Swan defends resource tax

FEDERAL Treasurer Wayne Swan has come out swinging at mining industry critics of the government’s plan to impose a resource rent tax on the mining sector, saying this morning the tax is “in the nation’s interest”, and the associated infrastructure fund would help the entire industry avoid the capacity constraints seen in the early part of the decade.

Speaking to the Australian Business Economists meeting this morning in Sydney, Swan reiterated government concerns about the development of a “two-speed economy” in Australia, pointing to experience of resource booms overseas as a model for Australia to avoid.
“Other countries have gone through similar experiences in the past – you may have heard of the 'Dutch disease' where the exploitation of natural gas in the 1970s is supposed to have hollowed out the Dutch economy. Manufacturing and other industries found it difficult to compete with the higher exchange rate that bountiful resource exports bring,” he said.
“In more extreme forms it is part of what is called the natural resource curse – there are countries today that would have higher GDP per head if they'd never discovered oil.”
Swan said the success of the resource sector drives up the exchange rate, making it hard for other Australian industries to find export markets and compete for skilled workers.
Swan disputed claims that the new tax would lead to an industry-wide slowdown in investment, reiterating government claims, based on KPMG Econtech modelling, that the resource rent tax and associated package would drive up, rather than reduce, investment and production in the Australian resource sector.
“The move to a super profits-based tax 20 years ago, the petroleum resource rent tax (PRRT), rejuvenated investment and production in offshore petroleum,” he said.
“Before PRRT, all the discussion was about the short remaining life of Bass Strait resources. Today Bass Strait is the largest producer of crude oil and second-largest producer of LPG and condensate in Australia,” he said.
The government has previously claimed that its independent modelling suggested mining investment would be 4.5% higher, jobs 7% up and mining production 5.5% higher in the long run under its scheme.
“The fact is, the government's reforms will tax the mining industry better. In fact, the most significant spend in the entire tax package is over $8 billion every year in state government royalties that will be refunded or credited to mining companies,” he said.
He said mining investment, jobs and production will grow when state-based royalty schemes are “cashed out” by the new tax scheme.
“This is because royalties apply no matter how profitable a mine is,” Swan said.
“Royalties are generally levied on revenue or the volume produced, whereas the Resource Super Profits Tax only taxes mines that earn super profits. This means start-ups and projects that are more marginal will be relatively advantaged under our new system,” he said.
“Cashing out royalties with the Resource Super Profits Tax will increase Australia's economic resources by allowing existing mines to operate longer or at higher capacity and by fostering investment in new mines.”
The government argues that its plan to establish a dedicated infrastructure fund will also significantly help the industry. $700 million will be tipped into the fund from 2012-13, with the amount spent expected to grow in the subsequent years.
“We all remember the stories from Mining Boom Mark I of ships queued off the coast, waiting to be loaded with coal, and bottlenecks at our major ports,” Swan said.
“To some extent, this was and will remain unavoidable – supply can never perfectly match demand, and it won't always in future. But this mining boom is not unexpected, and we are acting to ensure we are well-placed to benefit from it.”
And he dismissed complaints from the big miners, particularly BHP Billiton and Rio Tinto, that the new tax would discourage investment in the sector, saying they are entitled to speak out in their own interest.
“I'm not going to deny the obvious – the most profitable mines in this country will pay more tax under the Resource Super Profits Tax. I'm also not going for a minute to deny that the owners of those mines will object to that. It's a free country, and they're absolutely entitled to voice their displeasure,” Swan said.
“They will, as they should, prosecute their interests, as I should prosecute the national interest.”

 

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