It's been an historic week for Australia and for economic reform, with the Gillard Government and the mining industry reaching a breakthrough agreement on resource tax reform in Australia's national interest. This agreement follows intense negotiations between mining companies and Prime Minister Julia Gillard, Minister Martin Ferguson and myself, and wouldn't have been possible without the PM's intervention, and her willingness to move the country forward. The agreement speaks volumes about our new PM's leadership style and her ability to bring people together, build consensus and get things done. All along, our objective has been to deliver Australians a better return for the resources they own, which can only be dug up once. The new arrangements deliver on that commitment, while providing certainty to the resources industry, to mining communities right around the country, and to the broader Australian economy.
We've taken industry concerns into account and will introduce a new Minerals Resource Rent Tax (MRRT). This profits-based tax will be charged at a rate of 30 per cent and will apply to two commodities – iron ore and coal. The ‘uplift rate' – or the rate of profits above which the tax kicks in - will be set at the long-term government bond rate plus 7 per cent. Mining companies will be allowed to immediately expense new investment, and will receive a 25 per cent extraction allowance that reduces MRRT taxable profits. We have removed the refundability of losses which industry told us they didn't want, but will continue to allow mining companies to transfer losses to other iron ore and coal projects. Mining companies will receive a credit against the MRRT for their state and territory royalty payments, and small miners with resource profits below $50 million a year will be exempt from paying MRRT.
In addition to the MRRT, we will also extend the Petroleum Resource Rent Tax (PRRT) regime to cover all oil, gas and coal seam methane projects, onshore and offshore, at a rate of 40 per cent. This will include the North West Shelf, which was previously exempt from the PRRT, and will ensure all oil and gas projects are treated equitably.
Since the mining boom took off in 2004, we've seen prices for iron ore increase by more than 400 per cent and prices for black coal increase by more than 200 per cent. Iron ore, coal, oil and gas are our biggest and most profitable commodities, representing three-quarters of the value of our exports and resource operating profits and an even greater share of resource rents in the mining industry. Restricting the MRRT and PRRT to these commodities will reduce the number of companies affected from 2,500 to around 320.
I was really pleased to see Minerals Council chief executive Mitch Hooke say our new resource tax arrangements were "a positive outcome for Australia and the Australian minerals industry." BHP Billiton, Rio Tinto and Xstrata agreed our proposal "represents very significant progress towards a minerals taxation regime that satisfies the industry's core principles", and Origin Energy said it was "encouraged by the progress provided by [the] announcement … to bring onshore oil and gas projects under the existing PRRT." We understand that not every single company will be happy with our new resource tax reforms – obviously not all of them will embrace the idea of paying a higher return to the Australian people. But it's a good, sensible outcome in the national economic interest.
This point was reinforced by Westpac chief economist Bill Evans, who said "the new tax is likely to encourage more rapid growth in business investment certainly than under the RSPT and probably more than under the current arrangements", and TD Securities senior strategist Annette Beacher, who said "a new profits-based resource tax should be welcomed" as it "makes sound economic sense." ANZ chief economist Warren Hogan said "the proposal (if passed by parliament) is positive for Australia's medium-term growth prospects by reducing uncertainty for the mining industry and thereby shoring up its investment pipeline."
The breakthrough agreement with industry will pour $10.5 billion back into the Australian community in the form of superannuation for workers, new and better infrastructure, and a tax cut and less red tape for small business. The mining companies have agreed to pay a $10.5 billion mining boom dividend to the Australian people and for that they should be applauded.
As noted by Industry Super Network chief executive David Whiteley, "the resolution to the tax reform impasse is set to lock in superannuation improvements that will improve the lives of every Australian worker for generations to come", which Association of Superannuation Funds of Australia chief executive Pauline Vamos said was "a momentous opportunity." Investment and Financial Services Association chief executive John Brogden thanked the Government "for resolving this issue and maintaining [the] visionary commitment to raise the super guarantee from 9 to 12 per cent," which Australian Institute of Superannuation Trustees chief executive Fiona Reynolds said was a "much-needed policy reform to address the enormous challenge of our ageing population."
The breakthrough agreement also means we can now look forward with confidence to $6 billion in new and better roads, rail and ports in mining communities, as well as real benefits for Australian families facing cost of living pressures. The proceeds of the MRRT will deliver a bigger tax refund and make tax-time simpler for some 6.4 million Australians, with an optional standard deduction of $500 from 1 July 2012 that will increase to $1,000 on 1 July 2013. It will also halve the tax paid by some 5.7 million Australian depositors on up to $1,000 of interest income from a range of savings products.
This tax relief will build on a range of measures which the Government has already put in place to help those doing it tough. A number of these measures came into effect with the start of the new financial year on Thursday, including our latest round of tax cuts. Taken together, our three rounds of tax cuts have increased the low income tax offset from $750 to $1,500 (increasing the effective tax free threshold from $11,000 to $16,000), raised the income threshold for the 30 per cent marginal tax rate from $30,001 to $37,001, reduced the 40 per cent marginal tax rate to 37 per cent and raised its income threshold from $75,001 to $80,001, and raised the income threshold for the 45 per cent marginal tax rate from $150,001 to $180,001.
These tax cuts will mean an extra $750 a year in the pocket of someone earning $20,000 a year, an extra $1,750 a year in the pocket of someone earning $50,000 a year, and an extra $1,850 a year in the pocket of someone earning $90,000 a year, compared to when we came to government. As parents start to think about putting their tax returns in for the 2009-10 financial year, it's important they remember to claim any eligible education expenses using our 50 per cent Education Tax Refund – worth up to $390 per primary school child and $779 per secondary school child.
The final stage of our Secure and Sustainable Pension Reforms also came into effect on Thursday. Since the Government implemented these reforms in September last year, the maximum rate of pension has increased by around $100 a fortnight for single pensioners and $74 a fortnight for couple pensioners combined. The final stage of these reforms will provide more than 500,000 carers across Australia with a $600 Carer Supplement, and deliver a more flexible advance payment system and the option of quarterly Pension Supplement payments for 3.3 million pensioners. The Gillard Government is also providing further support for self-funded retirees, with Minister Chris Bowen, Minister Nick Sherry and I announcing an extension of the drawdown relief currently provided for account-based superannuation pensions to the 2010-11 financial year. I'm looking forward to discussing these important measures with pensioners and self-funded retirees at the Seniors Forum in my electorate this Thursday.
As I noted in my press conference in Toronto last Sunday, the commitments made by G20 Leaders at last week's Summit show just how far ahead of the game Australia is when it comes to fiscal discipline and our budget position. Whereas advanced G20 economies agreed to at least halve deficits by 2013, Australia will be back in surplus by 2013. And whereas advanced G20 economies agreed to stabilise or reduce government debt to GDP by 2016, government debt in Australia will fall after peaking in 2011-12 at only 6.1 per cent – just a fraction of the net debt levels experienced by other advanced G20 economies. Add to this we were the only advanced G20 economy to avoid recession, and have an unemployment rate around half that in the US and the Euro area, and it's clear just what we've achieved these past couple of years.
We came together as a country to meet some extraordinary economic challenges during the global financial crisis, and there's no reason we can't come together again, united behind our resource tax reforms, and move forward with confidence. Economic reform is hard, it's untidy, and the debate can be tough – that's true of all the hard reforms, and getting a better return for our non-renewable resources was no exception. There have been rugged exchanges from both sides – that's the nature of democracy. But we're now in a position where we can put this debate behind us and move forward together as a country behind this key economic reform under the impressive leadership of our new Prime Minister.
Treasurer of Australia
Sunday 4 July 2010