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

20 March 2012

Interview with Fran Kelly

ABC Radio National

SUBJECTS: Minerals Resource Rent Tax; spreading the benefits of the mining boom; Queensland election

Kelly:

Treasurer welcome back to Breakfast.

Treasurer:

Good morning Fran. It's a historic day.

Kelly:

An historic day, you say, and a fair go for all, Treasurer, but what's gone through the Parliament is far removed really from either the super profits tax you first announced or Ken Henry envisaged. Do you concede the original package would have been better and fairer?

Treasurer:

Well, what has passed the Parliament is a resource rent tax. It is different in design from the original recommendation of Ken Henry but this is a measure of great substance and it will benefit this country for many years to come because it will enable us to spread the benefits of the mining boom right around our country to give a very big tax break to 2.7 million small businesses; to do a very significant boost to superannuation savings for 8 million Australian workers. For example, if you're a 30 year old on average earnings it's an additional $100,000 when you retire. And it will enable us to invest in infrastructure in mining communities and that's just the beginning because, as you know, what we also want to do is to bring down company taxation across the board as well.

Kelly:

I want to get to all of those elements. Isn't the trouble though, Treasurer, the fact that this difference in design as you described it will mean there's $60 billion less raised over 10 years. That means $60 billion less to spread around?

Treasurer:

No it certainly doesn't and that figure is just grossly inaccurate. I know it is bandied around.

Kelly:

Well, how much less? How much less is your compromised tax?

Treasurer:

Well, we don't do those 10 year estimates. That is a figure that has been bandied around by all manner of people.

Kelly:

Your original estimate for the original tax did raise more money though.

Treasurer:

Over the forward estimates, it is broadly the same, a bit less because as you would be aware it depends on exchange rates, it depends on volumes and it does depend on prices.

Kelly:

How can it be the same Treasurer, when you cut the amount of tax the companies are paying?

Treasurer:

Well, this is a vastly different design from the original tax. Yes, there's a lower rate but the fact is that when you look at the exchange rates, when you look at prices and when you look at volumes, what we're raising over the forward estimates is not vastly different from what we originally forecast with the original tax. But it is true that it is a different tax, it's a better tax for the changes that were made when we got to sit down with the industry and consult about all of the details. But look what we ought to be talking about here is a once in a generation opportunity to pass a major reform which does enable us to spread the benefits of the mining boom right around our country and gives us the opportunity to deal with the challenges of a patchwork economy because not everybody is in the fast lane of the mining boom.

Kelly:

The polls show that people like this idea of a mining tax now but its popularity will rise and fall by the amount of revenue you do raise ultimately, and it is not a fixed revenue stream here. That's an issue isn't it? Because there are fixed costs that you're attributing to it.

Treasurer:

By definition it won't have a fixed revenue stream when it depends upon the exchange rate but it depends upon volumes and when it depends upon commodity prices but we've got to go back and look at why we decided we needed a resource rent tax. The fact is that we have a mining boom, we have a terms of trade now which are higher than they have historically been. We expect our terms of trade to be higher as we go forward. How do we capture those benefits so we spread them right around our economy and in particular do something to support those parts of the economy that aren't in the fast lane. That's why we talk about a patchwork economy. That's why it is so important that we provide a benefit to 2.7 million small businesses through the instant asset write off, that's why it's important that we boost our superannuation savings. Boosting the saving of Australian workers is one way in which every Australian worker can share in the bounty of the mining boom.

Kelly:

How do you as Treasurer, figure out though, the impact of this and therefore how much you have available to spend on these measures given, as you say, our exchange rate which is high at the moment, commodity prices which are softening at the moment. These things are real. Presumably they're already eroding the $10.6 billion estimate over the next three years. Now we have many of the miners saying that because of the tax breaks in this deal they're not actually expecting to pay up anything like that amount of money. How much confidence do you have in that forecast?

Treasurer:

Fran, we will see. I have great confidence in the forecasters that work with the Government from the Treasury. They're the same forecasters that worked with the previous government. We did revise down the revenues in our mid-year budget update last November slightly, but of course the exchange rate moves around - it goes up, it goes down. Prices go up, they go down. Volumes go up, they go down. But what we do know Fran, and this is the whole reason for having a resource rent tax, is that this is the Asian Century. We need to make this the Australian Century in Asia, and that means we do need to capture some of the super profits of some of the super profitable companies and they will continue to flow because the resources sector will be strong on the growth of the middle classes in Asia and this is just not a China story. It's an Asia story across the board. It's about Indonesia, it's about Thailand, it's about South Korea. So what we know is the nature of our economy is changing. The nature of the economy on the globe is changing. There's a shift in weight from West to East that's coming our way. How do we maximise the opportunities from that and spread them around our country? That does mean a higher terms of trade and that does give us the opportunity over time to spread the benefits around our economy.

Kelly:

Treasurer, I do want to go to some of these measures to spread the wealth around. Just in terms of maximising the revenue from the super profits, and again I say I think there is broad support for that notion, but it's about the design of the tax that some people are querying. We have this notion now that under your revised tax agreement with the miners, the Government has agreed to refund any increase in state royalty payments and that effectively leaves you prone to, victim to gouging by state and territory governments, doesn't it?

Treasurer:

Let's be very clear, first of all, state and territory governments said that we couldn't put an additional tax on the mining industry, it wouldn't work, it couldn't be done but of course they then turned around and decided they would put up their royalties. Now it's simply not sustainable. Royalties are a very inefficient tax. The mining industry doesn't like the royalty regime. It penalises particularly those miners which aren't as profitable as others and also it impedes growth in the industry.

Kelly:

But no one loses under your revised tax because you just pay everybody.

Treasurer:

Well no we're not giving the green light for state governments to be constantly putting up their royalties. Two things we have said: those that are putting up their royalties will certainly not be in a position to receive the sort of funding that we've got in the infrastructure fund which flows from the resource rent tax because if they're taking away revenue, there's less revenue to the Commonwealth - point number one. Point number two: we have referred this question to the GST review which is being conducted at the moment. I mean you've had the absurd situation in Western Australia where Mr Barnett has put up royalties and it means that after the GST formula kicks in he will actually have less revenue as a consequence of putting up his royalties. So it's a complex area.

Kelly:

Can I quantify that because I think that's what people want to know. You're threatening the states basically to withhold some of this funding from the minerals, from the super profits tax, the mining tax, if they jack up their royalties. But can you quantify that if, for instance, New South Wales put up its mining royalties by $900 million which is what they've budgeted for, will $900 million be withheld from the infrastructure fund and the GST payments?

Treasurer:

Well, first of all we've not seen any of the detail of what they intend to do in New South Wales. They've booked a revenue from a tax that they haven't outlined to anybody so we don't know yet what New South Wales is doing. We know what they've done in Western Australia. We've just made the point that we are not in a position to allow them to do that and we will be taking actions to ensure that our revenue is protected so that we can continue to put in place a scheme which goes to small businesses in New South Wales and Western Australia.

Kelly:

So there's a dollar for dollar. For every dollar withdrawn from the royalties, you'll hold back?

Treasurer:

We have asked the GST review to look at this question. We'll receive their recommendations later in the year as to how we deal with this but the Premiers of New South Wales and Western Australia for example ought to be explaining, in terms of New South Wales the 800,000 small businesses in that state, why they oppose them getting a very significant small business tax break for example. You see there are benefits flowing from the revenue stream right across the country including in the state of New South Wales, including in Western Australia.

Kelly:

Let's just talk about some of those benefits which include the plan for a cut to the company tax rate. Now at the moment there's no way you're going to get a cut across the board to the company tax rate because the Greens and the Opposition are opposing it. The Greens will only support a cut to small business, small business company taxes. Is there any way, what's your bottom line here, would you allow a two tier company tax cut?

Treasurer:

Well, let's be very clear. We intend to fight tooth and nail to get this general company tax cut through which flows first of all to small businesses and then to all companies. The fact is that we have fought tooth and nail to get this package through over two years. I want to pay tribute to the very great work of the Prime Minister Julia Gillard who has fought every step of the way to get this package to the point where we've now got a revenue stream and we've got a taxation regime in place. And now we're going to fight to further spread the benefits right around our economy. And the whole time we've done that we've been opposed by Mr Abbott and the vested interests like Gina Rinehart and Clive Palmer in that endeavour. We're going to fight in the Senate against the Liberals who are simply the mouthpiece of Clive Palmer and Gina Rinehart to get this general company tax cut through because there's a very clear contrast now. We want a general company tax cut. They want a general company tax increase and the difference between our regime and there's will be 10 per cent.

Kelly:

So if they keep blocking it what will you do? Will you drop it all together, postpone it until you can get it through the Senate or would you allow a two tier company tax cut?

Treasurer:

Well, we are going to continue to fight for it because what we said we would do was in a staged way. First of all the 1 per cent cut would go to small businesses that were incorporated and then a year later it would go to all businesses and that's what we intend to do. We're going to fight to get that through. I think there's going to be an enormous amount of pressure here on the Liberal Party. The extraordinary and bizarre situation where the Liberal Party is fighting a tax cut for companies whilst at the same time proposing to increase taxes for all companies or a very large number of companies.

Kelly:

Treasurer, the mining tax will also help fund an increase in the superannuation guarantee from 9 per cent to 12 per cent over seven years, but I say help fund because in fact business will be paying for this, $20 billion annually once it's in.

Treasurer:

Well certainly the SG will be going up from 9 to 12 [per cent] and certainly there is a cost for business and that is one of the reasons why we have put in place company tax cuts, not the only reason, but the fact is there is also a cost to the budget from increasing the superannuation guarantee and that is also funded from the revenue stream from the MRRT. I mean this is going to be a very big boost to our national savings and that's a good thing, not just for those people who are retiring for their quality of life, and dignity in retirement, but also for the national economy; to increase our national savings pool at a time when we have massive needs for investment in our domestic economy. So it's a win - win situation. A win for the individuals but a win for the national economy.

Kelly:

Treasurer now the mining tax has passed through the Senate, would you describe this as your finest moment as Treasurer?

Treasurer:

Well, certainly it's an historic day for Australia and I think the big reforms in Australia have always been hard fought. This has been particularly difficult and we've lost a bit of political skin. But really, I went into politics to do the hard reforms and reforms like this are the reforms that make a difference for the long term.

Kelly:

And just finally Treasurer, talking of reforms, the latest polls suggest that Labor will be left with as few as 12 seats at this weekend's Queensland state election, not even enough to fill a front bench. What's your view on this and do you think this is just cyclical or something far more serious affecting the Labor Party and something that really only serious reform of your Party can address?

Treasurer:

Well, I think it's a very tough election. The Government has been in power for a number of terms and it's a reflection of what's actually happened in Queensland during that time, nothing more and nothing less.

Kelly:

No lesson in this for the Labor Party?

Treasurer:

There's always a lesson for the Labor Party in any election but this is an election which focuses particularly on Queensland and recent events there and recent elections there.

Kelly:

Treasurer, thank you very much for joining us.

Treasurer:

Thank you.