FactCheck Q&A: towing back the boats and the mining tax

Catch up on Q&A from 15 July. Source: http://www.abc.net.au/tv/qanda/

1. Julie Bishop: Australia has the right to return asylum seeker boats to Indonesia

“We cannot escape from the fact that they are Indonesian boats with Indonesian crews from Indonesian ports. Of course, you can return them to Indonesia.” - Shadow foreign affairs minister Julie Bishop, Q&A, 15 July. (Watch the segment on asylum seekers here).

The pledge to turn asylum seeker boats around “when it is safe to do so” is a central pillar of the opposition’s suite of policies to stem the surge in boat arrivals from Indonesia. Opposition leader Tony Abbott has made the same point as Bishop, telling ABC’s 7.30 recently that “the facts are that these are Indonesian crewed, Indonesian flagged, Indonesian home-ported vessels that have a right to access Indonesia”.

Abbott and Bishop have made these comments in the context of proposals to “push back” asylum-seeker boats to the edge of Indonesian territorial waters. They had said this will take place whether or not Indonesia specifically agrees

But the above claim is problematic because it fails to appreciate the complexity of interdictions at sea and does not adequately reflect Australia’s obligations under international law.

The first legal principle is that vessels in international waters have freedom of navigation under the UN Convention on the Law of the Sea.

No single country has jurisdiction over international waters; each vessel carries the jurisdiction and protection of the country in which it is registered. This means that if an Indonesian boat is travelling in international waters, it cannot be boarded or otherwise interfered with by the Australian Navy unless it has the consent of Indonesia, or it can show due cause under international law.

Good cause can be demonstrated by evidence that the vessel is engaged in piracy or the slave trade under the Law of the Sea (unlikely to be shown in relation to asylum-seeker vessels), or smuggling as defined under the Protocol against the Smuggling of Migrants. Interdiction may be possible under the Smuggling Protocol, but this requires interdicting countries to obtain prior permission from the “Flag State” of the vessel (eg Indonesia). This contradicts the suggestion from the opposition that it is not necessary - however desirable - to to obtain the consent of Indonesia in such situations.

To date, Indonesia has said it does not support boats being turned back, but was “open to discussion” with the opposition, according to Indonesian foreign minister Marty Natalegawa.

The need for consent prior to interdiction is supported by the practices of other nations. Italy and the United States have interdicted and returned asylum-seeker vessels from international waters (Italy to Libya, the US to Haiti). But this has only happened with the consent of the countries concerned, and usually by way of a formal written agreement.

Further, interdicted persons are generally taken into the territory of the relevant country (eg Italy returned migrants to the main port in Libya). The occupants are not merely left at the edge of territorial waters. In this sense, Abbott’s statement lacks a comparable precedent under international law.

On the question of the right of the Indonesian vessel to gain re-entry into Indonesian waters, I note that while the crew of an asylum-seeker vessel may have an enforceable right to enter Indonesia, the vast majority of people on these vessels are not Indonesian citizens and do not have such a right. Indonesia is not a party to the 1951 Refugee Convention and therefore is not under any formal obligation under international law to accept interdicted asylum seekers back into its territory. In this respect, a demarcation must be made between the vessel which is Indonesian-registered and the occupants of that vessel.

Finally, the act of interdiction by Australian authorities is likely to be seen as an exercise of control and jurisdiction over the asylum-seekers on board. Australia will, accordingly, incur responsibility for those asylum-seekers under international human rights and refugee law and cannot simply leave the interdicted persons on the high seas near Indonesian territorial waters in the expectation that they will return to Indonesia.

Verdict

This statement does not adequately reflect Australia’s obligations under international law and is not correct. Interdiction of vessels by Australia will require Indonesian consent - so far not forthcoming - and it will not be possible to simply leave the vessels in the sea near Indonesian territorial waters in the expectation that they will be able, or willing, to re-enter Indonesian territory.


2. Stephen Smith: economic conditions were the reason for the mining tax revenue drop

“You say [it’s a mining tax] that doesn’t collect much revenue. In the short term, that’s right. In part, that’s because… the same circumstances don’t exist now as they did when the tax was introduced.” Defence minister Stephen Smith, Q&A, 15 July. (Watch the segment on the mining tax here).

Earlier this year, the government announced it was falling short of its projected revenue for the Mineral Resource Rent Tax (MRRT).

The tax was forecast to raise $2 billion in 2012-13 – revised down from $3 billion – but instead, it managed to raise only $126 million in its first six months. At the time, the government blamed changing market conditions including a recent drop in commodity prices. Labor continues to repeat these claims today, including on last night’s Q&A program.

But the truth is, the impact of changing economic circumstances on MRRT revenues has been minor, if at all. In reality, the large iron ore and coal miners, which were in operation before 1 May 2010 when the tax was announced, are not paying any tax largely due to their capacity to use the market value of their projects to take advantage of very attractive depreciation benefits built into the design of the tax.

To understand how existing producers may be sheltered from paying MRRT for potentially many years to come, it is worth looking briefly at the tax’s design. The profit on which MRRT is levied is determined after a company deducts all its capital and recurrent costs of operations from its revenue, in the year in which they are incurred. Operating costs exclude funding costs (for instance, interest expenses) but include a level of “normal profit” equal to the long-term bond rate, plus a risk premium of 7%.

Serious challenges arose in applying the MRRT to mines which existed prior to the tax’s announcement date. Many of these are large mines have very significant historical capital investments and will continue to account for the vast majority of iron ore and coal production in Australia.

Under strong political pressure to appease them, government allowed them to recover their historical investments by either depreciating their book values over five years (increased annually at the rate of normal profit) or using their market value as of 1 May 2012 (increased annually at the rate of CPI) over up to 25 years.

Existing projects with large and/or high-quality resources benefit from having significant annual starting-base capital deductions in determining their taxable income. This means that if the deductions are large enough, the taxable profit on which MRRT is levied can be reduced to zero, or close to.

Thus, recent drops in iron ore and particularly coal prices and sustained high exchange rates had and will continue to have minimal or no effect at all on MRRT collections from existing mines, other than increasing the magnitude of the losses to be carried forward for future deduction.

By contrast new mine developments will pay MRRT in full. This point was emphasised at the recent Senate Economic Reference Committee inquiry into the development and operation of the MRRT and confirmed by relevant mining company executives.

Without any knowledge of the starting values of existing iron ore and coal operations it is impossible to predict how long it will take to reach the point where these starting base capital deductions are exhausted and existing major iron ore and coal mines will start paying full MRRT. It is worth noting that the MRRT was devised at a time of rapidly rising commodity prices and that initial net cash flow forecasts and project market valuations were high, reflecting expectations of an on-going “stronger for longer” mineral boom.

For instance, at the time of BHP Billiton’s attempt to take over Rio Tinto’s iron ore business in Western Australia, the latter was valued in excess of $100 billion. Thus, at least in the case of iron ore, where about 90% of production is attributable to three companies with high market values and/or as-yet-undepreciated book values, it was logical to expect that initial MRRT collections would be very low.

Since then Fortescue Mineral Group, which was not a signatory to the original MRRT agreement negotiated with the Gillard government, has confirmed that it is also unlikely to pay any MRRT for many years to come.

Verdict

Stephen Smith’s statement is misleading. The drop in MRRT collections relative to forecasts is not significantly impacted by changing economic conditions at least in the medium term.

The Conversation is fact checking statements made in the lead-up to this year’s federal election. Normally, these are reviewed. But each week, we will also check significant factual assertions on the ABC’s Q&A program. To allow us to publish these checks as soon as possible, there will be no review process. Request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.