JERRY ROBERTS Mining, taxation and Australia

 

Turning points in political history are few and far between. Election 2019 was not one of them but the failure to instal the mining tax in 2010 was just such a pivotal moment. One of the consequences of that failure was Labor’s fiddly set of tax polices rejected by voters on Saturday 18 May.

The resource rent  tax proposed in Australia in 2010 was an event of world-shattering significance. The mining companies, international financiers and intelligence agencies understood its importance instantly and set up a war-room in Melbourne to fight the Australian government. Their campaign operated at various levels including a massive advertising progamme on nationwide television that made the recent Liberal advertising against Labor’s tax policies look like a gentlemanly difference of opinion.

The crucial character of the moment rekindled my interest in politics and I wrote to then Prime Minister Kevin Rudd outlining a narrative he could use as he led the parliamentary fight against the miners. (Pearls and Irritations 17 October 2017 — The Miners win again). But there was no fight. The Labor Party got rid of the mining tax by getting rid of Kevin Rudd and gave the miners an unexpected bonus by spending the next five years in such a public display of political cannibalism that the nation forgot about the mining tax and the miners laughed all the way to the bank. They are still laughing.

Of all the comments made during this debacle the one that still sticks in my throat came from then Rio Tinto Group chief executive Tom Albanese when he said Australia represented a “sovereign risk.” In the Winter 2018 edition of the Journal of Australian Political Economy Joe Collins of Sydney University explains some of the theory behind the Rio man’s concern. The Journal article is headed “Class antagonism and landed property in the functional distribution of income in Australia.” As the title suggests, it is not light reading but the Parliament and media are full of armchair economists and this should not be beyond the limits of their comprehension.

It is important because recognition of the need for wage rises is the closest thing we have seen to a consensus for quite a while among the world’s economists and the issue was the key plank in Labor’s 2019 policy. Joe Collins introduces his argument thus:” Discerning the causes and consequences of the declining labour share in GDP presupposes some comprehension of why the capital share has increased.”

The Australian Government announced its plan to introduce the Resource Super Profits Tax (RSPT) on 2 May 2010 following the Henry Review of Australia’s tax system, against the backdrop of the Global Financial Crisis. The miners faced their ultimate nightmare — a world full of Norways insisting on obtaining fair value for their non-renewable resources. In the letter to Kevin Rudd and in earlier posts I traced the origins of the legislation to the Liberals’ favourite liberal, John Stuart Mill. following a reference from Nugget Coombs. Joe Collins goes back further to the most learned of all students of capitalism, Karl Marx:

“The Resource Super Profits Tax represented a direct attack on the material basis of the rent relation — the political power to appropriate the rent generated through mineral extraction, processing and distribution. The RSPT was to be retrospectively implemented. What Marx called differential rent type 11 which would normally accrue to the capitalist, by virtue of a fixed rent for a fixed period of time, would now accrue, in part, to the landowner — the State. The flow of surplus-value in the form of mineral-rent would be negligible but the precedent it would set for countries with mineral endowments was unacceptable to Kloppers (BHP) and Albanese.”

Following the backstabbing of Kevin Rudd and the battles between Julia Gillard and Tony Abbot the resource tax was weakened and eventually killed off altogether. “Thus the laws conditioning transfer payments in relation to landed property, following the debates and struggles after the Henry Review, helped to facilitate the transfer of social product from labour to capital in the functional distribution of income in Australia. This arrangement has thereby increased income inequality. Failure to appropriately diagnose the problem on the basis of flawed theories of rent and landed property makes it more likely that the situation will deteriorate further.”

That’s what happens when Government and Parliament fail to rise to the big challenges. They finish up on the floor looking for crumbs under the table, like Chris Bowen with his franked credits, trying to live on the left-overs. The next political leader to try to squeeze some more money out of the miners was Brendon Grylls three years ago in Western Australia where he led the National Party. I know a bit about the West Australian iron ore industry and I could not fault Brendon’s reasoning for increasing the lease fees paid to the State by BHP and Rio:

“Huge gains through technology and innovation resulting in more production with fewer employees mean one of the key reasons for government support of mining activity — the creation of jobs and associated payroll tax revenue — is declining. Adding to this, Singapore trading hubs, favourable tax treatments, international outsourcing of worksite administration and automation of all aspects of the industry have fundamentally changed the resource sector’s contribution to the State …. How different the negotiations with Sir Charles Court might have been over the original State Agreements if the discussions centred on having more workers in Asia than the Pilbara, driverless trucks, robot drill rigs and trains and FIFO (Fly-in, Fly-out) camps in the North West?””

Instead of supporting Brendon’s plan, Labor’s young shadow Treasurer Ben Wyatt attacked it with the arrogance we have come to expect from economists in the neoliberal era. Ben got his comeuppance a year later when as Labor Treasurer he failed to increase royalties on gold mining because he lacked cross-party support. The earthquake in Canberra in 2010 and more recent tremors in Western Australia illustrate the limitations of partisan party politics. The serious business of dealing with international capital requires a degree of consensus across parties. Without it, the City of London will continue to play us off, one against the other, as it has done to our country and others for centuries.

What are the miners doing now? They are following Teddy Roosevelt’s advice. They speak softly and carry a big stick. As viewers may have noticed, BHP and Rio are running a soft-sell television advertising campaign portraying themselves in glowing, glossy pictures as model corporate citizens, producing the copper and iron ore to build our futures, committed to their communities, dedicated to their workers. These advertisements are a loaded gun pointed at the head of any government brave enough to have another go at mining taxes. They are warning the politicians that the soft sell will reverse overnight. The ads will turn feral and we will cop a repeat of the 2010 blitz.

Brendon Grylls is now consulting out of Karratha and we had a chat about mining taxes as we sat in the shade outside the Baler Street polling place in South Hedland on 18 May while the queue of voters stretched out to the school gates. Brendon observed that the numbers are still there to tackle the miners and establish a Norwegian model. But where is the political will?

Jerry Roberts is a former parliamentary reporter and a member of the Labor Party.

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7 Responses to JERRY ROBERTS Mining, taxation and Australia

  1. Is that Bill Johnston Tasi? Plainting is a sport for bandicoots who inhabit West Perth and St George’s Terrace. I worked on the King Bay construction site, now Dampier, as a teenage boy in 1966 and I’ve seen the industry from every other angle since then. The super profits tax in the Henry Review came from a Professor of Economics in Melbourne from whom I would like to hear more. I read an interview with him at the time in the Financial Review and he sounded surprisingly human for an economist.

  2. tasi timor says:

    Jerry. Start from the base of the industry, not the peak. Tens of thousands of West Australians benefit from the activities of the industry before a resource ever reaches production. No reform can succeed where it diminishes the interests of the WA legal profession. That’s why Native Title was acceptable and Land Rights not. It’s why Minister Johnson could claim that no changes are needed to close loopholes on plainting because the system works fine. Even the peak industry lobby groups were amazed at his insouciance towards a practice that breaches the spirit of the law and facilitates wider corruption. Mr Henry’s tax proposals and the suggestion of a Norway style sovereign wealth fund were indeed lionised by the centralists in the Canberra bubble. But it’s not how WA works. Mr Wyatt’s gold tax would have been easier, had he and his staff done the research that most journalists are unwilling to do, and presented it to sympathetic business journalists and the public. That he failed, twice, almost seems as if he didn’t want to succeed.

  3. Hi Rob, you have nailed the main point. Why did not Wayne Swan table the Henry Review in its entirety as soon as he received it and open up a full-scale public debate on Australian directions? Murdoch’s minions have convinced our politicians that voters are incapable of comprehending words longer than one syllable.

    Yet on social issues such as the assisted dying legislation in Victoria our parliaments can conduct interesting, educated and respectful debate. Why are they afraid to discuss the political economy? They can’t pretend that the bankers know best.

  4. R. N. England says:

    The miners (and the vice-chancellors) may be our main hope for defeating the madmen that are destroying our trading relationship with China.

  5. Rob Stewart says:

    Good memory jogger Jerry. If my foggy memory serves, after Rudd was dispatched Gillard handed the mining industry a blank piece of paper and some crayons to draft up its own version of the mining tax. After all, they are the experts, and in the spirit of cooperation and what’s best for “all” Australians, she could trust in the goodwill of the mining industry to come up with a fair and reasonable taxation model.

    We all know what happened. Surprisingly, the was new tax didn’t really raise much revenue – apparently, according to some, costing more to administer than it raised. Meanwhile the LNP cackled, laughed and pilloried Labor for this failed experiment in “rampant socialism” (I like that term – rampant socialism – it’s what Mal Turnbull called calls for a Royal Commission into those good chaps running our banks).

    Totally agree with you about the current Orwellian ad campaign on TV, makes me feel like vomiting. And agree about the crumbs off the table and Bowen’s grand vision tax reform plan. Hemmed in by their own capitulation and obsequiousness to neoliberalism, Labor’s tax “reform” plan was nothing of the sort. It wasn’t too big, too much or too visionary. All it would have done in the main is shift a few bucks from a diminishing middle class to lower income classes. No wonder it was rejected. Rupert and his hyenas had such fun.

    As the grand events of a decade or so ago require memory, we should also remember the Henry Tax reform plan provided many recommendations, recognising the interrelated ness of taxation measure impacts in terms of efficiency, effectiveness, incentives and equity in an economy. At the time Labor grabbed one measure (or was it two?) and chucked the rest on the shelf or into the too-hard basket. Great stuff!

  6. Ted Trainer says:

    Why is it taken for granted that the best option is to let private corporations exploit Australia’s mineral wealth while paying to us a royalty that is a small fraction of the wealth generated? A state owned venture would have to be very very inefficient before it yielded us less than we get now. Are you sure a state-owned venture could not be more efficient than a private one? Marvel at the power of capitalist ideology.

  7. Stephen S says:

    Thanks, Jerry, very useful. That deafening roar is all the miners heading for the exits, terrified at what tough guys Scotty and Tony might do to them. Not.

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