19/04/2012 - 10:32

FMG fights MRRT in court, media

19/04/2012 - 10:32

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Andrew Forrest has stepped up his battle with the federal government over the mining tax by releasing details of a compromise package he says was negotiated with former prime minister Kevin Rudd.

The Fortescue Metals Group chair said he had reached an in-principle agreement to take to industry with Mr Rudd before he was ousted from office in July 2010.

Mr Forrest said Prime Minister Julia Gillard and Treasurer Wayne Swan had accepted a “weak, complicated and unfair” tax that provided no incentive for private investment in infrastructure.

“The then Deputy Prime Minister Julia Gillard and Treasurer Wayne Swan were aware that a significant member of the mining industry had resolved to accept the full RSPT 40 per cent tax obligation, if mitigated by investment in infrastructure that could be utilised by third parties or for public benefit, everywhere in Australia,” Mr Forrest said in a statement today.

“The Treasurer met with members of the multi-nationals and considered an entirely different proposal.

“Instead of allowing RSPT deduction against new investment in common user infrastructure, the Treasurer chose to allow a deduction against the value of the large miners' assets.

“Hence the expression ‘stealing from the poor and giving to the rich’ of the secretly crafted MRRT.”

BC Iron managing director Mike Young, who played an active role in industry’s response to the proposed impost, said the Forrest-Rudd proposal aimed to create an opportunity for consultation with all of industry, including junior miners.

Mr Young said the proposal would have encouraged the private sector to increase spending on infrastructure in places where it was badly needed.

“Compared to paying 40 per cent additional tax, the opportunity to put infrastructure assets of all types on respective companies’ balance sheets is clearly a much better deal,” he said.

“Companies that are incentivised by the requirement to deploy capital in the most efficient manner will see a less likely ‘wastage’ of funds, as companies are clearly more accountable than governments in their use of funds.

“The Rudd-Forrest plan would have allowed companies to build badly needed infrastructure for their mines, the communities and the regions as and when needed.

“This would have had the effect of fostering growth and delivering a share of the boom to all.”

Fortescue today also confirmed it would launch a court challenge to the mining tax, but Premier Colin Barnett said the government would not join the challenge, but would seek to appear in court to present its point of view.

"Our purpose for doing that is to protect the ownership of the natural resources in this state which belong to all Western Australians," Mr Barnett told reporters.

The premier said most legal opinion was that a High Court challenge to the Mineral Resources Rent Tax was unlikely to succeed.

But he said there were constitutional grounds for such a challenge.

The Prime Minister dismissed Mr Forrest’s attack today as a  “conspiracy theory”, saying it was “rehashing of old nonsense”.

Ms Gillard also sunk the boot into mining companies today, for re-launching an advertising campaign attacking the government over taxes.

The Minerals Council last week resumed its Keep Mining Strong campaign, breaking a truce negotiated by Ms Gillard in mid-2010 after she ousted Kevin Rudd and sealed a deal for a revamped resource profits tax.

Ms Gillard said the government had gone out of its way to consult with the resources sector on tax reform, following a tax summit last year and the formation of the business tax working group.

"I find it grossly unfortunate that when we are in a consultative process as open and transparent and inclusive as that one, that we have seen a rush to judgment and rush to print in the form of advertisements," she said in response to a question from an Atlas Iron executive.

"I don't see why ... you would be reacting in any other way than to welcome the fact the government is engaged in such an open process with business right at the table."

 

Full statements from Andrew Forrest and Mike Young can be found below:

Mr Forrest:

The non-denials and obfuscation by the Prime Minister and the Treasurer relating to the key events that led to the previous Prime Minister's removal from office need to be addressed.

It cannot be dismissed as “a conspiracy theory” by the Treasurer or as “rehashing of old nonsense” by the Prime Minister. It is a matter of fact that there was an agreement in principle, taken at the highest levels of the Australian Government, to discuss with industry.

The role of the multi-national miners' advertising campaign can also not be underestimated.

The then Deputy Prime Minister Julia Gillard and Treasurer Wayne Swan were aware that a significant member of the mining industry had resolved to accept the full RSPT 40% tax obligation, if mitigated by investment in infrastructure that could be utilised by third parties or for public benefit, everywhere in Australia.

The Treasurer met with members of the multi-nationals and considered an entirely different proposal. Instead of allowing RSPT deduction against new investment in common user infrastructure, the Treasurer chose to allow a deduction against the value of the large miners' assets. Hence the expression "stealing from the poor and giving to the rich" of the secretly crafted MRRT.

The Treasurer also communicated this latter proposal to the then Deputy Prime Minister Gillard which came with the offer to cease the multinational advertising if it was accepted.

History now records the new Deputy Prime Minister Swan and new Prime Minister Gillard chose a 22.5% tax that offered those who negotiated the massive protection described above. They chose a weak, complicated and unfair tax that had no infrastructure incentives, and Australia remains an infrastructure poor country.

Had this first proposal been accepted instead of the Treasurer's MRRT, Australia would have become more prosperous with higher general standards of living for her people.

Prime Minister Gillard and Deputy Prime Minister Swan took the decision to cease all negotiations on the infrastructure proposal, despite its advanced nature, and instead pursued a tax scheme much less attractive to the Australian public, but which promised to silence the multinationals' advertising campaign.

The Robin Hood-in-reverse proposal was used to remove a democratically elected Prime Minister from office by the promise of stopping the advertising campaign. They later announced it to the Australian people as though it was a post appointment breakthrough.

In my opinion, the furtherance of their own careers as opposed to the furtherance of the economic and standard of living interest of the Australian people was their primary motivation.

Mr Young:

Firstly, and what I really appreciated about it was that the Rudd-Forrest aimed to create the opportunity for consultation with industry; all of industry, including the junior miners.  

Fortescue's proposal was weighted towards tax deductibility for infrastructure built rather than resources in the ground which are at the time of the tax event, unmined. Therefore it encouraged the private sector to build badly needed infrastructure in places where it was needed. This idea is consistent with previous agreements such as the WA State Agreements wherein the companies were provided tax relief to input costs and security of tenure in exchange for building infrastructure and providing third party haulage.  

Compared to paying 40 percent additional tax, the opportunity to put infrastructure assets of all types on respective companies balance sheets is clearly a much better deal. Companies that are incentivised by the requirement to deploy capital in the most efficient manner will see a less likely "wastage" of funds, as companies are clearly more accountable than governments in their use of funds.

Large infrastructure projects should never be managed by government, as they have no incentive to manage these projects efficiently. It is a fact that the economy is better served, as has been proven by the strength of the Australian mining sector on a global scale, when mining companies lead the investment boom in infrastructure - something that should be promoted not handicapped. The funding required by the mining sector on infrastructure would quickly dwarf the size of the Federal Government Future Fund, which is why the public purse should not be used for this and instead the mining sector should be incentivised to fund this and manage its development, which would also reduce wastage often seen in cases of government management.

Ironically, the Federal Government is conducting an enquiry into FIFO work forces and the effect of strained infrastructure! Under the Rudd-Forrest plan, a lot of the issues now being discussed could have been alleviated. 

Compare this to the basket case that is the MRRT.  A tax of variable tax take, being tied as it is to commodity prices, being used to pay for promises wherein the costs are fixed and unrelated to commodity prices. Furthermore, these commitments can be unwound; infrastructure, once built, is there for good. 

The Rudd-Forrest plan would have allowed companies to build badly needed infrastructure for their mines, the communities, and the regions as and when needed. This would have had the effect of fostering growth and delivering a share of the boom to all.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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