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Legislative Council - Fifty-Second Parliament, First Session (52-1)
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MINING (ROYALTIES) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 7 June 2011.)

The Hon. M. PARNELL (11:06): This bill proposes to increase the royalty payments made by certain mining companies from 3.5 per cent to 5 per cent in line with the decision made in last year's state budget. The key question for us in considering this legislation is: what is an appropriate return to the community for the private exploitation of our non-renewable mineral resources or, phrased another way, how much can we as a community lean on these struggling mining companies in order to obtain a return for the benefit of the community?

Members may have seen in yesterday's Australian in the business section an article entitled 'Resources boom to keep rolling'. The figures are really quite staggering. The report says:

The global mining boom has shifted into top gear because of growing demand and surging commodity prices, with profits of the world's 40 largest miners reaching a record $US110 billion ($102bn) last year. That represented a stunning 156 per cent jump on the previous year and the start of a new stanza of growth that is forecast to continue as global demand increases and new projects are brought on stream.

The mining boom in this state has been much talked about and much anticipated, and what this bill invites us to do is consider, at least partially, the return that the community gets from the extraction of those minerals.

The other question that is raised should not be one that needs to be asked at all, but apparently it does, and that is: whose minerals are these anyway? In fact, if we look at the same article in the business pages of The Australian yesterday we can see, in a piece by Matthew Stevens, a reference to what he describes as the 'surging tide of resource nationalism'. He is referring to a survey of mining executives undertaken by PricewaterhouseCoopers, where they are asked to rank and to rate the issues of concern to the mining industry. He says in his article:

The rise and impact of resource nationalism represented 'the greatest change to the thoughts of the CEOs' in this year's survey.

It is mindboggling to think that we are having a debate in our national newspaper about who owns these resources. I have a surprise for The Australian newspaper: the community owns these resources. To think of debates at the state and federal levels about royalties and taxes as some 'surging tide of resource nationalism' is just bizarre in the extreme. These minerals are owned by the community and they are staying where they are until the community determines when they can be extracted, the circumstances in which they are extracted and the return to the community from extraction.

The rules vary amongst the different states, and I think it is fair to say that South Australia is, and I think still will be even if this bill passes, regarded as a low-royalty state. There are some who will applaud that and think that it is a great boon for our state to be extracting the least from our mining companies, but I think it is important to note that other states have in fact set royalties at higher levels. I am very grateful to the Parliament Research Library, which undertook some research at my request and has produced a table showing the royalty rates that apply to various minerals around Australia. I seek leave at this stage to incorporate that statistical table into Hansard without my reading it.

Leave granted.

Mineral State Royalty Rate (May 2011) Basis of Calculation Last review/change
Bauxite QLD Export:10% or $2/tonneDomestic:75% of the rate per tonne for export bauxite or $1.50/tonne Ad valorem or quantum rate, whichever is the higher 2008–Mines and Energy Legislation Amendment Regulation (No 2) 2008
NSW $0.35 per tonne Quantum rate No change since the introduction of the Mining Regulation 2003
VIC 2.75% Ad valorem No recent change
WA 7.5% Ad valorem No recent change
SA 3.5% Ad valorem 2005–Mining (Royalty No 2) Amendment Act 2005
Coal QLD 7% where the value of the coal produced does not exceed $100/tonne10% on the value of the coal exceeding $100/tonne Ad valorem 2008–Mines and Energy Legislation Amendment Regulation (No 2) 2008
NSW Open cut mining 8.2%Underground mining 7.2%Deep underground mining 6.2% Ad valorem 2008–State Revenue and Other Legislation Amendment (Budget Measures) Act 2008
VIC Brown Coal$0.0588 per GJ, adjusted in accordance with the consumer price indexOther than Brown Coal 2.75% Ad valorem with quantum rate for brown coal 2006–Mineral Resources Development (Amendment) Regulations 2006  
WA If exported 7.5%If not exported1/tonne (adjusted each year at 30 June in accordance with comparative price increases) Ad valorem and quantum rate 2000–Mining Amendment Regulations (No. 4) 2000
SA 3.5% of sales value Ad valorem 2005–Mining (Royalty No 2) Amendment Act 2005
Coal Seam Gas QLD The royalty rate for petroleum –10%.Exemptions apply to flared or vented coal seam gas, incidental coal seam gas mined under a mining lease and coal seam gas mined under a mineral hydrocarbon mining lease. Ad valorem 2004–Petroleum and Gas (Production and Safety) Regulation 2004
NSW Same rate as petroleum Ad valorem No change since 2002
VIC 2.75% Ad valorem No recent change
WA Same rate as petroleum Ad valorem No recent change
SA Same rate as petroleum Ad valorem No recent change
Tas $12.00 for each $100 of the gross value of coal seam gas at well head
Cobalt QLD Variable rate of 2.5-5.00% varying in .02% increments depending on average metal prices (effective 1 January 2011).Producers are advised of the applicable variable rate by the Department.$100,000 thresholdDiscount of 20% if processed in Qld and metal content is at least 50% Ad valorem No change since the introduction of the Mineral Resources Regulation 2003
NSW 4% Ad valorem No change since the introduction of the Mining Regulation 2003
VIC 2.75% Ad valorem No recent change
WA If sold as concentrate 5%If sold in metallic form 2.5%If sold as nickel by-product$/tonne calculated using the gross cobalt metal price per tonne Ad valorem and quantum rate 2000–Mining Amendment Regulations (No. 4) 2000
SA 3.5% of sales value Ad valorem 2005–Mining (Royalty No 2) Amendment Act 2005
Copper QLD Variable rate of 2.5-5.00% varying in .02% increments depending on average metal prices (effective 1 January 2011).Producers are advised of the applicable variable rate by the Department.$100,000 thresholdDiscount of 20% if processed in Qld and metal content is at least 95% Ad valorem No change since the introduction of the Mineral Resources Regulation 2003
NSW 4% ex-mine value Ad valorem No change since the introduction of the Mining Regulation 2003
VIC 2.75% Ad valorem No recent change
WA If sold as concentrate 5%If sold in metallic form 2.5%If sold as nickel by-product$/tonne calculated using the gross copper metal price per tonne Ad valorem and quantum rate 2000–Mining Amendment Regulation (No. 4) 2000
SA 3.5% of sales value Ad valorem 2005–Mining (Royalty No 2) Amendment Act 2005
Iron Ore  QLD If average price is $100 or less - $1.25 per tonne and 2.5% of the value per tonne thereafter$100,000 thresholdDiscount of 20% if processed in Qld and metal content is at least 95% Ad valorem 2008–Mines and Energy Legislation Amendment Regulation (No 2) 2008
NSW 4% Ad valorem No change since the introduction of the Mining Regulation 2003
VIC 2.75% Ad valorem No recent change
WA Beneficiated Ore 5%Fine Ore 5.625%Lump Ore 7.5% Ad valorem No recent change
SA 3.5% of sales value Ad valorem 2005–Mining (Royalty No 2) Amendment Act 2005
Petroleum QLD 10% of wellhead value Ad valorem 2008–Mines and Energy Legislation Amendment Regulation (No 2) 2008
NSW In relation to onshore petroleum, nil for the first 5 years; and for the sixth year is 6%, rising by 1% each year up to 10% of the well-head value in the tenth year.In relation to offshore petroleum, 10% of wellhead value. Ad valorem No change since 2002
VIC 10% of wellhead value Ad valorem No recent change
WA Onshore petroleum: 5-10% of wellhead value for primary licences. 10-12.5% for secondary licences.Offshore petroleum: 10-12.5% of wellhead value.NB: normally the higher percentage figure stands; however in the case of uneconomic recovery, the company can request a lower royalty rate (within the above band) be applied. Ad valorem No recent change
SA 10% of wellhead value Ad valorem No recent change
Tas $12.00 for each $100 of the gross value of coal seam gas at well head
Oil Shale QLD The lesser of 10% or a percentage of the average crude oil price Ad valorem No change since the introduction of the Mineral Resources Regulation 2003
NSW 4% ex-mine value Ad valorem No change since the introduction of the Mining Regulation 2003
VIC 2.75% Ad valorem No recent change
WA Same rate as petroleum Ad valorem No recent change
SA 3.5% (as a mineral) Ad valorem 2005–Mining (Royalty No 2) Amendment Act 2005


The Hon. M. PARNELL: Thank you, Mr President. We note also that other states, in particular Western Australia and New South Wales, are proposing to further increase their mining royalties beyond that which is set in this bill for South Australia. As loath as I am to quote the same journal three times now, again in yesterday's Australian is an article from the New South Wales political reporter, which commences:

New South Wales Premier Barry O'Farrell's suggestion he could ramp up mining royalties has sent jitters through business groups…

The article then goes on:

Mr O'Farrell said on Sunday he would not rule out increasing the royalty rate in New South Wales, which fluctuates between 6.2 per cent and 8.2 per cent, depending on the depth of the coal being extracted.

We have also had in the media recently much debate about the Western Australian decision to increase royalties, and much of that debate centred around what the impact would be on the, if you like, royalty sharing arrangements that are in place at a commonwealth level to ensure that the benefits of non-renewable resources are shared between states.

So, I think the take-home message from all of that is that we have been very constrained in South Australia. The Greens do believe that mining royalties and mining taxes should be better coordinated at a national level, and we were disappointed that the federal government back-flipped over its mining super profits tax and that that decision will effectively strip from the community some of the wealth that we believe should be flowing into the community. We know that wealth could have been put to very good use in health and education and also, as I have said in this place before, in a sovereign wealth fund for the benefit of future generations.

The government has pointed out in its notes accompanying this bill that the estimated return to the community would be an additional $65.5 million over three years, so $22 million, if you like, per annum, which is an absolute drop in the bucket when we consider the value of the minerals that are being extracted. We are indeed selling them far too cheaply. The Greens believe that we have been, and will continue to be, an undercharging state. We called several years ago for mining royalties to be increased, and so too did the trade union movement.

It is also important to note that 80 per cent of our royalties come from just three sources, and each of those three sources has special rules that apply. For example, BHP Billiton, the Olympic Dam mine, has its own special indenture act. The OZ Minerals Prominent Hill mine is benefiting from the new mine discount royalty rate, and then, of course, we have OneSteel's Middleback Ranges iron ore operations, which are also subject to their own separate laws.

In fact, it is quite remarkable to realise that on the statute books of our state in the year 2011 we have the following, in the Whyalla Steel Works Act. It provides:

The rates of royalty shall be—

(a) eighteen pence a ton on—

(i) each ton of high-grade iron ore fed directly to furnaces in South Australia or shipped from South Australia without beneficiation;

It goes on to state that for lower grade ore the rate shall be 'sixpence a ton on the dry weight of all jaspilite'. It then goes on to say—

The Hon. D.W. Ridgway: What is jaspilite?

The Hon. M. PARNELL: The Hon. David Ridgway asks what jaspilite is; I will just leave that question hanging. We know about haematite and about magnetite, and apparently jaspilite is in that same family.

In calculating the royalty, the rate was based—and this is in the legislation, which is current legislation today—on the 'selling price by the company of foundry pig iron of £21 7s 6d per ton' out of Port Adelaide. The act goes on to provide a formula, that if the selling price goes above £21 7s 6d per ton out of Port Adelaide then there is an adjustment to the royalty of an extra penny a ton for each ton of ore, or, for the low grade ore, one-third of one penny per ton.

I am not trying to pretend that those are the rates that still apply, but it does beg the question: why on earth, in 2011, on the cusp of a mining boom, do we still have in our mining legislation a provision that refers to royalties in pounds, shillings and pence? It also begs the question: why, in 2005, when this legislation was substantially revised (and not to the credit of this parliament; they were appalling additions), was the opportunity not taken to fix that up? One question I have for the government, to which I hope to get a reply later, is: what is the government's intention in relation to the Whyalla Steel Works Act and, as David Ridgway says, the problem of jaspilite, in particular?

When it comes to BHP Billiton, the Greens will pay very close attention to the indenture bill that will inevitably come to this place. As members know, the current indenture act applies only to an underground mine, and a new indenture would be needed if the open-cut expansion were to go ahead. I would also like to point out that we are the only state that has a special discount royalty rate for new mines.

That rate applies to a number of mines: Prominent Hill, which I have mentioned before, the Terramin mine, Honeymoon, the Iluka Jacinth-Ambrosia mine, Kanmantoo, and White Dam. That rate is only 1.5 per cent and, therefore, it is effectively being cross-subsidised by the community. The bill proposes to raise that to 2 per cent, but we are the only state that has that bargain basement discount royalty price. I point out, as I have before, that the minerals are not going anywhere; if they are economic to extract, then it should be appropriate that the full royalty rate apply.

I have some questions, just in closing. In light of the controversy over the Western Australian royalty rate increase, what impact, if any, will these changes to the South Australian royalty rates have on our share of GST revenue under the current equalisation arrangements? Also, could we have charged more? Could we have raised our royalties further without affecting our share of national GST revenue?

On that same theme, has South Australia been penalised by having an under-taxing rate, in particular in relation to our 1.5 per cent new mine royalty rate? As I understand the national equalisation rules, you are penalised if you do not charge as much as you could as a royalty for the minerals in your state, and if you are far below average you will be penalised—just as there is currently debate about Western Australia and whether it should be penalised by being far above the national average. I would appreciate answers to those questions from the minister when we go into the committee stage of this bill.

The Hon. D.G.E. HOOD (11:19): I rise to indicate Family First's position on this important bill and proposed legislation. It proposes to increase the royalty rate for declared mineral ores and concentrates in the Mining Act of 1971 from the ad valorem rate—that is, the royalty rate imposed on the basis of the monetary value of the minerals—of 3.5 per cent ex mine gate value to 5 per cent, as is being proposed. In essence, the government is proposing to impose higher royalties on bulk export commodities, the things that we would usually associate with the word 'minerals', such as iron ore, copper concentrate and other minerals that will be listed by way of notice in the Gazette at the appropriate time.

The government has pointed out that this change to royalty rates will bring South Australia into line with Western Australia, where the 5 per cent rate is already applied to the ores and concentrates in that state. However, declared refined mineral products will remain at 3.5 per cent, as assessed in accordance with the royalty assessment principles. This provision imposes an economic incentive on South Australian industry to refine our resources before exporting them, and that element is a positive one, from our perspective, and one that we would certainly support.

Importantly, this bill retains declared industrial minerals or construction materials at the current 3.5 per cent rate of the value of the minerals, as assessed in accordance with the royalty assessment principles. I note that some PIRSA documentation generally refers to construction materials as being so-called extractive materials, including salt, limestone, dolomite and gypsum, sand, gravel, stone, shell or clay, which will often be levied on a volumetric rate rather than an ad valorem rate.

A concessional rate of 1.5 per cent currently applies for the first five years of a new mine that has an approved existing new mine determination, as the Hon. Mr Parnell has just alluded to. That introductory concession rate will be changed to 2 per cent. My reading of schedule 1 of the bill is that the new provisions will apply generally to applications lodged with the Director of Mines on or after 16 September 2010. So, in that sense, this bill appears to be somewhat retrospective, on its face value anyway. I raise that issue for the minister to address in her summing up.

I am open to any comments that the minister might make with respect to that issue, indeed I look forward to some clarification around that. As a rule, Family First is not a party that looks favourably upon retrospective legislation, although in this particular case there are some compounding issues which I concede are worthy of special treatment, to some level at least.

There are a number of aspects to this bill regarding which Family First is somewhat concerned, however. The South Australian Chamber of Mines and Energy was not, apparently, consulted or given a detailed briefing regarding this bill. This is of concern to us. We cannot understand why that would be the case. Surely the peak body in any industry should be consulted when legislation is concerned which will directly affect its industry.

The point has been made that royalty rates are one of the key factors considered by mining companies in determining whether or not to invest in a particular state, and indeed in a particular mine. It is certainly true that this move would put us out of step with some of the other states if it were not for certain aspects of the federal resource rent tax indemnities. Dealing with copper ore, for example, Queensland sits at 2.7 per cent with a $100,000 threshold, New South Wales is at 4 per cent and Victoria is at 2.75 per cent.

Only Western Australia, which was the example highlighted by the minister, is already set at 5 per cent. It is important to note here that it is just Western Australia at 5 per cent; the other states are at a lower level. Even in Western Australia the rate is only 2.5 per cent if the copper is sold in metallic form. The figures are similar for iron ore, although Western Australia imposes a number of different rates depending on the grade of the ore.

The argument in response is that the federal Treasurer has promised to indemnify mining companies against state royalty increases under his planned mineral resources rent tax. In short, the rent tax will be reduced in accordance with the state royalties that are being paid. However, that does not mean that we can set our rate at 10 per cent or 20 per cent, obviously. Western Australia has announced that it will lift the royalty rate on iron ore fines to 7.5 per cent by 2014, possibly in response to the indemnity promise.

The response was fairly swift, suggesting that WA was putting some of its federal infrastructure funding in jeopardy, as we have heard from the federal Treasurer in recent times. My comment to that would be that, clearly, there needs to be a limit set on state royalties. We cannot push them too high. As I have said, Western Australia has gone to 5 per cent in some cases, and other states substantially less than that.

It should not be seen by state governments as an opportunity to push their royalty rates higher because it will simply be traded off in the proposed federal tax. That is not a position that we would support. I am not suggesting that is necessarily what is happening, but I say that it is not a position that we would support.

Senator Wong noted on Sky News last month, 'If you have a lessening of the income stream from the mineral tax because we have to credit the royalty, then obviously it means fewer things can be funded.' It has been suggested that Mr Swan, the Treasurer, has quite directly threatened WA's infrastructure funding in response. Nevertheless, and despite those threats, there was an article in The Australian on Monday with the headline 'Barry O'Farrell may do a WA on mine royalties'. The article noted:

Mr O'Farrell refused to rule out increasing the coal royalty rate in the state budget in September. This would increase the compensation demanded by Mr Swan from the mining companies, which have been indemnified against state royalty hikes under the new federal mining tax.

Mr O'Farrell's comments brought an immediate response from the Treasurer's office, with a spokesman warning: 'Mr O'Farrell shouldn't go down the same hypocritical path of Mr Barnett, who said repeatedly the mining companies can't afford to pay more tax, but then hiked royalties, supported by Tony Abbott, who also said miners could not afford to pay more tax.

I do not support that particular quote but I put it on the record to provide some clarity for the sorts of discussions that are going on around these issues in government at the moment. Despite all of this, it appears that South Australia got in early enough to avoid those complaints and implied threats of withdrawal of funding.

I think it is important to note here that the mining industry should not be seen as an endless source of revenue. They are, in fact, creating a great deal of wealth and prosperity for our country, and it is fair that they pay their way to some extent but we need not see them as an endless source of potential revenue.

So, the hope is that whatever increases are levied by South Australia will be matched by a decrease in the mining tax. That might be true for the majority of cases but certainly not all cases. As has been pointed out by the New South Wales Business Chamber, for larger miners a change in royalties will simply mean a change in the mining tax and royalty split. However, for smaller miners, which will not come under the mining tax regime, an increase in royalties really does mean an increase in tax very clearly.

Therefore, my questions for the minister in her summing up are: what impacts are likely to be felt as a result of this bill on the smaller miners in particular? Will not open miners in Coober Pedy, for example, be particularly hard hit? A further question: what is the public policy benefit in imposing higher taxes on smaller miners while larger miners are indemnified under the federal scheme? I would certainly be grateful for answers to those questions during the minister's summing up or during the committee stage.

It is true to say that Family First is somewhat uneasy with some of the measures proposed in this bill in regard to the smaller miners in particular, as I have just suggested. South Australian families should be better compensated for minerals that are taken from our ground and exported, primarily to China. However, we do seek assurances that this bill will not hurt smaller operators or hinder investment. I have no doubt that is not the government's intention, obviously, but we seek specific answers to those questions.

We also believe that the revenue generated by this measure should at least to some level go back to the regions from whence it came. We think the Royalties for Regions program in Western Australia has merit and is something that our government should look upon as a potential model to direct some of the funding from these sorts of measures back to whence they came. I think that issue has been largely neglected during this debate; however, it is something our party will look on closely and seize as a positive move for the future.

We believe that South Australian mining has a bright future. We will soon have the largest mine in Australia in Olympic Dam—by some measures, the largest mine in the world. A vast area in the Woomera Prohibited Area is no longer prohibited to mining. We are even advertising the benefits of South Australia's mining potential in Western Australia, often seen as the capital of mining in Australia. We will consider this bill very closely. We think that aspects of it have merit. We certainly support the second reading, but we look forward to the debate in the committee stage.

The Hon. P. HOLLOWAY (11:29): I wish to make a few comments on this bill because it was something that was fairly close to me as the minister for mineral resources development at the time that these discussions and decisions were made by government. It is appropriate that South Australia's royalties be brought more into line with what applies in other states. I want to make a few comments particularly to correct some of the comments that have been made earlier in the debate.

Firstly, I want to talk about the topic of the discount rate. The South Australian royalties scheme is the only one in the country that does have a discount rate, and that is something we should be very pleased about. When the commonwealth government wanted to introduce its mineral resource rent royalty tax, anyone who read the arguments for it would be aware that one of the main criticisms of state royalty schemes was that they just applied to the amount of ore that was mined regardless of the economic conditions applying at the time. In particular, in the mining industry there are massive up-front costs.

One only has to look at the Olympic Dam mine, for example, where there will be probably costs of $20 billion or maybe $30 billion or $40 billion, for all we know, that will have to be met before $1 in revenue is returned to that particular project. Of course, if you have royalties applying at the full rate from day one it means that those companies have to wait a very long time before they get any return. That is the nature of the mining industry where there are massive up-front costs often over many years before there is any return.

The South Australian royalty scheme was specifically designed to deal with that issue by having a lower royalty rate for the first five years of production and then reverting to a higher rate for later years of production when, of course, those companies did not have to meet the up-front costs. When the commonwealth government was putting out its mineral resource rent royalty tax, one of the main criticisms of state royalty schemes was that they did not have that flexibility. They did not allow for the fact that state royalties could apply even at times when the demand on companies' cash flows was very high.

That is why a resource rent tax was mooted as a superior form of taxation because it did take into account the actual profits made by the companies at the time. In South Australia, our royalty scheme was one of those where that criticism could not be justified, at least to the extent that it was in other cases, because we did have that design feature—this discount rate for the early years. Rather than it being a problem with our royalty rates, I suggest that it was one of the advantages. When this government came to office, there were only four mines in this state and there are now more than a dozen.

One of the reasons for that is the policies of this government, including the royalty regime that it developed, to encourage the development of the industry. If one looks at many of the mines we are developing in this state, they will return money over a significant period of time, so that discount rate to help those projects be established for just the first five years is a very sensible policy. There were a number of other comments made during the debate that I want to briefly refer to.

Within South Australian, we have not had a history of large bulk commodity exports. We have used coal in this state for many years, but we have never exported it. We have produced steel in this state, and we are one of the only places in the country to actually convert iron ore into steel at Whyalla. I think Port Kembla is the only other place where that takes place. We have had downstream processing and that, of course, explains why we have had specific indentures in relation to Whyalla and a different regime. I am aware that there have been negotiations in relation to changing the situation at Whyalla that the honourable member referred to.

We are aware that those old indenture bills are out of date and I know that, certainly when I was a minister, there were ongoing discussions with OneSteel about bringing them up to modern standards. The difference now is that OneSteel from Whyalla is actually exporting iron ore. There are now a couple of other iron ore producers who have exported small amounts, but up until very recently OneSteel was the only exporter, and even that only began early in the term of this government. Previously, all its iron ore had been used to produce steel at the steelworks. Now, as OneSteel has become increasingly an exporter of ore, it is appropriate that those royalties be adjusted to take that into account, and I believe that is happening.

I think it is important to note that this state has not been a major bulk commodity exporter, and that is really where the huge royalty revenues flow to New South Wales, Queensland and Western Australia, where there are very many billions of dollars, not just a couple of hundred of millions of dollars a year, like there are in South Australia, from mineral royalties. In Western Australia I think it is now in excess of $5 billion, mainly from iron ore. Similarly, in Queensland royalties are around the $5 billion mark, mainly from coal, and even New South Wales gets very substantial royalties from bulk commodities. Essentially, they have huge volumes—millions and millions of tonnes—of ore that is just dug up by the biggest trucks possible, put onto the biggest ships possible, and sent off to the export markets.

In South Australia, our main source of mineral wealth to date has been from copper and gold, and we have also had some production of mineral sands in recent years. They have been our main commodities for export. We are only just reaching the stage where OneSteel is now exporting some of its iron ore. There is the prospect for this state to become a significant iron ore exporter. Obviously, those tonnages will increase, and that is why we need to look at our royalty regime.

Within the South Australian mineral royalty regime there is a degree of sophistication that does not exist in other states. It is not just the initial discount rate for the first five years to take into account the significant up-front costs facing mineral operations, but also we have the sophistication of dealing with different types of minerals. I think if one is going to make the sort of comments that the Hon. Mark Parnell made, you really have to make sure you are comparing apples with apples, comparing those multi-million tonnes of exports of iron ore and coal which we get from Queensland and Western Australia, where we are talking about hundreds of millions of tonnes being dug up and sent off with very limited processing.

That is, of course, significantly different from the sorts of traditional mining operations we have had here, where gold, for example, is refined from the Challenger mine. Uranium is processed into yellow cake at our two operating mines—Olympic Dam and Beverley—and copper also has been refined at Olympic Dam, with all the commensurate jobs. It is not just employment, which of course creates payroll tax and other revenues for the state if you get downstream processing.

Our royalty regime is much more sophisticated, I would suggest, than in other states, and it does take into account where you have processing of ore. You can make the same argument for Whyalla. Isn't it better to have the steelworks operating up there, employing thousands of people, creating jobs and other wealth for the state? The royalty regime should take into account that downstream processing. I believe that this is the sort of sophistication that we are now building into our royalty regime. That is why I think these changes have been broadly supported by the industry.

Mention has been made about the changes proposed in recent times in New South Wales and Western Australia in particular, where they are jumping on the back of the issue of trying to increase their revenues, but I think the fact that in South Australia these changes have been made with relatively little disagreement from industry shows that they have been well thought out. There have been discussions with the industry, and there is broad acceptance that, yes, the state needs some greater return from its resources, but it needs to be done in an intelligent way that promotes the industry and does not deter it.

There are a couple of final comments I would like to make in relation to this topic. The Hon. Dennis Hood talked about royalty for the regions. I think it is important to understand that in Western Australia there is around about $5 billion a year in mineral royalties. When their policy is that 25 per cent will go back to the regions, that is about $1 billion, or thereabouts, and that is one thing. If we had the same policy here, of 25 per cent of our mineral royalties going back to the regions, it would be 25 per cent of a few hundred million dollars, which would be a relatively minor amount, I would suggest, far less than what the state already spends. Just the health bill in regions alone would be much greater.

The Hon. J.S.L. Dawkins interjecting:

The Hon. P. HOLLOWAY: Fifty million dollars! The point is that what this state government spends in rural regions vastly exceeds the entire mineral royalty regime. The several hundred million dollars we get from royalties, plus the several hundred million dollars we get from petroleum—we vastly exceed that.

The Hon. S.G. Wade interjecting:

The Hon. P. HOLLOWAY: Well, you want to talk about the RAH? Twenty-two per cent of the patients in the Royal Adelaide Hospital come from the country. The Royal Adelaide Hospital is the biggest country hospital in South Australia. We are building a new one, and country people will be 22 per cent of it. So, don't give me that rubbish. The whole point about the royalty for regions argument in those other states is that it is quite different when you are getting billions and billions of dollars from the regions. We have not got there yet. Hopefully, at a stage in the future—

The Hon. J.S.L. Dawkins: Wait until you get there.

The Hon. P. HOLLOWAY: We are spending far more than the 25 per cent. If we had a royalty for regions policy and we did it like Western Australia, we would be slashing money to the regions. It is one thing to say—

The Hon. J.S.L. Dawkins: You don't understand.

The Hon. P. HOLLOWAY: No, I know exactly what I'm doing; I think the honourable member doesn't understand. It is one thing to designate 25 per cent of the total royalty for regions, which in WA is about $1 billion, and say, 'Well, that'll be spent in regional areas in various projects.' It is another thing when you are talking about 25 per cent of a couple of hundred million dollars because we spend much more than that. If we had a royalties for region policy like WA, we would already be exceeding it, and I think that point needs to be made. No-one is arguing that there should not be more expenditure in regions, and there is. So, let's just deal with that issue and let's be gone from this nonsense.

The Hon. J.S.L. Dawkins interjecting:

The PRESIDENT: Order!

The Hon. P. HOLLOWAY: I know exactly what I am talking about—25 per cent of mineral royalties spent in the regions. As I said, for Western Australia, they had to increase their spending to get that. In our case, we have been exceeding it, virtually for decades.

The Hon. J.S.L. Dawkins: Oh, rubbish!

The Hon. P. HOLLOWAY: Well, it is a simple mathematical fact. Do your sums.

The Hon. J.S.L. Dawkins interjecting:

The Hon. P. HOLLOWAY: Well, you see what they do in Western Australia—you see what they spend and how they spend it, and you will see that it is effectively a sleight-of-hand accounting trick, but that is another story.

The Hon. J.S.L. Dawkins interjecting:

The Hon. P. HOLLOWAY: Oh, your policy will be different!

The Hon. J.S.L. Dawkins: Absolutely.

The Hon. P. HOLLOWAY: Well, maybe one day at some stage in the future. But, in any case, who cares where the money comes from? If you want to spend more money in the regions, if it is needed, let's do it. We do not need to worry about some sort of accounting trick that looks good for gullible people; essentially, that is what that royalty for regions policy is.

The Hon. J.S.L. Dawkins: Gullible people?

The Hon. P. HOLLOWAY: Well, it is; that is what it has been. Finally, I want to deal more generally with the taxation debate about which level of government should have mineral royalties. What I think the debate federally has shown is that, really, mineral wealth is the property of the states, constitutionally. Of course, what we are seeing at the moment is the commonwealth government trying, in many ways, to move into what is traditionally a state area to take over that form of wealth, through the mineral resource rent tax, and that has led to many of the issues we are now seeing in New South Wales and Western Australia.

From my point of view, I think it is important that we do maintain the belief that mineral wealth should be the property of the state. However, we have to be mindful of the fact that, through the financial systems, through horizontal fiscal equalisation in the states, this state does share very heavily in the mineral wealth of other states. As I said earlier, states such as Western Australia are collecting something like $5 billion, which would be more than a third of this state's entire budget every year. That state collects that amount in mineral wealth alone, and Queensland and New South Wales are similar. The fact that it is much, much greater than ours means, of course, that, through the equalisation, we share in that wealth now.

As our mineral wealth grows, the same will apply in the future, that other states that do not have mineral wealth will share in that. We need to be mindful in that debate that the mineral wealth, while constitutionally it is the property of the states, under equalisation all states share in it, and that is why, in considering what is in the best interests of South Australians, we need to be mindful of the significant benefit this state derives from mineral wealth in other states.

This state has had a very sensible policy in terms of working with the commonwealth to ensure that there is a fair return from our mineral wealth, and we have done our part. We have a very well designed royalty scheme, and it will be even better when this bill passes, and it will give us a fair share of our wealth. It will encourage the further development of mines so that wealth will grow, but also we need to be mindful about what is happening at a federal level and ensure that our regime locks into what is happening there. With those comments, I commend this bill to the house.

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (11:47): There being no other second reading contributions, I will make a few very brief concluding remarks. The bill before us is about introducing reforms to our mineral royalty regime in South Australia in order to secure a more appropriate dividend for South Australians from our mineral resources, whilst obviously wanting to maintain our competitive advantage and a strong business climate.

The reforms will introduce a new three-tiered royalty system which aligns the mineral royalty rates with other Australian jurisdictions, which secondly ensures an appropriate return to the state and the community from our mineral assets and which thirdly obviously continues to encourage investment and development in our mines.

I thank members for their second reading contributions and their support for the bill at the second reading stage. There were a number of questions asked and information required. I beg the indulgence of the chamber and ask that I be given permission to address them in the committee stage of the bill. With those few words, I commend the bill to the house and look forward to the committee stage being dealt with expeditiously.

Bill read a second time.

In committee.

Clause 1.

The Hon. G.E. GAGO: There were a number of questions. There was a question about what jaspilite is. I have been advised that it is a term for low-grade iron ore. This material contains generally between 20 per cent and 42 per cent iron and needs to be upgraded or beneficiated by the miners to become a saleable iron ore, which needs to contain on average over 60 per cent iron. There we are—we are all much better off for that.

In relation to a question asked by the Hon. Mark Parnell in relation to the future of OneSteel, I have been advised that the government is currently in negotiations with OneSteel to increase its royalty rate under its indenture. Obviously, changes to the indenture have to be done by agreement, so therefore we need to reach agreement with them before being able to bring a bill to this house that looks at a reviewed rate.

A question was asked by the Hon. Mark Parnell in relation to whether we would be penalised by the grants commission. I have been advised that the answer is no. The Commonwealth Grants Commission assesses the relativities used to determine each state's share of the GST revenue grants. The proposed increase in mineral royalty rates is expected to deliver the full, ongoing, additional revenue stream to the state budget; that is, the additional revenue will not be offset by a lower GST revenue grant, because this mineral royalty rate increase will bring South Australia closer to the national average benchmarks.

In 2009-10 South Australia had an effective mineral royalty rate of 2.3 per cent, less than the Australian average of 3.89 per cent. The introduction of this new three-tiered mineral royalty regime will increase South Australia's effective rate to be more aligned with the Australian average. The Hon. Mark Parnell also asked whether we would be penalised by the commonwealth government. I have been advised that at this point in time that is unknown.

Treasury has been advised that the commonwealth has not indicated whether increases that are effected by this bill will be taken into account in the infrastructure fund coming back into the mining states. I was also asked a question about the impact on smaller mines. I have been advised that smaller mines are captured by the industrial and construction mineral rates component, and they remain the same. I was also asked what the impact would be on opal miners; I have been advised that opal miners currently do not pay any royalty rates, nor does this bill apply any royalty rates to them.

Clause passed.

Remaining clauses (2 to 7) passed, schedule and title passed.

Bill reported without amendment.

Third Reading

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (11:58): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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