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Mining tax shortfall: the experts respond

Treasurer Wayne Swan today announced that the mining tax had raised $126 million in the six months following its introduction…

The mining tax has raised less in its first six months than the government expected. AAP Image/Lukas Coch

Treasurer Wayne Swan today announced that the mining tax had raised $126 million in the six months following its introduction, well below the $2 billion the government had expected it to yield this financial year.

“It’s clear revenues from resource rent taxes have taken a massive hit from the impact of continued global instability, commodity price volatility and a high dollar,” Mr Swan said in a statement released earlier today.

The government has been under pressure to release the figures but had initially baulked, claiming it might reveal who paid the tax.

Mr Swan said the data released today was provided by the Australian Taxation Office “after it was satisfied disclosing two quarters’ instalments would not breach taxpayer confidentiality provisions of the Taxation Administration Act 1953.”

Here are some expert reactions to the news:

Professor Ian Harper, Professor Emeritus at University of Melbourne

Clearly, commodity prices have come off and that has affected the mining companies' taxable income.

It’s also true that the mining companies, under these tax arrangements, are able to deduct significant outlays on mining investment and those deductions will also have reduced the tax payments.

I would think it would be now even less likely for the government to deliver a surplus with a shortfall of this magnitude, without it affecting provision of services. This is one of those things we will have to live with.

Professor John Quiggin, School of Economics at the University of Queensland

It seems pretty clear the concessions made to the mining companies have been too generous. All the changes that were made to the package between the original tax and the agreement they reached in the end were too generous.

Professor Michael Dirkis, Professor of Taxation Law at the University of Sydney

It’s probably not surprising, given the nature and design of the tax, that it didn’t meet its projected target, in light of the decline in commodity markets.

The tax was always too narrowly focused and, as designed, did not really meet the recommendations of the Henry review.

Rather than consulting with the states on reforming the taxation of mining across the board, they took the easy option by allowing the mining companies to deduct any royalties paid to the states. That created a problem for them from day one because the states simply started to raise the level of their royalties, knowing that the effect would be to reduce the amount of profit available to be taxed by the Commonwealth. We saw that in WA and in NSW.

John Passant, School of Politics and International Relations in the College of Arts and Social Sciences at the Australian National University

What a surprise. The Minerals Resource Rent Tax (MRRT) that Julia Gillard and Wayne Swan personally negotiated with BHP Billiton, Xstrata and Rio Tinto, has only raised $126 million in the first six months of its operation. When you let the fox run the hen house what do you expect?

The Government claims the minuscule amount of MRRT is due to the high Australian dollar and lower than expected commodity prices. There are a couple of problems with this.

The Australian dollar is about the same as it was when the Treasurer predicted $2 billion in revenue in October last year. So that doesn’t look like a valid argument.

Iron ore and coal prices may have declined last year but are on the rebound. But in any event, as I understand it, many supply contracts are long term to give certainty to both the buyer and seller and there would be hedging arrangements in place for currency changes. So the government’s argument may not be watertight.

The real problem is the design of the tax. It only applies to coal and iron ore, a result of the knifing of Kevin Rudd and the abandonment of the Resource Super Profits Tax which would have applied to all resources at a rate of 40% compared to the MRRT’s effective rate of 22.5% and narrow resource base.

Second, the Government gave a credit for State and Territory royalties. This was a free kick to WA, NT and Queensland who have, at least in the case of WA and from memory Queensland, raised some royalties. The Commonwealth take is accordingly reduced.

And finally, mining companies can opt to work out their super profits on the market value of the mines with accelerated depreciation over five years. Investment after 1 July 2012 is able to be written off immediately.

Is there a solution? Anyone for a tax at 40% on all resources earning super profits? And not just the mining sector. Tax all super profits. The Big Four banks come to mind.

These are mining companies whose effective tax rates were in 2010 between 13% and 17% Their effective tax rates today after the MRRT are likely to be much the same. They can pay much more tax. The money is there; the Government will isn’t.

Adjunct professor Richard Dennis, Crawford School at the Australian National University

It’s no surprise that the version of the mining tax designed by the three largest mining companies, and negotiated over a couple of days with then newly installed Prime Minister Gillard will raise far less tax that was expected from the first version of the mining tax designed by Ken Henry.

What is a surprise, however, is how close to zero the miners version of the tax will raise.

The miners bastion of the mining tax is not only set at a much lower rate than the original, but it has a much narrower base.

While it covers coal and iron ore, it excludes gold, copper, uranium and all of Australia’s other scarce mineral resources.

The rationale for excluding these minerals has never been provided, and the costs of excluding gold, which continues to trade at record levels, is enormous; 83% of Australia’s mining is foreign owned and, in turn 83% of the profits head overseas.

The mining industry employs around 2% of the workforce and pays the lowest rate of tax on its profits of any industry in Australia.

The original mining tax would have ensured that the mining industry made the kind of contribution to the taxpayer that their expensive advertisements claim they do.

Today’s figures show that the 98% of Australians who don’t work in mining will see very little return from the high prices that foreign companies can seek Australia’s scarce resources for. We are missing out on a once in a generation opportunity.

Join the conversation

24 Comments sorted by

  1. Robert McDougall

    Small Business Owner

    and so the mining sectors true colours come to light. Either get a fair return for our collective resources governments are giving away to these companies or nationalise the mines.

    Given that option i'm pretty certain mining companies would come to the conclusion that they can afford to give fair value to the owners for the resources they rely on to make their profits. by fair owners i mean "us" the collective and the general.

    Why we subsidise these modern day robber barons eludes me, or is that the price politicians are willing to pay to ensure they have a lucrative job when they leave politics? As if their superannuation and lifelong tax free pension isn't enough. But i suppose thats greed for you. Also applies to the mining stooges and magnates.

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    1. Robert McDougall

      Small Business Owner

      In reply to Robert McDougall

      a double slap in the face when they use the obscene profits generated to buy off and subvert our political structures.

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    2. Chris Reynolds

      Education Consultant

      In reply to Robert McDougall

      The difficulty with this Robert Mugabe solution to the problem is that the miners claim they can find better pickings elsewhere. If Australia sacrifices its competitive advantage to too large a degree we risk killing the goose. Careful reconsideration does need to be given to what degree the MRRT should be revised before the miners take their bat and ball to Africa or Mongolia!.

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    3. Robert McDougall

      Small Business Owner

      In reply to Chris Reynolds

      Lol, Robert Mugabe solution? You can't transplant the resources and australia offers a much more stable base in which to operate. I don't believe for one second they'll take their bat and ball home, seems to have worked out quite well for Some northern european countries.

      Slowing down the resources boom IMO would be a very smart thing to do for the overall economy.

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  2. Theo Pertsinidis

    ALP voter

    The Liberal Party think it's $126million too much because they don't want the MRRT.

    I think $126million is not enough.

    It doesn't take a rocket scientist to work out that a farmer should be milking the cow to get the most from it.

    In a world of scarcity, foreign ownership and land grabs will be more the norm.

    So will revolts to foreign ownership and land grabs.

    Agricultural equipment is easily sabotaged. If ripe fields of grain are torched, they burn quickly. Injuries and deaths…

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    1. Chris Reynolds

      Education Consultant

      In reply to Theo Pertsinidis

      I'm not sure the Luddite solutions will produce much benefit to the poor. But your comment does highlight the flimsy nature of the Liberal position. They excoriate a tax which collects very little as a burden on the sector of the economy which all agree has protected Australia from the worst of the GFC. A little like their position on the Carbon Price which demonstrably has had a marginal impact on the CPI although power prices have risen - wasn't that the intention?

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  3. Garry Baker

    researcher

    As for the dearth of revenue, no surprises here at all. Indeed, not a one, other the quirky media headline for this article, which as usual with these public commentaries, is an after-the-event outcry - When in fact this outcome was entirely predictable when the tax was made "law".

    The tax idea was never any good, flawed from the start, and one finally sculpted by the miners themselves - Global miners, who posses far more grey matter than the Neanderthals we have running the show in Canberra…

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  4. John C Smith

    Auditor

    Allowing capital outlays as deduction was not going to bring much revenue from sales. may be later.
    Are Minerals ( coal and iron ore) exports excemt from GST? if so why not why not remove the excemption from all minerals. One para amendment to GST Act.
    We need to change the constitution so Commonwealth can charge the royalties.

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  5. Lincoln Fung

    Economist

    When the truth comes to daylight and while we see the dreadful position and policy/taxation skills of the Treasurer and the PM, don't forget those advisers and the economic and tax advisory institutions behind the scene who were involved in the design of the tax and its finalisation and provided the shameful and deceitful numbers to the public.
    At the time, not many reporters, analysts and commentators questioned the numbers provided to the public, even though when both the tax bases and the rate had decreased as well as more generous deductions while the projected total tax didn't change much from the original Henry design.
    An incompetent government is generally accompanied by equally incompetent advisers and related institutions.
    A further shame is that is is equally likely that those advisers and key persons with the related institutions would have got their promotion similar to the way that the Treasurer became the deputy PM.

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  6. Peter Redshaw

    Retired

    It is good to see that some of the author's have stated the obvious. The Super profits mining tax was always going to be limited in its early years as mining companies write off their investments against their profits. The other issues identified of its narrow base, of its reduced rate in relation to the original proposed rate, the deductibility of State royalties including State increases to those royalties, the fluctuation in mineral prices and the high Australian dollar only add the reasons…

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  7. John C Smith

    Auditor

    There are Taxes; then there are con taxes-that is taxes to mislead the majority, generally the lower end of the income and weaith. This started with the Haw-Keat tax revolution. The best examples are: ETP taxes, FBT, CGT, compulsory supe and Super taxes. Then How-Cos GST that excempted goods exported. Being a country that live off export of primary goods we should impose GST and exempt only exports of secondary and tertiary goods. I pay GST on coal in my barbeque while my mate in China doesnt.

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  8. jean wilson

    retired

    $126 million - I thought it would be even less.

    If we knew all the costs of "our" mining industry - social, environmental, economic - I suspect we'd find that we're paying these big companies to increase their engorged profits for the privilege of screwing us. I believe we're making a loss.

    They must be laughing all the way to Zug.

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  9. Spiro Vlachos

    AL

    The most pertinent response from Prof Ian Harper:

    "It’s also true that the mining companies, under these tax arrangements, are able to deduct significant outlays on mining investment and those deductions will also have reduced the tax payments."

    By making such deductions the mining companies can reduce their "super" profits and collectively show us the ineptitude of the govts economic advisers. The treasurer keeps reiterating the record investment in mining, not realising that this record investment decreases tax revenue. Why on earth would a mining company not bring investment forward if the result would be that the govt would be punished with lower tax revenue?

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  10. Pat Moore

    gardener

    Thanks Sally Zou & Sunanda Creagh. This is excellent & real journalism to throw some light into such massive corrupted darkness of this rabid, unjust feudalism of naked exploitation.

    This is no more than outrageous robbery & not only should the mines be nationalised the miners should be taken to court for restitution they owe to the Australian public they are impoverishing not only by daylight robbery but by environmental destruction and pollution.

    Absolutely disgusting government-abetted…

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  11. David Clerke

    Teacher

    If Labor stuffed it up why not simply say so?

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    1. Henry Verberne

      Once in the fossil fuel industry but now free to speak up

      In reply to David Clerke

      I don't think it was incompetence, more cowardice or 'realpolitic" that drove them to water the tax down from its original design. The miners would have ramped up their campaign against the tax and no doubt won the propaganda war. The coalition knew this and opposed it.

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  12. Michael Shand

    Software Tester

    Great read and some insightful perspectives, thanks for sharing

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  13. Henry Verberne

    Once in the fossil fuel industry but now free to speak up

    The watered down mining tax will raise but a skerrick of the original amounts intended and I think the government knew it but had to save face. The original tax as recommended by Ken Henry would have resulted in a huge political campaign against Labor. It may have been different had Labor's support been stronger but I believe they saw the writing on the wall and cut their losses.

    It is quite obvious that the foreign owned minders have enormous clout and that they can make and unmake governments. Perhaps if the announcement of the tax would have been preceded by a very well articulated campaign by the government to sell the tax to the electorate and pre-empted the dishonest propaganda that could be predicted to come from the miners would they have had some chance.

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  14. Iain Brown

    Retiree

    Another Eureka moment brought to you by our mining industry. Eureka was our first public tax evasion event. This is it in a public company setting. We can blame Labour for trying to address the inequality and getting dudded or the Liberals for encouraging their State cousins for ramping up State royalties. The opposition need to explain why we need to remain a low tax country for miners. Can we see the royalty receipts received by the mining States for the same period?

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  15. Chris Reynolds

    Education Consultant

    We all recall the powerful media campaign conducted by key players in the mining sector and most economists acknowledge the pivotal role played by mining exports in insulating Australia against the worst effects of the GFC. The role of the States in squeezing royalties out of the miners too is a key factor in the politics of this. Frankly I think the MRRT was the best deal in town at the time. Whether the situation has changed and whether it should be applied to a wider range of commodities is an issue which faces the next Government although one of the contenders has plainly declared it will not have a bar of it - end of story! There are times when we yearn for simple solutions to our problems. Most often they are not solutions at all; only compromises. That is the consequence of living in a democracy.

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  16. Ngoc Luan Ho Trieu

    logged in via Facebook

    Poll tax principles should be applied to mining companies. As soon as they reach maturity, start generating profits for shareholders or proprietors then a fixed proportion of their revenue should be collected by government as compensation for the loss of natural resources which in fact belong to all Australian citizens. the collection will be used for the education, health, training services and benefits to all citizens including those who work in the mining sector and to improve the economic infrastructure…

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    1. Ngoc Luan Ho Trieu

      logged in via Facebook

      In reply to Ngoc Luan Ho Trieu

      Correction: wrong use of term. Please read "poll tax" as fixed rate of tax on income (for individuals) and on Revenue (for mining companies). My thousand apologies.

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  17. wilma western

    logged in via email @bigpond.com

    The assumjption that the Rudd government's new mining tax was what Ken Henry advocated is not correct I believe. Also the Henry Report was supposed to be considered as a package not cherry-picked - that's what I've read , anyway. As well Rudd had Martin Ferguson continuing to negotiate with big miners weeks after the huge advertising onslaught by the miners got under way . Swan always had trouble trying to explain the complicated arrangements proposed in the Rudd govt's tax which looked suspiciously…

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