The thing about scare campaigns is that reality eventually catches up with them. A year ago, we heard dire predictions that a mining tax would cripple our resources industry. However since the announcement of the Minerals Resource Rent Tax (MRRT), the industry has continued to go from strength to strength. There's been a boom in investment, a boom in profits and a boom in employment. New investment in the sector has risen from $35 billion in 2009-10 to nearly $50 billion last year and an expected $82 billion this year. Meanwhile, Australia's earnings from energy and minerals exports have gone from $138 billion in 2009-10 to $175 billion last year and an estimated $218 billion this year. And employment in the industry has gained 14 per cent in the past year – that's an extra 27,800 people now bringing home a pay packet each week. As each day passes, the doomsayers' shrill claims ring more hollow.
More people are now realising the MRRT is a critical reform to maximise the benefits of the mining boom. Revenue from the MRRT will be used to increase competitiveness across the entire economy through a cut to the corporate tax rate and tax breaks for Australia's 2.7 million small businesses. It will also help fund critical investment in roads, bridges and other infrastructure, relieving capacity constraints particularly in our great mining regions. And importantly, we're saving some of the gains from the MRRT, with a boost to the super guarantee for 8.4 million workers, new concessions for 3.5 million low‑income workers, and higher contribution caps for over 50s. These changes are expected to increase Australia's savings pool by $500 billion by 2035.
Treasury is today releasing the second draft of legislation for the MRRT. I'm really pleased with the constructive talks we've been having with the industry, as well as tax professionals, to ensure the new arrangements are introduced smoothly from July 1 next year. We'll continue to consult as the finishing touches are put on the legislation. It's an important reform that will lock in the benefits flowing from the current strength in resources demand for years to come and provide some much‑needed tax relief for those parts of the economy that aren't in the mining boom fast-lane.
Getting big reforms through has always been tough work. We tend to forget that the creation of Medicare, the floating of the dollar, the tearing down of the tariff wall and the introduction of superannuation were all met with fierce resistance when they were first proposed. Just as today you would be hard pressed to find anyone who would argue against these critical economic reforms, in the years to come you'll be hard pressed to find anyone to argue against the importance of reforms like putting a price on carbon. During the week, the Government introduced the package of legislation that will create the right incentives in our economy to reduce pollution in the most efficient way and encourage investment in clean energy technologies.
The carbon price will have only a modest impact on prices. It's expected to increase prices by 0.7 per cent in 2012-13. To put that in perspective, that's less than a third of the effect on prices that the introduction of the GST and related changes had back in 2000-01. Today, I'm releasing more detail about the impact on a range of products and services we all use to give you a better sense of what you can expect when the carbon price is introduced next year.
|Product or Service||Price impact in
|Milk, cheese and other dairy products||0.4|
|Breads, cakes and cereal products||0.4|
|Fruit and vegetables||0.4|
|Meat and seafood||0.4|
|Restaurant meals and takeaway food||0.4|
|Electricity, gas, utilities||7.9|
|Beer, wine and alcohol||0.2|
|Travel and accommodation||0.5|
|Hospital and medical services||0.3|
|Audio-visual equipment, computers||0.4|
|Furniture and furnishings||0.4|
|Household appliances, utensils and tools||0.8|
|Sport and recreation||0.3|
Many prices, particularly food, will hardly be affected. In fact, the average food bill for a household will go up about 80 cents a week. As you can see, the main thing you'll notice is an increase in the price of utilities. The average electricity bill will rise by about $3.30 a week, and the average gas bill by around $1.50 a week. It's important to remember the Government will provide assistance to those Australians that need help most, particularly pensioners and low- and middle-income households. All up, the average household will see cost increases of $9.90 per week, while the average assistance will be $10.10 per week. Households that improve their energy efficiency – like turning off appliances at the wall or switching from incandescent to fluorescent light bulbs – can end up coming out in front. They can help the environment and their family budget at the same time.
This week I'll be releasing updated modelling that shows the impact of the carbon price on the entire economy. The initial modelling showed the economy will continue to grow strongly under a carbon price at the same time as we cut carbon pollution. Both incomes and jobs will increase substantially. The updated modelling, prepared by the Treasury in consultation with other departments, is expected to very closely match these initial results.
The household assistance for the carbon price will be delivered through increases in pensions, allowances and family payments, and also through personal income tax cuts. Importantly, these tax cuts continue the Government's strong record of tax reform. The changes will increase the tax‑free threshold from $6,000 to $18,200 from 1 July 2012, and to $19,400 from 1 July 2015. Significantly, they will free over 1 million Australians from having to lodge a tax return. Regular wage earners with incomes below the new tax-free threshold will not have any tax withheld from their wages by employers, which will mean higher take-home pay and better incentives to work.
Increasing the tax-free threshold and introducing the MRRT are just two of the substantial reforms that demonstrate this Government's commitment to tax reform. It's a record I'm keen to build on in the years ahead, which is why next month's Tax Forum is so important. As part of the effort to foster debate in the lead-up to the forum, participants have been asked to provide a statement that outlines their proposals and how they can be funded. These are now available on the Tax Forum website. If you'd like to have your say, I'd encourage you to lodge comments online. As part of the debate, it's important that everyone remembers the need for fiscal discipline. Suggesting a certain tax be reduced or abolished is easy. The hard part is figuring out how it will be funded. This Government certainly won't be doing anything that threatens Australia's strong budget position.
An example of a successful reform that was also affordable was the historic overhaul of the pension system in 2009 that gave older Australians a fairer go. This Tuesday marks the second anniversary of the introduction of these critical reforms that led to a substantial increase in payments for Australia's 3.4 million pensioners. The changes, which followed a pension review undertaken by Dr Jeff Harmer, also delivered an improved indexation system to ensure the pension keeps up with the cost of living pressures that pensioners experience. As part of this regular indexation, this week single people receiving the maximum rate of age, disability and carer pensions, as well as veterans' income support recipients, will start receiving an extra $19.50 a fortnight. Pensioner couples combined on the maximum rate will receive an extra $29.60 a fortnight. At the same time as we introduced this new pension system, the Government also had to make some difficult decisions to secure its long-term sustainability. This included better targeting of payments, tougher income test rules, and a gradual increase in the age pension age.
Along with the 32 measures we've announced reflecting reform directions identified by the tax review, we've also implemented eight reforms consistent with the findings of the pension review:
Later this week, I'll be attending meetings of the IMF, World Bank and G20 Finance Ministers in Washington DC, and holding talks with investors and policy-makers in New York. These meetings are always an excellent opportunity to take the pulse of the global economy. In recent years, they have provided a critical perspective that has helped calibrate our policy settings at home, in particular the stimulus measures that kept Australia out of recession during the global financial crisis. This time around, the meetings couldn't come at a more important time for the global economy given the heightened concerns about the outlook for many advanced economies. The sovereign debt situation in Greece is continuing to rattle investors and we saw more turbulence on global financial markets over the past week.
Clearly, many developed economies need to front up and do the heavy lifting to put in place plans for credible medium-term fiscal consolidation, while where possible supporting their recoveries in the short term. There's no two ways about it – it is critical that Europe deals decisively with excessive sovereign debt levels and recapitalises its banking system. Likewise, developing countries need to put in place policies to foster domestic demand and move towards more market-based exchange rates. I'll be making these points at my meetings in Washington. Australia will continue working closely through the G20, IMF and other international bodies to support financial stability and foster stronger growth around the world. While the global uncertainty we're seeing does have an impact on our economy, we shouldn't forget that our fundamentals are much stronger than our peers. Certainly many households and businesses are doing it tough in our patchwork economy, but as this month's National Accounts showed, Australia is in one of the strongest economic positions in the developed world.
Deputy Prime Minister and Treasurer of Australia
Sunday 18 September 2011