10/04/2012 - 08:52

Analysis: the great tax shortfall

10/04/2012 - 08:52


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Comrade Colin has a pleasing sound to it, but it is unlikely that the Western Australian Premier, Colin Barnett, really has developed communist tendencies despite his curious threat to stage a rare strike by an Australian State Government.

The message Barnett sent last week in his threat to “leave the minerals in the ground” was a protest about Canberra’s tax grab, specifically the reduced GST share, but also about the mining super-tax and the carbon tax.

His threat, while not quite the same as a union official calling “everybody out”, was a reminder that it is the State which has to provide essential services such as roads, schools and hospitals to miners working in remote areas, and if Canberra takes more than its fair share of tax then the State cannot afford to provide those services, hence it would be better to “leave the minerals in the ground”.

Barnett embellished his tax protest by accusing the Australian Government and other States of “stealing money from WA and spreading it amongst themselves”.

In a sense, he’s right. But, more importantly he has identified the issue which will do more than anything else to slow economic development across Australia, and produce a cash crisis for Canberra.

Tax is the issue, and with the Australian Government desperate to try and keep its promise of a budget surplus next financial year it is determined to squeeze every possible dollar out of the States, and the Australian business community, to achieve its goal ahead of next year’s national election.

GST is Barnett’s specific complaint, but the issue which has probably caused the biggest scare in Canberra is the realisation that its second attempt at a super tax on mining, the Mineral Resources Rent Tax (MRRT) is shaping as a disaster.

Two immediate problems have hit the MRRT.

The first is that volumes of coal exports are down thanks to continued heavy rain and industrial action in Queensland with the world’s biggest coking coal exporter, the BHP Mitsubishi Alliance (BMA), declaring “force majeure” – a legal declaration that events beyond its control make it impossible to fulfil contracts.

The second is that prices for coal and iron ore have fallen over the past year, and look like they could continue falling as global economic growth sputters.

It is the second issue which will be causing panic in Canberra, particularly among the boffins in Treasury who designed the mining super tax, both in its original and revised form.

What they did, and it could one day be seen as the biggest policy mistake in Australia’s history, was to base the MRRT on profits rather than revenue, and then promote the tax on the basis the boom would last forever.

At the time of launch, the super tax was hailed as a way for Australian taxpayers to share in the boom-time profits of the mining industry. The problem with that claim is that a tax based on sharing the profits also means an opportunity to share the losses.

Australia’s big miners, the current target of the MRRT, are still handsomely profitable, but not to the extent envisaged by Treasury, and potentially far below what Treasury expected after the miners write down their profits using depreciation and other allowances.

It is the hole in the MRRT which has caused Canberra to plan yet another change to the structure of the tax in next month’s budget.

But, tinkering at the edges of the mining tax will do nothing to repair the fundamental flaw of attaching the tax to profits, a mistake which State Governments have avoided for decades by taking their royalties from revenue, leaving the tricky question of profit for someone else to work out.

Barnett’s threat to “leave the minerals in the ground” is simply the latest protest at the tax mess created by Canberra’s frantic dash to raise revenue in any way it can in an attempt to replenish an empty treasury caused by five years of poor spending control.


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