SUBJECTS: Tax reform.
TIM COX:
Chris Bowen is the Minister for Financial Services and Superannuation. Minister, good to have you with us; good morning.
CHRIS BOWEN:
Good morning Tim, thanks for having us on.
COX:
I'm just curious about superannuation; Paul Howes has been saying, 'it's good stuff, but it still needs to be 15 per cent'. There are a couple of self-funded retirees saying, 'our investments in mining shares are going to get a belting now'.
BOWEN:
Well firstly on super and then I'll come to the other question. People have been asking, for a long time, for superannuation to go to 12 per cent. There's broad agreement that 9 per cent doesn't give you enough to retire comfortably, through your working life; and by taking it to 12 per cent, for somebody who's 30 today, that will add $108,000 to their retirement income; to their retirement lump-sum. If somebody comes in and out of the workforce, perhaps somebody having a couple of kids and working part-time; that figure is $78,000. So this is a really significant reform.
As you might remember Tim, when superannuation was first set up all those years ago; the intention was to take it to 12 per cent. John Howard changed that and left it at 9, but we think it's high time that it returned to 12 per cent; and in addition to that, low-income earners – people under $37,000 – really get no tax concessions for putting money in the super; so we've fixed that. We will give them their tax back on their super; up to $500 a year – which is what somebody on $37,000 will pay.
We're also making it a bit better for people trying to catch-up; who are over 50, who haven't had super their whole life, and they want to put a bit extra of their money in to super; we're making it a bit easier for them to catch-up.
So they're the three big superannuation reforms that we announced yesterday. They've been a long time coming.
COX:
How about my listeners though, who a moment ago – as you heard – are concerned that they're self-funded – and part of that self-funding has come from their share investments in the mining sector – they're worried that they're going to get a belting, following the announcement of the new tax on the mining sector profit.
BOWEN:
Well, this tax is actually a lot better for encouraging mining in Australia. Now, we have done a lot of work on this; and the experts say this could actually improve the way that mining companies do their exploration, and in the long run, will make the mining industry more viable in Australia.
Why would I say that? Because at the moment it's a flat tax; so they pay a flat tax as royalties on the amount of minerals that they take out of the ground; and that's based on volume, it's not based on profits. So in the good years, they make an absolute fortune; in the bad years, the tax can actually make projects unviable. Whereas under our system, in the bad years the taxes will actually come down so projects will be able to stay open which otherwise might have needed to be shut. So at the moment it's a very inefficient system.
We take the view that the minerals in Australia are the property of Australians, and we need to get a fair share in the good times. Every taxpayer deserves a fair share in the good times; but by the same token, the mining companies – who themselves have been calling for this – need to have a much better system to encourage exploration. We're doing that through our rebate – to help miners who are actually out there looking at marginal projects, seeing if they can make it stack up. That's been a longstanding issue in the mining industry; and balancing that, we're giving them their royalties back, but putting that super-profits tax on; which means that the Australian people – all of us – have a stake and a share in what can be the very very good times as well.
COX:
Are you, though, running the risk of taking away some of the attractiveness for foreign investment in particular, in the sector?
BOWEN:
Well, let me just use one example. We've had this system for a long time in oil exploration offshore and exploration which is not on the mainland; that's called our petroleum resource rent tax. Now, what we're doing is bringing that system – something very similar to it – onto the mining which happens on the mainland, on Australia. With that system we have in terms of oil and offshore exploration, we've just had the biggest investment of $50 billion in the Gorgon project; and that's with a profits tax. So if we can get this – what is in all respects – the biggest investment in Australian history; if we can get that in – that $50 billion investment in – with a resource rent tax, why couldn't it work on the mainland? Well, of course it can; of course it will. Some other countries do it: Norway has a profits tax of 78 per cent, Canada's moved down this way. Countries which are as rich in resources as Australia is, have been looking very closely at this. Of course, we've adopted a system that suits Australia; but it's not accurate to say that this will kill the mining industry because of course it wont; it hasn't in relation to offshore and it hasn't elsewhere in the world, and it won't here.
COX:
Well, I wonder what else there is out of the [Henry] Review that you're looking at; and that the Treasurer's looking at for the Budget and for the coming election campaign, Chris Bowen; because the general consensus amongst commentators is that you've not taken enough out of the Henry Review in the initial response. How do you respond to that?
BOWEN:
Well look, firstly, I would reject that because any reform, Tim, which makes our tax of resources much more efficient and gives Australians a fair share of it; any reform which improves the retirement incomes of a 30 year old today, by a $108,000; which deals with the long-term impact of ageing on Australia; and deals with the shortfall in our retirement incomes; in any book, that's real reform.
In some of the other things we're looking at, we're looking at simplification of the tax system. We did some things yesterday, particularly in relation to small business, which are a very big simplification of the tax system for small business; a big reduction in the paperwork which they have to do when they're buying assets and writing them off, and letting them frontload that depreciation to help their cash-flow; but there's a lot more to do, particularly in relation to personal tax, and we've said that very much needs to be on the agenda; and it is on the agenda. We'll have a lot more to say about that in the not too distant future; and there are a number of things in that report which will take a lot more work.
The report itself says – all through the report it makes the point – that a lot of these reforms are long term reforms, which couldn't and shouldn't be done straight away; or can't and shan't be done until the fiscal situation allows. If you look at the report, and look at the sort of timeframes they're talking about, and look at our response; in any book, I think, it's a very substantive response.
COX:
Chris Bowen, thanks for your time; good to have you with us.
BOWEN:
Thanks Tim, good to talk to you.