tag:theconversation.com,2011:/id/topics/mining-tax-1316/articlesMining tax – The Conversation2023-01-08T08:45:57Ztag:theconversation.com,2011:article/1957642023-01-08T08:45:57Z2023-01-08T08:45:57ZClimate change action could set off a copper mining boom: how Zambia can make the most of it<figure><img src="https://images.theconversation.com/files/501330/original/file-20221215-12-7qdic2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Batches of copper sheets stored in a warehouse at Mopani mines, Mufilira, Zambia. </span> <span class="attribution"><span class="source">Per-Anders Pettersson/Getty Images</span></span></figcaption></figure><p>At last year’s US Africa leaders summit in Washington the US signed an historic <a href="https://news.bloomberglaw.com/environment-and-energy/us-agrees-to-support-ev-battery-plan-by-congo-zambia">memorandum of understanding</a> with Zambia and the Democratic Republic of Congo to develop an electric vehicle battery supply chain. </p>
<p>At the summit, Zambian President Hakainde Hichilema also announced that Kobold metals, an exploration firm backed by billionaires Bill Gates, Jeff Bezos and Richard Branson, <a href="https://www.reuters.com/world/africa/billionaire-backed-kobold-metals-invest-zambia-copper-mine-2022-12-14/">will invest US$150 million to develop a new mine in Zambia</a>.</p>
<p>Zambia is particularly well positioned to supply what the world needs. It has substantial reserves of copper and cobalt, critical metals for the transition from fossil fuels to renewable energy. Due to their broad uses in wind and solar powered technology and electric vehicle production, these metals will play a <a href="http://hdl.handle.net/10986/28312">crucial role</a> in a low carbon future. </p>
<p>Copper demand is expected to <a href="https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions/mineral-requirements-for-clean-energy-transitions#abstract">increase</a> up to threefold by 2040 while cobalt demand is expected to rise over 20 fold. </p>
<p>Zambia has <a href="http://hdl.handle.net/10986/2772">6%</a> of the world’s copper reserves, and the metal accounts for up to <a href="https://www.aa.com.tr/en/economy/falling-copper-prices-hit-zambia-in-pocket/73273">80%</a> of its export earnings. </p>
<p>The coming copper boom presents Zambia with an extraordinary opportunity – to enable mining profits as well as to power inclusive growth. </p>
<p>But, as Zambia’s history shows, this is easier said than done. Successive rises in copper prices have not translated into reducing poverty or inequality. Zambia is still the <a href="https://worldpopulationreview.com/country-rankings/wealth-inequality-by-country">fourth most unequal country</a> in the world. </p>
<p>Based on our <a href="https://academic.oup.com/wbro/article/36/2/164/5813434">published</a> research and <a href="https://www.sciencedirect.com/science/article/pii/S0301420720309983?via%3Dihub">expertise</a> – including work with the <a href="https://www.theigc.org/">International Growth Centre</a> in the London School of Economics and engagement with the Zambian government on a research agenda for the country’s mining sector – we argue that Zambia can benefit from the energy transition underway. But it can only do so by harnessing the non-tax benefits of mining. </p>
<p>Non-tax benefits are the opportunities that stem from the mining activity itself. Most mining firms spend the bulk of their revenue on operational and capital expenditures, a larger share than goes towards either profits or government tax. </p>
<p>A non-tax benefit approach would mean that Zambian companies and workers would participate in mining’s value chain, and Zambian communities would benefit from the infrastructure needed to extract and move the bulk materials. </p>
<p>In the past, Zambia has been more focused on capturing tax benefits through changes to the fiscal regime. But a balanced approach of a stable mining taxation policy and the pursuit of non-tax benefits could deliver broader gains.</p>
<h2>Zambia’s unequal growth story</h2>
<p>Zambia’s track record for converting commodity booms into tangible benefits is mixed at best. </p>
<p>Take the last commodity cycle. Sparked by growing demand from China, copper prices began to <a href="https://www.ijstr.org/final-print/oct2015/Analysis-Of-Coppers-Market-And-Price-focus-On-The-Last-Decades-Change-And-Its-Future-Trend.pdf">increase</a> in 2004. From 2003 to 2006 the price of copper, Zambia’s main export, more than tripled. Zambia’s economic growth rate took off in response. (See Figure 1.)</p>
<p>Yet there was no corresponding impact on <a href="https://www.theigc.org/project/economic-growth-inequality-poverty-estimating-growth-elasticity-poverty-zambia/">poverty and income inequality</a>. Zambia’s Gini coefficient, a measure of inequality, actually rose slightly during the cycle. </p>
<p>Even Zambia’s poverty rate, as measured by the percentage of the population living on less than US$2.15 per day (in 2017 purchasing power parity dollars), rose through 2010 before starting to reverse. </p>
<p>That year, a stunning 68.5% of Zambia’s people were living in poverty in a country where annual GDP per person was a much more impressive US$3,125.52 (also in 2017 dollars) – four times the poverty rate. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=367&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=367&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=367&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=462&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=462&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501825/original/file-20221219-24-54k1cg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=462&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 1.</span>
<span class="attribution"><span class="source">Authors' computations from World Bank Data</span></span>
</figcaption>
</figure>
<p>During commodity booms, governments may be tempted to focus on capturing short-term gains, which are frequently understood in monetary terms and primarily as tax benefits. </p>
<p>For Zambia, this dynamic was overlaid on top of the disastrous advice the government had received on how to reopen its previously nationalised copper sector a decade earlier.</p>
<p>The Zambian government entered into unfavourable terms with new mine owners, offering generous tax incentives that led to a loss <a href="https://link.springer.com/chapter/10.1057/9780230115590_3">in tax revenue</a> just a handful of years before the copper price rose.</p>
<p>This fuelled a fixation on getting tax revenue from the sector.</p>
<p>In 2008, amid the boom, Zambia introduced a <a href="https://www.wider.unu.edu/publication/zambia%E2%80%99s-mining-windfall-tax-0">windfall tax</a> on mining profits in an attempt to capture more benefits from the sector. Less emphasis was placed on the largely untapped non-tax benefits. </p>
<h2>Why non-tax benefits?</h2>
<p><a href="https://unctad.org/system/files/non-official-document/unda1617ld03_mining_SA_en.pdf">Non-tax benefits</a> are where the real potential to drive inclusive growth lies, as we detail below. </p>
<p>Figure two is a hypothetical one that illustrates the point. For every $100 generated in revenue, imagine that $70 is spent on operational and capital expenditures, that is, running the mine and expanding operations. (This is not unrealistic: <a href="https://www.researchgate.net/publication/304909452_Doubling_Energy_Productivity_by_2030_-_Re-Energising_the_Mining_Sector_to_Improve_Its_Competitiveness_-_Full_Report">margins</a> in the sector are not very high most of the time.)</p>
<p>If more of this were spent within the country rather than being sent abroad to import the majority of goods and services, it could contribute to business opportunities for Zambian companies and high-paying jobs for Zambian workers. </p>
<p>In 2012, the costs of goods and services consumed “upstream” by the Zambian mining sector was valued at <a href="https://academic.oup.com/book/40396/chapter/347211221">US$2.5 billion</a> annually. Spending more of that domestically would have a much wider impact. It would create income and jobs directly. And that income would finance further consumption and investment through the local economy. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501667/original/file-20221217-20-d0b0gl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 2.</span>
<span class="attribution"><span class="source">Authors’ illustration</span></span>
</figcaption>
</figure>
<p>Non-tax benefits can also emerge from “sidestream” projects related to mining expenditure, adding value to the wider economy. The power, rail and road projects that enable mining activity can provide the backbone to make other economic activities competitive. </p>
<p>“Downstream” linkages are also possible – delivering the mining firm’s output to other firms that process it into intermediate goods and final products. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=342&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=342&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=342&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=430&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=430&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498508/original/file-20221201-6347-74hj7k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=430&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 3.</span>
<span class="attribution"><span class="source">Lombe 2020, adapted from Fessehaieet al. 2015:53</span></span>
</figcaption>
</figure>
<h2>What would non-tax benefits look like for Zambia?</h2>
<p>Figure three shows the breakdown of Zambian mining firms’ goods and services expenditure. </p>
<p>In 2012, 96% of all service were provided by foreign firms. Only 4% were provided by Zambian-owned firms. These were mostly supplying non-core goods and services such as catering, security and office maintenance. </p>
<p>Capturing more of mining’s upstream value chain in Zambia represents a major growth opportunity.</p>
<p>One way to make this happen is through a <a href="https://doi.org/10.1093/oso/9780198851172.003.0019">local content strategy</a> that would give a greater role to Zambian suppliers and workers in the mining sector. </p>
<p>Another growth opportunity is the side-stream linkages with the electricity generation sector. For example, a mining company could sell surplus renewable power to the grid.</p>
<h2>Zambia shouldn’t ignore mining taxation</h2>
<p>By advocating for non-tax benefits, we are not suggesting that taxation be ignored. Copper reserves over time will run out, or copper will be rendered obsolete by some new technology. This is the risk with all natural resources. A government must generate tax revenue from its mineral resources while it can.</p>
<p>Multinational companies can find ways to pay as little tax as legally possible. In the past, Zambia tried to stop this by tinkering repeatedly with the mining tax system – without getting results. </p>
<p>Better would be to leave the tax regime in place and instead focus on monitoring and collection. </p>
<h2>A governance dividend</h2>
<p>Zambia’s government must keep in mind that poor governance will be a constraint to achieving any future – tax or non-tax – benefits. </p>
<p>This was the case during Zambia’s last boom. But the country is currently reaping a governance dividend with a new investor-friendly president, restored donor confidence and a recently secured IMF deal. </p>
<p>The conditions are in place for Zambia to use this boom to generate inclusive development.</p><img src="https://counter.theconversation.com/content/195764/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The coming copper boom presents Zambia with an extraordinary opportunity – not only to enable mining profits, but to power inclusive growth.Twivwe Siwale, Head of Tax for Growth, International Growth Centre, London School of Economics and Political ScienceEric Werker, William Saywell Professor of International Business, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1146322019-04-08T20:10:41Z2019-04-08T20:10:41ZWhat will the Coalition be remembered for on tax? Tinkering, blunders and lost opportunities<p><em>This article is part of a <a href="https://theconversation.com/au/topics/coalition-record-2019-69102">series</a> examining the Coalition government’s record on key issues while in power and what Labor is promising if it wins the 2019 federal election.</em></p>
<hr>
<p>Politicians often invoke the word “reform” to convey the significance, or gravitas, of a particular policy change they are proposing.</p>
<p>However, the tax policies implemented over the six years of the Abbott-Turnbull-Morrison government should be more aptly described as: no reform, lots of tinkering, two blunders and some lost opportunities.</p>
<p>To be fair to the leaders of the Coalition, both Abbott and Turnbull began their prime ministerships professing a large appetite for tax reform.</p>
<p>In opposition Abbott and his treasury spokesman Joe Hockey had promised a major inquiry. Hockey said it would pick up where Labor’s <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/home.htm">Henry Tax Review</a> left off:</p>
<blockquote>
<p>We thought the Henry Tax Review was going to be a proper process. Now, that has obviously been an abject failure. We’ve said - Tony Abbott announced
in Budget and reply speech - we will have a proper process for proper tax reform, and whatever comes out of that process, which will be a white paper, we will take to a subsequent election, seeking the mandate of the
Australian people - their approval.</p>
</blockquote>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=852&fit=crop&dpr=1 600w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=852&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=852&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1071&fit=crop&dpr=1 754w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1071&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1071&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Treasury’s Re:think tax discussion paper, which is as far as the tax white paper process got.</span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">Source: Commonwealth Treasury</a></span>
</figcaption>
</figure>
<p>It got as far as a <a href="https://treasury.gov.au/consultation/c2015-tax-white-paper-dp">discussion paper</a>, seeking submissions.</p>
<p>When Turnbull assumed the leadership, the draft white paper, which would have followed the discussion paper, was <a href="https://www.smh.com.au/business/the-economy/malcolm-turnbull-halts-tax-white-paper-in-major-reset-20150923-gjstsm.html">scuttled</a>, and the process ended.</p>
<h2>Tinkering…</h2>
<p>Instead what resulted were marginal changes to personal income tax. One of the brackets was expanded and a new <a href="https://theconversation.com/its-the-budget-cash-splash-that-reaches-back-in-time-114188">low and middle income tax offset</a> was added.</p>
<p>Marginal changes to superannuation tax further added to the complexity of the tax system as a whole. The current superannuation system disproportionately rewards higher income earners because most contributions are taxed at the same low rate (15%) regardless of the taxpayers’ income tax rate.</p>
<p>The Coalition’s response was to apply a 30% tax on contributions for those earning $250,000 or more (down from the previous threshold of $300,000) and to cut the cap on concessional contributions from $30,000 ($35,000 for those aged 49 and over) to $25,000. And it capped at $1.6 million the amount that could be transferred into the “retirement phase” where fund earnings in retirement were exempt from tax. </p>
<p>It <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201617/Superannuation">made the system much more complex</a>, and it could have been done more simply, perhaps by reimposing tax on super earnings in retirement (at a low rate) or by taxing by contributions at a standard discount to taxpayers at a marginal rate, as <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm">recommended by the 2009 Henry Tax Review</a>.</p>
<p>Alongside these marginal changes, there was also a failed attempt to cut the company tax rate (only the tax rates <a href="https://theconversation.com/what-economists-and-tax-experts-think-of-the-company-tax-cut-72198">for small companies</a> were cut) and a muddled discussion about the progressivity of the income tax system.</p>
<p>All in all, many a tinker, but no reform.</p>
<h2>Blunders…</h2>
<p>Human-induced climate change is compromising the sustainability of our planet. The only way to solve it is by changing incentives using the economic toolkit at our disposal. The Carbon Tax was <a href="https://theconversation.com/axing-the-carbon-tax-saving-households-costing-climate-20065">a good tax</a>. It shifted the costs of pollution onto those who created it, instead of subsidising processes that damaged the environment. </p>
<p>No solution to climate change is possible without corrective taxes. </p>
<p>At some point we’ll have to <a href="https://theconversation.com/for-this-generation-and-the-next-its-time-to-bring-back-the-carbon-tax-38224">climb that mountain again</a>, assuming the mountain is not underwater before politicians come to their senses.</p>
<p>The repeal of the <a href="https://theconversation.com/coalition-to-axe-mining-tax-but-petroleum-will-keep-on-giving-17952">Minerals Resource Rent Tax</a> was also a step backwards. By taxing rents (excess profits) instead of profits, it avoided the disincentives created by traditional company taxes. And, it was a good example of the kind of taxes that could eventually replace or supplement company tax.</p>
<h2>…and lost opportunities</h2>
<p>Changing the GST could have ensured at least one significant contribution to overall tax reform. At 10%, the rate is relatively low by international standards and applies to a shrinking share of spending, as more and more of our money is spent in places or on goods that aren’t taxed. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Value-added (GST) tax rates in OECD and selected Asian countries.</span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">Re:think, Treasury tax discussion paper, March 2015</a></span>
</figcaption>
</figure>
<hr>
<p>These factors, combined with the fact that GST is difficult to evade and less costly to administer, suggest that broadening the base is low hanging fruit on the tax reform tree, ripe for picking. </p>
<p>Instead, it may as well be forbidden fruit from the Garden of Eden. We’ve gone in the wrong direction by adding <a href="https://www.austaxpolicy.com/seeking-sanity-gst-sanitary-tax-debate/">even more exemptions</a> and <a href="https://www.smh.com.au/politics/federal/off-the-table-why-the-gst-wont-be-lifted-to-15-per-cent-20151209-gljold.html">cutting short</a> talk of increasing the rate.</p>
<p>The failed debate on company tax cuts was another <a href="https://theconversation.com/myth-busting-claims-on-the-impact-of-the-company-tax-cut-75226">missed opportunity</a>. </p>
<p>What remains is a system that applies <a href="https://theconversation.com/why-small-business-tax-cuts-arent-likely-to-boost-jobs-and-growth-72658">different rates to different company sizes</a>, one of <a href="https://theconversation.com/how-the-government-can-pay-for-its-proposed-company-tax-cuts-92739">few remaining</a> dividend imputation systems in the world, and no discussion about the sustainability of corporate income tax revenue in the future.</p>
<p>All up, the government’s approach over the past six years has largely been piecemeal. It also managed to dismantle two of the most significant tax reforms that could have contributed to a more sustainable tax base in the long run.</p>
<h2>Would Labor be better?</h2>
<p>It remains to be seen whether a Labor government will be able to achieve more. Some of the party’s proposed changes, such as the treatment of capital gains, head in the right direction, but what it is offering falls short of comprehensive reform.</p>
<p>At the same time, many of its proposed changes will add additional complexity, fail to account for interactions within the entire tax system and use tax exemptions to reach goals that <a href="https://theconversation.com/what-just-happened-to-our-tax-heres-an-explanation-youll-understand-114913">could be better achieved with payments</a>.</p>
<p>Many an international tax reform was engendered by crisis, so there’s hope, of a sort. The opportunity still remains to get in early before weaknesses inherent in the current system become grossly apparent.</p>
<p>What we’ve got is unfair and its complexity rewards those with the resources to pay to understand and exploit it. It is overly reliant on income and company tax in place of indirect taxes, like consumption tax, and it tries to achieve too many disparate objectives, without consideration for the workings of the family and social security payments system.</p>
<p>There is much scope to improve things. What we need most are fearless leaders, from all sides of the political spectrum, who treat comprehensive tax reform as important and can work together to achieve it.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-will-the-turnbull-morrison-government-be-remembered-for-114618">What will the Turnbull-Morrison government be remembered for?</a>
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<img src="https://counter.theconversation.com/content/114632/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Breunig directs the Tax and Transfer Policy Institute which is partly funded by a grant from the Australian Commonwealth Government.</span></em></p><p class="fine-print"><em><span>The Tax and Transfer Policy Institute (TTPI) is funded in part by a grant from the Australian Commonwealth Government.</span></em></p>Six years of Coalition government has had little impact on the tax system. It’s not clear whether a Labor government would be any different.Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityKristen Sobeck, Senior Research Officer, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/844072017-09-22T03:04:19Z2017-09-22T03:04:19ZIs BHP really about to split from the Minerals Council’s hive mind?<p>Shareholder action has struck again (perhaps). The <a href="http://www.accr.org.au/">Australasian Centre for Corporate Responsibility</a>, on behalf of more than 120 shareholders of BHP, has <a href="https://www.theguardian.com/business/2017/sep/19/bhp-agrees-to-rethink-its-links-to-minerals-council-of-australia">convinced the Big Fella to reconsider</a> its membership of the <a href="http://www.minerals.org.au/">Minerals Council of Australia</a>.</p>
<p>Business associations and umbrella groups exist to advance the interests of their members. The ones we know most about are those that are in the public eye, lobbying, producing position papers that put forward controversial and unpopular positions (while giving their members plausible deniability), running television adverts, and attacking their opponents as naive idealists at best, or luddites and <a href="https://www.theguardian.com/environment/2013/sep/11/watermelon-climate-debate">watermelons</a> (green on the outside, red on the inside) at worst. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/risky-business-how-companies-are-getting-smart-about-climate-change-65221">Risky business: how companies are getting smart about climate change</a>
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<p>This has been going on for a century, as readers of the late Alex Carey’s <a href="https://www.amazon.co.uk/Taking-Risk-Out-Democracy-Communication/dp/0252066162">Taking the Risk out of Democracy: Corporate Propaganda versus Freedom and Liberty</a> will know. (Another Australian, <a href="https://en.wikipedia.org/wiki/Sharon_Beder">Sharon Beder</a> ably continued his work, and more recently yet another Australian, Kerryn Higgs, <a href="https://mitpress.mit.edu/books/collision-course">wrote excellently on this</a>.)</p>
<p>Alongside the gaudy outfits sit lower-profile and occasionally very powerful coordinating groups, such as the Australian Industry Greenhouse Network (see Guy Pearse’s book <a href="https://www.penguin.com.au/books/high-and-dry-9781742284057">High and Dry</a> for details).</p>
<p>Ultimately, however, membership of these groups can have costs to companies – beyond the financial ones. If an industry body strays too far from the public mood, individual companies can feel the heat. This happened in the United States in 2002, with the <a href="https://en.wikipedia.org/wiki/Global_Climate_Coalition">Global Climate Coalition</a>, a front group for automakers and the oil industry that succeeded in defeating the <a href="https://en.wikipedia.org/wiki/Kyoto_Protocol">Kyoto Protocol</a> but then outlived its usefulness. It happened again in 2009 when a group of companies (including <a href="https://www.theguardian.com/business/2009/sep/29/us-chamber-commerce-climate-change">Nike</a>, <a href="https://www.nrdc.org/experts/pete-altman/microsoft-chamber-doesnt-speak-us-climate">Microsoft</a> and Johnson & Johnson) decided their reputations were being damaged by continued membership of the US Chamber of Commerce, which was taking a particularly intransigent line on President Barack Obama’s climate efforts.</p>
<h2>Doings Down Under</h2>
<p>What’s interesting in this latest spat is that it involves two very powerful players. Let’s look at them in turn.</p>
<p>The Minerals Council of Australia (MCA) <a href="http://www.tandfonline.com/doi/pdf/10.1080/00076799800000222">began life in 1967, as the Australian Mining Industry Council</a>, when Australia’s export boom for coal, iron ore and other commodities was taking off.</p>
<p>From its earliest days it found itself embroiled in both Aboriginal land rights and environmental disputes, having established an environment subcommittee in 1972. Over time, the Council took a robust line on both topics, to put it mildly. </p>
<p>In 1990, at the height of green concerns, the then federal environment minister <a href="https://en.wikipedia.org/wiki/Ros_Kelly">Ros Kelly</a> offered a scathing assessment of the council, saying that its idea of a sustainable industry was: </p>
<blockquote>
<p>…one in which miners can mine where they like, for however long they want. It is about, for them, sustaining profits and increasing access to all parts of Australia they feel could be minerally profitable, even if it is of environmental or cultural significance.</p>
</blockquote>
<p>Meanwhile, the council’s <a href="https://books.google.co.uk/books?id=l7DpUVUpmq8C&pg=PA124&lpg=PA124&dq=amic+aboriginal+land+rights&source=bl&ots=-KfJyeYRH2&sig=TAHA0n1OLUNs4oJiE-WDTV_dyZQ&hl=en&sa=X&ved=0ahUKEwiD0taUgLTWAhVDBBoKHRkwBeUQ6AEIPDAE#v=onepage&q=amic%20aboriginal%20land%20rights&f=false">intransigent position on Aboriginal land rights</a>, especially after the <a href="https://www.reconciliation.org.au/wp-content/uploads/2014/03/NRW2014_3-June-Mabo_FactS.pdf">1992 Mabo decision</a>, caused it to lose both credibility and – crucially – <a href="http://resolution88.com.au/wp-content/uploads/articles/The%20sky%20did%20not%20fall%20in.pdf">access to land rights negotiations</a>.</p>
<p><a href="http://www.acilallen.com.au/person/1/geoff-allen-am">Geoff Allen</a>, a business guru who had created the <a href="https://en.wikipedia.org/wiki/Business_Council_of_Australia">Business Council of Australia</a>, was called in to write a <a href="http://onlinelibrary.wiley.com/doi/10.1002/pa.388/abstract">report</a>, which led the Minerals Council to adopt its present name, and a more emollient tone. </p>
<p>The MCA’s peak of influence (so far?) was its role in the <a href="https://theconversation.com/hashtags-v-bashtags-a-brief-history-of-mining-advertisements-and-their-backlashes-47359">Keep Mining Strong</a> campaign of 2010, which sank Kevin Rudd’s planned super-profits tax. The following year, it combined with other business associations to form the <a href="http://www.sourcewatch.org/index.php/Australian_Trade_and_Industry_Alliance">Australian Trade and Industry Alliance</a>, launching an <a href="https://www.youtube.com/watch?v=yehT-m0TJMY">advertising broadside</a> against Julia Gillard’s carbon pricing scheme (which was not, as former Liberal staffer Peta Credlin has <a href="http://www.sbs.com.au/news/article/2017/02/12/carbon-tax-just-brutal-politics-credlin">now admitted</a>, a “carbon tax”). </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/yehT-m0TJMY?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Bashing the carbon tax.</span></figcaption>
</figure>
<p>The MCA has since kept up a steady drumbeat of attacks on renewable energy, and most infamously supplied the <a href="https://www.theguardian.com/australia-news/2017/feb/09/scott-morrison-brings-coal-to-question-time-what-fresh-idiocy-is-this">(lacquered) lump of coal brandished by Treasurer Scott Morrison in parliament</a>. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/hashtags-v-bashtags-a-brief-history-of-mining-advertisements-and-their-backlashes-47359">Hashtags v bashtags: a brief history of mining advertisements (and their backlashes)</a>
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<p>The most important thing, for present purposes, to understand about the MCA is that it may well have been the subject of a reverse takeover by the now defunct Australian Coal Association. In a <a href="https://www.thesaturdaypaper.com.au/news/politics/2015/10/24/how-the-minerals-council-australia-has-govts-ear-coal/14456052002539">fascinating article in 2015</a>, Mike Seccombe pointed out that:</p>
<blockquote>
<p>Big as the coalmining industry is in Australia, it accounts for only a bit more than 20% of the value of our mineral exports. Yet now the Minerals Council has come to be dominated by just that one sector, coal… Representatives of the biggest polluters on the planet now run the show.</p>
</blockquote>
<p>This brings us to BHP. As a global resources player, with fingers in many more pies than just coal (indeed, it has spun its coal interests off into a company called <a href="http://www.reuters.com/article/us-bhp-billiton-divestiture/bhp-hopes-south32-spinoff-will-help-it-to-shine-in-low-price-markets-idUSKBN0MC2FW20150317">South32</a>), it has remained phlegmatic about carbon pricing, even as the MCA and others have got into a flap. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/say-what-you-like-about-bhp-it-didnt-squander-the-boom-55227">Say what you like about BHP, it didn't squander the boom</a>
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<p>To BHP, the advent of carbon pricing in Australia was if anything a welcome development. The move offered two main benefits: valuable experience of doing business under carbon pricing, and a chance to influence policy more easily than in bigger, more complex economies. </p>
<p>In 2000, the company’s <a href="https://hbr.org/2013/11/the-ceo-who-led-a-turnaround-without-wearing-a-helmet">American chief executive, Paul Anderson</a>, tried to get the Business Council of Australia to discuss ratification of the Kyoto Protocol (which would build pressure for local carbon pricing). He couldn’t get traction. <a href="http://www.smh.com.au/news/environment/delayed-reaction/2007/03/23/1174597882759.html?page=fullpage#contentSwap3">Interviewed in 2007</a>, he recalled:</p>
<blockquote>
<p>I held a party and nobody came… They sent some low-level people that almost read from things that had been given to them by their lawyers. Things like, ‘Our company does not acknowledge that carbon dioxide is an issue and, if it is, we’re not the cause of it and we wouldn’t admit to it anyway.’</p>
</blockquote>
<h2>The schism</h2>
<p>As the physicist Niels Bohr <a href="https://www.brainyquote.com/quotes/quotes/n/nielsbohr130288.html">said</a>, “prediction is very difficult, especially about the future”. I wouldn’t want to bet on whether BHP will actually go ahead and leave the MCA, or whether the Minerals Council will revise its hostile position on environmental sustainability.</p>
<p>BHP has promised to “make public, by 31 December 2017, a list of the material differences between the positions we hold on climate and energy policy, and the advocacy positions on climate and energy policy taken by industry associations to which we belong”.</p>
<p>In reaching for a metaphor to try and explain the situation, I find myself coming back to <a href="https://en.wikipedia.org/wiki/I,_Borg">an episode of Star Trek: The Next Generation</a>. The heroic crew has captured an individual from the “Borg”, a collective hive-mind entity. They plan to implant an impossible image in its brain, knowing that upon release it will reconnect, shunt the image upwards for the hive mind to try to understand, and thus drive the entire Borg stark raving mad as it tries in vain to compute the information it is receiving. </p>
<p>This analogy is admittedly crude, I’ll grant you. It is, I submit, also a pretty accurate picture of what might happen when an MCA member grows a climate conscience.</p><img src="https://counter.theconversation.com/content/84407/count.gif" alt="The Conversation" width="1" height="1" />
What happens when the gap between a company and its umbrella group gets too wide? We’re about to find out.Marc Hudson, PhD Candidate, Sustainable Consumption Institute, University of ManchesterLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/799372017-06-28T14:59:36Z2017-06-28T14:59:36ZThe DRC is revisiting its mining code. Why reform is long overdue<figure><img src="https://images.theconversation.com/files/176004/original/file-20170628-25818-w7fiae.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"> A worker walks near the Congolese state mining company Gecamines' in the southern province of Katanga</span> <span class="attribution"><span class="source">REUTERS/Jonny Hogg </span></span></figcaption></figure><p>The government of the Democratic Republic of the Congo (DRC) recently <a href="https://www.bloomberg.com/news/articles/2017-05-22/congo-to-revisit-mine-law-proposals-rejected-by-industry-in-2015">announced plans</a> to reintroduce the shelved changes to the country’s mining code.</p>
<p>The current mining code, introduced in 2002, was based on a draft prepared <a href="http://www.lexology.com/library/detail.aspx?g=434e2344-7d5f-4623-b2cb-cd502f0fc076">under the auspices of the World Bank</a>. Its primary objective was to relaunch the industrial mining sector following the Congo Wars of 1996 to 2003 by opening it up to foreign investors. While it has been successful in achieving this goal, the benefits to Congolese people are more difficult to discern. </p>
<p>Today the DRC is Africa’s largest copper producer and the world’s largest cobalt producer. Its mining sector contributes <a href="https://eiti.org/democratic-republic-of-congo#contribution-of-the-extractive-industry-to-the-economy">22% of GDP and 28% of government revenue</a>. Yet the most recent Human Development Report ranks the DRC <a href="http://hdr.undp.org/en/countries/profiles/COD">176 out of 188 countries</a>, with a life expectancy of 59 and 77% of the population living below the income poverty line.</p>
<p>The latest round of changes were originally submitted to parliament in March 2015, but the amendment process <a href="http://af.reuters.com/article/drcNews/idAFL5N16I5EV">was suspended</a> due to collapsed commodity prices and fierce industry opposition.</p>
<p>It’s now back on the agenda. As in the past a major debate will ensue between the Congolese Government, civil society and the DRC mining industry. The strongest opposition to the proposed changes comes from the large multinational mining corporations, who argue that increasing taxes will hold back the sector’s potential.</p>
<p>However, a review of the major tax changes reveals them to align with regional standards. The DRC’s high operating costs are offset by the equally high quality of its mineral deposits, and the current tax rate exerted over the sector is low. In addition, reviving the reform process presents an opportunity to address a number of concerns related to transparency and local development.</p>
<h2>Debunking industry myths</h2>
<p>In the past, propositions that provoked the most debate were those that tried to reduce the tax advantages enjoyed by mining companies. The most important proposed tax changes to the DRC’s mining code are:</p>
<ul>
<li><p>increasing taxes on profits from 30% to 35%;</p></li>
<li><p>increasing the government’s stake in new mining projects from 5% to 10% and;</p></li>
<li><p>increasing royalties from 2% to 3.5% for copper and cobalt.</p></li>
</ul>
<p>When compared to mining tax regimes in other African countries, the proposed changes do not place the DRC outside of the norm. Most African countries demand a 10% government stake in mining projects. The proposed copper royalty tax is also within the range imposed by many governments in the region, such as Zambia (6%), Ghana (5%) and Tanzania (4%).</p>
<p>Likewise, the DRC’s proposed profit tax is within the range of other countries, though it sits at the top end. Both Cameroon and Ghana impose the same 35% profit tax as the DRC is considering.</p>
<p>But the mining industry’s response to these comparisons is twofold. They say the DRC provides an extremely challenging operational environment, with exceptionally high transport and power costs. And they say what matters is not individual tax rates, but the overall tax burden (including both formal and informal taxes).</p>
<p>Both points are questionable. </p>
<h2>Costs, and the opaque world of taxes</h2>
<p>A <a href="https://resourcegovernance.org/sites/default/files/documents/nrgi-sortir-de-impasse-fiscale-rdc.pdf">report</a> published last year by the Natural Resource Governance Institute - which works with governments on natural resource management - shows the DRC’s production costs to be extremely favourable compared to regional competitors. In 2013 the average production cost of copper in the DRC was $3,672 per tonne. This same cost was $4,582 in Zambia and $4,931 in South Africa. </p>
<p>High quality Congolese mineral deposits appear to offset high operational expenses to generate low production costs (and therefore high profits). Indeed, last year <a href="http://www.miningweekly.com/article/drc-mines-still-attractive-investment-prospect-for-china-despite-risks-2016-08-05/rep_id:3650">the research firm BMI reported</a> that the DRC will remain a “destination of choice” for mining investors in the coming years due to its low production costs and high quality minerals.</p>
<p>The concern about the overall tax rate as opposed to individual tax changes is entirely legitimate. Yet the few non-industry studies that exist suggest this overall rate to be extremely low. Research by Professors <a href="https://www.researchgate.net/profile/Stefaan_Marysse2/publications">Stefaan Marysse</a> and <a href="http://uccc.academia.edu/TshimangaMbuyiKasekaClaudine">Claudine Tshimanga</a> - prominent political economists working on the DRC - revealed a tax rate of 21% for one of the country’s largest copper mines, well below the World Bank’s recommended <a href="http://siteresources.worldbank.org/INTOGMC/Resources/336099-1156955107170/drcgrowthgovernanceenglish.pdf">46% tax rate</a> for the country. </p>
<p>Similarly, a recent fiscal study conducted by the German Society for International Cooperation found that between 2011 and 2014, total state revenue collected by the mining sector amounted to <a href="https://www.uantwerpen.be/images/uantwerpen/container2673/files/Publications/Annuaire/2015-2016/07%20Radley.pdf">a mere 6 percent of total mining sector revenue</a> for the same period.</p>
<h2>What’s been left out</h2>
<p>Yet there’s a danger that the heated debates about tax rates and royalties will drown out the urgency of addressing other big issues, many of which have been left out of the draft revision. Global Witness - a non profit focused on the links between natural resource exploitation, conflict and poverty - <a href="https://www.globalwitness.org/en/press-releases/democratic-republic-congo-plans-water-down-laws-against-mining-corruption/">has been calling attention to these omissions</a>. These include the removal of “crucial regulations banning politicians and senior army figures from owning mining rights”, an opaque tender process and insufficient beneficial ownership disclosure requirements. </p>
<p>In addition, many mining companies <a href="http://news.banro.com/manual-releases/Banro-s-Mining-Convention-And-Titles-Confirmed-By-">have signed “conventions”</a> with the DRC government that exist outside of the tax and legal structure established by the country’s mining code. There’s no provision within the current draft to address this loophole. </p>
<p>Lastly, for a number of years Congolese civil society <a href="http://www.congomines.org/reports/1247-propositions-d-amandements-de-la-societe-civile-au-projet-de-revision-du-code-minier">has been pushing hard</a> for improvements to the code on environmental and local development issues. For example, existing policy provides little guidance on critical issues such as forced displacement. Only three of the mining code’s 344 articles refer to the relationship between title holders and people living in title holders’ concessions. </p>
<h2>Time to seize the opportunity</h2>
<p>The DRC’s mining code is 15 years old. Extremely advantageous fiscal incentives were included back in 2002 to attract foreign investors to the country. Yet they have minimised the benefits of increased mining production to the Congolese government and people. The proposed tax changes bring the DRC up to date with today’s regional standards and should be supported.</p>
<p>But when the DRC’s parliament reopens in September, its members would do well to incorporate civil society concerns on key transparency, environmental and local development issues. Fail to do so, and Congolese people - particularly those directly affected by mining projects - will be locked into another decade or more of inadequate mining legislation. Change is long overdue, and the opportunity must not be missed.</p><img src="https://counter.theconversation.com/content/79937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ben Radley receives funding from The Leverhulme Trust. </span></em></p>The Democratic Republic of the Congo has scheduled its 15-year-old mining code for review. The country must ensure reform that benefits its people.Ben Radley, PHD Researcher at the International Institute of Social Studies, Erasmus University RotterdamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/679422016-11-01T00:15:10Z2016-11-01T00:15:10ZWestern Australia provides a masterclass in what not to do with a resources boom<p>It wouldn’t be too unkind to suggest that Western Australia is not considered as the national benchmark of sophisticated public policy. Indeed, the state has recently attracted much attention – and derision – for the way its policy making elite squandered the wealth generated by the resources boom.</p>
<p>True, we now have more sports facilities than you can poke a stick at, not to mention a major makeover of the city foreshore – albeit noticeably empty of the promised high profile developments that were supposed to succumb to its irresistible allure. But you can’t accuse the Barnett government of not having big ideas. </p>
<p>Funding them has been another issue. Quite how WA managed to emerge from the once in a lifetime mining boom with an estimated debt burden of $40 billion by 2020 and a projected budget deficit of $4 billion is one of the West’s great mysteries. Or not, if you bother to look at what happened to all the <a href="https://www.academia.edu/27612380/Booms_busts_and_parochialism_Western_Australias_implacable_political_geography">riches the boom generated</a>.</p>
<p>WA Nationals leader Brendon Grylls certainly has, and that’s why he’s launched a rather lonely campaign to make the miners pay more tax. Even though this fiscal horse has long since bolted, he’s got a point. Not only did the big miners pay a measly 25 cents per tonne lease rental* to the WA government – a rate fixed in the early 1960s – but the WA government actually subsidised the miners throughout the boom.</p>
<p>According to the Australia Institute, taxation revenue across Australia in 2013-14 (before the collapse in prices) only accounted for about 5% of government revenues. In WA this situation was made worse by a subsidy regime that gifted the big miners some $6 billion at the height of the boom. No surprise that Grylls is on the warpath given his signature ‘Royalties for Regions’ program has been an early casualty of a more austere era.</p>
<p>Was this wasted opportunity and fiscal failure inevitable? Absolutely not. Not only have we been here before and should have learned similar lessons from the boom and inevitable bust of the 1970s, but other countries have been much cleverer in the way they have handled their good fortune.</p>
<p>Every policymaker in Australia should be made to read Paul Cleary’s excellent analysis of the way Norway handled its boom: <a href="http://www.theaustralian.com.au/arts/review/norway-resources-the-good-oil-on-a-trillion-dollar-miracle/news-story/02c157d020b2e26aa506323ae07803d4">Trillion Dollar Baby</a>. The experience could hardly be more different and the comparison would be laughable were it not for the fact that future generations will come to rue the folly and myopia of our current leaders.</p>
<p>The key lesson that emerges from Cleary’s analysis is that even small states can have a big say in determining what happens to the windfall revenues booms generate - but only if they understand what is happening at present and have a plan for the long term future of the country.</p>
<p>Norway had both. First, they had a capable government and skilled bureaucrats (yes, they are valuable and important) who quickly realised that Norway’s oil boom had to be managed for the benefit of Norway, not the multinational oil companies. This meant not being intimidated by powerful multinational corporations and recognising the inherent bargaining strength of national governments. You can only exploit resources where they are. Host governments can - and should - determine how they are developed.</p>
<p>In contrast to successive state and federal governments in Australia, this is precisely what the Norwegians did. First, they compelled the oil majors to build their required oil platforms in Norway, developing a world class manufacturing capability in the process. Secondly, and in another unflattering and revealing contrast to Australia, they ensured 90% of the windfall revenues derived from the oil boom in Norway remained there. </p>
<p>Norway’s “problem”, unlike ours, has been what to do with the astounding amounts of wealth generated as a direct consequence of its activist and enlightened policies. A third critical innovation was establishing a sovereign wealth fund.</p>
<p>Sovereign wealth funds serve two purposes. First, they put aside the windfall revenues of today for future generations – a possibility our own leaders seem incapable of contemplating given their truncated political horizons. Second, by investing most of the wealth overseas, they put downward pressure on the domestic currency, allowing other domestic industries to survive.</p>
<p>At a time when we are collectively waving farewell to much of the manufacturing sector, this is another sobering lesson – especially for the young who will not benefit from all that squandered wealth and may wonder where they will actually work. </p>
<p>The current debate – such as it is – in the West will likely go nowhere. Kevin Rudd’s demise is a reminder of what happens to politicians in this country who dare to take on the miners. The WA Labor Party is unlikely to be any braver or far-sighted on these issues than its federal counterparts. In short, don’t look to the West for a revolution in public policy. But if you want somewhere spacious and well equipped to kick a footie around…</p>
<p><em>Correction: An earlier version of this story referred to a 25 cent per tonne “royalty” paid by the big miners. In fact the 25 cent charge is a “lease rental” and is paid on top of royalties which are a fixed percentage of the sale price of iron ore.</em></p><img src="https://counter.theconversation.com/content/67942/count.gif" alt="The Conversation" width="1" height="1" />
How WA managed to emerge from the mining boom with an estimated debt burden of $40 billion is one of the West’s great mysteries. Or not, if you bother to look more closely.Mark Beeson, Professor of International Politics, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/558182016-03-09T04:41:32Z2016-03-09T04:41:32ZWhy Zimbabwe’s diamond mines need better regulation, not state ownership<figure><img src="https://images.theconversation.com/files/114269/original/image-20160308-22126-iqilgh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Zimbabwe needs more responsible diamond mining companies, not fly-by-night operators</span> <span class="attribution"><span class="source">Reuters/Goran Tomasevic </span></span></figcaption></figure><p>Zimbabwe, like many African countries, faces an ongoing struggle to secure fair compensation for its mineral wealth. The question of how to maximise government revenues from the mining sector is a complex matter. </p>
<p>But turning the sector over to state-owned mining companies has <a href="http://link.springer.com/article/10.1023%2FA%3A1012817825552">rarely optimised</a> mining revenues. What’s needed instead are improvements in management practices, regulations, regulatory capacity and the investment environment. </p>
<p>This issue is back in the Zimbabwean spotlight after the country’s president, Robert Mugabe, announced that the government will <a href="http://www.reuters.com/article/us-zimbabwe-diamonds-idUSKCN0W52J3">take over</a> all diamond operations. His move came soon after the government failed to renew mining licences. Private mining companies were ordered to cease operations, leave their equipment and vacate their premises. </p>
<p>Diamond mining in Zimbabwe has a short but turbulent history. The country’s diamond resources are concentrated in Marange, in its eastern region near the border with Mozambique. A number of private mining companies have operated in partnership with the state-owned Zimbabwe Mining Development Corporation (ZMDC) since the late 2000s. This arrangement began after thousands of artisanal miners were violently <a href="https://www.hrw.org/news/2011/08/30/zimbabwe-rampant-abuses-marange-diamond-fields">forced off</a> the newly discovered alluvial deposits.</p>
<p>The government holds a 50% share in diamond operations through ZMDC. Despite this, it has reportedly received <a href="http://www.theindependent.co.zw/2015/08/28/zimbabwes-diamonds-lose-bling/">insignificant revenues</a> from the sector in recent years. </p>
<p><a href="http://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimbabwe/12182845/Robert-Mugabe-announces-government-to-take-over-all-Zimbabwes-diamond-operations.html">Royalty payments</a>, which are calculated on production volume, plunged to a mere US$23 million last year. That’s down from US$84 million in 2014. Tax payments, which are calculated on profits, have also been negligible. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/114268/original/image-20160308-22138-krysjx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Zimbabwe may have lost as much as US$14 billion of potential diamond revenue according to former finance minister Tendai Biti.</span>
<span class="attribution"><span class="source">Reuters/Philimon Bulawayo</span></span>
</figcaption>
</figure>
<p>Zimbabwe’s former finance minister, Tendai Biti, <a href="http://www.thestandard.co.zw/2016/02/28/zim-diamonds-saga-rages-on/">recently estimated</a> that mining companies may have looted as much as US$14 billion from Zimbabwe over the past seven years. </p>
<h2>Other factors explain declining revenues</h2>
<p>It is very possible that the decline in royalty payments and tax revenues is due to production volumes being under-reported, tax avoidance and diamond smuggling. Zimbabwe has inadequate regulation and the diamond sector lacks transparency. But there are a number of other factors that have likely contributed to the sector’s declining production and government revenues.</p>
<p>First, Marange – Zimbabwe’s largest diamond field – is an alluvial deposit. This makes production at low cost possible, using very basic technology and sometimes even just bare hands. The result has been rapid depletion of the deposit.</p>
<p>Some <a href="http://www.theindependent.co.zw/2015/10/23/diamond-output-hits-rock-bottom/">experts believe</a> that much of Marange’s alluvial resources have already been exploited. This would leave mainly kimberlites, which are more capital intensive to produce. </p>
<p>Second, about 90% of Marange’s diamonds are of relatively low quality. They therefore don’t yield high prices on the world market. They also tend to sell at discounted prices on world markets because of trade sanctions that have been <a href="http://www.consilium.europa.eu/en/press/press-releases/2016/02/15-zimbabwe-eu-prolongs-sanctions-by-one-year/">extended</a> to early 2017. These are being enforced by the US and the European Union because of human rights violations. </p>
<p>Third, mining companies have resisted government pressure to develop open-pit or underground operations. Given the low quality, alluvial nature of Marange’s deposits and the fact that they are likely already very depleted, it is unclear whether upgrading operations to reach deeper resources would be economically viable. </p>
<p>Even if upgrading operations were feasible, this would require considerable capital investment. Mining companies are unlikely to make these investments because Zimbabwe’s business environment is unstable and threatening. </p>
<p>Such an oppressive business environment hits mining companies the hardest. They cannot move their operations elsewhere, as they are tied to where the natural resources are located. </p>
<p>Zimbabwe also has an inclination towards expropriation. It is therefore hardly surprising that mining companies are reluctant to invest, preferring the easy pickings of alluvial mining. </p>
<h2>State control</h2>
<p>The newly created state-owned Zimbabwe Consolidated Diamond Corporation is set to take over the mining companies’ assets and assume all production operations. But consolidating operations under state ownership is not, in isolation, going to solve government’s efforts to raise its revenues from the sector.</p>
<p>There is a very good reason that only a handful of state-owned mining companies are engaged in production operations worldwide. Where they have been established they have tended to be less efficient, partly because they are often shielded from competition. They have also been more poorly managed than their private-sector counterparts, leading to <a href="http://www.mckinsey.com/industries/public-sector/our-insights/improving-performance-at-state-owned-enterprises">deficient outcomes</a>. </p>
<p>Successful state participation in the mining sector is rare. Among the few exceptions are Debswana in Botswana and Namdeb in Namibia. Both are joint ventures between the governments and the diamond giant De Beers. But their experiences cannot be easily replicated in Zimbabwe.</p>
<p>For starters, Zimbabwe’s alluvial diamond deposits may be far more fleeting than the deep, extensive deposits in Botswana and Namibia. This makes it improbable that Zimbabwe will enjoy the same long-term horizons as those countries.</p>
<p>Further, Zimbabwe lacks a trusted, experienced and private-sector company with the capital and technical expertise needed to develop open-pit or underground mines. Zimbabwe also lacks the resources to go it alone. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=513&fit=crop&dpr=1 754w, https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=513&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/114273/original/image-20160308-22135-rv91cl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=513&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Robert Mugabe’s plan to consolidate diamond mining under state ownership will not, on its own, increase government’s revenue from the sector.</span>
<span class="attribution"><span class="source">Reuters/Philimon Bulawayo</span></span>
</figcaption>
</figure>
<h2>The alternative to state ownership</h2>
<p>Rather than state ownership, Zimbabwe needs to improve management practices, regulations, regulatory capacity and the investment environment. Necessary reforms include enacting a comprehensive regulatory regime to govern the fiscal and other facets of the entire diamond supply chain. In addition, Zimbabwe should ensure strict transparency and accountability of the diamond sector. </p>
<p>All mining sector laws and regulations should comply with international standards. These include the <a href="https://eiti.org/eiti">Extractive Industries Transparency Initiative</a> and Kimberly Process Certification Scheme <a href="http://www.kimberleyprocess.com/">minimum requirements</a>. All contracts should be published, together with production volume and revenue information. It is also vital that state-owned entities be subject to the same reporting, disclosure and other requirements as private companies. </p>
<p>The capacity to regulate the mining sector must be strengthened. Relevant regulatory institutions must have autonomy and adequate enforcement capabilities. This is particularly pertinent since the Zimbabwean government will be acting as both a commercial entity and as the regulator. </p>
<p>As a commercial entity it will be aiming to maximise profits, potentially at any cost. As the regulator it will be enforcing environmental, social and other regulations, which may lower the profitability of operations. </p>
<p>Given this conflict of interests, the government may fail to adequately regulate the diamond sector. Otherwise regulatory failures may lead to corruption, revenue leakages, and social and environmental violations.</p>
<p>Finally, it is imperative that government improves Zimbabwe’s investment environment to attract more responsible mining companies. Until then, only fly-by-night investors with high-risk thresholds will be willing to operate in its mining sector. But with such investors, Zimbabwe’s diamond mining will continue to yield little benefit for the country.</p><img src="https://counter.theconversation.com/content/55818/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sarah Logan is affiliated with the International Growth Centre. </span></em></p>Zimbabwe has said it will take over all diamond mining operations in the country. But what is needed to maximise revenues isn’t state ownership, but improvements in existing regulatory practices.Sarah Logan, Economist, International Growth CentreLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/394222015-04-07T01:55:01Z2015-04-07T01:55:01ZWhy Twiggy Forrest should have got behind a super profits tax<p>Coinciding with the government’s tax discussion paper last week was a <a href="http://www.minerals.org.au/file_upload/files/publications/RichardsonC_Mining_tax_ratios_FINAL.pdf">report</a> from the Minerals Council of Australia evaluating the industry’s tax burden (tax paid divided by profits).</p>
<p>The report, written by Deloitte economist Chris Richardson, aimed to dispel the public view that the mining industry does not pay its fair share of tax. </p>
<p>A key point is that while the proportion of mining company profit paid in tax had decreased in 2008/2009 leading up to the debate on the introduction of the Resource Super Profits Tax (RSPT), it is now at or above historical levels. </p>
<p>As pointed out in Richardson’s report, the nature of taxation of mining plays a big part in explaining why the ratio of tax paid to profits has increased amidst a significant drop in the price of minerals such as iron and coal.</p>
<p>In a nutshell, mining companies pay royalties and company tax. Up until recently, mining companies also paid the Minerals Resource Rent Tax (MRRT), which was a compromised rent tax introduced by the Gillard government to circumvent the industry opposition to the RSPT. For a variety of reasons, related mostly to its design, the MRRT did not raise a great deal of revenue and so the focus here is on the other two taxes.</p>
<p>While royalties are typically levied on revenue, company tax is levied on profits. So, faced with a reduction in prices, production becomes less profitable. Firms, however, will still pay 30% of their profits in company tax, so any increase in the ratio of total tax paid to profits has to be explained by royalties. </p>
<p>As Richardson points out, not only has the ratio of royalties to profits increased because profits decreased, some States have also increased the royalty rates. They were likely incentivised by the MRRT design, under which companies received a credit for the royalties they paid on coal and iron ore projects with annual resource profits above A$50 million. For these projects, an increase in the royalty would have no impact on the bottom line.</p>
<p>Here is the rub, as pointed out by the Henry Review, the Minerals Council itself and a <a href="http://www.scribd.com/doc/31959942/Economists-Statement">group of 20 economists</a>; royalties distort production decisions. For example, a company that would exploit a mine for which revenue is just greater than costs in the absence of royalties, would not exploit a mine in the presence of royalties. </p>
<p>While royalties do capture some of the rents – the super profit associated with the exploitation of a finite resource that is owned by Australians – they are inefficient. In contrast, a tax on super profits does not distort production decisions. As long as revenue exceeds costs, the company will exploit the mine. This was the key rationale for the proposal of the RSPT to replace royalties.</p>
<h2>How times have changed</h2>
<p>Fortescue Metal Group’s Andrew “Twiggy” Forrest was one of the most <a href="http://www.smh.com.au/business/axe-the-tax--mining-magnates-see-red-20100609-xvqj.html">vocal opponents</a> of the super profits tax. Fortescue’s financial position is currently under significant pressure due to falling iron ore prices caused by <a href="http://theconversation.com/iron-ore-race-to-the-bottom-not-in-the-interests-of-australians-336850">oversupply</a>, and the slowing Chinese economy. Ironically, it would likely be better off today under a well-designed RSPT than under a royalties regime. </p>
<p>A well-designed RSPT would have impacted Fortescue in two different ways. First, a super profits tax is designed so companies pay more tax when times are good and less tax when times are bad.</p>
<p>Second, an RSPT would also have increased the cost of increasing production for the major iron ore producers. This is because the price at which smaller, higher cost producers would shut down production would have increased, necessitating even larger increases in production for the major producers’ strategy of displacing small producers to pay off. This would depend on how world prices responded to increases in supply by the large companies.</p>
<p>All worth considering in light of Andrew Forrest’s recent <a href="http://www.theaustralian.com.au/business/mining-energy/accc-investigates-andrew-forrest-call-for-cap-on-iron-ore-production/story-e6frg9df-1227277776667">controversial call</a> for a cap on iron ore production.</p>
<p>The RSPT proposed by the Rudd government had some flaws, as discussed in Richardson’s report. But had the industry been successful in engaging with the policy process, securing the replacement of royalties with a super profits tax, it would be in a better position today. </p>
<p>Nevertheless, mining companies have invested a trillion dollars in new mines and infrastructure and the boom and bust nature of the industry is unlikely to change. While profits are lower now, the need for a better taxation system for minerals remains. It is not a good omen for tax reform in this country when the only reference in the recently released tax discussion paper to a mining tax is in the foreword, and it refers to the abolishment of the MRRT.</p>
<hr>
<p><em>Flavio will be on hand for an Author Q&A session between 10:45 and 11:45am AEST on Wednesday April 8. Post your questions about the article in the comments section below.</em></p><img src="https://counter.theconversation.com/content/39422/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Flavio Menezes 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>Had the mining industry engaged differently on the proposed mining super profits tax, it would be in a better position today.Flavio Menezes, Professor of Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/311972014-09-02T13:25:17Z2014-09-02T13:25:17ZMining tax deal ticks off a commitment in time for the birthday<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/58020/original/vc52t7jq-1409663987.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&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">Clive Palmer has made a deal with the government to allow them to get their mining tax repeal through the senate.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
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</figure>
<p>With its first anniversary on Sunday, the Abbott government wants to trumpet achievements.</p>
<p>Ministers have been asked to put forward what they’ve done in their portfolios for airing in question time this week. But beyond that, given all the budget pain, a substantial victory was needed on a signature issue.</p>
<p>After holding out for quite a while, Clive Palmer eventually played ball, though at a price – about A$6.6 billion over the forward estimates, to be precise.</p>
<p>Palmer delivered the repeal of the mining tax but the schoolkids bonus and a couple of other measures stay until after the next election.</p>
<p>As part of the effort to get longer-term savings, the government is also delaying raising (in stages) the compulsory superannuation rate to 12%, which now won’t be reached until 2025.</p>
<p>At a news conference, Treasurer Joe Hockey and Finance Minister Mathias Cormann admitted it wasn’t budget plan A. But it was the best that could be obtained, they said. Like everything, it was Bill Shorten’s fault – Labor hadn’t been willing to come on side so they’d had to extract what they could from the Palmer United Party.</p>
<p>It’s not clear how the delay in boosting the compulsory super rate will go down with voters. People these days are increasingly aware of nest egg retirement savings.</p>
<p>Labor was quick to produce cameos, estimating for example that a 35-year old earning $75,000 (close to the average wage) would have $12,977 less in their retirement savings by 2025 as a result of the changes.</p>
<p>Tony Abbott’s reply is that the compulsory super takes dollars out of workers’ pockets (though the increase was okay in the longer run).</p>
<p>It’s hard to think ordinary voters will see the repeal of the mining tax, which raises very little, as vital; many would believe we should have such a tax, albeit better designed than Labor’s one.</p>
<p>For Abbott it’s the undertaking as well as the issue itself. He said last night that “our challenge is to implement our commitments” and this was “one of the most fundamental committments of all”.</p>
<p>Cormann had plenty to volunteer at the news conference (as he always does at these joint appearances), but Hockey seemed to just want to end it.</p>
<p>The Treasurer had had a difficult day. During the Coalition parties meeting he had a big spray at the Western Australian government after backbencher Christian Porter, a former WA treasurer, spoke out in support of Premier Colin Barnett’s calls for the state to get a bigger share of the GST.</p>
<p>Porter, talking on behalf of members from the west, indicated the WA federal MPs were planning to make a submission to the government’s tax white paper – something Tony Abbott told the meeting would not be a good idea.</p>
<p>Hockey was scathing of the state Liberal government, accusing it of being slow to privatise and other sins. Significantly, his cabinet colleague Julie Bishop, who is from WA, urged him to steady on.</p>
<p>The WA backbench push was just a reminder that when it comes to difficult issues, the worst could be yet to come for the government. Handling taxation, on which the government has said reforms would be put to the next election, could turn into a nightmare.</p>
<p>On a more immediate front, a couple of MPs in the party room warned that the government needed to tread carefully as it considers the Warburton report, released last week, which recommends taking an axe to the renewable energy target. People quite liked solar, the MPs said.</p>
<p>Indeed they do. <a href="essentialvision.com.au/category/essentialreport">Tuesday’s Essential poll</a> has some strong findings on the matter. Voters were asked whether Australia should put more/less/about the same emphasis as now on producing domestic energy from various power sources. The results for “more emphasis” were: solar 70%, wind 60%, hydro 46%, gas 23%, nuclear 18% and coal 9% (53% said less emphasis should be put on coal).</p>
<p>People were also asked which energy source, renewables like solar and wind or fossil fuels like coal and gas, was better for the environment, the economy, jobs and electricity costs. Again, renewables came out on top: on the environment 77%–5%; economy 39%-29%, jobs 36%-25% and electricity costs 45%-19%.</p>
<p>Going down the ideological path on RET will just bring more grief for the government.</p><img src="https://counter.theconversation.com/content/31197/count.gif" alt="The Conversation" width="1" height="1" />
With its first anniversary on Sunday, the Abbott government wants to trumpet achievements. Ministers have been asked to put forward what they’ve done in their portfolios for airing in question time this…Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/266602014-05-13T10:14:02Z2014-05-13T10:14:02ZInfographic: the promises vs budget measures<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1894&fit=crop&dpr=1 600w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1894&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1894&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=2380&fit=crop&dpr=1 754w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=2380&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/48369/original/6pq9mnhv-1399978991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=2380&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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</figure><img src="https://counter.theconversation.com/content/26660/count.gif" alt="The Conversation" width="1" height="1" />
Charis Palmer, Deputy Editor/Chief of StaffEmil Jeyaratnam, Data + Interactives Editor, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/254272014-04-13T20:33:56Z2014-04-13T20:33:56ZDysfunctional brand at the core of Labor’s current crisis<figure><img src="https://images.theconversation.com/files/46195/original/by4rqv95-1397193333.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Labor is bleeding votes both to the right and to the left. Is this because of its struggle to 'brand' itself in today's political landscape?</span> <span class="attribution"><span class="source">AAP/Daniel Munoz</span></span></figcaption></figure><p><em>In the wake of the ALP’s poor result in the recent Western Australia Senate election, The Conversation is publishing a series of articles looking at the party’s brand, organisation and future prospects.</em></p>
<hr>
<p>If the disastrous <a href="https://theconversation.com/projected-wa-senate-result-libs-3-alp-1-grn-1-pup-1-25532">results</a> and <a href="https://theconversation.com/the-alp-becomes-its-own-worst-enemy-in-wa-senate-shambles-25306">campaign</a> in the Western Australian Senate re-election are anything to go by, the Australian Labor Party seems to be losing the ability to brand itself and its policies as appealing to the public. It is struggling to justify creating broad electoral alliances between diverse social groups.</p>
<p>As a result, Labor is bleeding votes to the right and the left – to the Coalition and the Greens. Real-world economic policy dilemmas, implementation problems, powerful vested business interests, demographic changes, pre-selection debacles and media bias have all contributed to Labor’s dire situation. </p>
<p>However, as the WA Senate election reveals, the willingness of ALP figures to make public statements trashing their own party certainly isn’t helping to restore the Labor brand.</p>
<h2>The WA campaign</h2>
<p>Labor Senate candidate Joe Bullock’s <a href="http://www.abc.net.au/news/2014-04-04/labor-powerbroker-bullock-sorry-over-attack-on-pratt/5367270">attack</a> on his running mate, Louise Pratt, reinforced the Coalition’s branding of the Labor Party as dysfunctional and wracked by internal divisions and disunity. </p>
<p>The fact that Bullock had won Labor’s number one Senate spot as a result of <a href="http://www.crikey.com.au/2013/04/12/louise-pratt-shafted-in-wa-labor-senate-battle/">backroom union deal-making</a> also reinforced the Coalitions’ branding of the ALP as the plaything of “faceless men”.</p>
<p>Bullock’s attack on Pratt (and on the ALP membership) reveals how extraordinarily careless many Labor politicians and candidates have become about publicly making damaging comments. It shows just how much the party discipline for which Labor was once renowned <a href="http://theconversation.com/moving-forward-where-does-labor-go-now-12980">has declined</a>. </p>
<p>The Liberal Party has proved to be the most tightly disciplined major party in recent years, which has in no small part contributed to its electoral success.</p>
<p>Bullock’s attack also reveals ongoing ideological tensions in the Labor Party. He <a href="http://www.theguardian.com/world/audio/2014/apr/04/listen-wa-senator-joe-bullock-speech-in-full-audio">argued</a> that Labor was incapable:</p>
<blockquote>
<p>…of being trusted to look after the interests of working people and their families. </p>
</blockquote>
<p>Only conservative unionists such as Bullock himself could be trusted to overcome the influence of both Labor’s “mad” members and politicians like Pratt, whom Bullock categorised as “a key spokesperson” for the lesbian “persuasion”. Without people like him, Labor would follow “every weird lefty trend that you can imagine”.</p>
<p>Bullock’s claim that there is a division in the party between ordinary working-class Australians and trendy lefties who espouse progressive causes is not a new argument. Its antecedents can be traced back to the 1960s and 1970s. Former Labor leader <a href="http://adb.anu.edu.au/biography/calwell-arthur-augustus-9667">Arthur Calwell</a> had disputes with <a href="http://primeministers.naa.gov.au/primeministers/whitlam/%20%20">Gough Whitlam</a> over Whitlam’s electoral courting of the new social movements and educated professionals.</p>
<p>Bullock’s arguments, made at a meeting of the Catholic, socially conservative <a href="http://dawsonsociety.com.au/about/">Dawson Society</a>, also resonates with religious conservatives. In the 1980s, highly influential National Civic Council leader B. A. Santamaria <a href="http://newsweekly.com.au/article.php?id=4018">claimed</a> that Labor’s weakness lay in a split between the “family values” of its conventional working-class base and the promiscuous lifestyles of the middle-class professionals that Labor increasingly courted. </p>
<p>Santamaria urged the Liberals to exploit this potential split, just as Margaret Thatcher had in the case of the British Labour Party and Ronald Reagan had in the case of the Democrats in the US. The Santamaria-influenced Tony Abbott <a href="http://www.smh.com.au/federal-politics/political-news/early-elections-20120903-2593o.html">took that lesson to heart</a> when he assisted John Howard in hiving off the socially conservative <a href="http://www.theage.com.au/articles/2004/05/18/1084783513331.html?from=storylhs">“Howard battlers”</a> from Labor’s working-class base. </p>
<p>Significantly, Abbott was a friend of Bullock’s at the University of Sydney, and Bullock actually praised Abbott in his speech.</p>
<p>The problem for Labor is that whenever Labor figures publicly rehash old arguments such as Bullock’s they are not just undermining their own colleagues: they are also reinforcing how the conservatives frame the Labor Party rather than how Labor wishes to frame itself.</p>
<h2>Progressive issues</h2>
<p>Public recriminations also fundamentally undermine the key argument that Labor has traditionally used to win elections. In <a href="http://australianpolitics.com/voting/elections/1972-federal">1972</a>, in <a href="http://australianpolitics.com/category/elections-aus/1983-federal-election">1983</a> and in <a href="http://australianpolitics.com/voting/elections/2007-federal">2007</a>, Labor won the election by successfully branding itself as the party that could govern on behalf of the vast majority of Australians. </p>
<p>Successful branding necessarily involves patching together electoral alliances between different sections of the population to attract the broadest possible vote. </p>
<p>As a result, one didn’t find Whitlam, Bob Hawke or Paul Keating arguing that socially progressive issues were alien to the working class. On the contrary, they emphasised the links – for example, by arguing that the lowest-paid workers were often women or recently arrived migrants. They also argued that equity and diversity would benefit everyone, including business, by contributing to Australia’s economic success.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=514&fit=crop&dpr=1 754w, https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=514&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/46196/original/jdn9wh65-1397194182.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=514&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Labor prime ministers Bob Hawke and Paul Keating didn’t argue that socially progressive issues were alien to the working class.</span>
<span class="attribution"><span class="source">AAP/Paul Miller</span></span>
</figcaption>
</figure>
<p>Similarly, on same-sex issues, it is to Labor’s advantage to stress links rather than differences. Is Bullock seriously suggesting, for example, that his union – the Shop, Distributive and Allied Employees’ Association (SDA) – has no gay or lesbian members? </p>
<p>Is same-sex marriage really a “mad”, “lefty trend”, especially now that it has been supported by conservative prime ministers such as Britain’s <a href="http://www.conservatives.com/News/Speeches/2011/10/David_Cameron_Leadership_for_a_better_Britain.aspx">David Cameron</a> and New Zealand’s <a href="http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&amp;objectid=10823210">John Key</a>?</p>
<p>Above all, supporting same-sex rights hasn’t prevented Labor from also spending (immeasurably more) time and energy on improving the wages and conditions of working families, some of whom also happen to be gay and lesbian. So, why did Bullock publicly damage Labor’s brand by focusing on differences and divisions?</p>
<h2>The mining tax debacle</h2>
<p>It isn’t just on progressive social issues that Labor has been undermined from within. Labor senator Mark Bishop, whom Bullock will replace in the Senate come July, also publicly criticised his party in the wake of the Senate election. </p>
<p>Bishop, in no coincidence, is also a <a href="http://www.senatormarkbishop.com.au/content/page/about-mark.html">former SDA union official</a>, so he didn’t focus on the contribution that Bullock’s comments had made to Labor’s poor showing. Rather, he <a href="http://www.abc.net.au/news/2014-04-07/senator-mark-bishop-slams-labor-performance-wa-senate-election/5371100">said</a> of Labor that:</p>
<blockquote>
<p>In this state we speak a language that is either not understood by voters or, if understood, rejected. </p>
</blockquote>
<p>In particular, Bishop argued that Labor should abandon its support for the mining tax, which wasn’t even delivering significant revenue.</p>
<p>Bishop’s comments have some merit. Labor members would no doubt have preferred them to have been made within caucus rather than publicly, though. There are <a href="http://theconversation.com/happy-anniversary-julia-gillard-but-youve-still-got-a-lot-of-work-to-do-1951">ongoing issues</a> about Labor’s long-standing failings in communication, including its failure to sell the mining tax. As a result, Labor made concessions to mining companies that drastically reduced revenue from the tax, at least for the immediate future. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=432&fit=crop&dpr=1 600w, https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=432&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=432&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=543&fit=crop&dpr=1 754w, https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=543&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/46203/original/hqfm5hwc-1397194994.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=543&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Even in a resource-rich state such as Western Australia, it would not have been an impossible task for Labor to sell the benefits of the mining tax.</span>
<span class="attribution"><span class="source">EPA</span></span>
</figcaption>
</figure>
<p>But even in a resource-rich state such as Western Australia, it would not have been an impossible task for Labor to emphasise the common interests underlying the tax when it was first introduced. The tax was originally designed to redistribute the benefits of mining Australia’s resources to other sections of the economy that were not doing as well, or had actually suffered because of the mining boom.</p>
<p>Even in Western Australia, the mining boom was not a blessing for all sectors of the economy. It contributed to <a href="http://media.murdoch.edu.au/is-the-mining-boom-good-news-for-jobs-in-wa">labour shortages</a>, unrealistic <a href="http://archive.treasury.gov.au/documents/1421/HTML/docshell.asp?URL=02+The+resources+boom+and+the+two+speed+economy.htm">wages</a> in non-mining sectors and <a href="http://www.abc.net.au/news/2013-04-22/mining-boom-causing-housing-crisis-in-wa/4644298">higher rents</a>, as well as a higher Australian dollar that damaged some exporters. </p>
<p>Above all, the mining tax had been meant to provide revenue that would help sustain Australian government budgets after the mining boom. It was intended to help the economy transition to a more economically diverse and efficient future. </p>
<p>Not only did Labor fail to sell the mining tax initially, but federal ALP leader Bill Shorten failed to make any argument supporting it in his WA Senate campaign launch <a href="http://billshorten.com.au/labor-wa-senate-campaign-launch">speech</a>, presumably deciding that it was too late to garner support for the tax.</p>
<p>The mining tax debacle is just one more demonstration that Labor seems to have lost the ability to brand itself as the party that will best manage social and economic change, to the benefit of all Australians. And yet, that is central to how Labor wins elections.</p><img src="https://counter.theconversation.com/content/25427/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carol Johnson receives funding from the Australian Research Council.</span></em></p>In the wake of the ALP’s poor result in the recent Western Australia Senate election, The Conversation is publishing a series of articles looking at the party’s brand, organisation and future prospects…Carol Johnson, Professor of Politics, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/179522013-09-12T04:49:37Z2013-09-12T04:49:37ZCoalition to axe mining tax, but petroleum will keep on giving<figure><img src="https://images.theconversation.com/files/31218/original/8s8wshtr-1378951554.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Coalition will retain the Labor government’s onshore extension of the Petroleum Resource Rent Tax.</span> <span class="attribution"><span class="source">AAP </span></span></figcaption></figure><p>Along with repealing the carbon tax, <a href="http://www.liberal.org.au/our-policies">scrapping the mining tax</a> is one of the Abbott government’s first orders of business. Deeming it damaging for jobs and investment, Prime Minister Tony Abbott promised to have the legislation before parliament within his first 100 days in office. </p>
<p>But is it really so controversial? Assuming Abbott manages to navigate the demands of the Senate to repeal the <a href="http://en.wikipedia.org/wiki/Minerals_Resource_Rent_Tax">Minerals Resource Rent Tax</a> on coal and iron ore, the Australian Treasury is still likely to collect a significant amount of revenue from the resources sector over the current term of government. </p>
<p>How? The Coalition will retain the Labor government’s <a href="http://www.ret.gov.au/resources/enhancing/taxation/prrt/Pages/PetroleumResourceRentTax(PRRT).aspx">onshore extension of the Petroleum Resource Rent Tax</a> – the expanded petroleum tax – which was introduced on the same day in July 2012 as the mining tax. </p>
<h2>Mining resources</h2>
<p>Despite the mining tax negotiated by Gillard being friendlier to big miners than Kevin Rudd’s defeated <a href="http://www.smh.com.au/business/the-resource-super-profits-tax--what-is-it-20100511-usnu.html">Resource Super Profits Tax</a>, Abbott and his coalition colleagues made much noise about how it has “fundamentally undermined confidence in Australia as an investment destination”. </p>
<p>Yet at the same time, the Coalition fully accepts the petroleum tax, even though it works on similar principles. In both cases, the tax kicks in if the revenue (or profitability) for a project (or company) reaches <a href="http://www.ret.gov.au/resources/enhancing/taxation/pages/resourcestaxation.aspx">a certain threshold</a>. It seems that not all resource taxes are baddies, nor investment-killing, after all.</p>
<p>While it’s true that mining investment has dried up, the Productivity Commission’s draft report into <a href="http://www.pc.gov.au/projects/inquiry/resource-exploration/draft">mineral and energy resource exploration</a> notes other factors at play:</p>
<blockquote>
<p>While existing reserves may last many years, they may be of lower grade, in more remote locations, deeper in the ground, mixed with greater impurities and require more difficult and costly exploration and extraction techniques. </p>
<p>As more “effort” is needed to produce each unit of output, downward pressure will be placed on productivity, thereby reducing the international competitiveness of Australian resource exploration and extraction. </p>
</blockquote>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31209/original/sdvhc2ht-1378949991.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mining investment has dried up but a number of factors are at play.</span>
<span class="attribution"><span class="source">Image from shutterstock.com</span></span>
</figcaption>
</figure>
<p>It also highlights that many stakeholders are dissatisfied with current regulation: explorers claim long approval times and regulatory uncertainty, while community groups claim insufficient environmental protection and enforcement. Changes to demand patterns and investment strategies of multinational miners are also key to determining the investment pipeline.</p>
<p>The Coalition has proposed A$100m of tax credits for exploration in previously unexplored areas expected to kick start development of new resources. It is also supportive of a <a href="http://www.miningreview.com.au/news/general-mining/political-minefield/">national minerals strategy</a> and will commission a white paper to consider how to develop Australian mining and petroleum services as a world leader. </p>
<h2>Petroleum resources</h2>
<p>Additional resource tax revenues for Abbott and the Coalition will come when <a href="http://www.appea.com.au/oil-gas-explained/operation/australian-lng-projects/">the seven liquefied natural gas (LNG) projects under construction</a> come on line. At least four of these are expected to start production by the time of the next election in 2016 and, over time, will yield higher petroleum tax receipts.</p>
<p>When Labor introduced the mining tax on 1 July 2012, it also extended onshore the petroleum tax and imposed the tax on Australia’s largest gas exporting facility the <a href="http://www.nwsg.com.au/">North West Shelf</a> (NWS) LNG project, operated by Woodside Petroleum. For most of its operating life, this project had benefited from the tax concessions provided by the previous coalition government. </p>
<p>By leaving the onshore extension of the petroleum tax, the Coalition will be collecting increased tax revenue from the three coal seam gas projects being developed in Queensland, which account for 41% of the new LNG capacity under construction.</p>
<p>Once all of the LNG projects under construction are completed and exporting at full capacity, which is expected by the end of the decade, it will be vying with iron ore as Australia’s largest single resource exporter by value and the biggest resource taxpayer. The LNG projects are spearheading the A$268 billion of investment in expanding export capacity of the country’s energy and minerals production.</p>
<p>The government’s commodity forecaster the <a href="http://www.bree.gov.au/">Bureau of Resource and Energy Economics</a> (BREE) estimates Australia’s LNG exports by value to reach A$60.95 billion in 2018/2019 compared with A$11.95 billion in 2011/12. In the process, the Canberra-based bureau estimates LNG earnings to surpass those of both thermal coal, used for power generation, and metallurgical coal, used for steel-making.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31211/original/qfk9rzkn-1378950172.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">With new NLG projects coming on line, the Coalition can expect higher petroleum tax receipts.</span>
<span class="attribution"><span class="source">Image from shutterstock.com</span></span>
</figcaption>
</figure>
<h2>State revenues</h2>
<p>The states will also be enjoying higher resource receipts as iron ore and coal exports are set to continue to rise – mining tax or not. </p>
<p>In reaction to the mining tax, the Coalition-led state governments of Queensland and New South Wales raised their royalty rates on coal in an effort to reduce Canberra’s mining tax intake. Western Australia made a similar move on iron ore royalties. </p>
<p>None of these governments appear willing to roll back their higher royalties if the mining tax is dumped.</p>
<h2>History repeating itself</h2>
<p>Political debate about resource taxes have been raging for decades. </p>
<p>The concept of a resource rent tax – a profits-based tax, as opposed to the state-based royalty – emerged after Ross Garnaut and Anthony Clunies Ross published their resource rent tax theory in <a href="http://www.jstor.org/stable/2230992">The Economic Journal</a> in 1975. Their theory was in contrast to the norm: miners paid royalties to state governments based on production volume and, at times, the value of production, which both may not reflect the profitability of the underlying commodity.</p>
<p>Also from this era is the 1974 Fitzgerald Report on <a href="http://books.google.com.au/books/about/The_contribution_of_the_mineral_industry.html?id=4aK0AAAAIAAJ&redir_esc=y">The contribution of the mineral industry to Australian welfare</a>, which showed the Commonwealth making a net loss on mining, despite a boom in the late 1960s and 1970s, due to generous tax concessions.</p>
<p>Paul Keating was one of the first Labor politicians to advocate a profit-based resource tax when he was shadow energy and resources minister in 1976, and Labor adopted the resource rent tax policy at the ALP conference in Perth in July 1977.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=868&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=868&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=868&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1091&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1091&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31213/original/wbb99n3t-1378950356.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1091&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Bob Hawke and Paul Keating introduced the petroleum legislation in 1987.</span>
<span class="attribution"><span class="source">AAP Image/National Archives of Australia</span></span>
</figcaption>
</figure>
<p>A month later, the then-federal treasurer Philip Lynch announced the Fraser government would consider a resource rent tax for the petroleum and uranium sectors. But Lynch never got to pursue this policy much further as allegations over land deals led to Lynch’s political demise. John Howard took over as treasurer and announced in July 1978 that the government had shelved plans for a resource tax.</p>
<p>This may sound like history repeating itself for Abbott, following his mentor by going gentle on the resource sector and looking elsewhere to raise revenue to fund election promises – such as Abbott’s pledge for longer paid parental leave.</p>
<p>Labor carried out its pledge for a resource rent tax when the offshore petroleum legislation passed in 1987 under Bob Hawke and Keating.</p>
<p>Even if the mining tax is repealed, the need for a broader national debate about a fair return to society from exploiting Australia’s natural endowment remains.</p><img src="https://counter.theconversation.com/content/17952/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Damien Giurco receives funding from CSIRO, the Australian Research Council, Federal and State Governments, the Australasian Institute of Mining and Metallurgy and the National Climate Change Adaptation Research Facility. </span></em></p><p class="fine-print"><em><span>Kevin Morrison 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>Along with repealing the carbon tax, scrapping the mining tax is one of the Abbott government’s first orders of business. Deeming it damaging for jobs and investment, Prime Minister Tony Abbott promised…Damien Giurco, Research Director, Institute for Sustainable Futures, University of Technology SydneyKevin Morrison, Masters Researcher, Institute of Sustainable Futures , University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag: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>
<iframe width="440" height="260" src="https://www.youtube.com/embed/u2Q0Yhn7bIA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Catch up on Q&A from 15 July. Source: http://www.abc.net.au/tv/qanda/</span></figcaption>
</figure>
<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/121522013-02-12T03:28:53Z2013-02-12T03:28:53ZStates royalties likely to be in Fed’s sights as flaws aplenty emerge in mining tax<figure><img src="https://images.theconversation.com/files/20161/original/6mtbxdgy-1360633621.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Federal government has ruled out changing the Minerals Resources Rent Tax, but how will it boost income?</span> </figcaption></figure><p>Last Friday’s announcement that the Minerals Resources Rent Tax (MRRT) had brought in only $126 million in its first two quarters makes the Government’s initial assessment of a windfall $2 billion in its first year seem an unattainable goal. </p>
<p>Although Treasurer Wayne Swan has blamed falling commodity prices, the government is under pressure from the Greens and independent senators to alter the mining tax, with reports claiming its methodology is flawed.</p>
<p>So what factors have contributed to the much lower than expected income? </p>
<p>Firstly, the tax is calculated on profits (revenues net of expenditure) as declared by eligible mining companies. Profits for the first half of the year are taxed, net of royalties paid to the state governments, at an effective rate of 22.5%. An exemption is provided to companies whose net profits for all operations remain below $50 million.</p>
<p>But lower than expected profits for mining firms across the board has resulted in far less tax collected, through the MRRT, than originally predicted. Treasury’s Mid Year Economic Review, announced in October, forecast a $2 billion tax windfall in the MRRT’s first full financial year.</p>
<p>The Government blames falling iron ore prices in particular, which hit a low of $87 a tonne in September 2012 (before the Treasury calculations). Prices have since risen to above $150 a tonne, the price point at which PwC Australia has suggested the MRRT will begin to bring in taxation revenue. Unfortunately for the Gillard government analysts have predicted that prices will average $130 a tonne over 2013, thereby looking even less likely to lead to MMRT revenues from iron ore projects.</p>
<p>The persistently high Australian dollar has also been blamed - although this is disputable as the value of the Australian dollar is currently close to what it was at the time Treasury ran the numbers for the Mid Year Review (AUD/USD = 1.0306 on 22nd Oct 2012, currently AUD/USD = 1.0283).</p>
<p>A more likely contributor is the excessive charging of royalties by the states. Royalties are deducted from the profit miners make, prior to the calculation of the mining tax. Coalition state governments in particular are able to increase their tax revenues knowing this will reduce tax collected under the Labor Federal Government’s MRRT.</p>
<p>Despite calls from the Greens and independents, Trade Minister Craig Emerson says the government is not planning to change the design of the tax. But it has expressed its concerns about royalties. </p>
<p>Other significant factors in the failure of the tax to collect expected revenues involve the ability of firms to write off significant losses and capital expenditure (including accelerated mine depreciation allowable under the MRRT legislation) to reduce their taxable profit. </p>
<p>This is particularly convenient in the capital intensive mining industry where future investment can be brought forward. This, however, can’t go on forever it would be likely that the capital spend programs of the mining companies will diminish in future periods. We could see a likely run off of capex and depreciation claimed in the initial implementation period of the tax resulting in increased tax revenue over the second half of the year.</p>
<p>The larger problem remains the narrow design of the tax. The political pressure on the Gillard government (after the industry’s $20 million lobbying campaign discredited Kevin Rudd’s Resources Super Profits Tax and led to his axing as prime minister) meant the tax was limited to iron ore, coal and some gases at an effective rate of 22.5% instead of 40% – thereby increasing portfolio risk and reducing the tax base. (The design of the tax also failed to meet the recommendations of the Henry Review.) The tax base was further narrowed due to the exemptions of iron ore and coal companies with profits under $50 million.</p>
<p>The exclusion of gold from the tax is also a lost opportunity, as gold prices have continued to rise and 83% of our gold mines are foreign owned with profits heading overseas untouched by the MRRT.</p>
<p>So what to do? Even if the government wanted to change the design of the tax, it faces the formidable financial and legal resources of companies such as BHP, Rio Tinto and Xstrata, which were involved in the first redrafting.</p>
<p>As we saw with Rudd’s Super Profits Tax, if the outcome looks to be going the other way they can devote significant resources to a PR campaign against the government and the proposed tax.</p>
<p>The government could hope to see a continued rebound of iron ore prices above $150 per tonne - but a more likely scenario is the revisiting of the loophole which allows the states to increase royalties at the expense of the Federal Government.</p><img src="https://counter.theconversation.com/content/12152/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ainsley Elbra 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>Last Friday’s announcement that the Minerals Resources Rent Tax (MRRT) had brought in only $126 million in its first two quarters makes the Government’s initial assessment of a windfall $2 billion in its…Ainsley Elbra, PhD candidate, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/100282012-10-10T19:37:41Z2012-10-10T19:37:41ZHearts, minds and hip pockets: how the resources industry aims to win over ordinary Australians<figure><img src="https://images.theconversation.com/files/16269/original/cvxbq45x-1349658670.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Mining industry's "This is our Story" campaign showing the sector's relationship with ordinary Australians may be part of a longer term strategy to avoid further taxation.</span> <span class="attribution"><span class="source">Screenshot from thisisourstory.com.au </span></span></figcaption></figure><p>Have you wondered why those chipper ads that share the personal stories of mining workers are still being rolled out on TV and at cinemas? In one, I recently learned about a sweet group of women whose lives are made a million times easier by the flexible working hours available at a mine. The environmental officer loves animals so much she wouldn’t kill a cockroach. Even their husbands are happier because they have great jobs: “You know what they say, ‘Happy wives, happy lives’,” one of the women reminds us.</p>
<p>Why is the mining industry still running these ads, when the Mining Resource Rent Tax was passed earlier this year, and the mining industry pretty much won the battle over what shape it would take? </p>
<p>Readers will remember the $22 million campaign against the Resource Super Profits Tax, spearheaded by the Minerals Council of Australia after the government announced the tax a week before the 2010 May budget. </p>
<p>It ran for only 53 days - and prior to the $25 million Carbon Tax - was the most expensive and effective campaign run by an industry against the government on a single policy issue, resulting in the original tax being dumped and contributing to the demise of Kevin Rudd as Prime Minister. </p>
<p>We can only assume that the mining industry is setting itself up for another battle; one which they saw coming a long way off, but the government seems to have been blind to. </p>
<p>Since late August, various economic forecasters have announced that the mining boom is over (though there is no certainly no consensus on this). There has been repeated media concern over a budget surplus “black hole”, amid calls for Treasurer Wayne Swan to explain how the government will pay for the promised NDIS scheme, the Gonski education reforms and the proposed federal dental program.</p>
<p>The Gillard government has banked on a nice strong stream of mining taxes coming in over the next few years. However, this income was never assured: it is a volatile stream of tax revenue.</p>
<p>In order to make the budget balance, the Gillard government will either have to change the basis of calculation for the mining tax – reneging on its agreement with the mining industry - or find revenue from some other sources. This would involve cutting services or raising taxes somewhere else. The mining industry is trying to ensure that the government chooses the second option.</p>
<p>As well as rolling out advertisements, miners have invested heavily in the film industry. The 2011 Australian film, Red Dog, for instance, was substantially financed by the mining industry. The characters, who work for Hamersley Iron (a wholly-owned subsidiary of Rio Tinto), are roguish and likeable. The cinematography sweeps across the red Pilbara landscape, depicting mines as part of the raw beauty of the landscape. The film was the largest grossing Aussie-made film for 2011 and ranks 11th in takings in historic terms amongst all Australian films.</p>
<p>The mining tax isn’t just about increasing revenue, it is also aimed at creating a more balanced economy and overcoming the “Dutch disease” which occurs when a resource boom pushes the dollar up, hurting other industries which can’t compete internationally.</p>
<p>Films like Red Dog and the “This is Our Story” ads, like the one I watched at the cinema, far more effectively counter the argument that the Dutch disease needs to be addressed through taxation than the negative campaign we were bombarded by early in battle over the mining tax in June 2010. </p>
<p>They make the “real story” about the employees of mines, not the shareholders who most stand to lose from a tax on mining. The campaign avoids arguments about whether the mines are foreign-owned and are exporting profits.</p>
<p>The strategy creates a sense that the mining industry is integrated into Australian social fabric. It counters the idea that the mining industry is an “enclave” industry and builds an emotional resonance between viewers and the companies. By invoking the “Australianness” of the individuals who work in the mines, we form intimate and direct relationships with people we identify with, and mining companies lay an implicit claim to the mineral assets that lie under Australian soil.</p>
<p>If it wants to alter the mining tax to help balance the budget, the Gillard government is going to have to be incredibly smart to counter the ground work that the mining industry has been laying for the last two years.</p><img src="https://counter.theconversation.com/content/10028/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shelley Marshall owns shares in BHP Billiton. She receives funding from the Australian Research Council, the Monash-Oxfam Partnership and the UK Economic and Social Research Council. </span></em></p>Have you wondered why those chipper ads that share the personal stories of mining workers are still being rolled out on TV and at cinemas? In one, I recently learned about a sweet group of women whose…Shelley Marshall, Senior Lecturer, Department of Business Law and Taxation, expert in corporate accountability, Monash UniversityLicensed 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/68682012-05-31T05:14:00Z2012-05-31T05:14:00ZMining could invest in a future that belongs to all of us – education<figure><img src="https://images.theconversation.com/files/11249/original/v57mrfrd-1338437580.jpg?ixlib=rb-1.1.0&rect=146%2C165%2C4109%2C2663&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Prime Minister Julia Gillard has called on miners to accept that the resources they mine belong to the people.</span> <span class="attribution"><span class="source">AAP Image/Alan Porritt</span></span></figcaption></figure><p>Prime Minister Julia Gillard delivered one of <a href="http://www.smh.com.au/opinion/political-news/gillard-takes-on-mining-bosses-20120530-1zjk8.html">her strongest messages</a> to the mining sector last night, telling mining bosses at a Minerals Industry dinner in Canberra that they don’t own Australia’s minerals resources, the Australian people do. And what’s more they “deserve their share.”</p>
<p>The idea of “spreading the benefits of the boom” has been strongly countered by the Australian mining sector for some time. Their mantra is that they are too heavily and unfairly taxed. </p>
<p>This was argued again last night by Minerals Council president Peter Johnston who criticised the “endless dialogue about redistribution”.</p>
<p>BHP Billiton chairman Jacques Nasser also complained <a href="http://video.adelaidenow.com.au/2235349697/Jacques-Nasser-calls-for-IR-and-tax-certainty">earlier this month</a> that Australia’s industrial relations and tax systems would force his business offshore.</p>
<p>But the truth is the mining sector in Australia has been taxed lightly. As University of New England’s Christopher Lloyd <a href="http://apo.org.au/research/resource-rents-taxation-and-political-economy-australia">points out</a> we’ve known this since the Henry tax review, and have had it confirmed again in this year’s Budget papers (see figure below).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=334&fit=crop&dpr=1 600w, https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=334&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=334&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=420&fit=crop&dpr=1 754w, https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=420&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/11241/original/txkdthg8-1338428145.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=420&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Despite mining companies turning up the volume, their tax rates are relatively low.</span>
<span class="attribution"><span class="source">Australian Resource Tax and Royalties (Henry, 2010 reproduced in Lloyd 2012)</span></span>
</figcaption>
</figure>
<p>Looking at the history behind this debate, Loyd points to the collective social ownership felt by Australians, expressed through their parliaments, for material endowments like minerals, water and ecosystem services. </p>
<p>Political history, he contends, was built, in part, on the hegemony achieved by those who monopolised economic rents from exclusive access to these endowments. Some countries, like Australia, managed to “…transform its dependency [on commodities] into a wealthy, middle class, democratic, urban society from the early 20th Century.”</p>
<p>However, the governments of Australia suffer from a deficit of effective policy to capture the extraordinary commodity boom incomes being generated by the mineral mining companies. The consequence is that Australia is now <a href="http://apo.org.au/research/resource-rents-taxation-and-political-economy-australia">near the bottom of OECD countries</a> in its long-term provision of social and physical infrastructure.</p>
<p>But I would contest Loyd’s point that “the private sector lacks the capacity or is prevented from providing the shortfall.”</p>
<p>Rather than directing cash into the Mineral Resources Rent Tax I have <a href="http://www.thepunch.com.au/articles/instead-of-sandstone-unis-what-about-iron-ore-ones/">suggested</a> that iron ore giants BHP Billiton and Rio Tinto use their extraordinary profits to deliver endowments to Australian universities. </p>
<p>It’s not that they can’t or don’t already make contributions to public social and physical infrastructure. For example, most recently, Rio Tinto agreed to <a href="http://www.miningaustralia.com.au/news/rio-creates-mining-chair-at-unsw">pay for a Professorial Chair in Geotechnical Engineering at the University of NSW</a> and donated $3 million to the <a href="http://au.news.yahoo.com/thewest/a/-/breaking/13567527/rio-targets-uni-to-ease-skills-shortage/">University of Western Australia</a> (UWA) for engineering and mining related education. BHP Billiton Mitsubishi Alliance made a donation to the University of New South Wales of $2.7 million for two Professorial Chairs in mining-related research and education.</p>
<p>Both companies already donate about 1% of their profit to community development within the respective catchment zones of their mines around the world. Other notable donors from the mining industry include personal pledges from Clive Palmer of $100 million for <a href="https://www.wabusinessnews.com.au/user?destination=node/60260">medical research</a> and Pilbara communities development, and commitment from Andrew Forrest to a <a href="http://www.abc.net.au/news/2012-05-03/national-press-club-andrew-forrest/3985448">program to employ 50,000 Indigenous people</a>.</p>
<p>The Australian Government allocates about $10 billion per annum for universities’ operations. Higher Education is one of those sectors of social infrastructure that adds significantly to the well-being of all Australians, yet is horribly under-funded and subject to the dead hand of corporatist compliance management. </p>
<p>This situation does not augur well for our future lifestyle or livelihoods. There is, however, very good reason to think that the mining companies have the capacity to inject new life directly into this sector and should bow to the pressure of our collective Australian social expectations. They should divert/endow the equivalent of one year’s Federal budget allocation into higher education sector from their extra-ordinary profits from 2012 to 2020.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&rect=24%2C0%2C4071%2C2654&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/11122/original/wxw5q42s-1338185940.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mining companies should use their profits to fund higher education.</span>
<span class="attribution"><span class="source">AAP/Rebecca Le May</span></span>
</figcaption>
</figure>
<p>Not only do endowments mean that the cash as a capital base is secured, but the investment income can be put toward recurrent funding needs, like salaries, vastly improving the current parlous state of higher education in its capacity to respond to societal needs.</p>
<p>And of course, this investment should be given without strings attached. Universities know what and how to educate; this level of endowment will effect change across the many disciplines that make society whole, not advance narrow self-serving interests.</p>
<p>Such an investment would mean so much for the key people whose lives are affected by these social actors – the companies. For BHP Billiton and Rio Tinto employees – being identified with such a process would change how they thought of their roles, their employer, themselves as citizens, possibly enhancing retention and productivity for the companies. It might force a change in negotiations when the companies encounter other governments, unions, or even their key customers; it’s not all about the money.</p>
<p>Investing in higher education, without attaching strings, is in the companies’ medium to longer term benefit, as well as a benefit for rest of the myriad small to medium-sized businesses in Australia, who will, most likely, be the employers of the children of current mining company employees and of mining company shareholders.</p>
<p>But it the legacy of such transformational investment - of a mineral endowment to an educational endowment - that would be seen by Australians; A legacy that would represent the true, on-going value of the mining boom, working over generations, beyond the lifetime of any mine, that would satisfy our social expectations of the distribution of ‘profit’ from the exploitation of our common resources.</p>
<p>Investing in Australian higher education now, in the current maelstrom and uncertainty of our economic and social systems, by two of the largest companies in the world, would be a signifier of the need for an alternative to business and politics as usual.</p><img src="https://counter.theconversation.com/content/6868/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>I have been the recipient of grant funds and commissioned work but none is current and none was related to the mining industry. I am one step removed from the academy as an Adjunct Academic at the School of the Environment, Flinders University. </span></em></p>Prime Minister Julia Gillard delivered one of her strongest messages to the mining sector last night, telling mining bosses at a Minerals Industry dinner in Canberra that they don’t own Australia’s minerals…Jonathan Sobels, Lecturer, Human Geography, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/58522012-03-15T19:38:38Z2012-03-15T19:38:38ZMax Corden on taxing mining, tackling Dutch Disease and depreciating the dollar<figure><img src="https://images.theconversation.com/files/8635/original/dsk4yr6y-1331780283.jpg?ixlib=rb-1.1.0&rect=25%2C11%2C957%2C642&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Taxing mining: too high, and it discourages foreign capital inflow. But political lobbying can also mean it is set too low.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The mining boom is making Australia potentially wealthier, but also creating problems because of the high exchange rate. What should government policies be?</p>
<p>There are two issues, and it is very important that they are distinguished. One concerns taxes and the other concerns the exchange rate. </p>
<p>The aim of taxation is that some of the benefits of the boom go to the Australian community as a whole and not just to Australian shareholders and employees, and certainly not mainly to foreign owners. Taxation is probably the main channel (though not the only one) through which Australia benefits from the boom.</p>
<p>There are the normal company and income taxes, revenue from which will be increased by the boom. Additionally, when there are exceptionally high profits – as there have been - they should, in my view, be taxed through something like a super-profits tax. </p>
<p>All these extra taxes would be borne both by the foreign owners of the mining companies and associated firms, and by owners who are Australian residents. Indirectly, executives and other employees and suppliers of the mining firms would also be affected. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=800&fit=crop&dpr=1 600w, https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=800&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=800&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1005&fit=crop&dpr=1 754w, https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1005&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/8636/original/ztbycp8p-1331780566.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1005&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Fortescue Metals’ Andrew Forrest is a high-profile opponent of the mining tax.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>Such a tax can be too high. It may discourage foreign capital inflow into Australian mining and also reduce the incentive to fully exploit opportunities. Indeed, very high taxes may end up leading to less total revenue from taxes. If the tax discourages capital inflow and new investment, it will reduce future profits and thus total revenue from taxation in the future. But so far, as the various mining industries develop, especially liquefied natural gas (LNG), there is no sign of such discouragement.</p>
<p>Such a tax can also be too low. The main reason would be the political power exercised in various well-known ways by wealthy companies and interested individuals. Two ways are through influencing public opinion with advertising and influencing policy through lobbying. This sort of thing is very open in the United States. I think it is a danger in Australia.</p>
<p>I now come to the second policy issue. This concerns the exchange rate. Australia’s exchange rate has greatly appreciated since the mining boom began, and this has certainly been a problem for other actual and potential export industries, as well as for import-competing industries. Appreciation is caused both by the huge rise in mining incomes owing to higher prices of iron ore and coal, and to the massive inflow of foreign capital into the sector, leading to an investment boom. Of course, there are other factors - notably the low interest rates abroad. </p>
<p>Obvious victims of appreciation are some parts of manufacturing, domestic tourism, and the export-of-education industry. Also included should be potential exporting firms that would have developed if the exchange rate had been lower. This is called the “Dutch Disease problem” because the Netherlands was believed to have once gone through that experience.</p>
<p>Does the Dutch Disease require policy action by the government designed to moderate the appreciation – and thus to depreciate the exchange rate somewhat? This is a big issue and a difficult question to answer. </p>
<p>Firstly, it must be remembered that there are also gainers from the appreciation, as Australians travelling overseas certainly recognise. Cheaper imports, owing to appreciation of the exchange rate, have reduced the cost of living and brought benefits to wage-earners and the general community, as well as firms that use imported inputs.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=386&fit=crop&dpr=1 600w, https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=386&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=386&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=485&fit=crop&dpr=1 754w, https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=485&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/8638/original/s9nj2rxb-1331781028.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=485&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lowering interest rates could lead to some depreciation of the Australian dollar - but it could be inflationary.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>Secondly, measures to depreciate the exchange rate all have problems. One way would be for the Reserve Bank (our central bank) to lower interest rates. That would reduce capital inflow and increase outflow, and would indeed lead to some depreciation. But, unless there is slack in the economy the effect would be inflationary. To offset that, fiscal policy would have to be tightened, perhaps leading to a substantial surplus. Such a sustained fiscal surplus policy would be politically difficult. </p>
<p>I have discussed various possible policies to deal with Dutch Disease in Australia in a <a href="http://melbourneinstitute.com/downloads/working_paper_series/wp2012n05.pdf">recent working paper</a> for the Melbourne Institute of Applied Economic and Social Research. </p>
<p>In particular, I discuss the possible role of a sovereign wealth fund that invests the fruits of a fiscal surplus abroad, and thus is a form of government savings that gives the government a useful nest egg in case the boom comes to an end – as it surely might.</p>
<p>In this working paper, I point out something that may be surprising. When the government taxes the mining sector and the effect is mainly felt by foreign owners who would have spent their receipts abroad, and the government then puts the proceeds into a sovereign wealth fund that invests abroad on behalf of the government, there will be little or no effect on the exchange rate. Foreign spending by the taxed owners is reduced, and foreign spending by the Australian government is increased. Thus these taxes that bear on foreigners will not reduce the Dutch Disease. </p>
<p>It is easy to misunderstand this result. In the working paper I go on to say “the taxation and the use of the sovereign wealth fund may well be justified: Australians get a bigger share of the benefits of the boom, and, prudently, their government saves it and invests it abroad”. </p>
<p>In other words, as I pointed out at the beginning, taxation of the mining sector is desirable because it gives the Australian community some of the benefits of the boom. Some of these benefits will be felt when the fruits of the sovereign wealth fund accumulation come back to Australia, perhaps once the boom has declined or come to an end.</p>
<p>In the Australian Financial Review on March 13, an article by Laura Tingle summarised some of the results of my working paper, and did so very accurately. But the headings on the article conveyed a false impression. The first heading was “Don’t rely on mining tax, Labor told” (I never referred to Labor), and the second heading was “Resource tax case flawed: expert”. In Business Day of The Age, March 14, another article has a brief paragraph which refers to “criticism of Labor’s mining tax from economist Max Corden”. </p>
<p>I want to tell the readers of The Conversation that I favour a mining tax, but don’t expect one that only affects foreign owners of the mining industry to reduce the Dutch Disease.</p>
<p>I should add that if the tax were so high that it reduced capital inflow into mining substantially then it would indeed moderate the Dutch Disease effect. But that is not the sort of tax that either the Government or I favour. It would be more than just a super profits tax.</p>
<p>The subject is complicated – but important. Please read my Working Paper!</p><img src="https://counter.theconversation.com/content/5852/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Max Corden owns shares in BHP.</span></em></p>The mining boom is making Australia potentially wealthier, but also creating problems because of the high exchange rate. What should government policies be? There are two issues, and it is very important…Max Corden, Professorial Fellow in the Department of Economics , The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/53172012-02-10T04:21:04Z2012-02-10T04:21:04ZWhen the powerful buy into the media, can the media still scrutinise the powerful?<figure><img src="https://images.theconversation.com/files/7530/original/fh6zxjtz-1328838083.jpg?ixlib=rb-1.1.0&rect=40%2C29%2C938%2C614&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">"Fairfax looks very exciting,": mining magnate Clive Palmer expresses an interest in media.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The mining industry is used to having its voice heard in Australian public debates, so it should come as no surprise that mining billionaires such as Gina Rinehart and Clive Palmer would consider buying up a bigger slice of the Australian media.</p>
<p>While the estimated $20m spent by the mining industry on television advertisements opposing the introduction of a mining tax was the most visible example of the industry’s determination to influence the public it is, in fact, just the tip of the iceberg.</p>
<p>The problem for those interested in old-fashioned ideas like representative democracy and the development of policy in the national interest is that the mining industry has demonstrated, very clearly, that some sectional interests in Australia effectively have a veto over policy they don’t like the sound of. </p>
<p><a href="http://www.theage.com.au/opinion/political-news/bigger-mining-tax-would-help-ease-economic-stress-20120208-1rf15.html">Very few economists dispute the fact</a> that a well designed mining tax would transfer huge amounts of money from those who extract resources to those who actually own them, that is, the citizens of Australia. And very few pollsters dispute that the public believes miners can and should be asked to pay more to extract our natural resources. </p>
<p>But despite having the public and the policy elites on side, the Rudd Government failed spectacularly to introduce its proposed mining tax. Julia Gillard’s first act as Prime Minister was to negotiate a deal that the big miners could live with, a deal which collected $100 billion less than the original plan.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/7532/original/4xbvvpk5-1328838553.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">One of Julia Gillard’s first acts as Prime Minister was to redraw the mining tax.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>A similar story recently played out in relation to the proposed reform of poker machines in Australia. Repeated inquiries from bodies as radical as the Productivity Commission have developed a comprehensive reform agenda which is backed by a majority of the population and then committed to in writing by the Prime Minister. Until the multi-billion dollar gambling industry ramped up its public and private campaign that is.</p>
<p>One of the main fronts in these policy battles is “jobs”. Despite a long history of job shedding and off-shoring, big business in Australia has done a remarkable job of presenting themselves as being primarily concerned with job creation. Government policy, we are told, will typically destroy jobs while leaving businesses alone will create them. The media has played a major role in perpetuating such a view.</p>
<p>A recent survey by <a href="https://www.tai.org.au/index.php?q=node%2F19&pubid=913&act=display">The Australia Institute</a> found that the average Australian thought that 16% of the Australian workforce was employed in mining when, according to the Australian Bureau of Statistics the actual figure is 2%. This 800% perception gap is a result of a ten year PR strategy by the miners to describe themselves as big employers who contribute enormously to the prosperity of most communities. </p>
<p>The business pages of our major dailies have often acted as a cheer squad for the mining industry’s determination to extract as much as it can as quickly as it can. Australia has a bigger share of the world’s traded coal market than the Saudis have of the world’s traded oil market; but while the Saudis think the way to get rich is to restrict supply, it is now common sense in Australia to accept that the way to get rich is to sell as fast as we can. Could it be that foreign owned mining companies are not acting in Australia’s interests?</p>
<p>It is rare that such questions were taken seriously by the Australian media even before Gina Rinehart bought a major stake in Fairfax to accompany her share of Ten Network Holdings, where she now sits on the board.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/7531/original/2kq7y55r-1328838273.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">What influence will Gina Rinehart’s stake in Fairfax buy her?</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>The mining industry has been working hard, and successfully, to manipulate the Australian media. Relatively small projects are breathlessly described as $50 billion projects by simply adding up the total sales over the next 40 years. If you added up Woolworths’ projected sales over the next 40 years you would get an even bigger number, but why would you? You could say that someone who earns $50,000 per year will be a millionaire over the next 20 years but, again, why would you? </p>
<p>The media can and does play an important role in democracies. It provides both scrutiny and platforms for those who seek to influence the nation. But that role is becoming both harder and more contestable. </p>
<p>Newspapers in particular are struggling financially, in part because of online competition for breaking news but mainly because of online competition for the once lucrative classified advertising markets. A quick look at the number of private advertisements for cars in a Saturday newspaper will give you a good idea about the scale of the changes that have occurred with the ads typically making it from A for Audi to V for Volkswagen in less than half a page.</p>
<p>The contest over the role of newspapers is as tough as the fight for advertising revenue. Should newspapers be “campaigning” for or against particular change or should they be reporting “just the facts”? Opinions obviously differ.</p>
<p>A <a href="http://publiceditor.blogs.nytimes.com/2012/01/12/should-the-times-be-a-truth-vigilante/?pagewanted=all">recent blogpost</a> in the United States <a href="http://www.guardian.co.uk/commentisfree/cifamerica/2012/jan/13/new-york-times-public-editor?INTCMP=SRCH">created an outcry</a> when the New York Times asked its readers whether or not the paper should check the claims made by politicians before they reported them. It is an understatement to suggest that most readers were apoplectic that the question was even asked.</p>
<p>But the responsibility to inquire into, and speak out concerning the truth does not rest solely, or some would say at all, on the shoulders of the media. Academia, the public service, civil society and the courts all have a role to play in keeping our national debates centred on the national interest rather than the self interest of powerful industries or groups. </p>
<p>Unfortunately, just as the media claim that tight budgets and shorter deadlines impede their capacity to inquire and question so too do many academics, community organisations and public servants raise similar issues. The courts, on the other hand, have simply never been a level playing field for settling disputes between the wealthy and the majority.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/7538/original/v876sg9f-1328840142.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">
<figcaption>
<span class="caption">Fortescue Metal group chairman Andrew Forrest campaigned directly against the mining tax.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>The prospect of mining magnates buying up large slices of the Australian media has understandably made many citizens anxious about the future of public debate in Australia. But the real issue is not whether Gina Rinehart should be able to buy shares in a media company. She is not breaking any laws and has done nothing to suggest she would be a better or worse proprietor than Rupert Murdoch, Kerry Packer or Conrad Black.</p>
<p>The real issue is how, if at all, Australians want to limit the capacity of those with the greatest wealth to influence what the rest of the country sees, hears and reads. </p>
<p>If we decide we do not care who owns the media and how much a vested industry can spend to protect its interests, then we need to consider how much, if at all, we want to buttress our universities, community organisations, the public service and the courts against that same kind of influence. </p>
<p>We seem to take for granted that businesses can spend $20m, tax deductible, buying blanket TV ads for their cause or $200m for a slice of a media empire but should the same sorts of money be able to buy you a university centre or a community organisation?</p>
<p>At a time in which the mining industry is more profitable than any time in history, public resourcing of higher education, public broadcasting and the community sector is at historical lows. Ironically these groups are often encouraged to go and seek commercial sponsorships, or more politely, commercial partnerships, from the same industries whose influence the public is concerned about.</p>
<p>While all votes might be equal, the bank balances of Australians clearly never have been and never will. Russia provides an extreme case study in the possibilities for enormous wealth to purchase enormous political support. Australia’s democracy is far more vibrant and robust than Russia’s, but the ability of corporate money to purchase political influence is clearly greater today than it has been.</p>
<p>Gina Rinehart’s purchase of a large parcel of shares in Fairfax has led to a wide ranging debate about who should own the media but, perhaps unsurprisingly, it has resulted in far less debate about how it is that so much of Australia’s natural resource wealth has been allowed to accumulate in the hands of so few people. Deciding who can or cannot own a media enterprise will never be easy in a democracy. Perhaps surprisingly, it might be easier to redistribute our wealth than to distribute the right to own a newspaper.</p>
<p><em>Since publication, this piece’s disclosure has been amended to include the fact that Richard Denniss is The Australia Institute’s executive director. This was disclosed in <a href="https://theconversation.com/profiles/richard-denniss-4045">Richard Denniss’s profile</a> at time of original publication.</em></p><img src="https://counter.theconversation.com/content/5317/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Richard Denniss is The Australia Institute’s Executive Director.</span></em></p>The mining industry is used to having its voice heard in Australian public debates, so it should come as no surprise that mining billionaires such as Gina Rinehart and Clive Palmer would consider buying…Richard Denniss, Adjunct professor, Crawford School, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/51242012-02-01T19:31:28Z2012-02-01T19:31:28ZRinehart’s media ambitions: bad news for coverage of climate change<figure><img src="https://images.theconversation.com/files/7310/original/fqdr7b78-1328073992.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">There's not much money in newspapers, but plenty of chances to promote your views.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>News that Gina Rinehart has <a href="http://www.abc.net.au/news/2012-02-01/conroy-flags-tougher-media-laws-after-rinehart-move/3804368?section=business">reportedly attained a 12.8% stake</a> in Fairfax Media (and is seeking just under 15%) is bad for the Australian media environment: it potentially puts yet another billionaire in a position to influence what gets published as “news” in this country, and more importantly what doesn’t. </p>
<p>What’s more, it is very, very bad for media coverage of climate change and the physical environment in which we all live. Rinehart is a confirmed opponent of the carbon tax, with a track record of successful activism - upholding the interests of mining billionaires in thwarting the original mining super profits tax and contributing to Rudd’s downfall. Her latest bid signals a growing appetite for political influence.</p>
<p>Fairfax journalists must also be rather worried at the prospect. Her recently acquired directorship on the board of Ten Holdings (with 10% of the company shareholding) reputedly aided the <a href="http://sj.farmonline.com.au/news/metro/national/general/new-host-bolt-wont-take-on-the-abc/2127507.aspx">launch of the TV career</a> of tabloid warrior/columnist, Andrew Bolt, providing a soap box for right wing commentary and coalition politicians.</p>
<p>A 10% shareholding in Ten Holdings gained her a place on the board. A similar shareholding in Fairfax Media could do the same trick for her there (though one of Fairfax’s biggest shareholders says it <a href="http://www.theaustralian.com.au/business/companies/orbis-australia-would-not-support-fairfax-board-seat-for-gina-rinehart/story-fn91v9q3-1226259241275">wouldn’t support</a> a board spot), making her the company’s biggest single investor. Fairfax Media has a history of rejecting bids for power by individual directors. But Gina Rinehart’s rapidly growing billions - which look set to make her the <a href="http://www.smh.com.au/national/rinehart-racing-to-top-of-list-of-worlds-wealthiest-20120123-1qdzl.html">world’s richest woman</a> - could be the acid test.</p>
<p>It will come as no surprise to anyone that rich people resent paying tax. But the pathway to media power and political influence that Rinehart is embarking on to remedy this irritant will have serious ramifications for us all. </p>
<p>Opposition treasury spokesman, Joe Hockey, <a href="http://www.theage.com.au/business/ownership-of-fairfax-doesnt-matter-hockey-20120201-1qs08.html">says</a> he is “comfortable with the country’s richest person increasing her stake in Fairfax Media”. But many of the public will be feeling decidedly uncomfortable. They have good reason, given Rinehart’s recent activism against both the mining tax and the carbon tax, measures taken by a Labor government in the public interest. </p>
<p>Rinehart’s close relations with Coalition politicians - three of whom accompanied her to a <a href="http://www.readfearn.com/2011/09/wielding-power-the-rinehart-way/">lavish wedding</a> in Hyderabad last year - is further evidence of her aspiration for political influence, if any was needed. </p>
<p>Given the parlous state of print media revenue streams, her bid is certainly not financially motivated. But the additional media power of Fairfax board membership would position Rinehart well to <a href="http://www.readfearn.com/2012/02/monckton-rinehart-and-a-plan-to-capture-the-australian-media/">form sweetheart deals</a> for “<a href="http://www.theage.com.au/executive-style/management/the-iron-lady-20120116-1q1u6.html">her lobby group</a>”, <a href="http://www.andev-project.org/">Australians for Northern Development and Economic Vision</a> . These might include locking in Coalition climate change policy toward a low-to-no-action agenda with taxes on mining magnates reduced or counter balanced in other ways. </p>
<p>The <a href="http://www.lowyinstitute.org/Publication.asp?pid=1617">2011 Lowy Poll</a> indicated that the Australian public is losing conviction that urgent action is needed on anthropogenic climate change. This is even as climate scientists offer evidence that time for remedial action is all but gone. </p>
<p><a href="https://theconversation.com/topics/adaptation">Adaptation</a>, not mitigation, is now the focus of many government agencies. But this shift seems largely lost on the general public, if the Lowy Poll findings are anything to go by. The passing of the carbon tax should have marked a turning point in the public conversation, moving us all more in the direction of “what” we can do, rather than pointing us in the opposite direction of “why” do anything. Rinehart’s business interests undoubtedly lie with that backwards vision.</p>
<p>That an unelected person can so expediently buy her way into a position of political influence says as much about the shortcomings of our regulation of media ownership as it does about Rinehart’s ambitions. <a href="http://www.abc.net.au/news/2012-02-01/conroy-flags-tougher-media-laws-after-rinehart-move/3804368">Senator Conroy’s comments</a> regarding the need for a public interest test on media diversity could yet produce some public benefit. </p>
<p>Front-page news coverage of climate change to date has tended to be dominated by politics and controversy rather than by the science or the alternative courses for action. But environmental journalists employed by Fairfax newspapers - businesses that pride themselves on their editorial independence - have consistently reported the broader issues and the ramifications of climate change (though these stories rarely make the front page). </p>
<p>It would be nice to think that public support for Fairfax’s culture of editorial independence will help the company to resist any attempts by Rinehart to call the shots. But it is going to be left to the current board members and senior staff to play that role, an unenviable one by any measure.</p><img src="https://counter.theconversation.com/content/5124/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mary Debrett 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>News that Gina Rinehart has reportedly attained a 12.8% stake in Fairfax Media (and is seeking just under 15%) is bad for the Australian media environment: it potentially puts yet another billionaire in…Mary Debrett, Senior Lecturer in the Strategic Communications program, La Trobe UniversityLicensed 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/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/41362011-11-03T03:06:07Z2011-11-03T03:06:07ZWe need to know more about CSG and groundwater, but does Tony Windsor have it right?<figure><img src="https://images.theconversation.com/files/5134/original/aapone-20041130000012548578-question_time-original.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It could take years to learn more about the impacts of CSG, but can we afford to wait?</span> <span class="attribution"><span class="source">AAP/Alan Porritt</span></span></figcaption></figure><p>Independent MP Tony Windsor has said he <a href="http://www.theage.com.au/environment/water-issues/coal-gas-dispute-threatens-mine-tax-20111031-1msc4.html#ixzz1cazmLrPv">won’t back</a> the government’s <a href="http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=2070">Mineral Resources Rent Tax</a> unless more is done to make coal seam gas mining sustainable.</p>
<p>He has called for $200-400 million annually from the tax revenue to go toward bio-regional assessments. He also wants to see the Commonwealth have greater power over granting coal seam gas mining rights.</p>
<p>The term “coal seam gas” or CSG is being heard more often, and usually generates emotional responses. </p>
<p>The gas, mostly methane, occurs in coal beds that are within sedimentary rock formations in geological basins. In many cases, these basins also support catchments that have drainage systems with prime agricultural soils and prized <a href="http://www.ga.gov.au/groundwater/groundwater-in-australia/alluvial-aquifers.html">alluvial aquifer</a> (sediment deposit) systems. </p>
<p>The gas-bearing coal seams may be shallow or deep. Where they are shallow, these seams are often desirable targets. But in many cases they may also underlie alluvial or other aquifer systems. </p>
<p>Small-scale production of CSG has been around for 10-12 years, but the exponential increase in activities in the past two to three years has caught both governments and the community ill-prepared. In the area of water resources and regulation, most emphasis in the past decade has been on drought-related issues rather than mining. </p>
<p>The relationship between CSG and groundwater is intimate. Within the sedimentary basins there are a variety of aquifers including the highly valuable aquifers of the <a href="http://www.derm.qld.gov.au/water/gab/">Great Artesian Basin (GAB)</a>.</p>
<p>GAB aquifers occur both above and below some of the coal seams, which vary in thickness. These aquifers are the more permeable sandstone layers, and are bounded above and below by low-permeability layers such as shales and siltstone. </p>
<p>Usually the coal seams themselves hold some water. In certain locations they are used as aquifers, commonly for livestock supply. </p>
<p>The GAB artesian water resources are large scale, unique and exceptionally important; they enabled much of western Queensland and NSW to be developed from the late 1890s.</p>
<p>Within the GAB there are numerous sub-basins. These artesian supplies were significantly over-utilised and poorly managed until the 1960s when water pressures started to drop. Combined federal, state, and private strategies were then implemented to reduce waste and restore pressures. </p>
<p>Geological and water resources are part of dynamic natural systems. Management requires understanding and knowledge of these systems. This requires data, which comes from measurements and monitoring. Groundwater systems are an example of a major challenge, as they are “hidden” and require a different approach to surface waters. </p>
<p>The big question is who does this management, and who takes responsibility for it in the long term? There has always been a degree of uncertainty about whether it is state or federal and who pays. Before the mid-1990s and introduction of a user-pays system there was better interaction between federal, state and private agencies, and communities. </p>
<p>There is no doubt that if CSG and water resources are to be managed in a sustainable manner, this must be based on data collection, organisation and assessment. This has certainly started via the <a href="http://www.nwc.gov.au/">National Water Commission</a> (NWC).</p>
<p>State agencies received “blocks” of funding, but mostly for specific projects. Substantial federal funds went to the <a href="http://www.bom.gov.au/">Bureau of Meteorology</a> (BOM) to collect water data nationally. But groundwater still remains a major challenge. </p>
<p>So there are several requirements for improving the sustainability of CSG extraction. One is the broader understanding of <a href="http://en.wikipedia.org/wiki/Hydrogeology">hydrogeology</a>. This is based on knowing the geology, but considering it from the aspect of bearing water. </p>
<p>The federal government has made Geoscience Australia a focus groundwater agency at a national level. This is an important step in the right direction but state agencies – which are “on the ground” – need more support to compile, integrate and interpret data. This requires additional funding.</p>
<p>Information (such as water levels and salinity) needs to be collected on a regular basis for both groundwater systems (via bores) and surface systems (stream gauging stations). Computer systems these days can handle large data sets, and there is increasing capability for <a href="http://www.truecostofdata.com/telemetry.php">telemetered data</a>, plus remote access. </p>
<p>Data must, however, be in a format that is understandable by the broader community; in formats such as computer-based 3D visualisation, for example. These technologies exist, but are not yet widely implemented at effective scales. </p>
<p>Tony Windsor has <a href="http://www.theage.com.au/environment/water-issues/windsor-calls-for-coal-seam-gas-mining-halt-20111102-1mufz.html">suggested</a> allocating substantial funds from tax revenues for “bio-regional” assessments, and setting limits on CSG exploration. In theory both ideas have merit, but the application is not straightforward. </p>
<p>The additional funding is clearly needed. Regional scientific assessments of natural systems are highly desirable, especially when integrating different disciplines. </p>
<p>A major challenge is who would actually do the work: federal, state, local governments, private sector, consultancies, regional environmental organisations, research agencies, a combination of these? All take a different approach, but data and other outcomes would need to be integrated. Local communities should also play a role.</p>
<p>Regional studies also take many years to complete, and would impose unreasonable delays on utilising this valuable resource. The surface component of these studies could be implemented relatively easily. But the subsurface component would require longer timelines. </p>
<p>New data should also be incorporated. We know a lot about how CSG systems operate, but need to consider each location separately and at different scales spatially (such as local, catchment, basin) and temporally (seasonal, years, decades). </p>
<p>CSG operators appear to have learnt much over the last several years, in particular how to interact with landowners and stakeholders. There is more acceptance of the view that local landscapes should be sustainable in the long term. Increasing effort is therefore put into community consultation. </p>
<p>But there is still a long way to go in developing an holistic assessment of the sedimentary basin groundwater systems of Australia in which the CSG occurs, the needs of other users of groundwater, and interaction with many local stakeholders.</p><img src="https://counter.theconversation.com/content/4136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Malcolm Cox is actively involved in groundwater research and training related to the CSG industry and government links. He has funding for project development and PhD research from Arrow Energy and Exoma Energy, which is focused on the understanding of hydrogeology and water chemistry. He also has funding from QWC for development of a 3D visualization tool of regional basins. Cox has also provided advice to several consulting companies, and is active in promoting information exchange. Malcolm Cox notes that his primary driver is the science and he has also spent many years working in water supply management, coastal groundwater systems, geothermal systems and environmental issues. </span></em></p>Independent MP Tony Windsor has said he won’t back the government’s Mineral Resources Rent Tax unless more is done to make coal seam gas mining sustainable. He has called for $200-400 million annually…Malcolm Cox, Associate Professor, Hydrogeology, , Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.