Minerals council of australia

GREEN PAPER ON DEVELOPING NORTHERN AUSTRALIA

AUGUST 2014

Contents

EXECUTIVE SUMMARY 1

1. INDUSTRY PROFILE 3

1.1 Introduction 3

1.2 The minerals industry in northern Australia 4

1.3 Future opportunities and policy imperatives 6

2. POLICY DIRECTIONS: OVERCOMING BARRIERS TO FURTHER DEVELOPMENT 8

2.1 Infrastructure 8

2.2 Land 10

2.3 Water Access 12

2.4 Business, Trade and Investment 14

2.5 Education, research and innovation 19

2.6 Governance 21

2014/001041

EXECUTIVE SUMMARY

The Minerals Council of Australia (MCA) welcomes the Australian Government’s commitment to developing northern Australia. A large part of the minerals industry is located above the Tropic of Capricorn - an estimated 44 per cent of all minerals projects (mines, projects and early-stage exploration) and 37 per cent of all producing mines. The industry is a major contributor to the economic and social well-being of communities in northern Australia. With appropriate policy settings, the prospects for further growth are good – minerals projects worth an estimated $111 billion have been publicly announced or are under feasibility study.

The Government’s Green Paper provides a valuable framework for analysing the challenges and opportunities facing northern Australia and the policy directions that could tackle them. The MCA supports the broad approach to the Green Paper, including close integration with national policy initiatives. In some cases, northern Australia may serve as the focal point for trialling new approaches to long-standing national policy challenges.

The minerals industry can and should remain an indispensable pillar of northern Australia’s development, but gains are not assured. It is essential that policy and regulatory frameworks are conducive to capturing future development opportunities. The challenge for northern Australia – as it is for Australia as a whole – is to position itself as a premier investment location and stable, secure and cost competitive supplier of minerals resources.

The Green Paper’s focus on creating a regulatory and economic environment that reduces unnecessary costs and fosters private sector investment is the right one. To achieve this objective an integrated package of policy reforms will be required. Important progress has been made with the repeal of the carbon tax. The minerals industry also strongly supports the proposed “one-stop shop” reforms aimed at streamlining environmental assessments and approvals while maintaining high environmental standards.

Stable and competitive taxation and royalty arrangements are also critical to reducing costs and red tape to stimulate mining investment. Repeal of the MRRT would add to industry confidence in northern Australia, as would a clear statement in the forthcoming White Paper that current Fuel Tax Credits, Fringe Benefits Tax and exploration tax arrangements will be preserved.

In particular, calls from the Greens Party for the elimination of the Fuel Tax Credit Scheme should be strenuously resisted. Such a move would amount to the imposition of a ‘super tax’ on Northern Australia. Nearly 400,000 Australians as well as farming and mining operations, health and aged care facilities and Indigenous businesses have no access to on-grid electricity, with a large share of these populations and businesses located in Northern Australia. For many of these communities and businesses, diesel is the only option for reliable power generation. The abolition of the Fuel Tax Credit would mean that these communities would effectively be paying a Road User Charge for the use of electricity and for the off-road use of diesel. This would be grossly inequitable and set back economic development in northern Australia significantly.

The North is highly prospective offering significant potential for future minerals resource development – nearly half of northern Australia is considered prospective for minerals. An estimated 734 exploration projects are underway in northern Australia. A continuing commitment by governments to ensuring high-quality geo-scientific information is critical. Support for the UNCOVER initiative would be a practical step towards securing the pipeline of future resource projects in northern Australia.

Leveraging private investment is also central to northern Australia’s infrastructure challenge. Private investment can and should be the most substantial source of funding for commercial infrastructure. Regulation of economic infrastructure should focus on the most efficient way of addressing market failure.

A barrier to further development is the lack of co-ordinated, long-term, strategic land use assessment and decision-making. To aid more systematic land use decision-making, a lead government agency in each jurisdiction in northern Australia should be given responsibility for bringing relevant land use information together in a consistent fashion and for making that information publicly available.

Government underinvestment in social infrastructure in mining regions remains a critical constraint on future minerals resource development. The extent to which deficiencies in social infrastructure limit industry growth and development should be part of government considerations of roles and responsibilities in the Review of the Federation White Paper underway. Consideration should be given to expanded use of a “hub and spoke” model of service delivery taking account of rapid population growth in a number of centres in northern Australia.

A skilled and mobile workforce is needed to ensure northern Australia can secure major resource developments. In particular, improving the capability of Indigenous Australians to be active contributors and beneficiaries of northern Australia’s development requires continuing focus. The

The simple reality of high Indigenous representation in many communities underlines the significant human capital challenges north of the Tropic of Capricorn – especially as, by some estimates, roughly 50 per cent of the population in Northern Australia will be Indigenous by 2040. There is scope for land tenure changes to support Indigenous private home ownership whilst protecting existing and future economic interests. While reforms can improve the efficiency and operability of the Native Title Act and the Aboriginal Land Rights Act, this needs to be balanced against the need for consistency in the legislative approach. A number of concerns can be addressed without change to legislation although effective governance arrangements are needed.

As the Green Paper rightly acknowledges, water management is a significant economic and environmental issue. Many parts of northern Australia are characterised by fragmented or poorly connected groundwater systems and significant variability in catchment flows. Flexibility is needed to ensure water resource planning and access arrangements account for unique circumstances and the optimal use of water. Despite the scale of its economic contribution the minerals sector accounts for just 2 per cent of water resources.

Although the minerals industry invests significantly in sourcing water and related infrastructure, it faces a range of sector-specific challenges in the way water is accessed and used. To address these challenges, clause 34 of the National Water Initiative should be fully implemented through the development of “fit for purpose” water resource access arrangements. Where water markets are developed, pricing structures should reflect the full costs of infrastructure planning and monitoring, including discounting for private investment in such activities.

The MCA hopes debate on the Government’s Green Paper has a positive and lasting impact on the development of Northern Australia.

1.  INDUSTRY PROFILE

·  The MCA supports the broad approach to the development of northern Australia outlined in the Green Paper, including close integration with national policy initiatives.
·  A large part of the minerals industry is located above the Tropic of Capricorn and the industry is a major contributor to the economic and social well-being of communities in northern Australia.
·  Two of Australia's largest export earning industries – the mining of iron ore and metallurgical coal – are concentrated overwhelmingly above the Tropic of Capricorn; more than 95 per cent of iron ore production and almost 80 per cent of metallurgical coal production.
·  There is significant potential for future minerals 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 and 18 per cent of gold reserves are located in northern Australia.
·  The minerals industry can and should remain an indispensable pillar of northern Australia’s development, but gains are not assured. It is essential that policy and regulatory frameworks are conducive to capturing future development opportunities.

1.1 Introduction

The Minerals Council of Australia (MCA) welcomes the Australian Government’s commitment to developing northern Australia. The Government’s Green Paper provides a valuable framework for analysing the challenges and opportunities facing northern Australia, and the policy directions that could tackle them.

The MCA supports the broad approach to the development of northern Australia outlined in the Green Paper, noting the emphasis on:

·  Creating a regulatory and economic environment that fosters viable private sector investment

·  Avoidance of prescriptive or interventionist approaches that may be inconsistent with national approaches to various policy challenges

·  Recognising the diversity of northern Australia (from large urban centres to remote Indigenous communities) with challenges and opportunities differing accordingly

·  Ensuring roles and responsibilities of different levels of government are recognised and respected

·  Outlining broad policy directions while taking account of the particular characteristics and unique challenges presented by the further development of northern Australia

·  Developing “concrete, achievable actions” in an era of fiscal constraint.[1]

In outlining the objectives for the forthcoming White Paper on northern Australia, the Government has emphasised the need to understand “what is possible and what is practical”, through careful analysis, widespread collaboration and a staged approach based on implementation plans from two to 20 years in scope.[2] The MCA regards this as a sensible way to proceed given limited resources, and the need for policies which address both broad development challenges, as well as those specific to particular locations or industries.

The MCA also supports the close integration of policies on northern Australia with national policy initiatives aimed, for example, at lowering business costs, improving tax and regulatory settings, better aligning roles and responsibilities in the Federation and reforming approaches to tackling Indigenous disadvantage. In some cases, northern Australia may serve as the focal point for trialling new approaches to long-standing national policy challenges.

1.2 The minerals industry in northern Australia

The Green Paper states correctly that developing northern Australia is “by no means a ‘starting from scratch’ exercise”, with the north already on a growth trajectory over a number of decades.[3] It also notes the “vital, yet sometimes overlooked, role the north plays in Australia’s overall economic success”.[4] In no small measure, both observations reflect the growth and development of the minerals industry in northern Australia.

Figure 1: Share of total mineral production in northern Australia (by commodity)

Source: RIU

A large part of Australia’s minerals industry is located in northern Australia – an estimated 44 per cent of all minerals projects (mines, projects and early-stage exploration) and 37 per cent of all producing mines. Yet these figures do not convey the scale and significance of the industry, both to northern Australia and to the nation’s economy as a whole.

Australia's two largest export earning industries – the mining of iron ore and metallurgical coal – are concentrated overwhelmingly above the Tropic of Capricorn; more than 95 per cent of iron ore production and almost 80 per cent of metallurgical coal production.

Mining operations for a range of other mineral commodities – including thermal coal, copper, lead, silver, zinc, gold, bauxite, uranium and diamonds – can also be found across northern Australia. Almost half of Australia’s bauxite production, around three quarters of zinc and silver production,
41 per cent of uranium production and 35 per cent of copper production are sourced from northern Australia.

The minerals industry is a major contributor to the economic and social wellbeing of communities in northern Australia. Mining (including oil and gas) accounts for more than a third of gross state product in Western Australia (WA), with more than a quarter of the industry’s total value added attributable to the Pilbara region. Mining accounts for almost 20 per cent of gross state product in the Northern Territory (NT) and more than 12 per cent of Queensland’s gross state product. In all three jurisdictions, mining is the largest industry by gross value added.

The minerals industry is a key (often dominant) source of economic activity in remote and regional parts of northern Australia. It is a major employer accounting for up to 30 per cent of employment in some regions, and a catalyst for wider economic development opportunities. Nationwide, the industry is the biggest private sector employer of Indigenous Australians.

The mining industry invests heavily in its workforce, spending around 5.5 per cent of payroll on training activities, with one in 20 employees either an apprentice or a trainee. Employers undertake significant training-related activity in local areas, including via Indigenous pre-employment programs, work experience internships and grants and/or equipment for local TAFEs.

A major demographic study conducted for the MCA by KPMG[5] has demonstrated the role mining has played in stimulating residential population growth in mining regions, including in Northern Australia. It found that the mining industry has boosted incomes, attracted families and reduced unemployment in mining regions such as the Pilbara and the Bowen Basin. It also showed that workers engaged in long distance commuting to key mining regions are overwhelmingly travelling from “within State”.

As the Green Paper notes, the mining industry has supported significant growth in related services such as construction and transport, while centres such as Cairns, Townsville, Mackay and Rockhampton have developed local firms specialising in mining equipment, technology and services.

Minerals industry operations in northern Australia are large contributors to government revenues. Deloitte Access Economics estimates that the minerals industry contributed around $132 billion in company tax and royalties Australia-wide between 2007-08 and 2013-14.[6] While disaggregated data for northern Australia are not available, iron ore and coal alone accounted for around 80 per cent of company tax and royalty payments over the period from 2007-08 to 2013-14. This highlights the very large return to government and the wider community from minerals industry operations in northern Australia.

Mining royalties in the NT are projected to collect almost 23 per cent of that jurisdiction’s own-source revenue in 2014-15. In 2014-15, royalties are estimated to contribute more than $2.8 billion in revenue to the Queensland Government and more than $6.1 billion to the WA Government. Iron ore (which is produced predominantly north of the Tropic of Capricorn) is forecast to account for 90 per cent of total royalty income in WA over the next four years.