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Labor's mining tax, a policy shemozzle indeed

By Chris Lewis - posted Monday, 29 October 2012


Labor's mining tax debacle provides another example of a policy failure explained by poor government skills. The mining tax that began operating from July 2012 reflected the fact that Labor's poor consultative and communication abilities proved incapable of overcoming concerns over the level of overall taxation for miners and federal-state/territory fiscal arrangements..

First, Labor distorted the truth when bidding to win public support for a 40 per cent mining tax that would be charged on profit. Treasurer Swan accused the mining companies of lying with their claim that their effective tax rate would increase to around 55 per cent during early 2010, yet, later, freedom of information requests obtained a note from the Treasurer's office, dated February 2010, that indicated an awareness of an "effective rate" of 55 per cent (The Australian, 12 March 2011).

While Labor argued that the miners had not paid enough tax over the previous ten years, Access Economics calculated that the total tax bill of miners since 1999 had been $78 billion in Australian. More specifically, it had increased to $20.1 billion in 2008-09 from just $2.64 billion in 1999 (The Australian, 4 May 2010). Rio Tinto alone paid $4.8 billion in royalties and corporate tax in 2008, up from just over $1 billion in 2001 (SMH, 17 May 2010).

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Labor also played the foreign ownership card, but the CEO of BHP Billiton (Kloppers) pointed out that, under the proposed tax, Australian mining companies could pay twice the total tax rate of companies in other major mining countries like Canada, Brazil, China" (The Australian, 10 May 2010); with a potential 57 per cent rate comparing unfavourably with rates of 37 and 22 per cent in the US and Canada respectively (SMH, 10 May 2010). A KPMG report also predicted that, if the new tax was approved, billions of dollars of new gold, nickel and copper mines would be scrapped (The Courier-Mail, 3 June 2010).

It is also interesting that support for the Australian miners came from foreign politicians, with Canada's Finance Minister, Jim Flaherty, declaring that Australia's mining tax could give his country a competitive advantage in the global resources market at a time when Canada was reducing corporate tax rates (SMH, 8 May 2010).

Second, there was never uniform support for an overall increase in mining company taxation, with many key players supporting a mining tax only on the basis that it was driven by efficiency and revenue-neutral motivations. Mathew Stevens, writing for The Australian during August 2008, declared: "there is an absolutely valid argument for the consistency and simplicity" of a commonwealth-wide tax that replaces state royalties, as long as it would be essentially revenue neutral and the reform accompanied broader taxation reform such as cutting the corporate tax rate (The Australian, 6 August 2008).

The Mining Council of Australia (MCA), whose members included BHP Billiton and Rio Tint, also made a submission to the Henry Review supporting a mining tax on profits, rather than on revenue, on the basis it better reflected the sharing of risk between mining companies, developing a resource, and the government, which owned it. The MCA acknowledged that the current royalty regime was an incoherent mess, with the states having varied rates for 42 different mineral products, and with some royalties based on the value of production and others set at a fixed amount per tonne, regardless of its value (The Australian, 24 August 2009).

Third, there was always immense state/territory government opposition to the potential loss of mining royalties; a source of revenue that delivered five states and the Northern Territory $7.8 billion in 2007-08, compared with $2.5 billion in 2004-05 (The Australian, 6 August 2008),which remains to this day. So, in June 2009, Western Australia's Barnett Coalition government warned Labor to keep their hands off its multi-billion-dollar mining royalties, while declaring: "if they want to impose a royalty-type mining tax, they can do so under the corporations power, but it would be a tax on top of state royalties" (The Australian, 9 June 2009). The Queensland Labor government, in its 15-page submission to the Henry review, also ruled out handing over control mining royalties, along with gambling and payroll taxes, in any change to Australia's taxation system (The Courier-Mail, 6 July 2009).

Fourth, the government exhibited poor consultation skills. Prior to the Rudd government introducing its proposed Resource Super Profits Tax on 2 May 2010, mining companies argued that Treasurer Ken Henry had not consulted them properly about a mining tax, as they were not invited to Henry's industry roundtable conference, nor had they been personally consulted (The Australian, 18 February 2010).

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During May 2010, a spokesman for Xstrata stated that: "the government has restricted the panel to only discussing implementation issues and it was clearly stated that they will not be consulting on the overall merits of the resource super profit tax, or even key parameters" (SMH, 13 May 2010). BHP's chairman Jac Nasser also indicated that meeting Kevin Rudd achieved very little, given the government refusal to engage in: "genuine dialogue on the fundamental issues" (The Australian, 14 June 2010). The miners wanted the mining tax to: only apply to prospective investment; be internationally competitive and differentiate between minerals; and tax resources, not infrastructure and other activities (SMH, 13 May 2010).

The MCA claimed later that the Rudd government breached the faith of the mining industry in 2010 by publishing budget revenue estimates the month the RSPT was announced. The MCA indicated that the mining industry had been operating under the belief that the government in May 2010 would simply announce "a predisposition towards changing the mining tax system", and that any agreed rate and the targeted commodities would be determined during a lengthy period of industry consultation (The Australian, 27 February 2012).

Swan admitted during March 2012 that the Rudd government hurt itself by locking the miners out of negotiations. He stated: "If we could have sat down in greater detail with the mining industry following our announcement and worked our way through those issues then we might have had a less bloody and bruising experience" (The Courier-Mail, 6 March 2012).

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About the Author

Chris Lewis has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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All articles by Chris Lewis

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