tag:theconversation.com,2011:/au/topics/mrrt-641/articlesMRRT – The Conversation2013-07-17T02:03:58Ztag:theconversation.com,2011:article/160252013-07-17T02:03:58Z2013-07-17T02:03:58ZFactCheck Q&A: towing back the boats and the mining tax<figure><img src="https://images.theconversation.com/files/27791/original/yn49v7tk-1374441006.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Catch up on Q&A from 15 July.</span> </figcaption></figure><figure>
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<figcaption><span class="caption">Catch up on Q&A from 15 July. Source: http://www.abc.net.au/tv/qanda/</span></figcaption>
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<h2>1. Julie Bishop: Australia has the right to return asylum seeker boats to Indonesia</h2>
<blockquote>
<p><strong>“We cannot escape from the fact that they are Indonesian boats with Indonesian crews from Indonesian ports. Of course, you can return them to Indonesia.” - Shadow foreign affairs minister Julie Bishop, Q&A, 15 July. (<a href="http://www.youtube.com/watch?v=u2Q0Yhn7bIA&t=50m40s">Watch the segment on asylum seekers here</a>).</strong></p>
</blockquote>
<p>The pledge to turn asylum seeker boats around “when it is safe to do so” is a central pillar of the opposition’s suite of policies to stem the surge in boat arrivals from Indonesia. Opposition leader Tony Abbott has made the same point as Bishop, <a href="http://www.abc.net.au/7.30/content/2013/s3798648.htm">telling ABC’s 7.30</a> recently that “the facts are that these are Indonesian crewed, Indonesian flagged, Indonesian home-ported vessels that have a right to access Indonesia”. </p>
<p>Abbott and Bishop have made these comments in the context of proposals to “push back” asylum-seeker boats to the edge of Indonesian territorial waters. They had said this will take place whether or not Indonesia specifically agrees</p>
<p>But the above claim is problematic because it fails to appreciate the complexity of interdictions at sea and does not adequately reflect Australia’s obligations under international law.</p>
<p>The first legal principle is that vessels in international waters have freedom of navigation under the <a href="http://www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf">UN Convention on the Law of the Sea</a>.</p>
<p>No single country has jurisdiction over international waters; each vessel carries the jurisdiction and protection of the country in which it is registered. This means that if an Indonesian boat is travelling in international waters, it cannot be boarded or otherwise interfered with by the Australian Navy unless it has the consent of Indonesia, or it can show due cause under international law. </p>
<p>Good cause can be demonstrated by evidence that the vessel is engaged in piracy or the slave trade under the <a href="http://www.un.org/depts/los/index.htm">Law of the Sea</a> (unlikely to be shown in relation to asylum-seeker vessels), or smuggling as defined under the <a href="http://www.uncjin.org/Documents/Conventions/dcatoc/final_documents_2/convention_smug_eng.pdf">Protocol against the Smuggling of Migrants</a>. Interdiction may be possible under the Smuggling Protocol, but this requires interdicting countries to obtain prior permission from the “Flag State” of the vessel (eg Indonesia). This contradicts the suggestion from the opposition that it is not necessary - however desirable - to to obtain the consent of Indonesia in such situations. </p>
<p>To date, Indonesia has said it does not support boats being turned back, but was <a href="http://www.theaustralian.com.au/national-affairs/immigration/jakarta-wont-dictate-our-policy-on-boats-coalition/story-fn9hm1gu-1226679989441">“open to discussion”</a> with the opposition, according to Indonesian foreign minister Marty Natalegawa. </p>
<p>The need for consent prior to interdiction is supported by the practices of other nations. <a href="http://www.refworld.org/docid/4f4507942.html">Italy</a> and <a href="http://www.theage.com.au/federal-politics/political-opinion/abbotts-copycat-towback-plan-wont-stop-the-boats-20130714-2pxyg.html">the United States</a> have interdicted and returned asylum-seeker vessels from international waters (Italy to Libya, the US to Haiti). But this has only happened with the consent of the countries concerned, and usually by way of a formal written agreement. </p>
<p>Further, interdicted persons are generally taken into the territory of the relevant country (eg Italy returned migrants to the main port in Libya). The occupants are not merely left at the edge of territorial waters. In this sense, Abbott’s statement lacks a comparable precedent under international law.</p>
<p>On the question of the right of the Indonesian vessel to gain re-entry into Indonesian waters, I note that while the crew of an asylum-seeker vessel may have an enforceable right to enter Indonesia, the vast majority of people on these vessels are not Indonesian citizens and do not have such a right. Indonesia is not a party to the <a href="http://www.unhcr.org/pages/49da0e466.html">1951 Refugee Convention</a> and therefore is not under any formal obligation under international law to accept interdicted asylum seekers back into its territory. In this respect, a demarcation must be made between the vessel which is Indonesian-registered and the occupants of that vessel.</p>
<p>Finally, the act of interdiction by Australian authorities is likely to be seen as an exercise of control and <a href="http://www.refworld.org/docid/4f4507942.html">jurisdiction</a> over the asylum-seekers on board. Australia will, accordingly, incur responsibility for those asylum-seekers under international human rights and refugee law and cannot simply leave the interdicted persons on the high seas near Indonesian territorial waters in the expectation that they will return to Indonesia.</p>
<h2>Verdict</h2>
<p>This statement does not adequately reflect Australia’s obligations under international law and is not correct. Interdiction of vessels by Australia will require Indonesian consent - so far not forthcoming - and it will not be possible to simply leave the vessels in the sea near Indonesian territorial waters in the expectation that they will be able, or willing, to re-enter Indonesian territory.</p>
<hr>
<h2>2. Stephen Smith: economic conditions were the reason for the mining tax revenue drop</h2>
<p><strong>“You say [it’s a mining tax] that doesn’t collect much revenue. In the short term, that’s right. In part, that’s because… the same circumstances don’t exist now as they did when the tax was introduced.” Defence minister Stephen Smith, Q&A, 15 July. (<a href="http://www.youtube.com/watch?v=u2Q0Yhn7bIA&t=13m42s">Watch the segment on the mining tax here</a>).</strong> </p>
<p>Earlier this year, the <a>government announced</a> it was falling short of its projected revenue for the Mineral Resource Rent Tax (MRRT). </p>
<p>The tax was forecast to raise $2 billion in 2012-13 – revised down from $3 billion – but instead, it managed to raise only $126 million in its first six months. At the time, the government blamed changing market conditions including a recent drop in commodity prices. Labor continues to repeat these claims today, including on last night’s Q&A program. </p>
<p>But the truth is, the impact of changing economic circumstances on MRRT revenues has been minor, if at all. In reality, the large iron ore and coal miners, which were in operation before 1 May 2010 when the tax was announced, are not paying any tax largely due to their capacity to use the market value of their projects to take advantage of very attractive depreciation benefits built into the design of the tax. </p>
<p>To understand how existing producers may be sheltered from paying MRRT for potentially many years to come, it is worth looking briefly at the tax’s design. The profit on which MRRT is levied is determined after a company deducts all its capital and recurrent costs of operations from its revenue, in the year in which they are incurred. Operating costs exclude funding costs (for instance, interest expenses) but include a level of “normal profit” equal to the long-term bond rate, plus a risk premium of 7%. </p>
<p>Serious challenges arose in applying the MRRT to mines which existed prior to the tax’s announcement date. Many of these are large mines have very significant historical capital investments and will continue to account for the vast majority of iron ore and coal production in Australia. </p>
<p>Under strong political pressure to appease them, government allowed them to recover their historical investments by either depreciating their book values over five years (increased annually at the rate of normal profit) or using their market value as of 1 May 2012 (increased annually at the rate of CPI) over up to 25 years.</p>
<p>Existing projects with large and/or high-quality resources benefit from having significant annual starting-base capital deductions in determining their taxable income. This means that if the deductions are large enough, the taxable profit on which MRRT is levied can be reduced to zero, or close to. </p>
<p>Thus, recent drops in iron ore and particularly coal prices and sustained high exchange rates had and will continue to have minimal or no effect at all on MRRT collections from existing mines, other than increasing the magnitude of the losses to be carried forward for future deduction. </p>
<p>By contrast new mine developments will pay MRRT in full. This point was emphasised at the recent <a>Senate Economic Reference Committee inquiry into the development and operation of the MRRT</a> and confirmed by relevant mining company executives. </p>
<p>Without any knowledge of the starting values of existing iron ore and coal operations it is impossible to predict how long it will take to reach the point where these starting base capital deductions are exhausted and existing major iron ore and coal mines will start paying full MRRT. It is worth noting that the MRRT was devised at a time of rapidly rising commodity prices and that initial net cash flow forecasts and project market valuations were high, reflecting expectations of an on-going “stronger for longer” mineral boom. </p>
<p>For instance, at the time of BHP Billiton’s attempt to take over Rio Tinto’s iron ore business in Western Australia, the latter was valued in excess of $100 billion. Thus, at least in the case of iron ore, where about 90% of production is attributable to three companies with high market values and/or as-yet-undepreciated book values, it was logical to expect that initial MRRT collections would be very low. </p>
<p>Since then Fortescue Mineral Group, which was not a signatory to the original MRRT agreement negotiated with the Gillard government, has confirmed that it is also unlikely to pay any MRRT for many years to come.</p>
<h2>Verdict</h2>
<p>Stephen Smith’s statement is misleading. The drop in MRRT collections relative to forecasts is not significantly impacted by changing economic conditions at least in the medium term.</p>
<p><div class="callout">The Conversation is fact checking statements made in the lead-up to this year’s federal election. Normally, these are reviewed. But each week, we will also check significant factual assertions on the ABC’s Q&A program. To allow us to publish these checks as soon as possible, there will be no review process. Request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p><img src="https://counter.theconversation.com/content/16025/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>In the last two years Pietro Guj has been funded for research in the area of mining taxation by a number of different organisations including: The World Bank, IM4DC/AusAID and the Association of Minining and Exploration Companies (AMEC) resulting in various publications on mining taxation policy and administration.</span></em></p><p class="fine-print"><em><span>Maria O'Sullivan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>1. Julie Bishop: Australia has the right to return asylum seeker boats to Indonesia “We cannot escape from the fact that they are Indonesian boats with Indonesian crews from Indonesian ports. Of course…Maria O'Sullivan, Lecturer, Faculty of Law, and Associate, Castan Centre for Human Rights Law,, Monash UniversityPietro Guj, Research Professor, Centre for Exploration Targeting, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/125092013-03-14T19:35:27Z2013-03-14T19:35:27ZReforming the mining tax: is it possible?<figure><img src="https://images.theconversation.com/files/21211/original/7hns8npx-1363149720.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The mining tax is fraught with significant design issues. But can it be fixed?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The Commonwealth government’s mining tax, the minerals resource rent tax (MRRT), has been a continuing source of controversy. It is easy to point to its significant problems, but a considerable challenge to plot a worthwhile reform agenda.</p>
<p>Corporations in the mining industry, as do corporations in other parts of the economy, pay <a href="https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&sqi=2&ved=0CFoQFjAD&url=http%3A%2F%2Fwww.austrade.gov.au%2Farticledocuments%2F1358%2Ftaxation-guide.pdf.aspx&ei=uKAuUfTmH6fFmAWHkoHQDw&usg=AFQjCNGIeJVUX207eLHG3QjshHvbhtnZcg">corporate income tax at a rate of 30%</a> on the return to the equity invested and any economic rents earned on the natural resource deposits. Shareholders may pay additional personal income tax on dividends and capital gains. In addition, most on-shore mining businesses pay a state government-imposed royalty as a charge for state government-owned non-renewable minerals and energy deposits. Most royalties are assessed as a percentage of the estimated value of production. The royalty rate varies from zero for gold mines through to 12.5% for some coal mines, with an average rate of about 8%.</p>
<p>Introduced in July 2012, the MRRT is effectively an additional special tax on iron ore and coal mining levied by the Commonwealth government. In principle, the MRRT is levied on the economic rent to the natural resource deposit, measured as receipts less production expenses for labour, machinery and materials, and the royalty. The MRRT negotiated with the three large mining companies provided a generous interpretation of expenses for machinery, buildings and other capital by allowing depreciation based on the market value of these assets, as opposed to their historical cost. To a considerable extent, the market value included the capitalised value of the economic rent earned on the natural resource deposit. The effective MRRT rate is 22.5%.</p>
<p>Rather than government paying out in the case of a measured MRRT tax loss, losses are carried forward at the long-term interest rate plus 7%. This loss carry-forward provision represents a tax concession for mines working well-endowed natural deposits and low risks, and a tax impost for the marginal less well-endowed deposits with a high risk of failure.</p>
<p>As proposed in 2010 in the Henry Review, <a href="http://www.taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Australia’s Future Tax System</a>, radical reform of special taxation of the mining industry would involve replacing the distorting royalty system with a tax on the economic rent earned on the natural mineral resource initially owned by the states. The well-endowed mines with properties of small over burdens, extensive rich mineable reserves, and close to available transport infrastructure have relatively low production costs, and would pay a relatively large economic rent tax, and more in times of boom commodity prices. By contrast, the less well-endowed mines with properties of large over burdens, limited mineable reserves containing impurities, and requiring large investments in transport infrastructure have relatively high production costs, and would pay a much lower (or even zero) economic rent tax. An economic tax for royalty swap could result in a larger and more efficient industry, and increased government revenue.</p>
<p>Replacing the current royalty system levied by the states with an economic rent tax, and applying it to all minerals and energy at a common rate, will require the involvement of the states and Commonwealth governments, and a substantially revised set of Commonwealth-state financial arrangements. Problems of the MRRT involving continued operation of the royalties, and with states increasing royalty rates at the expense of Commonwealth MRRT revenue, illustrate the costs of unilateral action by the commonwealth.</p>
<p>Another set of challenges to the reform of special taxation of the economic rents earned by the well-endowed deposits concerns measurement of the economic rent. The resource rent tax model which underlies the PRRT and MRRT taxes is just one of several options. The cash-flow model, or Brown tax, provides the benchmark in terms of efficiency and simplicity. However, for most mines, because of the lag between investment and mining receipts, governments would be writing cheques to miners, and to date they have avoided this prospect. The resource rent tax seeks to overcome government writing cheques to companies by having losses carried forward, and indexing the losses for the borrowing cost to the miner. Inevitably, the chosen indexation rate is arbitrary, and its uniform rate is inconsistent with the heterogeneity found with natural resource deposits with different natural endowments and with different businesses. Another option is to auction licences to mine, with the more favoured mines expected to earn larger economic rents attracting higher bids.</p>
<p>The reality is that many mines already are in operation, and investment decisions were based on the existing special taxation arrangements. The choice of transition rules for existing mines is a contentious reform design issue. Arguably, the MRRT, with its “exploration allowance” to lower the effective tax rate from 30 per cent to 22.5 per cent, together with the option to use market values for capital equipment rather than historical cost, erred on the too generous side for existing mines.</p><img src="https://counter.theconversation.com/content/12509/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Freebairn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Commonwealth government’s mining tax, the minerals resource rent tax (MRRT), has been a continuing source of controversy. It is easy to point to its significant problems, but a considerable challenge…John Freebairn, Professor, Department of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/122612013-02-19T04:12:57Z2013-02-19T04:12:57ZIn mining and governing, policy made on the fly is likely to flop<figure><img src="https://images.theconversation.com/files/20387/original/qz8mvd7x-1361244092.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Martin Ferguson, Julia Gillard and Wayne Swan announced the MRRT in 2010 … but three ministers and three miners do not a policy make.</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>Most controversial public policy could be said to be made on the run, or at least amended on a brisk walk.</p>
<p>So the revelations in Peter Martin’s <a href="http://www.theage.com.au/business/mining-tax-how-canberra-got-diddled-20130214-2ee7j.html">recent article</a> on the errors embedded in the Gillard government’s <a href="http://www.ato.gov.au/taxprofessionals/content.aspx?doc=/content/00286481.htm">Minerals Resource Rent Tax</a> (MRRT) are all too familiar.</p>
<p>There is much to criticise. The tax agreement is infamously short - only one and a half pages - and was signed off without experts from treasury in the room to properly assess the proposal and ensure the government’s objectives were being pursued.</p>
<p>Certainly, it was a compromise agreement - all policies are, given the complex nature of such problems and the conflicting goals of stakeholders and governments. But in their rush to put the issue to rest, it seems the government was too accommodating towards those seated across the table and, as Peter Martin reported, a drafting error allowed the states to take a huge cut of the revenue before it reached the Commonwealth.</p>
<p>While the Gillard government’s ill-fated MRRT may have failed its revenue raising purpose, it remains an invaluable lesson in policy formation. It taught us the high cost of making policy on the run, and it may even cost the government the next federal election, especially now the Greens have <a href="http://www.dailytelegraph.com.au/news/national/christine-milne-says-labor-has-walked-away-from-agreement-with-greens/story-fncvk70o-1226581081454">stepped away from their agreement</a> with the government.</p>
<p>Policy making and reform should follow a slower, considered and rigorous path from conception to implementation to review. </p>
<p>In Australia, we often refer to the “policy cycle”, a model developed by Peter Bridgman and Glyn Davis in their <a href="http://www.allenandunwin.com/default.aspx?page=94&book=9781741753318">ubiquitous handbook</a> for students and practitioners of government policy. It stresses a sequential approach: problems are identified and carefully defined, research is undertaken and analysed, policy instruments considered and selected, stakeholders are consulted, coordination between government agencies occurs, and only then is there a decision, implementation and evaluation.</p>
<p>While Bridgman and Davis recognise the constraints of imposing a normative theoretical model in the messy “real world”, the policy cycle still provides critical analytical tools. By stressing process and rigour, it helps break complex problems into manageable pieces to enhance understanding of the issues and the appropriateness of any response. I agree with the authors that good policies should include all these steps, even if the sequence varies or some steps are repeated.</p>
<p>I’ve found in my research that while this cycle model continues to guide policy making, particularly within government departments, it remains a best case scenario.</p>
<p>Life and politics often get in the way. The problems that arise are complex and unpredictable, as can be the solutions. Policies are sometimes made very quickly for good and bad reasons. Sometimes whole sections of this policy cycle are ignored. Sometimes decisions are made by the prime minister alone (such as Howard’s reflexive declaration of military support to President Bush <a href="http://australianpolitics.com/2001/09/14/government-invokes-anzus-treaty.html">following the September 11 attacks</a>) or with a small number of others (a la Rudd’s <a href="http://www.theaustralian.com.au/news/features/the-rudd-gang-of-four/story-e6frg6z6-1225795556696">“gang of four”</a>), or, as it appears here, all of the above.</p>
<p>There are, unfortunately, many other cases of policies made on the fly that later flopped. The Howard government’s <a href="https://theconversation.com/topics/nt-intervention">Northern Territory intervention</a> is one example. This was a grab-bag of policies hastily assembled and rapidly pushed through parliament without normal Senate review - prompted by a Four Corners exposé of the appalling and heartbreaking abuse and neglect of indigenous children and others, and the <a href="http://web.archive.org/web/20070703014641/http://www.nt.gov.au/dcm/inquirysaac/pdf/bipacsa_final_report.pdf">Little Children Are Sacred Report</a>, which had laid bare the extensive abuse and dysfunction in many indigenous communities. </p>
<p>Yes, the cause was urgent, but it had been increasing in urgency for decades. Deeper government consideration and consultation and robust parliamentary scrutiny would have ultimately led to much better policy, and better health, safety and education for Indigenous Australians. In their rush to do something quickly, the Howard government reportedly neglected even to consult the authors of the report and consequently <a href="http://www.smh.com.au/opinion/editorial/what-the-intervention-failed-to-do-20110501-1e2xg.html?skin=text-only">ignored most of its central recommendations</a>, such as the necessity to <a href="http://www.hrlc.org.au/northern-territory-intervention-request-for-urgent-action-cerd">engage with community leaders</a> to tailor meaningful policy responses.</p>
<p>The <a href="https://theconversation.com/pink-batts-not-a-scandal-but-not-as-good-as-claimed-10213">pink batts scheme</a> is another example. It was a key plank of the Rudd government’s raft of policies to quickly quash the local effects of the global financial crisis. Lenore Taylor and David Uren report in their book <a href="http://www.readings.com.au/product/9780522857290/lenore-taylor-and-david-uren-shitstorm-inside-labors-darkest-days">Shitstorm</a>, that when free ceiling insulation was offered to households, the sector rapidly expanded to 20 times its original size, with “many shonky and inexperienced operators” taking part. This was a recipe for calamity. </p>
<p>The scheme only operated for eight months, but four deaths and around 200 house fires <a href="http://www.smh.com.au/national/safety-checks-for-pink-batt-scheme-to-be-wound-up-20110420-1dp21.html">have been attributed to it</a>. Not only did Rudd’s “Kitchen Cabinet” veto two, safer policy alternatives recommended by their government departments, but “clear warnings about the danger inherent in the scheme [had] been dismissed in the rush to implement the government’s stimulus decisions”.</p>
<p>Nearly half of the <a href="http://www.heraldsun.com.au/archives/old-news-pages/natural-disasters-and-botched-ber-pink-batts-to-blame-for-debt/story-fn8menqx-1226053524017">$2.5 billion allocated</a> for the scheme would be spent checking roofs and repairing unsafe electrical work.</p>
<p>Process matters. The exacting set of processes suggested by the policy cycle does not guarantee perfect governing, but as Bridgman and Davis state, it does reduce the chance of “howling errors”, such as a revenue raising tax that fails to raise revenue and destabilises a government already under attack.</p><img src="https://counter.theconversation.com/content/12261/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bronwyn Hinz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most controversial public policy could be said to be made on the run, or at least amended on a brisk walk. So the revelations in Peter Martin’s recent article on the errors embedded in the Gillard government’s…Bronwyn Hinz, PhD Candidate and Tutor, School of Social and Political Sciences & Melbourne Graduate School of Education, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/121472013-02-12T03:29:04Z2013-02-12T03:29:04ZMining tax design is responsible for revenue shortfall<figure><img src="https://images.theconversation.com/files/20150/original/tvghj4jj-1360626138.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The abolition of royalties, as well as fluctuations in iron ore and coal prices, have had an effect on the mining tax's capacity to generate revenue. </span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Why hasn’t the <a href="http://www.ato.gov.au/taxprofessionals/content.aspx?doc=/content/00286481.htm">Minerals Resources Rent Tax</a> (MRRT) produced <a href="http://www.smh.com.au/opinion/political-news/mining-tax-comes-up-short-20130208-2e2v3.html">significant revenue</a>? </p>
<p>The answer lies in a combination of basic features of the MRRT design, and the recent fluctuation in prices of iron ore and coal.</p>
<p>Until the imposition of the MRRT, the miners paid the usual taxes, including company tax in massive amounts. The MRRT is a tax on “super profits”, as was the Resource Super Profits Tax (RSPT). The MRRT taxes iron ore and coal miners on any excess of their profits over the long-term bond rate, plus 7% of allowable capital. The first design feature is that established miners will only pay significant MRRT when ore and coal prices are high in relation to market expectations. This is because established companies can use the market value of the company as the asset base on which excess profits are calculated, and established companies have high market values, reflecting market expectations of profits. No great surprise: the MRRT was negotiated between the government and the major, established companies.</p>
<p>The second design feature is that royalties are creditable against MRRT liabilities. Ken Henry and his <a href="http://www.taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">review</a> proposed the abolition of royalties and their replacement by a new Commonwealth tax — the advice fell on eager ears. A Labor government running large deficits had an urgent need for more revenue and wanted to grab some from the states as well as from the miners. Therefore, the Labor government did not offer a deal to the states, whereby the states abolished royalties in return for a guaranteed share of the new tax. Instead, Ms Gillard and Mr Swan threatened not to “credit” royalties as an offset against a MRRT liability: the Commonwealth wanted to invade the fiscal fields of the States and, preferably, drive the States to abolish royalties or, at least, to keep them low. Faced with resistance, however, the Commonwealth blinked.</p>
<p>Ironically, the advent of the MRRT encourages the states to increase royalties on companies with a sufficient MRRT liability — and raise them, they have. From the miners’ point of view, it does not matter to whom a payment is made. But it does matter to the governments concerned.</p>
<p>Royalties are not taxes, but contractual prices negotiated with the miners by the states, as owners of the resources. However, royalties do have some tax-like effects. The Henry tax review wanted royalties abolished on grounds of economic efficiency, because the review was convinced — wrongly, in my judgement — that royalties are amazingly damaging to the economy.</p><img src="https://counter.theconversation.com/content/12147/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Pincus received funding in 2012 from the Ian Wilson Foundation at the University of Adelaide, for research on state taxation.</span></em></p>Why hasn’t the Minerals Resources Rent Tax (MRRT) produced significant revenue? The answer lies in a combination of basic features of the MRRT design, and the recent fluctuation in prices of iron ore and…Jonathan Pincus, Visiting Professor, School of Economics , University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/78582012-06-22T04:50:53Z2012-06-22T04:50:53ZFortescue launches High Court challenge to mining tax<figure><img src="https://images.theconversation.com/files/12085/original/86h2d7fj-1340338467.jpg?ixlib=rb-1.1.0&rect=35%2C47%2C1916%2C1263&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fortescue founder and current non-executive chairman, Andrew Forrest has been a prominent critic of the federal government's mining tax. The company has finally launched a much anticipated High Court challenge to the tax.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Perth-based mining giant Fortescue Metals Group has launched a last-minute High Court action against the mining tax, planning to argue the legislation - due to start on July 1 - breaches the Australian constitution.</p>
<p>Founding chairman of Fortescue and now non-executive chairman, Andrew Forrest has been a prominent critic of the tax and has previously vowed to oppose it through the courts. The challenge has been mooted for months. </p>
<p>In a <a href="http://www.asx.com.au/asxpdf/20120622/pdf/426zgf7061m7fv.pdf">statement</a> to the the Australian Stock Exchange, Fortescue’s chief executive Nev Power said it was challenging the tax on the grounds it discriminated against the states, gave preference to one state over another, and restricts a state’s ability encourage mining. It also said it curtailed state sovereignty. </p>
<p>“We believe we have a good case for challenging the MRRT on constitutional grounds and we look forward to the resolution of these important issues by the High Court,” Mr Power said. </p>
<p>Constitutional law expert, Michael Crommelin, Professor of Law at the University of Melbourne, explains the legal arguments Fortescue will rely on. </p>
<hr>
<p><strong>Could you explain in detail some of the grounds Fortescue’s challenge is using?</strong></p>
<p>I haven’t seen the documentation relating to the challenge but I think there are a couple of likely bases for the challenge. One is Section 51 (ii) which is the Commonwealth’s taxation power under the constitution. It provides that Commonwealth taxes must not discriminate between states or parts of states and that could well be one of the bases for the challenge. And linked to that is Section 99 of the Constitution which says the Commonwealth in relation to any revenue measure can’t give preference to one state over any other states. I think discrimination and preference issues will be involved. </p>
<p>The other possible basis is Section 114 of the Commonwealth, which says the Commonwealth can’t impose any tax on property of any kind belonging to a state. The minerals in question are state property as they exist in the ground.</p>
<p><strong>One of the grounds it will use is that it <a href="http://www.theage.com.au/business/fortescue-challenges-mining-tax-in-high-court-20120622-20rzk.html">curtails state sovereignty</a>. What do you make of that?</strong></p>
<p>This are difficult to understand because states don’t have sovereignty under out constitution; they are components of our federal system and within that constitutional system, they don’t have sovereignty.</p>
<p><strong>So on the other points, how strong are these arguments?</strong></p>
<p>That’s difficult to say because the provisions that I have mentioned haven’t received a great deal of attention in recent years from the High Court. There is some earlier authority in relation to them, and on that, the Fortescue case is probably not very strong.</p>
<p>But that authority is not recent, and really it’s going to be a question about what weight is given to that earlier authority.</p>
<p><strong>How important an action is this in setting a precedent, and what are the wider implications?</strong></p>
<p>It’s a very important case in terms of its potential to make a significant impact on the relevant law. It will be very closely followed. </p>
<p>It relates generally to the Commonwealth taxation power, so it’s not an issue specific to the activity of mining. So if Fortescue were successful - and that is a big if - then its implications would extend to all areas of Commonwealth taxation. </p>
<p><strong>So could it open to the door to other appeals against other unpopular taxes - such as as the carbon tax?</strong></p>
<p>It’s not apparent to me how the carbon tax could run into trouble here as it constructed on a quite different basis - but that’s not impossible; these things are always matters to be looked at.</p>
<p>But the first step is for Fortescue to win - and on present authority, it’s not obvious that it’s going to win.</p>
<p><strong>There’s not a lot of time - the law is due to start on July 1. Could this delay things?</strong></p>
<p>No, I don’t think the introduction of the law will be delayed by it. But if Fortescue were successful in establishing that the tax was invalid, that would have enormous implications, including possible repayment of any amounts that had already been levied by the Commonwealth.</p><img src="https://counter.theconversation.com/content/7858/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Crommelin owns BHP Billiton shares.</span></em></p>Perth-based mining giant Fortescue Metals Group has launched a last-minute High Court action against the mining tax, planning to argue the legislation - due to start on July 1 - breaches the Australian…Michael Crommelin, Zelman Cowen Professor of Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/44902011-12-01T02:16:57Z2011-12-01T02:16:57ZCoal gas seams good … until you measure the methane<figure><img src="https://images.theconversation.com/files/6029/original/aap-image-origin-energy-jpg-1322622253.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">If we're going to talk about how safe CSG is (or isn't), we need to look at the full picture.</span> <span class="attribution"><span class="source">AAP/Origin Energy</span></span></figcaption></figure><p>The <a href="https://theconversation.com/topics/mining-tax">Mineral Resources Rent Tax</a> passed through the House of Representatives last week, but not without negotiations with the Greens and independent MPs.</p>
<p>Perhaps the most significant outcome of negotiations was the announcement of an <a href="http://www.pm.gov.au/press-office/new-focus-scientific-evidence-build-confidence-coal-seam-gas-and-coal-mining">Independent Expert Scientific Committee</a> to advise state and federal governments about the impacts of large coal and coal seam gas (CSG) projects. The decision is a very welcome one.</p>
<p>Until now, government approvals for CSG projects have been granted on the basis of environmental impact statements (EISs) generated by proponents of the development they are assessing. As a result, and given the large tax revenues coming from the projects, such assessments are hardly likely to have been free of bias.</p>
<p>The problem of bias in the assessment and approvals process is inherent in all resource developments, not just coal seam gas (CSG) and large coal projects.</p>
<p>While there will now be greater scrutiny of new projects, the horse has bolted in Queensland, where four large projects — to mine gas in the hinterland and ship liquified natural gas (LNG) <a href="http://theconversation.com/what-is-gladstones-lng-development-really-doing-to-the-environment-3885">out of Gladstone</a> — have already received state and commonwealth approvals. </p>
<p>With these Queensland CSG projects already going ahead, more accurate assessment of their greenhouse gas emissions by the Australian and state governments is a high priority. The environmental impacts of our big mining and gas projects go to the very core of national and international efforts to tackle climate change.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6053/original/andy-revkin-jpeg-1322698755.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Fugitive methane emissions from CSG extraction play a bigger role than we first thought.</span>
<span class="attribution"><span class="source">Andy Revkin</span></span>
</figcaption>
</figure>
<h2>Greenhouse uncertainties of coal seam gas</h2>
<p>The <a href="http://www.abc.net.au/news/specials/coal-seam-gas-by-the-numbers">uncertainties surrounding the impacts of CSG</a> are not confined to farmland, water tables and catchments. There are now serious doubts emerging whether a wholesale switch from coal to gas will help curb global climate change. </p>
<p>It’s inevitable there will be some leakage of methane gas during CSG development and processing. In assessing CSG emissions, a multiplying factor is applied to methane, which has many times the <a href="http://en.wikipedia.org/wiki/Global-warming_potential">global warming potential</a> of carbon dioxide. This multiplier allows us to talk about methane’s warming potential in terms of carbon dioxide equivalents generated in burning.</p>
<p>While methane burns cleaner than coal, the carbon dioxide equivalent of the leakage of gas from wells, pipelines and processing plants must be added to emissions from combustion.</p>
<p>Two pieces of research published earlier this year – one by <a href="http://www.sciencedaily.com/releases/2011/04/110412065948.htm">Richard Howarth and colleagues</a> and one by <a href="http://www.usclimatenetwork.org/resource-database/report-coal-to-gas-the-influence-of-methane-leakage">Tom Wigley</a> – suggest “unconventional” gas (shale and coal seam) is no cleaner than coal. In fact, both pieces of research suggest shale and CSG can emit a greater quantity of greenhouse gas per unit of energy generated.</p>
<p>The researchers’ results are based on data from actual gas developments and coal mines in the US and use recent scientific findings to assess the greenhouse impacts of gas and coal.</p>
<p>In contrast, an “independent” study by energy services provider <a href="http://www.worleyparsons.com/Pages/default.aspx">WorleyParsons</a>, <a href="http://www.appea.com.au/industry/csg/cleaner-energy.html">published earlier this year</a> concluded that CSG (mined in Australia and burned in China) will emit just over half the carbon dioxide equivalents of coal.</p>
<p>Because actual data is scarce in Australia, the WorleyParsons forecast of CSG emission levels is taken from <em>forecasts</em> used in the EISs of Australian CSG/LNG proposals. These assume best practice in terms of managing emissions while also using low estimates of the global warming potential of methane. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6035/original/aap-image-alan-porritt-jpg-1322629858.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tony Windsor’s environmental concerns helped craft a more valuable mining tax.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>The truth is, we won’t know the leakage rate of methane from CSG in Australia until projects are operational.</p>
<p>Furthermore, <a href="http://www.sciencemag.org/content/326/5953/716">research by Drew Shindell and colleagues</a> suggests the global warming potential of methane is greater than is presently assumed by international organisations, the Australian and US governments and in companies’ EISs.</p>
<p>The global warming factor used by these organisations is one tonne of methane equals 21 tonnes of carbon dioxide equivalent over a 100 year period. According to Shindell and colleagues, that factor should be 32 tonnes equivalent over 100 years, and 105 over 20 years.</p>
<p>This finding has important implications for greenhouse gas reporting by all countries that produce, and will be producing coal seam gas.</p>
<h2>The Australian equation</h2>
<p>In Australia the consequences of the science are two-fold. First, the <a href="http://www.climatechange.gov.au/climate-change/emissions.aspx">Government’s estimates of greenhouse gas emissions</a> by 2020 and 2050 should include the updated factor for methane. It is arguable that the factor of 105 should be used by LNG companies’ when reporting their methane emissions (and indeed used for other emitters of methane) to 2020. </p>
<p>Second, the passage of the <a href="https://theconversation.com/topics/carbon-tax">Clean Energy legislation</a> means that from next year, tax will be raised per tonne of carbon dioxide equivalent of emissions. The tax on LNG companies will increase with the correct factoring for methane.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6050/original/jeremy-buckingham-mlc-jpg-1322698245.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">CSG extraction poses potential dangers to the environment; we need to assess all the risks.</span>
<span class="attribution"><span class="source">Jeremy Buckingham MLC</span></span>
</figcaption>
</figure>
<p>The <a href="http://www.aplng.com.au">EISs of four CSG companies exporting LNG out of Gladstone</a> suggest their cumulative annual emissions in Australia at peak production will be 35 million tonnes of carbon dioxide equivalent. If the updated global warming factor for methane over 100 years (32 tonnes equivalent) is adopted then this rises to 53 million tonnes of carbon dioxide equivalent a year. The use of the warming factor for methane over the 20-year horizon (105 tonnes equivalent) gives 175 million tonnes a year.</p>
<p>CSG is classed as a trade-exposed industry under the Clean Energy legislation and would be protected from the full impact of a tax increase that results from the adoption of the updated warming potential for methane. But coal mining, which also emits methane, would be exposed to the full impact of such an increase.</p>
<p>Serious faults have been exposed in the EIS and approval process in relation to CSG. These are being corrected, but a review of the methodology for assessing all large resource projects is called for.</p>
<p>Meanwhile, given that large CSG extraction and processing developments will go ahead without further legislative impediments in Queensland, it is incumbent on the state and commonwealth to carefully monitor not only <a href="http://www.aph.gov.au/Senate/committee/rat_ctte/mdb/interim_report/index.htm">effects on land and water tables</a> but the leakage of methane. </p>
<p>Companies need to make the investments required that will facilitate accurate measurement of gas leaks across all CSG projects. The cumulative emissions must then be factored into national greenhouse accounting. </p>
<p>There should be an updating internationally of the factor applying to methane as a greenhouse gas, based on the scientific evidence. Otherwise greenhouse accounts will not reflect the climate change implications of large increases in the use of LNG. </p>
<p>Where countries have tax or cap-and-trade schemes for greenhouse emissions, the international adoption of an updated factor for methane will increase imposts on producers of coal seam and shale gas, as well as on other large emitters of methane.</p><img src="https://counter.theconversation.com/content/4490/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Colin Hunt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Mineral Resources Rent Tax passed through the House of Representatives last week, but not without negotiations with the Greens and independent MPs. Perhaps the most significant outcome of negotiations…Colin Hunt, Honorary Fellow in Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/44562011-11-24T19:30:18Z2011-11-24T19:30:18ZWe are letting our resources luck turn to dust<figure><img src="https://images.theconversation.com/files/5851/original/miningdust.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Paul Cleary's book, Too Much Luck, highlights the many negative consequences of the mining boom.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Paul Cleary’s book Too Much Luck: The Mining Boom and Australia’s Future, is a timely appraisal of the dramatic economic and social impacts, as well as the political ramifications of the current resource boom. </p>
<p>Cleary argues that the resource investment stampede is squandering Australia’s precious non-renewable fossil fuels, leading to a high dollar, inflation and interest rates, at the expense of manufacturing, education and tourism industries. </p>
<p>There is, he argues, a strong case for a more measured approach to harvesting these resources in the long-term interests of all Australians through better taxation, saving and regulation of the resource sector. This book is not anti-mining and does not argue that resources should be left in the ground, as Stephen Kirchner <a href="http://theconversation.com/has-the-mining-boom-given-us-too-much-luck-hardly-4376">would have us believe</a>. </p>
<p>Cleary coins the phrase “investment stampede” to capture the seismic shifts at work. The sector is growing fast – too fast – at 15% per annum, with a pipeline investment of $174 billion. Global demand especially from Asia has fuelled this boom. Current economic returns for the mining corporations and their shareholders are staggering.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1130&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1130&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5848/original/miningpile.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1130&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The intensity of mining production has radically increased.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> <p></p>
<p>In August 2011 BHP announced an annual net profit of $23.5 billion, while earlier in the year Rio Tinto had announced an annual profit of $14.3 billion. </p>
<p>Cleary’s book analyses an array of adverse impacts resulting from an investment stampede, including the growth of fly-in, fly-out (FIFO) workforces. Until the 1970s, mining leases tended to be issued by governments subject to conditions that companies build or substantially finance local community infrastructure, including housing, streets, transport, schools, hospitals and recreation facilities. Townships and communities went hand in hand with mining development. </p>
<p>Not any more. The haste of this extraction process has become increasingly reliant on a continuous production cycle of 12-hour shifts, seven days a week, and one increasingly reliant on fly-in, fly-out or drive-in, drive-out (non-resident) workers who typically work block rosters, and reside in work camps adjacent to existing rural communities. </p>
<p>There are estimated to be around 150,000 non-resident workers directly employed by the resources sector, anticipated to rise to around 200,000 by 2015, but no government body appears to be counting and projected growth is equally elusive.</p>
<p>This is an odd oversight given the rapid growth of reliance on non-resident workers in the resources sector carries significant impacts for individual workers and their families and host communities, as evidenced by the many submissions to the Australian Parliament House inquiry into <a href="http://www.myregion.gov.au/content/examination-fifo-and-dido-practices">FIFO/DIDO</a> work practices, chaired by the Independent MP Tony Windsor. Some of the significant impacts include: </p>
<ul>
<li>A sudden influx in high risk populations (young single males with large disposable incomes) exacerbating crime and alcohol-related social disorder problems.</li>
<li>The creation of new lucrative unregulated drug markets and markets in commercial sex work. </li>
<li>Rises in traffic congestion and road accidents. </li>
<li>Stretch on infrastructure. </li>
<li>The erosion of community wellbeing. </li>
<li>Heightened risk of protracted social protest over coal-seam gas extraction.</li>
<li>Ongoing widespread social protest against the erection of camps in close proximity to established rural communities.</li>
<li>Increasing burden on local services. </li>
<li>Soaring housing costs and other local costs of living </li>
<li>“Fly over effects” on the local economy, and an ever-decreasing permanent resident workforce</li>
<li>Increasing rates of staff turnover, </li>
<li>Reversal of the trend of women entering the mining industry (down from 15.7 to 12.6% according to the most recent ABS statistics)</li>
<li>Increases in the average hours worked each week exacerbating fatigue related car accidents and work injury as they commute either end of work cycles than in the workplace (an average of hours 45 hours as at August 2011, with 1 in 3 working over 60 hours per week). </li>
</ul>
<p>These impacts undermine the long-term sustainable community development of rural Australia. It is troubling therefore that dramatic socio-demographic processes have been unleashed by this boom without concerted attempts to accurately research, measure or account for the numbers of non-resident workers involved and their nation-changing impact on the Australian society and economy. </p>
<p>Just as the number of non-resident workers is not being researched or counted, Cleary draws our attention to how the rapid depletion of natural non-renewable resources is not being counted either. Again, the long term social and environmental costs, including the time value of Australia’s natural resources and the opportunity costs of squandering them through an investment stampede are not being measured.</p>
<p><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=302&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=302&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=302&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=379&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=379&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5864/original/miningcamp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=379&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A typical Queensland mining camp.</span>
<span class="attribution"><span class="source">Carrington, McIntosh, Hogg and Scott, ARC Research Team</span></span>
</figcaption>
</figure>
</p><p>Instead, the gaze of most state politicians in particular has been transfixed on the short-term economic benefits shared by so few. Cleary draws attention to the dominance of a short-term economic view which frames the current resources boom – a view to which Kirchner appears wedded. </p>
<p>The real challenge for a government of and for the people – and not just a government at the beck and call and in the pocket of the powerful mining industry lobby – is to recalibrate the frame of reference for assessing and responding to the social and ecological impacts of the mining boom in the long term interests of the nation.</p>
<p>The corporate power of the mining industry, especially to lobby governments, state and commonwealth to influence policy making in Australia is alarming. As Cleary points out, “Not only did the miners change the prime minister and change government policy, they went on to brag about how their coup had stopped similar schemes from spreading around the world.” </p>
<p>State governments who grant mining licenses and regulate the industry also earn a share of the minerals extracted through royalties. Last year Queensland and Western Australian governments collected around $6 billion.</p>
<p>The Queensland government’s endorsement of the BHP Billiton Mitsubishi Alliance proposal at Moranbah to allow up 100% of workers to be non-resident is a more recent example of Cleary’s complaint about the impact of corporate power. It even contradicts Queensland’s own resource sector housing policy that workers should be allowed the choice where the live and work industry. The Moranbah mining community, with its long history of communal solidarity, is now destined to become surrounded by thousands of non-resident workers housed in dongas.</p>
<p><figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=903&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=903&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=903&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1134&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1134&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5857/original/miningtrain.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1134&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Politicians are fixated with the short-term benefits from mining.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> </p>
<p>While the Queensland government introduced social impact assessment processes as part of the Environmental Impact Assessment approval process in Sept 2010 in part to address these concerns, it has failed to regulate the long term cumulative impacts of resource development. Why? State governments have a fundamental conflict of interest in setting themselves up as the arbiters in disputes over access to agricultural land, the granters of exploration licenses and the approvers of environmental and social impact statements, precursors to project development consent from which royalty payment to the state flow.</p>
<p>Cleary’s book offers a much needed critique of the collision of self-interest between state governments and mining companies which both profit handsomely from the speedy extraction of resources.</p>
<p>Given the state governments’ conflict of interest and susceptibility to being courted by corporate power, the need for a commonwealth power to over-ride state powers in the interests of the more effective long-term regulation of the mining industry is long overdue. This week, Australia got one thanks the insistence of independent MPs Tony Windsor and Rob Oakeshott, who supported the Mineral Resources Rent Tax (MRRT) in return for the overhaul of the environmental approval processes and legislation. </p>
<p>The passing of the MRRT tax through the lower house this week, and along with it amendments to the environmental legislation and the establishment of an Independent Expert Scientific Committee, gives some hope for optimism that Australians may share more of the benefits and the less of the burdens from the boom. </p>
<p>Too Much Luck can be credited for fanning the shift in public opinion and political climate in support of the MRRT. We are at a critical moment in the boom, when strong, not weak, Australian Government leadership through the policy-making processes of federalism are absolutely vital, if, to use one of Cleary’s metaphors, Australia is not to look like Nauru, “but on a continental scale”.</p><img src="https://counter.theconversation.com/content/4456/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kerry Carrington received funding from Australian Research Council (No DP0878476) and QUT Professor's Grant related to this issue.
Other CIs and partner investigators include John Scott and Russell Hogg, UNE; and Alison McIntosh, QUT</span></em></p>Paul Cleary’s book Too Much Luck: The Mining Boom and Australia’s Future, is a timely appraisal of the dramatic economic and social impacts, as well as the political ramifications of the current resource…Kerry Carrington, Professor, Head of School of Justice, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/44422011-11-24T03:27:27Z2011-11-24T03:27:27ZWe’ve gained a mining tax, but lost a rare opportunity<figure><img src="https://images.theconversation.com/files/5828/original/mininghole.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Changes to the MRRT will leave a gaping hole the revenue the tax originally promised.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Federal Labor’s mining profits tax was originally designed to be a redistributive measure from a very profitable section of capital to all of capital through company tax cuts. </p>
<p>The mini-me Mineral Resources Rent Tax (MRRT), which passed through the House of Representatives on Wednesday, has less income to do this (about $8 billion until 2015) and so the tax cuts are less. But this function is still the main driver for the MRRT – to redistribute profit from a handful of big miners to other companies.</p>
<p>On top of that, much of the rest of the revenue will be used to build infrastructure for the very companies paying the tax.</p>
<p>This redistribution within capital is one of the many measures – lengthening the working day, shifting wealth from labour to capital, slashing spending on public services also come to mind – aimed at providing some relief for stagnant profit rates.</p>
<p>What about superannuation, do I hear you ask?</p>
<p>The MRRT’s thwarted predecessor, the Resources Super Profit Tax (RSPT) came with a sweetener – the announcement that the super guarantee (SG) would increase from 9% to 12% percent over 2013 to 2019. This has been continued under the MRRT.</p>
<p>There will be a cost to the revenue as the measures are introduced and the SG increases. This is because of the concessional tax treatment superannuation receives. Treasury estimates the cost in 2013-14 to be $250 million and $500 million in 2014-15. Estimates put the revenue cost in 2020, when the full 12% is in place, at $3.6 billion.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5832/original/henrychin.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ken Henry has pointed out that the superannuation guarantee falls on employees.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>The government is using the revenue from the MRRT to cover the lost revenue resulting from any SG increase. The money doesn’t actually fund the increase, just the revenue shortfall. This is the only linkage between the superannuation changes and the MRRT – a political one to help sell the MRRT to workers.</p>
<p>The SG is nominally paid by employers, but in practice it is paid for by workers in the form of lower wages.</p>
<p>These proposed increases will be part of any wages negotiations that occur over the period from 2013 to 2019 and it is likely there will be a wage-SG trade off. Certainly the ACTU agreed in the 1990s to forego a wage increase for a 3% SG increase. Former Treasury Secretary Ken Henry let the cat out of the bag recently when he said that SG falls on employees, not employers.</p>
<p>So too did Minister for Superannuation and ex-union leader Bill Shorten when he said: “Increasing superannuation is not a cost in terms of employers, because what happens is it is offset against real wage increases.” Straight from the horse’s mouth.</p>
<p>Workers will pay for the SG increases with lower wages – it is a pea and thimble trick.</p>
<p>The cost to the revenue of the superannuation concessions is staggering. The Treasury Tax Expenditures Statement 2010 <a href="http://www.treasury.gov.au/contentitem.asp?NavId=022&ContentID=1950">estimates</a> that we currently spend $27 billion on superannuation tax concessions.</p>
<p>It projects this will rise to almost $38 billion in 2013-14. By contrast, we spent just over $29 billion on the age pension in 2009-10 and this figure is estimated to rise to $38.5 billion in 2013-14.</p>
<p>Australian Council of Social Services figures show that about 80% of the concessions go to the well-off.</p>
<p>Maybe the time has come to revisit why we have a compulsory superannuation scheme at all and consider a fully funded adequate pension scheme funded by taxing the rich and business.</p>
<p>Counterbalancing the cost argument, the SG saves the government money in two ways. First it means it has to spend less on pensions over time. Second, because wages are rising at a lower rate, it means the indexation of increases for pensions is lower, because that indexation is based on wage increases.</p>
<p>It is a political sleight of hand to link the MRRT to the increase in SG.</p>
<p>There is an alternative. We should extend the MRRT to all resources, and to other industries that earn super profits because of their quasi-monopoly positions. The big four banks come to mind.</p>
<p>And instead of redistributing the tens of billions of revenue to capital, use it to improve public health, education and transport and really address climate change.</p>
<p>The money could be even used to address the gender pay gap in the community sector, pay Victorian nurses more and keep nurse/patient ratios and build government owned solar and wind farms.</p><img src="https://counter.theconversation.com/content/4442/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Passant does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Federal Labor’s mining profits tax was originally designed to be a redistributive measure from a very profitable section of capital to all of capital through company tax cuts. The mini-me Mineral Resources…John Passant, Tutor, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/43762011-11-21T19:44:44Z2011-11-21T19:44:44ZHas the mining boom given us ‘too much luck’? Hardly<figure><img src="https://images.theconversation.com/files/5701/original/miningred.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Paul Cleary's book, Too Much Luck, paints a negative picture of Australia's mining industry.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p><strong>CORRECTION: Stephen Kirchner’s review of Paul Cleary’s book Too Much Luck said he “wants the Foreign Investment Review Board to use its powers to force foreign companies to buy local”, and that he has advocated policies, including industry intervention, which appeal to “Australia’s parochial, insular and protectionist past”. Dr Kirchner now accepts that Mr Cleary’s book advocates no such policies. His policy recommendations only involve measures to save windfall resource revenue in a sovereign wealth fund, and to tax and regulate the resources industry more effectively.</strong></p>
<hr>
<p>If Paul Cleary is to be believed in his recently published book, Too Much Luck: The Mining Boom and Australia’s Future, the resources boom is the worst thing that ever happened to Australia. </p>
<p>He maintains that the mining industry is under-taxed and under-regulated and in need of “stronger and more effective government control”. Yet at the same, he argues that recent governments have also squandered the revenue windfall from the mining boom. These positions are difficult to reconcile. </p>
<p>Cleary’s proposals for greater taxation and regulation of the mining sector and increased use of a sovereign wealth fund (SWF) would only enhance the capacity of governments to squander the boom.</p>
<p>Cleary, a journalist at The Australian and researcher at ANU, has in part based his book on freedom of information (FOI) requests made to Treasury, the Reserve Bank of Australia and other agencies on some of the public policy issues raised by the mining boom. Ironically, these FOI documents are far less revealing than what Treasury and other official sources have put on the public record.</p>
<h2>Pushing a sovereign wealth fund</h2>
<p>Cleary tries hard to find support for a sovereign wealth fund among the documents even though they mostly relate to experience in overseas economies that have little in common with Australia. He is forced to concede the Treasury’s “curious bias against sovereign wealth funds”. </p>
<p>He neglects to mention comments in a speech by then-Treasury Secretary Ken Henry to Australian Business Economists on May 18, 2010 arguing against a SWF. These comments are far more compelling than the Treasury working papers Cleary cites.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5716/original/kenhenryface.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Former Treasury Secretary Ken Henry expressed doubts about a sovereign wealth fund.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> <p></p>
<p>Cleary also seeks to enlist Reserve Bank Governor Glenn Stevens to his cause, but Stevens’ comments on SWFs have been equivocal and have called for no more than the issue to be considered. </p>
<p>Much of Cleary’s argument is ultimately an appeal to the authority of economists, but the few reputable ones he relies on for support would also reject many of the arguments in his book.</p>
<p>Cleary’s support for a sovereign wealth fund reflects his view that Australia’s resources are finite and that future generations will be left worse-off because the current generation will have exhausted these resources and spent the proceeds. The idea that resources are finite in any economically meaningful sense is fallacious because of productivity growth and long-run substitutability on both the demand and supply sides of commodity markets. </p>
<p>The Australian economy is well diversified and not dependent on a single resource, unlike the economies of Norway or Timor-Leste that Cleary views as models for Australia. The so-called “resource curse” is not a function of resources, but of weak institutional frameworks in some resource-rich developing countries. Australia, by contrast, scores very highly on comparative measures of institutional quality.</p>
<p>The idea that future generations need to be “compensated” for resource depletion by the current generation through a SWF is absurd. Future generations will be much wealthier than the current generation due to the ongoing technical progress that drives productivity and long-run growth in real GDP per capita. </p>
<p>This will occur regardless of the contribution of the resources sector. Proven reserves are a poor guide to future resource availability. But even based on these estimates, Australia’s resources are not in danger of being exhausted. </p>
<p>Cleary’s case for “compensation” is the equivalent of saying that people in the late 19th century should have forgone their consumption and living standards for the benefit of people in the late 20th century.</p>
<h2>A finite fallacy</h2>
<p>Cleary’s view that resources are finite leads to the absurd suggestion that they should be left in the ground because future resource scarcity will render them more valuable later. For example, he thinks that liquified natural gas should be left in the ground “for another decade or two at least”. </p>
<p>He also argues Australia should not compete with other countries that are also exploiting their resources aggressively because this will lead to over-supplied markets and falling commodity prices.</p>
<p><figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=903&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=903&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=903&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1134&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1134&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5698/original/miningpit.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1134&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Cleary argues that some of Australia’s resources should be left in the ground.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> </p>
<p>Australia is a price-taker in global commodity markets. It should focus its efforts on increasing real output and exports rather than a fruitless attempt at manipulating world prices through cartel-like behaviour. </p>
<p>It is a gross contradiction to say that resources are in danger of being exhausted and that their prices will also fall. Cleary can’t have both sides of the argument. In fact, real commodity prices almost certainly will fall in the long-run because they become less scarce over time, a stylised fact well established by economists like Julian Simon, Harold Barnett and Chandler Morse. </p>
<p>But this is no threat to Australia’s future prosperity, because Australia will share in the process of increasing global supply through greater output and export volumes, employment and productivity growth. Cleary’s suggestion that Australia will in future become “like Nauru today, but on a continental scale” is ridiculous hyperbole.</p>
<h2>Blaming the industry</h2>
<p>Cleary accuses the mining industry of a multitude of sins. The mining industry uses imported equipment, adding to the current account deficit. It is capital intensive and does not create jobs. He is hostile to foreign investment and foreign ownership and wants the Foreign Investment Review Board to use its powers to force foreign companies to buy local. </p>
<p>Yet the policies implied by these views are at odds with his complaint that the mining industry draws resources away from other sectors of the economy. The solution to these capacity constraints is to increase Australia’s openness to foreign goods, capital and labour so that the mining industry can expand without increasing pressure on other sectors of the economy. But Cleary does not argue for a single measure that would increase the openness and flexibility of the Australian economy. </p>
<p>In addition to a sovereign wealth fund, Cleary would like to see a debate about the creation of a state-owned resource company. But both these proposals sit uneasily with his concern about the role of governments in squandering the mining boom. </p>
<p>Cleary is critical of the National Broadband Network, seeing it as symptomatic of the bad public policy that results when governments are awash with revenue, yet at the same time, he is in favour of industry policy and laments the demise of government boondoggles like the Green Car Innovation Fund. Cleary would have Australia retreat behind a wall of strategic industry and trade policy and state-run commodity cartels.</p>
<p>Cleary thinks that a sovereign wealth fund can be “pollie proofed” through legislative provisions. The problem with public saving through a SWF is that it is just deferred government spending. There is no reason to believe that future governments will spend the saving accumulated in a SWF any more wisely than the governments we have actually had.</p>
<p><figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=866&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=866&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=866&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1089&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1089&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5717/original/CSGkid2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1089&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Coal seam gas faces strong community opposition.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> </p>
<p>In reality, the proceeds of the mining boom are being saved and invested by the private sector. It is only governments that have been dissaving and spending poorly, as Cleary is the first to admit. </p>
<p>If Cleary doesn’t like multinationals making money off Australia’s resources, he’s not too keen on workers profiting either. For Cleary, tax cuts and welfare payments are just “pissed up against the wall”. Miners spend their wages on “grog, gambling and women” or go into debt to buy houses, boats and four-wheel drives. </p>
<p>Apparently, future generations of Australians will be more saintly and frugal and therefore more deserving of this largess.</p>
<p>Cleary goes so far as to suggest that the mining industry has “subverted a well functioning democracy” through its opposition to additional taxes. Yet no one would suggest that the trade union movement was “subverting democracy” by defending its interests in the public sphere in response to the Howard government’s industrial relations reforms. </p>
<p>Defending one’s interests in the public sphere is the very definition of democracy, not its subversion. Yet the extra taxation and regulation Cleary proposes would only increase the incentives for the mining industry to become involved in politics.</p>
<p>Cleary’s views on the mining boom and his public policy recommendations are confused and contradictory.* </p>
<p>Cleary’s book is an appeal to Australia’s parochial, insular and protectionist past, when mining booms really did cause boom-bust cycles because the Australian economy lacked its current openness and flexibility. </p>
<p>We can be thankful those days are behind us, but it is mystery why a journalist of Cleary’s standing would want to turn back the clock to the failed policies of the past.</p>
<p><strong>EDITOR’S NOTE: *On request of the author, a sentence has been removed from this story following publication.</strong>
</p><p><strong>Stephen Kirchner is sorry for the misunderstanding.</strong></p><img src="https://counter.theconversation.com/content/4376/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Kirchner does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>CORRECTION: Stephen Kirchner’s review of Paul Cleary’s book Too Much Luck said he “wants the Foreign Investment Review Board to use its powers to force foreign companies to buy local”, and that he has…Stephen Kirchner, Senior Lecturer in Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2302011-06-15T20:44:01Z2011-06-15T20:44:01ZTwiggy’s sticking to his MRRT story, so it’s time for a miner history lesson<figure><img src="https://images.theconversation.com/files/1675/original/forresthands.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will Andrew Forrest succeed in his push to change the mining tax? Others have succeeded in the past.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Andrew “Twiggy” Forrest’s visit to Canberra earlier this week <a href="http://www.smh.com.au/business/minister-fells-forrests-hopes-for-changes-to-resources-tax-20110614-1g1xa.html">didn’t prove particularly effective</a> in swaying the government on its freshly drafted mineral resources rent tax (MRRT) legislation. </p>
<p>But the Fortescue Metals Group boss could be forgiven for seeing the Gillard Government as open to persuasion on the way it taxes Australia’s booming mining industry.</p>
<p>After all, the MRRT draft legislation, which was released on Friday, represents a compromise between the government and the big three mining companies on the much more severe resource super profits tax.</p>
<p>Amid long-running debate on this tax, it is easy to lose perspective on the historically fraught relationship between state and federal governments and the big miners.</p>
<p>In recent months, the debate has been further clouded by a move by the Western Australian government to raise iron ore royalties. The Federal Government, keen to protect its fragile relationship with miners and maintain the centralising drift in taxation, has retaliated with a threat to cut WA’s share of the MRRT. </p>
<p>This is a tiring and arcane debate that can only really be properly understood within the context of a 50-year struggle between the states, the Commonwealth and the miners.</p>
<p>The time has come for a history lesson.</p>
<h2>Digging deeper</h2>
<p>This is too long a story to tell in full, but it is worth looking at the start and comparing it with where we are now. </p>
<p>We see a history of governments posturing before mining companies, but the mining companies consistently coming out on top.</p>
<p>But first, we need to clarify some terms in relation to mining: rent, royalties and taxes.</p>
<p>Rent is a confusing one. Rent on land is a payment for the occupancy of land, with a premise that the attributes of the land will not decline by its use. </p>
<p>It is a minor issue in our context. But there is a distinct concept of “economic rent” central to the current mining tax debate. Economic rent refers to a surplus return: profits in excess of what is required to keep a mining company operating as it currently is. </p>
<p>Royalties, on the other hand, are paid for the extraction of minerals in the land deemed to be in fixed supply. It is useful in this case to think of a mine as being like a warehouse, with the mining company paying for products it extracts from the warehouse. </p>
<p>In iron ore, the largest and most famous royalty accrues to Hancock Prospecting, founded by Lang Hancock and now run by his daughter Gina Rinehart.</p>
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<img alt="" src="https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/1676/original/pilbarastock.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">AAP.</span>
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<p>It is the cornerstone of her enormous wealth. Hancock had staked the original Hamersley lease in the 1950s and sold it to Hamersley Holdings for a percentage share of mine revenue: a private royalty.</p>
<p>Taxes are, of course, payments to governments. Different forms of government revenue can have more or less tax-like attributes. </p>
<p>Where a government owns the land, rent on the occupancy of land may appear as a tax. </p>
<p>Where a government owns the mineral reserves, royalties will appear as taxes. And of course, governments levy taxes on profits, including taxes on surplus profits or economic rents. </p>
<p>It is important to be clear that the sort of rent referred in the Gillard Government’s mineral resources rent tax is a surplus profits tax. It is not related to the common concept of rent, nor is it a royalty.</p>
<p>These categorical distinctions are contentious – as are their policy ramifications - but they are also critical. </p>
<p>An immediate problem here is the nature of the Australian federal system, for it is contestable as to which government has rights to tax the surplus revenues that arise from high global mineral prices and associated high mining company profits. </p>
<p>The federal government has a claim over a profits tax, while state governments have claims to royalty payments. </p>
<p>So the important question to ask is: are mining profits high because of something inherent in the mineral deposits, or because of something in the efficiency or market power of the mining companies? </p>
<p>If the former, it looks like high profits are the subject of state government royalty claims. If the latter, then they are rightfully in the zone of federal income tax.</p>
<h2>Breaking ground </h2>
<p>It is not my intention to adjudicate here, but merely to reintroduce some historical evidence that is germane to the debate. </p>
<p>In 1938 the Federal Government imposed an embargo on iron ore exports in the belief that Australia’s deposits were tiny. They needed to be kept for domestic needs and away from the Japanese war machine. </p>
<p>But the discovery (though perhaps the correct term is rediscovery) in the 1950s of massive iron ore deposits in the Pilbara changed Australian mining dramatically. With the deposits confirmed, the export embargo was lifted by the Federal Government in 1960 and the government of Western Australia proclaimed the Pilbara open for business. </p>
<p>This year is the 50th anniversary of the first granting of mining rights to Pilbara iron ore. </p>
<p>With mineral deposits owned by the Crown (state governments), the establishment of iron ore mines occurred only by agreement with the WA government . </p>
<p>Moreover, by its ownership of the deposits, the Crown was at liberty to charge a royalty on extracted ore. Indeed, it can be argued, this is not a liberty, but an obligation, for once ore is extracted, it is an asset forever lost to the Crown and, thereby, the people of WA.</p>
<p>Each of these agreements took the form of an act of WA Parliament. In 1963 and 1964 there were five such acts, giving approval for five new mine sites. </p>
<p>Each included royalty payments to the WA government.</p>
<p>These initial agreements specified low royalty payments on output, and instead required the companies to provide all their own infrastructure – mining towns, railways, ports, and so on. </p>
<p>While presented as a demand on companies, the investments could be written off against income tax. Moreover, the outcome of this was that the companies held monopoly rights over rail and ports, with the capacity to set high freight and port prices for later-entry mining companies.</p>
<p>These initial agreements also required mining companies to undertake certain commitments to process iron ore in the state. </p>
<p>The WA government was intent on securing a process of industrialisation, not just a string of quarries. It believed, rightly or wrongly, that the building of processing plants and steel mills, more than payments into state coffers, represented the long-term interest of WA. </p>
<p>The specific terms of these agreements involved the greatest obligations of processing on those ore deposits which were recognised to offer the largest prospective profitability. </p>
<p>With the deposits claimed by Hamersley (Mount Tom Price) and by the Mount Newman consortium (Mount Whaleback) recognised to be the most valuable, it was these two projects which were committed to the most extensive programs of mineral processing. </p>
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<img alt="" src="https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/1677/original/pilbarastock2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">AAP.</span>
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<p>Each was required to establish secondary processing, such as concentration or other benefaction, within WA within 13 years of the commencement of iron ore exports. They were also required to submit plans for the establishment of an integrated iron and steel works in WA within 20 years. </p>
<p>By contrast, the agreement with Mount Goldsworthy required only secondary processing and “additional upgrading or benefaction”. The Robe River project required only a pelletising plant, while the agreement with Western Mining for the small and low grade Tallering Peak mine made, in effect, no processing requirements at all.</p>
<p>Of course, these processing requirements were not what the mining companies wanted. It was effectively the cost of getting access to the huge profit potential that lay beneath the ground. Accordingly, the construction of processing facilities was undertaken reluctantly. </p>
<p>For the Mount Newman project, these obligations changed once BHP joined the project in 1966. </p>
<p>BHP agreed to take Mount Newman ore for its own iron and steel making operations at Kwinana, an industrial area south of Perth. </p>
<p>As a consequence, the Mount Newman consortium was released by the WA Government from any processing commitments. Quite why this was a good deal for the people of the state is hard to see, but it was likely part of a concessionary deal to get an Australian company, BHP, in as a player in Pilbara iron ore. </p>
<p>This was back when the nationality of companies mattered (although BHP had yet to claim the title “the big Australian”), but the Pilbara developments were out of the league of so-called “Australian” companies. </p>
<p>It sounds strange today, but back then BHP lacked investment capacity, and the processing concessions were what made BHP’s entry attractive to the other Mount Newman partners. </p>
<p>With the Mount Newman consortium freed of obligations, it was Hamersley, majority owned by Rio Tinto-Zinc, via its Australian subsidiary CRA, which faced the highest processing obligations. </p>
<p>It had a pellet plant running in 1968. But a steel plant never eventuated and perhaps it would have been a waste of investment anyway. </p>
<p>Lang Hancock knew it at the outset. His royalty payments didn’t begin until extracted ore was sold, so he was keen to see the WA government appeased. </p>
<p>He claimed to have told the Chairman of RTZ, Sir Val Duncan, that Hamersley had to promise the WA Government a steel mill. </p>
<p>According to a biography of Hancock, he once declared, “It would never matter a bugger if it never turned a wheel; he’d still come out on the right side of the ledger”. It is as sharp a statement as you could want to illustrate just how low the government royalty was set.</p>
<h2>Troubled beginnings </h2>
<p>In retrospect, the tax fight between royalties, local processing and national corporate taxation revenue was already fierce by the mid 1960s. </p>
<p>It seems the mining companies played the governments – state and federal – for novices and fed off the conflicts between these different levels of government. </p>
<p>The companies got the low royalties and the tax concessions on infrastructure development, but the down-stream processing didn’t occur as agreed. And what did occur didn’t last. </p>
<p>Instead, the mining companies have become highly profitable, the federal and state governments have taken but a modest share of revenue and, in iron ore, the “big Australian” title now rests with Gina Rinehart whose wealth base is not production of ore or mineral processing, but merely receipt of royalty payments. </p>
<p>Perhaps it is too late to reevaluate the initial deal and challenge the terms on which iron ore companies have, for almost 50 years, accessed publicly-owned wealth. </p>
<p>While the companies themselves have changed a lot in 50 years, it seems to be too short a time to discern a change in relations between mining companies and governments. </p>
<p>Throughout it all, this is a story is of mining industry profits underwritten by governments – a perspective lost in the analysis of the MRRT and the current standoff between the federal and WA governments.</p><img src="https://counter.theconversation.com/content/230/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dick Bryan receives funding from the Australian Research Council</span></em></p>Andrew “Twiggy” Forrest’s visit to Canberra earlier this week didn’t prove particularly effective in swaying the government on its freshly drafted mineral resources rent tax (MRRT) legislation. But the…Dick Bryan, Professor, Department of Political Economy , University of SydneyLicensed as Creative Commons – attribution, no derivatives.