Submission
February 2016
CME Submission to the Green Paper on
Developing Northern Australia
Department of Prime Minister and Cabinet
Chub Witham
Manager – North West and
Kimberley
xxxxxxxxxxxx
The Chamber of Minerals and Energy of Western Australia Level 10, 2 Mill Street, Perth, Western Australia
Locked Bag N984, Perth WA 6844 p +61 8 9220 8500 f +61 8 9221 3701 e chamber@cmewa.com w cmewa.com
CME Submission to the Green Paper on Developing Northern Australia
Contents
About CME ........................................................................................................................... 1
Recommendations ................................................................................................................ 1
Context ................................................................................................................................. 2
Fly-in Fly-Out (FIFO) employment ..................................................................................... 2
Tax Provisions Impacting Regional Australia ..................................................................... 3
Fuel Tax Credits ................................................................................................................ 7
Conclusion ............................................................................................................................ 8
CME Submission to the Green Paper on Developing Northern Australia
About CME
The Chamber of Minerals and Energy of Western Australia (CME) is the peak resources
sector representative body in Western Australia funded by its member companies, which
generate 95 per cent of the value of all mineral and energy production and employ 80 per
cent of the resources sector workforce in the state.
The Western Australian resources sector is diverse and complex, covering exploration,
processing, downstream value adding and refining of over 50 different types of mineral and
energy resources.
The sector employs approximately 8 per cent of the state’s workforce, and is the largest
private employer of Aboriginal Australians.
In 2013, the value of Western Australia’s mineral and petroleum production was
$113.8 billion, accounting for 91 per cent of the state’s total merchandise exports and thus
representing the majority of Western Australia’s 43 per cent contribution to Australian
merchandise exports. Furthermore, royalty payments to the state government totalled
$6.2 billion in 2013-14.
CME has two established regional bodies for Northern Australia: the Kimberley Regional
Council and the North West Regional Council. These councils consist of member companies
which have projects and operations in these regions. The role of these regional councils is to
promote greater awareness of the resources sector throughout the regions and Western
Australia, proactively address regional issues and develop links with all stakeholders in
regional locations.
Recommendations
o CME recommends the current flexible work options afforded to employers in northern
Australia be continued to encourage further growth and opportunities for the region.
o Australia’s tax system must remain internationally competitive in order to attract
investment, economic development and employment growth.
o CME recommends more recent census data be used to ensure areas classified as
‘remote’ previously, remain relevant today.
o CME supports the retention of the exemption from FBT for FIFO flights to remote areas
and offshore installations.
o Remote area housing is a significant benefit provided to encourage residential living in
remote areas and should be retained.
o CME considers a review of the income tax zone rebate is required to ensure it, or a
replacement scheme, delivers a real financial incentive to workers residing in remote
areas.
o Change or removal of the FBT exemptions will not make a difference to the issues
identified in encouraging sustainable communities in northern Australia – it will simply
make it harder and more costly for businesses to operate.
o Australia must ensure it does not adversely impact the competitiveness of regional
Australian projects by imposing fuel taxes which competing jurisdictions don’t have.
o CME opposes any changes to the current treatment of FBT concessions as they apply to
FIFO practices. Any recommendations must consider the economic, financial and social
ramifications impacting the broader resources sector.
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CME Submission to the Green Paper on Developing Northern Australia
Context
In Western Australia, the area above the Tropic of Capricorn comprises the Pilbara and
Kimberley regions. The resources sector significantly contributes to the economies of these
regions in terms of employment, infrastructure and social investment, as well as state
royalties and local government rates. However, CME considers the ongoing potential of the
resources sector to assist in growing these regions should be given greater emphasis in
conversations on developing Northern Australia. In particular, CME is disappointed there is
not a stronger representation from the resources sector on the Northern Australia Advisory
Group.
In order to ensure the resources sector in the Pilbara and Kimberley continues to develop
and contribute to regional, state and national economies as a whole, it is important to ensure
effective measures are implemented, to deliver timely approvals, access to land and
increases in productivity. Development in all industry sectors, including resources, is
hampered by the high cost of doing business, regulatory overlap, education, skills and
training, limited infrastructure and logistical challenges.
Recent CME research shows the increasing cost of doing business is becoming a significant
challenge for many resource companies as they grapple with global market dynamics,
increasing input costs and policy and regulatory settings which are volatile, complex and at
times costly.
Further, as many projects move from construction through to commissioning and operations,
efficient and cost effective management will become increasingly important as companies
seek to maximise value from their operations. Small changes in policy settings can
potentially have large impacts to operational projects.
CME considers the way forward is to engage and involve all key stakeholders, understand
the natural systems and landscapes in context, and to arrive at sensible whole of system
policies. This will ensure approaches to developing the region will maximise benefits and
build prosperity for the local community, the state of Western Australia and the nation.
These policies will need to adapt to the variability in each region’s requirements, so as to
ensure regional priorities are identified and addressed, establishing a sound foundation for
the realisation of regional aspirations.
CME has responded previously to the Joint Select Committee on Northern Australia Inquiry
via submission and appearance at the Perth hearing. Both of these are referenced in the
inquiry into the Development of Northern Australia—interim report1.
CME’s submission to the Green Paper on Developing Northern Australia (Green Paper)
assumes previous submissions have been considered and as such, the comments below
are additional specifically related to the Green Paper.
Fly-in Fly-Out (FIFO) employment
Over time the resources sector has developed an employment model to attract and retain its
skilled workforce in the safest and most competitive manner. The workforce model is a
combination of residential and long distance commuting (LDC), also known as FIFO.
CME supports labour initiatives which deliver the dual objectives of meeting resource project
labour demands and providing workers with alternative, flexible, and attractive employment
options.
1http://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Northern_Australia/Inquiry_into_the_Develop
ment_of_Northern_Australia/Interim_Report
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CME Submission to the Green Paper on Developing Northern Australia
As outlined in the recent Productivity Commission’s Geographic Labour Mobility study, FIFO
“has been instrumental in attracting sufficient mining and construction workers to mining
areas during the boom and spreading the benefits of the boom more broadly” 2.
This sentiment was reiterated by the Inquiry into the development of Northern Australia when
it stated in its interim report, FIFO “activities are increasingly important to business continuity
across northern Australia. FIFO and dido (drive-in drive-out) have many advantages”3.
In Western Australia, approximately 55 per cent of the resources sector is employed on a
FIFO basis, with 79 per cent of those workers sourced from the Perth-Peel region4.
A company’s decision to employ a workforce on a residential or a FIFO basis varies from
company to company and site to site, and depends greatly upon the location of the project
and the project phase (construction, production or maintenance/shut-down). Each of these
workforce models require different skill sets and different accommodation options at different
stages. Forcing the sector to utilise only one option over another (residential or FIFO) can
negatively impact on attraction and retention of the skilled workforce and create further
challenges and cost imposts particularly for operational projects.
In a competitive labour market, employee choice is paramount in attracting and retaining a
skilled workforce: choice of what job they do, who they work for and importantly of where
they choose to live. Employees cannot be forced to live in regional or remote locations if they
don’t choose to do so. LDC enables employees to work in an area or region and live where
they choose.
CME recommends the current flexible work options afforded to employers in northern
Australia be continued to encourage further growth and opportunities for the region.
Additional information is available in the CME publication A Matter of Choice5 which goes
into more detail and provides best practice examples of company processes.
Tax Provisions Impacting Regional Australia
The global resources sector is assessing other locations in other continents, which have
significant potential, and Australia’s tax system must remain internationally competitive
in order to attract investment, economic development and employment growth into the
future.
In this global context, Australia needs tax policies which do not provide a disincentive to
investment in an industry sector and so restrict the ability of Australian operations from
competing internationally. Australia’s remote locations and distance to infrastructure and
suitably qualified workers are already a significant disadvantage for resources projects and
incur significant costs which many other projects do not bear.
CME is concerned with the misperceptions surrounding the use of fringe benefits tax (FBT)
concessions and the perceived misuse of these regarding FIFO employees.
While the greatest range of FBT concessions potentially applies to FIFO arrangements
(compared to residential arrangements), the concessions for remote residential
arrangements provide scope for the largest value of assistance. For example, rent-free
permanent accommodation, assistance with purchasing a house and meeting ongoing
mortgage interest could be provided over an extended period.
2
Productivity Commission, Geographic Labour Mobility Research Report, April 2014, pg. 16
http://www.pc.gov.au/__data/assets/pdf_file/0005/136193/labour-mobility.pdf Accessed 15/08/2014
3 Inquiry into the development of northern Australia—interim report, pg. 12
http://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Northern_Australia/Inquiry_into_the_Develop
ment_of_Northern_Australia/Interim_Report Accessed 14/08/2014
4 The destination for these workers is primarily the Pilbara region, and other remote areas of Western Australia.
5 http://www.cmewa.com/UserDir/CMEPublications/A%20Matter%20of%20Choice377.pdf
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CME Submission to the Green Paper on Developing Northern Australia
The history of the concessions indicates limitations in the infrastructure and facilities in
remote regions, particularly the shortage of suitable affordable accommodation and schools,
have led to support for temporary work arrangements, particularly FIFO practices, to
supplement local workforces.
History of FBT Concessions
FBT was introduced in 1986. The scheme of the FBT legislation reflects the intention to
support employment in regional and remote areas. This was provided in the form of certain
exemptions and reductions in taxable value for items which would otherwise be taxable for
FBT purposes.
This was on the basis these items were either so necessary to the working arrangements in
question they should not be considered of a genuine remuneration nature, or they should be
supported from a policy perspective to assist employers who would otherwise have difficulty
in attracting the necessary skills and attributes to locations which involve relatively higher
degrees of isolation and lifestyle disadvantages.
This remains particularly relevant in Northern Australia and remote parts of Western
Australia today.
Remote Areas
As the exemptions and concessions applicable for FBT purposes vary, depending on
whether or not the location is remote, importance is placed on how “remoteness” is
determined. A location is remote if it is not in, or adjacent to, an eligible urban area as
defined by the 1981 census population information.
The references to 1981 census populations are a function of the legislation having been
introduced in 1986, at which time this was the most recent census. The definition has never
been updated. This is possibly because it would be impractical to continually monitor
changes in population in order to determine if a location is remote. An element of certainty is
required to enable employers to plan.
CME recommends more recent census data be used to ensure areas classified as
‘remote’ previously, remain relevant today. To provide certainty to employers, this should
only be reviewed on a periodic basis, i.e. every second census, to balance competing
objectives of maintaining relevance and business certainty.
FIFO Transport
The exemption from FBT for FIFO flights to remote areas and offshore installations has been
a feature of the FBT regime since its introduction in 1986. In 2011 this was extended to
remote overseas locations.
In both instances, the exemption was recognised as being necessary and appropriate in
connection with FIFO arrangements to overcome the position such travel would otherwise be
regarded as private (in the nature of home to work travel) and would therefore be a taxable
benefit if not covered by an exemption.
As confirmed in the Explanatory Memorandum to the Bill introducing the change:
Extending the exemption will ensure that Australian residents working for Australian
employers in remote areas on fly-in fly-out arrangements are taxed consistently,
regardless of whether they are working in Australia or overseas, as well as eliminate
any possibility of double taxation on such benefits.
CME supports the retention of the exemption from FBT for FIFO flights to remote
areas and offshore installations.
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CME Submission to the Green Paper on Developing Northern Australia
Remote Area Housing
When FBT was introduced in 1986 remote area housing was not exempt from FBT but was
treated as a special category of housing assistance. A housing benefit arises where the
accommodation in question is the employee’s usual place of residence. In relation to remote
area housing, under the rules in place from 1986 to 2000, a choice could be made to either
adopt statutory values based on whether or not the accommodation was shared, or to use a
value based on a 40 per cent reduction from market value. This reduction was subsequently
increased to 50 per cent.
In 1997, an exemption from FBT was introduced for remote area housing provided by a
primary producer. In 2000 following a period of consultation, this was extended to an
exemption for all remote area housing where the provision of accommodation was
necessary and customary in the industry in question.
Remote Area Accommodation Assistance other than Provision of Housing
The remote area concessions for benefits other than the direct provision of housing have
been largely unchanged since introduced in the late 1980s. Accommodation assistance
other than housing owned or leased by an employer typically falls into the categories of rent,
mortgage interest reimbursement and purchase assistance. An employer loan to assist with
a remote area residence is also eligible for concessional treatment though in practice this is
not common.
The FBT concessions associated with these benefits are slightly different, as the following
examples illustrate:
 Reimbursements of remote area rent are subject to a 50 per cent reduction in taxable
value based not on the value reimbursed, but the cost to the employee.
 Reimbursements of remote area interest are subject to a 50 per cent reduction in
taxable value based on the amount reimbursed.
 Reimbursements of purchase costs such as stamp duty or the deposit for the
property are eligible for a 50 per cent reduction in taxable value. However the
resulting value may be spread over a longer period if the employer has an option to
repurchase. If the repurchase occurs, a range of further benefits or “negative”
benefits may arise.
 In addition, a 50 per cent reduction in taxable value is available for residential fuel
and remote area holiday transport. The residential fuel provision refers to electricity
and gas, but not water.
Remote area housing is a significant benefit provided to encourage residential living
in remote areas and should be retained. It is a deliberate policy position to provide further
incentives to encourage residential living in remote areas.
Zone Tax Offset
The original provision was introduced in 1945 and provided a tax deduction for qualifying
individuals as many allowances for the higher costs of living, were absorbed into higher tax
payments.
The zone rebate amounts are between $57 and $2,295 (base values) with a potential to
increase if the taxpayer is entitled to other rebates (e.g. the dependant spouse tax offset).
The value of the zone rebate has been significantly eroded over time and currently does not
provide an incentive to people to make their homes in regional Western Australia.
To qualify for the zone tax offset, the individual must have lived or worked in a remote area
(not necessarily continuously) for 183 days or more during the current income year. The
rebate can be received by workers based in non-residential areas who spend more than 183
days in regional areas. This is not the intent of the provision.
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CME Submission to the Green Paper on Developing Northern Australia
CME considers a review of the income tax zone rebate is required to ensure it, or a
replacement scheme, delivers a real financial incentive to workers residing in remote
areas. The rates of the offset should also be reviewed to ensure they remain appropriate for
their purpose.
Tax Treatment of Benefits
The below table summarises at a high-level the range of benefits available and their
respective tax treatments given the individual’s circumstances.
The above table shows there are a variety of tax treatments of benefits provided, which vary
depending upon an individual’s personal circumstances. There are not clear tax incentives
provided to companies which would privilege a FIFO worker over encouraging a residential
workforce.
The decision of an individual to choose FIFO over a residential option is primarily based on
their family situation and the availability of services and facilities in the particular community
where they reside – not tax.
In reality, concessions for remote area residential housing arrangements will provide the
largest value of tax incentives to individuals and companies as these are of the greatest
value and can be provided on an ongoing basis.
With a considerable change in the nature of the resources sector transitioning from
construction-led growth to export-led growth, there are significant challenges being faced by
resources companies to continue to attract investment.
The resources sector is currently faced with countless increasing production costs, and a
change to the FBT exemption is likely to have serious consequences on future investment
and future projects being developed. This outcome would be disastrous for both the regions
in where mines operate, but more significantly for the broader economy.
Importantly, change or removal of the FBT exemptions will not make a difference to the
issues identified in encouraging sustainable communities in northern Australia – it
will simply make it harder and more costly for businesses to operate.
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CME Submission to the Green Paper on Developing Northern Australia
Corporate Tax Deductions
The cost of providing a fringe benefit together with any applicable FBT is a deductible cost
for corporate income tax purposes. It is misleading to suggest this accords any preferable
status to FIFO expenses. Whether an employee was provided with assistance in a FIFO,
residential, remote or non-remote context, the cost of the benefit plus any applicable FBT
would be deductible to the employer.
Fuel Tax Credits
A significant portion of the fuel usage by the resources sector occurs on non-gazetted roads
where companies build and maintain their own roads. Where use of public roads is required
often resources sector companies are required to pay a levy to either state or local
governments for road usage. Fuel tax credits ensure fuel, as a key business input, is not
taxed. The current fuel tax credit system – where tax on diesel is paid and later credited – is
simply a means of streamlining government tax administration.
Treasury has stated unequivocally “fuel tax credits are not a subsidy for fuel use, but a
mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by
business off road or in heavy on-road vehicles6”.
Minerals Council of Australia research shows broad use and adoption of diesel fuel rebates
across a variety of industries – not just the resources sector. When examining the number
of claims processed by ATO, the majority are covered by agriculture, forestry and fishing (48
per cent), transport, postal and warehousing (20 per cent) and construction (12 per cent).
The fact resources accounts for the largest proportion of tax offsets by value (almost 40 per
cent) is not surprising given the reliance of the sector on off road use of diesel and sector
growth over the past decade.
Resources projects in Australia already are disadvantaged with high production and
transportation costs given the remote locations of most resources operations. In some
operations diesel accounts for up to one quarter of operating costs and removing the offset
would impose cost increases of 4 to 7 per cent on typical minerals projects.
Competitor nations such as the United States, Indonesia and Canada ensure no tax is levied
on fuel inputs. Australia must ensure it does not adversely impact the competitiveness
of regional Australian projects by imposing fuel taxes which competing jurisdictions
don’t have.
6
Treasury, FOI Document 19, “AFR Article: G20 commitment to fossil fuel subsidies”; Document 7, Draft
response Ministerial to an Australian Conservation Foundation letter, April 2012
http://www.treasury.gov.au/~/media/Treasury/Freedom per cent20of per cent20Information/Disclosure per
cent20Log/2012/G20 per cent20commitments per cent20on per cent20fossil per cent20fuel per
cent20subsidies/Downloads/Document per cent207.ashx
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CME Submission to the Green Paper on Developing Northern Australia
Conclusion
FIFO is an important mechanism for spreading the benefits of the resources sector across
Australia. It is also critical in ensuring there are enough workers to operate projects in rural
and remote areas. It provides choice for employees who prefer to live in metropolitan areas
or other parts of Australia yet work in the resources sector.
CME opposes any changes to the current treatment of FBT concession as they apply
to FIFO practices. Any recommendations must consider the economic, financial and
social ramifications impacting the broader resources sector.
CME welcomes the ongoing development of the Australian Government’s policy pertaining
to Northern Australia and looks forward to further consultation during the development of the
White Paper.
If you have any further queries regarding the above matters, please contact Chub Witham,
Manager North West and Kimberley on (08) xxxx xxxxx or xxxxxxxxxx.
Authorised by
Position
Date
Nicole Roocke
Deputy Chief
Executive
15/08/2014
Document
reference
140814-KIM-Green Paper Northern Australia -Submission v0.1
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Signed