12 Feb 2013

Why The Mining Tax Won't Pay The Bills

By Ben Eltham
Labor tried hard to tax the profits of the mining industry but made too many compromises after Kevin Rudd was axed. The result? The tax will raise far less revenue than it should, writes Ben Eltham

In political circles, they sometimes describe it as "policy on the run". It occurs when an executive cobbles together a quick and dirty policy compromise in the heat of the moment.

Perhaps the original policy was a good one, but beyond the political ability of a government to sell. Perhaps the new fix is in response to an unfolding disaster, fanned by the flames of media attention. Or perhaps an aggrieved industry has taken up arms against a government, determined to safeguard its vested interests.

Whatever the reasons, a quick fix is needed. The controversial aspects of the policy need to be watered down; the bitter pill sugared; the raised hackles of the powerful and the vocal gently assuaged.

At this stage of the process, governments don't worry too much about the long term consequences of the deal they've stitched up. So what if the original intent of the policy has largely been abandoned? Politics is a short term game. Crisis management takes over: a deal is brokered, with all the major players coerced to turn up to a media conference. The government declares victory and moves on.

Welcome to the Minerals Resource Rent Tax, July 2010 edition. Also known colloquially as the "mining tax", the MRRT is the Labor's government's second attempt to tax the outsize profits of the mining industry. It was hastily drafted in the weeks after Kevin Rudd was deposed by Labor caucus in the run up to the 2010 election.

The MRRT replaced the original mining proposal, the Resource Super Profits Tax. The RSPT was a much wider and deeper tax than its replacement. It would have taxed mining companies at a higher rate, and across more minerals commodities. But the RSPT ran head on into a massive industry backlash. Support for the tax disintegrated in the heady days of May and June 2010, as the mining industry spent an estimated $22 million on a campaign attacking it.

When she came to the Prime Ministership, Julia Gillard made doing a deal with the big mining companies the first item of business. The result was a tax that was shallower, narrower and smaller than the one originally mooted.

Just how much smaller is now becoming apparent. The Treasury had estimated that the MRRT, which came into effect on 1 July last year, would raise several billion dollars in revenue. As it turns out, it has raised only $126 million, barely more than pocket change in a $375 billion federal budget.

The terrible performance of the MRRT is causing big political headaches for the government. Ironically, the compromise worked out in 2010 in order to make the mining tax campaign go away has now returned to haunt the government as it seeks re-election. It's also blown a big hole in the federal budget, helping to wreck Labor's (now abandoned) promise to return the budget to surplus.

Why is the mining tax not collecting any revenue? The reason appears to be pretty straightforward: the Government stuffed up the design of the tax. That's what happens when you make policy on the run.

Let's pick over the gory details. Perhaps the biggest flaw in the mining tax was already known when the MRRT was negotiated. This is the carve-out for state mining royalties.

The original RSPT proposal would have seen the Commonwealth take over state mining royalties in their entirety, paying the states compensation in return for controlling mining tax revenues. The idea was to replace inefficient state royalties, which are a simple levy on the amount of ore pulled out of the ground, with a profits based tax that would have effectively made the federal government a kind of business partner with the big mining companies.

In bad times, mining companies would pay no tax and might even be able to extract payments from the Treasury to help them through troughs in commodity prices. In good times, Canberra would be able to collect 40 per cent of their profits on the extraction of non-renewable resources.

The MRRT abandoned this model (although independent MP Rob Oakeshott says he wasn't told this). Instead of taking over state royalties — a constitutionally difficult move  — the MRRT gives mining companies an offset on whatever state royalties they have already paid. This effectively left the federal government at the mercy of state governments. If Colin Barnett or Campbell Newman wanted to raise the state royalties for coal or iron ore, the feds would have had to give the mining companies a bigger offset on their MRRT. Despite being vocal critics of the federal mining tax, that's exactly what Barnett and Newman did.

Another problem for the MRRT was that it allows mining companies to book big tax deductions in return for their investment expenditure. While this is normal practice in tax law, the sheer scale of the mining investment boom means it may be years before mining companies start to pay taxes — even if they are making profits now. Mining companies can also depreciate their assets like mining trucks and drilling rigs, which also enables them to offset their potential tax liability. The result of all these favourable tax rules is that BHP and Rio have actually booked tax "assets" in the billions of dollars for coming years — effectively, a future tax offset held by the ATO that they can use to write off future tax liabilities.

A final flaw is that the MRRT can also be offset against company tax. This means that mining companies that boost profitability by measures outside minerals production — such as cutting costs — can use those savings to offset their MRRT bill. In effect, the government is saying that mining companies can pay less tax by getting more efficient. That's great for the businesses concerned. It's terrible for the federal Treasury.

As Stephen Bartholomeusz noted in January, the effect of all these concessions and offsets means that the MRRT will likely not raise very much money in the near future. "The MRRT, of course, was designed as a 'super profits' tax," he points out. "Given the resource sector is shifting from price-driven profitability to volume and cost-driven profitability, the mining sector is unlikely to be generating super profits any time soon."

Julia Gillard and Wayne Swan worked hard and spent much political capital to implement the MRRT. Perhaps they are now regretting that they even bothered. Nervous backbenchers must be thinking that Labor should simply have abandoned the tax back in 2010.

In fact, the tax is still a good idea. It has just been implemented poorly. Successive governments will no doubt tweak the regulations to make sure more money flows in during the normal operations of mining companies.

How are the big mining companies faring, by the way? Pretty well, since you asked. BHP Billiton recorded full-year earnings of $US 27 billion in the 12 months to June 2012, on revenues of $US 72 billion. Even after paying $11 billion in taxes, the global mining giant still booked "attributable profits" of $15 billion. It's nice work if you can get it. Rio Tinto booked half-year earnings of $5.9 billion. Xtrata — currently being taken over by shadowy commodities giant Glencore — recorded (pdf) half-year earnings of $4 billion.

Back in March last year, when the legislation passed Parliament, I praised the mining tax as "modest, technically proficient reform." It looks like I was wrong. The MRRT is modest, all right. But its flaws mean that it will raise far less money that it should.

Once again, big mining companies have used their deep pockets and armies of lobbyists to twist the political economy of their business environment in favour of their shareholders. Sovereign risk, I hear you saying? Perhaps the better term should be "sovereign reward".

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jeremiahwuzza
Posted Tuesday, February 12, 2013 - 16:54

But hang on a minute - didn't the global price for coal and iron drop by more than half in the first part of last year?
And isn't it still nowhere near recovered to its 2011 levels?

How can you write an article about the mining tax revenue without mentioning that?

zeroxcliche
Posted Tuesday, February 12, 2013 - 17:04

Good Article - to add to last paragraph I think we should have an across the board super profit tax on profits over 1 billion. We suffer a great deal from effective duopolies and cartels in not only mining but also banking and supermarkets.

Mining companies are buying over priced assets at the top of the market when their revenues are high and losing billions quite regularly - they have more money than they know what to do with - as Ben alluded to their concerntrated influence is effecting our political process - we need to either form a social contract with the large corporations where they pay more or use the tax system to create more competition because what we are living with is not free market capitalism but a stunted semblance of it.

punch
Posted Tuesday, February 12, 2013 - 17:47

Ben,

Things can be tweaked and its obvious the LNP state governments are using loopholes to undermine government policies across the board. Sad, bad times especially since a majority of people support most of Labor/Green/Independent policies to date.

On a more positive note - as global mineral prices rise the tax will fill the coffers. Fluctuation was expected. I'd say the next meeting between Labor and the state governments will be heated but as usual our excellent Prime Minister Julia Gillard will prevail.

As for the mining companies. I'm a firm believer it is a disgrace and wrong that a few people can own and abuse Australias wealth. Greed has never been good for society. Should our government need to make changes many Australians will agree. They just got caught off-balance the first time by the aggressive anti-government campaign and misinformation. Won't work again.

Jungarrayi
Posted Tuesday, February 12, 2013 - 18:11

Jungarrayi
Punch, I like your optimism.... "Won't work again"
The nation that rode on the back of sheep, turned into a nation of sheep. What an absolute propaganda scoop! $22M to convince a majority of Australian voters that taxing super profits would result in mining companies taking their bat and ball and going home.
As a geologist I can assure you that the location of natural resources isn't determined by taxation policies.
Taxation policies will however affect the proportions in which the cake is shared.
If the owners of the cake (the Commonwealth- get it? 'Common' and 'Wealth'- and to some extent the Traditional Owners) only get crumbs, we are better off not letting them bake the cake in the first place. Once it is baked it is gone.

jackal01
Posted Tuesday, February 12, 2013 - 18:54

Jungarrayi, wise words indeed.

"the Traditional Owners) only get crumbs, we are better off not letting them bake the cake in the first place. Once it is baked it is gone".

They create hatred of the Indiginous people by telling white fellow that white fellows pay the taxes that keeps the Indiginous people alive and that Indiginous people are Bludgers, when it is in fact the Indiginous peoples land that keeps it/us all afloat, including the lies and the taxes coming.

When we hate the people we steal off, theft doesn't look quite so bad.
Thats why humans have always vilified and demonised, murder becomes acceptable.

Its time, we owned up as a Nation.

jackal01
Posted Tuesday, February 12, 2013 - 18:59

Ben Eltham and Ian McAuley are doing a fine Job in Leading the charge towards some real discussions and sharing of real Knowledge. something we can think about, debate and judge our futures by.

Thanks Ben and Ian, great work, great articles to debate, discuss.

This user is a New Matilda supporter. DrGideonPolya
Posted Wednesday, February 13, 2013 - 10:20

Ben Eltham's useful article concludes "Once again, big mining companies have used their deep pockets and armies of lobbyists to twist the political economy of their business environment in favour of their shareholders" - but the text of the article misses the crucial point that the whole point of the $23 million the foreign miners spent to get rid of PM Rudd - Australia's most popular PM yet removed in a US-approved, Mining Corporation-backed and pro-Zionist-led Coup in 2010 (see Antony Loewenstein "Does the Zionist lobby have blood on its hands in Australia?": http://antonyloewenstein.com/2010/07/02/does-the-zionist-lobby-have-bloo... and Gideon Polya, "Mainstream Media Lying Hides Corporate,
US And Zionist Subversion Of Australian Democracy ": http://www.countercurrents.org/polya110212.htm - was to emasculate the Mining Tax.

Foreigners and their lobbyists subverting Australian democracy is far, far more serious than the current ICAC assertions. Decent Australians will totally reject a traitorous, neoliberal Labor Government that betrayed our most popular Labor PM, Australian democracy, Labor voters and the millions of children and poorly who could have benefited from the Rudd Mining Tax in terms of better education and health.

This isn't empty "patriotic" rhetoric: 66,000 Australians (9,000 of them Indigenous Australians) die preventably each year under a neo-liberal Labor Government that has put foreign profit before Australian lives (for detailed analyses see Gideon Polya, "Why PM Julia Gillard Must Go: 66,000 Preventable Australian Deaths Annually": http://www.countercurrents.org/polya210212.htm and Gideon Polya, "Endless War on Terror. Huge cost for Australia & America": http://mwcnews.net/focus/analysis/22149-endless-war-on-terror.html ).

Decent Labor voters who care for Australia, health, education, children, the disadvantaged, mateship etc etc will vote 1 Green and put Labor last until Labor ceases betraying Labor ideals and Labor voters.

Peace is the only way but Silence kills and Silence is complicity.

Jungarrayi
Posted Wednesday, February 13, 2013 - 10:57

Propaganda scoop
Another point that seems to be missed is that part of the reason they got away with spending only $23M (around $1 per head of population) to achieve their ends, was the pathetic pro-mining tax advertisements put out on behalf of the government.
One would almost be led to believe the Mining lobby had secretly spent a couple of extra million bribing the government's advertising agency to put out such unconvincing rubbish.
But you and I know that the multinational miners wouldn't stoop to such behaviour!

This user is a New Matilda supporter. dazza
Posted Wednesday, February 13, 2013 - 12:25

It must be remembered also that under Howard, a group of businessmen/women from the various Gouging Enterprises actually WROTE the Laws that were to affect them. I somehow doubt that Labor got rid of this group entirely. Gillartine was absolutely desperate to stop the Media campaign of the Miners, so gave them everything they wanted, and then some. She was desperate, they were cunning, and well prepared. So they walked all over her and SwannieRiver.
The Miners and other Corporate Giants do not intend to pay the MRRT, never did, and never will, while they can control Governments, as they have done the World over, for many years.
But The Gillartine never admits mistakes. NEVER. so now she says that the MRRT is NOT to be re-negotiated ( she would have to eat humble pie, and she knows that the Miners do not intend to let her do anything to them) but she is going to TALK to the conservative Premiers, say 'pretty please' and ask them to drop their Mining Royalties. The Premiers, of course, will play very hard ball, despite the fact that the Royalties are not a tax the Miners like at all, nor do economists, and Gillartine and SwannieRiver will be forced to do some deal which will cost them and the Federal Budget even more money, as they fork out to replace the Mining Royalties for the Premiers from Consolidate Revenue, or more likely, further cuts in the Public Service and services to the Public. Gillartine and SwannieRiver will do what they can with all this to supplicate to the voters in Western and SW Sydney, because. believe me, that seem now to be the only voting group that interests the Labor Party. Still no word from the Gillartine and SwannieRiver on what or who now is going to pay for the promises of goodies to come from the first estimated (I do wonder!) income from the MRRT, which do amount to some billions.
In truth, there are hundreds of Middle Class/Rich welfare boondoggles left over from the Howard/Costello years which would go a long way to pay for the shortfalls, but of course, a fair smack of that Middle Class used to be Labor voters, but no more. Labor wants them back, so is not likely to bite their wallets, and the Rich are very good at protecting their ill-gotten gains with advertising dollars. Just look at the Private Education System, ripping billions every year from the Public Purse, but seemingly untouchable by a Labor Govt. full of fundamentalist Religionists, and a supposedly atheist PM grovelling madly to the Religious Far-Right.
A floated balloon from Labor regarding making the Superannuation Industry a little more just got a very hostile reaction, so now the Gillartine and SwannieRiver are backtracking madly. The Superannuation industry as a whole is a massive boondoggle, but it is a LABOR boondoggle. Therefore, has a lot of built in protection in the Labor ranks. As we can well see, putting the money into Credit Unions and being intelligent, would have see almost everyone much better off. I am not talking about the RICH here, they were given the opportunity to use it as a Tax Haven, and took it with open arms. This should be stopped immediately. If we want savings that are used on Infrastructure in Australia, to produce jobs and income in Australia for Australians, then Superannuation IS NOT THE ANSWER! Most of those Super savings have gone overseas searching for the biggest return, and getting their (and our) fingers burnt to the bone during the GFC, an American boondoggle of massive proportions.
Unfortunately, do not look for succour from the Abbott camp. He and his mob of thugs are just as good, or maybe even better, at looking after their mates in Big Business, and the Private Education Industry, and are all at sea anyway. What a ragged mob of dumbkopfs.
I know that both Labor and the Coalition are madly beating up on the Greens now, with the full assistance of the Murdoch and Fairfax Media, to try and kill them off.
Labor is doing just about anything to differentiate itself from anything that can be seen as remotely Green leading up to the election. Just look at Far Right Winger Tony Burke, supposedly Environment Minister, but actually, with his mate Martin Ferguson, Minister for Helping Miners Rip the Country Off, in the last few weeks giving the Miners everything they have ever asked for. Both these Ministers are likely to be out of a job in September, and looking for new employment with a very high income return, and one good turn seems to deserve another, as we can see from NSW.
We are led by very much second rate people, because WE have elected 2nd. rate people to tell us what is best for us.
What we need in our Parliaments are unaligned Independents, lots and lots of them,
who are interested in representing US, not factional warlords of either major party, and a Party, the Greens, who do not take money from the Multinational Corporations and the Filthy Rich Billionaires who are paying for services to be rendered, then, and only then, will have any chance of having GOOD GOVERNMENT.
SO I do urge all voters in September, and at any time, to vote intelligently, NOT for pretty faces, or promises that are never intended to be carried out.

outrider
Posted Wednesday, February 13, 2013 - 17:39

Outrider
This botch-up is standard for a Labor party with no experience outside a union or an electoral office. Swan and Gillard would no idea of corporate finance (apparently nor did Ben Eltham). Presumably Treasury are not much better, although we cannot dismiss that their advice may have been disregarded.
Their best source of advice would have been merchant bankers or a big accounting firm But would they have been prepared to risk offending the mining industry?
If the ALP had someone like Turnbull with his experience, a reasonable MMRT would now be operating.

thomasee73
Posted Friday, February 15, 2013 - 09:02

Dr Polya,

With respect, I strongly suspect that your apparent "obsession" with Palestine is almost certainly way past being counterproductive. This note is an attempt to provide some constructive feedback that may or may not be useful to you.

I'm very sympathetic to your general orientation on the subject matter, and suspect that I'm generally pretty tolerant when it comes to listening to other views. The matter may or may not be THE most important issue to ever confront the modern condition, but I started ignoring your repetitive postings a long time ago. Perhaps you are trying to spread awareness among people who have not yet seen your views six dozen times already, but even if there is a strong connection between mining and US imperialism, a short note would be an appropriate reminder rather than using the topic as an excuse to promulgate your controversial thesis in detail.

Whether or not what you say is true, important, insightful or accurate, your repeated postings on the same subject matter containing the same content seriously undermine, in my reasonably considered opinion, your credibility.

At least out of respect for your message, take a good hard look at how you are presenting and communicating. I presume you want to make a positive impact on the debate, but without sufficient credibility to be even given an audience, your behaviour is at best irrelevant, and at worst harmful to the interests that you claim to support. Of course, there is always the possibility that you are communicating in bad faith and that this last effect is your ultimate intention. If it is, you're doing a good job. If not - for the sake of being an effective constructive contributing participant in political society - smarten yourself up.

If you are a doctor, then you're clearly not stupid, but perhaps it would be useful for you to consider why a large number of people, many who are not nearly as smart as you are, don't see political issues as clearly and as crisply and as obviously straighforwardly as you do. The lesson from HG Wells, The Country of the Blind, might be relevant for you.

This user is a New Matilda supporter. dazza
Posted Friday, February 15, 2013 - 13:34

Anyone trying to let israel off the hook for a world control of absurd proportions surely would have to have not followed the ongoing saga of the dual citizenship person (Australia-israeli) who seemingly got mixed up with the israeli Mossad, did not like what he saw of their activities, and was perhaps going to 'go public' with the information, got caught by Mossad, and banged up in solitary confinement for the rest of his life, totally incommunicado. Only the occupiers of Palestine would have had the gall to just lock this bloke up and throw away the key, get a quiet word to their fellow travellers in Australia, ASIO, and KNOW that nothing can be done by anyone to save this bloke from death in a cell in israel (Palestine) and as far as they are concerned, he just never existed and never will again.
He died, probably at the hands of Mossad, in 2010, it seems, in a totally controlled environment cell, under total physical and video observation, 24 hours per day, without a single person observing this, or a video recording it. Yeah, Right!
Took 3 years for word of his imprisonment and subsequent death to percolate to the minds of the Australian Government, and even then, it was hushed up. Called National Security!
Whose National Security???? Australia's??
I am fairly certain that the US Administration knows of the circumstances of the imprisonment and death of this man, but as usual, anything that the israelis/zionists do is OK with America. They kept absolutely quiet.
It may well be that certain members of the Jewish community in Australia have been kept up to date also, some suspicion that the Australian Jewish community was feeding young Jewish (presumably) men and possibly women into israel/Palestine for clandestine reasons, assisting Mossad, as all Jews the world over are required to do at all times. The PRIMARY allegiance of all Jews is to israel/Palestine, not to their host countries. Some could call them traitors.
Bit I am absolutely disgusted, if not surprised after other Australians overseas who have been abandoned by the Australian Government, that now we have another member of an Australian community, a holder of an Australian Passport, who has been forsaken by Australia. At the behest of israel, with America looming in the background. WE OBEY!
An did I note that OUR Government is looking to encourage heavy investment in israel, the occupiers of Palestine? That is about as bad as selling them weapons, as if they needed them, as they make their own, or get them free from the USA.
It is a great wonder that we do not just GIVE them our Passports to be used by Mossad spies. After all, they have been stealing them, and from NZ, for many years, without our Government doing other than have a sniff when they are caught out.

This user is a New Matilda supporter. DrGideonPolya
Posted Friday, February 15, 2013 - 20:48

The allegiance of decent, anti-racist Jewish and non-Jewish Australians is to Australia period.

However one must seriously question the commitment to Australians of the pro-Zionist , US lackey Labor Government which did nothing when an Australia citizen was held in secret, tortured by 10 months in solitary and then either murdered by the Israelis or, as the endlessly lying Israeli claim, committed suicide - apparently for wanting to tell the truth about Apartheid Israeli crimes against Australians.

For details of the pro-Zionist-led, US-approved, Mining Corporation-backed Coup against our most popular PM see the account by outstanding anti-racist Jewish Australian writer Antony Loewenstein (author of "My Israel Qustion" entitled "Does the Zionist Lobby have blood on its hands in Australia?": http://antonyloewenstein.com/2010/07/02/does-the-zionist-lobby-have-bloo... ) .

Who would decent Australians rather believe, the likes of outstanding Jewish anti-Zionists such as our first Australian-born Governor -General Sir Isaaac Isaacs, outstanding anti-racist Jewish Australian writer Antony Loewenstein, and numerous other outstanding anti-racist Jewish Australians (see "Jews Against Racist Zionism": https://sites.google.com/site/jewsagainstracistzionism/ )OR the pro-Zionist Lib-Labs repeatedly putting the vile interests of a genocidal , nuclear terrorist, democracy-by-genocide, rogue state, Apartheid Israel, before that of Australians?

Peace is the only way but Silence kills and Silence is complicity.

This user is a New Matilda supporter. dazza
Posted Saturday, February 16, 2013 - 12:55

Dr.Polya, I appreciate that some Jews in Australia are NOT Zionist and Racist, but I am referring to information in a book written by an ex Mossad person (he escaped to Canada to write the book, and lived in fear of his life for some years) who said that no matter where Jews are in the World, or what they do, if Mossad comes calling, that person or persons MUST assist Mossad, as required. They have various ways of making sure of compliance, including threatening families and friends. Maybe this person was wrong, but as an ex Mossad Agent (full blown) he was pretty sure of his facts. He had no family, and originally loved israel until it all got too much, and left in disgust. He worked in most European countries as a Mossad Agent, and actually USED a few of the Jewish people in those countries to spy and act (he never admitted to killing), so he should know.
In America, quite a few of the pro-Zionist bodies actually work against the interests of America, always prioritising israel. Quit a few in Congress do this every day. Does this not happen in Australia? I wonder.
Remember a bloke, Mordecai Vununu, worked in the israeli Nuclear Bomb business, got pissed off with it, spoke to a foreign journalist, went to Europe, got kidnapped by Mossad in Italy with the aid of a female accomplice, and smuggled back to israel (with Italian assistance) and got gaoled for the rest of his life. No charges laid, no trial. After 20 or so years, he was released to Home Detention, but again spoke to a foreign journalist, and has since been 'disappeared' again. Certainly, I have never heard him mentioned for years. Do not even know if he is still alive, probably not. I just tried Googling his name, nothing beyond a small article of mine back in May 2009, here in NM.
The israelis are very good at 'disappearing' people, and they have world-wide reach.