Mining Subsidies Legislation Amendment (Raising Revenue) Bill 2014

I will start my contribution to this debate in recognising that I respect Senator Waters as a very intelligent senator and contributor to this place. I am sure she is very well read and considers these matters very deeply. 

I was surprised in her contribution, because I am sure she would be aware that basically no respected economist—not Treasury, not the Productivity Commission and no government agency—in this country considers the diesel fuel tax rebate arrangements as a subsidy.None of them define it as a subsidy for the mining industry. I will go through the reasons for that later.

I would have thought an intelligent and well-read senator like Senator Waters would (1) know that, and (2) if she is arguing a different position,—to Treasury, to the Productivity Commission and to almost every economist that I have known in respected circles in this place—she would deal with those issues. She would have raised them, rebutted them and pointed out why all of these eminent public sector agencies were wrong and the Greens were right.

We have just heard throughout her whole speech not a mention, not even an engagement, on that side of the debate. Instead, unfortunately, we had a contribution that was full of vitriol. It was full of denigrating of a former Prime Minister. It was full of attacks on particular wealthy mining investors. It was full of emotion about free tax breaks to rich people and all these conspiracy theories that the Greens like to meddle in. That is unfortunate because I do believe the Greens have a higher intelligence than that, and they do not need to resort to the lowest common denominator in these types of debates. It is unfortunate that they are not engaging with the real issues on this particular matter. They are certainly not even trying to rebut or put forward an alternative argument to these respected institutions that I will quote from in my contribution.

It is important, when we are discussing any change to a particular tax or rebate, that we properly understand the history and reasons behind the tax arrangements we have. The fuel excise system was first established in the 1920s, obviously to provide a regular revenue stream to fund new roads—many countries have this type of arrangement. In the 1950s, it was extended to diesel; previously, it was levied only on petrol mainly for road vehicles. In the 1950s, the arrangements were that the mining sector did not pay the tax. There was no rebate; it just was not levied on the mining sector. I believe it was collected at the retail fuel pump, which generally the mining sector would not use.

Later on those arrangements were changed, so that the excise applies to all sales of fuel, both petrol and diesel, but a rebate is provided to those industries which do not use our roads. The reason the mining sector was not levied the fuel excise is that the excise was established to fund roads and the mining sector, along with the agricultural sector, which also receives a rebate, do not often use established roads. They have their vehicles and they use the diesel for equipment off road, either on roads they build on their mine sites or farms or for equipment that does a lot of the digging and waste disposal. That is a perfectly reasonable public policy rationale. We are setting up a system to fund roads, so of course we would charge road users to fund those investments. The mining sector and farmers are not using those roads, so we do not charge them the tax.

There is also a more technical economic argument about why we do not impose taxes on business inputs. It is commonly recognised that a tax on inputs to business is a particularly distortionary one because it will change how businesses decide to allocate their capital, to employ labour and will cause inefficiency in the economy. It is why, for example, the GST is a value added tax. We do not charge it on all transactions that occur in our economy; it is only levied on the value added of each individual sector of the economy. That is how businesses get input tax credits.

If the Greens were being economically consistent here, they would also be saying that all of those input tax credits that exist through the GST system are also a subsidy to businesses because it is exactly the same system that we use for the fuel tax rebate. Businesses which buy particular products on which GST is levied get a rebate, an input tax credit, which they record on their business activity statement and then the GST they pay is reduced accordingly. That is exactly how the fuel tax rebate system works. It works because that is a more efficient tax to fund it on the value added that each sector produces, not on the business inputs because just taking the cream, taking the valued added, will not distort the decision making, will not make businesses make massively different decisions and therefore, by definition, inefficient decisions.

That is why we have the system and it is also why it is not a subsidy. It is not a subsidy; it is simply a reflection of the fact that miners do not use roads and, as a general rule across all our taxation arrangements, we do not tax inputs to business. That is why, as I said in the introduction to my remarks, the Australian Treasury, the pre-eminent economic agency of our public sector, do not define the fuel tax credit system as a subsidy. In a 2011 submission to the G20 Energy Experts Group, Treasury stated that:

Fuel tax credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles.

That is pretty clear. Apparently Senator Waters mentioned there will be another Green senator contributing to the debate this morning. In good faith, if they are serious about this, rather than just running a political campaign to bash the mining industry again, would she please outline why the Greens disagree with Treasury and why their particular and expert evidence is wrong. I would also add that each year Treasury compile what is called a Tax Expenditures Statement, a summary of all the reductions in tax rates we provide to particular sectors and how much that costs the budget. In that document you will see the cost of things from the superannuation guarantee right through to forestry managed investment schemes, different arrangements the government has established to provide tax assistance or a tax credit to particular businesses through the economy. It is very important to note that, while that document is not per se about subsidies themselves, Treasury do not include the diesel fuel tax rebate as part of their assessment. They could easily do that. The Greens have had it costed by the Parliamentary Budget Office. It is not a difficult economic calculation, but Treasury do not do that because it is not a tax expenditure, it is not a reduction in tax; it is simply a historical reflection of the fact that we have not levied this tax on the mining sector or on the agricultural sector.

Likewise, the Productivity Commission compile a report each year specifically on assistance measures to business called the Trade and Assistance Review. Once again, consistent with Treasury practice, the Productivity Commission do not measure or estimate the fuel tax rebate as a subsidy. They have had ample opportunity to do so over many years. Indeed, I asked them about this at Senate estimates this year and they have made the judgment that this particular arrangement is not a subsidy. Therefore, the Greens are completely acting against all of the expert economic advice in defining it as such.

More generally in the Trade and Assistance Review that comes out every year the Productivity Commission measures the assistance given to different sectors of our economy across the board.

It is very wide ranging and includes research and development funding; it includes the effective rate of assistance provided by tariffs—we used to have quotas, but we do not have them anymore; and it also covers other more general and specific business assistance provided to different industries.

I am sure the Greens have read this and I am sure they have heard this evidence before, but one thing they simply ignore and do not seek to rebut at all is that the Productivity Commission has concluded that, of all the sectors of our economy, the mining sector receives the least amount and the lowest rate of assistance from government. Remember that that assistance is very broad-ranging—it also includes generic R&D funding, and I will quote the exact figures in a second. Most of the mining sector's assistance is made up of that research and development funding that is available through R&D Start and through the R&D tax concessions that have been a longstanding arrangement and, of course, are available to all businesses—they are not specific to any particular sector of the economy.

The PC concluded—and I think it is important to read out exactly what they said—in their latest report that was released in June this year:

The effective rate of assistance — net assistance per unit of value added — was around 4 per cent for the manufacturing sector, nearly 3 per cent for the primary production sector and less than 1 per cent for mining. At the industry group level— which is a more disaggregated level—the highest measured effective rates of assistance continued to be for the Motor vehicles and parts and the Textiles, leather, clothing and footwear industry groups.

The Productivity Commission said in that quote that the assistance to the mining sector was less than one per cent—the actual effective rate for the mining sector is 0.1 of a per cent. That is 0.1 per cent of their value added—that is the rate of assistance that the mining sector received from the government. That is a figure you will never hear the Greens quote—0.1 of a per cent—just registerable in one-tenth of a per cent. The other sectors—the manufacturing sector with four per cent and the primary production with three per cent—receive multiple times greater assistance than the mining sector receives, but that is not what the Greens quote. They ignore that; I am not sure why. I wait to hear how the Productivity Commission has got this wrong. I believe they have been doing these reports for nearly 40 years, but apparently they have got it wrong for that whole period. I continue to wait for a Greens senator who is arguing for these particular policies—and they do that regularly—to engage in this debate and to properly rebut that expert evidence from those organisations.

In other debates in this context I have heard some Greens use an Australia Institute report that has been completely discredited. I noticed that Senator Waters did not quote from that this time, so at least she did not go that far. We have established, though, that the diesel fuel tax rebate is not a subsidy. But the Australia Institute compiled a report, I think some time last year, which purported to show that the mining sector receives $17.6 billion in subsidies. That was made up partly by the diesel fuel tax rebate which no-one, except for the Greens and their supporters, thinks is a subsidy. They also had some other things in this report that are even more absurd, so perhaps that is why Senator Waters did not mention it. I do not exactly know how the Australia Institute came to this, but in their $17.6 billion they included the costs of providing subsidised passenger rail travel in Queensland. Apparently that costs $1.05 billion a year in Queensland, and they included that in their $17.6 billion figure. They got lots of media and stories at the time this was released, saying, 'The mining sector is receiving $17.6 billion', and various media outlets reported it without any question. 

Included in that figure was not just this diesel fuel tax rebate, which is a complete red herring as well, but also $1 billion from subsidising passenger rail services in Queensland. How does that relate to the mining sector? How could you seriously put forward that subsidising passenger rail services in Brisbane—because that is the only place that has passenger rail services in Queensland—gets a billion bucks, and that that is a subsidy to the mining sector? I do not know if the Australia Institute has been to any mines recently, but none of them is in Brisbane. They are all outside of Brisbane, and I do not think there are any TITO—train-in train-out—mining workers in this country. There are FIFO workers—fly-in fly-out—and there are DIDO workers—drive-in drive-out. I do not think there are any TITO—train-in train-out—workers; I do not think they exist. Again, perhaps the Greens have evidence of these mine workers who put on their 'don't kill me' vests in the morning, wait for their train at the Yeerongpilly station and then, at the end of it, pop off at the Caval Ridge mine near Moranbah, but I did not know that that service existed. Maybe that accounts for some of the billion dollars that was provided. But I have not heard of that before.

They also included in these estimates nearly another billion dollars—$831 million—to cover the costs of port services that various state governments own or provide, and some own rail services as well. These are a bit more connected to the mining sector because they are services that mines actually use—unlike passenger rail services, mines do use freight rail lines and they do use ports to export their coal. But they included the total costs of providing those services in these subsidies—this $831 million a year. I am sure that the Australia Institute, and Dr Richard Denniss, who is a very intelligent person, would realise that state governments actually charge the mining sector to use those services. They charge them a fee to use a rail line, and they certainly charge them a price to use a port. Indeed, they are charging them such a price at the port at the moment that it is seriously hurting the mines because they signed many take-or-pay contracts a few years ago, and that is causing them quite a bit of grief. But, nonetheless, the state government do very well out of those things.

If you were being serious, then, sure, include that $831 million, but on the other side of the ledger you would, of course, include the charges that the state governments apply to the mining sector to use those services. I am not sure exactly how it works, but generally all of these services are regulated by various state-based regulators like the Queensland Competition Authority in Queensland, and they calculate what the appropriate charge should be. They look at the costs of providing those services and they include a rate of return for the government. And I do not think they are doing all that badly. I am sure they are actually making money from the mining sector, so it is the opposite of a subsidy—they are making a return from it. Notwithstanding that, it was also included.

I should get off this topic because there are other things I want to say, but I will say one more thing on this Australia Institute report.

There was one other element they included, a smaller element. Senator Nash would be very familiar with the Royalties for the Region program in Western Australia, a very proud policy initiative of the WA National Party. That is levied; it comes from royalties. Twenty five per cent of royalties in Western Australia are reserved for these regional programs.

The Australia Institute thought that that spending on the Royalties for the Region program was a subsidy to the mining sector. It was actually funded by a tax applied on the mining sector. They pay royalties, of course. But the institute did not include that tax in it; they included the payments for the Royalties for the Region funding as part of that $17.6 billion. For example, and I think Senator Nash would be interested to know, Ord Stage 2—which the Western Australian government is funding at the moment which is going towards expanding agricultural production—is apparently a subsidy on the mining sector. I do not quite see how that logic works. But, again, as part of that $17.6 billion, funding of an expanded agricultural irrigation project is apparently a subsidy to the mining sector. That is amazing logic on behalf of the Australia Institute, and the Greens have quoted that figure up hill and down dale, and it is completely discredited.

What is not discredited is that the most subsidised sector in our economy is renewable energy. It gets enormous amounts of subsidy. In August this year, a Principal Economics study found that in 2013-14 the renewable energy sector received subsidies of around $2.8 billion—these are actual subsidies, things like the renewable energy target, which pushes up power prices for poor people to pay for solar panels on the roofs of rich people; feed-in tariffs, which do exactly the same thing; and other green subsidies that we make to the renewable energy sector. While $2.8 billion is a lot of money, it is even much, much greater when you take it in the context of what the renewable energy sector actually produces, which is only a small amount of our power needs.

On that basis, on a megawatt per hour basis, the solar sector receives a $412 subsidy; the wind sector $42; other renewable sources $18. I think it is important to compare that with the coal fired sector, which receives less than $1 per megawatt hour and natural gas receives less than 1c per megawatt hour delivered. The subsidies to solar are almost 500 times that of mining and about 48 times higher than wind. But we are here debating a bill seeking to remove a nonexistent subsidy to the mining sector while completely ignoring the billions of dollars of subsidies that go to renewable energy. It shows the hypocrisy of the Greens, their lack of engagement in the real policy debate, and this bill should be voted against in this parliament.



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