HOST: That was Elvis Presley, this is Kevin Rudd, the Prime Minister of Australia. Mr Rudd, good morning to you.
PM: G'day, I'm glad Elvis is alive and well on Perth radio.
HOST: Yes indeed, and in the building, and one day we'll get you in the building.
PM: I look forward to it, I've been in your building many times.
HOST: Prime Minister, I'd like to just play you one of our callers this morning, a fellow name John, just have a listen.
JOHN: Ah, I've come from a rusted-on Labor family, three generations, my family, we've lost $25,000 this week from our self funded super fund, and we will never be voting Labor ever, ever again because Rudd is naive and they haven't thought this through, and they've done damage which I think is irreparable.
HOST: Prime Minister what do you say to those people, we've had others too, who've said you've been reaching into their bank accounts this week and you've taken a lot of their retirement money out.
PM: There are two things I'd say in response to your caller. The first is, that when it comes to the Super Profits Tax, what we're asking for is a fair share for all Australians, all West Australians, from the super profits being earned by our most profitable mining companies. So that there is money to do three things: boost the superannuation earnings of working Australians by increasing the superannuation guarantee from nine to 12 per cent, secondly give a tax break to the 230,000 small businesses in Western Australia, up to $5,000 tax break, and thirdly, also, providing infrastructure investment for the infrastructure needs, road, rail and ports for this State.
On the specific changes in the share market, whenever policy or tax changes occur, it follows inevitably that there will be some reaction in the share market.
HOST: Do you think this is dramatic?
PM: Well can I go to the question of for example let's go to the two mining majors that we're talking about. BHP, I'm advised, their share price yesterday was something, as of the share price as of a day or so ago, was within the range within which the share had traded over the last 12 months. Similarly with Rio shares, basically there are ups and there are downs within the share market, particularly the resources sector, over time it's a volatile sector -
HOST: Okay, so you're suggesting that these ups and downs, and they are all downs at the moment, being experienced in the commodity markets are just part of the vagaries of the market and that they don't relate to your announcement of a Super profit Tax?
PM: Of course there is a reaction in the share market in terms of a proposed change to the taxation regime on our most profitable mining companies. I don't deny that connection one bit.
What I am saying, however, is that the share prices of mining companies change significantly over time, because of a whole range of factors, up, down, and that's been the case for the last 12 months as well. The range that we have seen over a long period of time, frankly, demonstrates some of the volatility in that market.
Overall, the Government's advice from the Treasury is that, given the changes that are proposed through the Super Profits Tax, the different treatment of less profitable mining companies, those starting up in the business, and exploration companies who for the first time get a new billion dollar plus tax benefit from the Australian Government, is that the mining sector itself will grow in fact by a further 6.6 per cent over the next five to ten years through the combination of these measures -
HOST: -Prime Minister can I -
PM: -[inaudible] long-term support for the industry.
HOST: Excuse me for interrupting because there was one point that we needed to have clarified and I think people understand notions of BHP and Fortescue and Rio and the big miners, but if we're looking at a Super Profit Tax that cuts in at about six per cent, is that what we're looking at?
PM: Well let me define the terms within this debate, and there's been some discussion of this this morning -
HOST: - Okay, is six per cent there or thereabouts?
PM: Remember also, I understand the WA Premier has been on your programme this morning, he's been calling for greater taxes on the mining industry for a long time. What we're doing is basically applying the same sort of principles which you've seen with the petroleum resource rent tax, offshore developments on the Northwest Shelf for the last 20 years, and within that tax regime you've seen huge projects like the Gorgon project, $40 billion plus, go forward -
HOST: Yeah but my question Prime Minister is, and this is what people need to know, if I'm a mining company that is now enjoying some success, and that I announce a $10 million profit, which is, you know, represents six per cent or better or what, will you be seeking to tax or to take $4 million of that?
PM: Can I say, will we look through the detail of each individual company's circumstances as they are presented. Let me go to the terms which apply to the definition of a Super Profits Tax. Normal profits basically equal the revenue of the mining venture, minus their expenses. Super Profits are revenues, minus expenses, minus what we would describe as an ordinary rate of return on investment. How do we define that, an ordinary rate of return on investment? That means what you would get if you were to invest it at broadly the long term Government bond rate of about six per cent.
HOST: OK -
PM: Profits on top of that, I'll just finish the definition here, profits on top of that - Super Profits, that is - mining companies get to retain 60 per cent of those super profits. What we're talking about is that 40 per cent now going to the Australia people, the people of Western Australia, to build roads, rail, ports, and to provide tax breaks for all companies by bring down the company tax rate.
HOST: Okay, so if the criteria is right there and my mining company makes $10 million, yes indeed you will take $4 million of that to spend in a manner that you just explained.
PM: Well I won't respond in terms of the individual circumstances of individual companies, but I've given you the broad definition of the -
HOST: - yes I know but do you understand the very broad concern in Western Australia, where there are hundreds of mining companies, there was an acknowledgement that yes if you are a BHP and Rio, you have been the beneficiary of enormous profits and as you say in a move that will play out very well electorally in some quarters, that is an Australian resource that they are capitalising on.
But of those other companies, which are much, much smaller, the impression is that they will be punished too, and this morning we heard from David Flanagan, who's the managing director of Atlas Mine, a much smaller iron ore company but an iron ore company that has made real progress I think, in just four years or so. Here's what he had to say.
FLANAGAN: Almost makes it impossible for us to grow into a big company, it makes us less competitive with raising money, it makes us harder for us to recruit people. How is he going to restore consumer confidence, employee confidence, service industry confidence, and people who have got a superannuation fund, how do they know that there's going to be anything left in it when they retire?
HOST: Mr Rudd, your response?
PM: Well my response to that and your earlier question will be along these lines. There are about 700,000 workers in Western Australia right now who stand to benefit from increasing the superannuation guarantee from nine per cent to 12 per cent. You've got 230,000 small businesses in Western Australia who will benefit from the overall reduction in the company tax rate down from 30 to 28 cents and a further tax benefit of up to $5,000 in terms of their offsets. These are the things we're doing for the general economy.
Specifically for smaller mining companies though, can I just go to one point? The existing state based royalties regime is based on effectively volume; that is, it is not based on profit.
Where our system actually helps smaller to medium sized companies is this: if they are not being profitable in their early years, in fact they are net beneficiaries from this scheme that we bring in. Royalties are a very blunt instrument indeed.
And I go back to the point about exploration. We haven't had enough exploration activity in the economy - sorry, in the mining sector more generally across the country - WA, Queensland where I come from, a very proud mining state like WA. That's why we're bringing in a new package of a billion dollars plus, to underpin the overall activities of the exploration sector where, frankly, generating profits early on is very hard as well. That's why the analysis done for the Treasury by Econtech, their modelling, projects a 6.5 per cent increase in the overall activity in the mining sector. Obviously there are going to be complaints now, and I've heard some of those since I've been in Perth in the last day or so.
HOST: I am curious to know - were you able to convince the bosses of Australia's biggest mining companies last night, Don Voelte, Andrew Forrest, Sam Walsh, that you are not sabotaging their businesses?
PM: Can I say that when you are dealing with very large companies like that and others, and if you the Australian Government say that we actually believe that the entire Australian community, the Western Australian community, needs a fairer share of those profits so it goes into their super, goes into tax cuts for small business, goes into building road, rail and port in the future, they're not going to put up their hands to pay more tax. I understand that, they'll argue their case very strongly.
But our job in the national interest is to make sure there's a fair share. You know a decade ago, we were getting for every $3 in profit going to the miners, about $1 was coming to the community through tax. Now it's something like every $7, the ratio has changed in fact to one is to seven. That's a big change, all we are asking for is a fair share for the miners, but a fair share for working families right across Australia as well.
HOST: Prime Minister, it does appear in an election year that you've decided to make this some kind of us-and-them thing. Why are you so convinced that the electorate will buy the idea that those working Australians that you are again speaking of are getting ripped off by what were formerly big Australians but now you seem to refer increasingly as foreign owned multinational mining giants?
PM: I'm simply referring to the fact that I think all Australians, all West Australians, actually own these resources and we're talking about a fairer share for them, when the profits are actually going higher and higher, and a lot of those profits, and these are just a product of the numbers, are going offshore.
It costs a lot of money to build roads, rail and port. It costs a lot of money to build hospitals and schools.
And therefore what we need to do is to make sure that can be done. Mr Barnett, the WA Premier, constantly says to me "we need more funding to build infrastructure in WA". Well my response to Premier Barnett is to say "look, we the Australian Government, are prepared to build a WA infrastructure fund for the future, we're prepared to dedicate probably the lion's share of that money into WA's needs because it's such an important resource state, like Queensland". Yet at the same time the WA Premier says, "oh, look, we can't possibly have tax raised from that source, just give us the money anyway". Frankly that's walking both sides of the street. I'm being upfront about how you would fund it, because WA has got big infrastructure needs.
HOST: The reality of your conversation last night, I mean that is between you and those gentlemen, but there is some speculation, and I'd like you to confirm it or otherwise, that there is room to move on that 40 per cent figure.
PM: Well we think we've got that right actually. Last night we were talking about the details of the proposed new super tax and its implementation and the transition arrangements. And that's where we want to enter into detailed discussions with individual mining companies large and small. That's why we've outlined a large amount of time for consultation to occur between the Treasury and each mining company on their circumstances.
There was a strong and robust exchange last night, I've just come from about another hour and a half this morning with another group of miners, mainly smaller miners, talking about their concerns. I'm not trying to gild the lily here, there's a lot of concern about the impact of the tax on individual companies, they put that to myself and to Martin Ferguson direct. We'll work through those to the greatest extent we can, and it's been good to have that upfront personal exchange with these miners today in Perth.
HOST: Prime Minister, I know you've only got a moment or two left. The headline story, and I know you don't talk about polls either, but the Opposition has taken the lead in the polls for the first time in three or four years and your personal approval rating is dropping much the same way those mining shares are. Are you beginning to flail?
PM: Sorry, I couldn't quite hear that. The last bit was? I went into a dead zone.
HOST: The Opposition has taken the lead in the polls, your personal approval is dropping similarly to the way those big mining shares are. My question was are you flailing?
PM: Can I say that my job as Prime Minister is to act in the national interest. That means taking decisions sometimes which are popular and sometimes decisions which are unpopular. But the important thing is to do the job which we were elected to do, and that means delivering better hospitals for the people of Western Australia, it means delivering better super for working people here in Western Australia, it means also keeping our Government finances strong and building a long term strong economy. On the way through -
HOST: - But how do you respond Prime Minister -
PM: - On the way through -
HOST: - to growing frustration -
PM: - on the way through you're going to have times when people react negatively to some decisions that are taken, I understand that -
HOST: OK, but how do you respond to what is growing frustration among many people and many of our listeners that your Government is very skilled at producing words, millions of them that are arranged into neat phrases, about commitments you make no apology for, and will not walk away from, only to walk away from them, be it an ETS scheme that's delayed, the great moral issue of our time that's delayed, the root and branch tax reform that's ignored, and instead you just pick off a few digestible leaves and the question -
PM: - Well let me just take the things that you've raised because you've raised the emissions trading scheme and tax reform and let me answer your question directly.
Firstly on the emissions trading scheme, as you know the Australian Government sought to pass that through the Australian Parliament at the end of last year. What changed? The Liberal party changed their leadership, Mr Abbott voted against it, therefore it was voted down in the Senate. And secondly, the Greens also voted against it. Therefore it was turned down from both the right and from the left. And Mr Abbott says that climate change is absolute crap. Therefore our commitment to bringing down greenhouse gas emissions hasn't changed one bit, our commitment to our targets remains the same, our commitment to an ETS, as the best of cheapest way of doing it, hasn't changed one bit-
HOST: - you walked away from the fight Prime Minister.
PM: - our pathway to get there has changed, because the Parliament has not allowed this bill to be passed because Mr Abbott has decided to block virtually everything we've put to him. That is what's changed there.
Now the second point you raised is about tax reform. On tax reform what we said when we launched the Henry Review some years ago was that it was designed to undertake a root and branch analysis of every element of the tax system. What we then said was that it would provide a blueprint for a basis for a discussion and a debate about long term tax reform in Australia.
What the Treasurer did on Sunday was say, here is a list of things that we are going to do now, and I've run through some of them this morning; secondly, here is a group of recommendations that we will work on over time, but not during the course of the next term if the Government's re-elected; and thirdly, here's a group of recommendations we will not implement at any stage.
That's the proper rational way to go about tax reform and the measures that we've gone through today in our discussion earlier today: a Super Profits Tax; funding tax cuts for business and small business; boosting working people's super so that they've got dignity in their retirement; and also investing in this State's future infrastructure needs. These are big changes, and we believe they are right for this state's future interests.
HOST: Finally, Prime Minister, a lot of people are asking what exactly it is you believe in beyond political pragmatism?
PM: The key question that I'm elected to do is to make sure that we have an economy for Australia which is strong and robust for the future. What we did in the last 12 months, or 18 months, through decisive action was protect this Australian economy from the worst global recession that we've seen since the depression of the 30s. Had we the same unemployment rate in Europe or in America today, we'd have a half a million more Australians left out of work and we'd be having a radically different conversation this morning.
What I believe in, therefore, is making sure that Australians have their jobs now and into the future; secondly, that we've got the best education possible for the future, that's why we're building the education revolution. Large investments in schools, making sure that we've got the right investments to make sure that kids have libraries in their schools, the best learning resources, and there's proper transparency and reporting of our schools performance.
You ask what else I believe in. Making that the people listening to your program have better health and better hospitals. That's why we've spent, frankly, two years working on a blueprint for national health and hospitals reform, which in WA would see a further investment of some $1.7 billion in your health and hospitals system.
These are pretty basic things for your listeners, that's what we've been working on, as well as a renewable energy future for Australia.
HOST: Well one of our listeners is saying, and several others are sending via SMS, this rhetoric is clap trap populist policy on the run. So I guess there's a little bit of a disconnect still. Thank you for talking to us this morning.
PM: Well I just want to answer one point you raised there about health and hospitals. If you describe that as rhetoric, we've had two years of debate, we've had an agreement involving every Government in the country except WA's, on the biggest reform to the health and hospitals system since Medicare. This is pretty basic for things like accident and emergency and available hospital beds. I regard that as bread and butter, not something which you would describe in other terms.
HOST: Thank you for talking to me this morning.
PM: Thanks for having me on your program.