John Menadue. The cost of abolishing the Mining Tax

Just when the mining tax looks like raising some worthwhile revenue, the Coalition proposes to abolish the tax.

The Rudd Government made a mess of the Resources Super Profits Tax (RSPT). We know from the Henry Tax Review and other commentators that such well-designed rent-based taxes are likely to be more efficient and even out the effects of volatile mineral prices. We also know that such taxes are superior to state government royalties.

But the mining companies advertising and public relations campaign of $22 million scuttled the RSPT. For an expenditure of $22 million in lobbying and advertising the miners were saved about $60 billion in tax over the next ten years. Despite the fact that all surveys at the time showed that the majority of Australians supported the RSPT, the combination of the miners, the Coalition and the Murdoch media forced the government to give way.

As Ross Gittins in the SMH of March 17 this year put it ‘A great opportunity was lost for our economy and our workers to benefit adequately from the exploitation of our natural endowments by mainly foreign companies [who own about 80% of the mining industry] our government has to ensure that it gets a fair wack of the economic rent these foreigners generate.’

But having lost the critical battle over the RSPT, the government then introduced a watered-down mining tax called the Minerals Resource Rent Tax (MRRT). In its weakened political state, the Gillard government allowed the three big foreign miners, BHP (76% foreign owned), Rio Tinto (83% foreign owned) and Xstrata (100% foreign owned) to re-design the new mining tax – the MRRT – to suit their interests.

And what happened? The miners were allowed to deduct the market value of existing assets instead of deducting the book value over five years. In this way the miners could maximise their deductions up front. That is why the mining tax has raised far less revenue than expected.

As Ross Gittins has put it ‘Once these deductions are used up, the [mining] tax will become a big earner’. Gittins went on to say that abolishing the tax will be ‘An act of major fiscal vandalism’.

According to the Greens, the Parliamentary Budget Office has advised. that a mining tax of 40%, as originally proposed ,on  all minerals with fixed state royalties and a change to depreciation will raise $35b over 4 years.

It is also interesting to see the continuing strong hold which the miners have over the coalition, indeed over all major parties. There has been media speculation that the May 13 budget would abolish the diesel fuel rebate. The miners mounted strong on the government to drop any such proposal. In a letter to the government the miners said. ‘We have run the numbers on any substantial change to the rebate and the impact would be profound. Most likely far greater than any MRRT and probably a little less than the first mining tax”. So the miners win again. The fuel rebate will be unchanged. Persons with disability, pensioners, the unemployed and the sick will not have such luck.

See below polling which shows strong public support for mining taxes.

(See my blogs of October 17, 2013 ‘Short-sighted miners …’ and February 18, 2014 ‘The squandered mining boom’.)

 Public attitudes towards mining taxes from Essential Research

Re RSPT

  • In May 2010, 52% approved higher taxes on the profits of large mining companies and 34% disapproved.
  • In the same month, 43% said they supported the RSPT and 36% opposed.

Re MRRT

  • In November 2011, 50% approved the tax and 28% disapproved.
  • In April 2012, 56% approved the tax and 28% disapproved.

 

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