Joint Press Conference - Policy Transition Group's Reports - Canberra 

TREASURER:

Look I wanted to say a few words about Ken Henry before I get onto the main subject of the day which Martin and I are here to talk to you about.  I think it’s pretty fair to say that Ken Henry has served Australia with great distinction, not just over the past three years but over almost three decades.  I congratulate him on the role that he has played, the crucial role that he has played in securing 20 years of continuous economic growth in our country and on a personal level I thank him for his advice.  I thank him for his integrity.  I especially thank him for his composure and his professionalism during the global financial crisis which became a global recession and which was the most significant economic event in living memory.  In my view his experience, his service over almost 30 years does entitle him to being ranked alongside the greats like Nugget Coombs.  It’s pretty rare to be acknowledging the service of someone as a Federal Departmental Head who has served for 10 years.  It happened, but it doesn't happen all that frequently and he has served at a time which was very testing and of course he began during that great reform period working on our national policies.  So the Government certainly wishes him all the best. 

He will be replaced by Dr Martin Parkinson who is a very capable public servant.  A public servant who has had senior experience, particularly in the Treasury over many years.  I like to think of the Treasury as the powerhouse of the Government, Ken worked with both Peter Costello and myself closely in the Treasury, and of course Martin Parkinson will be someone who can only go onto further enhance the role that the Treasury plays in our system of Government.

Now I just want to turn to the PTG report.  I’ll say a few words and then I’ll throw to Martin.  Now, as you know the PTG group was set up to look at a number of technical design elements of the mining tax – the MRRT – and to provide for a smooth implementation of these new resource tax arrangements.  I think you could all agree from reading the report that it has made important progress and of course it builds on the breakthrough agreement that the Prime Minister made with the mining companies some months ago.  It’s really heartening from my perspective to see that the industry wants to play a role, a constructive role in investing more of the proceeds of the mining boom in a stronger and broader economy.  These are very significant reforms and I believe they have been further strengthened by the industries input through the PTG process.

So this report has been the product of extensive consultation.  I think there’s been something like 80 formal submissions.  A very significant number of consultations right across the country and I think Martin has attended all of those.  I want to take this opportunity to thank all of the participants in that process – the companies, the people on the committee.  They’ve put in an enormous amount of hard work and I know Minister Ferguson has been very much at the core of that.  I want to thank everyone for their constructive approach to this process because what we’ve seen is people working together.  I particularly like to thank the Chairman, Don Argus, for the role that he has played.

The Government will consider very carefully all of the recommendations in this report and respond early next year.  So I don't intend to endorse or reject every recommendation today but I can say this, there is a lot of commonsense in this report.  A lot of commonsense in these recommendations and of course there will be further conversations that will need to be had firstly, and foremost, but also with the resources sector, the states, before we will respond formally.  And we of course will continue to work closely with experts in the industry as we prepare the draft legislation and we are following up with an implementation group which is also one of the recommendations in the report. 

Now, of course, I just want to say a couple of things about the royalty issue because there has been extensive discussion about this so it’s worthwhile touching on just briefly.  Now, like all of the recommendations we’ll take our decisions on the treatment of royalties through our usual cabinet process and of course as I said in this room yesterday, we’ll talk to the states.  And we’ve made the point all the way through this that we can’t give a green light for the states to increase royalties endlessly.  The PTG and the mining companies agree with that as you’ll see from reading the report.  Nobody wants to tilt the balance from our profit based tax towards inefficient royalties.  That wouldn’t be in the interests of our country and it certainly wouldn't be in the interests of industry.  So what the PTG has said is that governments need to put in place arrangements to limit incentives that states have to increase royalties over time.  So we will approach all of these discussions in a constructive way.  We’ve had a lot of commentary throughout the year about the MRRT.  I think all of that commentary underscores one very key fact and that is this: that this type of reform is absolutely critical to the future strength and prosperity of our country.  Through this reform we are funding very important investments in infrastructure particularly in our mining regions.  We’re providing funds for an historic boost in superannuation.  An historic boost to national savings, and of course tax cuts for Australian businesses so they can compete strongly.

Now it’s not just about getting a better return for the Australian people for the resources that they own, it’s about making sure that our economy is in a stronger position to deal with all of the challenges and all of the opportunities that can flow from Mining Boom Mark II.  Now, of course in that context is has been a bruising debate.  The Government always thought it would be a bruising debate.  When you are asking some of the most profitable companies in the country to pay a bit more tax you expect a robust debate.  But I think the report today shows that we can, working together, produce results for our country and what we have produced through this report is a result that is the national interest, but it has been hard fought and of course it has, as I said before, it’s been bruising.  The point I want to make about that is that when you going to put in place important reforms for the future you’ve got to persevere with them.  They don’t come easily.  In that 20 years of economic growth, of continuous economic growth I was talking about before, many of the key reforms on which it has been built didn't come easily.  The PRRT did not come easily.  Bringing down the tariff wall did not come easily.  But what governments must do in these circumstances no matter how bruising the debate, is continue to pursue the national interest.  So I’m a big believer in reforms like this and I’m passionate about them because what it can do is ensure as we go forward, that we continue to be a prosperous nation that is capable of meeting the challenges which are thrown up by something as fundamental as Mining Boom Mark II, which brings with it very substantial structural change in our economy.  Over to Martin.

FERGUSON:

Firstly, thank you. On behalf of the PTG today, I presented the Treasurer with two reports. One obviously goes to a new approach to taxation with respect to the minerals and petroleum industries in Australia. The other goes to the issue of exploration.

The objective of the reports is to better inform the Government in terms of decision making as to the final draft of the legislation, which will be presented to the parliament—as the Treasurer said yesterday—in about May of next year.

In approaching the recommendations the PTG sought to ensure that the Government was presented with a balanced report. There were significant consultations around Australia and many, many submissions that were received by the PTG and properly considered. When you go to the report you will see that the PTG has actually sought to answer some of the questions and propositions advanced in those submissions, and I might say public consultations, with a view to actually getting the recommendations right.

I suppose in many ways we sought to ensure that we would present a report that gave the Government the opportunity to put in place a significant reform in terms of the taxation of commodities that are doing exceptionally well from the point of view of Australia at the moment.

The report effectively gives us the launching pad to establish a new approach to taxation that guarantees Australia, as a nation, a fair return for the one-off opportunity it gets to develop its resources.

At the same time, and importantly, it maintains our competitiveness as a nation and that is central to the recommendations of the PTG. In terms of that I want to deal with a few facts because this goes to the heart of the approach by the PTG and where the Government goes forward in terms of international competitiveness. It also goes to the proper consideration of where we go to on the issue of royalties in the future.

The latest survey of business investment shows that the mining companies are planning to invest $55 billion in this financial year. We now have certainty to enable further investment to continue in the future based on these recommendations.

To put this into perspective that is more than five times the level of mining investment being undertaken six years ago before the boom took off.

Perhaps more importantly, underpinning these impressive mining figures, I might say, has been the number of major new mining projects. In fact since May alone we have seen the announcement of $33 billion worth of new investment in mining projects in Australia.

For instance, actual investment rose by 15.6 per cent in the September quarter and plans for investment this year have actually risen by over $6 billion since the start of the year. That’s a very impressive investment pipeline for Australia in the minerals and petroleum sector.

The recommendations that are now before the Government in the PTG’s report basically say that industry now has certainty. We have filled out the detail for the purpose of finalising the legislation eventually presented to parliament. And that was top of mind, from the point of view of the PTG in implementing the principles which were presented to it as a result of the agreement of the 1^st of July. So the role of the PTG was to fill out those broad principles and to make very firm recommendations that now enable Treasury and the Australian Tax Office to go forward in the drafting of the legislation.

Importantly, the report also brings to the attention of the Government the need to ensure that during the drafting of the legislation we continue to consult industry.

The Treasurer has very clearly indicated his support today for a reference group which will include representatives of industry to make sure that we properly consult on the finer details of the legislation, which I might say are complex in nature. We want to get it right in the first instance in terms of the detail of the legislation that will be eventually presented as an explanatory draft.

On the issue of royalties, which has been very topical, I just make this point: the report indicates full crediting but it also very squarely puts before state and territory governments and the Commonwealth that you’ve got a very competitive minerals and petroleum taxation regime in Australia now on the basis of this proposal. It would be wrong for any state or territory government to further consider increasing royalties.

The report also makes the point that from the minerals and petroleum sectors’ point of view a profits based system is a more appropriate approach to the minerals and petroleum taxation in Australia.

It therefore sends a message to all of us that we have a responsibility at a Commonwealth, state and territory level to live by the outcome of what is currently before the Government for the purposes of legislation. It is a system made up of base royalties, which gives a revenue stream to state and territory governments, and a system which enables the Australian community in times of very good commodity prices to actually reap the benefits of commodity prices from a profit point of view.

I think there is also a message to industry that you also have the capacity, and a requirement, to defend this package. You have negotiated very hard and it has been a very bruising way to actually get this outcome. In my opinion we all have to live with it because it is the best possible outcome. It means that we get a fair return for the development of our resources and industry can go forward.

We also sought in the implementation to pay proper attention to small and medium sized companies. For example, we have looked at the $50 million threshold and we go forward from $50 to $100 million with a phased application of the changes in taxation. And a variety of other changes aimed at assisting small businesses with respect to the requirements of an administrative nature.

On the issue of exploration, the PTG has not found a market failure. There is a pipeline of exploration, especially brownfields opportunities in Australia, which reflects the nature of commodity prices. It does find that, in the opinion of the PTG, that there are regulatory barriers at a state and territory level that undermine exploration in Australia because they actually create hurdles and represent a significant cost of doing business from the point of view of exploration in Australia. It is therefore appropriate that the Government consider a Productivity Commission reference to bring these issues to a head. It’s no different to what I did in terms of the petroleum industry and regulatory reform soon after becoming the Minister, just on three years ago. You actually focus the minds of state and territory governments on their own problems with respect to regulatory reform and access to exploration opportunities in Australia.

I’d also say that the report very strongly recommends that the Government continue to support Geoscience Australia, which I might say is an agency that I have responsibility for. They actually found that the pre-competitive work, in terms of the expenditure of taxpayers’ money, is very, very valuable from an industry perspective and right across the board there was absolute support across the minerals and petroleum industry for the work of Geoscience Australia.

So I simply say that I think the PTG has done a mammoth task. We have gone out of our way to consult and reflect industry’s views in our final recommendations. I suppose we have nipped and tucked the recommendations to make sure there is a proper balance.

More importantly, every member of the PTG is fully supportive of this report and that reflects a lot of views across the minerals and petroleum industry, with significant standing and experience in the sectors.

It is now our responsibility to actually consider it as a Government and I simply say to the PTG and especially the Secretariat who are here today, they have done a lot of hard work in drafting. I think it has been a process that has produced a quality outcome that will serve Australia well from a taxation point of view and an investment point of view.

I think it is incumbent on not just the Commonwealth but all state and territory governments to have regard to this report. This report sends a message to all of us. We have a system of minerals and petroleum taxation in Australia that we can all live with. Industry has signed off on all of these recommendations, not just me. I am but one member of a committee of seven. They basically said that we can have a system that means we can maintain our competitive position internationally which is very important.

They have also sent a message to all of us: no more. From a royalty point of view they are inefficient. They actually favour a profits based taxation system. So they sent a message not only to the Commonwealth but to state and territory governments of all political persuasions: have regard to your competitiveness in the future because you want a pipeline of investment, you want prosperity, you want jobs. Don’t sell it down the line.

If you look at the previous decade that’s why we need to be absolutely focused on infrastructure. We actually lost market share on iron ore and coal because we failed to face up to the fundamentals to invest in the skilling of Australia and infrastructure.

We have a huge capacity actually to increase state and territory royalties at the moment by just getting it right in terms of facilitating investment and expanding capacity, be it on iron ore or coal and, I might say, just take LNG. We’re about the fifth largest producer now and within five to ten years we are going to be the second largest producer. Not just a west coast, Northern Territory industry but an east coast industry.