Pre-Budget submission 2016-17 - Minerals Council of Australia

MINERALS COUNCIL OF AUSTRALIA PRE-BUDGET SUBMISSION 2016-17

FEBRUARY 2016

TABLE OF CONTENTS OVERVIEW ................................................................................................................................ 5 Working through tough times ............................................................................................. 5 Positioning policy for when the cycle turns ........................................................................ 5 The 2016-17 Commonwealth Budget (and beyond) .......................................................... 6 MCA survey on productivity-enhancing reform priorities.................................................... 6 Summary of MCA policy priorities and recommendations ................................................. 7 1

2

3

PERFORMANCE OF AUSTRALIA’S MINERALS INDUSTRY ........................................ 11 1.1

Safety ..................................................................................................................... 11

1.2

Production and exports .......................................................................................... 12

1.3

Prices ..................................................................................................................... 15

1.4

Investment and exploration .................................................................................... 17

1.5

Employment and wages ......................................................................................... 19

1.6

Taxation and government assistance .................................................................... 20

1.7

Community contribution ......................................................................................... 20

1.8

Environmental performance ................................................................................... 21

OUTLOOK, CHALLENGES AND IMPERATIVES............................................................ 23 2.1

Global growth outlook ............................................................................................ 23

2.2

The Australian economy ........................................................................................ 25

2.3

The 2016-17 Commonwealth Budget (and beyond) .............................................. 26

2.4

Longer term opportunities ...................................................................................... 27

POLICY PRIORITIES ....................................................................................................... 35 3.1

Fiscal policy ............................................................................................................ 35

3.2

Taxation.................................................................................................................. 37

3.3

Energy and climate change.................................................................................... 44

3.4

Regulatory reform and competition ........................................................................ 47

3.5

Workplace relations ................................................................................................ 49

3.6

Workforce health and safety .................................................................................. 53

3.7

Environmental/project approvals and land access................................................. 55

3.8

Water access and air quality .................................................................................. 58

3.9

Infrastructure .......................................................................................................... 60

3.10 Innovation ............................................................................................................... 62 3.11 Skills development and labour mobility .................................................................. 65 3.12 Indigenous economic development and partnerships ........................................... 68 3.13 Trade and investment ............................................................................................ 70 3.14 Northern Australia .................................................................................................. 72 3.15 Exploration ............................................................................................................. 73 Minerals Council of Australia | 2

Charts and tables Chart 1: Fatalities in the minerals sector ............................................................................................... 11 Chart 2: Minerals exports by value and as a share of total Australian exports ..................................... 12 Chart 3: Volume of production index (1997-98 = 100) .......................................................................... 13 Chart 4: Minerals exports volume index ................................................................................................ 14 Chart 5: Commodity prices.................................................................................................................... 15 Chart 6: Minerals mining and infrastructure projects pipeline ............................................................... 17 Chart 7: Share of select minerals in total minerals exploration expenditure ......................................... 18 Chart 8: Minerals industry employment quarterly (‘000 persons) ......................................................... 19 Chart 9: Average weekly wages by industry ......................................................................................... 19 Chart 10: Water consumption in Australia, 2013-14 ............................................................................. 22 Chart 11: Australia’s terms of trade ...................................................................................................... 25 Chart 12: Millions of urban dwellers, 2015 and 2050 ............................................................................ 27 Chart 13: Energy use and GDP (PPP terms) per capita (1990-2012) .................................................. 28 Chart 14: Major net importers of coal by region, IEA core scenario ..................................................... 30 Chart 15: Average efficiency of coal-fired plants by region, IEA’s core scenario ................................. 32 Chart 16: Relative energy values of coals from leading exporting countries, 2014-15 ........................ 33 Chart 17: Major net exporters of coal by region, IEA core scenario ..................................................... 34 Chart 18: Commonwealth payments (% of GDP) ................................................................................. 35 Chart 19: Minerals industry company tax and royalties, 2000-01 to 2014-15 ...................................... 37 Chart 20: Total tax take ratio on mining ................................................................................................ 38 Chart 21: Company tax rates – international benchmarks.................................................................... 39 Chart 22: Australia’s emissions reduction target entails a significant economic challenge .................. 45 Chart 23: Areas nominated as ‘important’ or ‘very important’ to improving productivity (percentage of respondents, multiple responses) ......................................................................................................... 47 Chart 24: How the workplace relations framework unnecessarily impedes productivity growth (percentage of respondents, multiple responses) ................................................................................. 49

Table 1: Minerals production by commodity - volume .......................................................................... 13 Table 2: Minerals exploration expenditure – by mineral sought ........................................................... 18 Table 3: Growth forecasts for selected economies (real GDP) ............................................................ 23

Minerals Council of Australia | 3

Boxes Box 1: MCA’s Blueprint for Mental Health and Wellbeing ..................................................................... 12 Box 2: China’s economic slowdown in perspective .............................................................................. 24 Box 3: Policy changes required to maximise opportunities for Australia’s uranium industry ................ 29 Box 4: The next engines of global coal demand: India and South-East Asia ....................................... 30 Box 5: Australia’s world-class coal resources ....................................................................................... 33 Box 6: Asian Clean Energy Initiative – accelerating uptake of low-emissions coal and uranium ......... 34 Box 7: Bipartisan support for Fuel Tax Credit scheme and recognition it is not a subsidy ................... 40 Box 8: Selected comments from MCA member companies on workplace relations challenges .......... 52 Box 9: The high cost of inefficient approvals processes – evidence from minerals companies ........... 56


OVERVIEW Working through tough times Australian miners confront very tough market conditions and heightened global economic uncertainty at the start of 2016. Commodity prices eased further over 2015 and, in many cases, are down to mid2000s levels. China’s economic slowdown combined with a robust supply picture has continued to weigh on commodity sentiment. While the minerals industry has taken steps to increase productivity and reduce costs, concerted government action is required to create a more growth-oriented and competitive policy environment in Australia. Notwithstanding the downturn in commodity prices, mining remains the nation’s second largest industry. From a longer run perspective, the industry is much bigger than it was before the mining boom. It remains Australia’s largest export earner by a very wide margin. Growth in mining exports continued to support economic growth in Australia in 2015. Export volumes have grown 20 per cent in the last three years with the transition from the investment phase to the production and export phase of the Millennium Mining Boom. Though down from peak levels, employment in the minerals industry remains more than 60 per cent above the level of a decade ago. Australia’s mining capital stock is now roughly three times what it was at the start of the mining boom. The challenge is to ensure Australia takes full advantage of this positive legacy, while also being positioned to attract new investment when the commodity cycle turns again. Deloitte Access Economics estimate the minerals industry’s direct revenue contribution from federal company tax and state royalties at $12.6 billion in 2014-15. Though down from peak levels due to sharply lower commodity prices and company profits, revenues to government are well above premining boom payments. The 2015 Minerals Council of Australia (MCA) tax survey confirmed that the sector has paid nearly half of every dollar of profit to governments as royalties and company tax in recent years. Analysis by the Productivity Commission in 2015 again demonstrated that the mining industry receives negligible assistance from government. The minerals industry took concerted steps in 2015 aimed at improving its safety performance and environmental management. MCA-led initiatives in the past year include a comprehensive blueprint on mental health and an updated Enduring Value statement of sustainable development principles. Positioning policy for when the cycle turns The longer term outlook for the resources sector remains positive. Australian mineral resources have helped to fuel waves of industrialisation across a diverse group of Asian economies and they will continue to do so. Urbanisation and industrialisation of China, India and other parts of emerging Asia will help underpin demand for commodities in which Australia is well endowed. The capacity of Australia’s minerals industry to take advantage of new opportunities as markets rebalance depends critically on the quality of policy settings that shape competitiveness across the industry value chain. Ensuring optimal use of Australia’s enlarged mining capital stock and securing the next wave of resources investment will not happen automatically. It demands consistent and coherent government policies to make Australia’s economy more productive and competitive. While Australian living standards rose strongly off the back of the mining boom, policies in a number of areas impeded growth opportunities and industry competitiveness. With the decline in commodity prices since 2011, the margin for error, complacency and economic parochialism is gone. The costs of policy failure are magnified for an industry like mining; Australia’s most trade-exposed, globalised industry and a ‘price-taker’ in highly competitive international markets. To secure growth in living standards, the focus must be on improving the productivity, competitiveness and flexibility of the Australian economy. A new wave of reform is required to operationalise the Prime Minister’s vision of a nation that is more competitive, more agile, more innovative and more productive.


The 2016-17 Commonwealth Budget (and beyond) The 2016-17 Budget should be a circuit breaker that levels with the Australian people on the economic challenges facing the country. In an environment of global economic uncertainty, Australia needs urgently to build growth momentum and economic resilience against future economic shocks. That means further work on budget repair and productivity-enhancing structural reform. Far from its timing in an election year being problematic, the MCA considers this year’s Budget provides the ideal opportunity for the Turnbull Government to lay out a multi-year agenda for reform; to produce a comprehensive – even if incremental – blueprint for economic growth and improved living standards. Improving the nation’s productivity performance must be a central focus of policy. In the first decade st of the 21 century, Australia’s productivity growth fell to an historic low, with labour productivity growth below the long-term average and multifactor productivity essentially static. Roughly half of national income growth was derived from the improvement in the terms of trade off the back of the China-led mining boom. This was always going to be a temporary phenomenon; sooner or later, commodity prices would decline and growth in living standards would again be reliant on productivity growth. Since 2011, the terms of trade have fallen by more than a third. This fall has weighed heavily on national income and growth in nominal GDP fell to just 1.5 per cent in 2014-15, the slowest growth in more than 50 years. Real per capita incomes in Australia have fallen since the peak in the terms of trade. And overall productivity growth remains well below levels needed to maintain growth in living standards at anything approaching the rate of the last quarter century. The Government’s intent in projecting optimism about Australia’s economic prospects is clear and understandable. However this strategy will only prove credible in the longer run if matched by realism about the nation’s economic challenges and by policies that can meet them. The Treasury outlined the challenge and the imperative succinctly in its Portfolio Brief to the Incoming Treasurer released in December 2015. It noted that: The economy is growing below trend, the unemployment rate is unacceptably high, our national income per capita has been falling and the demographic challenges outlined in the [2015] Intergenerational Report (with greater pressures on spending and the sustainability of the tax base) are nearing. With the fall we have faced in our terms of trade, our goal needs to be improvement in the country’s productivity. Reform now is important, as delay will only exacerbate the extent of change required in the years ahead. It will also restore business confidence and assist public understanding of our challenges – a key missing ingredient in the current environment. We owe it to our future generations to ease the 1 burden of reform over time.

MCA survey on productivity-enhancing reform priorities Like many other industries in Australia, mining has seen its productivity growth performance deteriorate over the last decade or so. The MCA has surveyed member companies to better understand how companies themselves view the policy barriers to raising productivity in the mining industry. The results point to the need for the Australian Government to pursue renewed structural reform in three key areas: approvals processes, workplace relations and taxes and royalties. Approvals processes and ‘green tape’ in general were nominated as the area of greatest policy concern, followed (with equal frequency) by the workplace relations framework and taxes and royalties. Ninety per cent of respondents ranked approvals processes as ‘very important’ (65 per cent) or ‘important’ (25 per cent) to improving productivity. The additional category of environmental requirements was nominated as either ‘very important’ (40 per cent) or ‘important’ (35 per cent) by 75 per cent of survey respondents.

1

Australian Treasury, Treasury Portfolio Brief Incoming Treasurer 2015, FOI release, 4 December 2015. Minerals Council of Australia | 6

Eighty per cent of company respondents to the survey nominated the workplace relations framework and taxes and royalties as areas of policy priority, with 45 per cent citing them as ‘very important’ and 35 per cent citing them as ‘important’ to improving productivity. Reforms in these areas should be at the centre of the government’s agenda for growth, productivity and competitiveness. •

‘One-Stop Shop’ reforms would make project approval processes more efficient without compromising environmental outcomes

•

Reforms to the Fair Work Act are needed to better align workplace incentives with enterprise flexibility and to improve productivity

•

The Government should use the Budget to outline a road-map for reducing Australia’s corporate tax rate to 25 per cent.

Summary of MCA policy priorities and recommendations Fiscal policy •

Australia has spent its way to a structural deficit problem through a period of unbroken economic growth. Over the past 15 years, spending by successive federal governments has increased in real per capita terms by around 30 per cent. Across the states, real per capita spending has risen by 27 per cent in the same period.

•

The Australian Government’s medium-term fiscal strategy should remain focused on bringing spending and debt under control and avoiding higher taxes. Higher taxes impede growth and reduce incentives to work, save and invest.

•

The Prime Minister’s policy template – whereby programs that do not work are changed or discontinued – needs to be applied systematically to all areas of government spending across the Federation. More can be done to improve public spending decisions and performance as part of a broad-ranging growth, productivity and competitiveness agenda.

Taxation •

Tax reform is essential to drive future investment and to create more high-wage jobs. Australia’s corporate tax rate is well above the OECD average and needs to be lowered progressively to restore our global tax competitiveness.

•

Australia is a relatively high tax mining jurisdiction. New survey data shows an industry tax ratio of 47 per cent in 2013-14 based on company tax and royalties. To compete effectively with other mineral resource suppliers, Australian industry needs efficient and stable fiscal arrangements in critical areas such as fuel taxation and exploration. Minerals Council of Australia | 7

•

Moves to address base erosion and profit shifting (BEPS) and to increase tax transparency should be based on detailed consultation to avoid unintended consequences. In line with the industry’s commitment to meaningful transparency, the MCA supports implementation of the Extractive Industries Transparency Initiative (EITI).

Energy and climate change •

Energy policy should be technology-neutral, with all low emissions options treated equally. Attempting to pick winners will only raise energy costs.

•

The Australian Government’s 26-28 per cent CO2 emissions reduction target is credible and appropriate, but it imposes an economic burden greater than that embodied in other developed nations’ targets. To limit the cost of meeting this target, access to international abatement should be permitted.

•

The Direct Action Safeguard Mechanism, which disproportionately covers large export industries, should be allowed to operate with minimal changes. The national energy productivity agenda should rely on innovation rather than legislated targets to deliver more output per unit of energy consumed.

Regulatory reform and competition •

MCA member companies have identified approvals processes and ‘green tape’ and workplace relations as top regulatory reform priorities to improve productivity. Along with tax, these areas should be at the centre of the Government’s policy reform agenda.

•

The MCA supports renewed competition policy reform following the Harper review. Coastal shipping reform remains a high priority for the industry and should be revisited by the Australian Parliament.

•

While the minerals industry commends government efforts on red tape reduction, pressures for more regulation continue to find outlets in a range of policy areas. Examples include the register of foreign ownership of agricultural land, the register of foreign ownership of water entitlements and increased tax compliance burdens – including new country-by-country reporting requirements.

Workplace relations •

The Productivity Commission has identified flaws in the Fair Work Act. The minerals industry supports a number of the Commission’s recommendations, but its report should not be the final word on workplace reform.

•

The current workplace relations framework stifles direct engagement between employers and employees, impedes innovation, diverts managers from core business, prolongs business decision-making and reduces the capacity of firms to respond to changing market conditions.

•

MCA priorities for reform include: the need for a wider suite of agreement options, more balanced union entry rules, reduced scope for matters outside the employment relationship to be inserted in agreements, and reform of adverse action provisions. Reforms in 2015 that provide a new process for negotiating single-enterprise greenfields agreements (and a mechanism for progressing agreements when negotiations stall) are a positive development.

Health and safety •

The minerals industry is keen to see progress towards a nationally consistent, risk-based Occupational Health and Safety (OH&S) regulatory system.

•

Different health and safety regimes, with multiple state-based codes and guidance materials, create real challenges for the industry and distract from day-to-day safety and health management. Impediments to mining companies obtaining relevant health and safety data from mining regulators also need to be addressed. Minerals Council of Australia | 8

Environmental/project approvals and land access •

‘One-Stop Shop’ reforms have stalled. The Parliament should pass legislation to accredit state and territory approval processes. Action is also needed to streamline state and local government assessment and approval processes.

•

The Environment Protection and Biodiversity Conservation (EPBC) Act should be amended to prevent frivolous and vexatious legal challenges to approved projects. This would not weaken the rights of affected individuals or the robustness of assessment and approval processes.

•

The 2013 Multiple Land Use Framework, developed by the COAG Standing Council on Energy and Resources, should guide policymakers in balancing the interests of landholders with the state’s obligation to develop resources for the benefit of the community.

Water access and air quality •

The minerals industry accounts for only around 3 per cent of the nation’s net water consumption and sources the majority of its water through self-funded infrastructure.

•

The industry urges Australian governments to integrate water planning and access with the needs and characteristics of all water users. Onerous and unnecessary regulations – including the ‘water trigger’ in the EPBC Act – should be removed.

•

The National Environment Protection Measure or standards for Ambient Air Quality (AAQ NEPM) should be implemented as originally intended to monitor urban air quality. Applying AAQ NEPM to non-urban areas or to specific point sources – including mining operations – without guidance suitable to these distinct environments would be poor policy.

Infrastructure •

Before privatising monopoly providers of infrastructure, governments must ensure that there are effective regulatory arrangements in place which take full account of long-term efficiency objectives, including Australia’s export competitiveness.

•

Consistent with this approach, the Government should ensure that the privatisation of the Australian Rail Track Corporation (ARTC) – which owns and operates the Hunter Valley Coal Network, a key component in the supply chain of Australia’s coal export industry – is accompanied by proper regulatory oversight.

•

Any change in the ownership or management of ARTC that enabled it to extract monopoly rents would have an immediate and material adverse effect on the viability of a number of Hunter Valley coal mines. It would reduce the cost competitiveness of the Australian coal industry, discourage additional mining investment in the Hunter Valley and undermine the economic foundation of high-wage jobs in the region.

Innovation •

Innovation is central to maintaining Australia’s comparative advantage in minerals and energy by supporting more competitive, safer and more environmentally sustainable operations.

•

The mining sector spends nearly $3 billion a year on research and development (R&D) and is an exemplar of collaboration with research bodies. The R&D tax incentive is an effective, economy-wide, market-driven measure that should be maintained.

Skills development and labour mobility •

The minerals industry supports sensible higher education reform that combines fee deregulation with strong safeguards to ensure the viability of minerals-related disciplines. Safeguards should include stronger accountability mechanisms to ensure increased university fee revenue is devoted to teaching and student services.


•

The MCA supports reforms aimed at improving the quality of the Vocational Education and Training (VET) system, along with measures to ensure industry training packages are responsive to industry requirements.

•

Labour mobility is essential to both existing operations and new projects in the minerals industry. Strategies such as fly-in, fly-out (FIFO) and drive-in, drive-out (DIDO) arrangements, together with an effective skilled migration program, help sustain mining activity in regional areas.

Indigenous economic development and partnerships •

The Australian minerals industry is the largest private sector employer of Indigenous Australians and a significant investor in Indigenous economic development and partnerships.

•

More can be done to improve the management of Indigenous land-related payments and benefits through the adoption of the Indigenous Community Development Corporation (ICDC) model – a modern trust structure that would allow greater investment for non-charity-related purposes such as education and small business development.

•

Legislative stability of the Native Title Act would enhance stakeholder confidence, though steps can be taken to improve the administration and efficiency of regulatory regimes.

Trade and investment •

Open trade and investment settings allow Australia to maximise its comparative advantage as a reliable, competitive supplier of mineral resources. Proposals to ‘manage’ commodity markets invariably fail and the Australian Government was right to reject politicised intervention in the iron ore market in 2015.

•

High-quality trade agreements provide increased opportunities for exports, investment and jobs in the minerals industry. Following on the three North Asian free trade agreements, the MCA supports early ratification of the Trans-Pacific Partnership and continued momentum towards on a Comprehensive Economic Cooperation Agreement with India.

•

A liberal foreign investment regime, with consistent application of rules and thresholds, is vital to investor confidence and to future growth in the minerals industry. New reporting requirements for foreign owners of agricultural land and water entitlements are onerous and unnecessary, undermining the message that Australia is ‘open for business’.

Northern Australia •

The minerals industry is a large economic contributor to Northern Australia accounting for around 85 per cent of export value from Northern Australian ports. Mining will remain central to growth prospects in the north.

•

Investment in infrastructure under the Northern Australia strategy should recognise mining’s importance to the future development of Northern Australia. The Northern Australia Infrastructure Facility should be integrated with existing federal and state approvals processes. The investment mandate should neither favour nor exclude particular industries.

Exploration •

Attracting investment in exploration is critical to sustaining a future pipeline of mining projects and exports. Exploration expenditure in 2014-15 was down 60 per cent from the peak year of 2011-12.

•

The Australian Government should maintain immediate deductibility of exploration expenditure in the tax system and encourage the next wave of exploration through the Exploration Development Incentive and by supporting the collaborative UNCOVER project.


1

PERFORMANCE OF AUSTRALIA’S MINERALS INDUSTRY •

Australia’s minerals industry is committed to improving its safety performance with measures to address a tragic rise in fatalities in recent years.

•

In 2014-15, export revenue from mineral commodities was around $144 billion. Though down from peak levels, mineral commodities still account for 45 per cent of Australia’s total exports.

•

The industry paid an estimated $12.6 billion in federal company tax and state royalties in 2014-15. The Productivity Commission again confirmed the industry receives negligible assistance from government.

1.1

Safety

The minerals industry’s number one value and commitment is the safety and health of its workforce, where everyone who goes to work in the industry returns home safe and healthy. MCA member companies maintain that: • • • •

All fatalities, injuries and diseases are preventable No task is so important that it cannot be done safely All hazards can be identified and their risks managed Everyone has a personal responsibility for the safety and health of themselves and their workmates.

There have been four lives tragically lost in the industry to date in 2015-16 (Chart 1). A rise in fatalities in recent years has galvanised the industry to better understand, share and learn from significant incidents. The MCA is working closely with companies, state chambers and the International Council of Mining and Metals (ICMM) to ensure practical guidance on preventing serious 2 health and safety incidents is available. Another major focus for the industry is mental health, with the MCA releasing a new Blueprint for Mental Health and Wellbeing in September 2015 (Box 1). Chart 1: Fatalities in the minerals sector 20 18 16 14 12 10 8 6 4 2 0

Source: Minerals Council of Australia

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International Council of Mining and Metals, Health and safety critical control management good practice guide, London, 2015. Minerals Council of Australia | 11

Box 1: MCA’s Blueprint for Mental Health and Wellbeing The MCA’s Blueprint for Mental Health and Wellbeing recognises the minerals industry has a key role to play in addressing mental illness and wellbeing issues among its workforce.3 The blueprint provides best practice guidance on strategies for the promotion of health, prevention of mental health problems and appropriate responses to those in need. It describes programs for supporting employees returning to work, underpinned by an emphasis on robust evaluation. It recognises that support for workers in remote environments and their families is a key priority and challenge for the industry. For details, please see: http://www.minerals.org.au/file_upload/files/publications/MCA_Mental_Health_Blueprint_FINAL.PDF 1.2

Production and exports

The Australian mining industry faces heightened global economic uncertainty, a slowing Chinese economy and weak commodity sentiment at the start of 2016. Increased supply and lower-thanexpected demand weighed heavily on commodity sentiment in 2015 and no early upturn in market conditions is expected in 2016. Capital, operating and exploration budgets of miners remain under pressure from tighter cash flows. A lower dollar is providing some relief, but companies remain focused on improvements in domestic cost competitiveness and productivity. The Millennium Mining Boom has moved from the investment phase to the production and export phase. Higher mineral export volumes helped sustain economic growth in Australia through 2015, though the decline in the terms of trade put additional pressure on nominal GDP and income growth. In 2014-15, export revenue from mineral commodities was around $144 billion, with iron ore ($55 billion) and coal ($38 billion) remaining the nation’s two largest export earners. Though export earnings are down from peak levels, mineral commodities continue to account for 45 per cent of Australia’s total export earnings, up from roughly one third a decade ago (Chart 2). Chart 2: Minerals exports by value and as a share of total Australian exports $bn

Coal

Iron ore

Other minerals

Share of minerals (RHS)

180

% 60

160

50

140 120

40

100

30

80 60

20

40

10

20

0

0

Source: Department of Industry, Innovation and Science

3

Minerals Council of Australia, Blueprint for Mental Health and Wellbeing, MCA, Canberra, 9 September 2015. Minerals Council of Australia | 12

Data from the Department of Industry, Innovation and Science show that production of metals and other minerals increased 22 per in 2014-15, led by growth in iron ore output, while production of energy commodities increased by 11 per cent (Chart 3). Chart 3: Volume of production index (1997-98 = 100) Index 1997-98 = 100

Energy

Metals and other minerals

Total resources and energy

260 240 220 200 180 160 140 120 100


Commodity production trends are outlined in Table 1. Table 1: Minerals production by commodity - volume Metallurgical coal Mt Thermal coal Mt Iron ore Mt Gold t Uranium t Aluminium Bauxite Mt Alumina kt Aluminium kt Copper Mine production kt Refined, primary kt Zinc Mine production kt Refined kt Nickel Mine production kt Refined kt Lead Mine production kt Refined kt Manganese ore kt Silver Mine production t Refined t Tin Mine production t

2012-13 159 239 555 256 8,918

2013-14 183 248 695 274 5,548

2014-15 193 249 810 275 6,173

Est. % change (y-y) 5 0.4 17 0.1 11

79 21,645 1,788

80 21,532 1,773

80 19,895 1,647

0 -8 -7

971 454

988 500

953 458

-4 -8

1,507 496

1,499 492

1,691 485

13 -1

283 131

261 130

220 110

-16 -15

639 159 7,402

738 183 7,317

700 168 7,618

-5 -8 4

1,696 1,057

1,893 1,066

1,456 958

-23 -10

6,637

6,536

7,106

9



Iron ore production increased by 17 per cent to total 810 Mt in 2014-15, compared with 695 Mt in 2013-14, supported by expansions from major producers and improved rail and port infrastructure. Production is expected to increase by 4.4 per cent in 2015-16 to total 845 Mt. Metallurgical coal production increased more than 5 per cent in 2014-15 to 193 Mt. It is expected to increase to 195 Mt in 2015-16 from mine expansions. Other commodities to show strong production growth in 2014-15 included zinc (increase of 13 per cent to 1,691 kt) and uranium (increased of 11 per cent to 6,173 tonnes). Chart 4 shows forecast growth in export volumes of commodities with gains expected in the years ahead, albeit at a slower rate. Chart 4: Minerals exports volume index Index 2003-04 = 100 450

Iron ore

Thermal coal

Metallurgical coal

Other minerals

400 350 300 250 200 150 100 50


While Australia’s mining industry in 2016 faces a very challenging environment, it is important not to lose sight of the gains secured in the past decade or the opportunities still to be realised in the decades ahead. Notwithstanding the downturn in commodity prices, mining remains the nation’s second largest industry at more than 9 per cent of GDP. From a longer run perspective, the industry is much bigger than it was before the mining boom. Though down from peak levels, employment in the sector remains around 60 per cent above the level of a decade ago. Growth in mining exports continued to support economic growth in Australia in 2015. Export volumes have grown 20 per cent in the last three years with the transition from the investment phase to the production and export phase of the Millennium Mining Boom. Australia’s mining capital stock is now roughly three times what it was at the start of the mining boom. The challenge is to ensure Australia takes full advantage of this legacy, while also being positioned to attract new investment when the commodity cycle turns again. Near-term uncertainty and inevitable cycles should not obscure the longer term pattern whereby Australian mineral resources have helped to fuel waves of industrialisation across a diverse group of Asian economies. In the words of the Minister for Resources, Energy and Northern Australia, Josh Frydenberg, ‘Australia is an innovative global leader in the resources and energy industry, with the


product, the people and the proximity to growing markets that leaves it well positioned to capture the 4 opportunities that lie ahead’. Continued urbanisation and industrialisation of China, India and across emerging Asia will help underpin future demand for commodities in which Australia is well endowed. The nation’s capacity to take advantage of new opportunities as markets rebalance will nonetheless depend critically on its supply competitiveness and, in turn, on the quality of policy settings. 1.3

Prices

With supply growth outstripping growth in demand, prices for most commodities declined in 2015. Among bulk commodities, the price of iron ore fell by 42 per cent, metallurgical coal fell by 33 per cent and thermal coal declined by 18 per cent over the 12 months to December 2015. Among base metals, the most significant falls were in the price of nickel (down 45 per cent), zinc (down 29 per cent) and copper (down 28 per cent). Of precious metals, gold and silver also experienced price declines of 11 and 13 per cent, respectively. The uranium price fell by 5 per cent in the 12 months to December 2015.

Chart 5: Commodity prices Iron ore

US$/t 160

US$/t 260

140

Metallurgical coal

220

120 100

180

80

140

60 100

40

60

20

US$/t 130

Newcastle spot

Thermal coal

Japan contract

120 110 100 90 80 70 60 50 40

4

The Hon. Josh Frydenberg MP, Minister for Resources, Energy and Northern Australia, ‘We can deal with reduced resources exports’, The Weekend Australian, 16-17 January 2016. Minerals Council of Australia | 15

US$/oz 1800

Gold

7000

1400

6000

1200

5000 4000

1000

Nickel

20000 16000

1800

12000 10000

1600

8000

1400

6000

Silver

3500

Zinc

2000

2500

1800

2000

1600

1500

1400

1000

2000

US$/t 2400 2200

3000

2200

Lead

2000

14000

US$/t 2400

US$/t 2400 2200

18000

USc/oz 4000

Copper

8000

1600

US$/t 22000

US$/t 9000

Aluminium

US$/lb 60

Uranium

50 40

1800 1600 1400

30 20

Source: ANZ, Indexmundi Minerals Council of Australia | 16

1.4

Investment and exploration

Investment in the minerals industry has continued to decline from the very high levels recorded in the investment phase of the mining boom. The Department of Industry, Innovation and Science estimates that in October 2015 there were 23 minerals mining and infrastructure projects at a committed stage of development with a total value of $25 billion (Chart 6). The largest single project in this category, the Roy Hill iron ore mine, has since commenced production. Nine coal projects with capital expenditure valued at $9.4 billion constitute the next largest commodity component. 5 Investment on committed projects has declined 44 per cent since October 2013. There were 161 minerals mining and infrastructure projects at the publicly announced or feasibility stage in October 2015 with total potential value of up to $145 billion. These are projects for which a final investment decision has yet to be made. The value of feasibility stage projects at $106 billion was down one quarter compared with two years earlier. The value of publicly announced projects has 6 declined by almost 70 per cent to $39 billion as at October 2015. Chart 6: Minerals mining and infrastructure projects pipeline $bn

Oct-13

Oct-14

Oct-15

160 142.9 140

124.9 115.1

120

105.6

100 80

69.4

60 40

44.8

39.1

30.3

24.9

20 0 Publicly announced

Feasibility stage

Committed


Weaker commodity prices continued to depress exploration activity in 2014-15, with exploration expenditure down more than 25 per cent to $1.6 billion compared with 2013-14. As shown in Table 2, declining exploration expenditure was recorded across almost all commodities. The largest falls were recorded for iron ore and coal (both down 37 per cent), copper (down 18 per cent) and nickel, cobalt (down 17 per cent). Exploration expenditure for silver, lead and zinc increased by more than 13 per cent in 2014-15. Chart 7 shows broader trends in the shares of select minerals in total exploration expenditure since the beginning of the mining boom. The major trend has been the increase in the share of bulk commodities in overall exploration activity, with iron ore and coal together going from around one fifth of total expenditure to almost a half. However, there are signs of a shift back towards other minerals and metals with higher shares recorded by gold and base metals in 2014-15 (Chart 7).

5

Department of Industry, Innovation and Science, Resources and Energy Major Projects publication series, Canberra, viewed on 10 January 2016. 6 Department of Industry, Innovation and Science, Resources and Energy Major Projects publication series, Canberra, viewed on 10 January 2016.


Table 2: Minerals exploration expenditure – by mineral sought Mineral

2012-13 ($m)

2013-14 ($m)

2014-15 ($m)

% change (y/y)

319.3

176.8

144.4

-18.3

79.8

45.8

51.9

+13.3

Nickel, cobalt

164.5

99.4

82.7

-16.8

Gold

661.8

434.3

395.7

-8.9

1011.3

710.6

447.7

-37.0

Mineral sands

37.8

28.9

27.1

-6.2

Uranium

69.5

43.9

40.6

-7.5

Coal

544

398.7

251.8

-36.8

167.4

178.2

133.1

-25.3

3,055.4

2,116.6

1,575

-25.6

Copper Silver, lead, zinc

Iron ore

Other (includes diamonds) Total Source: ABS, MCA estimates.

Chart 7: Share of select minerals in total minerals exploration expenditure Iron ore 100%

Gold

Selected base metals

Coal

Uranium

Other

10%

10%

90% 1% 10% 80%

3% 16%

70% 19% 18%

60% 50%

25%

40% 30%

50%

20%

28%

10% 0%

8%

Source: ABS


1.5

Employment and wages

It is estimated that direct employment in the minerals sector stood at 197,100 persons in November 2015. While down 6 per cent from November 2014, employment in the sector it is still more than 60 per cent above the level of a decade ago (Chart 8). Chart 8: Minerals industry employment quarterly (‘000 persons) '000 persons 275

Minerals employment

250 225 200 175 150 125 100 75 50 25 0

Source: ABS, MCA estimates

Mining produces more gross value added per employee than any other industry (double the finance sector) and pays Australia’s highest wages. Average (full-time) adult total earnings were $2605 per 7 week in May 2015, 69 per cent higher than the all industries average (Chart 9). Chart 9: Average weekly wages by industry

Source: ABS

7

ABS, Cat. No. 6302.0 Table 10H, May 2015.


1.6

Taxation and government assistance

As expected, revenues to government from the minerals industry fell in 2014-15 due to the sharp decline in commodity prices and mining company profits. According to estimates by Deloitte Access Economics, the industry’s direct revenue contribution from state royalties and federal company tax was $12.6 billion in 2014-15. This revenue contribution remains well above pre-mining boom levels. Over the decade to 2014-15, the minerals industry paid an estimated $165 billion in company tax and royalties. That is roughly equivalent to federal spending on higher education and schools and more than was spent on public hospitals and childcare over the same period. The MCA’s annual Minerals Industry Tax Survey further highlights the scale of the tax burden on the industry. The 2015 survey collected data for 2013-14. It shows the industry faced a tax ratio in that year of 47 per cent (including company tax and royalties), an equal record high for the survey which did not include other taxes, such as the Minerals Resource Rent Tax and the carbon tax, that were also collected in 2013-14. As Deloitte Access Economics confirmed in its survey report, ‘the minerals sector paid nearly half of every dollar of profit as royalties and company tax to state and federal 8 governments in Australia’. Section 3.2 provides a more detailed focus on the industry’s taxation data. Analysis by the Productivity Commission in 2015 again confirmed that the mining industry receives minimal assistance from government. The Commission’s 2013-14 Trade and Investment Review found that: ‘The estimated effective rate of assistance from tariff and budgetary assistance for mining 9 is negligible’. The effective rate of assistance for mining – the net combined assistance to the industry in proportion to unassisted net output (value added) – fell from 0.2 per cent in 2012-13 to 0.1 10 per cent in 2013-14. The Commission’s analysis accords with official material affirming that 11 Australia does not maintain fossil fuel subsidies. 1.7

Community contribution

Earning and maintaining a social licence to operate and the implementation of sustainable development principles are defining features of modern mining operations. The minerals industry contributes substantially to regional development in Australia. Studies have shown that the industry’s presence in regional economies has led to higher population growth, as well as increased household consumption and educational attainment compared with non-mining 12 regions. More than 60 per cent of mining operations in Australia neighbour Indigenous communities and the industry has continued to play a leading role in catalysing economic opportunity for Indigenous Australians. In 2015, Professor Marcia Langton AO outlined in an MCA Monograph the transformation in relations between the minerals industry and Indigenous Australians over the past two decades. She observed that: ‘Instead of constant conflict in every encounter, there is now a widespread approach of sophisticated face-to-face engagement that fosters discussion rather than 13 argument and good practices in negotiation and agreement-making’.

8

Deloitte Access Economics, Minerals industry tax survey 2015, Minerals Council of Australia, December 2015, p. i. Productivity Commission, Trade and Assistance Review 2013-14, Productivity Commission, Canberra, 24 June 2015, p.114. 10 Productivity Commission, Trade and Assistance Review 2013-14, Annual Report Series, Productivity Commission, Canberra, 24 June 2015, Canberra, p.115. 11 See Australian Government, G20 Commitments on Fossil Fuel Subsides (documents released under a Freedom of Information request) and Energy White Paper 2012, p.100. 12 KPMG, Analysis of the changing resident demographic profile of Australia’s mining communities, MCA, Canberra, 2013; A Hoath & FH McKenzie, The socio-economic impacts of long distance commuting (LDC) on source communities, Co-operative Research Centre for Remote Economic Participation, Curtin Graduate School of Business, Perth, 2013. 13 Langton M, From conflict to cooperation, MCA, Canberra, 2015; BCA, 2014 Indigenous engagement survey report, BCA, Melbourne, 2014. 9


The minerals industry is the largest private sector employer of Indigenous Australians. Employment of Indigenous Australians in the industry has increased from 0.5 per cent to a national average of 6 per cent over the past two decades. Women account for up to 20 per cent of the Indigenous 14 workforce at some mine sites. The industry continues to build its partnerships with Indigenous communities. Agreements between the industry and Traditional Owners deliver long-lasting benefits, including through employment, training, education and business opportunities. The Commonwealth–MCA MoU on Indigenous Employment and Enterprise Development concluded in 2015 after 10 years of partnership. A joint commitment between the mining industry and federal 15 and state governments, the MoU delivered a range of regional social and economic outcomes. The industry is also a major procurer of Indigenous services with annual investments exceeding $2 16 billion. Mining’s contribution to communities is supported by the MCA’s principles on sustainable development embodied in Enduring Value – The Australian Minerals Industry Framework for Sustainable Development. Enduring Value was updated in 2015 to ensure that it reflects emerging international standards on issues such as human rights and materials stewardship. Signatories report on their performance across those environmental, social and safety and health aspects relevant to 17 their operations. 1.8

Environmental performance

The Australian minerals industry’s approach to environmental management is one of continuous improvement, with MCA members aiming to deliver environmental outcomes beyond those required by regulation. Australia is recognised as a global leader when it comes to sustainable mining 18 practices. The industry’s footprint in the landscape is relatively small. It occupies far less than 0.1 per cent of the Australian landmass. This compares, for example, with 70 per cent for agriculture and more than 19 8 per cent for conservation land. The industry is committed to ensuring non-operational land owned by companies is available for alternative uses, such as biodiversity conservation or agricultural enterprises. For example, in the Upper Hunter Valley in New South Wales total land managed for viticulture, cattle grazing, horse studs and cropping is in excess of 60,000 hectares, more than three times the size of land under 20 mining. Progressive rehabilitation of mined land is central to the industry’s commitment to environmental stewardship. Across Australia there are many examples of mined lands being returned to productive use, including cropping in New South Wales, cattle grazing in Queensland and award winning 21 ecological restoration of Jarrah forests in Western Australia. The industry’s approach to biodiversity assessment and management centres on prevention and management of biodiversity impacts from mining and the identification of opportunities to enhance

14

Minerals Council of Australia, The whole story: Mining’s contribution to the Australian community, MCA, Canberra, 2015. Minerals Council of Australia, Indigenous economic development – Memorandum of understanding on Indigenous employment and enterprise, MCA, Canberra, 2015 viewed on 9 September 2015. 16 Minerals Council of Australia, The whole story: Mining’s contribution to the Australian community, MCA, Canberra, 2015; KPMG Banarra, The value of community contributions in the Australian minerals industry, Banarra, NSW, 2013. 17 Minerals Council of Australia, Enduring value – The Australian minerals industry framework for sustainable development, MCA, Canberra, 2015 viewed on 9 September 2015. 18 Australian Trade Commission, Australia – sustainable mining, Canberra, 2013, viewed 9 September 2015. 19 State of the Environment 2011 Committee, Australia state of the environment 2011, independent report to the Federal Minister for Sustainability, Environment, Water, Population and Communities, Canberra, 2011, p. 271. 20 New South Wales Minerals Council, Rehabilitation Reporting NSWMC, 2014, viewed on 13 August 2015. 21 Minerals Council of Australia, Mine rehabilitation in the Australian minerals industry, forthcoming. 15


biodiversity conservation. The industry contributes to biodiversity conservation programs in partnership with government and non-government organisations. Examples include the arid recovery program in South Australia and Bush Blitz in the Northern 22 Territory. The industry also contributes to a number of Great Barrier Reef research projects such as eReefs, Future Reef MAP and the Raine Island restoration program through the Great Barrier Reef 23 Foundation. In 2015, MCA released a leading practice industry guide on the assessment of cumulative 24 environmental impacts. An evolving area, both nationally and internationally, little guidance exists on how to undertake these complex assessments. This innovative guide addresses this need. Its use will enhance industry understanding and lead to better environmental management outcomes. The industry is a high-value, low-volume water user, accounting for around 3 per cent of Australia’s 25 water consumption (Chart 10). Mining operations seek to utilise low quality water not suitable for other industrial uses (including saline waters and sewage) and to maximise the reuse efficiency of each water unit on site. The industry is working to minimise risks to occupational, community and environmental health through emission, transmission and exposure management for approved releases to land, air and water. Increasingly sophisticated technologies are being employed to manage air emissions at site, during transport and at the port. Chart 10: Water consumption in Australia, 2013-14

Household 10.0% Other industries 5.8%

Water supply 12.4%

Oil & Gas 0.2% Electricity & gas 1.7% Agriculture 62.2%

Manufacturing 3.1% Mining 3.1%

Aquaculture, Forestry & fishing 1.0%

Source: ABS

22

Minerals Council of Australia, Mining’s contribution to the Australian community: the whole story, MCA, Canberra, November 2015, pp. 35, 37. 23 Great Barrier Reef Foundation, Resilient coral reefs successfully adapting to climate change - a research portfolio, GBR Foundation, viewed 12 January 2016 24 Minerals Council of Australia, Cumulative environmental impact assessment industry guide, MCA, Canberra, July 2015. 25 Australian Bureau of Statistics, Water Account, Australia, 2013-14, ABS catalogue no. 4610.0, November 2015.


2

OUTLOOK, CHALLENGES AND IMPERATIVES •

Weaker growth in emerging economies has seen global growth forecasts revised downward. China’s slowdown has weighed heavily on commodity markets in the presence of robust supply conditions.

•

Growth in Australia remains below trend with incomes further constrained by the fall in the terms of trade. Budget repair and productivity-enhancing structural reform are essential to build Australia’s resilience against future economic shocks and increase growth potential.

•

The longer term outlook for the resources sector remains positive. Australia is well-placed to play a central role in bringing cleaner energy to emerging Asia.

2.1

Global growth outlook

Near-term global growth prospects have been revised down at the start of 2016 stemming from weaker growth in emerging economies. In 2015, growth in emerging economies – while still accounting for more than 70 per cent of global growth – declined for the fifth consecutive year, while a modest recovery continued in advanced economies. The IMF has identified three key transitions as shaping the global outlook: 1. The gradual slowdown and rebalancing of economic activity in China 2. Lower prices for energy and other commodities 3. A gradual tightening in monetary policy in the United States, at the same time as central banks in some other advanced economies are easing monetary policy. Table 3: Growth forecasts for selected economies (real GDP) Economy

World

China

Japan

Source

2016

2017

World Bank

2.9

3.1

IMF

3.4

3.6

Treasury

3.5

3.75

World Bank

6.7

6.5

IMF

6.3

6.0

Treasury

6.5

6.25

World Bank

1.3

0.9

IMF

1.0

0.3

0.75

0.5

Treasury United States

World Bank

2.7

2.4

IMF

2.1

2.1

2.75

2.75

World Bank

7.8

7.9

IMF

7.5

7.5

Treasury India

Euro Area Australia’s major trading partners

Treasury

7.5

7.5

World Bank

1.7

1.7

IMF

1.7

1.7

Treasury

1.75

1.75

Treasury

4.0

4.0

Sources: World Bank, International Monetary Fund, Australian Treasury


China’s growth is expected to moderate further from the 2015 figure of 6.8 per cent, owing largely to weaker investment growth. Most forecasts are for China’s growth to be 6.5 per cent or less in 2016, though it is important that this is viewed from a longer run perspective (Box 2). India and the rest of emerging Asia are projected to continue growing at a robust pace, but with some countries facing strong headwinds from China’s slowdown and economic rebalancing. Overall, growth in emerging market and developing economies is forecast by the IMF to be 4.3 per cent in 2016 and 4.7 per cent in 2017. Growth in the US economy is expected to exceed 2 per cent in both 2016 and 2017 off the back of a stronger housing market and a resilient labour market. Notwithstanding moves to raise interest rates, monetary conditions in the United States remain very accommodative, helping to sustain consumption spending. Among other major economies, growth in Japan is expected to inch higher in 2016 supported by fiscal and monetary policy expansiveness and lower oil prices. Growth in the Euro Area is similarly projected to strengthen driven by stronger private consumption. Growth in Australia’s major trading partners is likely to be below its longer run average in 2016-17. Monetary policy remains very accommodative of global economic activity. Nonetheless, market volatility at the start of 2016 has solidified views that the balance of risks in the near-term global economic outlook remains tilted to the downside. China’s capacity to negotiate a period of structural and cyclical economic adjustment will be particularly important for the global economy, especially for commodity exporting nations like Australia. Box 2: China’s economic slowdown in perspective In line with policy objectives, China’s growth has moderated from a period of roughly 10 per cent per annum growth to a current rate of below 7 per cent. While a component of this lower growth is cyclical, an important element is clearly structural as China transitions to a growth model that is less resource-intensive and investment-led and more focused on consumption and services. Slower productivity growth and demographic change are also contributing to slower Chinese growth. However, these trends need to be put in perspective. China is only the second economy to record output exceeding US$10 trillion, a milestone it achieved 26 in 2014 – just fourteen years behind the United States. China’s economy is now two-and-a-half times bigger in real terms than it was a decade ago. Accordingly, China’s 2015 growth rate of 6.8 per 27 cent generated almost as much additional GDP as its 2007 growth rate of 14.2 per cent. As research by the Commonwealth Bank concludes: ‘[T]he mathematics of big economies is such that we shouldn’t be too alarmed by slower bottom-line GDP growth’. Growth of 5.6 per cent per annum over 2016 to 2020 will deliver the same boost to global growth as 8.6 per cent average annual growth 28 from 2011 to 2015 and 11 per cent in the past 10 years. China will still demand an enormous quantity of mineral resources as part of any growth transition. With higher incomes, consumers demand better housing and infrastructure, as well as more services. The urbanisation process is incomplete, with large disparities still between living standards in the interior and those on the coast. And average incomes in China leave substantial room for convergence with those in advanced economies.

26

‘China’s slowdown from a very big base’, The Economist, 20 January 2015. International Monetary Fund, World Economic Outlook Database, viewed on 10 February 2016. 28 Michael Blythe, Chief Economist, Commonwealth Bank of Australia, Australia in 2016 – risks & issues, Global Markets Research, Economics: issues, 13 January 2016, p. 10. 27


2.2

The Australian economy

Higher resources exports and rising activity in the non-mining economy sustained economic growth in Australia in 2015, albeit at below trend. Rising residential construction investment has helped offset some of the fall in mining investment that underpinned growth in recent years, though non-mining business investment has remained weaker than expected. Consumer spending rose at around 2.6 per cent over 2015, in line with rates recorded on average since the global financial crisis. Income growth has remained weak with the terms of trade falling 9 per cent in the year to September 2015. After a period of slower-than-expected exchange rate adjustment, the Australian dollar has declined 11 per cent in 2015, falling below US70 cents for the first time since 2009 (Chart 11). Moderate wage growth and continued expansion in labour-intensive parts of the services sector has helped cushion the domestic labour market. Employment has grown relatively strongly and unemployment ended 2015 at 5.8 per cent. Inflation has remained well-contained within the central bank’s 2 to 3 per cent band, assisted by lower oil prices. Chart 11: Australia’s terms of trade Index 2013-14 = 100 120

120

110

110

100

100

90

90

80

80

70

70

60

60

50

50

40

40

Source: ABS

Australia should record its 25th year of consecutive economic growth in 2015-16. At the same time, growth is slowing and is now a full percentage point below its long-run average. Since the GFC, real GDP growth in Australia has averaged 2.4 per cent per year. This compares with an average rate of 3.4 per cent between 2000 and 2008 and 4 per cent between 1992 and 1999. A protracted period of weak productivity growth, as well as reduced labour market participation from the ageing of the population and slower population growth, has underpinned analysis suggesting that Australia’s potential growth rate has fallen to below 3 per cent. With the decline in commodity prices since 2011, the margin for error, complacency and economic parochialism is gone. The costs of policy failure are magnified for an industry like mining; Australia’s most trade-exposed, globalised industry and a ‘price-taker’ in highly competitive international markets. In the face of growth headwinds from China’s slowdown, the Government is allowing ‘automatic stablisers’ to operate on the budget. Consequently the pace of fiscal consolidation has slowed.


To secure growth in living standards, the focus must be on improving the productivity, competitiveness and flexibility of the Australian economy. A new wave of reform is required to operationalise the Prime Minister’s vision of a nation that is more competitive, more agile, more innovative and more productive. This will involve hard, politically contentious choices. It is idle to pretend otherwise; just as it is wrong (and irresponsible) to pretend that Australians can enjoy higher living standards through increased government spending, populist attacks on multinational companies and regulatory frameworks that shelter and privilege vested interests. 2.3

The 2016-17 Commonwealth Budget (and beyond)

The 2016-17 Budget should be a circuit breaker that levels with the Australian people on the economic challenges facing the country. In an environment of global economic uncertainty, Australia needs urgently to build growth momentum and economic resilience against future economic shocks. That means further work on budget repair and productivity-enhancing structural reform. Far from its timing in an election year being problematic, the MCA considers this year’s Budget provides the ideal opportunity for the Turnbull Government to lay out a multi-year agenda for reform; to produce a bold – even if incremental – strategy for economic growth and improved living standards. Improving the nation’s productivity performance must be a central focus of policy. The simple facts st are these. In the first decade of the 21 century, Australia’s productivity growth fell to an historic low, with labour productivity growth below the long-term average and multifactor productivity essentially static. Roughly half of national income growth was derived from the improvement in the terms of trade off the back of the China-led mining boom. This was always going to be a temporary phenomenon; sooner or later, commodity prices would decline and growth in living standards would again be reliant on productivity growth. Since 2011, the terms of trade have fallen by more than a third. This fall has weighed heavily on national income and growth in nominal GDP fell to just 1.5 per cent in 2014-15, the slowest growth in more than 50 years. Real per capita incomes in Australia have fallen since the peak in the terms of trade. And overall productivity growth remains well below levels needed to maintain growth in living standards at anything approaching the rate of the last quarter century. The Government’s intent in projecting optimism about Australia’s economic prospects is clear and understandable. However this strategy will only prove credible in the longer run if matched by realism about the nation’s economic challenges and by policies that can meet them. The Treasury outlined the challenge and the imperative succinctly in its Portfolio Brief to the Incoming Treasurer released in December 2015. It noted that: The economy is growing below trend, the unemployment rate is unacceptably high, our national income per capita has been falling and the demographic challenges outlined in the [2015] Intergenerational Report (with greater pressures on spending and the sustainability of the tax base) are nearing. With the fall we have faced in our terms of trade, our goal needs to be improvement in the country’s productivity. Reform now is important, as delay will only exacerbate the extent of change required in the years ahead. It will also restore business confidence and assist public understanding of our challenges – a key missing ingredient in the current environment. We owe it to our future generations to ease the burden of 29 reform over time.

The 2016-17 Budget needs to rise to this challenge and chart a reform course for the next five years. And importantly, this challenge is one for all parties and all members of the Australian Parliament, not just for the Australian Government.

29

Australian Treasury, Treasury Portfolio Brief Incoming Treasurer 2015, FOI release, 4 December 2015.


2.4

Longer term opportunities

Notwithstanding the downturn in commodity prices, the long-term prospects for minerals demand remain positive. Emerging economies will continue to drive global growth and commodities demand, even though growth trajectories will vary across different commodities. Highly populated emerging economies are still urbanising and industrialising. The United Nations expects the world’s urban population to increase by 2.4 billion by 2050; that is, by around 68 million people a year. Roughly 95 per cent of that growth is set to occur in less developed regions and 83 per cent in less developed regions excluding China (Chart 12). The United Nations projects that the largest urban growth will take place in India (11 million people urbanised a year), followed by China (8 30 million) and Nigeria (6 million). Chart 12: Millions of urban dwellers, 2015 and 2050 2015 0 Africa

2050 200

400

600

1200

1400

1600

1339 779 1050 420 814 795

Other developing Asia

Latin America and Caribbean

1000

472

China

India

800

1343 503 674

Source: United Nations

Economic development drives demand for minerals and energy commodities used in the construction of housing, office buildings, bridges and transport systems, as well as a range of consumer goods. Iron ore and metallurgical coal are essential ingredients in the manufacture of steel, and therefore indispensable to the provision of infrastructure and the development of large-scale industry. While China’s steel use per capita has grown rapidly to be not far below Japan’s, it still presents 31 opportunities for producers of iron ore and metallurgical coal. The length of rail track in China is one-third that of the United States and one-sixth of the European Union, with both a larger land mass 32 and population. Further, the steel intensity of Chinese construction has been increasing over time, owing to the building of taller structures with more features such as underground car parks. Consumer demand will also become more steel-intensive with greater car ownership, which today in 33 China is only a small fraction of that in the United States.

30

United Nations Population Division, Department of Economic and Social Affairs, World Urbanization Prospects: The 2014 Revision, File 3: Urban Population at Mid-Year by Major Area, Region and Country, 1950-2050 (thousands). 31 World Steel Association, World Steel Figures in 2015, 29 May 2015, p. 17. 32 Department of Industry, Innovation and Science, Resources and Energy Quarterly – March Quarter 2015, released on 18 March 2015, Canberra, p. 23. 33 Alexandra Heath, Head of Economic Analysis Department, Reserve Bank of Australia, The Domestic Outlook and the Role of Mining, address to the NSW Mining Industry & Suppliers Conference, NSW Parliament House, Sydney, 21 November 2014.


Similarly, steel intensities in India and other developing Asia are well below the rates of advanced economies. India’s steel use per capita is only 11 per cent of Japan’s, 13 per cent of Germany’s and 34 18 per cent of that of the United States. Around three-quarters of the anticipated building stock in India in 2040 has yet to be constructed, while traditional building materials, such as clay bricks, are 35 increasingly being replaced by steel and cement. Steel use per capita in developing Asia (excluding China and India) is 15 per cent of Japan’s, 17 per 36 cent of Germany’s and around one-quarter of that of the United States. Increasing urbanisation is 37 calling for major investment in infrastructure as well as new housing and commercial spaces. Global energy demand The International Energy Agency projects that world primary energy demand will increase by around one-third between 2013 and 2040, with all net growth coming from economies outside the OECD. Demand for electricity increases by more than 70 per cent, with non-OECD nations accounting for 38 seven out of every eight additional units of demand. Once an economy starts to develop, demand for energy rises with income growth until high levels of 39 per capita GDP (Chart 13). While energy consumption in emerging economies has grown rapidly in the past decade, they generally have considerably lower rates of energy consumption compared with advanced economies. China’s energy consumption per capita has almost doubled since 2000 and now exceeds the global average. Yet China’s energy consumption per capita remains only one-third that of the United States. Wood Mackenzie projects that China’s rate of energy consumption per 40 capita will be just under one-half that of the United States in 2030. Chart 13: Energy use and GDP (PPP terms) per capita (1990-2012) Australia India

9000

China United States

European Union Thailand

Japan Malaysia

Energy use (kg of oil equivalent per capita)

8000 7000 6000 5000 4000 3000 2000 1000 0 0

10000

20000 30000 40000 GDP per capita, PPP ( constant 2011 international $)

50000

60000

Source: World Bank, World development indicators

India’s energy consumption is still only one-third of the global average, with 240 million people (19 per cent of the country’s population) having no access to electricity and 840 million (67 per cent) reliant on

34

World Steel Association, World Steel Figures in 2015, 29 May 2015, p. 17. International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 472, 477. 36 World Steel Association, World Steel Figures in 2015, 29 May 2015, p. 17. 37 McKinsey Global Institute, Southeast Asia at the crossroads: Three paths to prosperity, November 2014, p.8. 38 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 21, 61, 299, 304f. 39 James Brick, Principal Analyst, Primary Fuel Fundamentals Group, Wood Mackenzie, Five countries, five stages of energy development, 5 May 2015. 40 James Brick, Principal Analyst, Primary Fuel Fundamentals group, Wood Mackenzie, Five countries, five stages of energy development, 5 May 2015. 35


traditional biomass for cooking. The IEA projects that in 2040, India’s demand for primary energy will be two-and-a-half times greater than today and its electricity generation will be three-and-a-half times 41 greater. Even then, India’s energy use per capita will only be 60 per cent of the global average. In South-East Asia, 120 million people (19 per cent of the region’s population) have no access to electricity and 276 million people (45 per cent) have no access to clean cooking facilities. By 2040, the region’s demand for primary energy is projected to grow by 80 per cent and electricity generation almost trebles – an expansion larger than India’s current generation. Energy use per capita rises by 42 almost half, yet continues to remain low by international standards. Thermal coal and nuclear power are reliable sources of baseload power, which is fundamental to both electrification and industrialisation. The IEA expects that China will remain the largest global producer and consumer of coal while also becoming the biggest user of nuclear power. China accounts for almost half the world’s expansion in nuclear power, with generation rising almost tenfold from 112 terawatt hours (TWh) in 2013 to 1,102 TWh in 2040. During this period, nuclear’s share of China’s 43 total electricity generation increases from 2 per cent to 10 per cent. Like China, India experiences a rapid expansion in nuclear-powered generation, which increases 44 eight-fold from 34 TWh in 2013 to 269 TWh in 2040. These trends present substantial opportunities for Australia’s uranium industry; yet they cannot be realised unless Australian governments remove unnecessary policy obstacles to increased uranium mining (Box 3). Box 3: Policy changes required to maximise opportunities for Australia’s uranium industry Australia holds almost a third of the world’s low cost uranium, but produces just 10 per cent of global production. With the right policy settings, Australia is well-placed to benefit from global growth in nuclear energy generation. Modelling commissioned by the MCA suggests that (under a conservative scenario) employment in Australia’s uranium industry could expand from around 3,000 direct and indirect jobs today to 22,600 by 2040. In the same period, the economic contribution to Australia from 45 uranium mining increases from $600 million a year to as much as $9.5 billion a year by 2040. However, the Australian uranium industry’s competitiveness and growth is being constrained federally by duplication in approval processes, and in the states by bans on uranium mining in Queensland, Victoria and New South Wales and the restriction of exports to the ports of Darwin and Adelaide. The regulatory framework for uranium mining in Australia can be made more efficient without any diminution of environmental scrutiny or non-proliferation safeguards. The MCA’s reform priorities are: •

Removing uranium mining, milling, decommissioning and rehabilitation from the definition of nuclear action in the EPBC Act and finalising One-Stop Shop assessment and approval bilateral agreements, with efficient environmental management by states and territories

•

Normalising uranium mining legislation and regulation across the country, including rules governing the transportation and exportation of uranium

•

Removing federally legislated bans on nuclear industries in the EPBC Act and Australian Radiation Protection and Nuclear Safety Act 1998, which delegitimise uranium in the public eye and undermine foreign investor confidence in uranium mining in Australia.

41

International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp, 428f, 554, 636, 638. International Energy Agency, Southeast Asia Energy Outlook 2015: World Energy Outlook Special Report, Paris, released on 9 October 2015, pp. 27, 30, 38f, 119. 43 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 315, 634. 44 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, p. 638. 45 Sinclair Davidson and Ashton De Silva, Realising Australia’s uranium potential, policy paper commissioned by the Minerals Council of Australia, September 2015, p. 5f. 42


Although China’s coal use plateaus in the 2030s, coal-fired generation increases 27 per cent over the IEA’s projection period, contributing almost half (5,231 TWh) of domestic generation in 2040. Between 2013 and 2040, China’s coal-fired generation capacity is expected to rise by 196 gigawatts (GW) – around three-and-a-half times Australia’s total generation capacity for all fuels. It is important to note that these projections assume that nations meet their commitments to 2030 under the United 46 Nations Framework Convention on Climate Change. While China continues to dominate global coal markets, India and South-East Asia become the drivers of world demand (Chart 14 and Box 4). Chart 14: Major net importers of coal by region, IEA core scenario

Source: International Energy Agency

Box 4: The next engines of global coal demand: India and South-East Asia The IEA affirms that ‘coal remains the backbone of the power system in many countries in our central scenario.’ The share of non-OECD countries in global coal demand rises from 74 per cent today to 47 86 per cent in 2040. By 2040, Asia accounts for 80 per cent of coal consumed globally. As with China, the economic development of India and South-East Asia will be underpinned by coal. The IEA expects India’s coal demand to treble between 2013 and 2040, with imports increasing from 144 millions of tonnes of coal equivalent (Mtce) to 410 Mtce. By 2020, India overtakes Japan, the EU and China to become the largest coal importer, with Australia being a primary supplier of both metallurgical and thermal coal throughout the outlook. Coal accounts for over 70 per cent of India’s electricity generation (869 TWh) and is expected to almost treble by 2040 (2,333 TWh). Likewise, 48 India’s coal-fired capacity almost trebles in the same period (from 154 GW to 438 GW). South-East Asia’s coal demand increases by three-and-a-half times in the IEA’s core scenario, from 130 Mtce in 2013 to 445 Mtce in 2040 – an expansion second only to India. Coal-fired electricity generation rises from 255 TWh to 1,097 TWh (from almost one-third to one-half of total generation) and coal-fired capacity increases from 88 GW to 201 GW (from almost one-quarter to more than onethird of total capacity). While South-East Asia remains a net exporter of coal – thanks to Indonesia – Vietnam quickly becomes a net coal importer and Malaysia, the Philippines and Thailand all see 49 strong growth in imports.

46

International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 34, 65, 277, 290f, 634. International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, p. 25. 48 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 269, 519, 638. 49 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, p. 295f; International Energy Agency, Southeast Asia Energy Outlook 2015: World Energy Outlook Special Report, Paris, released on 9 October 2015, p. 129. 47


Bringing cleaner energy to emerging Asia: Australia’s opportunity Demand for Australia’s energy resources, particularly coal and uranium, will remain strong in coming decades as all energy sources grow to meet the challenge of securing prosperity. Importantly, growth in demand is being led by Australia’s key trading partners in Asia. At the same time, sustained global action is required to reduce the scale of human-induced climate change. The imperative for all nations is to sustainably reduce the production and consumption of greenhouse gas emissions without compromising energy security, economic growth and poverty alleviation. A measured transition to a low carbon economy will cover the broadest range of technology options, including low-emissions coal technologies and nuclear power. Nuclear power has the advantage of being able to generate baseload electricity with very low CO2 emissions over its lifecycle. Further, substantial progress is being made reducing the carbon footprint of coal-fired power generation. High efficiency, low emission (HELE) technologies allow power generators to operate at higher temperatures and greater pressure, reducing emissions generated per 50 watt of electricity by up to 40 per cent. New technologies under testing promise to reduce these 51 emissions even further. HELE coal-fired power stations integrated with carbon capture and storage 52 (CCS) can reduce CO2 emissions by around 90 per cent. In the IEA’s core scenario, almost two coal plants are added for each one that is retired, bringing the global installed capacity in 2040 to 2,468 GW – an increase of more than 25 per cent over today’s level. Almost three-quarters (72 per cent) of new global coal-fired capacity employs HELE technology. The share of HELE plants (including those fitted with CCS) rises from 33 per cent of 53 world coal-fired capacity (670 GW) to 58 per cent (1,424 GW). Over the period to 2040, China continues to lead in deploying HELE coal plants, accounting for around 60 per cent of the global additions from 2014 to 2040. India achieves one of the highest increases in average fleet efficiency over the period – by 4.5 percentage points – to reach the level of 54 the OECD and China today. South-East Asian countries also begin to invest in HELE plant. The rapid adoption of HELE technologies raises the global average efficiency of coal-fired plants by three percentage points to just over 40 per cent (Chart 15). This saves 265 million tonnes of oil equivalent of coal in 2040, the same amount as the European Union’s current coal consumption. Increasing coal efficiency also reduces global CO2 emissions by 1.9 Gt in 2040, the equivalent of 55 India’s current emissions. The next step after deploying HELE power plants is to integrate them with CCS. CCS is the capture of CO2 from power stations (or other industrial facilities) and storage in deep underground reservoirs. CCS is a proven, established technology and a reality in many parts of the world: •

Globally, there are 22 large-scale CCS projects in operation or under construction, with a 56 combined capacity to capture up to 40 million tonnes of CO2 a year

50

ACA Low Emissions Technologies assessment based on publicly available information on world power plant efficiency levels, July 2015. According to a discussion paper released by the former Gillard Government, new coal technologies can increase the efficiency of Australian plants to over 45 per cent and lower their CO2 emissions by up to 50 per cent. See the Department of Industry, Innovation and Science, A Cleaner Future For Power Stations, Interdepartmental Task Group Discussion Paper, 1 November 2010, p. 5. 51 International Energy Agency, Technology Roadmap High-Efficiency, Low-Emissions Coal-Fired Power Generation, Paris, originally published in 2012, updated March 2013, p. 19; Shoichi Itoh, A New Era of Coal: The ‘Black Diamond’ Revisited, National Bureau of Asian Research, working paper commissioned for the 2014 Pacific Energy Forum, Seattle, 23-24 April 2014, p. 7. 52 International Energy Agency, Technology Roadmap High-Efficiency, Low-Emissions Coal-Fired Power Generation, Paris, originally published in 2012, updated March 2013, p. 19. 53 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, p. 330f. 54 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 332, 334. 55 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 86f, 334f. 56 Global Carbon Capture and Storage Institute, Large Scale CCS Projects. viewed on 14 January 2016.


Chart 15: Average efficiency of coal-fired plants by region, IEA’s core scenario


•

In the US, about 68 million tonnes of CO2 is captured and injected into oil fields every year to 57 enhance oil recovery

•

Canada’s Boundary Dam project is the world’s first commercial coal-fired power plant with CCS. It is reducing CO2 emissions from lignite by 1 million tonnes per annum – equivalent to 58 taking 250,000 cars off the road every year.

The Australian coal sector has committed around $300 million to develop low emissions coal technologies in addition to R&D financed by the industry’s research program ACARP. Progress to date includes: • Successfully capturing CO2 at a coal-fired power plant near Biloela in Queensland, as part of 59 the world’s largest demonstration of oxy-fuel technology to date •

Successfully sequestering 65,000 tonnes of CO2 in a depleted gas field in Victoria’s Otway 60 Basin

•

Improved methane drainage from underground mines.

61

Australia is well-placed to meet Asia’s growing demand for coal, given our geographic proximity, low cost production and transport networks, and high quality coal resources (Box 5). The IEA projects that by 2020, Australia will regain its position from Indonesia as the world’s largest coal exporter, thanks to strong demand from India and South-East Asia. Australia’s official energy forecaster 62 expects this to occur in 2016.

57

Patrick Falwell and Brad Crabtree, ‘Understanding the National Enhanced Oil Recovery Initiative’, Cornerstone, World Coal Association, 2014, Volume 2, No 4. 58 Saskpower, CCS Boundary Dam Carbon Capture Project. 59 Callide Oxyfuel Project, Backgrounder, February 2015. 60 CO2CRC, CO2CRC Otway Project, viewed 20 August 2015. 61 See, for example, Dennis Black, Factors Affecting The Drainage of Gas from Coal and Methods to Improve Drainage Effectiveness, ACARP, June 2011; and Andrew Gurba et al., Gas Drainage Efficiency Improvement, ACARP, August 2002. 62 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, pp. 89, 285, 297; International Energy Agency, Southeast Asia Energy Outlook 2015: World Energy Outlook Special Report, Paris, released on 9 October 2015, p. 70; Department of Industry, Innovation and Science, Resources and Energy Quarterly – December Quarter 2015: Commodity data, released on 22 December 2015, Canberra.


Box 5: Australia’s world-class coal resources According to Geoscience Australia and the Department of Industry, Innovation and Science, 63 ‘Australia’s coal resources are world class in magnitude and quality.’ Coal quality has a major influence on the design of power, cement and steel plants, as well as their operation, performance and emissions. In assessing coal quality, energy, sulphur and ash content are considered together. Other factors include moisture and trace element content. The department also points out that Australia’s large deposits of high-energy, low ash coal are 64 suitable for use in advanced coal-generation technologies. These thermal coals also contain lower levels of sulphur, mercury, selenium and other trace elements when compared with other 65 internationally traded coals (Chart 16). They produce fewer emissions per unit of electricity produced and command a higher price in export markets. Chart 16: Relative energy values of coals from leading exporting countries, 2014-15

Millions of tonnes per annum (seaborne)

120 100 80

Australia Canada

60

Indonesia 40

Russia South Africa

20 0 6000

Specific energy (net as received kcal/kg) Source: MCA member company analysis

Australia’s metallurgical coal is also highly sought after, being among the best coals for steel making in the world. It typically produces strong cokes with low reactivity and low sulphur and phosphorus 66 content. The Prime Minister, the Hon. Malcolm Turnbull MP, has stated that: [I]f Australia were to stop all of its coal exports, it would not affect – it would not reduce global emissions one iota. In fact, arguably it would increase them because our coal, by and large, is cleaner than the coal in 67 many other countries.

The statement that Australia’s coal is generally cleaner than that of other nations was judged to be 68 correct by the ABC’s Fact Check.

63

Department of Industry, Geoscience Australia and Bureau of Resources and Energy Economics, Australian Energy Resource Assessment, Second Edition, 2014, page 19. 64 Department of Industry and Science, Coal in India 2015, released on 1 June 2015, Canberra, p. 13. 65 Les Dale, Trace elements in coal, ACARP Coal Matters No 2, based on research carried out by CSIRO Energy Technology, October 2006. 66 ACARP, Quality of Australian black coals – physical and chemical properties, January 2010, pp. 5 and 35. 67 The Hon. Malcolm Turnbull MP, Prime Minister, Joint Press Conference: Announcement of appointment of Dr Alan Finkel AO as next Chief Scientist, 27 October 2015.


Between 2013 and 2040, the IEA expects Australia’s export coal trade to grow 37 per cent to 425 Mtce, of which 200 Mtce is metallurgical coal and 225 Mtce is thermal coal (Chart 17). Chart 17: Major net exporters of coal by region, IEA core scenario


Australia increases its market share in total coal trade from 29 per cent in 2013 to 33 per cent in 2040. Australia increases its market share of world trade in metallurgical coal from 55 per cent in 2013 to 69 nearly two-thirds in 2040. The MCA supports an Asian Clean Energy Initiative to accelerate the deployment of low-emissions coal technologies and nuclear power in our region (Box 6). Box 6: Asian Clean Energy Initiative – accelerating uptake of low-emissions coal and uranium East Asian nations recognise that coal will remain a major fuel source in the region and encourage 70 nuclear power generation where appropriate. Like Australia, these nations acknowledge the need to step-up efforts to promote clean coal technologies, which can significantly address the CO2 71 emissions arising from increasing use of coal-fired power in the region. The MCA supports an Asian Clean Energy Initiative to facilitate the uptake of both clean coal technologies and the use of nuclear power where appropriate. This initiative has two key elements: (1) Exploring opportunities to pool knowledge and resources in the region for deployment of the next stage of clean coal technologies, including CCS. This could help overcome any geographic, political or financial barriers to applying the best technology to the most suitable geological storage sites. (2) With one-third of the world’s uranium reserves, Australia could also contribute to the expansion of the region’s nuclear power sector, especially in India. The finalisation of the Australia India Nuclear Cooperation Agreement in 2015 now makes this possible.

68

Fact check: Does Australia export cleaner coal than many other countries? Australian Broadcasting Corporation, updated 27 Nov 2015, 09:57. 69 International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, p. 297. 70 ASEAN, Joint Ministerial Statement of the 8th EAS Energy Ministers’ Meeting, 24 September 2014. 71 ASEAN, Joint Ministerial Statement of the 9th EAS Energy Ministers’ Meeting, October 2015.


3

POLICY PRIORITIES

3.1

Fiscal policy •

Australia has spent its way to a structural deficit problem through a period of unbroken economic growth. Over the past 15 years, spending by successive federal governments has increased in real per capita terms by around 30 per cent. Across the states, real per capita spending has risen by 27 per cent in the same period.

•

The Australian Government’s medium-term fiscal strategy should remain focused on bringing spending under control and avoiding higher taxes. Higher taxes impede growth and reduce incentives to work, save and invest.

•

The Turnbull Government’s policy template – whereby programs that do not work are changed or discontinued – needs to be applied systematically to all areas of government spending across the Federation. More can be done to improve public spending decisions and performance as part of a broad-ranging growth, productivity and competitiveness agenda.

Australia has spent its way to a structural deficit problem through a period of unbroken economic growth. Over the past 15 years, spending by successive federal governments has increased in real per capita terms by around 30 per cent. Across the states, real per capita spending has risen by 27 72 per cent in the same period. As outlined by Treasury Secretary John Fraser in his January 2016 speech to The Sydney Institute, the underlying problem since the mid-2000s is that structural expenditure decisions offset much of the temporary revenue gain from the commodity price boom. Hence, ‘a very substantial amount of the revenue windfall was used to lock-in long-term spending commitments’, with the rate of government 73 spending growth remaining high since then. Chart 18: Commonwealth payments (% of GDP) 30

25

20

15

Payments (% of GDP)

Trend

Source: Treasury

72

Adam Boyton, Chief Economist, Deutsche Bank Australia, ‘Even with higher GST, company tax cuts will rely on spending restraint’, The Australian Financial Review, 9 December 2015. 73 John Fraser, Secretary to the Treasury, The Australian Budget – some context, speech to The Sydney Institute, 28 January 2016.


As a result, spending in real terms has grown at an annual rate of around 3.5 per cent since 2007 compared with around 3 per cent during the 1980s and 1990s. The MYEFO forecast Commonwealth spending in 2015-16 at 25.9 per cent of GDP, close to the post-GFC peak (Chart 18). This is an historically high payments to GDP ratio, with Mr Fraser noting that in only four other periods since 1970 has this ratio exceeded 25 per cent, and three of these are associated with recession and deficit blowouts. Even with savings measures adopted in recent years, Commonwealth spending on its current course will not fall below 25 per cent at any time over the next decade. At the same time, Commonwealth gross debt is projected to reach 29 per cent of GDP by June 2018, above levels reached in the 1980s and 1990s. Successive revenue write-downs in recent years due to lower commodity prices in no sense diminish the budget repair task. Indeed, they serve to highlight the underlying problem from unsustainable growth of government expenditure that cannot be justified on either efficiency or equity grounds. The Australian Government’s medium-term fiscal strategy should remain focused on bringing spending under control and avoiding higher taxes. The means by which fiscal sustainability is achieved has a major bearing on investment, growth and job creation. Higher taxes reduce incentives to work, save and invest. Every additional dollar of tax raised means one less dollar invested by the productive private sector, with the deadweight efficiency costs and administrative burdens of taxes on top of that. In the absence of tax reform, federal tax receipts will grow from 22.3 per cent of GDP in 2015-16 to 23.1 per cent of GDP in 2018-19. The Prime Minister has correctly identified a malady with policy making in Australia, one with particular relevance to the unsustainable growth of public expenditure. There is an intrinsic bias within the political system to view policy change by government as a backflip, a backtrack or an admission of error, when there is demonstrable merit in governments monitoring and adjusting policies that are not performing a function effectively and efficiently. This template can and should be applied systematically to all areas of government spending across the Federation. More can be done to improve public spending decisions and performance as part of a broad-ranging growth, productivity and competitiveness agenda. Budget expert Dr Stephen Anthony has proposed using the Productivity Commission to benchmark the fiscal performance of Australian governments using scorecard indicators. Why not benchmark every government department, agency and business against each other and see how they stack up in terms of efficiency. Why not measure the policy performance of each state jurisdiction against the federal government and recognise good performance. Transparent reporting of effectiveness and efficiency benchmarks can help to create an environment of competitive federalism which encourages higher standards of service delivery and better policy outcomes. The Productivity Commission already does 74 this in a form with its Report on Government Services.

Other specific recommendations include introducing high-level program reporting to increase public sector accountability of program expenditure and introducing cost-sharing incentive contracts into public procurement processes to reduce and better target annual public procurement outlays.

74

Macroeconomics, Mid-Year Budget Bulletin, 11 November 2014, p. 13.


3.2

Taxation •

Tax reform is essential to drive future investment and productivity growth and to create more high-wage jobs. Australia’s corporate tax rate is well above the OECD average and needs to be lowered progressively to restore our global tax competitiveness.

•

Australia is a relatively high tax mining jurisdiction. New survey data shows an industry tax ratio of 47 per cent in 2013-14 based on company tax and royalties. To compete effectively with other mineral resource suppliers, Australian industry needs efficient and stable fiscal arrangements in critical areas such as fuel taxation and exploration.

•

Moves to address base erosion and profit shifting (BEPS) and to increase tax transparency should be based on detailed consultation to avoid unintended consequences. In line with the industry’s commitment to meaningful transparency, the MCA supports implementation of the Extractive Industries Transparency Initiative (EITI).

The minerals industry continues to make a strong contribution to Commonwealth and state government revenues, notwithstanding sharply lower commodity prices. Deloitte Access Economics 75 estimate the industry paid $12.6 billion in company tax and royalties in 2014-15. Though down from peak levels, this contribution is more than double that prior to the mining boom. As a profits-based tax, company tax payments have closely followed industry profitability and commodity prices in recent years, while state and territory royalties have remained relatively steady. The total contribution from both fiscal instruments is estimated to have been $165 billion in the 76 decade to 2014-15 (Chart 19). Chart 19: Minerals industry company tax and royalties, 2000-01 to 2014-15 Royalties

Company tax

Bulk commodities prices - SDR (RHS)

$ million 25,000

Index 2013-14 = 100 150

20,000

120

15,000

90

10,000

60

5,000

30

0

0

Source: Deloitte Access Economics

75

Deloitte Access Economics, Minerals Industry Tax Survey 2015, report prepared for the Minerals Council of Australia, December 2015. 76 Deloitte Access Economics, Minerals Industry Tax Survey 2015, report prepared for the Minerals Council of Australia, December 2015.


The industry’s tax ratio has risen Mining is among the highest taxed industries in Australia with nearly half of every dollar in profit paid as royalties or company tax. The minerals industry’s annual tax survey finds that tax ratios (combining company tax and royalties as a share of taxable income) have risen sharply since 201011 as commodity prices have fallen and states have increased royalty rates. The industry tax ratio 77 was 47 per cent in 2013-14 (the latest survey year). This is the equal highest ratio over seven years of survey data and is well above the survey average of 43.1 per cent (Chart 20). As prominent economist Chris Richardson points out, contrary to widespread perceptions: ‘Not only did those tax 78 ratios never fall far [during the boom], they’ve actually headed up over recent years’. Chart 20: Total tax take ratio on mining 48%

46.8%

46.8%

2012-13

2013-14

46% 44% 42%

43.2% 42.1%

42.1% 40.6%

39.8%

40% 38% 36% 2007-08

2008-09

2009-10

2010-11

2011-12

Source: Deloitte Access Economics

Australia’s company tax rate no longer globally competitive The guiding objective of tax reform should be to increase Australia’s growth potential through a more competitive tax system. Treasurer Scott Morrison has correctly identified ‘a better tax mix and a better combination of taxes at state and federal level that helps us grow our economy’ as a key goal 79 of tax reform. A shift in the tax mix from taxes that impose a high cost to more efficient taxes would boost investment and growth. Without reform, the economic cost of raising revenue from a narrow base of income taxes will increase. A competitive tax system is important for investment in highly capital-intensive industries such as mining which are characterised by multi-decade investments. Mining projects involve high-risk exploration outlays, large upfront capital commitments, long-life assets, sophisticated technologies and long lead times to profitability. Competition from other resource-rich economies to capture future opportunities in resource development is intense. Australia’s statutory company tax rate is no longer globally competitive and is too high for a capital hungry country. The last corporate tax rate reduction from 34 per cent to 30 per cent in 2001 brought 80 Australia into line with the OECD average at the time (30.8 per cent in 2000). In the 15 years since, 77

Deloitte Access Economics, Minerals Industry Tax Survey 2015, report prepared for the Minerals Council of Australia, December 2015. 78 Chris Richardson, Mining Tax Ratios Revisited, a public policy analysis produced for the Minerals Council of Australia, No. 8, March 2015, p. 7. 79 The Hon Scott Morrison MP, Treasurer, A National Platform for Economic Growth and Jobs, address to Economic and Social Outlook Conference, 5 November 2015. 80 Dick Warburton and Peter Hendy, International Comparison of Australia’s Taxes, report to the then Treasurer the Hon. Peter Costello MP, 3 April 2006.


Australia’s rate has remained stagnant while other economies have reduced tax rates. Australia’s 30 per cent statutory rate now compares with an OECD average of 25 per cent and an average of 22 per 81 cent in the Asian region (Chart 21). Chart 21: Company tax rates – international benchmarks Tax rate 2015

% 50

Tax rate 2000

% 50 45

45 40 35 30 24.2

25 20 15

16.5

17.0

20.0

25.0

26.5

28.0

29.7

30.0

33.3

37.0

39.0

40 35 30 25

20.0

20 15

10

10

5

5

0

0

Source: Treasury, KPMG, Ernst & Young

The economic cost of raising revenue through company tax is significantly higher than other Commonwealth taxes. As a small to medium-sized, capital importing, open economy, a high company tax rate is particularly damaging to Australia. Treasury’s tax discussion paper Re:think shows that corporate taxes are the most harmful Commonwealth tax for growth, followed by personal 82 income taxes. Treasury analysis also shows that the final burden of company tax in Australia is 83 borne largely by workers in the form of lower wages. As the Minister for Resources and Energy Josh Frydenberg has noted: ‘High company tax can stifle 84 investment, drive it offshore and ultimately, cost Australian jobs’. Given the recognition of the importance of corporate tax reform to Australia’s economic growth, the Australian Government should take concrete steps to cut the corporate tax rate. A progressive reduction in Australia’s high statutory corporate tax rate towards the OECD average is necessary to improve competitiveness and Australia’s growth prospects. The Prime Minister is right to set fairness as a benchmark for tax reform. Fairness should be assessed based on the tax system as a whole. Reform proposals rebalancing the tax system from inefficient to more efficient taxes should be done in such a way to maintain equity and progressivity in the tax-transfer system. This has been achieved in the past in rebalancing the tax mix. Other industry tax priorities Stable and efficient tax arrangements for exploration, R&D, fly-in-fly-out (FIFO) workers and business inputs such as fuel are vital to industry competitiveness and investor confidence.

81

KPMG, Corporate Tax Rates Table, viewed 23 December 2015. Australian Government, Re:Think: Tax discussion paper, Canberra, p. 25. 83 Xavier Rimmer, Jazmine Smith and Sebastian Wende, The incidence of company tax in Australia, Treasury Economic RoundUp, Issue 1, 2014. 84 The Hon. Josh Frydenberg MP, Minister for Resources, Energy and Northern Australia, The Government's Tax Agenda Queensland Tax Forum, address to Queensland Tax Forum, 27 August 2015. 82


Australia’s Fuel Tax Credits (FTC) regime (widely known as the ‘diesel fuel rebate’) is based on the core tax policy principle that business inputs should not be taxed – the same principle that underpins the GST system. FTCs also recognise that excise is an implicit road user charge originally introduced to fund public roads. Rebates for off-road use of diesel fuel have existed ever since excise was extended to diesel in 1957. FTCs are vital to the competitiveness of industries operating in regional Australia. Large export earning industries such as mining, agriculture and tourism rely on diesel to operate heavy machinery off-road and to operate in remote areas off the electricity grid. Any changes to existing FTC arrangements would amount to a new tax on regional and rural Australia and would hit industries and jobs in Northern Australia particularly hard. Diesel accounts for up to one quarter of operating costs at some mines. Competitor countries recognise the necessity of diesel as a business input to regional industries and do not impose excise on fuel used in mining. As Deloitte Access Economics observe, an increase in diesel tax on Australia’s mining industry ‘would simply see a loss of global market share, profits and employment’ 85 and ‘many existing mines could find their lives considerably foreshortened’. Claims that FTCs are a ‘subsidy’ are baseless and have been rejected repeatedly by the Australian Treasury and the Productivity Commission. Treasury has stated that: ‘Fuel Tax Credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles’. 86 Just as Treasury does not include the FTC as a tax expenditure, so too the Productivity Commission not consider it to be industry 87 assistance. The MCA welcomes the support shown for the FTC regime by the vast majority of parliamentarians (Box 7). Box 7: Bipartisan support for Fuel Tax Credit scheme and recognition it is not a subsidy ‘[T]he government does not consider the diesel fuel rebate as a subsidy at all … It is recognition that you should not charge businesses an effective road user charge if they do not use public roads’ – Senator the Hon. 88 Mathias Cormann. ‘Unjustifiably taxing business inputs is inefficient. It distorts investment decisions, affects Australia’s export 89 competitiveness and creates uncertainty for businesses large and small’ – the Hon. Gary Gray AO MP. ‘[T]here are no fossil fuel subsidies in our tax system … The diesel fuel rebate has the effect of preventing the taxation of a “business input” … which is an accepted principle of good taxation policy … There is no preferential 90 treatment for the resources industry in our tax system …’ – Senator the Hon. Sam Dastiyari. ‘[E]ach year Treasury compile what is called a Tax Expenditures Statement, a summary of all the reductions in tax rates we provide to particular sectors and how much that costs the budget … It is very important to note that, while that document is not per se about subsidies themselves, Treasury do not include the diesel fuel tax rebate as part of their assessment … [C]onsistent with Treasury practice, the Productivity Commission do not measure or estimate the fuel tax rebate as a subsidy. They have had ample opportunity to do so over many years’ – 91 Senator Matthew Canavan.

85

Deloitte Access Economics, The economics of fuel taxation in the mining sector, report prepared for the Minerals Council of Australia, 1 July 2014, p. 1. 86 Treasury Question Time Brief, Treasury Freedom of Information Disclosure Log, Document 19 AFR ARTICLE: G20 COMMITMENT ON FOSSIL FUEL SUBSIDIES, 28 February 2011. 87 Productivity Commission, Trade and Assistance Review 2013-14, Annual Report Series, Productivity Commission, Canberra, 24 June 2015, p. 114. 88 Senator the Hon Mathias Cormann, Minister for Finance, Senate Hansard: Economics Legislation Committee Estimates – Treasury Portfolio, 5 June 2014. 89 The Hon Gary Gray AO MP, Shadow Minister for Resources, Government Must reject Calls for Abolition of the Fuel Tax Credit Regime, media release, 30 September 2015. 90 Senator the Hon Sam Dastiyari, Shadow Parliamentary Secretary to the Leader of the Opposition and Shadow Parliamentary Secretary for School Education and Youth, Senate Hansard: Mining Subsidies Legislation Amendment (Raising Revenue) Bill 2014, Second Reading, 26 November 2015. 91 Senator Matthew Canavan, Nationals Party Whip in the Senate, Senate Hansard: Mining Subsidies Legislation Amendment (Raising Revenue) Bill 2014, Second Reading, 26 November 2015.


Fringe benefits tax and fly-in-fly-out workers The principle of not taxing business inputs also applies to the fringe benefits tax (FBT) system. Essential transport and housing provided to workers in remote areas do not constitute ‘fringe benefits’. The arrangements are consistent with the policy intent of the FBT system to tax benefits that are private in nature. The FBT system’s housing and transport exemptions are targeted at travel to and from work in remote locations and housing in defined ‘remote areas’ where there is limited accommodation available. The Productivity Commission recognised the merit of this approach in its 2014 report on geographic labour mobility stating: ‘[T]he current FBT regulations aim to distinguish between genuine business operating 92 costs…..and other more private types of benefits’. The Government should resist calls to impose FBT on essential employer-provided transportation and accommodation to FI-FO workers. Exploration tax arrangements Australia’s immediate deduction regime plays a vital role in generating the exploration activity essential to securing a future pipeline of mining projects. Taxation treatment is a crucial influence on Australia’s competiveness as a destination for minerals exploration. As the Colorado School of Mines has observed: ‘Exploration is footloose in that explorers can redirect their activities to regions or countries with more favourable tax regimes’. 93 Exploration expenditure is an ongoing, necessary and ordinary business expense for a minerals company. Deductibility of that expenditure in the year that expenditure is incurred provides stability for what is a high-risk activity. The Government should continue to support immediate deductibility as the most practical and efficient way to treat exploration expenditure. With its focus on junior explorers, the MCA also supports the contribution the Exploration Development Incentive (EDI) makes to Australia’s exploration effort. Integrity and transparency measures The MCA supports Australia remaining in step with international efforts on BEPS reform. International consistency ensures that the cost burden of additional compliance requirements is mitigated to the greatest extent possible and effectively targets any identified ‘tax mischief’. Improved tax system information and transparency that provides meaningful tax information will help improve public understanding of tax concepts and help to ground debate in accurate information. A number of mining companies operating in Australia release detailed tax payment information on a voluntary basis. Transparency International consistently ranks BHP Billiton and Rio Tinto near the top 94 of its worldwide ranking of companies in its Transparency in Corporate Reporting analysis. In line with the industry’s commitment to meaningful and globally consistent tax transparency, the Australian minerals industry supports the Extractive Industries Transparency Initiative (EITI), a global initiative that aims to reconcile payments by resource companies with those received by governments. The Government should progress the implementation of the EITI as recommended by the final report on the Australian EITI pilot. The Multi-Stakeholder Group report confirmed a high degree of accuracy 95 and integrity in company reporting and governance systems. The development of a voluntary transparency code by the Board of Taxation, announced by the Australian Government in May 2015, has the potential to improve transparency and understanding of company tax contributions. The MCA is taking an active role in the consultation process led by the Board of Taxation and will continue to play a constructive role on improving tax transparency.

92

Productivity Commission Research Report, Geographic Labour Mobility, April 2014, p. 256. Roderick G. Eggert, Minerals Exploration and Development: Risk and Reward, Colorado School of Mines, Prepared for the International Conference on Mining, May 2010. 94 Transparency International, Transparency in Corporate Reporting: Assessing the World’s Largest Companies, report, assessing the transparency of corporate reporting by the world’s 124 largest publicly listed companies, Nov 2014. 95 Australian Government, Extractive Industries Transparency Initiative Multi-Stakeholder Group Report, May 2015. 93


Register of environmental organisations It is important that appropriate standards of openness and accountability apply equally to environmental organisations. The register of environmental organisations allows entities to receive 96 income tax deductible gifts and contributions. Registered environmental organisations accounted 97 for up to $45 million in foregone tax revenue in 2013-14 alone. To qualify for the register, entities must have a principal purpose of conserving or improving the natural environment, or conducting related education or research. In addition, registered environmental organisations must not act as a conduit for the donation of money or property to other 98 entities, although they may fund other organisations to undertake natural conservation work. Not-for-profit organisations and their boards face essentially the same obligations and penalties as 99 for-profit entities – including the duty to observe both criminal and company law. Those registered environmental organisations that are also registered charities are expressly forbidden from pursuing 100 activities that are unlawful, contrary to public safety or politically partisan. The MCA has presented substantial evidence that some registered environmental organisations are using tax-deductible donations to campaign against the coal, gas and uranium industries, including by 101 illegal and unsafe means. None of this evidence has been contested by the groups responsible. For example, Greenpeace Australia Pacific is both a registered environmental organisation and a charity. Nevertheless, Greenpeace has unlawfully scaled and vandalised Swanbank power station, illegally scaled Hay Point coal terminal and blockaded the harbour with a 72-metre diesel vessel, destroyed genetically modified crops at CSIRO and unlawfully boarded the bulk coal carrier MV Meister. On 2 June 2015, a spokesperson confirmed that breaking the law is ‘absolutely’ a tactic of 102 Greenpeace – notwithstanding that a charity cannot have a purpose of unlawful behaviour. The Leard Forest Alliance – which includes five registered environmental organisations that are also 103 charities – has blockaded Whitehaven Coal’s Maules Creek project for three years. Parliamentary evidence by Whitehaven Coal revealed that activists regularly place themselves, workers and police at risk by trespassing and locking on to heavy equipment. Further, a cattle drover was dangerously 104 injured by a neck-high trip wire that was allegedly set by activists. A Leard Forrest Alliance

96

Australian Charities and Not-for-profits Commission, Factsheet: Deductible gift recipients (DGRs) and the ACNC. Department of the Environment, Submission to the House of Representatives Standing Committee on the Environment Inquiry into the administration, transparency and effectiveness of the Register of Environmental Organisations under the Income Tax Assessment Act 1997, p. 11. 98 Department of the Environment, Register of Environmental Organisations: Overview; Commonwealth of Australia, Income Tax Assessment Act 1997, Section 30.265; Department of the Environment, Register of Environmental Organisations: A Commonwealth Tax Deductibility Scheme for Environmental Organisations: Guidelines, 2003 (incorporating minor updates made in December 2014), pp. 9, 11. 99 See Logie-Smith Lanyon Lawyers, For profit and for purpose: what is the difference? 3 February 2015; and Our Community Group, Compliance for not-for-profit organisations. 100 Commonwealth of Australia, Charities Act 2013, Section 11; Explanatory memorandum to the Charities Bill 2013, p. 44f. 101 Minerals Council of Australia, Submission to House of Representatives Standing Committee on the Environment Inquiry into the Register of Environmental Organisations, MCA, 29 May 2015. 102 See ‘Greenpeace trio fined thousands over smoke stack stunt’, ABC News, 4 November 2008; ‘Minister slams “extreme activists” at Swanbank protest’, David Barbeler, ‘Greenpeace protestors stop work at coal terminal’, Brisbane Times, 7 August 2009; ABC News, 14 July 2008; ‘Greenpeace ship captain fined $8000’, Sydney Morning Herald, 9 May 2010; Australian Academy of Science, GM crop destruction unacceptable: Academy of Science, 14 July 2011; Louise Andrews, ‘Guilty, but good behaviour wanted from Greenpeace activists’, Canberra Times, 20 November 2012; Owen Jaques, ‘Greenpeace activists back on Rainbow Warrior ship’, Daily Mercury, 25 April 2013; ‘Coal ship activists head back to Cairns’, news.com.au, 25 April 2013; ABC Radio National Breakfast, Greenpeace responds to Senator's calls to remove its tax deductible gift status, 2 June 2015; Murray Baird, Assistant Commissioner and General Counsel, Australian Charities and Not-for-profits Commission, Evidence to House of Representatives Standing Committee on the Environment, Register of Environmental Organisations, Hansard, 18 June 2015, p. 3. 103 The following registered environmental organisations are members of the Leard Forest Alliance: Greenpeace Australia Pacific, Lock the Gate Alliance, the Wilderness Society, Friends of the Earth (Australia) and the Nature Conservation Council of NSW. All five of these entities are also registered charities. 104 Brian Cole, Executive General Manager Project Delivery, Whitehaven Coal, Evidence to House of Representatives Standing Committee on the Environment, Register of Environmental Organisations, Hansard, 18 June 2015, p. 9f. 97


spokesperson said in April 2015 that donations made to various anti-mining movements would help 105 pay large fines. Further, some registered environmental organisations seem to be wrongly endorsing unregistered affiliates as deductible gift recipients, rather than advising them to make formal applications to the ATO. Friends of the Earth (Australia) claims that three of its affiliates – namely CounterAct, Market Forces and Public Transport Not Traffic – are eligible for tax-deductible donations, even though none 106 are listed on the register of environmental organisations. By the same token, all three of these organisations cite their affiliation to Friends of the Earth to incorrectly claim that donations to their 107 organisations are tax deductible. In addition, Friends of the Earth apparently endorses 350.org 108 Australia, another unregistered organisation, as a deductible gift recipient. The central problem is that there is no systematic process for assessing how registered environmental organisations are using tax-deductible donations and whether such use is legitimate. Indeed, in June 2015 the Department of the Environment admitted that assessing what an organisation actually does is not a ‘standard feature’ of its regulatory approach: We have a power to request statistical information from entities and we analyse that information, but we 109 have no additional powers to do anything in relation to that information or their activities.

The MCA considers that more rigorous monitoring and enforcement of existing rules would go a long way to strengthening the integrity of the register of environmental organisations. This could include: •

Immediately deregistering any entity with a record of committing or promoting illegal activities

•

Transferring responsibility for monitoring and enforcement from the Department of the Environment to the ATO or the Australian Charities and Not-for-profit Commission

•

Stricter enforcement of work health and safety laws for organisations with paid employees.

105

‘Big fines for area's protesters’, The Courier, 2 April 2015; ‘Greenies cough up for activists’ fines’, Courier Mail, 23 May 2015, p. 5. 106 See Friends of the Earth Australia, Affiliates. 107 See CounterAct, Homepage; About; Resources; Donate; Market Forces, Single donation – thank you; Regular donor – thank you; Public Transport Not Traffic, Donate. 108 350.org Australia, Donate. 109 Simon Writer, General Counsel, Department of the Environment, Evidence to House of Representatives Standing Committee on the Environment, Register of Environmental Organisations, Hansard, 16 June 2015, p. 10.


3.3

Energy and climate change •

Energy policy should be technology-neutral, with all low emissions options treated equally. Attempting to pick winners will only raise energy costs.

•

The Australian Government’s 26-28 per cent CO2 emissions reduction target is credible and appropriate, but it imposes an economic burden greater than that embodied in other developed nations’ targets. To limit the cost of meeting this target, access to international abatement should be permitted.

•

The Direct Action Safeguard Mechanism, which disproportionately covers large export industries, should be allowed to operate with minimal changes. The national energy productivity agenda should rely on innovation rather than legislated targets to deliver more output per unit of energy consumed.

The minerals industry supports a technology-focus on lowering emissions and robust markets and innovation policy that drives energy productivity and efficiency. Technology plays a central role in the ongoing competitiveness of the industry and its ability to drive greater efficiency and better environmental outcomes, including lower greenhouse gas emissions. As noted in Section 2.2, Asian economies are investing heavily in high-efficiency, low-emissions coalfired generation. Carbon capture and storage plants are now operational and will continue to be deployed. Nuclear power will also be part of the mix as nuclear capacity rises markedly, from 392 110 GW today to 614 GW in 2040. There is much potential in modern small modular reactors, which could offer long-term stable electricity supply to underpin household and industrial use in mining and other remote towns. The ban on the use of nuclear power in Australia should be lifted. Energy policy must accommodate both security and climate goals but not distort markets Energy security is vital to the competitiveness of the Australian economy and the Australian mining industry. Ready access to reliable and affordable energy is crucial to industrial users such as mining operations, refineries and smelters. It also underpins the high standard of living of households. In Australia, coal remains the primary source of dependable, low-cost electricity, accounting for 71 per 111 cent of generation on the grid. However, various policy decisions have eroded Australia’s advantage from access to reliable, costeffective energy. Electricity prices increased by around 50 per cent nationally between 2010 and 2013. Some of this is due to investment in poles and wires to ensure reliable supply to customers in 112 peak periods, though the carbon tax and other market-distorting policies also inflated prices. In terms of electricity prices, Australia’s ranking among OECD countries has fallen from first (cheapest) th in 2000 to 27 in 2014. Between 2007 to 2014, Australia’s electricity prices increased by 42 per cent, the seventh highest rate of growth across the OECD. In contrast, the electricity prices of competitor 113 nation Canada rose by only 21 per cent in the same period. Energy technologies should compete on their merits and neither face favoured treatment (renewables) or undue restrictions on access (gas). Supplementary technologies such wind and rooftop solar require baseload power to guarantee consistent supply and energy policy must recognise 114 this reality. The cost of building and running wind power averages between $80 and $120 per megawatt hour (Mwh) compared with about running and maintenance costs of $38/Mwh for existing 115 116 coal plant. Solar costs about $300/Mwh at present.

110

International Energy Agency, World Energy Outlook 2015, Paris, released on 10 November 2015, p. 586. Electricity Supply Association of Australia, Electricity Gas Australia 2015, Table 2.6. 112 Australian Government, Energy White Paper, 8 April 2015, p 9. 113 Organisation for Economic Co-operation and Development, OECDStats, Paris, viewed 10 February 2016. 114 See Origin Energy, Energy in Australia, 22 January 2015, viewed 9 February 2016. 115 Kobad Bhavnagri, Bloomberg New Energy Finance, Renewable Investment: Are you willing to take the gamble? Presentation to the Australian Clean Energy Summit, 15 July 2015. Prices are expressed in real 2015 Australian dollars. 111


Under the modified Renewable Energy Target, the estimated cost of building new wind turbines and solar installations is around $22 billion in direct costs to 2030, met by around $24 billion in 117 subsidies. Renewable energy sources received $2.8 billion in 2013-14, compared with support of 118 $145 million to fossil fuels. When subsidies and feed-in tariffs are all included, the extra cost to 119 consumers is 6 to 9 per cent of their total power bill. For large businesses, the cost of all 120 government schemes can be as much as 20 per cent of their total power bill. The operating subsidies bestowed on renewables are not transparent but ultimately have to be paid by consumers. Australia’s competitors do not face the same policy-induced distortions in their energy markets. Australia’s emission target is credible and appropriate but not without economic costs As a significant middle power, Australia has a responsibility to contribute to a genuinely global effort to address climate change. The Australian Government’s proposed 2030 emissions reduction target (26 to 28 per cent off 2005 levels) is an ambitious goal that will impose strains on the Australian economy, especially export and import-competing industries. The target will also involve Australia bearing more 121 than a comparable share of the economic burden (Chart 22). Chart 22: Australia’s emissions reduction target entails a significant economic challenge

Source: Department of the Environment

116

Department of Industry, Innovation and Science, The Australian Energy Technology Assessment (AETA) 2013: Update, Canberra, 2013; ACIL Allen, RET Review Modelling – Market Modelling of Various RET Policy Options: Report to the RET Review Expert Panel, 7 August 2014. 117 Estimate by Principal Economics. Estimates of the capital costs under the original RET target suggested a cross-subsidy from users to producers of about $22 billion to 2030 (see Australian Government, Renewable Energy Target Scheme: Report of the Expert Panel, 15 August 2014). Modifications to the scheme in 2015 altered some legislated definitions of generation, but largely kept the share of large scale renewable generation required the same. 118 Principal Economics, Electricity Production Subsidies in Australia, a policy paper commissioned by the Minerals Council of Australia, MCA, August 2015, p. 13. 119 Australian Energy Markets Commission, cited in Principal Economics, Electricity Production Subsidies in Australia, a policy paper commissioned by the Minerals Council of Australia, MCA, August 2015, p. 15f. 120 ROAM/Synergies, cited in Principal Economics, Electricity Production Subsidies in Australia, a policy paper commissioned by the Minerals Council of Australia, MCA, August 2015, p. 15f. 121 Australian Government, Australia’s 2030 Climate Change Target, 11 August 2015, p. 2.


Australia faces a more intensive emissions reduction effort because it has different characteristics than other developed economies and plays a different role in the global economy. Australia has a growing population with a low geographic density and provides food, energy and resource security for dozens of nations around the world. Energy productivity Australia productive use of energy has improving steadily over the past 40 years, bringing with it a fall in the emissions intensity of the economy. Economic growth has trebled while energy use has only doubled in the past 40 years. The pace of growth in energy use and emissions has been slower than that the growth in the economy, bringing a steady reduction in energy intensity, 19.3 per cent since 2000. In 2013-14, the mining industry accounted for 9.1 per cent of the nation’s energy consumption. While mining energy consumption grew an average 6.9 per cent a year over the previous decade, mining output increased at an average of 22 per cent a year. In other words, mining is using more energy 122 but doing so more efficiently. Policies such as the National Energy Productivity Plan (released by the government in December 2015) should remain focused on enabling firms to apply innovation and technology to deliver more output for each unit of energy within the broader context of its operations. The competitive drivers have already delivered significant gains to both energy productivity and emissions. Direct Action implementation Direct Action, and specifically the Safeguard Mechanism (an overall management scheme for emissions), is now being implemented as part the suite of government climate change policy instruments. The scheme should be allowed to operate with minimal changes to allow for investor certainty. Government should recognised that the Safeguard Mechanism is not an economy wide emissions management tool as it only applies to 52 per cent of the nation’s emissions, and covers a large number of export industries, particular mining which makes up close to 40 per cent of eligible companies.

122

Department of Industry, Innovation and Science, Energy in Australia 2015, Canberra, released on 5 February 2016, p. 34; Resources and Energy Quarterly – September Quarter 2015, Canberra, released on 30 September 2015, p. 17; Australian Bureau of Agricultural and Resource Economics, Australian Commodities – September Quarter 2005, p 459.


3.4

Regulatory reform and competition •

MCA member companies have identified approvals processes and ‘green tape’ and workplace relations as top regulatory reform priorities to improve productivity. Along with tax, these areas should be at the centre of the Government’s policy reform agenda.

•

The MCA supports renewed competition policy reform following the Harper review. Coastal shipping reform remains a high priority for the industry and should be revisited by the Australian Parliament.

•

While the minerals industry commends government efforts on red tape reduction, pressures for more regulation continue to find outlets in a range of policy areas. Examples include the register of foreign ownership of agricultural land, the register of foreign ownership of water entitlements and increased tax compliance burdens – including new country-by-country reporting requirements.

The Australian minerals industry is a price-taker in global markets. Competition for markets, investment and talented people is intense in a world where mineral resources are widely available. Increased domestic costs cannot simply be passed on to customers. Regulatory settings have a profound impact on the minerals industry’s cost competitiveness, productivity and capacity to adapt to changing market conditions. The industry is subject to more regulatory requirements than most other industries. It therefore has a vital interest in efficient, stable and risk-based regulatory systems. To seize future opportunities, Australian mining must be more cost competitive, productive and flexible across the full length of the minerals supply chain – from exploration and initial project development through to final shipment. Though it has the highest productivity levels in Australia, mining (like many other industries) has seen its productivity growth performance deteriorate over the last decade or so. A comprehensive productivity survey of MCA member companies has identified required areas of policy focus to improve the industry’s productivity performance. Approvals processes and ‘green tape’ in general were nominated as the area of greatest policy concern, followed (with equal frequency) by the industrial relations framework and royalties and taxes (Chart 23). Chart 23: Areas nominated as ‘important’ or ‘very important’ to improving productivity (percentage of respondents, multiple responses)


Ninety per cent of respondents ranked approvals processes as ‘very important’ (65 per cent) or ‘important’ (25 per cent) to improving productivity. The additional category of environmental requirements was nominated as either ‘very important’ (40 per cent) or ‘important’ (35 per cent) by 75 per cent of survey respondents. Eighty per cent of company respondents to the survey nominated the industrial relations framework as an area of policy priority, with 45 per cent citing it as ‘very important’ and 35 per cent citing it as ‘important’ to improving productivity. Reforms in these areas should be at the centre of the government’s agenda for growth, productivity and competitiveness. On approvals, ‘One-Stop Shop’ reforms would make project approval processes more efficient without compromising environmental outcomes. Reforms to the Fair Work Act are needed to better align workplace incentives with enterprise flexibility and to improve productivity. As part of a comprehensive regulatory reform agenda, the MCA supports renewed competition policy reform following the Harper review. Competition policy laws and institutions play an important role in shaping the business environment in which the minerals industry operates. The Government’s decision to adopt the majority of the Harper review’s recommendation provides the opportunity to reinvigorate a genuine microeconomic reform agenda that drives productivity gains, one encompassing ‘non-traded’ parts of the economy, including infrastructure regulation and areas of major services expenditure such as health and education. Coastal shipping reform remains a high priority for the industry and should be revisited by the Australian Parliament. The minerals sector strongly supported the Shipping Legislation Amendment Bill 2015, noting that the current regime has constrained access to shipping services and led to a doubling of costs. A recommitment to coastal shipping reform is essential given that Australia’s 123 freight task is expected to grow by 80 per cent by 2030. The MCA welcomes the government’s ongoing commitment to a red tape reduction agenda and acknowledges that important progress has been made. At the same time, pressures for more regulation continue to find outlets in a range of policy areas. Examples in recent times include:

123

•

Register of foreign ownership of agricultural land – imposes heavy compliance burdens on mining companies to account for and value land that is used for agricultural purposes

•

Register of foreign ownership of water entitlements – an additional and unnecessary reporting burden from December 2016

•

Increased tax compliance burdens – including new country-by-country reporting requirements.

Minerals Council of Australia, Submission on Shipping Legislation Amendment Bill 2015, MCA, 21 August 2015.


3.5

Workplace relations •

The Productivity Commission has identified flaws in the Fair Work Act. The minerals industry supports a number of the Commission’s recommendations, but its report should not be the final word on workplace reform.

•

The current workplace relations framework stifles direct engagement between employers and employees, impedes innovation, diverts managers from core business, prolongs business decision-making and reduces the capacity of firms to respond to changing market conditions.

•

MCA priorities for reform include: the need for a wider suite of agreement options, more balanced union entry rules, reduced scope for matters outside the employment relationship to be inserted in agreements, and reform of adverse action provisions. Reforms in 2015 that provide a new process for negotiating single-enterprise greenfields agreements (and a mechanism for progressing agreements when negotiations stall) are a positive development.

The Fair Work Act has reduced choice and flexibility in employment arrangements and created a more adversarial bargaining system. It stifles direct engagement between employers and employees, impedes innovation, diverts managers from core business, prolongs business decision-making and reduces the capacity of firms to respond to changing market conditions. The Productivity Commission’s review of the workplace relations framework makes a number of useful recommendations for reform which the MCA supports. But overall it is too sanguine about the performance of Australia’s labour market institutions and the workplace foundations for future national competitiveness, especially in an economy marked by below-average growth, below-average productivity growth and persistent unemployment. A productivity-focused survey of MCA member companies found the workplace relations framework as second only to approvals processes and ‘green tape’ as requiring policy attention from government (section 3.4). The system’s capacity to impede productivity was most apparent in terms of delays in reaching agreements, restrictions on flexibility in work arrangements and a lack of productivity offsets in agreements (Chart 24).

Chart 24: How the workplace relations framework unnecessarily impedes productivity growth (percentage of respondents, multiple responses)


Respondents were asked to signal the relative importance of various factors that have contributed to unnecessary productivity impediments. The strongest responses concerned: •

Too much union involvement in negotiation of agreements (50 per cent of respondents)

•

Insufficient protection against industrial disputes (50 per cent of respondents)

•

Insufficient provision for individual flexibility in agreements (45 per cent of respondents)

•

Scope of permitted matters in agreements too broad (40 per cent of respondents) and

•

Union right of access to sites too freely available (35 per cent of respondents).

The experience of the minerals industry is that the current workplace relations regime has encouraged unreasonable claims, compromised workplace harmony and productivity, increased business costs unnecessarily, delayed adjustments to altered conditions and put at risk current and future high-wage jobs in mining. The adverse consequences of this institutional failure may have been masked through a period of boom-driven economic buoyancy. Now that commodity prices have fallen markedly from peak levels, neither the mining industry nor the nation as a whole can afford to brush such matters aside lightly. The minerals industry’s priorities for workplace relations reform include: •

A wider suite of agreement options – The object of the Fair Work Act states that statutory individual agreements ‘can never be part of a fair workplace relations system’. This purely ideological premise ignores ample evidence from within the minerals industry regarding the capacity of these agreements to provide attractive salaries and working conditions for employees, while facilitating flexible and productive workplaces. Earnings from individual arrangements in the mining industry are higher than those from collective agreements. The MCA recommends that individual statutory agreements be permitted as an agreement making option, subject to a robust ‘no disadvantage test’. The MCA regards the sanctioned form of direct contractual agreement within the existing framework – Individual Flexibility Arrangements (IFAs) – as inadequate given they have proven to be very difficult to negotiate for anything other than relatively minor matters. More specifically, the value of IFAs has been diminished by stipulations that they cannot be offered as a condition of employment and can be terminated on just 28 days’ notice. The MCA supports proposed changes to the Fair Work Act in the Government’s Fair Work Amendment (Remaining 2014 Measures) Bill 2015, including to extend the period of notice for unilateral termination of an IFA and to provide clarity and certainty around allowed matters and the ‘better off overall’ requirement. The MCA supports the Productivity Commission’s reforms in this area (recommendations 22.1, 22.2 and 22.3), including to allow for a default termination period of 13 weeks, but with the capacity for employers and employees to agree at the formation of the agreement to a one year minimum period.

•

More balanced union entry rules – Provisions relating to union access to workplaces should reflect the sensible arrangements that operated prior to the Fair Work Act, whereby a union has legitimate claims for access to a workplace where: the union can demonstrate that it has members on that site, and those members have requested the union’s presence. These arrangements allowed union access to workplaces for valid reasons, where visits are conducted in a safe and orderly way and with appropriate checks on costs and complexities. The MCA supports the four proposed changes to the Fair Work Act in the Government’s Fair Work Amendment (Remaining 2014 Measures) Bill 2015:


a. Repealing amendments made in 2013 requiring an employer or occupier to facilitate transport and accommodation arrangements for permit holders exercising entry rights are work sites in remote locations b. Requiring that permit holders can only enter a workplace for discussion purposes if the permit holder’s union is covered by an enterprise agreement or if at least one employee invites the union to send a representative c.

Returning to the rules on location of interviews and discussions in place prior to amendments in 2013, and

d. Expanding the Fair Work Commission’s capacity to deal with disputes about the frequency of visits to premises for discussion purposes, including by no longer requiring the employer to demonstrate that the frequency of visits required a diversion of ‘critical resources’. The Productivity Commission’s recommendations in this area are more modest and include a similar proposal to give the Fair Work Commission more power to resolve disputes about the frequency of visits and a recommendation that unions without members at a workplace or not covered by an agreement should have visits limited to two every 90 days. •

Permitted matters – The MCA is deeply disappointed the Productivity Commission has not recommended a more discriminating and productivity-focused approach to ‘permitted matters’ in enterprise agreements. It has identified only a small part of a much larger problem in recommending that terms in agreements that restrict or regulate the engagement of independent contractors, labour hire and casual workers should be unlawful. The Fair Work Act should make clear that permitted matters in enterprise are matters that pertain only to the employment relationship between employers and employees. They should not include items which pertain to relations between an employer and a union or operational, performance or other matters that are the appropriate responsibility of management. The issue of permitted matters in agreements lies at the heart of the system’s functionality and performance. It has been nominated by MCA members as among the current regime’s biggest impediments to productivity improvement.

•

Adverse action provisions – The adverse action provisions of the Fair Work Act have opened the door to unmeritorious claims. The Fair Work regime allows for multiple reasons for taking action to be considered as material, with contravention if one or more of the reasons are proscribed. The scope of ‘workplace right’ is defined too broadly and the interaction of the reverse onus of proof on employers and the uncapped nature of potential compensation claims acts as a particular encouragement to unmeritorious claims. The MCA considers that adverse action provisions are too loose and too open to unintended consequences. They should be refocused around traditional freedom of association principles to prevent genuine discrimination against employees based on the union or nonunion status. The Productivity Commission has made some modest reform recommendations that address select shortcomings in the existing Fair Work regime (the MCA supports recommendations 18.1-18.4). However, it has failed to grapple adequately with the unintended and unmanageable consequences arising from the removal of an earlier qualification that applied; namely, that it is unlawful to take adverse action because a person is entitled to the benefit of an industrial instrument, or for reasons that include that matter, but such conduct is only unlawful if the ‘sole or dominant purpose’ was to avoid the instrument.


The MCA welcomes progress made on greenfields agreements with the passage in November 2015 of the Fair Work Amendment Act 2015. Key changes apply good faith bargaining principles to greenfields agreements for the first time and enable an employer to take a proposed agreement to the Fair Work Commission for approval after a notified six-month negotiation period without union approval. A persistent problem with the greenfields agreement framework under the Fair Work Act has been the capacity for unions to hold major projects to ransom causing project delays and significant cost blow-outs (Box 8). Box 8: Selected comments from MCA member companies on workplace relations challenges On impediments to innovation and productivity: Processes prevent the business from reacting quickly. Unions follow dispute resolution clauses to delay changes and needlessly involve the Fair Work Commission. This happens for roster changes, restructures, redundancies, etc. The ‘default’ position in the Fair Work Act strongly favours the union. The Act has barriers that complicate direct engagement with employees …

On bargaining matters and agreement making: The scope for ‘permitted matters’ in enterprise agreements is too broad; [it] should be limited to employee entitlements/terms of employment only.

On unfair dismissals and performance management: The Fair Work Act adds bureaucracy and uncertainty to certain processes, in particular to performance management. Regardless of the process followed prior to termination, many choose to Fair Work with an unfair dismissal claim purely to see if they can extract more money from the former employer.

On transfer of business provisions: The transfer of business provisions have limited our ability to respond quickly and appropriately to changing economic circumstances. To avoid being bound by agreements we did not make and were not a party to, we have chosen suboptimal solutions.

On system complexity: The Act is very complex and legalistic and requires most companies to rely on internal and external legal advice. This has resulted in significant increases in compliance and advisory costs. Recent negotiations and approval of enterprise agreements are legally complex – even when there is overall agreement. In situations where there are disputes, costs can escalate quickly … The complexity of award coverage means that different rights and entitlements can apply to employees working side by side in the same team. For example, while non-award employees can cash out their annual leave (as provided by National Employment Standards) an engineer covered by the Professional Employees Award cannot. Source: Survey of MCA member companies


3.6

Workforce health and safety •

The minerals industry is keen to see progress towards a nationally consistent, risk-based Occupational Health and Safety (OH&S) regulatory system.

•

Different health and safety regimes, with multiple state-based codes and guidance materials, create real challenges for the industry and distract from day-to-day safety and health management. Impediments to mining companies obtaining relevant health and safety data from mining regulators also need to be addressed.

A long way from national consistency The minerals industry is firmly committed to the principle that every individual, regardless of where they work, whether as a direct employee or contractor, and whatever tasks they undertake, should have the same standard of high protection. A nationally consistent, risk-based preventative OH&S regulatory system, supported by industry-specific regulation, would deliver benefits based on greater certainty, consistency and efficiency. It would also help to ensure that compliance challenges do not detract from the practical tasks of identifying, managing and minimising risk and the continuous improvement of safety and health outcomes by companies. A 2008 COAG Intergovernmental Agreement saw all Australian governments agree to work cooperatively to harmonise OH&S legislation and implement a national uniform legislative framework, complemented by a nationally-consistent approach to compliance and enforcement policy. The original goal of a single, uniform Act has since evolved into a Model Work Health and Safety (WHS) regime. Adoption of the WHS regime has been inconsistent and remains incomplete, well past the scheduled commencement date of 1 January 2012. This threatens the significant gains this important reform would provide in terms of both enhanced safety outcomes as well as reducing the regulatory burden on business. Victoria and Western Australia have not, as yet, adopted the Model Act. Queensland has adopted the Model Act but not for the mining sector and most states have amended the Model Act to meet state-based needs (e.g. New South Wales retained the Industrial Relations Commission for some prosecutions). In addition, Western Australia, Queensland and New South Wales retain, or are planning to retain, an additional layer of mine safety legislation and regulation. The model WHS Mines Chapter (Chapter 10) which was supposed to replace this state-based supplementary legislation has still not been endorsed by Safe Work Australia and in some jurisdictions may be adopted (unendorsed) into separate law from other provisions of the Model WHS Act. Any chance of uniformity, or even consistency in approach to WHS legislation for mining, seems remote. Succinct and effective supporting codes and guidance material are essential to an efficient legislative framework. Codes and guidance material to support the Mines Regulations are still being finalised. The industry is now confronted with four different types of codes and guidance material all separately authored – SWA codes, National Mine Safety Framework (NMSF) Core codes, NMSF Non-Core codes and individual state-based codes. The sheer volume of codes and guidance materials, their lack of consistency and the move by some regulators to enshrine archaic prescriptive elements will mean the industry may be in a worse situation as a result of the current process. Workers moving within the minerals industry (or across industries) need to be aware of different safety and health regimes with differing defintions and regulatory approaches. Similarly, contractors that work across the minerals, construction, engineering and transport sectors are required to have multiple systems in place to meet the different regulatory requirements. Industry employees are exposed to different protections, duties and expectations, while employers continue to confront multiple systems which distract effort from day-to-day safety and health management.


Despite the recent work on WHS harmonisation, the industry was consistently told by mining regulators that the NMSF process and the WHS harmonisation process were not about reform, but rather about achieving consistency between regulators. This intent is clearly far from being achieved and requires a re-prioritisation by federal and state governments, in line with the COAG review process. Government should prioritise working with the minerals industry in 2016 to identify and prioritise key areas of reform required in Australian mining health and safety legislation. These should be complemented by joint industry and regulator workshops to collaboratively identify a process to implement these critical reforms. An improved regulatory framework is also critical to enabling mining companies to adopt world leading risk management techniques, including the management of critical controls. To this end, the MCA is working with the ICMM to develop further these risk-based approaches and to identify regulatory reforms necessary to support their implementation. MCA members have also identified serious impediments within Australian mining regulators relating to the accessibility of health and safety data. Accordingly, MCA will be working to identify reforms that enable companies to access relevant and timely health and safety data, including the federallycontrolled (and industry-funded) National Mine Safety Database which so far has failed to be delivered effectively.


3.7

Environmental/project approvals and land access •

‘One-Stop Shop’ reforms have stalled. The Parliament should pass legislation to accredit state and territory approval processes. Action is also needed to streamline state and local government assessment and approval processes.

•

The EPBC Act should be amended to prevent frivolous and vexatious legal challenges to approved projects. This would not weaken the rights of affected individuals or the robustness of assessment and approval processes.

•

The 2013 Multiple Land Use Framework, developed by the COAG Standing Council on Energy and Resources, should guide policymakers in balancing the interests of landholders with the state’s obligation to develop resources for the benefit of the community.

Delays and uncertainty in project approval processes pose a significant risk to the industry’s global competitiveness. A 2012 Port Jackson Partners report commissioned by the MCA concluded that Australian thermal coal projects experienced an average project delay of 3.1 years, compared with an average of 1.8 years in other jurisdictions. At the time, delays were increasing at a rate of three to 124 four months every year. The costs of delays for projects can be substantial. For example, industry estimates suggest a one year delay can reduce the net present value (NPV) of a major mining project by up to 13 per cent. The drivers of delays are well understood. A study by consultancy firm URS in 2013 identified a 125 substantial increase in regulation affecting mining approvals over recent years. The Productivity Commission’s 2013 report on major project assessment and approval processes identified a range of issues with existing regulatory processes which contribute to lengthy approval timeframes and 126 delays. These include unnecessarily complex and duplicative processes, driven in part by poor alignment between state and federal approval processes, and a lack of regulatory certainty. Survey evidence from MCA member companies confirms the high cost of these inefficient processes (Box 9). One-stop shop for environmental approvals There is clear evidence that approval processes in Australia can be made less onerous without compromising environmental objectives. In its 2013 report, the Productivity Commission found that: Australia’s federal system of government, where responsibilities for matters (such as environmental protection) span all levels of government, gives rise to overlap and duplication, which the Commission 127 considers can be greatly reduced without lowering the quality of environmental outcomes.

The MCA strongly supports the Australian Government’s proposed ‘One-Stop Shop’ for environmental approvals that will accredit state and territory planning processes under the EPBC Act to create a single assessment and approvals process. These reforms will simplify the approvals process and improve Australia’s investment profile without in any way diminishing environmental standards. Despite early progress, the ‘One-Stop Shop’ reforms have now stalled. While revised assessment bilaterals are in place, changes proposed in the EPBC Amendment (Bilateral Agreement Implementation) Bill need to be passed to allow approval bilateral agreements which accredit state and territory approval processes. The MCA urges the Australian Parliament to pass the amendment bill and allow the implementation of approval bilateral agreements with all states and territories. 124

Port Jackson Partners, Opportunity at risk: regaining our competitive edge in minerals resources, report commissioned by and prepared for the Minerals Council of Australia, 16 September 2012, p. 27. 125 URS, Update of national audit of regulations influencing mining exploration and project approval processes, report commissioned by and prepared for the Minerals Council of Australia, 31 May 2013, p. vii. 126 Productivity Commission, Major project development assessment processes: final research report, Canberra, released on 10 December 2013, p. 2. 127 Productivity Commission, Major project development assessment processes: final research report, Canberra, released on 10 December 2013, p. 13.


Box 9: The high cost of inefficient approvals processes – evidence from minerals companies ‘Average time to achieve new approvals has increased from less than 12 months to more than 4

years due largely to increasingly onerous approvals requirements and increased politicisation of the approvals process.’ ‘Unable to bring new mines into production to meet the market in appropriate timeframe (i.e. less than 2 years). Result is the market window has been missed.’ ‘For new operations the approvals process can be challenging, complex and very time consuming – not just the major approvals but all of the secondary approvals, which are ongoing even after production starts.’ ‘Environmental requirements are limiting productivity in the case where previous approvals impose conditions that are now less relevant and are directing effort to maintain compliance. This also impacts productivity of the regulator where ongoing reports are required to be reviewed and responded to. The other area where productivity is affected is where overlap remains in jurisdictional regulation and assessment.’ ‘The delay in processing time by the government has caused large inefficiencies and higher costs to be incurred by the proponent whilst waiting for a decision on the [mine] modification. … Overall, the uncertainty of mine approval is also an extreme deterrent to any further investment in exploration for new projects as the prospects for achieving consent for a new greenfields site are questionable, no matter its quality.’ ‘Continual regulator turnover means also that the education process is constant for the miner/proponent – and delays are inherent due to having to revisit old ground time and time again. Regulators require details on everything so if almost anything changes, delays in approval result.’ Source: Survey of MCA member companies

The benefits of the ‘One-Stop Shop’ are significant. A study by the Department of the Environment 128 revealed the implementation of the ‘reform will save Australian businesses $426 million annually. A BAEconomics study found that reducing project delays by one year would improve the competitiveness of the Australian mining sector, add $160 billion to national output by 2025 and 129 create an additional 69,000 jobs across the economy. Complementary reforms There are a range of administrative reforms which will improve the operation of the ‘one-stop shop’ and the EPBC Act more generally. These include: •

Development of a single, nationally harmonised threatened species list

•

Harmonisation of federal environmental offsets with state and territory requirements

•

Risk-based information requirements for environmental impact assessment

•

Revision of the ‘significant impact’ test to account for pre-existing land use.

In addition to EPBC reform, there is also a need to address regulatory complexity and coordination within state and territory and local government regimes. Assessment and approval processes vary significantly between and within state jurisdictions. The Productivity Commission has found that environmental approvals under state, territory and local government planning processes can be a significant source of delay.

128

Department of the Environment, Regulatory cost savings under the one-stop shop for environmental approvals, Australian Government, Canberra, September 2014, p. 1. 129 BAEconomics, The economic gains from streamlining the process of resource project approval, report commissioned by and prepared for the Minerals Council of Australia, Canberra, July 2014, pp. 1, 2.


Post approval safeguards are needed Approval decisions for minerals (in particular coal) projects have been subject to increasing appeals, including for judicial review under the EPBC Act. It is clear that many of these challenges have not been driven by genuine concern for legal process, but as part of sustained strategy to delay projects 130 by groups ideologically opposed to the industry. Delays arising from court challenges can be significant. The Productivity Commission found that the time between approval and legal judgement for coal projects ranged from 7 months to more than 24 131 months. Judicial review processes are important to safeguard the rights and interests of affected individuals and to ensure development assessment and approval processes remain robust. However, existing arrangements are being deliberately misused by industry opponents to halt or delay projects. There is a need to put in place a process whereby only challenges which have merit proceed to legal judgement. Weaknesses in the EPBC Act which allow the minister’s approval to be challenged on a technicality and not the substance of the decision should also be addressed. For example, mining projects have been successfully challenged on the basis that the Environment Minister did not personally view statutory ‘approved conservation advice’, despite it being considered in the department’s decision brief. Reforms are needed to address such technicalities and this can be done without diminution of environmental standards. Land Access 132

Australia’s mining footprint constitutes approximately 0.02 per cent of Australia’s land mass. Access to land in Australia is subject to a stable legal and practical framework developed over many decades. The 2013 Multiple Land Use Framework, developed under the COAG Standing Council on Energy and Resources, provides a national framework of guiding principles to promote the best use of 133 Australia’s land resources under existing state and territory regimes. It should remain the guide for policymakers as part of discussions between parties over co-existence. This will ensure the right balance between landholders’ interests and the state’s obligation to realise the economic potential of its resource endowment for the benefit of the broader community. State schemes operate effectively. For example, in Queensland and New South Wales, there are around 3,500 coal and mineral exploration licences which are linked to thousands more successfully 134 negotiated land access agreements (several are normally required for a given lease area). In addition to the range of regulatory safeguards, state governments, farming and industry groups are working together to develop agreed protocols for land access, an example of which is the ‘land 135 access arrangements for mineral resources’ in New South Wales. There is no case for an absolute right of veto for landholders. Land use coexistence can be improved through greater use of strategic land use assessment and planning approaches. These processes should incorporate all potential land use values for a given area, including minerals potential.

130

J Hepburn, B Burton, S Hardy, Stopping the Australian Export Coal Boom: Funding proposal for the Australian anti-coal movement, Greenpeace Australia Pacific, November 2011 131 Productivity Commission, Major Project Development Assessment Processes: final research report, Canberra, November 2013, p. 258. 132 Figure provided to the MCA by the Australian Bureau of Agricultural and Resource Economics and Sciences. 133 Council of Australian Governments, Standing Council on Energy and Resources, Multiple Land Use Framework, SCER, endorsed 13 December 2013. 134 Department of Natural Resources and Mines, Queensland Mining and Tenure Series, QSpatial, Queensland Government, viewed 15 December 2015 and Department of Industry, Resources and Energy, Title status reports, New South Wales Government, updated 5 November 2015. 135 Department of Trade and Investment, Land access arrangements for mineral resources, New South Wales Government, June 2012.


3.8

Water access and air quality •

The minerals industry accounts for only around 3 per cent of Australia’s net water consumption and sources the majority of its water through self-funded infrastructure.

•

The industry urges Australian governments to integrate water planning and access with the needs and characteristics of all water users. Onerous and unnecessary regulations – including the ‘water trigger’ in the EPBC Act – should be removed.

•

The National Environment Protection Measure for Ambient Air Quality (AAQ NEPM) should be implemented as originally intended to monitor urban air quality. It would be inappropriate to apply AAQ NEPM to non-urban areas or to specific point sources – including mining operations – without developing guidance suitable to these distinct environments.

Water access In 2013-14, the minerals industry accounted for around 3 per cent of Australia’s net water 136 consumption, the majority of which is sourced through self-funded infrastructure. By comparison, agriculture consumed more than 62 per cent and households consumed more than 10 per cent. The minerals industry is one of the highest value water users in Australia. In 2013-14, industry water use realised $174 million of industry gross value added per gigalitre of water used, compared with $22 million for forestry and fishing and $3 million for agriculture. The availability of water and security of supply is a critical business risk for the minerals industry and 137 a potential constraint on industry growth. The minerals industry supports national water reform and the principles contained within the 2004 National Water Initiative (NWI) and urges governments to integrate water planning and access with the needs and characteristics of all water users, including 138 the minerals industry. The MCA supports the use of Clause 34 of the NWI which recognises a range of sector-specific challenges and enables the industry to transition to ‘fit for purpose’ water access and pricing arrangements needed to provide long term certainty for industry. Cross jurisdictional duplication and ‘regulatory creep’ are key industry concerns. A key example is the ‘water trigger’ for coal seam gas and large coal mining developments under the EPBC Act, introduced in 2013. As the Productivity Commission has noted, the water trigger amendment ‘imposes an extra layer of regulation on affected proponents’ in a situation where ‘it is not obvious that existing laws are deficient or that the particular legislative amendment adopted by the Australian Government is the 139 best approach to deal with any identified gap in the regulatory framework’. Multiple (and increasing) water reporting obligations pose unnecessary costs on mining businesses. These include state and territory regulatory requirements, water market reporting, ABS reporting requirements and ‘live’ water data required by changes to Commonwealth water regulations. Consistent with the Government’s commitment to reduce red tape, water reporting obligations should be streamlined with data requirements proportional to water management risk. The MCA has led a landmark effort to better understand the industry’s water use (and future needs) 140 through the development of a water accounting framework. The framework serves as a one stop shop for water information for stakeholders and should be supported and promoted through COAG processes as an example on how to reduce regulatory burdens.

136

Australian Bureau of Statistics, Water Account, Australia, 2013-14, ABS catalogue no. 4610.0, released on 26 November 2015. 137 ACIL Tasman, Water Reform and Industry, Department of Industry, Tourism and Resources, April 2007, p. xiv. 138 Council of Australian Governments, Intergovernmental Agreement on the National Water Initiative, COAG, 2004 139 Productivity Commission, Major Project Development Assessment Processes: final research report, Canberra, released on 10 December 2013, p. 149. 140 Minerals Council of Australia: A Water Accounting Framework for the Minerals Industry, MCA, 2014


Air quality Air quality regulation is another area where misapplication of technical standards threatens the effectiveness and efficiency of the laws. The National Environment Protection Measure (standards) for Ambient Air Quality (AAQ NEPM) was designed to monitor urban air quality and it would be inappropriate to apply them to non-urban areas or to the regulation of specific point sources, including mining operations. Urban environments have different levels particle composition, concentration and background levels, with geographical aspects, including distance to population also relevant. Inappropriately applying AAQ NEPM standards to individual point sources without context may result in large additional costs for companies. These may include increased management costs and in some cases, purchasing neighbouring properties at a cost of many millions of dollars. The MCA considers given these serious implications, it is important AAQ NEPM be applied as intended.


3.9

Infrastructure •

Before privatising monopoly providers of infrastructure, governments must ensure that there are effective regulatory arrangements in place which take full account of long-term efficiency objectives, including Australia’s export competitiveness.

•

Consistent with this approach, the Government should ensure that the privatisation of the Australian Rail Track Corporation (ARTC) – which owns and operates the Hunter Valley Coal Network, a key component in the supply chain of Australia’s coal export industry – is accompanied by proper regulatory oversight.

•

Any change in the ownership or management of ARTC that enabled it to extract monopoly rents would have an immediate and material adverse effect on the viability of a number of Hunter Valley coal mines. It would reduce the cost competitiveness of the Australian coal industry, discourage additional mining investment in the Hunter Valley and undermine the economic foundation of high-wage jobs in the region.

The minerals industry agrees with the Australian Competition and Consumer Commission (ACCC) that commercial operations should be run by the private sector, except in cases where there is a strong policy rationale for public ownership. When implemented appropriately, privatisation can improve the efficiency of investment and management and improve community welfare. However, these benefits will not be achieved unless the resulting market structure supports competition, or the government exercises proper regulatory oversight from the outset. Without an adequate regulatory regime, monopoly providers of infrastructure can impose high prices or poor service quality. 141 The ACCC has raised serious concerns that the lure of revenue from asset sales can blind governments to the potential long-term risks to competition and national welfare. It points out that suboptimal privatisations ‘effectively impose a tax on future generations of Australians and hinder 142 Australia’s competitiveness in the world market’. The Chairman of the ACCC, Mr Rod Sims, has cited the Port of Newcastle as an example of a privatised natural monopoly that can impose very 143 large price increases because there is little in the regulatory regime to prevent it. The Productivity Commission has similarly argued that the priority for privatisation is not to secure the highest price per se, but to achieve economic efficiency, manage risks to consumers and the public interest, ensure the market structure is amenable to privatisation, and make certain that asset sales 144 are conducted efficiently, ethically and transparently. The Australian Government is consulting on options for the future management, operations and ownership of the ARTC. The ARTC owns and operates the Hunter Valley Coal Network, which is a key component in the supply chain of Australia’s coal export industry. Every tonne of coal that travels through the Hunter Valley to the Port of Newcastle must use track owned and controlled by the ARTC. These flows of coal output contribute significantly to national income. In 2014-15, NSW exported 173 million tonnes of coal worth $14.4 billion in export revenue – 145 equivalent to around 40 per cent of Australia’s total coal export volume and value. The vast

141

Australian Competition and Consumer Commission, Submission to Senate Economics References Committee Inquiry into the Privatisation of state and territory assets and new infrastructure, 29 January 2015, p. 3f. 142 Australian Competition and Consumer Commission, Submission to Senate Economics References Committee Inquiry into the Privatisation of state and territory assets and new infrastructure, 29 January 2015, p. 5f. 143 Rod Sims, Chairman of the Australian Competition and Consumer Commission, Evidence to the Port of Melbourne Select Committee (corrected version), Parliament of Victoria, 30 September 2015, p. 2f. 144 Productivity Commission, Public Infrastructure, Volume 1, Inquiry Report No. 71, Canberra, 14 July 2014, p. 18. 145 See Coal Services, Annual Report 2014-15, p. 41; Department of Industry, Innovation and Science, Resources and Energy Quarterly – December Quarter 2015: Statistical data, released on 22 December 2015, Canberra. In calendar 2015, 158 million tonnes of coal were exported through the Port of Newcastle alone. Coal exports account for 97 per cent of the port’s trade. See Port of Newcastle, Port of Newcastle’s non coal trade growth continues, released on 8 January 2016.


majority of NSW’s coal exports are produced in the Hunter Valley, which employs more than 11,000 146 people directly in coal mining. Any change in the ownership or management of ARTC that enabled it to extract monopoly rents would have an immediate and material adverse effect on the viability of a number of Hunter Valley coal mines. It would reduce the cost competitiveness of the Australian coal industry, discourage additional mining investment in the Hunter Valley and undermine the economic foundation of highwage jobs in the region. The minerals industry’s experience of other infrastructure privatisations, notably in Queensland, reinforces the case for government hastening slowly and evaluating carefully. In its first undertaking following the privatisation of Queensland Rail (April 2013), Aurizon’s rail track business sought average tariff increases estimated at 36 per cent and non-electric tariff increases averaging 45 per 147 cent. Proposed price increases of this magnitude underscore the importance of a strong regulatory framework for natural monopoly assets. The Queensland Competition Authority is currently 148 assessing a revised undertaking that should take effect this year. The minerals industry spends more than $90 million a year on community infrastructure and services 149 such as schools, libraries, museums, financial systems and healthcare. While the industry accepts that it has a key role to play in regional development, this can only be effective and sustainable as part of a long-term partnership, where governments accept their responsibilities for infrastructure provision and service delivery for all Australian citizens. Government infrastructure investment should complement private sector economic activity to ensure essential services can meet the needs of communities. The absence of effective regional planning processes, governance arrangements, service delivery and community infrastructure often limits the ability of communities to share fully in the benefits of resource development. More efficient and coordinated capacity planning, supported by less constrained public/private delivery models, would assist in delivery of key power, water, transport and social infrastructure.

146

NSW Mining, Economic Impact – Hunter, viewed on 13 January 2016. See Queensland Resources Council, Main submission to the Queensland Competition Authority on Aurizon Network’s draft 2013 Undertaking (‘UT4’), 10 October 2013, p. 2. 148 Queensland Competition Authority, Aurizon 2014 Draft Access Understanding: Overview, viewed on 15 January 2016. 149 Minerals Council of Australia, The whole story: Mining’s contribution to the Australian community, Canberra, 2015, p. 6. 147


3.10 Innovation •

Innovation is central to maintaining Australia’s comparative advantage in minerals and energy by supporting more competitive, safer and more environmentally sustainable operations.

•

The mining industry spends nearly $3 billion annually on research and development (R&D) and is an exemplar of collaboration with research bodies. The R&D tax incentive is an effective, economy-wide, market-driven measure that should be maintained.

Successful innovation policy is market-conforming, as it is market competition – not government fiat – that ultimately determines which new combinations of inputs become successful innovations. The role of government is to encourage innovation across the private sector, not to favour industries deemed to be innovation ‘winners’. Innovation underpins Australia’s comparative advantage in minerals Australia’s comparative advantage in minerals is maintained and enhanced through continual innovation. The mining industry spends nearly $3 billion on R&D annually, or nearly $1 in $6 of all 150 business R&D spending in Australia. In addition, expenditure on minerals exploration – an 151 operating expense analogous to market research – was $1.6 billion in 2014-15. As the Department of Industry, Innovation and Science points out: Australia’s innovation and economic performance of the past decade has been dominated by the mining sector, which has … exploited its comparative advantage to generate enormous growth in 152 investment, output and exports.

Similarly, the CSIRO notes that: ‘Innovation has been instrumental in the development of 153 energy and minerals resources’. The mining sector is a prolific inventor and developer of specialised technologies, with a total of 6,539 Australian mining inventions filed for patent between 1994 and 2011 by operating miners, the Mining Equipment, Technology and Services (METS) sector, and publicly funded entities like CSIRO. Australian mining technology is exported globally, with patent filings overseas showing major markets 154 include the United States, Canada, China, Japan, Europe, Russia, Brazil and Mexico. Australian mining innovation is conducted by a diverse workforce of professionals, including engineers, environmental scientists, geologists, geophysicists, mathematicians and financial officers. Mining also accounts for the largest industry share of micro start-up businesses and is one of the 155 largest contributors to job creation by these businesses. Australian mining innovation was celebrated by the award of the Prime Minister’s Prize for Innovation for 2015 to Professor Graeme Jameson AO at the University of Newcastle. The Jameson Cell revolutionised the ‘froth flotation’ technique first used in the 1860s. This technique cost $65,000 to develop but has retrieved fine export coal particles worth $36 billion. Professor Jameson has revised this technology by introducing the NovaCell to capture bigger particles, which could earn Australia an 156 extra $100 billion in exports.

150

ABS, Research and Experimental Development, Businesses, Australia, 2013-14, ABS catalogue no. 8104.0, released on 4 September 2015. 151 ABS, Minerals and Petroleum Exploration, Australia, June 2015, ABS catalogue no. 8412.0, released on 31 August 2015. 152 Department of Industry, Innovation and Science, Australian Innovation System Report, 2015, p.11. 153 CSIRO, Unlocking Australia’s resource potential, 2015, p.4. 154 Emma Francis, The Australian Mining Industry: More than Just Shovels and Being the Lucky Country, IP Australia, 2 June 2015, pp. 6, 22, 30. 155 Luke Hendrickson, Innovation Research, Department of Industry, Innovation and Science, Where does employment growth come from? Presentation to the Industry Innovation Workshop 2015, 15 September 2015, p. 8. 156 John Ross, ‘Innovation award for chemical engineer’, The Australian, 21 October 2015; Jake Sturmer, ‘Engineer Greame Jameson picks up Prime Minister’s science prize for billion-dollar bubbles’, ABC News, 21 October 2015; University of Newcastle, UON researcher awarded Australia’s top innovator, 21 October 2015.


A high level of innovation in the sector has traditionally been the means by which the mining industry has sought to overcome so-called ‘depletion effects’. These effects include the running down of resource deposits, increased effort required to process saleable ores from extracted material, the adoption of more complex methods of extraction in expanded mines, and the extraction of deposits that are further away or deeper in the ground. In a survey of MCA member companies, 70 per cent of respondents cited ‘R&D and adoption of new technologies’ as important or very important to achieving future improvements in productivity. The Australian minerals industry is an exemplar of innovation through collaboration The Australian minerals industry has an unparalleled record of collaboration with research institutions in the search for more competitive, safer and more sustainable ways of doing things. With more than 30 years combined experience, the cooperative research centres – CRCMining and CRC ORE (Optimising Resource Extraction) – have improved mine safety and enhanced mining efficiency. CRCMining (which invested $12.2 million in 2013-14) is now wholly funded by industry and CRC ORE has committed $100 million over six years from July 2015, including around $65 million in support 157 from industry. AMIRA International – an industry vehicle that leverages R&D – has developed more than 700 158 projects and attracted almost $600 million of investment since 1959. Collaboration between industry and researchers is also exemplified by the Australian Coal Industry’s Research Program (ACARP) and the COAL21 Fund for low emissions coal technologies. ACARP has invested $80 million over the 10 years to 2014, wholly funded by industry, while the black coal industry and governments have 159 committed $300 million to COAL21 to date. These collaborations have generated world-leading research and innovation such as: •

Groundprobe – radar technology that saves lives by monitoring the stability of open cut mine slopes and walls, sounding an alarm if they become unstable (University of Queensland, 160 ACARP, CRCMining and CRC for Sensor Signal and Information Processing)

•

Callide Oxyfuel Project – successful capture of CO2 from a coal-fired power plant (COAL21, 161 CS Energy, Glencore, Schlumberger, J-POWER, Mitsui & Co. and IHI Corporation)

•

Future Reef Map – Rio Tinto’s bauxite ship RTM Wakmatha monitors ocean chemistry along the entire length of the Great Barrier Reef (Rio Tinto Alcan, CSIRO and the Great Barrier 162 Reef Foundation)

•

Bush Blitz – Australia's largest nature discovery project that has already identified more than 900 new species and added to the knowledge base on thousands of other species (Australian 163 Government, BHP Billiton Sustainable Communities and Earthwatch Australia).

R&D tax incentive plays vital role The R&D tax incentive has proven to be an effective innovation policy measure. It should be maintained for a range of reasons. Firstly, the R&D tax incentive is self-selecting in that only innovating firms will seek to gain access to it. It does not involve governments second-guessing consumer preferences or new techniques of production or distribution, and therefore avoids the risk of taxpayer-backed ‘losers’.

157

CRCMining, Transforming Mining: Annual Report 2013-14, p. 41; CRC ORE, About Us. AMIRA International, Who we are. 159 ACARP, What is ACARP? The Australian Coal Industry’s Research Program; Minerals Council of Australia, About COAL21. 160 Department of Industry, Innovation and Science, Saving Lives and Profits at Groundprobe; Groundprobe, Our company: history. 161 CS Energy, Callide Oxyfuel Project. 162 Rio Tinto, ‘A natural wonder’, Mines to Markets, Issue 6, November 2014. 163 Bush Blitz. 158


Secondly, the R&D tax incentive is vital to securing additional R&D investment in a global economy as other countries look to capture a higher share of global R&D expenditure. As a senior partner at PwC pointed out in late 2015: Forward-thinking economies like Belgium, Canada, the Czech Republic, France, Ireland, Japan, Norway and, in our own backyard, New Zealand, Singapore and Malaysia have all been significantly expanding 164 their R&D incentives.

That other nations are competing aggressively to capture R&D expenditure reinforces the need for stability in Australia’s R&D policy settings. Unfortunately, the R&D incentive has been characterised by persistent uncertainty owing to frequent changes by successive Australian governments. The OECD Directorate for Science, Technology and Industry has emphasised the importance of stability in R&D tax arrangements: In countries that have experienced a large number of R&D tax policy reversals, the impact of R&D tax credits on private R&D expenditure is greatly diminished. It is therefore important that governments do 165 not repeatedly tinker with such policies to minimise policy uncertainty for firms.

Thirdly, the spillovers from the R&D tax incentive are clear and significant. In the case of mining, a striking example is the development of a vibrant, home-grown METS sector, which generates 166 revenues of around $90 billion annually with an export component worth $15 billion per annum. MCA member companies have confirmed the role played by the R&D tax incentive in supporting critical innovations. An example identified is SmartCap – a wireless system of sensors built into a baseball cap that measures driver/operator drowsiness and displays it on a monitor in the cab (CRCMining, Anglo American Metallurgical Coal, ACARP and 13 other industry partners). This is now being adopted or considered in other industries such as maritime, defence, aviation and transport and 167 logistics.

164

Sandra Boswell, Partner, PwC, ‘R&D tax break too important to target for cuts’, The Australian Financial Review, 3 November 2015. 165 OECD Directorate for Science, Technology and Industry, Maximising the benefits of R&D tax incentives for innovation, October 2013. 166 Austmine, Highlights of 2013 METS survey, 25 May 2013. 167 SmartCap, Saving lives is our priority.


3.11 Skills development and labour mobility •

The minerals industry supports sensible higher education reform that combines fee deregulation with strong safeguards to ensure the viability of minerals-related disciplines. Safeguards should include stronger accountability mechanisms to ensure increased university fee revenue is devoted to teaching and student services.

•

The MCA supports reforms aimed at improving the quality of the Vocational Education and Training (VET) system, along with measures to ensure industry training packages are responsive to industry requirements.

•

Labour mobility is essential to both existing operations and new projects in the minerals industry. Strategies such as fly-in, fly-out (FIFO) and drive-in, drive-out (DIDO) arrangements, together with an effective skilled migration program, help sustain mining activity in regional areas.

Mining relies on a highly skilled workforce which allows industry to innovate readily. One in five employees in the minerals industry holds a bachelor’s degree or higher and the share of mining workers with certificate III/IV level qualifications is above the all-industry average. The industry employs a diverse professional workforce, including engineers, environmental scientists, geologists, geophysicists, mathematicians and financial professionals. Through most of the past decade, skills shortages were concentrated among experienced professionals such as engineers (particularly mining engineers), geoscientists, project managers, as well experienced tradespeople and operators. Skills gaps have become less acute with declining investment and weaker market conditions driving a rationalisation of labour forces across the 168 industry. Though most forecasters predict subdued demand in the next few years, industry will continue to seek specialist skills as markets rebalance and new pressures emerge from demographic 169 change and technological developments. Higher education The failure by successes Australian governments to index higher education funding, coupled with regulated caps on fees, has seen many university schools and departments become increasingly unviable under the student numbers-based funding system, especially in minerals-related departments that traditionally have small student numbers and high teaching costs. The minerals industry has been compelled to step in with direct investment in universities to secure a future supply of professionals. Without this support many schools and departments would have closed, leaving Australia without the capacity to deliver its own high quality graduates (and relying increasingly on skilled migration as a source of skills in minerals-related disciplines). Through the Minerals Tertiary Education Council (MTEC), the MCA continues to support collaborative initiatives at 17 universities across Australia. MTEC builds capacity in higher education in the disciplines of mining engineering, metallurgy and minerals geoscience and partners with universities and other providers to address the professional skills requirements in the minerals industry. MCA member companies have invested more than $46 million of unencumbered funds over the past decade in these programs. Over 4,300 graduates have benefitted from participation in these industryfunded MTEC programs. Companies also provide paid vacation work and structured practical experience for undergraduate students and recognise leaders in research by awarding professorial chairs to continue their industry-relevant research.

168

Department of Employment, Labour Market Research – Resources Sector Professions Australia 2014-15, 2015 See Department of Employment, Industry Outlook Mining 2014; Chamber of Minerals and Energy, 2015-2025 Western Australian Resources Outlook, 2014; SkillsDMC, Environmental Scan 2015. 169


A survey of four MCA members revealed that in 2013-14, $16.1 million was invested in supporting universities, in addition to contributions to higher education through MTEC. Of this total, $9.7 million was invested in scholarships. The minerals industry supports sensible higher education reform that combines fee deregulation with strong safeguards to ensure the viability of minerals-related disciplines. Higher education reforms are a necessary step towards securing a sustainable funding outlook for the sector in line with market demands. At the same time, safeguards are needed to ensure stronger accountability mechanisms so that increased university fee revenue is devoted to teaching and student services. The MCA considers that fee deregulation alone will not assist either core minerals-related disciplines or students. Grattan Institute research estimates that more than $2 billion in profits derived from 170 teaching (approximately one-fifth) is used to fund research at Australian universities. In addition, under current arrangements less than 50 cents in the dollar of Commonwealth Grant Scheme (CGS) funding is allocated to MCA’s MTEC partner schools and departments by their home institutions. These funding arrangements are not sustainable and the MCA urges the Australian Government to develop a package of reforms that target these concerns. Towards an industry-led VET sector The minerals industry spends more on training per employee than most industry sectors and has a keen interest in the quality of the national training system. Approximately 5 per cent of the minerals industry workforce is either a trainee or apprentice, with many more undertaking training that is not part of a formal qualification (e.g. unaccredited operator training). The MCA is working with the government to develop a more industry-led VET sector, including through the current review of Resource and Infrastructure Industry (RII) Training Package arrangements. The objective is to enable companies to map training requirements against industrydefined competencies. Focus on STEM The minerals industry is concerned about the marked decline in participation in science, mathematics, engineering and technology (STEM) subjects in Australian schools over the past decade. Less than one fifth of high school students now enrol in chemistry and physics, and there has been a shift towards elementary mathematics from intermediary and advanced levels. Low participation rates in these subjects mean a dwindling pool of eligible students for requisite university courses. The industry welcomes the Government’s commitment to STEM through its Restoring the focus on STEM in schools initiative, as well as the $48 million investment in STEM literacy and $9 million for 171 measuring impact and engagement in university research. Labour mobility Labour mobility (including through FIFO arrangements and skilled migration) has been critical to sustaining minerals industry operations and developing new projects in the past decade. Around 25 per cent of all mining industry workers are FIFO/DIDO workers. This figure reflects a combination of factors including localised skills shortages, the availability and cost of accommodation in particular locations and, importantly, the desire of many mining workers and their families to live in home communities. A number of studies, including by the Reserve Bank of Australia, the Productivity Commission and the National Centre for Vocational Education Research have identified the economic importance of these 172 arrangements given the reluctance of workers to move permanently to remote areas.

170 171

Andrew Norton, The cash nexus: how teaching funds research in Australian universities, Grattan Institute, November 2015. Australian Government, National Innovation & Science Agenda, 7 December 2015


Claims that imply a hollowing out of opportunities in regional areas associated with mining growth in regional areas have been undermined comprehensively by a major demographic study by KPMG which found mining has played an important role in stimulating residential population growth crucial to 173 sustainable communities. Far from restricting opportunities, the industry has boosted incomes, attracted families and reduced unemployment in mining regions. Moreover, rigorous state and federal assessment and project approvals processes provide mechanisms to assess and mitigate any possible negative social, environmental and economic impacts from expanded mining activity. Skilled migration An effective temporary skilled migration program with the capacity to respond to demand within a framework that ensures integrity and efficiency is another vital component of meeting the skills needs of the sector. The minerals industry employs approximately 2 per cent of its workforce through temporary skilled migration. Overall, mining accounts for only 4 per cent of temporary skilled workers and more than 90 per cent are professionals, managers and technical trades. As demand for mining labour has decreased in recent years, demand for 457 visa holders has similarly decreased. In the 12 months to end June 2015, primary 457 visa holders in mining fell by 32 per cent.

172

Reserve Bank of Australia Bulletin, Labour Market Turnover and Mobility, December Quarter 2012, Productivity Commission, Geographic Labour Mobility, April 2014, NCVER, An exploration of labour mobility in mining and construction: who moves and why, 23 June 2014. 173 See KPMG, Analysis of the Long Distance Commuter Workforce Across Australia, report commissioned by the Minerals Council of Australia, March 2013; KPMG, Analysis of the Changing Resident Demographic Profile of Australia’s Mining Communities, report commissioned by the Minerals Council of Australia, February 2013.


3.12 Indigenous economic development and partnerships •

The Australian minerals industry is the largest private sector employer of Indigenous Australians and a significant investor in Indigenous economic development and partnerships.

•

More can be done to improve the management of Indigenous land-related payments and benefits through the adoption of the Indigenous Community Development Corporation (ICDC) model – a modern trust structure that would allow greater investment for non-charity-related purposes such as education and small business development.

•

Legislative stability of the Native Title Act would enhance stakeholder confidence, though steps can be taken to improve the administration and efficiency of regulatory regimes.

The Australian mineral industry’s approach to working with Indigenous communities is founded on mutual respect. The minerals industry recognises Aboriginal and Torres Strait Islander peoples as the first peoples of this nation, fostering respect for continuing cultures, languages and heritage, and acknowledging relationships to traditional lands and waters. Much of the land on which the minerals industry operates neighbours Indigenous communities and is subject to legal requirements under the Native Title Act, the Aboriginal Land Rights (Northern Territory) Act and federal and state cultural heritage approvals, all of which recognise the rights and interests of Aboriginal and Torres Strait Islander peoples in relation to the lands and waters to which they have special connection. The establishment of more than 1900 land use agreements over the last two decades between Indigenous peoples and the minerals industry (99 per cent of which involved no legal contest of rights) 174 has provided unprecedented economic potential for Aboriginal regional and remote communities. On areas of land for which there is a weak or absent suite of rights, the industry engages with communities as key stakeholders, thereby recognising their traditional and cultural connections. The minerals industry is the largest private sector employer of Indigenous men and women, now accounting for up to 6 per cent of the industry’s total workforce. At some mine sites, Indigenous employees comprise up to 30 per cent of the workforce. 175 The industry also contributes to Indigenous employment through its engagement with Indigenous businesses. It is estimated the industry purchased goods and services worth $2.2 billion from Indigenous businesses in 2011-12, 176 compared with public sector procurement of just $39 million in the same year. The mining industry has a long-standing commitment to working in partnership with the Commonwealth, state and territory governments and NGOs to improve Indigenous employment outcomes and to share best practice. The (recently completed) MCA and Commonwealth MoU on Indigenous Enterprise and Employment delivered a range of valuable outcomes in areas such as prequalification assistance, employment services directly linked to private sector demand and adult .177 education and training The MCA supports measures that facilitate partnerships between agencies, the private sector and communities; provide contemporary frameworks for community development that encourage investment and local enterprise opportunities; and are demand-driven and responsive to long-term market trends.

174

Toni Bauman & Lydia Glick (eds), The limits of change: Mabo and native title 20 years on, Australian Institute of Aboriginal and Torres Strait Islander Studies Research Publications, Canberra, June 2012. Marcia Langton, From conflict to cooperation – Transformations and challenges in the engagement of the Australian minerals industry and Australian Indigenous peoples, Minerals Council of Australia, Canberra, 2015. 176 Andrew ‘Twiggy’ Forrest, The Forrest review – Creating parity, Australian Government, Canberra, 1 August 2014; Andrew Burrell, ‘Marcia Langton lashes out at future fund silence’, The Australian, 2 December 2014. 177 Minerals Council of Australia, Commonwealth-MCA MoU on Indigenous employment and enterprise, MCA, Canberra 2015. 175


The industry urges the Australian Government to take a leadership role in the following areas to further expand the opportunities of Indigenous Australians from mining-related activity. •

Maintain legislative stability and efficiency to enhance economic opportunity – The past three years have seen a high rate of regulatory churn in native title, Aboriginal land rights and state cultural heritage regimes. The minerals industry supports initiatives that maintain legislative stability but at the same time improve administration and efficiency while protecting Indigenous land rights.

•

Continue demand-driven employment and training –The Government’s new policies on Indigenous procurement and Indigenous employment in the Australian Public Service complement strategies well-established by mining companies over many years. As such, Indigenous employment services should remain demand-driven and flexible to market trends, continue to leverage partnership opportunities to share best practice, and continue to link to private sector needs.

•

Introduce a modern management structure for land related payments –The ICDC entity proposed by the Native Title Taxation Working Group is designed specifically to optimise the 178 long-term management of Indigenous community land related payments and benefits. Native title determinations have accelerated since 2011 with 200-250 Indigenous trusts 179 (Prescribed Bodies Corporate) expected to be established by 2030. Unlike existing trust and corporation options available, the ICDC entity would allow communities to dedicate their funds to charitable purposes such as local education, but also accrue funds for investment as well as directly support small business development. The ICDC entity would have lower administrative costs and permit funds to be allocated to staff development and training encouraging improved governance and sustainability. The ICDC should be further developed and adopted as an additional vehicle tailored specifically to meet Indigenous community needs.

178

Treasury, Taxation of native title and traditional owner benefits and governance working group - Report to government, Australian Government, Canberra, 2013 179 Mick Gooda, ‘A new conversation regarding Indigenous land and economic development’, address at the 2015 Australian Institute of Aboriginal and Torres Strait Islander Studies national native title conference, Port Douglas, 17 June 2015.


3.13 Trade and investment •

Open trade and investment settings allow Australia to maximise its comparative advantage as a reliable, competitive supplier of mineral resources. Proposals to ‘manage’ commodity markets invariably fail and the Australian Government was right to reject politicised intervention in the iron ore market in 2015.

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High-quality trade agreements provide increased opportunities for exports, investment and jobs in the minerals industry. Following on the three North Asian free trade agreements, the MCA supports early ratification of the Trans-Pacific Partnership and continued momentum towards on a high-quality Comprehensive Economic Cooperation Agreement with India.

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A liberal foreign investment regime, with consistent application of rules and thresholds, is vital to investor confidence and to future growth in the minerals industry. New reporting requirements for foreign owners of agricultural land and water entitlements are onerous and unnecessary, undermining the message that Australia is ‘open for business’.

Open trade and investment settings allow Australia’s minerals industry to maximise its comparative advantage of reliable, cost competitive supply, while also promoting growth in our trading partners. Australia’s minerals exports have risen from around one third of Australia’s total exports of goods and 180 services in 2004-05 to 45 per cent in 2014-15. Iron ore ($66 billion) and coal ($38 billion) are the top two export earners for Australia, with gold ($13.5 billion) and aluminium ores and concentrates 181 ($6.3 billion) ranked sixth and ninth respectively. Uranium exports were valued at $532 million in 182 2014-15. The sharp decline in commodity prices has, in some cases, led to suggestions that Australia would be best served by having governments guide or otherwise ‘manage’ commodity market transactions and strategic business decisions. Concern about the fall in the iron ore price in 2015 gave rise to calls in some quarters for greater political intervention in that market. Iron ore has grown to be Australia’s largest export industry because of open, competitive markets at home and abroad. A 2015 MCA policy research paper by respected trade economist Dr Andy Stoeckel outlined several reasons why intervention in commodity markets has proven repeatedly to be a flawed strategy, not least because restricting supply simply allows competitor nations to increase 183 their market share. The Australian Government should continue to resist calls for greater politicisation of commodity markets. The Australian minerals industry supports continued trade and investment liberalisation through highquality bilateral, plurilateral and multilateral trade agreements. The MCA welcomes the trifecta of new North Asian FTAs now in place and delivering real benefits: •

China-Australia Free Trade Agreement (ChAFTA)

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Japan-Australia Economic Partnership Agreement (JAEPA)

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Korea-Australia-Free Trade Agreement (KAFTA).

Since entry-into force on 20 December 2015, the ChAFTA has eliminated tariffs that add nearly $600 million in costs to bilateral minerals and energy trade. For instance, the 3 per cent tariff on metallurgical coal has been removed and the tariff on thermal coal has been reduced from 6 per cent to 2 per cent and will be eliminated on 1 January 2017.

180

Department of Industry, Innovation and Science, Resources and Energy Quarterly publication series. Department of Foreign Affairs and Trade, Composition of Trade Australia 2014, released on 4 August 2015, Canberra, p. 39. 182 Department of Industry, Innovation and Science, Resources and Energy Quarterly publication series. 183 Andrew Stoeckel, Iron ore – iron law: Why open, competitive markets are best, MCA, September 2015. 181


The MCA encourages the Australian Government to ensure that the gains from ChAFTA are not circumvented by so called non-tariff barriers. With government, the MCA and coal producers have sought a solution to China’s imposition of uncertain coal quality regulations which apply upon importation. A key priority is to secure the agreement of Chinese authorities to accept testing of Australian coals conducted at Australian ports. Australia has large deposits of high-energy, low ash 184 coal. Similarly, JAEPA and KAFTA continue to remove tariffs on minerals. Iron ore and coal are Australia’s largest exports to Japan, worth $8.4 billion and $11.9 billion respectively, and to South Korea, worth 185 $5.2 billion and $5.1 billion respectively. The MCA urges the early signing and ratification of the Trans-Pacific Partnership (TPP) agreement among 12 countries – representing around 40 per cent of the global economy and a quarter of world trade. The TPP will eliminate tariffs on key Australian minerals, facilitate expansion of METS exports, and create new opportunities for Australian miners to find and develop reserves. The TPP locks in the duty and quota-free access Australia currently enjoys into a number of TPP markets for major minerals exports including coal (worth $12.8 billion a year) and iron ore (worth 186 $8.4 billion a year). The TPP will facilitate the injection of capital and technology into the Australian minerals industry by raising the foreign investment screening threshold from $252 million to $1,094 million (except in relation to uranium and plutonium extraction and nuclear facilities). Further, Australian companies will be able to transfer executives and managers more easily to work in TPP countries for extended periods and to obtain visas for Australian temporary contractors. The MCA sees the potential for greater liberalisation with the growing economies in our region, and encourages the Minister for Trade and Investment to push for the conclusion of outstanding negotiations, especially a Comprehensive Economic Cooperation Agreement (CECA) with India and a Regional Comprehensive Economic Partnership (RCEP) with the 10 countries of the Association of Southeast Asian Nations (ASEAN) plus China, India, Japan, Korea and New Zealand. It is important that Australia concludes a high-quality CECA with India that boosts opportunities for the minerals industry to supply India’s growing demand for resources, including coal and uranium. In 2014, minerals exports were the largest components of the $16 billion trade between Australia and 187 India, including coal ($5.2 billion), copper ($779 million) and gold ($699 million). The RCEP will have the potential to deliver opportunities to the Australian minerals industry. The RCEP will cover nine of Australia's top 12 trading partners, and collectively RCEP participating 188 countries will account for a combined GDP of US$21 trillion. These countries account for almost 189 60 per cent of Australia's total two way trade, and 70 per cent of our exports. The MCA also welcomes the commitment between Australia and the European Union to work towards launching FTA negotiations. Coal and gold are Australia’s largest exports to the EU, worth $2.3 190 billion and $916 million respectively. A liberal foreign investment regime, with consistent application of rules and thresholds, is vital to investor confidence and to future growth in the minerals industry. New reporting requirements for foreign owners of agricultural land and water entitlements are onerous and unnecessary, undermining the message that Australia is ‘open for business’.

184

Department of Industry, Innovation and Science, Coal in India 2015, 1 June 2015, Canberra, p. 13. Department of Foreign Affairs and Trade, Composition of Trade Australia 2014, August 2015, Canberra, pp. 109 and 115. 186 Department of Foreign Affairs and Trade, Australia’s trade and investment relations with Trans Pacific Partnership countries in 2014, viewed 16 December 2014. 187 Department of Foreign Affairs and Trade, Composition of Trade Australia 2014, August 2015, Canberra, p. 106. 188 Department of Foreign Affairs and Trade, Regional Comprehensive Economic Partnership 189 Department of Foreign Affairs and Trade, Regional Comprehensive Economic Partnership 190 Department of Foreign Affairs and Trade, Composition of Trade Australia 2014, 4 August 2015, Canberra, p. 131. 185


3.14 Northern Australia •

The minerals industry is a large economic contributor to Northern Australia accounting for around 85 per cent of export value from Northern Australian ports. Mining will remain central to growth prospects in the north.

•

Investment in infrastructure under the Northern Australia strategy should recognise mining’s importance to the future development of Northern Australia. The Northern Australia Infrastructure Facility should be integrated with existing federal and state approvals processes. The investment mandate should neither favour nor exclude particular industries. 191

The mining and energy sector is the largest industry in northern Australia. Australia’s two largest export earners – the mining of iron ore and metallurgical coal – are concentrated overwhelmingly north of the Tropic of Capricorn; more than 95 per cent of iron ore production and almost 80 per cent of metallurgical coal production is in the north. The north also hosts mining operations for a range of other mineral commodities – including copper, lead, silver, zinc, gold, thermal coal, bauxite, uranium and diamonds. Almost half of Australia’s bauxite production, around three quarters of zinc and silver production and 35 per cent of copper production are sourced from northern Australia. The Northern Australia White Paper recognises mining as an industry with bright growth prospects 192 due to the significant potential for future resource development. Around 86 per cent of Australia’s bauxite reserves, 88 per cent of zinc reserves, 80 per cent of iron ore reserves, 48 per cent of coal reserves, 27 per cent of copper reserves, 18 per cent of gold reserves and substantial deposits of rare earths, potash and phosphate are located in northern Australia. Similarly, the majority of future key growth regions in the north identified by Infrastructure Australia are those associated with 193 development of as yet under-exploited minerals resources. However, prospectivity alone will not secure future investment. Mining projects must be globally competitive to attract investment and those in the north of Australia invariably face higher capital and operating costs and project risk due to factors such as inadequate physical and social infrastructure, skills shortages and restrictive land access arrangements. The Northern Australia White Paper correctly identifies these impediments as focal points for reform and investment. Infrastructure investment, regulatory reform and capacity building programs all have a role to play to improve the competitiveness of the mining industry in the north and to allow it to take full advantage of the future resource demand, especially in Asia. Investment in infrastructure under the Northern Australia strategy should recognise mining’s importance to the development of Northern Australia. The Government’s Northern Australia Infrastructure Facility provides for $5 billion of concessional loans over five years from 2016-17 for 50 per cent of the project financing for projects with a value of $100 million or more. The NAIF has the potential to spur new investment. However, it is vital that it be integrated with existing federal and state approvals processes and not add to policy complexity. In addition, the facility’s investment mandate should neither favour nor exclude particular industries. The MCA supports government moves to establish an independent chair and board to assess and approve projects.

191

Infrastructure Australia, Northern Australia Audit Infrastructure for a Developing North Report, Infrastructure Australia, Sydney, 2015, p. 56. 192 Australian Government, Our North, Our Future: White Paper on Developing Northern Australia, Australian Government, Canberra, 2015, p. 56. 193 Infrastructure Australia, Northern Australia Audit Infrastructure for a Developing North Report, Infrastructure Australia, Sydney, 2015, p. 66.


3.15 Exploration •

Attracting investment in exploration is critical to sustaining a future pipeline of mining projects and exports. Exploration expenditure in 2014-15 was down 60 per cent from the peak year of 2011-12.

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The Australian Government should maintain immediate deductibility of exploration expenditure in the tax system and encourage the next wave of exploration through the Exploration Development Incentive and by supporting the collaborative UNCOVER project.

Sustained exploration activity is fundamental to the future success of the Australian minerals industry. Broadly defined, exploration is the process by which information is collected and evaluated to identify mineral deposits and to assess the economic feasibility of their extraction. Exploration is analogous to market research; it is fundamentally exploring for business. Exploration expenditure was $1.6 billion in 2014-15, down 60 per cent from the peak year of 2011-12 (see Section 1.4). The pre-competitive information produced by Geoscience Australia (that is, pre-exploration studies aimed at defining the geology of a basin or region) has strong ‘public good’ attributes. This is because these data, once created, may be obtained by any user without diminishing their availability to other users; and any restriction on access either creates unacceptable efficiency or welfare losses, 194 or is not practical. Australia’s immediate deduction regime supports the high-risk exploration activities that are integral to securing a future pipeline of mining projects. The MCA also urges the Australian Government to maintain the Exploration Development Incentive, which assists junior explorers in raising capital from private sector investors through a refundable tax offset (see Section 3.2). The long-term challenge for the industry is that the discovery of new deposits has not kept pace with depletion. Some 80 per cent of Australia’s current mineral production is derived from mines discovered more than 30 years ago. In the corresponding period, Australia’s exploration performance – as measured by the discovery of world-class, economically significant mineral deposits – has 195 declined. In 2010, the Australian Academy of Science convened a Theo Murphy High Flyers Think Tank for minerals exploration stakeholders to address the challenge of discovering new mineral resources for 196 Australia. This culminated in the formation of the UNCOVER initiative. The ultimate goal of the UNCOVER initiative is to achieve a step-change in knowledge and methodologies in Earth sciences relevant to mineral exploration ‘beneath the cover’. The collaboration is unprecedented. It includes Geoscience Australia, the CSIRO, industry representatives, cooperative research centres, universities, state geological surveys, and geophysical survey and software development 197 companies. The UNCOVER strategy offers a great opportunity for Australia to lead the world in undercover exploration. At the same time, the UNCOVER Executive and Geoscience Committees recognise that long-term, sustainable funding for geoscience research and technology development, together with 198 government data generation related to priorities identified by UNCOVER, are essential. While industry collaboration is central to the UNCOVER project, ongoing support from both federal and state governments is also vital.

194

Australian Government, Strategic Review of Geoscience Australia, May 2011, pp. ix-x. UNCOVER, Background and future funding requirements, December 2015, p. 1. 196 UNCOVER, Background and future funding requirements, December 2015, p. 2. 197 UNCOVER, Background and future funding requirements, December 2015, p. 1. 198 UNCOVER, Background and future funding requirements, December 2015, p. 2. 195
