Let’s not forget the planned mineral resource rent tax is, above all, a big new tax on one of WA’s fastest growing and most dynamic industries.
THE mining sector breathed a sigh of relief last Friday when the resource super profits tax was officially buried and replaced with a toned-down policy.
In many respects, the new policy was a big win for the industry, which launched an aggressive advertising campaign against the original proposal.
The industry campaign, and the wide community disquiet, was the final and decisive nail in former prime minister Kevin Rudd’s career coffin.
His replacement, Julia Gillard, has played a deft hand, quickly negotiating a compromise that required Treasurer Wayne Swan to climb down from what had been non-negotiable terms, including the 40 per cent rate to apply to the new tax.
Ms Gillard has effectively neutralised the mining tax as a political issue, and she is proceeding to do the same on the issue of boat people.
As discussed last week, this is likely to be followed quickly by the calling of a federal election, with most pundits agreeing on late August as the likely date.
The generally positive response to the new minerals resource rent tax was helped by the friendly response from BHP Billiton, Rio Tinto and Xstrata, the three industry giants that negotiated the deal.
“The companies agree that the proposal presented by the government represents very significant progress towards a minerals taxation regime that satisfies the industry’s core principles,” they said in a joint statement issued last Friday.
“The companies will continue to work constructively with the government to ensure that the detailed design of minerals taxation maintains the international competitiveness of the Australian resources industry into the future.”
BHP chairman Jac Nasser followed up with a letter to shareholders this week saying the proposal was encouraging.
“A good foundation has now been established on which an effective tax can be implemented,” Mr Nasser said.
The polite industry response says a lot about how damaging the original RSPT would have been, and the sense of relief that a less damaging proposal has been negotiated.
It was also clear that Labor was committed to a new profits-based tax, of some form; that really was non-negotiable.
Recent community research shows that there is support for lifting the industry’s tax contribution, so Labor seems to be tapping into a widely held sentiment (see article page 28).
The positives in the new package include reducing the headline tax rate from 40 per cent to 30 per cent, which in practice will be 22.5 after factoring in a new extraction allowance.
The number of companies subject to the new tax has been estimated at 320, though with a $50 million profit threshold before the new tax applies, the number actually paying the tax will be much lower In WA, it will be about a dozen.
The uplift factor used in calculating the tax has also been adjusted up to about 12 per cent –the long-term bond rate plus 7 per cent.
However there are some very serious negatives associated with the tax proposal that haven’t gained much traction in the public debate.
First, it is highly arbitrary and discriminatory in its application. The new MRRT will be restricted to iron ore and coal miners ... at least for now.
What will happen if the nickel price recovers strongly, or when uranium mining grows to be a major industry? Canberra will be sorely tempted to extend the application of the tax.
Second, and very importantly, it represents a big hike in the amount of tax being paid by the mining industry. To be precise, a $10.5 billion increase, if the latest Treasury estimates prove correct.
Fortescue Metals Group chief executive Andrew Forrest called a spade a spade, when he said: “It is very disappointing that, right at the time junior and smaller Australian iron ore and coal miners have managed to develop a foothold in the industry, they are immediately slugged with this proposed new and additional tax.”
That is the reality of the new tax, which will help the federal government bring its budget back into balance after the big spending hikes during the global financial crisis.
It could have been worse, that’s true. But that is hardly an endorsement.