Chapter 3
A taxing time: the development of the Resources Super Profits Tax, the Mineral
Resources Rent Tax and expanded Petroleum Resources Rent Tax
Introduction
3.1
This Chapter provides an assessment of how the deeply flawed policy
development processes for the government's RSPT and its successors, the proposed
MRRT and expanded PPRT, contributed to the development of a bad tax.
3.2
The policy development process for the MRRT and expanded PRRT was
characterised by exclusive and secretive negotiations by the government with a small,
select group of large multi-national, multi-commodity and multi-project mining
companies. All the competitors of the big three miners were excluded from the
process. The government also excluded the states and territories from the 'mining
tax design process' despite the serious encroachment into the own-source revenue
sphere of state and territory governments. The exclusion of state and territory
governments was in direct breach of the explicit recommendations made by the
Henry Tax Review, which had advised the government to negotiate the implications
of a resources rent tax with state and territory governments.[1]
3.3
Not only was the mining industry (with the exception of the big three),
excluded from the mining tax negotiations, they were also refused access by the
Gillard Government to key information about the workings and implications of
the proposed MRRT and expanded PRRT. To this day the government has refused to
make public the mining tax revenue assumptions it has used. Given both the Western
Australia and Queensland government publish that same information in their
budget papers, that ongoing lack of transparency appears unacceptable.
Particularly in the context of a requirement imposed by the government that any
changes which may flow from subsequent processes either through the Policy
Transition Group or in the context of the current 'draft exposure draft legislation'
have to be revenue neutral.
3.4
Repeated calls by mining industry peak bodies like the Association of Mining
and Exploration Companies and business groups for a more inclusive consultative
process were ignored:
Industry is extremely disappointed that the first opportunity
it will have to formally comment on the MRRT is over a period of just one
month. The Government has also ignored industry concerns by directing the PTG
to consult solely on MRRT design and implementation rather than on the merits of
the tax itself. There has been little debate on the merits of rent taxes and
their suitability to mining.[2]
...the PTG's consultation timetable and the reporting
timeframe back to government will provide to be quite challenging and therefore
will present some risks to the thoroughness of the policy development
process... the [Institute of Chartered Accountants in Australia] urges the PTG
to consider carefully whether an extended reporting timeframe back to
government is necessary in light of the circumstances, and if so, to alert the
government and external stakeholders to this as soon as possible. Clearly, it
is in the national interest to ensure we all get this new regime right, first
time around.[3]
3.5
To this day state and territory governments continue to be ignored by
the Gillard Government when requesting information about the interaction
between the proposed MRRT, State and Territory royalties and GST sharing
arrangements. Repeated correspondence from the Western Australian Government
for example over a period of a whole year remained unanswered:
Senator CORMANN: ...in the statement that Mr Ray has just made,
you listed a series of pieces of correspondence from the state governments to
the Commonwealth, but you haven’t listed any responses from the Commonwealth to
the state governments in response to those letters.
Mr Ray: There are none on our files. I say that carefully
because one of the pieces of correspondence that is on our files is a letter to
the Prime Minister. We do not know whether the Prime Minister replied to that
letter.
Senator CORMANN: Sure, but successive correspondence from the
state government at a Treasury level—that is, from WA Treasurer Buswell on 18
March [2010], from the Under Treasurer on 11 May [2010], from the Under
Treasurer again on 16 November [2010]. Treasury or the federal government has
not responded to one of those letters—
Mr Ray: Correct.
Senator CORMANN: which raise serious concerns about the
impact of the mining tax on royalty arrangements and the interaction with GST sharing
arrangements. You said ‘correct’ before.
Mr Ray: It is correct that there is no reply to those pieces
of correspondence. That is correct.[4]
3.6
The discussion continued:
Senator CORMANN:... .There are five letters from the state
government in Western Australia—18 March, 11 May, 16 November, the letter from
the Treasurer on 18 May 2011 and there was a submission to the PTG. Not one of
them has been responded to by the Commonwealth government. Yet the Queensland
Treasurer wrote a letter on 9 February, which was received on the 11th, and
within less than a week he gets a response from the Commonwealth. Why, with
respect to the letters that were addressed to Treasury by the Under Treasurer
from WA, did Treasury not once respond to any of those letters where the state
government of Western Australia raised serious concerns about the implications
of the mining tax for royalty arrangements and the introduction of GST sharing
arrangements? Why is there not one single response to one of those letters?
Mr Ray: Because, Senator, we did not think we were in a
position to reply.
Senator CORMANN: Because you did not think you were in a
position to reply? Why is that?
Mr Ray: Because those letters were seeking assurances that we
could not give.
Senator CORMANN: It was actually not seeking assurances; it
was seeking confirmation of assurances that, according to the state government,
had been given before.[5]
3.7
The committee is disappointed that in pressing ahead first with the RSPT
and then the MRRT and expanded PRRT the Rudd/Gillard Governments both missed
the opportunity to pursue genuine tax reform through an open, transparent and
inclusive process.
3.8
Both the consultation processes around the RSPT (where it was
non-existent), as well as for the MRRT and expanded PRRT were deeply flawed. This
inevitably led to a deeply flawed mining tax design. Where the government had
promised a simpler, fairer tax system as a result of the Henry Tax Review the
new proposed mining tax arrangements would be more complex and less fair. The
tax designed by the government with the big three miners is not competitively
neutral and does not adequately take the implications for State and Territory
governments own-source revenue into account.
3.9
The final MRRT/expanded PRRT design is far removed from the original
policy intentions promoted by the Henry Tax Review when recommending its
resource rent tax proposal. The key objective promoted by the Henry Tax Review was
to remove the supposed distortions from royalties on production for investment
and production decisions. Under the Gillard Government's version of the
resources rent tax all iron ore and coal projects would continue to pay
royalties. Only those projects that are liable to pay more MRRT than royalties
paid would ultimately get a full refund. Those projects not subject to the
MRRT/expanded PRRT (which presumably are those exposed to 'distortions in
investment and production decisions' talked about by the Henry Tax Review) will
not have those royalties refunded. Those projects in the so-called 'decline
phase' will never get a royalty refund. Yet all those projects would now have
to go through the additional compliance and administrative burdens of having to
prove that they remain outside the scope of the MRRT/expanded PRRT.
3.10
The government's failed taxation reform efforts resulted directly from
the government's flawed response to the Henry tax review. In effect, failure
was "baked in the cake". The government failed to consult
appropriately with a wide range of stakeholders (including state and territory
governments), the government underestimated the complexities of running a
resource rent tax and royalty system in parallel, the government sidelined
Treasury officials during the negotiations with BHP Billiton, Rio Tinto and Xstrata,
the government refused to release key assumptions, the government demonstrated
a lack of good faith by presenting much of the details of the tax as a
"fait accompli" and the government's modifications to create the MRRT
and expanded PRRT was "policy by deal" rather than policy developed
through extensive consultation and detailed consideration. In doing so, the
government completely defied its own best practice regulation guidelines with
predictable results.
3.11
This chapter charts the flawed taxation development process before
chapters 4 and 5 consider the impact of these poorly designed taxes on investment
and jobs in the mining industry and on states like Western Australia,
Queensland and New South Wales where most of the MRRT/expanded PRRT revenue will
come from.
The government's initial consultation
process and response for the RSPT
3.12
The Henry Tax Review was to investigate options to reduce complexity and
compliance costs and deliver recommendations to improve the tax system. In
relation to resource taxation (recommendations 45 to 50) the Henry Tax Review panel
recommended that the current resource charging arrangements be 'replaced' by a
uniform resource rent tax imposed and administered by the Australian Government[6]
and that the Commonwealth negotiate with the state and territory governments an
appropriate allocation of the revenues and risks from the resource rent tax.[7]
3.13
The Henry Tax Review concluded that:
Australia has too many taxes and too many complicated ways of
delivering multiple policy objectives through the tax system. The capacity of
the legislative and operating platforms of these systems, and their human
users, to deal with the resulting complexity has been overreached. To a large
extent this is a reflection of a compartmentalised and incremental approach to
tax policy that has been weighted toward achieving finely calibrated equity and
efficiency outcomes at the expense of simplicity. Around 90 per cent of
Australian tax revenue is raised through only 10 out of some 125 different
taxes that are currently levied on businesses and individuals.[8]
3.14
The government's response to the Henry Tax Review released on 2 May 2010
ignored that finding. It proposed another new tax (number 126) – the RSPT[9]
– without replacing any of the other 125 taxes (or royalties). The government's
proposed MRRT and expanded PRRT proposes two new taxes (126 and 127) without
replacing any other tax (or royalty).[10]
The 'compartmentalised and incremental approach to tax policy' criticised by
the Henry Tax Review is clearly continuing.
3.15
Instead of releasing the Henry Tax Review Report and its recommendations
for public consideration and debate, the government announced its response,
including the proposal for a new national tax on mining at the same time as making
the report publicly available for the first time.
3.16
The RSPT was designed by the government in secret and announced without
any prior proper consultation either with business stakeholders or with state
and territory governments. Although the RSPT was based on the model recommended
in the Henry Tax Review it is substantially different in important parts. After
having promoted the merits of the RSPT aggressively the government abandoned it
less than two months after having first proposed it.
The states and the RSPT
3.17
The interaction between the various national mining tax proposals and state
and territory royalties has previously been subject to detailed consideration,
especially in the Senate Select Committee on Fuel and Energy Committee Report: The
mining tax: Still bad for the economy – still bad for jobs. Below is a
relevant extract covering the key points about the way in which the
Commonwealth approached the implications of the proposed new tax for state and
territory royalty arrangements.
3.18
The Senate Select Committee on Fuel and Energy inquired into the level
of consultation which took place during the development of the RSPT and the
MRRT and expanded MRRT. The Department of the Treasury confirmed during that
inquiry that the original resource rent tax proposal by the Henry Tax Review
was designed to 'replace' state royalties, which neither the RSPT nor the
MRRT/expanded PRRT does:
Dr Henry...when the royalties are removed and replaced with
an RSPT one would expect not a reduction in investment but actually an increase
in investment and an increase in mining activity in Australia. That is why all
the modelling shows that by removing royalties and introducing this profits
based tax, mining investment would be expected to increase, not to fall.[11]
3.17 While the Senate
Select Committee on Fuel and Energy inquired into the matter of state and
territory royalties being replaced, this committee also considered the matter:
CHAIR—Dr Henry, I had a close look through your review
document again. Chapter 6, ‘Land and resource taxes’, under 6.1, ‘Charging for
non-renewable resources’, talks about how current charging arrangements distort
investment and production decisions, thereby lowering the community’s return
from its resource—hence your recommendation. It is fair to say that your recommendation
was for the national resource rent tax to replace state royalties completely.
That is right, isn’t it?
Dr Henry—Yes, that is correct.
CHAIR—And under the RSPT the distorting effects of royalties
were effectively removed because they were completely refunded—is that right?
Dr Henry—That is correct.
CHAIR—But under the MRRT they are not, are they?
Dr Henry—No, clearly they are not.
CHAIR—So the distorting elements of state royalties, to the extent
that they exist, have not been removed, have they?
Dr Henry—To the extent that there is not a full credit
provided for those royalties under the MRRT, the royalties would be impacting
on investment decisions.
CHAIR—Would be impacting on investment decisions?
Dr Henry—I would expect so, yes.
CHAIR—And, potentially, production decisions too, wouldn’t
they?
Dr Henry—Indeed.
CHAIR—Smaller projects that are not yet subject to the MRRT
would continue to pay royalties?
Dr Henry—That is correct.[12]
3.19
The Western Australian Government, sought assurances from the federal
government concerning the interaction between the proposed resource rent taxes
with both the state and territory royalties and GST sharing arrangements. Their
inquiries however, remain unanswered.
Senator CORMANN: ...Treasury tabled this morning a whole
series of letters. There are five letters from the state government in Western
Australia—18 March, 11 May, 16 November, the letter from the Treasurer on 18
May 2011 and there was a submission to the PTG. Not one of them has been
responded to by the Commonwealth government .... Why, with respect to the letters
that were addressed to Treasury by the Under Treasurer from WA, did Treasury
not once respond to any of those letters where the state government of Western
Australia raised serious concerns about the implications of the mining tax for
royalty arrangements and the implications for GST sharing arrangements? Why is
there not one single response to one of those letters?
Mr Ray: Because, Senator, we did not think we were in a
position to reply.
Senator CORMANN: Because you did not think you were in a
position to reply? Why is that?
Mr Ray: Because those letters were seeking assurances that we
could not give.
Senator CORMANN: It was actually not seeking assurances; it
was seeking confirmation of assurances that, according to the state government,
had been given before.[13]
3.20
The Senate Select Committee on Fuel and Energy noted that the Secretary
to the Treasury, Dr Henry, had made it quite clear that the RSPT was designed
to replace state royalties, if not immediately, then over time. Dr Henry also
conceded that under the RSPT, there could be a nil return to the community from
the exploitation of these non-renewable resources if there was no 'super profit'
and all state royalties were either refunded or abolished.
3.21
The Senate Select Committee on Fuel and Energy, and later inquiries
through this committee as well as through Senate Estimates heard repeated concerns
from the Western Australian Department of Treasury and others about the lack of
consultation on the RSPT or its successor the MRRT/expanded PRRT, including in
relation to the possible future abolition of state royalties:
CHAIR—Did the Australian Treasury contact you before the
release of the super profits tax?
Mr Barnes—Before the original public announcement the
Commonwealth Treasury did give a very general heads-up of the direction that
the recommendations were heading in, but at no stage prior to public release
did we actually see the recommendations, nor—by definition, given that we did
not see the recommendations—were we asked to comment or provide input on the
recommendations.
CHAIR—The original proposal was for the resource super profits
tax to replace state royalties and that state royalties would be abolished. As
far as you are aware, has anyone from the federal government at an official or
government-to-government level discussed the prospect of abolishing state
royalties with WA Treasury or the WA state government?
Mr Barnes—In the initial heads-up that I mentioned, that
prospect was flagged as the direction that the Henry review committee was
heading in.
CHAIR—What was your response to that?
Mr Barnes—We were not really given the opportunity to
respond; it was more in the nature of a one-way communication that that was the
direction the review was heading in.[14]
3.22
The recommendations of the Henry Tax Review to replace state and
territory royalties with a resource rent tax and consult with the states and
territories have been consistently ignored as have requests from state
governments seeking assurances about how the proposed taxes will affect their
own source revenue.
3.23
The Senate Select Committee on Fuel and Energy heard evidence from the
Western Australian Department of Treasury and Finance that 'if there is a view
that the community is not receiving a fair return' for its non-renewable
resources then the department would prefer the Commonwealth and states work
together to design enhancements to the royalty regimes.[15]
Secret and exclusive: the MRRT and expanded
PRRT development process
3.24
Following considerable opposition to the RSPT, the newly appointed Prime
Minister Julia Gillard announced there would be changes to the tax after the
government had negotiated a deal – exclusively and in secret – with three of
the mining industry's biggest players.
3.25
On 2 July 2010, the Prime Minister announced that the government would
remove its proposed resource rent tax from all mineral resources other than
iron ore, coal, oil and gas. The RSPT was replaced by the MRRT which would apply
to profits on iron ore and coal production. The Prime Minister also announced
the extension of the current PRRT to all Australian onshore and offshore oil
and gas projects, including the North West Shelf gas project.
3.26
The Prime Minister asserted that the agreement was 'the result of
intense consultation and negotiation' and that these changes recognised the
views of 'the' mining industry in relation to the treatment of new investments.[16]
3.27
In this phase of the process the government consulted with BHP Billiton,
Rio Tinto and Xstrata. It did not include any of the other mining companies
impacted by the proposed new tax, nor any industry representative bodies, or
any of the states and territories in the process. Given the importance of
mining-based revenue for states like Western Australia, Queensland, New South Wales
and the Northern Territory in particular it seems extraordinary that the
government did not at least offer the same access to contribute to the ultimate
design of the tax to those states and territories as it did to the three
biggest mining companies.
3.28
The completely inadequate nature of the consultation process in
developing the MRRT and expanded PRRT was raised during submissions to the
inquiry and at public hearings.
Nature and extent of industry consultation
3.29
Although the government has consistently contended that they did
undertake consultation with 'the' mining industry, the facts are that 99 per cent
of the mining industry was excluded from the process. Around 320 mining
companies will be impacted by the MRRT and only three were given the
opportunity to contribute to the revised design of the mining tax.
3.30
It is notable that even the three big miners themselves urged the
government to consult more widely:
CHAIR—...I understand that BHP Billiton acted, as you must,
in the best interests of your shareholders. But there is of course a different
test for governments, which is to act in the public interest. The government
sat down with essentially three taxpayers and designed a tax with broader
application beyond those three taxpayers, behind closed doors, with all other
stakeholders and the public at large excluded. It was not a very open and
transparent process, was it?
Mr Bond—The conversations that we participated in were at the
invitation of government. As taxpayers and industry participants, if invited to
participate in those conversations, we naturally went. Prior to entering those
discussions, during those discussions and after those discussions, we did urge
the government to engage more broadly with other affected industry
participants.[17]
3.31
Miners and stakeholders excluded by the government from the consultation
process such as the Association of Mineral Exploration Companies, expressed
clear frustration with the government's lack of consultation:
Going to the Henry tax review and tax reform in general, we
have been very disappointed with both the outcome of that review and the
government's approach to tax reform...the lack of consultation with industry
has been a very serious concern for us. We think there are still some very
serious flaws in the proposed MRRT.[18]
We are very disappointed in the lack of consultation that has
occurred leading into the introduction of the MRRT in July. That probably
sticks in our throat as much as anything else in the context of a lack of
involvement by the government with industry and essentially doing a deal with
three large multinationals at the expense of not only our membership but others
as well.[19]
3.32
Witnesses before the committee's inquiry were generally critical of the
government's approach to negotiating the proposed tax with the mining
industry's three largest miners exclusively and in secret:
CHAIR—Let me ask you a more general question then. Do you
think it is appropriate for a government to negotiate the design of a tax with
three taxpayers with a particular perspective and exclude everybody else that
has a separate interest in the same industry?
Dr Manning—No.
Mr Armstrong—No. I would concur. You need to have
consultation and look at all the implications of what you are doing with all
the players. I would say that is a general policy.
CHAIR—Should there have been a discussion paper and
consultation giving everybody an opportunity to—
Mr Armstrong—Yes. It would be ideal, I would think, to
canvass opinions.
...
Mr Armstrong—One of the fears about the political process is
that it has become too 'insider'.[20]
3.33
There were concerns that the Heads of Agreement with the three miners
chosen to participate in the government's exclusive negotiations would have
detrimental effects on those excluded from that process. In terms of a specific
example:
CHAIR—Obviously you are understandably aggrieved that the
government negotiated in secret with some of your competitors. You have
mentioned the issue of infrastructure. Can you give us the areas where the
design of the new MRRT favours your competitors compared to the business
structure or business model that you have in place?
...
Mr Pearce—The design of the tax is biased in favour of BHP
and Rio in particular—given that they are our major competitors in the iron ore
industry in a number of ways—in terms of both design and the combination of
elements of the design. The main points are around the application of the mining
rights value versus the principles involved in historical cost; the low value
they appear to be arguing should be placed on infrastructure, where they are
likening it to a railroad in central Melbourne as opposed to high-risk
infrastructure linking a port to a mine; the way ‘projects’ looks as if it is
being defined through the consultative panel; and the transferability rules. It
is the combination of those particular factors that tends to favour companies
with established mines and infrastructure and clusters of mines that help to
de-risk that infrastructure in remote locations. The definitional aspects of
‘projects’ seem to be biased towards BHP and Rio. There is the issue of
possible treatment of black-hole expenditure, which is particularly relevant for
companies that are trying to develop but may not meet the definition of a
project at this point in time... There is also the cost of compliance. The cost
of compliance for this thing, per tonne, for the smaller players is going to be
horrendous compared to the per-tonne cost of compliance for the larger
companies.[21]
3.34
Even though they had received exclusive preferential treatment by the
government, BHP Billiton and Rio Tinto remained concerned about the
government's approach to industry consultation:
CHAIR—...BHP Billiton was very critical of the lack of proper
process...with no consultation or testing of the design features, of the
original resource super profits tax, so-called. Do you think the process which
led to the development of the MRRT and the expanded PRRT was a good public
policy development process?
Mr Bond—I think it is fair to say that the whole experience
and the formulation of the tax would not go down as world’s best practice on
policy development. The only comment we would make is that the MRRT that
resulted from the discussions we had and the government’s thinking based on the
feedback it got is a better tax than the RSPT.[22]
CHAIR—...Do you think the process which led to the
development of the minerals resource rent tax was a good public policy
development process?
Mr O’Neill—I am happy to say that it was not ideal. We view
the entire process, if you like, from the report of the Henry review in late
2009 through to the announcement of the MRRT, as being effectively part of an
overall process that was entered into. It is no secret that we do not regard
much of that as being an ideal public policy process.
CHAIR—What would have been an ideal public policy development
process?
Mr O’Neill—I think Mr Bond from BHP in evidence just given
reflected on the process that was undertaken in relation to the petroleum
resource rent tax in the 80s where you had a long period of policy being
flagged, a long period of public consultation. You had numerous discussion
papers and, presumably, hundreds if not thousands of meetings leading to that
particular reform. That is a reasonable yardstick I think of the sort of public
policy process that we would have preferred had led to where we are today.[23]
The Government's failure to implement
best-practice regulation principles
3.35
The government's failure to consult widely with affected stakeholders
was a direct breach of their own best-practice regulation guidelines. The
Office of Best Practice Regulation released updated best-practice regulation
guidelines in June 2010. These guidelines outline how government should develop
Regulatory Impact Statements (RIS) to help them evaluate all of the potential
options for tackling a particular policy issue.
3.36
Although these guidelines apply to the development of a broad range of regulations,
it is clear that they are meant to apply to new taxes as well.
Do the RIS requirements apply to changes in taxation?
Yes – a RIS is required for all regulatory decisions,
including changes in taxation, likely to have any impact (whether positive or
negative) on business or the not-for-profit sector unless the impact is of a
minor or machinery nature or, in the case of taxation, purely revenue in
nature. [24]
3.37
The best-practice guidelines contain an appendix on best practice
consultation principles. These guidelines state that:
RISs are required to demonstrate that consultation
commensurate with the magnitude of the problem and the size of the potential
impact of the proposal has been undertaken.[25]
3.38
The Guidelines stress that consultation should be a continuous process
which is undertaken at all stages of the policy development process:
Meaningful consultation with key stakeholders should be
continuous and should start as early as possible. Consultation should continue
through all stages of the regulatory cycle, including when detailed design
features are being finalised. This will assist in identifying and understanding
potential problems and in designing and implementing better regulation.[26]
3.39
The Guidelines further stress the importance of consultation with other
governments:
Relevant state, territory and local governments, and
Australian Government agencies, should be consulted to ensure that regulatory
policies across jurisdictions are consistent and complementary. In order to
produce efficient regulation, it is necessary to avoid or minimise duplicating
legislative requirements across agencies and government at all levels. This is
particularly important where the regulatory processes arise from negotiations
between different levels of government and/or involve overlapping responsibilities.[27]
3.40
Given that the government failed to undertake any consultation before
the announcement of the RSPT, it is clear that the government failed to comply
with these principles. The exclusive and secretive negotiation between the government
and the three largest mining companies before announcing the MRRT and expanded
PRRT is also a clear breach of these guidelines, as the government failed to
involve all stakeholders, including state and territory governments.
The Treasury and the development of the
MRRT and expanded PRRT
3.41
The negotiations between the government, BHP Billiton, Rio Tinto and
Xstrata were the mechanism by which the new MRRT and expanded PRRT were
developed. As outlined above, a cross-section of industry players expressed
concern about the lack of broader stakeholder involvement.
3.42
The role of the Treasury as an adviser to the government during these
negotiations has also arisen during this inquiry.
CHAIR—Who was in the room during the discussions?
...
Mr Bond—During the discussions there was the Deputy Prime
Minister and Treasurer, Mr Swan; the resources and energy minister, Mr
Ferguson; their chiefs of staff, Mr Barrett and Ms Winters; and a senior
advisor to the Prime Minister, Mr Bentley.
CHAIR—Were there any Treasury officials in the room at any
stage of the process? Any public servants?
Mr Bond—Not in those particular discussions, but through the
period of time we did meet with Treasury, as I articulated in the opening
address.
CHAIR—Sure. But in the discussions you had with the Deputy
Prime Minister and the Minister for Resources and Energy, there were no public
servants present?
Mr Bond—Not in those ones, no.
CHAIR—... So it was essentially the ministers and their
private staff. At the end of the process, before the announcement that you
signed the deal [HoA], who was involved at that time? You signed the heads of
agreement.... At the end of the process when you signed the heads of agreement,
who was involved then?
Mr Bond—The secretaries were obviously involved in the
signing of the document and the signatories. Is that the question you are
asking?
CHAIR—Who was in the room when you signed the deal?
Mr Bond—The same people. There was no difference.
CHAIR—The Prime Minister was not in the original—
Mr Bond—The Prime Minister was not in the room, no.
CHAIR—But she was in the room to sign the heads of agreement?
Mr Bond—She signed the document, yes.
CHAIR—So was she in the room when that happened? She signed
it at another location?
Mr Bond—It was in the same office. I think it was next door.
CHAIR—But she was not actually in the room with you?
Mr Bond—Correct.
CHAIR—So the three people that signed the heads of agreement
for the government were the Prime Minister, the Deputy Prime Minister and the
Minister for Resources and Energy?
Mr Bond—Yes.[28]
3.43
The Department of the Treasury had no direct involvement in negotiations
between government ministers and those big three mining companies. The
following exchange between the chair and Dr Ken Henry, then Secretary of the
Treasury, outlines the limited involvement of Treasury during the negotiations
between the government, BHP Billiton, Rio Tinto and Xstrata:
CHAIR—Just going back to the level of Treasury involvement in
the negotiation between the government and BHP, Rio and Xstrata, can you
describe for us again in detail what level of involvement Treasury officials
did have in those negotiations?
Dr Henry—I cannot add much to what I said last week, which is
that we were involved very heavily in the quantification of proposals and
beyond that we were involved in a quality assurance or due diligence role in
providing advice to government in respect of propositions that the companies
were advancing.
CHAIR—So you were not personally present for any of the
sessions of the negotiations?
Dr Henry—That is certainly true.
CHAIR—Who was the most senior Treasury official directly
involved in the negotiations between the government and BHP, Rio and Xstrata?
Dr Henry—As I have indicated, there was no Treasury
official...directly involved in the negotiations as such. There were Treasury
officials who were, during that time, having discussions with senior executives
of those companies about numbers and design issues.
CHAIR—So those Treasury officials were waiting in the
Treasurer’s office and somebody would come in and out of the negotiations with
BHP, Rio and—
Dr Henry—No. I would have to check, but I think that most—and
maybe all—of those consultations occurred during that period by phone. I think
the Treasury officials, on all occasions—I would need to check—would have been
in the Treasury building.
CHAIR—So the way it would have worked was that the Treasurer
and Minister Ferguson were having negotiations with BHP, Rio and Xstrata and
then somebody would walk out, pick up the phone and talk to a Treasury official
and say, ‘They have just told us this. Is this right? We have just agreed to do
that. What does that mean?’ Is that the way it worked?
Dr Henry—That is a relatively accurate characterisation of
it.[29]
3.44
The Government's principal economic advisor, the Department of the
Treasury, the Prime Minister's own Department, as well as all the states and
territories and around 2500 mining companies were sidelined from the process
which led to the design of the MRRT and expanded PRRT. It was a secret,
non-transparent and exclusive process involving two Ministers, the Prime
Minister and three companies:
Senator CORMANN: I have a series of questions of officers
that provided advice to the Prime Minister on the mining tax deal that was
entered into in July last year—including whether or not and when this is going
to be dealt with at COAG. First up, I assume that PM&C [Department of the
Prime Minister and Cabinet] did provide advice to the Prime Minister before she
signed, along with the Treasurer and the Minister for Resources and Energy, the
so-called MRRT heads of agreement with BHP Billiton, Rio and Xstrata?
Dr English: We provided advice to government on a range of
matters around the minerals resource tax arrangements in 2010. So at various
times we have, yes.
Senator CORMANN: So the answer is yes.
Dr English: I am not confirming a particular briefing at a
particular time; I am just saying that we have supported, as best we can, the
Prime Minister on this matter.
Senator CORMANN: ...My very specific question is for you to
confirm that the Prime Minister's department provided advice to the Prime
Minister in relation to the proposed mining tax deal before the Prime Minister
decided to sign on the dotted line along with the Treasurer and the Minister
for Resources and Energy.
Dr English: On that occasion, the advice was provided to the
Prime Minister by the Treasurer.
Senator CORMANN: So the Prime Minister received advice from
the Treasurer, not from her own department.
Dr English: On that occasion, yes.[30]
3.45
Correspondence between the Office of the Treasurer and BHP Billiton
provides an insight into the way in which the MRRT was settled between the
government and the big three miners.
3.46
On Wednesday, 30 June 2010, Gerard Bond of BHP Billiton sent a draft of
the MRRT Heads of Agreement by email to the Treasurer's then Chief of Staff
Chris Barrett along with the Minister for Resources' then Chief of Staff,
Tracey Winters. The next day, on 1 July, Mr Barrett emailed David Parker who
was at the time the Treasury Executive Director for the Revenue Group along
with another senior Treasury officer and Ms Winters:
David,
Please see the draft heads of agreement sent yesterday by
BHP. We aim to sign this 5pm today with all three companies. Can your troops
read it and ensure all the elements are OK? Please get back to me with any
problems asap. Tracey, you might want to check it with DRET [Department of
Resources, Energy and Tourism].
I will send a separate email on the $50 million threshold,
which is new, but helpful, I think.
Regards,
Chris[31]
3.47
On 1 July 2010, Mr Barrett sent an email to Mr Gerard Bond of BHP
Billiton:
Gerard,
Final, clean version for your signature. Please let me know
if any issues at your end.
Regards,
Chris[32]
3.48
It seems highly unusual and inappropriate that one taxpayer, BHP
Billiton, was given the extraordinary opportunity to draft this mining tax
peace deal after a process from which all its competitors (other than Rio Tinto
and Xstrata) had been excluded by the government. To top it all off the
immediate past chairman of that same taxpayer who drafted the deal was then
appointed by the government as the
co-chair of the new mining tax implementation committee soon re-named the
'Policy Transition Group'.
The Implementation Committee – renamed 'Policy
Transition Group'
3.49
The Heads of Agreement on the MRRT and expanded PRRT announced on 2 July
2010 provided for an Implementation Committee which was to be:
Implementation Committee
A mutually acceptable Committee comprising credible,
respected industry leaders will oversee the development of more detailed
technical design to ensure the agreed design principles become effective
legislation. This will have the objective of ensuring the agreed principles are
effected in line with their intent in a commercial, practical manner.[33]
3.50
The government renamed the 'Implementation Committee' the
'Policy Transition Group' (PTG) and announced immediate past Chairman of BHP
Billiton Don Argus and Resources Minister Martin Ferguson as its co-chairs.
3.51
Mr Argus had stepped down as Chairman of BHP Billiton about three months
before the mining tax deal was signed. By that time he had been at the company in
that role for around a decade.
3.52
The PTG was given the task to 'consult' with industry. However its task was
severely constrained by both the brief it was given through the Heads of
Agreement and by the government in subsequent announcements.
3.53
In its terms of reference the Policy Transition Group was directed by
government to:
...advise the Australian Government in the development of the
technical design of the [MRRT] and transition of existing petroleum projects to
the [PRRT] regime as announced by the Government on 2 July 2010.[34]
3.54
In providing this advice, the PTG was directed to:
...ensure the new tax arrangements are implemented as
efficiently and consistent with the design principles as possible... [and] be
consistent with the Government's fiscal strategy as stated in the 2010-11
Budget.[35]
3.55
It is notable that in directing the PTG to ensure that their advice was
consistent with the government's 2010-11 budget commitments, the government
mandated that:
Any policy deviation from the Government's announcement of 2
July 2010 is to be fully offset within the recommendations in terms of impacts
on revenue or costs.[36]
3.56
Given that the terms of reference of the PTG were limited to working out
the practicalities of implementing the fundamental design features of the tax
rather than examining the suitability of those design features it is little
wonder that stakeholders expressed frustration and concern that the PTG process
was inadequate:
CHAIR—But those terms of reference for the Policy Transition
Group are pretty restrictive, aren’t they? There is one condition in there
which says that any recommendations have to be revenue neutral... Do you think
that there is enough scope for the Policy Transition Group to recommend the
sorts of changes that you need?
Mr Bennison—...no, I do not think there is. And I do not think
the burden or the onus should have been put on the PTG to actually come out
with revenue neutrality...that is something that should be tasked to the
Treasury...it seems an unrealistic expectation...[37]
CHAIR—...Are you of the view that your concerns are able to
be properly considered and taken on board by the Policy Transition Group?
Mr Bennison—We hope so. One of the concerns that has been
uppermost in our mind over recent months has been the lack of transparency in
this whole process... that is a serious concern to us. We can only work within
the process at the moment.[38]
3.57
Given the government has refused to release its mining tax revenue
assumptions it is pretty hard to see how contributors to the PTG process could
be expected to make 'revenue neutral' recommendations.
3.58
The PTG provided two reports to the government on 21 December 2010, the
first making 94 recommendations regarding the technical design of the MRRT and
the expanded PRRT. The second report made four recommendations on mineral and
petroleum exploration.
3.59
In compiling its reports to government, the PTG considered feedback from
industry and other stakeholders provided during consultations across Australia
as well as through 88 written submissions.[39]
On 24 March 2011 the government announced it had accepted all 94
recommendations of the PTG. The exposure draft of the legislation has only recently
been released for public consultation.[40]
3.60
Despite assurances that consultation had occurred, the majority of
witnesses who gave evidence to the committee were highly critical of the PTG's
approach. They maintained that the government's consultation process had been
completely inadequate. The establishment of the PTG to implement a mining tax
deal negotiated exclusively and in secret with the three biggest mining
companies did nothing to allay their concerns.
3.61
Concerns remained about the overall policy development approach. The Chief
Executive Officer, Mr Andrew said:
The consultation process which has been carried forward for
the mining industry—particularly iron ore and coal, which this tax
discriminates against—is no more than the sham of the original Treasury
discussions. There was no change at all in terms of reference, there was no
change in how much money the tax would raise and there was no change in what
was allowed to be discussed.[41]
3.62
The committee approached the Co-Chairman of the PTG, Mr Don Argus, to
participate in this Inquiry to provide his perspective and expertise. The first
approach was made by email on 31 December 2010 and other further attempts
followed on 2 February 2011 and 8 March 2011. On 19 May, 2011 a further
invitation was extended for Mr Argus to attend and on 25 May 2011 Mr Argus
again declined to appear. The committee is very disappointed that Mr Argus did
not see fit to assist the committee with its inquiries. The committee had a series
of questions for Mr Argus which remain unresolved. Given his important role in
assisting the government with the implementation of its revised mining tax
proposals and his association with one of the three companies involved in the
mining tax negotiation until shortly before the mining tax deal was concluded,
his evidence on these matters was – in the committee's view – in the public
interest. In these circumstances the committee considers it to be very unfortunate
and regrets that Mr Argus has declined these opportunities to assist the committee
with its inquiries and to help it in the preparation of this report.
The Resource Tax Implementation Group
3.63
On 24 March 2011 the government announced the establishment of the
Resource Tax Implementation Group (RTIG) to support the legislative design
process.
3.64
The purpose of the RTIG is to enable ongoing industry engagement and
respond to the PTG’s recommendation that an implementation group should support
the legislative design process.
3.65
The RTIG, comprising representatives of industry and the tax profession
as well as government officials, is supposed to ensure close consultation with
the resource sector during drafting of the legislation and as legislation is prepared
for introduction into the Commonwealth Parliament.
3.66
The committee will follow the work of the RTIG with interest.
General comments on the policy
development process
3.67
The chronology and outline of submissions and evidence from hearings as presented
above should also be considered in the context of a participant not directly
involved in the consultation process itself.
3.68
Professor Ross Garnaut, a pre-eminent economic advisor to this government,
was particularly critical of the government's approach to the development of the
government's mining tax proposals:
It is best I be straightforward. I would think that the best
process—world’s best practice, to which I refer there—would have been for the
Henry review recommendations to have been made public and for there to have
been a thorough public discussion with everyone with an interest—from a public
interest point of view or a business or private interest point of view—putting
views on that. I think we would have had a better discussion if it had been
done in that way. Obviously, that was not done the first time and it was not
done the second time.[42]
3.69
Professor Garnaut suggested that the preferred approach for the
development of a complicated public policy, such as a mining tax, should
involve 'widespread' public discussion:
CHAIR—We are now in a position where we are trying to assess
the merits or otherwise. We have got the policy transition group process going
with very narrow terms of reference and prescriptions that it has to be revenue
neutral and it has got to respect the main features of the tax. Do you think
that the policy transition group process is adequate to ensure that there is a
proper discussion of the merits of specific features of the tax, so it gives
enough flexibility for the government to properly take on board the public
interest as well as the various stakeholder interests?
Prof. Garnaut—My views on policy process are well enough
known for it to be no surprise for me to say that I think that a complicated
public policy issue like this will be handled better if there is widespread
public discussion of it. But that process that is going on now involving some
consultation will not be the whole of the process. The process that you are
going through is part of the process. What I would hope is that through all of
the various ways in which this will be discussed we can get all of the
important interests, especially public interests, properly represented in the
discussion. But if all there was for us was the process as described, that
would not be enough...
CHAIR—So the policy transition group process on its own is
not enough?
Prof. Garnaut—No, I think that the processes of this
committee and of parliamentary discussion and the public discussion that could
go on around whatever comes out of the transitional process are all important
to good policymaking.[43]
3.70
Professor Garnaut identified the importance of hearing from a broadly
representative public voice in the development of the proposed tax.
CHAIR—...this time, of course, the government has negotiated
the design of the tax with three individual companies who have got a particular
business model—and these are the BHPs, Rios and Xstrata's—and they have
excluded the FMGs and the iron ore ones and all of the other companies who in
fact had a different business model. Can you see why those companies that were
excluded from that tax design process feel aggrieved and why they think that
BHP, Rio and Xstrata were given a competitive advantage?
Prof. Garnaut—...I think that the public interest would be
well served by a wide discussion in which the interests of particular companies
are legitimate, so we can hear their voices but we need a wider public voice.
And there is a very big public interest in this question; it is not just that
of BHP and Fortescue and the other mining companies. So I hope that we will get
enough public discussion.[44]
Transparency
3.71
Previously in this chapter, the focus was on the consultation process. In
this part of the chapter the focus is on the lack of the transparency that restricted
proper scrutiny of the RSPT, MRRT and expanded PRRT. That lack of transparency
remains as an ongoing issue.
3.72
Based on the hearings and submissions, it is clear that the government's
processes lacked openness and transparency. Rather than using the Henry Tax
Review as a starting point to 'support an informed debate about future tax and
transfer policy,'[45]
debate has not and did not take place. In particular, there was no negotiation
with State and Territory governments around the interaction between the
proposed new national mining tax and state and territory royalty arrangements:
CHAIR—You suggested in your review that the allocation of
revenue and risks from the new tax should be—and I emphasise—negotiated between
the Australian and state governments. That did not happen before the
announcement, did it?
Dr Henry—There was no negotiation as such, no.
CHAIR—What is the status of discussions with states and
territories on royalty arrangements and interaction between the MRRT and
royalties now? Is there negotiation around that with state and territory
governments? Have they impacted on it?
Dr Henry—I am not aware of any negotiations as such on those
matters. That is not to say that there have not been discussions, but I am not
aware of any.[46]
3.73
The committee is of the view that no genuine reform of resource taxation
and royalty arrangements can take place without active engagement and
ultimately agreement with state and territory governments.
3.74
Evidence received by the committee throughout the inquiry also
identified that the lack of transparency around revenue estimates and key
assumptions compounded concerns that stakeholders already had with the process:
We are concerned about the lack of transparency over the
revenue estimates and the key assumptions behind those estimates. We believe
that the tax is centred on the revenue that would be raised rather than on a
genuine commitment to tax reform, and we believe that such an approach is
flawed in nature and really does represent a missed opportunity to undertake
more wide-ranging and fundamental tax reform to Australia’s tax system.[47]
3.75
Professor Garnaut agreed that from an openness and transparency perspective,
given the importance of this issue, 'we would all benefit from wide discussion
of effects on the budget and the economy, and I hope we will still get some of
that'.[48]
3.76
The government's refusal to make available key modelling and forecasting
assumptions about its taxes has also hampered the ability of industry
participants (other than for the three directly involved in the negotiations) to
model the effect that the proposed mining tax would have on their operations.
3.77
The Senate Fuel and Energy Committee heard evidence from Mr Simon Bennison,
Chief Executive Officer (CEO), Association of Mining and Exploration Companies
(AMEC) about the role of AMEC in the resource sector. AMEC is a national
organisation. It represents mainly the mid-tier to junior production and
exploration companies across Australia. It has about 140 members in this
category. It also represents a vast number of the service industries to the
resource sector, particularly companies that are involved in drilling and
equipment supply. AMEC has over 100 member companies that fit into this
category. Effectively AMEC acts as an advocacy and policy
organisation for these members.[49]
3.78
Mr Mike Young, Managing Director, BC Iron Limited who appeared as part
of a panel of witnesses before the Fuel and Energy committee with AMEC noted:
Mr Young—Can I add something about the heads of agreement as
I went through it and as we were modelling this. We have had to do six
iterations based on the various assumptions. My assumption, cynical as it may
be, is that the companies who negotiated this MOU will have only done one model
because they understand the underlying assumptions of all these points and we
do not.
CHAIR—So they have a competitive advantage, in effect,
compared to you because they would have been part of the discussions?
Mr Young—Yes, absolutely. And that is part of the
consultation process that I would have expected. The first time I knew that
there had been an agreement with the mining industry was over my Weet-Bix
watching Sky News. When you look at how many miners there are in Australia
currently mining iron ore, it is BHP, Rio, Atlas, Murchison, Mount Gibson,
Cleveland- Cliffs and Grange Resources. Next year there will be BC Iron and
probably Gindalbie.[50]
3.79
Mr David Flanagan, Managing Director, Atlas Iron Limited, who also
appeared as part of a panel of witnesses who belong to AMEC noted:
From a compliance point of view with the ASX, we are obliged
to make material disclosures to the market, just to keep the market informed.
There are a number of measures on what is ‘material’, and one of them is if
something can impact the value of your company by more than 10 per cent. So
there are some companies that have an understanding of whether this is material
and some companies that do not. We feel disadvantaged by that.[51]
3.80
Mr Young further noted that:
By not being in the room, particularly with Rio Tinto and
BHP, who have clearly shown that they do not wish to share their rail
infrastructure and will fight tooth and nail to avoid it, a cynic might think
that the deal they have negotiated for themselves would be prejudicial to any
of their competitors in the Pilbara.[52]
3.81
The extent to which Treasury's assumptions were commercial-in-confidence
and could not be released publicly was raised during the public hearings:
CHAIR—Okay. You mentioned that you provided the government
with information. You have already said that the original information used by
government was wrong.
Mr Bond—No, we said the information that we saw was vastly
different to that which we had on the same item. There was a difference pertaining
to critical input assumptions and we simply articulated what our view was on
those same assumptions.
CHAIR—When you had those discussions about your views, did
you provide the government with market sensitive, commercial-in-confidence
information from BHP Billiton?
Mr Bond—One point of clarification: we provided it to the
Treasury. And, yes, the information that we did provide was market-sensitive,
confidential information.
CHAIR—So you did not point them to information that was
publicly available in order to inform their revised assumptions?
Mr Bond—In articulating what our view was on some
assumptions, we certainly directed them to public sources that would give them
a basis for having the view as to the approximate reasonableness of ours. For example
when it comes to prices, we were able to point them to the forward curves for
commodity prices and indeed exchange rates that were closer to our assumptions
than theirs were.
CHAIR—Let me make this absolutely clear: the information you
provided to the Treasury and/or the government was information that was
otherwise publicly available but relied upon by BHP or was it very specific,
very secret, commercial-in-confidence information tightly held within the
senior management levels of BHP Billiton?
Mr Bond—It was certainly more the latter. The public
information goes to inform our assumptions.
CHAIR—Was information of production volumes tightly held
commercial-in-confidence data or was that publicly available data?
Mr Bond—The information as it pertains to volumes was very
macro level; it was not specific. It was more in the nature of year-on-year
change rather than bottom-up estimates. There was a difference in that rate of
change period on period.
CHAIR—Much of your operation in Australia is in the Western
Australian market—and I see you nod. You would be aware that the Western
Australian government publish their commodity price and production volume
assumptions in their budget papers. Do you have a problem with that?
Mr Bond—We do not have a view on it. What the government
chooses to do is their decision.[53]
3.82
In addition to the views of BHP Billiton, the committee also heard from
Rio Tinto on the matter:
CHAIR—Have you provided the government with confidential data
and market-sensitive data on your commodity price assumptions moving forward?
Mr O’Neill—There would have been a number of discussions,
which were obviously in-confidence discussions, where we may have provided a
view on issues that we would regard as commercial-in-confidence. We did
not hand over data that would go to our own price assumptions, but we
may well have discussed issues. (emphasis added)
CHAIR—...I have difficulty in accepting that any of the
companies would have provided market-sensitive information to the government.
The suggestion then is that you would have provided information to the
government that you did not provide to the market.
Mr O’Neill—I do not believe that we would have provided
information to the government that we were required to provide to the market
and haven’t.
CHAIR—You say that your commodity price assumptions are
market sensitive. So by giving the government access to market-sensitive
information, they have information not available to others. Would you have
provided the government with market-sensitive information not available to
others or would you have pointed them to publicly available information?
Mr O’Neill—We may at times have done both. We would certainly
have pointed them towards publicly available information. But we are talking
about commodity price forecasts, volume forecasts, exchange rate forecasts
several years into the future.[54]
3.83
Xstrata also made a similar representation to the committee regarding
the disclosure of information to the government:
CHAIR—Revenue estimates for the mining tax have bounced
around quite a bit. The original RSPT was said to be $12 billion and then there
were changes in commodity prices and other assumptions to facilitate the MRRT.
We were told the original tax would rise to $24 billion. Did the government get
it wrong with their original assumptions?
Mr Freyberg—I do not know what their original assumptions
were. We pointed them in the direction of public information. (emphasis
added) At the end of the day, I cannot comment on their projections. I do not
have an insight to it. It is something that Treasury does.
CHAIR—So you directed them to publicly available information.
You did not provide them with market sensitive commercial in confidence
information?
Mr Freyberg—We pointed them to public information.[55]
3.84
The companies involved in the negotiations indicate that they pointed
the government to publicly available information to inform their revised
commodity price and various other assumptions. Yet the government continues to
refuse to release that information. It does raise the question what the
government has to hide. In particular when both the Western Australia and
Queensland Governments publish all that information in their budget papers as a
matter of course.
3.85
The projected revenues remain highly speculative with unknown commodity
price and production volume assumptions, unknown implications of State and
Territory government decisions around royalties into the future and question
marks over the constitutional validity of the new tax.
3.86
This lack of transparency has limited the effectiveness of the
consultation processes of the Policy Transition Group. As noted above, that
Group was directed to only consider changes which would be revenue neutral. It
is unclear to the committee how the Group could effectively evaluate whether a
change would be revenue neutral considering it did not have access to basic
information about the government's assumptions in respect of commodity prices
and the volume of commodity sales.
Senate Committees, the Executive and
Departments
3.87
A theme running through the hearings has been the issue of a lack of transparency.
This theme of a lack of transparency was also evident in the Senate Select
Committee on Fuel and Energy which conducted the initial inquiry into the RSPT,
MRRT and expanded PRRT.
3.88
The Senate has been engaged in the scrutiny of the RSPT, the MRRT and
the expanded PRRT since the Senate Select Committee on Fuel and Energy began
its inquiries into the tax on 5 July 2010. That committee's report released in
July 2010, provides a detailed account of the lack of disclosure of key information
to the Senate and Senate Committees by the government.
3.89
After ignoring repeated requests by the Senate to provide relevant
information about the MRRT and expanded PRRT for months, the Treasury
eventually released much of the information sought following a Freedom of Information
request by various media outlets.
3.85 On 5 July, a public hearing was held to seek information
on the new MRRT
and the expanded PRRT. It was attended by the then Secretary to the Treasurer,
Dr Ken Henry and Treasury officials. The hearing sought information about the
new taxes and their associated revenue projects.
3.90
During the hearing, 13 questions were taken on notice. These were
focussed on the underlying commodity price and production assumptions,
inquiries about where the revenue was expected to come from geographically and
by sector. The Senate Fuel and Energy committee requested replies by 9 July
2010. The Senate was attempting to provide transparency to enable the states
and territories as well as key stakeholders to more engage in the development
of the MRRT and the expanded PRRT.
3.91
On 9 July 2010, the Treasury provided responses to the questions taken
on notice, but not all questions were answered. As a result, the Senate
Committee on Fuel and Energy invited the Treasury to appear at another hearing
on 13 July 2010 and the Chair of the Committee, Senator Mathias Cormann, sought
advice from the Clerk of the Senate regarding the committee's ability to obtain
information.
3.92
Before the public hearing on 13 July 2010 the committee wrote to the
Prime Minister to request that the Secretary to the Treasury answer questions
about the new resource rent tax arrangements. No reply has ever been received
to this day.
3.93
At the hearing on 13 July 2010, the Senate Committee on Fuel and Energy
sought responses to the Questions on Notice that were placed at the hearing on
5 July 2010. In summary, the committee was advised that the Deputy Prime
Minister and Treasurer, the Hon Wayne Swan MP, would place more information
into the public domain that would go to addressing questions placed on notice
at the hearing on
5 July 2010.
3.94
A further series of Questions on Notice were placed by the Senate
Committee on Fuel and Energy. The committee requested replies by 16 July 2010. The
second interim report of the Senate Committee on Fuel and Energy noted that:
2.38 Despite the fact that Dr Henry suggested that the
Treasurer would address 'some' of the committee's questions in his Economic
Statement July 2010, the Treasurer really only addressed one—how much tax
revenue the MRRT would raise when using the same price forecasts. Moreover, Dr
Henry led the committee to believe that the government's announcement would
include commodity-specific information on prices and volumes and also some
region-specific data. This was not the case. Given the election has now been
called, the committee will not be able to pursue further whether that has been
as a result of deletions in the report imposed by the government.[56]
3.95
With the calling of the 2010 Commonwealth Election, the Questions on
Notice issued by the Select Senate Committee on Fuel and Energy lapsed. With
the creation of the Senate Select Committee on the Scrutiny of New Taxes, the issue
of the government's refusal to release data and costings underpinning the MRRT
and expanded PRRT was pursued again.
3.96
The government's unwillingness to release costings and assumptions
extended to requests of this committee. When this matter was initially raised
with them, the Treasury were unable to provide a comprehensive reason for their
failure to provide the requested information although they were able to confirm
that the modelling had been completed.
CHAIR—We have had a very specific order of the Senate and we
have had questions on notice. In fact, there have been two orders of the
Senate. Treasury completely ignored that specific order. You made one
consolidated response to all three orders and the question about you providing
us with the breakdown on a commodity-by-commodity basis of the mining tax
revenue estimate was completely ignored. Why is that?
Dr Henry—...I am pretty sure that that was one of those
questions that we took on notice to refer to the Treasurer. I suspect strongly
that it was the Treasurer’s decision what material should be released to the
committee rather than a decision taken by the department.
CHAIR—But if a decision is made not to release information
sought by a committee, and we have sought this information on a number of
occasions now, you would be well aware of the need to point to a public
interest ground and parliament would—
Dr Henry—I am aware of that, but I do not agree that I need
to point to such a claim.
CHAIR—You can refer it to the Treasurer.
Dr Henry—Indeed.
CHAIR—I understand that, but whoever deals with the Senate
committee’s request or the Senate’s request—
...
CHAIR—has to point to a public interest ground and to explain
the public harm.
Dr Henry—I do not think you can fairly bring this one back to
us. I think it is a matter as between this committee and the Treasurer.
CHAIR—Are you aware of any reason why it would not be in the
public interest to release the breakdown?
Dr Henry—It is a matter for the Treasurer.
CHAIR—But you can confirm that that is analysis that has been
done? That is what you told us on 5 July, so it has been done. It is
information that is held by Treasury; it is information that is held by the
government but the Treasurer has decided not to release that information.
Mr Parker—That is right. We have the information.
CHAIR—You have the information?
Mr Parker—We have done the analysis by commodity.[57]
3.97
After further questioning however, Dr Henry advised that the assumptions
relied on for modelling purposes could not be released as they were commercial
in-confidence.
CHAIR—You mentioned earlier—and this is the reason why the
government does not want to release this information—that in part the commodity
price forecasts are based on commercial-in-confidence information provided by
BHP Billiton, Rio and Xstrata. You are confident that BHP Billiton, Rio and
Xstrata have provided the government with internal commercial-in-confidence
data about expected commodity prices?
Dr Henry—Yes, indeed.
CHAIR—They have provided the government with
commercial-in-confidence data about their internal commodity price
expectations?
Dr Henry—That is correct.
CHAIR—They have not just pointed you to publicly available
data from market analysts?
Dr Henry—No.
CHAIR—Have BHP, Rio or Xstrata asked Treasury not to release
the government’s commodity price assumptions used to estimate the revenue from
the RSPT or the MRRT?
Mr Parker—I can answer that. In addition to the Senate
requests for information we have had a number of FOI requests. In the context
of those requests we have an obligation to consult with the companies which
provided the information, and they have objected to its release.
CHAIR—I have asked a very specific question. Have the
companies objected to you releasing information about the government’s
commodity price assumptions?
Mr Parker—Yes, they have, in the context of the FOI—but not
the government’s commodity price assumptions. They are published—
CHAIR—In relation to the Senate order for you to release
commodity price information, the government’s commodity price assumptions, have
the companies asked you not to provide that information?
Mr Parker—They have asked us not to provide the information
which they have provided to us.
CHAIR—But that is not the question I am asking. In relation
to the commodity price assumptions, have the companies asked you not to provide
the government’s commodity price assumptions for iron or for coal?
Mr Parker—No, of course not.
CHAIR—Well, if they have not asked you not to provide it, why
wouldn’t you—why would you use those companies as an excuse not to provide that
information? [58]
...
CHAIR—So you are saying that the assumptions the government
has used are so closely aligned with the commodity price expectations of the
three companies that it would be commercially damaging to them for you to
release that information?
Mr Parker—That is a judgment that has been taken, yes.[59]
3.98
When this issue of the Treasury declining to disclose information on the
grounds that it may be commercial in-confidence was raised with contributors to
the committee, many were of the view that transparency is in fact preferable:
CHAIR—...Do you think it is legitimate for the government to
keep secret the commodity price, production volume and exchange rate
assumptions that they have used to estimate the revenue from the tax?
Prof. Garnaut—I think best practice is to be as transparent
as possible on all of these things.[60]
CHAIR—Do you think that a government that relies on revenue
from the mining industry ought to be transparent about the assumptions they are
using to estimate their revenue?
Dr Moran—Yes.[61]
3.99
As mentioned earlier, an array of information has been released in
response to a Freedom of Information request.
3.100
The contrast between the approaches of the Commonwealth Government with
that of other governments could not be more stark. Both the Western Australian and
the Queensland Governments publish their commodity price and production volume
assumptions in their budget papers. That enables proper scrutiny of budget
estimates and budget outcomes. In scrutinising the budget people can assess whether
they are due to changes in any of these variables or whether they are because
of decisions made by government.
Committee comment
3.101
This part of the report has explained and highlighted the flawed consultation
and transparency mechanisms deployed during the development of the RSPT, as
well as the MRRT and expanded PRRT.
Consultation: Committee Comment
3.102
The committee considers that the government's handling of the Henry Tax Review
created an environment which made any constructive consideration of the Report's
recommendations impossible. Although the report put forward a range of options
for discussion, the government's decision not to release the findings for
public consultation before announcing its response was justifiably criticised
heavily by all relevant stakeholders.
3.103
The committee considers that the government's negotiation of the design
of a revised tax on mining with the three largest miners was inappropriately
exclusive and secretive. The government most definitely did not consult or
negotiate with 'the' mining industry. Far from it.
3.104
In the Senate Select Committee Fuel and Energy Interim Report of July
2010, The mining tax: Still bad for the economy, Still bad for jobs,
that committee's Recommendation 5 recommended real consultation and genuine
engagement with small and mid-tier mining companies. That consultation has not
occurred. The PTG was not formed with the intent of engaging on the real
substance of the MRRT and expanded PRRT. In these circumstances, the committee is
persisting with the recommendation made by the previous inquiry into the MRRT
and expanded PRRT that genuine consultation beyond the select few must occur as
a matter of urgency.
3.105
It is the committee's view that the Parliament should insist on genuine
consultation taking place with all relevant stakeholders, including with the 99
per cent of the mining industry which has been excluded so far as well as with
state and territory governments.
Transparency: Committee Comment
3.106
The committee takes the view that when a government seeks to introduce a
new tax which is forecast to generate significant revenue and its revenue
estimates are based on highly sensitive variables the government should be open
and transparent about the assumptions used. All relevant forecasts and revenue
assumptions should be made public to enable proper scrutiny of the implications
of any such new tax on the economy, the budget, international competitiveness, jobs
and investment in affected sectors of the economy.
3.107
In the Senate Select Committee Fuel and Energy Interim Report of July
2010, The mining tax: Still bad for the economy, Still bad for jobs,
that committee's Recommendation 10 sought greater and more appropriate
disclosure of Budget information and Recommendation 11 requested the disclosure
of the above information. Those recommendations remain valid and current.
3.108
None of that information was provided by the government in its 2011-12
Budget for the MRRT and expanded PRRT. The Budget Strategy and Outlook (Budget
Paper No.1) 2011-12 failed to provide open and transparent information. The committee
will again recommend that such information be disclosed. The next Mid-year
Economic and Fiscal Outlook provides an opportunity for the government to
comply with that recommendation.
3.109
The committee has identified other areas of concern in relation to
transparency and openness that have not been acted upon as recommended by the
Senate Select Committee Fuel and Energy Interim Report of July 2010, The
mining tax: Still bad for the economy, Still bad for jobs. Specifically, in
that report Recommendation 4 sought the disclosure of the impact of new taxes
on a range of variables such as employment, investment and certainty.
3.110
A Review of the 2011-12 Budget did not find such information for the
MRRT and the PRRT. The Budget Strategy and Outlook (Budget Paper No.1) 2011-12
failed to provide such transparency and openness. In these circumstances, the committee
has again found it necessary to recommend that such information be disclosed. The
next Mid-year Economic and Fiscal Outlook would provide such an opportunity.
Other matters: Committee Comment
3.111
The committee has consistently sought input from the PTG throughout the
course of its inquiry into a mining tax. The committee took the view that the
PTG, established specifically by the government to consult with stakeholders
and advise government on transitional issues, would provide valuable insight
into development of the MRRT and the PRRT.
3.112
Invitations to appear before the committee however were declined by all
members of the PTG, including the Chair Mr Don Argus. In future, it would be
desirable for those entities engaged in any policy development process to use
their best endeavours to cooperate with the Senate as it inquires into matters
of importance to the nation.
Recommendation 1
3.113
The committee recommends that the Parliament not support the deeply
flawed and poorly designed MRRT and expanded PRRT.
3.114
Should the Parliament be inclined to consider the government's proposed
mining tax contrary to this principal recommendation, the committee makes the
following further recommendations:
Recommendation 2
3.115
The committee recommends that Parliament insist that government
proposals to make major structural changes to Australia's tax system be based
on an open, transparent and inclusive policy development process before final
policy decisions are made.
3.116
The committee also recommends that the Parliament refuse to consider any
changes to resource taxation which have implications for state and territory
royalty arrangements until the government can demonstrate that it has actively
engaged and reached agreement with state and territory governments.
Recommendation 3
3.117
The committee recommends that in line with the government's stated
commitment to openness and transparency the Parliament require the public
release of all mining tax related revenue assumptions, including commodity
price and production volume assumptions.
3.118
To enable proper scrutiny of the government's mining tax revenue
estimates, the committee recommends that the Parliament insist on release of
that information before it agrees to consider any mining tax related
legislation.
Recommendation 4
3.119
The committee recommends that the government should not implement any
future taxation reform without first providing the Australian public with
independently verified modelling demonstrating any impact of the proposed
reform on:
-
employment
-
investment
-
industry
-
Australia's international competitiveness
-
the Commonwealth’s budget position
-
State and Territory revenues
-
cost of living; and
-
the Australian Economy as a whole.
Recommendation 5
3.120
The committee recommends that the Parliament insist on the government
restoring confidence in good regulatory processes by:
-
formally recommitting to the best-practice regulation guidelines
developed by its Office of Best Practice Regulation;
-
confirming that proposals for new taxes require the development
of Regulatory Impact Statements consistent with the requirements of the
best-practice regulation handbook
3.121
The committee recommends that before considering any mining tax related
legislation the Parliament insist on a report from the Office of Best Practice
Regulation about the extent to which the government's policy development
processes for the RSPT, MRRT and expanded PRRT were consistent with its own
best-practice regulation guidelines.
3.122
The committee recommends that the Office of Best Practice Regulation be
required to make recommendations to improve the government's compliance with
these principles.
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