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.