MINING ROYALTIES

The Hon. J.S.L. DAWKINS (16:32): I seek leave to make a brief explanation before asking the Leader of the Government, as Minister for Mineral Resources Development, a question about mining royalties.

Leave granted.

The Hon. J.S.L. DAWKINS: On 4 June 2009, the Treasurer (Hon. Kevin Foley) announced the formation of the Sustainable Budget Commission. Headed by Mr Geoff Carmody, the commission was charged with the responsibility of finding $750 million worth of savings by 2012-13. The terms of reference set by the government talked about identifying savings 'through removal of duplication of resources to achieve policy outcomes' and identifying 'expenditures in areas of diminishing priority against the priorities outlined in South Australia's Strategic Plan'.

Nowhere in the South Australian Labor Party platform of 2009, a 158 page document, is it suggested that there would be a review of the taxation rate for mining royalties. On 28 January 2010, the Treasurer handed down the Mid-Year Budget Review. Mining royalties were slightly increased because, according to the report:

Royalty revenue estimates have been revised up over the forward estimates, mainly reflecting the impact of higher US dollar commodity prices (mainly copper and oil). This upward revision is partially offset by the impact of a stronger Australian dollar, revisions to production at various mines, including Olympic Dam, and a downward revision to the iron ore royalty estimate in 2009-10.

On 25 February 2010, the Labor Party released its mining policy for the state election. Nowhere within this document is it suggested that there would be a review of the taxation rate for mining royalties. However, on 3 May 2010, the Treasurer said on the Matthew Abraham and David Bevan 891 ABC program:

Now I think as we're going into the current negotiations with BHP over the expansion of Olympic Dam...the royalty rate is on the agenda and was always on the agenda. The work that I'm currently doing with the sustainable budget commission is we're already reviewing our royalties, with a view to increasing royalties and I've been encouraged in that respect by what Colin Barnett has done over in the west.

My questions are:

1. When did the Treasurer direct the Sustainable Budget Commission specifically to review the taxation rate on mining royalties?

2. Has the Treasurer informed cabinet and the Minister for Mineral Resources Development of his directive to the Sustainable Budget Commission and, if so, when?

3. Why did the government not include the possibility of raising the taxation rate of mining royalties in the Mid-Year Budget Review, the Labor Party platform or its mining policy for the election?

4. Does the Rann government believe that finding savings is equivalent to raising taxes?

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Industrial Relations, Minister Assisting the Premier in Public Sector Management) (16:35): If the honourable member goes back through some of the questions I have been asked in parliament in the past, I am sure he will find reference to the fact that I indicated that, in relation to the negotiations with Olympic Dam, if the proposal for the expansion of Olympic Dam went ahead as planned—that is, that the output of much, if not all, of the expansion of that mine would be exported in a concentrate form, rather than (as it is now) processed on site at Olympic Dam—then the government would obviously need to consider royalties.

Let me explain the situation at present. With the current output of the Olympic Dam mine, several hundred thousand tonnes of copper a year and 4,000 tonnes of uranium are processed on site. That provides economic development in the state. There are jobs for people at Olympic Dam. Payroll tax is paid to the state through those people working. If one does not have, as a result of the expansion, the same level of downstream processing, then clearly the revenue to the state from that expansion will be much less than it would be if the downstream processing were done here. After all, royalties are only one part of the income stream that a government receives.

My view, in relation to the negotiation of the indenture and so on, is that royalties are in many ways a balancing item. The state has to look at the overall benefits and, if necessary, disbenefits of the expansion and balance that up accordingly. Clearly, whether there is processing onshore or offshore is a key element. I also make the point that the current price for copper is about $8,000 a tonne. If it is exported in a processed form from Olympic Dam, the royalty rate of 3.5 per cent would apply to that value of the refined copper, depending how it is sold—with long-term contracts or on the spot market—less production costs.

That would be a lot different if it were exported as a concentrate. The value of the concentrate would be significantly less, as well, so that is another factor which would impact on the return to the state. This state has always made it clear in relation to Olympic Dam that any royalty we apply would need to be that balancing item that would take into account the processing at Olympic Dam.

Similarly, for some time the government has to be looking in relation to the situation with other mines that are covered by indentures because some of those royalties were set many years ago in conditions of change. If I use the example of OneSteel, because steelworks have been constructed at Whyalla, they employ over 1,000 people; they have been used for many years. Iron ore has always been exported from Whyalla around at Port Kembla, and the ship that takes the iron ore to Port Kembla brings the coal back. So, the royalty rates that have applied in relation to that iron ore have been very low because the state's main benefit during the time of the indentures—and some of them go back to the Playford era of the 1930s—reflected the downstream processing.

We now know that, as OneSteel is expanding, it has converted the steelworks to magnetite. It is now exporting significant quantities of hematite. So, it would be appropriate that we look at those changed circumstances in relation to the royalty rate. It has been made clear that the government is appropriately, through the indenture negotiations, looking at royalties.

We have always made that clear because I said we need to take into account the overall benefits to the state, not just from royalties but in terms of the jobs provided on site, payroll tax and all the other benefits to the state, in coming to a figure. I think that should adequately answer that question.