30/11/2011 - 11:18

States throw down gauntlet over royalties

30/11/2011 - 11:18


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It’s not only Liberal state premiers who are making Julia Gillard’s life tough when it comes to the mining tax.

It’s not only Liberal state premiers who are making Julia Gillard’s life tough when it comes to the mining tax.

THE Queensland government led by Premier Anna Bligh has gazumped Prime Minister Julia Gillard with a tactical move on royalties just as the mining tax has been shoe-horned through the lower house via a bunch of backroom deals.

Ms Bligh last week announced that half the royalties from her state’s new LNG industry would be re-invested in an education trust fund.

While not directly affected by the MRRT per se, the federal government’s suite of resources sector tax reform includes changes to the Petroleum Resource Rent Tax to cover onshore gas production. This is the point at which Queensland’s coal seam gas sector will be hit.

While I remain opposed to the mining tax on the grounds that: a) the federal government already gets 30 per cent of the so-called super profits mining companies earn via corporate tax; and b) there are already state royalties, I have to admire Queensland Labor’s strategy.

Part of the mining tax arrangement requires that state governments don’t raise their own royalties. This is not something the federal government has direct control over, so it is threatening to use levers such as GST allocations and infrastructure funding to stop the states eroding the profitability of mining companies, and therefore the tax itself.

The federal government’s argument is that the mining tax is fairer because it taxes profits and distributes the wealth to all Australians.

This feel-good statement ignores a few constitutional issues, which no doubt will be played out in the courts regarding who actually owns the wealth in the ground and the fact that the federal government wants to tax miners twice.

Nevertheless, miners and mining states have a formidable task to win hearts and minds in what is essentially a battle over piles of money. 

One of the key federal government messages is that greedy foreign-owned miners are hoovering up our nation’s wealth and will leave us destitute when they are finished; or something like that.

This is a one-sided message that ignores the federal government’s plans for the money, which include a tax cut for all businesses – presumably the mining companies as well – and a 33 per cent increase in superannuation benefits for all employees.

As I have previously mentioned, I see this of dubious value. A drop in company tax is only attractive to foreign investors while the locally based business owners end up simply paying more personal tax on the profits saved from lower company tax.

And the increased superannuation levy might at least be a long-term benefit to Australians but it is actually being funded by employers, who will all be told that it doesn’t count as a pay rise by newly empowered unions. Furthermore, employers will have to pay this 12 per cent whether or not another tonne of ore or drop of oil is extracted from our resource rich earth. 

I suspect any other mining tax money will be scattered to the four winds as election pork, hardly living up to any mantra about leaving something for the future.

And that is where the Queensland approach is a strong political strategy to combat the kindergarten logic of the mining tax as a way of securing Australia’s future.

Education, as I have written before, is the only way a nation can really build its asset base. Resources may or may not have lasting value, while human labour in the form of manufacturing has a habit of being overtaken by technology.

So creating a sovereign wealth fund from royalties to be used in educating future Queenslanders is pretty smart. When Ms Gillard tries to penalise Queensland for raising royalties, she will be threatening the education opportunities of its future generations – the ones we are supposedly protecting by stopping the minerals wealth being spend by greedy miners and, via the carbon tax, stopping the nasty energy producers from polluting.

That is tactically challenging.

Ms Bligh has an advantage over other states in this area in that the royalties she is ring-fencing are those attached to LNG, which is a future industry for the state. In other words, it is money that hasn’t yet found its way into the everyday spending of her government.

Furthermore, that industry is under attack from Ms Gillard’s political partners the Greens and getting projects under way has been severely hampered due to deals done with independents. So now, every time a gas project is delayed due to federal government studies, it will be hurting future education.

Western Australian Premier Colin Barnett does not have the luxury of a new resource industry to treat like this. Royalties have been rising rapidly, but incrementally.

Mr Barnett has also committed to projects including a football stadium, which doesn’t quite take the moral high ground in the same way an education-focused sovereign wealth fund does.

Of course, WA has a right to use its new-found wealth to build a stadium – Melbourne built its infrastructure from the profits of a protected manufacturing sector which every Australian paid for when they bought a car or item of clothing in the past. There was no manufacturing super profits tax to redistribute the wealth in those days.

Nevertheless, Queensland has hit on a strong argument that will make things more difficult for Ms Gillard to attack, especially when she needs seats in that state to survive in government.


OF course, education is something that this federal government has unwittingly undermined in just a short period of time.

The recent decision by several leading universities to cut costs and sack hundreds of staff appears to be a direct result of the federal government’s poor policy when it came to foreign students, a cash cow that has underwritten tertiary education and created thousands of teaching jobs.

Our students and teachers benefitted from the income received from foreign students who paid the real cost of education. But visa restrictions designed to crack a nut with a sledgehammer have taken a huge toll on the tertiary sector – the very industry we need to become the clever country and help us maintain our competitive advantage.

This poor policy was enacted when Ms Gillard was education minister.

While the government has back-flipped to a certain degree and sought to free-up visas for students who want to study at university, it is too late to stop a major slump in the sector and its moves won’t help the English language and vocational sectors that often feed into the universities.

Just why a government which seems to want Australia to be smart, to export and lead the way in a future industry such as education would do so much damage is hard to imagine.

But all the mining taxes in the world won’t repair the reputation of Australia’s education sector, which grew in response to world demand for what we had to offer.

• mark.pownall@wabn.com.au



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