It's a real pleasure to talk to you today about the Government's tax reform agenda for the election year and beyond.
Let me say from the outset today that, as much as I'm sure it is going to disappoint you all, I do not intend to entertain speculation about what may or may not be in the Budget.
There has been some wild speculation about various taxation related matters that may be the subject of consideration through the Budget process.
From my perspective, none of this is new, and from my experience, the sort of speculation that reaches fever pitch around this time of year is rarely true.
The Government is committed to a tax system that supports investment in our key industries.
Industries that play a critical role in our economy.
Industries like mining.
For the past decade, strong demand from Asian economies, particularly China, has allowed Australia to benefit from high mining export prices.
This has driven an unprecedented boom in investment in the resources sector. Investment surged to more than $100 billion in 2011-12 – a more than 500 per cent increase on pre‑boom investment levels. To put this in perspective, mining accounted for more than 40 per cent of total private business investment in 2011-12.
And while the investment boom should peak in the next year or so, investment is expected to remain high through to the middle of the decade.
Mineral exports accounted for almost 60 per cent of Australia's total goods and services exports in 2011-12. And as the current wave of resource investment projects move towards their production phase, Australia will benefit as mineral exports continue to rise.
These benefits have already begun to materialise: non-rural commodity exports were up by almost 10 per cent in the year to December 2012.
And this is just the beginning: The Bureau of Resources and Energy Economics forecasts that between 2011-12 and 2017-18, iron ore export volumes will rise by 75 per cent, coal volumes will increase by 72 per cent, and LNG volumes will increase by 355 per cent.
These contributions provide important support to Australia's broader economy – the mining industry employed over 263,000 people in February 2013; 69,000 more than in August 2010 – and Government is committed to ensuring they continue.
We also understand that the mining industry is currently facing some challenges — and that these successes cannot be taken for granted.
However, there have been claims from some quarters that Australia is no longer a safe or attractive place to invest and do business.
While we cannot be complacent, the facts simply do not support this.
In a recent report, the US mining industry analysts with over a century of experience, Behre Dolbear, ranked Australia the safest and most attractive destination in the world for mining investment for the third year running, ahead of Canada and Chilé.
And the highly conservative US think tank, the Heritage Foundation, recently ranked Australia 3rd in the world for economic freedom, with 'business freedom' increasing in the most recent report. I quote:
Australia's regulatory environment, one of the world's most transparent and efficient, is highly conducive to entrepreneurship. It takes only two days to launch a business. The labor market remains flexible, and unemployment is a relatively low 5 per cent. Modest inflation allows the Reserve Bank of Australia flexibility to adjust interest rates."
When it comes to the taxation and regulatory settings, Governments must always strike a balance between maintaining international competitiveness, providing investment certainty and securing a fair and sustainable return on the extraction of Australia's natural resources.
One part of that is ensuring that we have modern and efficient taxation arrangements for the mining sector. That is why we are replacing inefficient royalty arrangements with the profits based Minerals Resource Rent Tax.
Revenue collected under the MRRT was always going to fluctuate with mining sector profits.
So it's no surprise that when prices fall, then the revenue collected under the MRRT also falls.
From 21 December 2010 when the Policy Transition Group delivered its report to Government to the commencement of the MRRT on 1 July 2012, the iron ore price fell by more than 20 per cent.
Over the same period the price for coking coal fell by nearly 30 per cent.
And notwithstanding these falls, the Australian dollar remains well above parity with the US dollar – as it has been for this entire financial year.
So while revenues have been weaker than we expected in the short term, the fact remains that this is an important long term reform to the tax system.
A reform that gives all Australians a long-term interest in our future prosperity.
Support needs to be sustainable
The tax system has a clear role to play in supporting investment decisions that underpin our economic prosperity.
Our commitment to supporting investment is why we introduced measures like loss carry-back and the instant asset write-off for small business.
This week I am releasing an exposure draft of new legislation to drive new investment of up to $25 billion in nationally significant infrastructure.
Nationally significant infrastructure, such as new roads, rail and ports, that will remove the bottlenecks threatening the continued growth of industries like yours.
But economic prosperity is also underpinned by a strong and sustainable tax system.
At the same time as we are introducing these new provisions, we are also monitoring existing tax incentives to ensure that they remain well targeted and sustainable as the economy evolves over time.
We have already taken some important steps to ensure the integrity of our tax system.
A current example is the Bill I introduced to counter tax avoidance and multinational profit shifting, which is currently before the Parliament.
The Bill includes amendments to the general anti-avoidance provisions.
These amendments will ensure that we can continue to counter schemes that technically comply with the law but which are really carried out with the sole or dominant purpose of avoiding tax.
This Bill also includes amendments to modernise Australia's transfer pricing rules.
These important amendments will help protect the integrity of Australia's tax system and give us a comprehensive and robust transfer pricing regime that is aligned with internationally accepted principles.
We have also made moves to more appropriately target concessions provided through the tax system.
As a part of the new research and development (R&D) tax incentive, we provided more generous rates of assistance, particularly for small and medium firms. At the same time we imposed stronger restrictions on what types of supporting R&D activities were eligible for the offset.
This will ensure the R&D tax incentive provides more support for genuine R&D and does not subsidise the normal production activities of companies.
These types of reforms help ensure that our tax system is evolving in line with changes in our economy.
But this is a continual process – particularly given the continued pace of change that we are seeing in international markets.
Support in the modern economy
Changes in the global economy have brought unprecedented benefits to Australia and the world.
Recent decades have seen significant trade liberalisation, widespread financial deregulation and dramatic improvements in information and communications technology.
These developments have been important drivers of economic growth and opportunities both in Australia and across the globe.
But this new economy also throws up new challenges.
There has been a significant shift towards knowledge-based goods and services. Intangible assets represent an increasing share of overall investment.
Intangible assets — assets like intellectual property or mining rights - are valuable assets that will be vital to the long term sustainability of our economy.
But they can cause headaches for policy makers and revenue authorities.
In a global economy where entities operate across multiple borders, it is not always easy to identify where activity relating to an intangible asset takes place.
And how do you value an intangible asset separately from a related tangible asset?
I have said that support for investment in the tax system has to be sustainable.
Rules designed in the industrial age assumed that it is a simple matter to determine where economic activity occurs and where value lies.
In a modern economy, that assumption has become increasingly unsustainable.
Transparency and consultation with the mining industry
Of course, any changes we make to improve the integrity of the tax system will be discussed with industry.
We need to be confident that our proposals will achieve their objectives and we always seek to ensure that any integrity measures do not disrupt genuine activity.
We are making a concerted effort to ensure our consultation processes are as effective as possible.
Last year, I announced a number of steps to improve the quality of our tax law through better community consultation.
But consultation is a two-way street. Before we can provide information and seek feedback on a proposed policy, we need information to assess our tax laws in the first place.
The issues I have touched on today are only the first steps towards realising a fair, consistent and sustainable taxation system.
The Government is committed to continuing to identify and address deficiencies in the tax law, deficiencies that threaten the sustainability of our tax system and disadvantage the majority of Australians that are doing the right thing.
But in order to build a system that is fair for everybody, Australia's debate about the future of the tax system must become broader.
And the Government is putting in place a number of initiatives to broaden that conversation so that its outcomes are meaningful and practical.
I took the first step in encouraging this conversation on 4 April, when I released a discussion paper asking for comments on three proposals to increase the transparency of Australia's business tax system.
These proposals were developed following consultation with the Specialist Reference Group on Ways to Address Tax Minimisation of Multinational Enterprises and discussions with key corporate regulators.
I encourage all interested parties to consider these proposals and prepare submissions with their own views. The consultation period closes on 24 April 2013.
The first proposal will require the ATO to periodically publish information about all corporate taxpayers with a total income of over $100 million.
This information would include the entities' name, ABN, total income, taxable income and tax payable.
I note that some companies here – like Rio Tinto – already release this type of information and I acknowledge their efforts in this regard.
This proposal would also require the ATO to publish the MRRT or PRRT payable amounts for every taxpayer that has such a liability in a given year.
The second proposal seeks to amend the tax secrecy laws to ensure that aggregate tax collection amounts can be made publicly available.
This would ensure the Government is not prevented from reporting monthly aggregate collections for each tax, including the MRRT, just because the number of relevant taxpayers may be small.
The third proposal would allow the ATO to provide a greater range of information to the Treasury for the purposes of considering foreign acquisition applications.
Policy makers and the Australian public should have more transparency around the levels of tax being paid by large and multinational businesses in Australia to allow an informed debate about the efficiency and equity of our tax system.
This is particularly the case when there are increasing demands for the Government to provide evidence about the challenges that base erosion and profit shifting present to the sustainability of our corporate tax system.
As I mentioned before, many listed companies, including some of the largest mining companies, should be commended for already disclosing a vast array of information about the tax they pay and their tax affairs.
The proposed reforms would build on this picture.
Extractive Industries Transparency Initiative
Another area where the mining industry is leading the push for increased tax transparency is the Extractive Industries Transparency Initiative or EITI, with a pilot commencing on 1 July 2012.
The EITI is a global standard for promoting revenue transparency in the extractive sectors of resource-rich countries.
A multi-stakeholder group consisting of government, civil society and industry will report on how Australia's existing financial and governance arrangements deliver outcomes in line with EITI principles at the end of 2013.
This is another area where Australia's mining industry is taking a world-leading role, and I again commend you for that.
Support for developing infrastructure in the mining industry
Before closing, I'd just like to say a few words about the new $25 billion infrastructure legislation that I mentioned at the outset.
This is an important measure that will provide the public infrastructure to support long-term growth in key industries, like our mining industry.
The new tax incentive will mean the value of carry-forward losses attributable to designated infrastructure projects will be uplifted by the 10-year Government bond rate.
In addition, those tax losses will also be exempt from the continuity of ownership test and the same business test.
The measure recognises a reality for business: that there are long delays between incurring planning and construction expenditure and generating peak revenues for nationally significant infrastructure projects.
The measure will assist proponents of some of Australia's largest infrastructure projects – like the $5.3 billion Cross River Rail Project right here in Brisbane, which will expand the capacity of freight services to the Port of Brisbane.
It's a tangible example of this Government's fundamental support for investment and growth.
Conclusion
As I said at the outset, the Government believes that Australia's tax system plays an important role in supporting investment.
We are putting in place new incentives where they are needed – like the instant asset write-off for small business, loss carry-back and the tax concession for designated infrastructure projects.
And we are monitoring existing tax expenditures to ensure that they remain sustainable and targeted in the face of global economic change.
That's why, today, I've tried to give you a sense of what we are doing now and where we are headed – so that we can continue to act to ensure the tax system supports growth in a way that is sustainable and fair.