Dissenting Report by Labor Members
The Minerals Resource Rent Tax Repeal and Other Measures Bill 2013
The Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 (the bill) proposes to remove the Minerals Resource Rent Tax (MRRT) with effect
from 1 July 2014. It also discontinues or amends other measures. In this
dissenting report, Labor senators first examine the importance of the other
measures linked to the repeal of the MRRT before considering the merits of the
proposed legislation as a whole. The measures associated with the repeal of the MRRT are divided into
the three main groups affected by the proposals—low-income earners, those
receiving superannuation concessions or benefits and small business.
Labor's support for the MMRT
Before Labor senators outline their analysis of the provisions of the
bill, they present a summary of their findings.
This legislation confirms that the government is committed to
introducing a retrospective tax grab on millions of Australia’s low paid workers, to give a
tax refund to large mining companies.
Labor senators have a fundamental view that Australians deserve to share
in the benefits of minerals we all own—ie the MRRT is a profit-based tax, so
when profits are high, revenue is up.
When it is lower (ie during the construction phase of the boom), of
course revenue will be lower—that’s how the tax works.
The MRRT was not put in place for the next six months, it was put in
place for the next generation. The Petroleum Resource Rent Tax (PRRT) which is
a very similar tax covering petroleum and gas barely received any revenue in
the first few years it was in operation.
Labor senators note that the government is being contradictory in its
opposition to the tax. On one hand it has argued that the MRRT is not working
because it is not making revenue at the same time as saying it is an unfair
cost burden dragging down the mining sector.
The Labor members of the committee now consider the measures that affect
each group and the merits of the proposed changes.
Low income earners
A number of submissions expressed their opposition to the abolition of
measures in the bill that directly benefit low income earners.
In their view, this move would be 'very detrimental' to the poorest in
Australia. The measures include:
the Income Support Bonus; and
the Schoolkids Bonus.
Income Support Bonus
The bill would abolish the Income Support Bonus, a tax-free payment
which came into effect earlier this year to help people prepare for unexpected
living costs such as medical expenses or car repairs.
If the proposed abolition is successful, over 50s on the Newstart Allowance
will lose the payment.
The income support bonus is an income tax exempt, indexed, non-means
tested payment made twice every year to eligible social security recipients.
It was introduced in early 2013 'in recognition of the fact that the current
rates of income support Allowance payments are manifestly inadequate'.
The bonus provides $210 a year to single recipients and $350 a year to most couples where both partners
are eligible. The bonus is paid in instalments in March and September each
year. The total cost of the bonus is $300 million per year.
The bonus is paid to 1.1 million low income Australians, primarily to
people receiving Newstart or Youth Allowance.
Currently, the maximum single rate of Newstart Allowance is $248 per week.
Unemployed young people living independently of their parents receive a weekly
payment of $204. Organisations such as the Australian Council of Social Service
(ACOSS) and the National Welfare Rights Network highlighted the inadequacy of
the allowances. ACOSS noted that this support:
...is not enough to meet the most basic essential costs such as
housing, food, clothing and transport costs to search for a job. Research into
financial hardship indicates that unemployed people and sole parents face a
much higher risk of hardship than most other groups in the community.
As an example, ACOSS recorded that 57 per cent of Parenting Payment
recipients and 28 per cent of Newstart Allowance recipients could not afford to
pay utility bills on time compared with 12 per cent of all Australians. Over 40
per cent of both groups could not afford dental treatment when needed.
Clearly, the loss of the income support bonus would only add to the difficulties
facing low-income people who simply cannot afford to lose that support.
Labor members are concerned that this legislation to repeal the Schoolkids
bonus will hit families early next year, right when they start to turn their
attention to buying clothing and text books, etc. for school age children, by
cutting the Schoolkids bonus. This legislation removes payments of $410 per
primary school student and $820 per high school student from 1.3 million
Australian families starting from January next year through the abolition of
the Schoolkids Bonus.
Labor senators contend that this is a payment not in any way linked to
the MRRT despite the government's rhetoric. As outlined below, the origins of
the bonus are in the Education Tax Refund. This bill increases the cost of
living pressure on families with school aged children at a time when they can
least afford it.
These are views shared by a number of submitters to the inquiry.
ACOSS informed the committee that one in six children (575,000) in Australia
are currently living in poverty.
The former government introduced the Schoolkids Bonus in 2011, which, as noted above, provides $410 per year for each child in primary school and
$820 for a secondary school student. The bonus is an income tax exempt, indexed family
assistance payment available to eligible families receiving Family Tax Benefit
Part A and young people in school receiving youth allowance or veterans'
payments. It replaced an annual Education Tax Refund, which was established to assist
parents cover school costs and equated to about two-thirds of the cost of the
According to ACOSS, the MRRT was intended to cover the difference between the
two costs and not the totality.
In this regard, ACOSS argued that the mining tax theoretically paid for only a
third of the cost of the schoolkids bonus and hence the link between the
schoolkids bonus and mining tax is tenuous:
While the Government has justified the proposed abolition of
the Schoolkids Bonus on the basis of the link to the MRRT, this would only
justify a reduction in funding of the difference between the payments.
It should be noted that Treasury would not provide the committee with a definitive answer on whether the Schoolkids bonus was only partially funded
by the MRRT.
While the National Welfare Rights Network accepted that this bonus could
be criticised because it is not 'targeted as tightly as it could be', it argued
that to abolish this bonus in its entirety would remove much needed support
from low income families, in particular many single parent families.
The Shop, Distributive & Allied Employees' Association observed that
it was in Australia's long-term interests 'to provide adequate levels of
support, including economic support to Australian families' so that all
families could function effectively.
Should the government proceed with the repeal of the Income
support bonus and/or the Schoolkids bonus then the government should commit to
returning the money low income families will lose to them in the form of real
increases in family payments.
ACOSS opposed the abolition of the payment without some alternative
means of providing assistance that would be better and more effectively
Merits of proposed changes
In summary, ACOSS argued that both the allowance bonus and schoolkids
bonus should be judged on their merits and not their past link to a particular
tax: that the payments should be retained and the schoolkids bonus made more
efficient rather than 'completely scotched'.
It stated that the social expenditure measures in the bill have 'compelling
social objectives behind them and there are pressing needs to be met in those
areas'. In its view, 'the simplistic linking of this tax measure with these
spending measures is hugely problematic' and the abolition of those payments
would cause great damage in the short term. It argued that the proposed
legislation was not the 'forum in which to do away with a range of measures
that were making some, however small, progress towards greater equity' in
Labor members endorse this view. They also note that the schoolkids
bonus is only very partially linked to the MRRT and that, there is no
justification for repeal of these benefits as part of the MRRT repeal.
Repeal of the Low Income
Superannuation contribution (LISC)
Labor members make the following succinct points before discussing the
repeal of the Low Income Superannuation Contribution (LISC) in greater detail:
This move to abolish the LISC will increase superannuation taxes
on 1 in 3 of Australia's lowest paid workers.
The government has sought to cut both the super of millions of
Australians earning up to $37,000 while boosting the super for 16,000 people
who have over $2 million in super balances.
This bill sees the government scrapping the LISC, which sees the
equivalent of the superannuation tax (up to $500) paid by a low income earner,
up to $37,000, paid into the superannuation account of the taxpayer.
The LISC was important for a number of reasons. For high income
earners, superannuation can be concessional: for low income earners, there are
no effective incentives for them to contribute to their superannuation. This
measure addressed that very issue.
The removal of the LISC hits women particularly hard, with 2.1
million women affected.
A significant percentage of these are mothers working part-time
while looking after young children. This is exactly the time of a woman's
career where an additional $500 a year going into superannuation would be of most
benefit for building savings for their retirement.
The other major concern with this bill's removal of the LISC, is
that it is an example of a retrospective tax measure—a fact confirmed by the
Parliamentary Budget Office's checking of the Coalition's election costings.
Low income earners entered the 2013–14 financial year on the
understanding that they would be refunded their superannuation tax. Part way
through this financial year and the government has changed the rules on
Industry Super Australia estimates that, when combined with the proposed
delay in increasing the Super Guarantee to 12 per cent, the removal of the LISC
will reduce national savings by $53 billion by 2021–22.
This means a reduction in available capital for infrastructure investment
by around $5bn based on current industry-wide asset allocations. This at a time
when the government is looking around for funding streams to finance new
The submissions that considered not only the repeal of the MRRT but the
measures supposedly linked to the MRRT were highly critical of the abolition of
Before the LISC was introduced, no real incentive existed for low income
earners to make contributions.
Workers earning $37,000 or less were penalised when saving for retirement by
'paying 15 cents in the dollar more tax on their super than if they had
received the same amount in wages'.
The Financial Services Council stated that:
It was a long standing flaw in the superannuation system that
low-income earners would pay a higher rate of tax on their compulsory
contributions than they would if that money was paid to them as income.
The LISC was an important initiative designed to address the very low
superannuation savings of low-income Australians, particularly women who are
more likely to be in part-time work and earning below the tax free threshold.
According to the Australia Institute, the LISC is 'not a concession to low
income earners but is a measure designed to offset the penalty of having income
super taxed at 15 per cent when the taxpayer concerned has insufficient income
to trigger any personal income tax liability'.
The LISC was also intended to alleviate future pressure on the age
It is payable each year in respect of concessional superannuation contributions
made in each income year. Under the proposed legislation, the LISC would be no
longer payable in respect of concessional contributions made after 1 July 2013.
Mr Davidson of ACOSS argued that in a fairer superannuation system
people earning less than $37,000 would receive 'a positive incentive for their
compulsory saving rather that what it is, in effect, a zero incentive'.
In support of the retention of the LISC, ACOSS described the contribution as a
'small step towards a fairer superannuation system'.
Even though ACOSS was of the view that the LISC did not go 'anywhere near
making the system fair and sustainable into the future', it argued that its
abolition would have 'a regressive effect, penalising those on low income for
saving for retirement'.
In effect, removing this superannuation contribution rebate would
penalise compulsory superannuation contributions by increasing the tax rate for
low-income earners earning below $37,000 by 15 cents in every dollar
contributed. ACOSS stated that it was not fair to compel people to save and
then penalise them 15 cents in the dollar for doing so.
Mercer (Australia) described the measure as 'an adverse retrospective amendment
to existing legislation' that would 'further diminish confidence in the
ACOSS argued that the tax system for super contributions is 'upside
For example, for every dollar contributed by an employer on behalf of an
individual earning $200,000, that individual saves 32 cents in tax.
In other words, as described by Dr Richard Denniss, if a high-income earner
were to put $1,000 into super, he/she would save $300 in tax, whereas a
low-income earner would pay $150 more in tax if he/she were to put $1,000 into
The Australian Council of Trade Unions (ACTU) noted succinctly that the
repeal of the LISC would 'leave those earning less than $37,000 per year as the
only Australian wage and salary earners who do not receive a concessional
treatment of their superannuation contributions'.
The Australian Institute of Superannuation Trustees similarly observed that
without the LISC, low-income earners would be the only working Australians not
to qualify for 'tax breaks on their superannuation contributions compared with
their income tax'.
According to the ACTU, unions, tax policy experts and the superannuation
industry have long recognised that the flat rate taxation of superannuation
contributions at 15 per cent is profoundly regressive and socially unjust.
It explained further that:
...this bill proposes to restore the position where large
numbers of low-income Australians pay more tax on their superannuation than
they pay on their take-home pay. That is an absurd proposition for money which
is compulsory and preserved and in contrast to the enormous tax concessions
given to high-income earners. This bill will raise superannuation taxes on 3.6
million low-paid workers, 2.1 million of whom are women. Just as an example,
about 360,000 retail workers alone will see an increase in super taxes. It is
unjustifiable and unfair, particularly in circumstances where the government
has chosen to not proceed with a very modest saving in respect of super taxes
on high-income earners.
The National Welfare Rights Network also argued that the abolition of
the LISC would be 'an effective tax increase on 3.6 million workers, including
2.1 million women, many of who have very low and inadequate retirement
This change in the law means that these workers will be
paying more tax on their superannuation than on their take home pay. It will
mean that low income earners will have less money in retirement, and therefore
the call on the Age Pension will be greater in the future.
Industry Super Australia (ISA) informed the committee that 'the removal
of the LISC has the potential to diminish total retirement savings in super by
up to $27,000 in present dollars (around 15 per cent less) for young low wage
The ACTU noted that the Explanatory Memorandum makes no attempt to
discuss or engage with the distributional and social justice issues raised by
abolishing the LISC.
ISA informed the committee that the industry recognises that the repeal
of the MRRT would affect the budget but 'cutting one-third of the workforce off
any tax-concessional super is not a sustainable way forward'. It cited the
Henry Tax Review which found that 'the flat 15 per cent contribution tax was
regressive in its impact, with low income earners paying more tax on their
super contributions than their take home earnings.
Mr Mathew Linden, ISA, quoted from the tax review which recommended 'a change
to the contribution concessions—a 20 per cent flat rebate for everyone—which in
our assessment would be broadly neutral'.
In ISA's analysis:
...such a tax offset, or one slightly more generous, on
post-tax contributions, and in lieu of existing contribution concessions, would
be broadly revenue neutral.
Treasury also referred to the tax review and its recommendation for
having a standard rebate on contributions whereby the tax concession would be
kept consistent irrespective of whether one was on the lowest marginal tax
rate, on the highest or somewhere in between.
In addition to the adverse effects on low-income earners and the overall
unfairness of abolishing the LISC, Mercer (Australia) had serious concerns
about the retrospectivity of the LISC provision as currently drafted. ISA was
of a similar view. It stated:
...the repeal of the LISC will remove the entitlement for
eligible contributions already made between July 2013 and the passage of the
Bill if Parliament agrees to it. Under the proposed provisions the
Commissioner for Taxation will be required to deny taxpayers the benefit of the
LISC on eligible contributions already made.
Such a situation would not only produce 'an unfair and unsustainable
outcome for low income taxpayers' but put the Commissioner in an untenable
position. The ISA explained further:
The Bill's proposed retrospective treatment of the repeal of
the low income superannuation contribution is unprecedented and inconsistent
with the Bill's treatment of other provisions. The retrospective application of
this particular provision is also inconsistent with other recent repeals of tax
The Financial Services Council recommended that the government not
repeal the LISC but instead 'pause' the policy by amending the date from which
fund members could accrue an entitlement to a LISC payment to 1 July 2017 to
allow the Budget position to strengthen. It suggested that a pause would
'secure the same Budget savings in the forward estimates as currently
Women in Super was of the view that the funding link between the MRRT
and the LISC should be broken and funding for the LISC should be drawn from
Labor members agree with this proposal.
Pausing the Superannuation
Guarantee charge percentage increase
Under existing arrangements, the Superannuation Guarantee (SG) charge
percentage was to increase from 9.25 per cent to 9.5 per cent for the year
starting 1 July 2014 and gradually increase by half a percentage point
each year until it reached 12 per cent for years starting on or after 1 July
Lifting the SG was intended to raise non age-pension retirement incomes.
The proposed legislation would, however, pause the SG charge percentage at 9.25
per cent for the years starting on 1 July 2014 and 1 July 2015 and increase to
9.5 per cent for the year starting to 1 July 2016. It would then gradually
increase by half a percentage point each year until it reaches 12 per cent for
years starting on or after 1 July 2021.
While supporting the superannuation system and recognising the current
gaps in the adequacy of retirement incomes for many Australians, the Australian
Industry (Ai) Group supported this rescheduling. It noted that:
Depending on the incidence of the changes, it imposes costs
on business or it detracts from disposable incomes. These impacts are occurring
at a time when business costs are under pressure and household spending is weak
and, regardless of the economic incidence of the measure, it has dampened
economic activity and growth when the economy has been slowing.
The Ai Group wanted a more considered approach to examining the 'case
for improving the adequacy of superannuation arrangements and the alternative
means of doing so'. It was of the view that the issue should be considered in
the context of the Government's review of taxation.
In contrast, ISA informed the committee that the delay in increasing the
SG would reduce aggregate superannuation savings by an estimated $40 billion by 2021–22. It stated further that this figure is 'broadly consistent with other
estimates including Deloitte Actuaries and Consultants who have estimated an
impact of $77 billion by 2033.
Mercer (Australia) stated that the deferral of the increase in the SG would:
reduce retirement incomes for future retirees;
increase pressure on the cost of the government age pension in
reduce consumer confidence in the superannuation system;
result in potential practical difficulties for employers,
particularly if the proposed legislation is not passed before 31 March 2014;
potentially result in industrial action by employees who consider
they may have been disadvantaged.
The ACTU stated that unions together with the entire superannuation
industry have long held the view that 'an SG rate of 9 per cent would not be
sufficient to secure a reasonable level of comfort for most workers when they
Women and the new superannuation
Women would be particularly disadvantaged by repealing the LISC and
delaying the SG. ISA told the committee that the LISC was one of 'the few
dedicated measures designed to improve the retirement income adequacy of
women'. It explained:
Women are most heavily concentrated in the lower income rungs
where the LISC operates, with an estimated two thirds of the 3.6 million total
eligible population being women. This factor alone should heavily weigh against
the abolition of the LISC.
The Financial Planning Association of Australia noted that repealing the
LISC would reintroduce 'systemic inequality into the Australian superannuation
system and particularly so for women 'half of whom already receive the benefits
of the LISC and account for nearly two-thirds of those affected by repealing
Ms Catherine Wood, Women in Super, stated that:
Women currently have only half the superannuation savings of
men. The average retirement payment for a woman is $112,000 compared to
$198,000 for a man. On top of that, women live longer than men, so their
reduced savings must stretch over a longer period in retirement. The super
savings gap is the result of many factors, including unequal pay, which is
currently at 17.5 per cent. It is caused by breaks from the workforce, periods
of part-time work, overrepresentation in lower paid industries and barriers to
employment beyond age 45. Women in Super support policies that assist
low-income earners as women make up the majority of this sector of the
We see the increase in the superannuation guarantee from nine
to 12 per cent and the low-income superannuation contribution as crucial
policies to deliver adequacy in retirement and to take the pressure off future
taxpayers. These measures are doubly important for women who currently have
such a marked superannuation savings gap. The LISC is not simply a mechanism to
increase superannuation savings; it is fundamental to the equity of the
taxation treatment of compulsory superannuation savings.
During his second reading speech, the Treasurer announced that when the
government is 'responsibly able and once the Budget has been returned to a
strong surplus, the Coalition will revisit concessional contribution caps and
incentives for low income earners'.
Representatives from the superannuation industry, however, advanced a number of
suggestions that would remove the budgetary imperative to repeal the LISC and
delay the SG increase. Mr Haynes, Australian Institute of Superannuation
Superannuation has been actively, positively, cooperatively
engaged with the current and the previous governments in relation to the
implementation of Stronger Super reforms over the course of the last three
years. Many of those reforms will directly lead to increased efficiencies in
the superannuation industry—for example, the implementation of the SuperStream
reforms to the back office of superannuation will lead to enormous savings for
the whole of the economy. They have been estimated at the level of $1 billion a
year, in relation to the superannuation industry. There are similar levels of
savings in relation to employers, and there are savings of many, many hundreds
of millions of dollars a year in relation to the operation of the tax office
and other regulators. We would suggest to the committee that our participation
in the Stronger Super package of reforms was done in recognition of the other
elements of the previous government's superannuation policies—that is, the
increase of the superannuation guarantee to 12 per cent and the introduction of
the LISC—and that the sum of those measures actually leads to very significant
cost savings for all participants in the industry, including, and importantly
in the context of this committee hearing, the government and its agencies.
The Construction, Forestry, Mining and Energy Union (CFMEU) noted that
the planned increase in the mandatory superannuation contributions, to be
postponed by two years under the legislation, was not actually related to
government expenditure. It was particularly disappointed that the measure has
been proposed as part of the MRRT repeal.
Merits of proposed changes
ISA highlighted the importance of considering 'the long-term budget
impact from the pause in the SG and abolition of the LISC', noting that 'the
long-term costs will principally be felt through increased aged pension outlays
resulting from lower personal superannuation savings'.
Mr Ross Clare from the Association of Superannuation Funds of Australia, stated
Taxes and expenditures should be justified on their own
merits, and in this context we consider both the increase in the SG and also
retention of the low-income superannuation contribution truly justified on
public policy grounds.
The Australian Institute of Superannuation Trustees also objected to
tying the measure to the MRRT, stating that 'just like the age pension, these
measures are unrelated to a tax on resources companies and should be explicitly
Small business provisions
Labor senators are concerned that the government's legislation will:
- increase taxes on up to 2.7 million small businesses; and
- close the loss carry-back scheme, taking away tax breaks for
up to 110,000 businesses.
The Coalition's plan to remove these small business investment
incentives has united big and small business in opposition, with both the Ai Group
and Council of Small Business of Australia (COSBOA) speaking out against the
The Ai Group said the reduction in the small business instant asset
write-off threshold would 'add complexity and compliance costs for eligible small
This completely contradicts the government's commitment to reducing
compliance costs and red-tape by $1 billion a year.
Labor senators are also concerned that at the very time the government
should be looking to boost non-mining investment as the mining boom moves from
the investment to the construction phase the government is removing key small
business measures that actually encourage growth and investment in equipment
A number of submissions also referred to proposed changes to measures
designed to assist small business including:
the loss carry-back provisions; and
small business instant asset write off.
Loss carry-back provisions
The loss carry-back arrangements allow a company to choose to carry its
tax losses back to one of the previous two income years. According to the
The amount carried back is then multiplied by the corporate
tax rate to produce a tax offset that is refundable to the company in the
current income year.
According to the ACTU, the loss carry-back regime was an 'important
measure that ended the asymmetric treatment of tax loses'.
Only recently enacted, the provisions attempted to address this asymmetrical
treatment of tax losses. They enabled a company making a tax loss of up to $1
million to recoup taxes paid on an equivalent income amount earned in the
previous two years.
According to the Australian Industry Group, retaining the provisions would
serve two important purposes:
it would retain the, albeit limited, inroads into the distortions
the Australian tax systems imparts as a result of the asymmetric treatment of
by giving the taxation authorities a level of experience in the
administration of such arrangements, it would better inform the insights they
could provide to the government's foreshadowed review of taxation when it
examines this complex area of tax policy.
Unfortunately, the loss carry-back arrangement is to be repealed.
Submissions representing the interests of business argued strongly against
removing this provision.
Under the proposed legislation, companies can only carry their tax losses
forward to use as a deduction for a future year.
Dr Burn, Ai Group, explained that a company in a loss-making year does not pay
tax, nor is it entitled to a tax refund—it is entitled to claim that loss later
on when it next makes a profit. According to Dr Burn, this delay is recognised
as a cost on business.
He explained further:
If those losses can only be claimed against profits for tax
purposes later on, in profit years, the net present value of its investments
will fall, because it has to wait longer for the cash flow. The other point is
that the real value of the losses erodes over time. Losses are not indexed, and
if you have to wait three years to get the benefit of your tax losses against
future profits that is a significant erosion of the real value of those losses.
So the net present value of the after-tax profits falls noticeably when you
allow for loss-making years in your calculations. That then reduces the return
on those investments and reduces also the likelihood that those investments
will be made.
The ACTU informed the committee that there was widespread support for
maintaining the loss carry-back regime and that the small-to-medium sized
businesses would be adversely affected by its repeal. It noted that the
cash-flow benefits of loss carry-back 'can mean that some businesses will
remain in operation that would not have done so if carry-back had not been
It stated further:
Over the course of the economic cycle, more businesses will
fail without the loss carry-back regime than would be the case if the regime
were maintained. This will harm employment. The problem will be particularly
acute for firms in sectors that are most affected by short-term economic
shocks, such as sudden appreciation in the exchange rate.
Small business instant asset write
Under current legislation, small business entities can claim a deduction
for the value of a depreciating asset that costs less than $6,500 in the income
year the asset is first used or installed ready for use. The proposed
legislation reduces the threshold to $1,000, which means that small business
entities will only be able to claim a deduction for the value of a depreciating asset that costs less than $1,000
in the income year the asset is first used or installed.
The Ai Group does not support the provision that would reduce the small
business asset write off threshold. Dr Burn, Ai Group, stated that the existing
arrangement provides a very important boost to a company's cash flow 'at a time
when they need it most and at a time when it is going to be most critical in
ensuring the survival of that business'.
Under the current legislation, according to Dr Burn, recordkeeping was
also very much reduced.
He informed the committee that the Australian economy faced a 'large gap in investment, particularly outside the mining sector'. He stated
that the proposal to remove the instant write-off facility for small business
would have a material effect on them and 'decrease investment at the time it is needed
most'. In his view, waiting for the tax review in these cases is 'poor timing':
that the 'timing need is right now'.
Depreciation for motor vehicles
With regard to motor vehicles, currently small businesses can deduct the
first $5,000 of the cost of a motor vehicle, plus 15 per cent of any remaining
cost in the income year it is first purchased. Under the proposed legislation,
these special rules will no longer apply to motor vehicles, which will be
subject to the same rules as other depreciating assets.
The Ai Group supported the repeal of accelerated depreciation
arrangements for motor vehicles. In its view the selective accelerated
depreciation arrangements for motor vehicles used by small businesses 'distorts
small business's investment decisions in favour of expenditure on motor
vehicles relative to expenditure on other, and in many cases, more productive
The Real Estate Institute of Australia argued that 'an environment that
promotes investment is crucial to the long term viability of small business
particularly when the message from Australia's economic indicators is mixed and
the outlook remains fragile'.
It maintained that repealing the small business measures would, through its
adverse effect on small business and the broader economy, be detrimental to
Australia's economic recovery.
In this regard, the Australian Chamber of Commerce and Industry noted that the
loss carry back and small instant asset write off provisions act as stimulus
...with economic growth having slowed over the course of the
past year, particularly with the labour market softening, there is a case for
some other policy levers to be used to try to act as economic stimulus rather
than putting such heavy weight on the Reserve Bank and the use of monetary
policy. That is why we say these measures should be independently assessed and
should stand alone from both the politics and the substance of the minerals
resource rent tax issue.
Labor senators also noted that while COSBOA did not make a submission to
this inquiry, it had been previously critical of the abolition of these
measures. COSBOA made its view know in its election policy analysis of the
Labor senators draw particular attention to the advice provided to the
committee that Treasury did not undertake any modelling on the likely impacts
on investments of discontinuing the loss carry-back and changing the instant
asset write-offs threshold.
Merits of proposed changes
Referring to both the small business measures that are being repealed,
the Ai Group argued that they have a strong policy rationale: that their retention
would not only boost investment and cash flows for small business but also
benefit the broader economy.
Furthermore, the Australian Chamber of Commerce and Industry maintained that
the existing capital allowance for small business and the loss carry-back
regime have merit in their own right and should be de-coupled from the MRRT
legislation and funded independently.
At a time when Australian small businesses need support and incentives
to invest and their confidence needs boosting, measures are required to
stimulate economic activity not dampen it. The measures in this bill will not
provide that much needed encouragement. The apparent lack of analysis on the
effects of the proposed changes on small business and the economy as a whole is
of particular concern.
Geothermal energy exploration
Under current arrangements, geothermal energy exploration and
prospecting expenditure is deductible in the income year that the asset is
first used or expenditure is incurred. Under the new legislation, this
expenditure would not be immediately deductible. The Australia Institute
observed that this measure 'seems to contradict the intention behind Direct
Action'. It argued that:
If this measure is repealed geothermal exploration will not
have the same incentives as any ordinary explorer looking for fossil fuels will
get. If anything the playing field should be tilted in favour of geothermal
The Australia Institute suggested that this decision should not go ahead
or, if it does, it should be replaced with measures to boost the attraction of
investment in geothermal.
Labor members wish to raise their concerns about discontinuing this measure
without the government advancing viable alternatives to encourage geothermal
energy exploration. The removal of this measure will provide $10 million in
savings over the forward estimates.
Regional Infrastructure Fund
The Treasury also stated that the government was committed to
discontinuing the Regional Infrastructure Fund and Regional Development
Australia Fund. It explained, however, that the bill does not contain amendments to give effect
to these measures because no legislative requirements were necessary to
MRRT and the Mining Industry
Dr John Kunkel, Minerals Council of Australia, told the committee that
the minerals industry has never questioned the ownership of the minerals as
they are and the rights of governments to put fiscal instruments on those
minerals. He indicated further that the industry would 'always be up for a
genuine conversation about tax reform'. Further, Dr Kunkel stated that the
industry 'recognises that in terms of both its regulatory and social licences
to operate there clearly needs to be shared benefit from the development of
The Australia Institute noted that the MRRT failed to collect much
revenue in its early years, citing the 2013–14 budget papers that reported only
$0.2 billion was expected to have been collected in 2012–13.
Atlas Iron similarly observed that the MRRT had raised no significant tax,
adding further that it had increased compliance and administration costs while
reducing both Australia's international competitiveness and the appeal of
Australian iron ore projects to foreign investors.
The Treasurer announced that since its inception from 1 July 2012, the MRRT had
collected a net $400 million.
According to the Treasury, approximately 235 companies are currently
registered for MRRT with another 65 expected to register. Of that total number,
however, only around 20 are subject to obligations under the MRRT—that is fewer
than 20 have an MRRT liability.
A number of submissions referred to the importance of ensuring equity
and fairness in Australia's taxation system. It should be noted that the MRRT
applies only to coal and iron ore. The ACTU noted that Australia has some of
the world's largest identified reserves of non-renewable resources such as
brown coal, lead, nickel, silver uranium, zinc, copper and iron ore. It
contended that the rights to these valuable resources belong to the Australian
community. In its view, Federal and state governments could legitimately seek
an appropriate return from the private companies that are allowed to exploit
these resources for private gain. It cited the Henry review, which found:
Australia's current resource charging arrangements fail to
collect an appropriate return for the community from allowing private firms to
exploit non-renewable resources, mainly because arrangements are unresponsive
to changes in profits.
The Australia Institute concluded that:
The need for a tax on mining activities in Australia should
be broadened to include all minerals. The miners can easily bear it and their
super profits are due to the Australian resources they exploit—not their own
There is a strong case for taxing mining super profits and it
seems the miners have got off fairly lightly. At the very least, we might
suggest that the MRRT should be increased to 40 per cent, the PRRT rate, and
that it should apply universally.
According to the Australia Institute, a resource rent tax is a tax 'on
the profits that are over and above those profits required to attract an
investment' in that industry and was an 'appropriate way to share the enormous
windfall benefits that come from a commodity boom'.
A number of witnesses acknowledged that the MRRT was a good idea.
The Australia Institute argued that taxing rents is desirable for all sorts of
reasons and cited the petroleum resource rent tax which, in its view, is 'now
part of the furniture and we never hear complaints about that' and 'if left
alone, pretty soon the mining resources rent tax would be treated in the same
The Shop, Distributive & Allied Employees' Association stated that
the minerals in the grounds 'belong to Australians and all Australians are
entitled to share the benefits they bring'. Although it accepted that there
were flaws in the MRRT, it took the view that some form of minerals resource tax is justified.
The ACTU also conceded that in some important respects MRRT arrangements were
flawed but they 'nevertheless acted to secure some of the return that the Henry
review panel had thought fair and legitimate for the community to expect'.
The CFMEU supported the contention that the mining industry should have 'to
bear the largest possible tax burden that still enables it to attract
investment and pay reasonable returns to investors'.
In its view, the Australian mining industry generally pays a substantial level
of tax—but in recent years it 'could have paid more without diminishing its
attractiveness as an investment'.
It was of the view that the rationale for a resources rent tax for the Australian
mining, oil and gas industries remains strong: that it makes economic sense 'to
tax an industry heavily when it is highly profitable, and tax it less when it
is less profitable...especially so where the industry relies on access to inputs
that are the property of the Australian people'.
It suspected that the deductions for market value of assets may be one
of the key reasons for the MRRT failing to produce the revenues that were
expected in its first year(s) of operation.
In its submission, the CMFEU referred to the Petroleum Resource Rent Tax
and concluded that the repeal of the MRRT would have the perverse outcome that 'the oil and gas industries are subject to a resource rent tax—which has
enabled those industries to thrive—while the mining industry will not be'.
Dr Richard Denniss referred to extending MRRT to gold, bauxite and a
wide range of other minerals in order to collect more revenue.
ACOSS was convinced that there was a range of direct and tax expenditure
savings and revenue measures, which could achieve savings more efficiently and
fairly than the proposed legislation would.
Linking other measures with the
repeal of the MRRT
A number of submissions questioned the need to link the repeal of the
MRRT to the other measures outlined in the bill.
ACOSS understood that measures in the bill were linked in time to the MRRT, but
were of the view that otherwise they 'have no necessary connection with each
While ACOSS supported firm action to restore the budget to structural balance, it argued that each measure in the
bill should be considered separately on its merits. As noted earlier, ACOSS
argued that the social expenditure measures in the bill have 'compelling social
objectives behind them and there are pressing needs to be met in those areas'.
In its view 'the simplistic linking of this tax measure with these spending
measures is hugely problematic' and the abolition of those payments would cause
great damage in the short term. The Financial Planning Association of Australia argued that some of the
proposed changes are 'not inherently linked to the MRRT and are vital
developments in the Australian superannuation system'. It suggested that
alternative sources of funding should be found for them.
Also, as cited previously, the Australian Institute of Superannuation Trustees
objected to tying the provisions dealing with superannuation to the MRRT,
stating that 'just like the age pension, these measures are unrelated to a tax on resources companies and should be explicitly de-coupled'.
The ACCI voiced similar sentiments in respect of de-coupling the small
business measures from the MRRT and the need to find alternative funding. It
argued that the measures should be independently assessed and stand alone from
both the politics and the substance of the MRRT issue.
The Financial Planning Association of Australia referred to the
Explanatory Memorandum, which states that the government will 'revisit
incentives in superannuation for low income earners once the budget is back in
a strong surplus'.
Labor members of the committee are opposed to this bill, the removal of
the MRRT and the 'associated measures'.
We are concerned that the government has set about giving tax breaks
to highincome earners and larger businesses, while punishing low-income
earners, families and small businesses.
Given prevailing economic circumstances and the need for greater
investment in the non-mining sectors, this is precisely the wrong time to be
removing the measures that encourage small business to invest.
Labor members of the committee are also not convinced about the wisdom
of the dismissal of the MRRT. They believe that while there is much scope for
improving the tax, the fundamental principle underpinning a minerals resources
rent tax remains sound and worth pursuing. They also believe that, although
originally linked to revenue anticipated to be raised by the MRRT, the other
measures in the bill should be de-coupled from the MRRT and assessed on their
own merits. In particular, alternative sources should be found to fund the
LISC, the income support bonus and the business stimulus measures. As a number
of witnesses noted, high-income earners have been allowed to retain and enjoy significant
benefits at the expense of those on the lower income scale.
Although repealing the MRRT might reduce the tax burden on some iron ore
and coal miners, the consequent repeal of, or changes to, other measures would
have a detrimental effect on some of Australia's poorest workers and on small
businesses operating in a difficult economic environment. Labor members can see
no justification in shifting the burden from the mining industry to those least
able to bear it or allowing high-income earners to enjoy benefits at the
expense of those in greater need. Clearly, the legislation is inequitable,
short-sighted and ill-conceived.
Labor members of the committee recommend that the bill not proceed.
Senator Gavin Marshall
Senator Louise Pratt
Senator Sam Dastyari
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