27/05/2010 - 00:00

Time to elevate the tax debate

27/05/2010 - 00:00

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The debate over the resource super profits tax has degenerated into an unedifying spectacle.

AUSTRALIANS are used to the sight of politicians calling each other silly names and engaging in fights that bring no credit to their roles.

Unfortunately the debate over tax reform in Australia has led to the business sector being dragged into the same kind of political scrap.

Treasurer Wayne Swan has accused mining executives of engaging in “calculated and deliberate misrepresentation” and dismissed industry criticism as “a very big, very well-funded scare campaign”.

He has claimed the campaign is the work of a noisy minority, presumably led by BHP Billiton’s Marius Kloppers and Fortescue Metals Group’s Andrew Forrest.

“These last three weeks (we) have seen a few very noisy companies, and many more very quiet ones,” Mr Swan said on Monday.

How wrong he is.

The proposed tax has stirred up industry anger in a way that very few proposals have done in the past.

Literally dozens of mining companies have publicly declared their opposition to the proposed tax.

The vigorous debate has led to Mr Swan making some extraordinary claims in the name of clearing up what he calls RSPT myths.

In particular, three weeks after delivering one of the biggest policy shocks in decades, he claimed straight-faced that he was delivering stability.

“The stability of the RSPT will also give miners certainty going forward, in contrast to the current situation where state royalties are subject to unpredictable change,” Mr Swan said on Sunday.

He also repeats the comment that the industry itself asked for a profits-based tax. That may be the case, but nobody in the industry asked for a tax of this kind.

The proposed tax is extraordinarily complex, a fact illustrated by the article on the facing page, where Treasury Secretary Ken Henry mounts a defence of the tax he played a key role in designing.

As I have argued in previous weeks, it is possible to discuss the tax’s theoretical elegance and purity, but that is no defence for a real-life policy proposal.

Mr Henry rightly points out that many criticisms of the RSPT are incorrect, and arise because the critics mistakenly assume that the proposed tax is merely a variation on the existing petroleum resources rent tax (PRRT).

In practice, the two taxes are fundamentally different, but Mr Swan and other ministers who are meant to be explaining the new tax either don’t understand or deliberately ignore that.

On Sunday, for instance, Mr Swan said the industry scare campaign has unfolded “in much the same way it unfolded when a similar 40 per cent profits-based tax was introduced on petroleum over two decades ago”.

Wrong, Mr Swan. Beyond the rate, it is not similar. He should read Mr Henry’s speech closely to appreciate the differences.

“The RSPT has a very different structure from the PRRT, most notably in its treatment of losses,” Mr Henry’s speech stated.

The number of myths that continue to be promoted in this debate is scary.

Mr Swan continues to claim that the oil and gas industry “went on to grow and flourish” after the PRRT was introduced, completely ignoring the fact that nearly all of the industry’s growth has been due to the North West Shelf venture, which is not subject to the PRRT.

The treasurer’s comments also ignore the assessment of Woodside Petroleum chief Don Voelte, who said the company would not be proceeding with its growth projects if it was subject to the proposed tax.

The mining companies are not blameless in this debate.

Queensland entrepreneur Clive Palmer lacked credibility when he said he was putting on hold projects that nobody had previously heard of.

FMG has also said it was putting projects on hold, yet the timing and scale of its projects have changed many times over recent years.

These comments will, to some degree, play into the hands of the government, but they don’t change the fundamentals of this debate.

The new tax is a $9 billion per annum impost, it will apply retrospectively to existing projects, and will undoubtedly make Australia a less attractive investment destination.

That doesn’t mean we can’t have a debate about the resources sector giving more to the community, whether that be through taxes, royalties or some other means, but the RSPT is clearly not the way to do it.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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