Our plans to reform and further strengthen our economy were front and centre again as we visited Western Australia and Queensland in a week which also saw another great employment outcome for Australia. In Perth for a Community Cabinet meeting on Wednesday I talked to locals and answered their questions about the Resource Super Profits Tax. In a speech earlier that day, Prime Minister Kevin Rudd talked about how the last mining boom delivered very large profits for mining companies in Western Australia and Queensland, but not all West Australians and Queenslanders benefitted. This time around, we need to do better. That's why our tax reforms are about making sure mining companies pay a fairer price for our mineral wealth, so we can invest those proceeds in the things that really matter to a strong economy – like higher superannuation for a bigger pool of national savings, lower business taxes for more secure jobs, and new and better infrastructure to put something back into our resource-rich regions and build a more competitive economy.
The backdrop to the tax debate was Thursday's labour force figures which showed that the unemployment rate fell from 5.4 per cent to 5.2 per cent in May. This result was stronger than the market expected, with the number of employed persons increasing by 26,900. Our economy has now created 279,500 jobs over the year to May, and 406,900 jobs since November 2007 notwithstanding the impact of the global financial crisis. In contrast, other advanced economies continue to suffer ongoing effects from the global recession, with unemployment rates of 8.1 per cent in Canada, 9.7 per cent in the US, and 10.1 per cent in the Euro area.
The results of the latest NAB Monthly Business Survey and Westpac-Melbourne Institute Survey of Consumer Sentiment showed that business confidence fell in May and consumer confidence fell in June. These falls are not surprising given the recent global financial market turmoil we've seen following events in Greece and Europe more broadly. Reflecting on these recent developments in a speech last week, RBA Governor Glenn Stevens made the point that "Australia's budgetary position is very different from those in Europe and, for that matter, most countries. Public debt is low and budget deficits are under control and already scheduled to decline. … The flexibility afforded by our floating currency, coupled with credible monetary and fiscal policies, are all advantages in periods of global uncertainty."
The Government's determined not to take future economic success for granted. That's why the Prime Minister, Infrastructure Minister Anthony Albanese and I announced the establishment of a new $6 billion Regional Infrastructure Fund. This fund will be made up of $5.6 billion from the proceeds of the Resource Super Profits Tax, together with an additional $400 million in funding for 2010-11 to 2013-14. As I said at the top of this note, this is all about putting something back into the mining communities – and those communities which support them – that give so much to Australia and make our national economy strong. The Regional Infrastructure Fund will invest in road, rail, port and other crucial infrastructure projects with potential partner funding from the states, private investors or local governments. Consistent with their state's share of total mining production, Western Australia and Queensland should each expect more than $2 billion in additional infrastructure investment from the fund.
As I talk to people in the community about our new Resource Super Profits Tax (RSPT), a lot of people are surprised to learn just how much we're being short-changed for our mineral wealth through the current system of royalties. In today's note I want to work through just one example which shows why Australians aren't getting fair value for their mineral wealth from royalty payments, and that's how royalties for coal are determined in my home state of Queensland. This Queensland Government website explains that currently "a two tier coal royalty schedule applies. Coal companies pay 7 per cent of value up to A$100 per tonne and 10 per cent of the value thereafter."
As you can see from this Reserve Bank graph of commodity prices, there's been a recent strong increase in coal prices. At the beginning of 2010, the contract price of coking coal was around $163 per tonne. At this price, the royalty payable by a mining company digging up coal in Queensland is $13.30 per tonne. A few months ago another round of contract negotiations took place between mining companies and their overseas buyers, and reports suggest that coking coal contract prices were settled at around US$200 per tonne, or roughly $225 per tonne in Australian dollars. At this price, the royalty payable is $19.50 per tonne. This means that under the current system of royalties, $55.80 of the $62 per tonne increase in price goes to the mining company, with the royalty payable increasing by only $6.20 per tonne. Most Australians would agree that the ultimate owners of our mineral wealth aren't receiving fair value under this system of royalties.
A profits-based tax is key to leveraging the opportunities presented by growth in Asia. On Friday I spoke to the Australia India Business Council about the opportunities for our two nations in the Asian Century. Australia stands to benefit perhaps more than any other nation from the sustained economic growth of our dynamic region. Growth in Asia means new and bigger cities, new construction, and new infrastructure and transport. This requires resources, energy and expertise – all of which we are ideally placed to provide.
If there's one thing people know about this Government, it's that we get in and do what's necessary to strengthen our economy. We got in and did what was necessary to keep us out of recession during the global financial crisis, and now we're getting in and reforming the tax system to take maximum advantage of the opportunities presented by the Asian Century.
Treasurer of Australia
Sunday 13 June 2010