30 November 2016
Transcript - #2016173, 2016

Press Conference, Canberra

SUBJECTS: Petroleum Resource Rent Tax (PRRT); Ensuring the integrity of Australia’s Tax System; Mid-Year Economic and Fiscal Outlook; Attorney-General.

TREASURER:

The Turnbull Government is getting on with the job. Of course the last six months more than $21 billion in Budget improvement measures have been passed and legislated through the Parliament. Indeed that figure will be achieved with the passage of the backpacker tax changes that were taken through the house yesterday. Our Budget plan

is all about ensuring firstly, that we get expenditure under control but also, importantly, that we deal with the integrity of the tax base and sustainability of the tax base.

You would have seen obviously in the Budget in the passage of measures, whether they be on superannuation or other elements, the diverted profits tax, exposure draft and legislation which we have released this week, that we're dealing with those issues.

Indeed, it is almost one year since the Labor Party walked into the Federal Parliament last year and voted against multinationals paying their fair share of tax. They voted against our multinational anti-avoidance legislation. Almost a year ago in the final sitting week of last year and today I note that they are seeking to argue the case for multinationals, giving them more time and being able to deal with the diverted profits tax. The diverted profits tax has been well flagged. It is out there and will come into force. I expect the Labor Party to change their ways from last year and actually vote for it when we introduce that into the Parliament and the further consultation is undertaken.

Today, what I am announcing is the terms of reference for review into the petroleum resource rent tax. What has occurred since 2012/13 is a halving in PRRT revenues down to $800 million. In addition to that, the crude oil excise collections have also fallen by more than half. This is a matter that the Government has been well aware of for some time and in September of this year, I instructed, through my office Treasury, to begin work on preparing options, examining the operation of the PRRT and to work towards what I am announcing today, which is a review that will be led by Michael Callaghan AM, a very distinguished former Treasury official which would be known to many of you I am sure. That is what I am announcing today. The terms of reference will be circulated. That instruction to Treasury back in September was followed by meetings with the ATO, APPEA, other industry groups, whether it was BP or even Woodside who I met with earlier today. But also the Tax Justice Network have met with my office. This is an issue I think people understand exists and the decline in those revenues can be put down to any number of matters, particularly the decline in production as existing projects come to the end of their lives, the subdued outlook for oil and gas prices and large amounts of deductible expenditures from the recent mining investment boom. We have some $200 billion which has been put into the system in terms of what is deductible expenditure for the purposes of the PRRT. As you know that comes with an uplift and there is an ordering of the deductions that can be made under the PRRT and there is the transferability of exploration expenditure against other projects.

There have been no changes to the PRRT since 2012 and we think it is very timely that these matters be addressed and be addressed in time for these matters to be considered in the preparation of next year's Budget. That is what we have been working to. I note the Senate also are moving on this matter and wish them well with their inquiry. Michael Callaghan will be conducting the formal inquiry on behalf of the Government and will work assiduously with industry and others to ensure that we get the balance right. This has to be calibrated very carefully. This is about ensuring sustainability and effectiveness and efficiency of our tax system. It is actually not primarily about revenue. It is important these companies pay their fair share when it comes to these issues. They also pay company tax, they also pay other forms of tax. We need to deal with these things sensitively because the last thing we want to do, in moving in this area, is do things that might put at risk investment. This will be a very sober, very considered, very measured, very consultative process that we will engage in to ensure that we do a timely review of the PRRT, understand what is driving, predominantly, the changes in revenues and ensure we can put it on a strong footing going forward in a way that doesn't compromise or risk investment. That is what we will be doing.

QUESTION:

Is the central allegation or claim that these resource companies are gold plating investment so that they can therefore claim greater deductions which then means less revenue?

TREASURER:

When you get an uplift on the bond rate for your deductible expenses, that of itself ensures that you get a large well of deductions that build up and can be applied against future projects. I am aware of those allegations. The Government is not buying into the argument about those allegations. People are making those allegations, they have to make them stack up. Others will pursue this agenda as a way to drive out these industries. The Government doesn't want to do that. We have already seen the Labor Party and the Greens cheer on the reduction in our countries' energy price advantage we have had for a century. They have cheered that process on, whether it is at Hazelwood and other places. They have looked forward to the day of places like Hazelwood closing. The Government doesn't share those sorts of views. I know that there are those agendas driving, for some, their interest in this issue. My interest in this issue is to ensure that the system works well. In our consultations with industry, they welcome the review, they are keen to engage in it and work constructively.

QUESTION:

What do you say to the claims being made that there is billions of dollars in revenue that the Federal Government is missing out on? Is the problem that big?

That assumes that all of the deductions that are made are ineligible. That is a pretty aggressive claim. What is important is that we have a system that rightly recognises the expenditure and early investment that is made to make these projects a reality. That has to be recognised. If you look back over the data, you will see much of the exploration investment does track closely to the movement in the prices. That was something that the industry commission noted many years ago when these issues were being addressed. There is more history around this now and more data in terms of how this has worked. Mr Callaghan will have a good opportunity to ask those sorts of questions when it comes to what are the appropriate uplift rates, what is the appropriate scheduling on what order deductions are taken? What is the appropriate application of exploration expenditures towards potentially unrelated projects in the future? These are all reasonable issues to address. Even having addressed all of those issues, I wouldn't want to create the expectation that in the short-term, certainly when it comes to the PRRT, that this would lead to any significant change in the revenues over the Budget and forward estimates. If people are getting into this exercise simply from that perspective, then I think their motives are being betrayed. How you deal with things like the excise and so on, that can have a more immediate term impact. You have got to weigh that up against the impacts on investment and so on and existing projects and how those projects were dealt with initially.

QUESTION:

The Greens have signalled a Senate inquiry into the Auditor-General's report on royalties - in terms of the north-west shelf. This would be separate - this would cover slightly different issues in regards to the PRRT?

TREASURER:

This is holistic. This is comprehensive. The Greens want to drive the industry out of the country, off the offshore. That is their agenda. They are entitled to that view. We don't share it. We want to see this industry to continue to thrive, prosper and we want to ensure the tax arrangements we have around it are sustainable, make sense. It has been a while since they have been updated. My understanding, it wasn't that long ago, I think it was in your paper Phil that Craig Emerson, who humbly claims to have written PRRT, which I understand he did. It is timely that we look at these things. This is a workmanlike review that is necessary, it will be comprehensive, holistic but it is a professional review. It is trying to work the problem and that is what we do in this Government, we work the problems and produce the solutions, put them into the Parliament and work with the Parliament to make sure that we can pass our measures. That is what we are doing. That is the evidence you are seeing before you.

QUESTION:

Treasurer, do you expect the companies to fully cooperate with Mike Callaghan? You wouldn't expect them now to campaign or backlash against about having their measures reviewed perhaps?

TREASURER:

No, the meetings I have had personally and my office have had have shown a willingness to address these issues sensibly. I welcome that. This is the way you do these things. You do them in a consultative engaging way. You don't set them up as some sort of combat, as often times we see in inquiries that are done in the Senate which have a different set of motives to what the Government is seeking to achieve. They welcome the fact that the Government wants to engage constructively on this issue. They understand there is an issue. We have just got to work through it.

QUESTION:

A couple of questions loosely related. Taking into account what you have said, does commissioning this review - is that a concession there is a revenue problem this country faces as well as a spending problem?

TREASURER:

No, what it says Phil is it is consistent with everything I have said as Treasurer. You need to ensure the integrity and sustainability of your tax base. That is why the former Treasurer introduced the multinational anti-avoidance laws which the Turnbull Government was successful in actually having passed through the parliament. We had to do that despite the Opposition of the Labor Party. The Labor Party, when it comes to these issues are tax policy phonies. They are phonies. They are out there saying that every day they come and say "Why won't you jack up taxes on them? " And then they offer foreign workers a tax cut. They say our tax rates have to be comparable for foreign workers with New Zealand but for small businesses they can be higher. They are tax phonies on this issue. They are just as Jerry Seinfeld used to say "He is a phony" and that is what they are, phonies.

QUESTION:

Just regarding a report today about the Treasurers' meeting on Friday and the competition issue. Is it acceptable by the states or realistic that the states don't want to usher in reforms if there is no money to pay them with?

TREASURER:

I have been discussing this matter with the Treasurers. It is only Victoria who have said they don't want to sign up at this point. There is a long way to go in this process. The Harper Review demonstrated that there are real benefits for Australians, for their living standards, for the costs they face, for the services and the quality of services that they receive by going down the path which he outlined in his report. It should actually just follow that states and territories would want to implement and do the things which, in different cases, many of those states and territories are. In NSW, what they have been doing on planning and law reform and things like that has been world leading. In South Australia what they have been doing on affordable housing with their Social Impact Bond process. What Western Australia has been doing in health. There are some good things happening in states and territories. I would hope they would want to read the Harper report and say "let's get on with it".  What we have said is we're happy to work with them to develop a framework, ala what was done with Hilmer where we would be in a position to try and incentivise that process. They're right to say that you have got to put some petrol in the tank when it comes to driving that process. My message to the states is you want to see petrol in the tank, talk to the states' house here in the parliament. Because it is states’ place in the Parliament, principally led by the Labor Party who are blocking almost $20 billion worth of further Budget improvement measures. Now, you want to see petrol in the tank, when it comes to the sorts of things that states expect, talk to your state representatives in the Senate because they are the ones who are stopping, led by the Labor Party, us improving the Budget position which enables us, which puts us in a much stronger position to be able to pursue these sorts of things with far more enthusiasm.

QUESTION:

Talking about state treasurers, when you became Treasurer at what stage were you told or informed, perhaps by Dr Nahan himself, that he had an arrangement with your predecessor – he thinks it was a deal, an agreement, whereby the Commonwealth would not interfere in the Bell legislation?

TREASURER:

Mike Nahan has never raised these issues with me.

QUESTION:

Not once?

TREASURER:

No.

QUESTION:

In writing, verbally – nothing?

TREASURER:

No, it has never been a topic of conversation between Mike Nahan... The matters as have been set out by both Minister O'Dwyer and the Attorney-General, set out very clearly, my understanding of these matters and how they have been advised to me. These were matters that preceded my time. What I do know is if there was a view that there was such an arrangement, the letter that was sent by the former Treasurer back to WA made it pretty clear there wasn't. That matter has never been subsequently raised with me as the new Treasurer. You can draw your own conclusion from all of that but what I know is when you look at things at the end of the day, the ATO, with the Treasury's full support, prosecuted the case, won, so there you go.

QUESTION:

Can I ask when did you first know of that expectation or belief that there was...

TREASURER:

Only when these matters were raised publicly.

QUESTION:

When was this?

TREASURER:

Not that long ago.

QUESTION:

How long ago?

TREASURER:

Not that long ago.

QUESTION:

Also, it made some damning findings about the Federal Innovation Department as well as the WA Government about the short comings in the collection of royalties. Have you spoken to the Federal Department about that and do you expect WA's cooperation with your review?

TREASURER:

I have no doubt. What we are trying to ensure, and this is particularly important for resource states, that as we deal with the issues, whether it is on excise or on the PRRT that we do so in a way that doesn't frustrate or inhibit the continued development of this sector. That has massive implications for recourse states. They can expect us to work very closely with them on those issues. These issues have been rightly raised. I anticipate that we will see a further deterioration potentially in this area and that is why it is important that we address it. The Government has been quite open and up-front about this. We have seen this. We think it is a problem. Have already been working on it and this process will help us get to the right answer and I will be able to bring something forward, is my intention in next year's Budget.

QUESTION:

In relation to Friday's meeting, housing is also on the agenda. Given that planning and zoning is a state responsibility, is there anything that the Federal Government can put on the table in terms of a carrot or anything else to address the issue of housing affordability?

TREASURER:

This is just another step in a number of discussions we have had at the Treasurers meetings on this issue. We are receiving a report on affordable housing on Friday. I think there are some very good recommendations that are in that report that are coming back which I would expect to get endorsement. That is not the end of the process. There is a Budget next year. There will be a Budget the year after that. There will be a Budget the year after that and the housing affordability is an important issue which we remain very focused on. It is not just at the private end of the market, I should stress. It is not just about whether people who are saving up to buy a home in Sydney and Melbourne, that is not the only issue in housing affordability. Thirty per cent of people in this country live in homes that are rented. How much rent they pay and whether they can afford that rent and these are people who are also saving to buy a house. I am not about to do something which is going to jack up their rents which was the result of negative gearing changes last time. It is important to understand the real stresses that are faced by, particularly young families, trying to save and buy their first home. The measures that were introduced by APRA were very effective in dealing with the investor demand issue. That was acknowledged by both the Reserve Bank and APRA. That was a good development. You have got to then weigh that up against the warnings that have come from ratings agencies and those who have read those carefully will remember that one of the big risks to the Australian economy is a negative housing shock. You are not going to do something with your tax system that brings that on. I think that is quite a reckless and dangerous idea. You will note the Premier yesterday noted this concern and he said the Commonwealth was right to raise concerns about the impacts on rents. Whether you're just renting in the private market or you are one of those who have a necessity to rely on the affordable housing market or the social housing market or homelessness, all of these are areas that we are looking at as a Government. We spend almost or around $11 billion a year together with the states to support people in housing. I don't think it is spent very well, I don’t think it is well spent by the states, I don’t think it is well spent by the Commonwealth either. That is a lot of money we are putting in every year that we can get a lot more out of than we currently are. They are very valid areas. I commend the state treasurers because they are aware of that too and I think we are trying to progress this issue quite constructively.

QUESTION:

Treasurer, have you or will you seek explanation from Joe Hockey over the WA deal?

TREASURER:

I don't think there is any issue. The case was prosecuted successfully. The ATO prosecuted the case. The letter from the former Treasurer to the Western Australian Treasurer made it crystal clear there was no arrangement. I don't think there is a question to be answered.

QUESTION:

[Inaudible] to State Parliament. Mike Nahan had been explicit that there was...

TREASURER:

The proof is in the pudding. The case was prosecuted and won. It was prosecuted by the ATO. I think the Government's actions speak louder than others' words.

QUESTION:

Why did you make changes to allow foreign buyers to sell to other foreign buyers when buying off the plan falls through rather than forcing them to on sell those properties onto Australians...

TREASURER:

It was an unintended consequence of the existing regulation and it was to deal with some sensitive spots in the apartment market where we didn't want to have an arrangement, where the financial viability of various ventures could be put under threat by the unintended consequence of a house or more importantly an apartment which hadn't even yet been built so you couldn't call it an existing dwelling when it didn't exist and there was an issue with settlements and to try and restrain the market in which those initial purchases were being made to what would otherwise be the case. It was an anomaly, an unintended consequence and it was important to provide some surety around those projects so we didn't allow a situation to develop that could jeopardise important business ventures. The viability of those ventures, the people who work in those ventures and not create any further consequential impacts in those markets.

QUESTION:

You think the slight difference in price for Australian buyers might have paid would imperil those projects?

TREASURER:

No, that is your view. It is not my view. My view is that it was an anomaly in the existing regulation and having taken advice and having consulted with the sector, this was an important way of ensuring some stability in some fragile areas of that market. It is my job as Treasurer to provide stability not uncertainty. The sort of arrangement that we were looking at was heightening some uncertainty in a sensitive area. I don't think that was a sensible thing to allow to continue and as a result, we made a very modest recalibration of those measures. That is a common sense and responsible thing to do.