9 March 2017
Speech - #2017007, 2017

In the role of: Minister for Revenue and Financial Services [19 July 2016 - 28 August 2018]

Address to the Minerals Council of Australia Biennial Tax Conference, Melbourne

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The mining industry in Australia is interwoven in our history, our folklore and our sense of who we are as a nation.

Australians sing the words of our national anthem that tells the world evocatively of our bountiful land of "golden soil".

Those words encapsulate an industry that has been built on optimism and hope in spite of the heartaches and disappointments that goes with mining, in spite of recessions, in spite of fluctuating commodity prices and in spite of the vagaries of government policy.

Indeed, the national interest is not always aligned with the animal spirits of miners.

Sometimes miners are more far-sighted than governments and sometimes the opposite is the case.

For example, it is worth recalling that from 1938 to 1960 there was an embargo on the export of iron ore from Australia based on government fears that we would run out of iron ore reserves within a generation and that we had to protect what we had for our national interest.

On the other hand governments have correctly identified some of our resources as strategically critical.

Today I am going to discuss the Turnbull Government's tax agenda, something I know the Minerals Council has an abiding interest in.

Since the beginning of mining in Australia there has been something of an arm wrestle between government and the interests of miners who take the risks, find the capital to prospect and extract and process the minerals, who build the roads, the rail links and other infrastructure to support the mines.

Taxes, in the form of licences, permits and royalties are part of this arm wrestle as governments rightfully claim a share of the wealth extracted on behalf of the people on whose land the mining resource is found.

At other times previous governments have seen the mining industry as an easy mark or even as the enemy of the people.

It is worth reminding ourselves that soon after the Council was founded my political opponents, in the form of the first Minerals and Energy Minister Rex Connor, sought to acquire the financial interests in mineral exports on behalf of the Federal Government.

More recently, the Labor Party attempted to introduce a Resources Super Profits Tax followed by a Mineral Resources Rent Tax.

The Coalition Government repealed this tax in September 2014.

The Turnbull Government continues to advocate a for lower tax regime, one that encourages the mining industry to continue to take risks and create wealth.

It is also why those who propose changes to the tax arrangements of oil and gas entities – such as those that want a change to the PRRT and royalty arrangements – must be able to demonstrate not only the reasons for the change but also that such a change won't lead to sovereign risk and risk to investment and employment in the sector.

I do find it perplexing that mining gets something of a bad rap in sections of sophisticated Australia.

People are happy to enjoy the standard of living that the most recent mining boom has provided, to live in the cities mining has created and to enjoy the amenities that prosperity provides, but to actively talk down and even damage the companies and the industries that have underpinned all of that.

Australia has had approximately five mining booms and arguably the most recent super cycle has been the greatest.

The Gold Rush was indeed a phenomenal historical event, but Australia was much smaller and still divided into colonies. The Gold Rush was characterised by a hollowing out of other industries as people walked off their jobs to try their luck on the Victorian goldfields.

The most recent mining boom, in which Australia has played its part in the construction of hundreds of cities and tens of thousands of rail lines in China and other parts of the world, is different again.

Fairfax economic writer Jessica Irvine this week highlighted an important but overlooked factor in Australia's extraordinary shortly to be achieved milestone in reaching its 104th quarter of continuous growth.

When this happens this will be a world record.

This means an entire generation has grown up without experiencing a recession – a situation which has far-reaching consequences – not least of which is a limited appetite for important structural reform.

But to lock in further economic growth, reform is vital, which is why the Turnbull Government continues to make the case for reform.

In her article Jessica noted that unlike other mining booms, this mining boom has not been associated with an inflationary outburst.

During the Gold Rush for example the wages of shepherds doubled because there was no one to look after the sheep.

Due to Australia's flexible economy, an outbreak of inflation has been avoided through a more flexible labour market, the floating dollar and, for the most part prudent monetary and fiscal policy.

This is of course a double-edged sword for the government.

And, as the Treasurer noted earlier this week, wages are subdued which is why the government is intent on using all of its efforts on encouraging economic growth, which will in turn lead to more jobs and to more higher paying jobs.


When it comes to your conference's theme today, the Government's position on cutting the corporate tax rate certainly fits the bill in terms of your theme — the 'competitiveness imperative'.

In a world where capital is increasingly mobile, Australia needs our tax system to be more competitive to encourage investment and support jobs and growth.

This competition occurs across national borders as well as within national borders. For example, within borders, Canada's Fraser Institute's 2016 survey of mining companies puts Western Australia and Queensland 3rd and 10th out of 104 jurisdictions on overall investment attractiveness, but 9th and 36th on policy settings.

Across national borders, a high corporate tax makes it harder for Australian companies to attract funding, making companies less able to invest in their businesses — in their machinery, technology, and in their workers.

I know this argument is not lost on you. The Minerals Council policy paper on corporate tax said 'Australia has become stuck in quicksand, watching others pass by.'

Today, I want to talk about this, as well as the issue of tax avoidance; both have a bearing on competition.

Base erosion and profit shifting give multinationals a distinctly unfair competitive advantage over domestic enterprises that are paying the right amount of tax.

This leads to an uneven playing field and damages public trust and confidence in our tax system overall.

Increasingly it sees individuals query whether they are paying too much tax relative to corporate entities. That is why it is critical that everyone is paying the right amount of tax and that our tax system is not abused by a 'self-help' approach to taxation.

Corporate tax cuts

But let me start with the corporate tax rate which, as most of you know, has remained at 30 per cent for more than 15 years.

During that time, many other countries reduced their rates and Australia has slipped down the rankings.

So much so, Australia's corporate tax would be lucky to even qualify to compete if there was a tax Olympics.

Fifteen years ago we had the ninth lowest corporate tax rate among advanced economies.

Today, only five of the 35 countries in the OECD have a corporate tax rate higher than ours.

Competing for investment

Take the example of the United Kingdom. At the moment, the UK is like a petrol station hanging a headline price of 20 cents out the front for international investors. 

Now, that price has been ticking down for a while, and business has been performing well — so much so, it's looking to lower it further to 17 cents.

And across the Atlantic, the US is talking about hanging a sign saying 15 cents and making the station even more user-friendly.

New Zealand's petrol station was losing money a few years ago, and while it still has a premium price, lowered the price by 5 cents to 28 cents helped it back into the black.

It's a similar story in Canada.

Now the Australia petrol station is fantastic. It has a reputation for great customer service and reliable product, but how do we think it's going to go if it keeps hanging 30 cents out the front?

We need to coax capital out of its cave; and that is what the Government's 10-year plan does.

It starts with tax cuts for small and medium-sized companies, and will eventually lead to a flat tax rate of 25 per cent for all companies.

The International Monetary Fund's recent article on Australia lists a range of benefits of a corporate tax cut including increased investment, lower costs for firms, and increased labour incomes and consumption for Australians.

Separately, Treasury modelling predicts that reducing the corporate tax rate from 30 per cent to 25 per cent would result in a permanent increase in business investment of up to 2.9 per cent over the long term — equivalent to around $6.5 billion in today's dollars.

The state of play

It's too easy to think of companies as large, disconnected, impersonal masses.  In an era where many accept our nation faces significant challenges – but few are prepared to accept change in government policy that might affect them – large, disconnected, impersonal masses are an easy target. 

Few have instinctive sympathy for them, indeed many have antipathy.  

But we need to recognise and highlight that companies are simply vehicles for individuals. Regardless of size, they represent individuals voluntarily coming together to take risk and to invest their capital. 

Sometimes those funds are invested directly, sometimes through superannuation funds. But ultimately, the funds come from individuals' salaries or pockets.  

Companies also represent individuals voluntarily coming together to work as employees or contractors, to provide for themselves and their families and to pursue the dignity that comes with that. And they provide goods and services to other individuals to enjoy.

So taxes on companies are taxes on individuals. That's true regardless of size – it's easier to see for small incorporated businesses, but it's also true for listed companies.  

Our policy remains to legislate the full Enterprise Tax Plan, and we will be working with the Senate to try to achieve that.

Strengthening tax integrity laws

But for Australians to have confidence about the rationale for cutting the company tax rate they need to know that all companies are paying the right amount of tax.

That is why the Turnbull Government is strengthening our tax integrity laws.

Large multinationals must pay their share. Deliberate tax avoidance and evasion will not be tolerated. Tax cheats will be tracked down and will face the full force of the law as can be seen in our strong track record.

Already the Government has:

  • Passed the Multinational Anti-Avoidance Law increasing penalties and making it easier for the ATO to raise an assessment
  • Increased the resources of the ATO's international division
  • Established a Tax Avoidance Taskforce in the 2016-17 Budget – which is expected to raise more than $3.7 billion in tax liabilities
  • Implemented country-by-country reporting
  • Established the Serious Financial Crimes Taskforce in 2015, which in only 18 months has seen four people gaoled and raised $190 million in liabilities
  • Improved tax transparency through the ATO's annual corporate tax transparency report
  • Announced enhanced protection for people who disclose information to the ATO about tax misconduct
  • Acted on the release of the Panama Papers
  • Legislated the common reporting standard

Transfer pricing

The Government has introduced the Combating Multinational Tax Avoidance Bill into Parliament to give effect to the OECD BEPS 2015 transfer pricing recommendations.

I thank the Minerals Council for supporting the amendments in this Bill.

We also appreciate the Council's cautionary advice about the possibility of double taxation if Australia were to move ahead of the bulk of our trading partners.

Nevertheless, we believe the risk of double taxation or cross-border disputes between tax authorities is low as other countries are also committed to adopting the latest OECD Guidance.

The Diverted Profits Tax (DPT)

The Combating Multinational Tax Avoidance Bill also introduces a Diverted Profits Tax (DPT).

The Diverted Profits Tax is an integrity measure, which does not expand the coverage of the corporate tax base but seeks to maintain its proper functioning.

Its intent is to discourage multinationals from artificially shifting their Australian profits to lower tax countries to avoid paying Australian tax.

I acknowledge that the Minerals Council expressed concern at the broad coverage of the DPT. 

However, it is not unusual for an anti-avoidance rule to be flexible and broad in coverage to be fully effective. 

I can confirm that the Diverted Profits Tax will not replace the operation of the transfer pricing rules as they apply to ordinary transfer pricing disputes.

The transfer pricing rules will remain the primary mechanisms for pricing the cross-border transactions of multinationals.

The Diverted Profits Tax will potentially apply to a small number of multinationals and only if there is a principal purpose of obtaining an Australian tax benefit.

Consequently we believe it is unlikely that the DPT will have any material impact on investment in Australia.

Thin capitalisation rules

The Government improved Australia's thin capitalisation rules in 2014.

We significantly tightened the thin capitalisation general entities safe harbour debt limit from 75 per cent to 60 per cent of Australian assets.

The Opposition's proposal to change thin capitalisation rules to remove the current arm's length debt test would deter investment and cost jobs without significant benefit.

This is at odds with findings in a 2014 Board of Tax Review which supported the retention of the test.

The Board found that without the test many major projects may be at risk.

Fuel Tax Credits

I also want to quickly mention fuel tax.

I want to set the record straight: Fuel Tax Credits are not a fossil fuel subsidy or a subsidy for fuel use as some suggest.

Eligible businesses must use the fuel off-road, in heavy vehicles on-road (which incur a road use charge) or for machinery and other equipment.

A broad range of businesses can claim Fuel Tax Credits, including agriculture, fishing, construction and mining businesses — to name just a few.

Avoiding taxes on such business inputs is a long standing policy to encourage efficient production and investment decisions.

The Government remains committed to ensuring fuel taxes don't inefficiently impinge on business decisions and consumption.

Closing remarks

I would like to finish by reminding you that last week's December quarter national accounts indicates our economy remains strong, with annual growth at 2.4% in 2016, indeed stronger than every G7 country. And our mining sector is the second strongest contributor to this growth.

This Government's tax agenda is about encouraging enterprise and jobs.

This Government is also proud to be a leader on multinational tax avoidance.

Australians need a tax system in which they can have confidence — one that has integrity, sustainability, and equity.

They rightly demand that our tax system ensures that everyone pays the tax they owe.

I would like to congratulate the Minerals Council on its remarkable 50 years of advocacy, economic and policy leadership.

When it was founded in 1967 as the Australian Mining Industry Council, it was at an important juncture both politically and economically.

The political turmoil then was in fact worse than today as the Liberal Party struggled through the transition from the Menzies era to Harold Holt (a former member for Higgins), to McEwan, Gorton (another former member for Higgins) and McMahon.

And to add to the political uncertainty, the Whitlam Government, with its unprecedented radical economic agenda, was on the horizon.

The policy debates then were fierce and protracted, but the Council was in the epicentre of these arguing the case on behalf of its members.

The Australian Mining Industry Council's goals then included "proper dialogue should always exist between industry and the public, media and government…." And that "private enterprise is the proper and most efficient way in which Australia's mineral resources should be developed for the benefit of the nation and the world community".

These are noble goals which have stood the test of time over those five decades and the Minerals Council should be congratulated on this achievement.

I wish the Minerals Council the very best for the next 50 years.