we've had about resource rent taxation over the past twelve months.

There's no doubt that reforming resource taxation has not been easy. It's been difficult. But it's a long term, worthwhile reform, a reform that has been worth fighting for and a reform which will bring great benefits to the Australian economy. Everybody would have heard Martin and I talk about the two-speed economy – addressing the consequences of the two-speed economy. Getting this resource rent tax, the MRRT, in place has been an important part of dealing with all of the issues that flow from a two-speed or a multi-speed economy.

In particular, I think it's a very good thing that the Argus Committee has worked as well as it has and a great credit also to the work of Minister Ferguson as well, working with Mr Argus. They have developed a very good proposal, a very good design and one which also, I think, delivers more benefits or some extra benefits particularly to the smaller miners.

So I would like to thank all of those that participated in that process, particularly the members of the Committee and in the coming months we will release draft legislation and, of course, that will then open that legislation up for another round of consultation before it goes to the Parliament at the end of the year. So we are methodically going through this process in the way in which we go through this process with any detailed tax legislation.

So today marks, I think, another very important step in converting our policy vision into the reform reality for the future, particularly dealing with the challenges of mining boom mark II.

Investing in infrastructure, boosting superannuation, lowering taxation for particularly small business is all critical. Tax cuts which will flow to something like 2.4 million small businesses, a lower company rate, historic changes to superannuation including increasing the superannuation guarantee and making a new contribution to the superannuation savings of 3.5 million low-income earners are all very important and, of course as I said before, making those important infrastructure investments, particularly in Queensland and Western Australia.

So, this is a plan which will be part and parcel of our approach to delivering strong growth, strong job creation, particularly in the States of Western Australia and Queensland.Over to Martin.

FERGUSON:

Thanks Wayne. As Wayne has said today is a very important step forward in finalising what is about a modern taxation system for the minerals and petroleum sectors in Australia. In essence, following detailed consultation, we have now settled, as a Government, on the design features of the proposed Minerals Resource Rent Tax [MRRT]. Obviously from a petroleum point of view, it was about extending onshore the long established and accepted offshore system of resource taxation in Australia. The Government has in essence accepted all the recommendations of the Argus-Ferguson report, and that follows a long and detailed process of consultation all around Australia.

I might say the recommendations represented a balanced outcome, in terms of trying to work through all the specific design issues raised by the different aspects of, in essence, the iron ore and coal industries. The MRRT is confined to iron ore and coal, in essence, the new taxation system we have settled on covers those two commodities, plus petroleum offshore and onshore. So now our responsibility to work to put in place a legislative outcome reflecting those key design principles, and that clearly is the lead responsibility of Wayne as Treasurer.

In terms of actually finalising that legislation, I also indicate that we have put in place a Resource Taxation Implementation Group. That pulls together some of the best brains in the industries in terms of their capacity to assist in the drafting of the legislation, but from a legal and an accounting point of view. That was something sought by industry, it's also something the Government has accepted, because that's about further going out of the way to make sure that we actually get the legislation right. Following the drafting of that legislation as Wayne has said, we'll have an exposure draft, a further opportunity for industry to feed into the final draft of that legislation. I simply say that from the Government's point of view, we've come a long way over the last twelve months and I suppose finalising something that was long overdue. We've got a major resources boom in Australia at the moment, and that has been evidenced by statements from the outgoing Secretary of Treasury, the Reserve Bank Governor and many other people in the Australian community. This system of taxation, at long last potentially gives us the opportunity to ensure that the whole Australian community benefits from this investment pipeline, and it will be huge. It's actually great to have this challenge of managing the pains of growth in Australia from a resources and petroleum point of view at the moment. I simply say to members of the taskforce, I'm pleased to have completed the design stage, but I also know there is a lot of work to be done to actually get the draft legislation right.

JOURNALIST:

Mr Swan, on the issue of royalties, you say in the press statement there'll be no green light for the states. How do you plan to, are all the offers on the table? (Inaudible).

TREASURER:

Martin will say a couple of things about this but I just want to make this point. The situation with royalties is a very clear one and that is made clear in the report where they simply say that we have to have a system which is competitive and the industry would not look well at any increases in royalties. You would be aware that there have been very substantial increases in royalties in a number of states over the past 12 months. We of course will credit royalties under this regime. We're not expecting any substantial change in royalties in the near future, but if and when that challenge arises then of course there will be discussions with the states. But there is no green light in this report for royalty increases and no justification for royalty increases as well. Martin.

FERGUSON:

If you actually go to the body of the report, the Policy Transition Group sent a very clear message to both Commonwealth and State and Territory governments, enough is enough. The system we are locking in today is a fair and balanced outcome which guarantees Australia being attractive from an investment point of view but also says from both a Commonwealth and a state level we can live with this tax regime, don't over egg it in terms of trying to increase the rates of taxation that will now be put in place.

Remember this from a royalty point of view; industry pays that in good and bad times. The profits-based system we are putting in place is only paid in good times; fair is fair. All of us should get on with the job now of managing a wonderful opportunity in terms of the investment pipeline in Australia.

JOURNALIST:

The Greens and Independents are critical to get this through Parliament. Are they part of your discussion and formal process?

TREASURER:

Well, we would actually like to receive broad support across the Parliament and both houses from all political parties. Think about this for a moment, we've got the agreement of industry to the MRRT which will raise $7.4 billion to cut taxes for small business to invest in infrastructure and to cut the corporate rate, among other things. If the Liberal Party want to vote that down, vote down a tax cut for small business, vote down and against investment in infrastructure in the key mining states of Western Australia and Queensland then I think they will pay a very high price. And if they are going to maintain their opposition, which I assume they are because they are on the record as saying that miners pay too much tax, which is quite extraordinary and bizarre. If they are going to maintain that very bizarre approach to this tax then of course we will need the votes of other responsible representatives in the Parliament, be they the Independents or the Greens or other minor parties.

JOURNALIST:

(Inaudible) a problem is it?

TREASURER:

Well, no.

JOURNALIST:

It means you actually think the miners should pay more tax.

TREASURER:

No, what we have done is that we have reached agreement with the industry. Think about this, the mining industry, as represented by the great bulk of those that are mining our mineral wealth, has agreed with the Australian Government that this is a tax worth paying. That this is a tax which promotes investment on the one hand and gives a fair return to the Australian people. So we've got strong support for this.

If the Liberals were to vote against this, this would just show how reckless and irresponsible they have become and they wouldn't have a shred of economic credibility. Saying, knocking back $7.4 billion that the industry itself has agreed to pay, and can pay, and of course the reason they made that agreement is they do understand there is a case for resource rent taxes and they do understand that our terms of trade which are currently at a 140 year high are going to remain permanently high for a long time to come. They want to be responsible economic partners with the Government.

JOURNALIST:

What is the mechanism that you've got here to stop the states increasing royalties? I know that you're saying that it wouldn't be good if they did that –

TREASURER:

All of the usual mechanisms.

JOURNALIST:

GST or (inaudible)?

TREASURER:

No, no there is a whole range of mechanisms that the Commonwealth has with the states where we can have a discussion with them about this.

JOURNALIST:

Name those mechanisms.

TREASURER:

Well, he just named one, but there are plenty. I mean, we –

JOURNALIST:

So GST could be on the table?

TREASURER:

No, no, I'm just saying there are plenty of mechanisms and we will talk to the states, but I'll just name the revenue stream that comes to infrastructure. The states want that revenue stream. They need it, particularly in Western Australia and Queensland. But I don't anticipate as we go through this, any great kerfuffle to be frank.

FERGUSON:

Can I also say, States also appreciate we've got a pretty huge challenge at the moment. There are aspects of the nation that represent a two speed economy. I represent one part of that economy, the tourism sector. If they want to take revenue away from our capacity by cutting company taxation for small and medium sized businesses in the tourism sector that are doing it pretty tough at the moment because of the strength of the Australian dollar then they need to think about it. If they want to cut away our capacity to actually assist small and medium sized businesses to actually purchase new capital equipment to maintain their competitive position then they better think about it. Because that's what effectively they have in front of them in terms of any opportunistic desire - and I don't think that actually exists, unless you have a look at the state royalty regimes - to increase state royalties with a view to trying to eat into the Commonwealth revenue. I might indicate in Western Australia at the moment, in terms of state royalties, the Western Australian Government is actually debating whether or not it actually cuts state royalty for magnetite because there is a perception compared to other states that the West Australia royalty rate is too high. That actually is borne out by the PTG report.

JOURNALIST:

Treasurer, can you just clarify something because I may have misheard but I think it's (inaudible). You were just asked whether GST was, possibly you might go to that.

TREASURER:

No, no. I've just said –

JOURNALIST:

Can I just ask the question – you said there was a range of mechanisms, and I said name the mechanisms. Then you said – he just named one. So is GST a possible thing that you could use, or isn't it?

TREASURER:

Well, let me just say this to you. We have discussions and meetings as Treasurers and I meet with my counterparts in the states. There's a meeting coming up. We have Premiers conferences. There are always discussions about health, about a whole range of issues and this will be one of the issues that will come up, if indeed it arises. So I'm not telegraphing any particular measure that we would take. I'm not saying it's one or the other. I'm saying to you that as part of the normal discussions that we have as part of Federal/State relations that occur all of the time, that's what I'm saying and I am saying no more than that.

JOURNALIST:

Mr Swan, is there a chance that a mechanism could be built into legislation by this taskforce, that they could come up with something?

TREASURER:

No.

JOURNALIST:

How can you say that you don't anticipate any great kerfuffle when Colin Barnett and Anna Bligh are completely opposed to it?

TREASURER:

Well that's just not true that Anna Bligh is completely opposed to it. I don't know where you got that from.

FERGUSON:

They're lining up wanting to spend the money. Let's be very frank. Go to Western Australia; just have a look at the issue of infrastructure. Perth airport has been a disaster, not only for WA but for the nation for a long time. Not only from a resources point of view but from a tourism point of view. There's about $430 million on the table as a result of this tax, to actually fix state issues in terms of major infrastructure which goes to the strength of the Western Australian economy. That will occur in Queensland, it will occur in New South Wales.

TREASURER:

We have made commitments right up the Queensland coast in the mining regions to spend this infrastructure money on desperately needed projects. These are all of the factors that play some part in these discussions. You can't view these discussions as separate from the overall approach to infrastructure, infrastructure funding and so on.

JOURNALIST:

Mr Ferguson, are you saying that $430 million that was promised during the election campaign to upgrade the Perth airport road network is tied to the $2 billion in infrastructure funding?

FERGUSON:

Absolutely, let's go through it, this is what Tony Abbott really has to think about. Is he going to vote against our capacity to actually assist the States under pressure from a resource infrastructure point of view? One of the key aspects of the mining industry in Perth is actually the efficient operation of the Perth airport and surrounding roads.

TREASURER:

And so is the $5,000 instant asset write off that we've committed to the 2.4 million small businesses in Australia.

FERGUSON:

And then he's also got to confront this debate, this goes to a balanced outcome and the expectation of the Australian community. Will he say to the Australian community that with respect to FMG, who's had a 630% net increase in profit, that you shouldn't pay more tax? Should he say it to Xstrata, who's had a 75% increase in profits? Should he say it to Rio Tinto who's had a 122% increase in taxable profits? Or should he say it to BHP, they're lagging behind Rio, they've only had an 88% increase in profits. So that's the nature of the debate, Tony Abbott's saying to the Australian community, I'm going to stand in the way of this proposal, oppose everything that comes before the Parliament, and in doing so say to the Australian community, gross increases in resource profits at the moment, but you shouldn't get any of it. But by the way, Government should now tax the rest of you to pay for infrastructure to suit the resource sector's requirements.

JOURNALIST:

Mr Swan you released your covered bonds draft legislation this morning. How much do you think that will save Australian banks and (inaudible) the first sales?

TREASURER:

Oh, look I wouldn't even speculate about that. This is a measure which I think the Australian banking sector has been calling for by and large. It's a very important measure which delivers greater certainty in terms of their capacity to raise funding on a longer term basis. I think that's very important, but I wouldn't want to speculate or try and put a figure on what it would bring to, you know, the margins.

JOURNALIST:

So you don't have a percentage?

TREASURER:

No, no and the markets will determine that.

JOURNALIST:

Mr Swan on another subject, with the carbon tax. Ross Garnaut has suggested that income tax cuts be structured along the lines recommended by Ken Henry in the Henry Review. You have previously, I think, expressed some doubt about the –

TREASURER:

That's right. The structure of those.

JOURNALIST:

–about the practicality of those tax cuts. Would it be fair to assume that that's not the direction that you'd be thinking?

TREASURER:

Well as you know I've already commented on the structure of the two-tiered rate that is put forward in the Henry Report and I've made the comment that it actually causes increases in taxation for some middle-income groups and in some low-income earners. So I've said that was not necessarily, ideally the way to go but I've not ever said that we shouldn't be about restructuring our scales so that we reward or give incentive to low and middle income earners. I have that objective. I've always had it. I've had it all of my life. I think it's really important that when people work hard, do a few extra hours of overtime, they get a reasonable return in their hand. So there is one form of tax reform if you like, in the Henry Report. It doesn't mean to say that there aren't others, and nor does it rule out the fact that if you're looking to assist people then some form of tax cut or tax reform is one way in which you can assist people in the context of their living standards.

JOURNALIST:

(Inaudible)

TREASURER:

Well, what I aspire to do is to bring down a budget that is in surplus in 2012-13 and meets all of our fiscal rules. That's my aspiration and that's what I'm going to deliver.

FERGUSON:

Thank you.