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MINERALS WEEK 2014
REGAINING OUR COMPETITIVENESS
Phil Edmands
Managing Director, Australia
Rio Tinto
28 May 2014
As is customary, I would like to acknowledge the traditional owners of the land on which we meet, the
Ngambri-Ngunnawal people, and pay my respects to their Elders both past and present.
I would also like to acknowledge The Honourable Ian McFarlane, Minister for Industry; MCA chairman,
Andrew Michelmore; MCA chief executive, Brendan Pearson; distinguished guests and mining industry
colleagues.
First, I want to thank Brendan for inviting me to address you here this morning.
I have thought hard about what to say today. Ultimately I decided what I wanted to speak about. People.
Regaining our competitiveness is about people. The point about prosperity is the effect it has on the lives
of people.
And although it may sound counter intuitive, Rio Tinto is a people business. We have more than 200,000
shareholders – including retail shareholders, and institutions safeguarding the retirement savings of
millions of Australians. In Australia we employ over 22,000 people directly, and we interact with and
improve the lives of many thousands more. We are also part of the wider community in which we
operate.
At the end of last week I was at our coal operations in the Hunter Valley. The coal industry is doing it
tough. And yet there are thousands of decent, hardworking and committed people who depend for their
livelihoods on that industry. They are doing a great job - and they want and need their jobs.
We owe it to them, and to the millions of other Australians in similar positions around the country, to save
as many jobs, and to create as many new jobs, as we can.
Individually, collectively, and as a nation, we are at a crossroads. The lucky country must engage in
serious structural reform if it is to regain its competitiveness and prosperity. The alternative is to decline
into mediocrity and obscurity.
But let me continue with my theme that in the end this is all about people. We need to bring all Australians
along with us if necessary reform is to have any chance of succeeding. In a robust democracy like ours
we need to build consensus – reform cannot be imposed.
So we need visionary leadership and what Australians are famous for – calling a spade a spade.
Can we make the necessary changes? Well we have no choice. Having said that we have done this
before – and we can do it again. Let me illustrate how by reference to tax, industrial relations and
regulatory reform, and Rio Tinto experience.
Australia faces a serious fiscal challenge.

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As noted by the National Commission of Audit, there is a gap between Commonwealth spending and tax
receipts which, without action, will only get larger given Australia’s demographic challenges.
So action is needed. Restraining expenditure is certainly a necessary part of the answer - but equally
important is the need for a far more efficient, less complex and better targeted tax system.
This will attract investment, which if coupled with higher productivity, means stronger economic growth.
Internationally, capital has never been more mobile. And Australia has always been a net capital importer.
Whilst we would expect Australia’s company tax rate therefore to be equal to or lower than those of our
competitors, it actually remains above the OECD average.
The latest Global Competitiveness Report 2013-2014 from the World Economic Forum has us dropping
out of the top 20 for the first time - we now sit at 21, several places below New Zealand.
Again, only last Thursday the latest world competitiveness rankings from the IMD Yearbook indicated that
Australia has fallen another place to 17 - a drop of 12 places from number 5 in just five years.
And as CEDA notes, Australia has been pushed down the list for the last couple of years by
improvements in the UK and Irish economies, though they are still recovering from the ravages of the
GFC.
To quote CEDA: “Discussion about Australia’s economic future has generally been about how we
compete with low cost emerging economies, but these results clearly show the threat to our economy and
international competitiveness is also coming from mature or advanced economies.”
We need to address these issues urgently. Australia has long been known as the lucky country – and
indeed in many respects it is. But that has bred complacency and blinded us to how quickly and
completely our luck can run out.
More recently this has been fed by a once-in-a century boom in mineral exports, with record demand and
prices.
Whilst the boom continues, it is moving into its next phase with the rate of growth moderating. In any
event, there is only so long that we can rely on commodity returns to hide the fact that we are steadily
losing ground to our competitors.
Among our key advantages in attracting skittish global capital has been our stability. Lack of civil unrest,
the rule of law and strong democratic institutions have weighed in our favour against other riskier
investment destinations.
Not every part of the world containing world-class mineral resources is so fortunate. Certain African
countries for instance have lacked many of these attributes. And that makes for a difficult and risky
environment in which to invest and to operate.
But political and sovereign risk in competitor countries is a poor shield from the effects of our slide in
competitiveness. Competitors in the developing world will not stand still, they will continue to improve - in
some cases much more rapidly than used to be thought possible.
When that happens at scale, this key advantage of Australia’s will evaporate. If we as a nation are not
then competing in areas like tax, we will simply lose the investments we so badly depend on.

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Furthermore, a key concern for international investors is stability of the tax regime – and we have been
increasingly erratic on tax.
Recall that the minerals industry is trade exposed - our businesses are price takers, not price makers. We
can’t just pass on cost burdens like high taxes to consumers.
All producers are also under pressure to earn reasonable returns for their shareholders.
One more point that’s often overlooked. Our industry, like others, is not a monolith.
Coal, for instance, is very different to many other commodities, and is presently under tremendous margin
pressure. People’s jobs are in the balance. The coal industry is struggling under an unsustainable tax and
royalty burden, given its cost structures and current world prices.
On the flip side our industry already makes a mind boggling contribution to tax revenues, but we need to
articulate this better to the broader Australian community – and explain the threats.
As an industry we know that there is an ongoing need to balance levels of taxation with incentivising
investment. If we get that balance wrong, and set tax rates too high this will be self-defeating. It will
reduce investment, consequently reduce growth, and so reduce the tax base.
For our part we have been leading in the area of transparency through our Taxes Paid Report. Last year
we paid very nearly $5.7 billion in taxes and imposts to various levels of government in Australia. (These,
and other amounts I will refer to, are all in US dollars.)
Payments ranged from huge contributions like $3.5 billion in Commonwealth taxes, down to contributions
to local government. Few might realise, for instance, we paid $2 million in rates just to Singleton Shire
Council and another $2 million to Gladstone council.
We are one of Australia’s top corporate income tax payers. We also pay a high rate of tax. Our total
contribution, taking into account all taxes and imposts, is approximately 47 cents in the dollar.
We paid $228 million to the States as payroll taxes, and collected another $1.14 billion from our
employees in PAYE income taxes. These are our own employees’ personal taxes, but they simply
wouldn’t exist if our business didn’t.
This is aside from many millions we voluntarily pour into community, arts, education, research and
Indigenous programs.
And a key thing that is often overlooked. In the past three years alone we have invested around $23
billion in capital.
The great majority of that enormous spend ends up in the pockets of other Australians - suppliers,
contractors, equipment makers, geotech, engineering, software, electronics, legal and accounting
services. It’s a huge boost - in sheer scale as well as spread - to the whole Australian economy. And
we’re just one mining company.
So we really are doing our share, but the industry does need to tell that story more effectively.
Australia has a significant challenge with labour costs.

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And where once we might have expected the Australian dollar to devalue it is no longer behaving as it
once did. So we can no longer rely on the ‘safety valve’ of currency depreciation to restore international
relativity.
This leaves us with one course of action on labour costs, assuming we prefer real wages not to fall. We
must improve productivity.
Critical to this is labour market flexibility, which is an area where we lag competitors badly.
For all that we hear and read about ‘Industrial Relations’ or ‘IR’, within Rio Tinto we only use those terms
to describe the statutory system set up to resolve disputes, and to provide minimum protections for those
who need them.
We otherwise talk instead about ‘Employee Relations’.
That describes a relationship between our company and each and every person who works for us. We
take nothing more seriously than this. After safety, nothing is more critical to the success of our business.
Nothing is more central to our competitiveness. And what is true of our company is true for our whole
economy.
Certain labour market principles have been hard fought and long established. Rio Tinto firmly believes
they must be respected, protected and preserved.
These include the freedom to bargain, the freedom to be represented individually or collectively in that
process, and the freedom to belong to unions and to be represented by them.
Or not. That’s important too.
I referred earlier to the World Economic Forum report on competitiveness. That report notes:
“The main area of concern for Australia is the rigidity of its labor market (54th, down 12), where the
situation has deteriorated further. Australia ranks 137th for the rigidity of the hiring and firing practices and
135th for the rigidity of wage setting.”
There is no way to achieve increased productivity without changes that affect the way we employ and
deploy labour. Avoiding these changes is a fool’s paradise. Without them ultimately we will not preserve
jobs – we will lose them – because we will not grow the economic pie, we will shrink it.
Rio Tinto prides itself as a company of continuous innovation. This has an effect on labour – but
ultimately a good one, not a bad one. Technology evolves - some jobs change, some jobs disappear, new
jobs appear in their place. Almost without exception the new jobs are more skilled, better paid jobs – and
often in better locations with access to a greater pool of labour. And this innovation helps the economic
pie to grow, creating additional jobs. A good example is our Perth based operations centre – the engine
room of our vast Pilbara iron ore business.
Australia needs to drop its reliance on the ‘lucky country’. Good luck is great while it lasts - but being the
‘clever country’ is much more sustainable.
We also need flexibility in order to retain or recruit as many economically productive people as we can -
even if they are constrained by what would have been traditional barriers to work.

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A good example is in the Hunter Valley coal industry where there are a number of highly skilled heavy
haulage vehicle drivers who also just happen to be women, including young mums.
How can an industry like that accommodate the needs of working mothers for part-time work - or shared
shifts - or broken shifts? Well, by being flexible.
The truth is these women could never have secured those jobs much less kept them through maternity
leave and the challenges of early parenthood in the old, ‘one size fits all’ days.
We need an industrial relations system that is flexible, and not “one size fits all”.
As I was considering how I might illustrate this point to you today, I came upon a document that really
makes the point for me.
It’s an extract from a summary of an Enterprise Bargaining process involving one of our businesses. I
won’t say which one because that matters so much less than what is being negotiated.
I have mentioned earlier that many of these businesses are currently under margin pressures that
threaten their existence.
In other words these are negotiations over conditions of employment in jobs that could be eradicated
forever by market forces and lack of competitiveness.
I will just mention a few of the claims currently being put forward.
• Fitness for work - nothing can be changed unless there is majority support;
• Seats in crib huts do not have cushions on them;
• 7 and a half days extra annual leave a year;
• Sick leave accrued annually; to be cashed out after two years or upon leaving or termination; and
• Compassionate leave to be utilised for significant pets or animals, horses, cattle etc.
Of course everyone is entitled to put forward whatever demands he or she wishes in relation to
employment conditions. But the system should limit the ability of ambit claims to cause delay and
damage labour market flexibility. More broadly we need to get past industrial relations being a topic too
hot to handle - so that we can have a sensible and robust debate over what is actually needed.
A third impediment to Australia’s competitive position that I want to discuss today is over-regulation.
Going back to the World Economic Forum report I mentioned earlier, I’ll quote its assessment on this
topic:
“The quality of Australia’s public institutions is excellent except when it comes to the burden of
government regulation, where the country ranks a poor 128th. Indeed, the business community cites
labor regulations and bureaucratic red tape as being, respectively, the first and second most problematic
factor for doing business in their country ...”
We need regulation. Regulations have all evolved for a reason, usually as a protective mechanism
against a public harm.
However, regulation also brings inherent dangers. Regulations tend to evolve - and expand and multiply -
over time, and they can become the playthings of interest groups with agendas quite remote from their
original purpose.

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Take as an example the modern environmental assessment and approval processes for major projects.
The Federal Government intends to create a ‘one stop shop’ for environmental approvals. State approval
systems will now determine proposals that would otherwise have been assessed by the Commonwealth
under the EPBC Act. Rio Tinto supports this policy reform, and commends the Australian Government for
moving quickly in conjunction with other jurisdictions to implement it.
But I must add a word of caution. These reforms will only truly deliver more timely and predictable
assessments where the relevant State jurisdictions have their approvals’ systems in order. Going forward,
the spotlight will now be on State approval systems to deliver efficient, timely, and scientifically robust
assessment of whether projects can responsibly proceed, and if so subject to what conditions.
I spoke earlier about highly mobile investment capital in today’s world. This is not only true of investment
funds for which Australia competes internationally, it’s also true within large corporations.
Large companies always have a list of potential projects to pursue and, of course, only a certain amount
of capital to invest. So projects compete with one another to get funded within the corporation.
In early 2010 we sought to extend the life of our Mount Thorley Warkworth mine in the Hunter until at
least 2031, and with it the jobs of the 1,300 men and women we employ there.
That mine is the mainstay of its local economy and community. In 2013, Mount Thorley spent $335 million
with more than 600 suppliers, directly contributing $76 million to the local Singleton economy through
more than 130 local businesses - and paid more than $93 million in royalties to the NSW Government.
The proposal included an Environmental Impact Statement that ran to over 1,000 pages. It was rigorously
assessed and finally approved - with 117 conditions of consent. In 2012 the NSW Land and Environment
Court overturned this approval despite two and a half years of close evaluation by:
• the NSW Department of Planning;
• the independent Planning Assessment Commission;
• the NSW Office of Environment and Heritage; and
• what is now the Federal Department of Environment.
Almost a year later the Court of Appeal denied our appeal on questions of law (there being no merits
appeal available).
We have now gone essentially all the way back to square one, and have indicated our intention to lodge a
fresh application.
It is worth noting that this project was originally conceived when the thermal coal spot price was $120 a
tonne.
After four years, 117 conditions, securing Federal and State approvals and two lengthy legal cases, the
thermal coal spot price now sits at $78 a tonne.
The cost of this delay has constrained the operation of the mine, resulting in the loss of more $100 million
in revenue, and placed the future viability of the mine at risk. We are nonetheless working hard to try to
secure the long term future of the mine, and the livelihoods of our workers, their families, and their
communities.
Another example makes a similar point.

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We commenced the process of securing approval to extend our bauxite mine known as South of Embley
near Weipa in Far North Queensland more than three years ago. The purpose was to extend the life of
the mine by more than 40 years, secure the jobs of the 900 workers employed there, and increase
Australia’s export of high grade bauxite.
In mid-2011 we conducted a six week public consultation as part of the EIS process, including briefings
for 500 community members and 900 workers and more than 30 public displays. We received 24 written
submissions, and responded to each in a Supplementary Report in early 2012.
Out of the blue, the Commonwealth Environment Minister then supported a last minute request from a
third party to include shipping as part of the EIS. The third party was the Wilderness Society, and its last
minute request comprised a one page note making unsubstantiated claims about increased ship
movements through the Great Barrier Reef.
This is despite the fact that much of this bauxite – if ever we mine it – is bound for Asian markets, and
would mean no additional ships traversing the Great Barrier Reef. The application nonetheless triggered
a whole new Commonwealth EIS process.
The EIS was released in November 2012 for further public consultation, and the Commonwealth Minister
finally approved the project in May 2013. But that was not the end of the process. The Queensland
Government’s approval process was similarly gamed, resulting in triggered Court proceedings. Finally, a
judgment 11 months later found the objections to be without merit and recommended the application
stand with no changes.
Unfortunately because of the delays this project had by then missed its original investment window. The
project is now awaiting a new investment decision.
These approval processes have lost sight of their original purpose – efficiently reaching the scientifically
correct answer. Instead it is now necessary to navigate a political minefield of difficult processes, and an
array of activist groups.
Laws created to foster responsible development have been abused by those wishing to halt all mining
development.
Our approval processes need to provide for consultation. However, some of the objectors’ own websites
declare that coal mining should not exist in Australia - and that they will do anything in their power to
close it down.
They are entitled to that view, and entitled to submit it to an approval process. But it is not up to them to
make that policy decision for Australia, it is up to all Australians via their elected Government.
Australia’s resources industry is one of the few sectors where Australia currently retains a competitive
advantage.
But even that is under threat. Standing still is not an option.
The Federal Government has had a Commission of Audit, and will be running a Taxation White Paper
process. It has also flagged a Productivity Commission Inquiry into the Fair Work Act, and a focus on
deregulation. These are all very welcome steps. Furthermore, the effect of taxation, industrial relations
and deregulation policy on Australia’s competitive position is increasingly entering public debate.

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However, I end where I started – that ultimately everything is about people. Australians have faced, and
overcome, structural reform challenges of this scale before. I am confident they will do so again. So I am
sure that we have every reason to be optimistic about Australia’s future.

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