If you want to understand the way power works in contemporary Australia, look no further than the major piece of legislation passed in federal Parliament this week: the repeal of the mining tax.
As we know, the tax was repealed with the assistance of the Palmer United Party in the Senate. The government struck a deal with Palmer in which some minor welfare benefits such as the Schoolkids Bonus and the Income Support Bonus were retained for two years.
Who gains? That’s pretty obvious. Big mining companies. And mining industry types could barely contain their celebrations this week.
The Minerals Council of Australia called the repeal “a major step on the road to Australia reclaiming its status as a globally competitive producer and an attractive destination for mining investment.”
Rio Tinto’s Sam Walsh told Fairfax Media that “this will be a positive step for investment and good for jobs in the mining sector”.
Labor’s Minerals Resource Rent Tax was originally proposed by former Treasury Secretary Ken Henry, in his largely forgotten review of Australia’s tax system. The original idea was for a so-called “resource super-profits tax” which would have taxed more of the profits of mining companies across a range of commodities. Had it been in operation during the boom years of the last decade, Australian citizens might have captured a far larger share of the wealth being dug out of our soil by giant mining corporations.
The RSPT wasn’t to be. The proposal sparked a massive advertising campaign against the Labor government in mid-2010, which many believe directly contributed to Kevin Rudd’s downfall.
Under Julia Gillard, Labor successfully introduced a smaller, narrower tax called the Minerals Resource Rent Tax, which only applied to coal and iron ore. It taxed companies at a lower rate and brought in far less revenue.
The big mining companies were intimately involved in the tax’s drafting. Not surprisingly, once it became law, they were able to write forward billions of dollars worth of tax offsets against it.
Despite all the rhetoric about the MRRT being hopeless at raising revenue, it was still bringing in some handy returns. The Parliamentary Library estimates it would have raked in $1 billion this year, $1.4 billion next year, and $2.2 billion in 2016-17.
$3.6 billion over the forward estimates won’t pay back the national debt, but it’s nothing to be sniffed at.
The government rightly points out that the mining tax was articulated to a range of spending measures. Together those measures actually cost the budget bottom line more than the tax took in. So the ultimate result of the repeal is that the budget will be something like $10 billion better off.
But the government could always have killed off the spending measures and kept the tax. That would have been even better for the budget bottom line.
The appropriate way to deal with the flaws in the MRRT would have been to fix them, so that it brought in more tax. One possible fix was quite simple: removing the offset against state royalties, meaning mining companies could no longer claim their state royalties against their MRRT.
That was never going to happen in a parliament controlled by the Coalition and a minor party run by a mining billionaire.
As a result, the mining tax is gone, and with it, a chance to claw back some more of the non-renewable mineral wealth being dug up and sent to other countries.
Ironically, the most controversial aspect of the mining tax repeal has been the spending measures that were axed along with it.
When Labor originally introduced the tax, it linked it to a series of spending measures on welfare benefits and increased superannuation for ordinary workers. The idea was to use some of Australia’s mining wealth to help lower-income Australians with cash payments and increased retirement savings.
In doing this deal with Clive Palmer, the government will now delay or abolish those measures. The Schoolkids Bonus, Low-Income Superannuation Contribution and Income Support Bonus will all be killed off by 2017. The planned increase to Australia’s compulsory superannuation rate, from 9 to 12 per cent, will now be delayed to 2025.
Who loses? Ordinary Australians. The welfare payments that will be axed were not exactly lucrative, but they were certainly helpful to low-income households. As we’ve long argued at New Matilda, Australia does not have a middle-class welfare problem; our welfare system is tightly targeted and relatively cheap.
The superannuation changes are even worse. They affect millions of wage earners and will result in lower superannuation savings on retirement. According to the superannuation industry – admittedly, a very large vested interest in itself – the changes will result in average income earners being tens of thousands of dollars worse off. According to the Financial Services Council, the reduction in the expected savings pool could be as much as $128 billion.
The worst aspect of the legislation is the abolition of the low-income super contribution. This was a $500 top-up from the government into the super accounts of poorer Australians. It was particularly valuable to citizens who were out of the workforce, such as parents, carers and the unemployed.
As a result of these changes, superannuation becomes even more regressive. Low-income workers who earn less than the tax-free threshold of $18,200 are actually paying more tax on their retirement savings than they are on their ordinary wage. So much for Joe Hockey’s budget rhetoric of “paying it forward”.
The entire decision is a graphic illustration of the power of big mining in Australia. In order to lower the taxes on big, foreign-owned corporations – companies that continue to rake in massive profits from the minerals supposedly owned by the citizens of Australia – the rest of us are going to take a big hit on our retirement savings.
And, as the Greens’ Scott Ludlam has pointed out, the whole thing was possible because of the vote of a party controlled by a mining billionaire. Conflict of interest? Move along, nothing to see here, folks.
Big business pays less tax. Poor Australians pay more tax. Welcome to Australia in 2014.
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