Minerals Resource Rent Tax Bill 2011
Having pushed through this parliament its unpopular toxic carbon tax under the misnamed clean energy bills, at the behest of the Greens, Labor now wants to introduce the minerals resource rent tax. This is a government addicted to new taxes.
Why is this so? Because this is a government addicted to spending—wasteful spending, unnecessary spending—funding schemes devised in thought bubbles, dreamt up on the run and then made policy against the national interest. Australia's net debt is now about $90 billion. Gross debt is $217 billion. In a six-week period in recent months Labor borrowed another $11 billion.
The Treasurer—if he is the world's greatest Treasurer, I would hate to see the worst—often spruiks about how the government nursed the nation through the global financial crisis. He waxes lyrical about how we came out the other side of the GFC better than other countries in the world. He is correct. But this was only because Labor was left with plenty of money in the bank when it took office in 2007.
Indeed, Labor inherited from the Howard government a $20 billion surplus—a word which is not really in the Treasurer's vocabulary—a $45 billion Future Fund and an economy with no net debt. In four years those savings, earned through sound fiscal management, are all gone. The nation's bottom line is now deeply in the red, forcing future generations to pay off Labor's wanton waste.
There is never a good time to owe more than you can really afford to pay back and this is especially right at present, with Europe burning and the United States of America in trouble.
Some on the other side may suggest that the minerals resource rent tax is a way to a better financial future, retiring debt and being able to fund worthwhile projects. But what this comes down to is a matter of trust. When it comes to financing programs, Labor simply cannot be trusted. The Minerals Resource Rent Tax Bill 2011 is another tax from a bad government.
The mining industry has, does and will continue to help drive Australia's economic wealth and prosperity. After coming to office in 2007, offering so much vim and vigour, the Rudd government conducted an inquiry into the nation's taxation arrangements, Australia's Future Tax System review, also known as the Henry Tax review. The resources super profits tax was the government's response to the review. The announcement caught the mining industry, the states and territories and other stakeholders by complete surprise. This galvanised the mining industry, and a concerted campaign was mounted to have the resources super profits tax abolished. The push to axe the tax contributed to the downfall of Kevin Rudd and Julia Gillard replaced him on 24 June 2010.
The new Prime Minister, as well as declaring the government had lost its way, said she would immediately cancel the government's multi-million dollar advertising war with the miners over the super profits tax. The new Prime Minister undertook to negotiate with the mining industry over the resources super profits tax. Julia Gillard said she would deliver the two taxes and her third promise was to deal with the influx of asylum seeker boats off Northern Australia—and what a mess that has become! However, instead of negotiating with the mining industry, the new Prime Minister and her Treasurer, the now new Deputy Prime Minister, struck a new mining tax deal in secret, and exclusively, with the three biggest mining companies—BHP Billiton, Rio Tinto and Xstrata—in the lead-up to what was always going to be a difficult 2010 general election.
The clandestine negotiations with the multinational, multicommodity and multiproject majors excluded around 320 of their competitors and every state and territory government from that process. What resulted from all of this was the minerals resources rent tax and expanded petroleum resources rent tax.
These new taxes are supposed to start on 1 July 2012. Revenue from the proposed national mining tax has been in the Commonwealth budget since 2010-11. The revenue from those taxes, which Treasury has assessed as reducing over time, has already been allocated for a number of related measures, the cost of which will rise over time.
The Henry tax review, supposedly, was intended to simplify the tax system and make it fairer. Instead, the Gillard mining tax is more complex, far more intricate and less fair. There will be an additional 287 pages of tax law—up from 161 pages when the government first released the draft. The big three companies allowed to help design the mining tax get an unfair competitive edge from the minerals resource rent tax—and that is un-Australian. These three companies gain a significant tax shield not available to smaller companies from the introduction of the market valuation system to calculate applicable deductions. That is unfair. Smaller miners will either pay the minerals resource rent tax sooner or continue to pay royalties on production while also being subjected to additional compliance burdens.
The Gillard mining tax lessens Australia's international competitiveness. It has serious implications for the revenue bases of states and territories. The Henry review recommended a national profit based resources rent tax to replace state and territory royalties and that the Australian government should negotiate the federal-state financial relations implications of such a move. The Labor government, however, did not have the courage or decency to engage with the states to do the necessary negotiation on genuine tax reform. Instead, it came up with a policy which has made everything more complicated and everything increasingly messy. That is the Labor way.
You have to feel for the state and territory governments and what this means to them. Resource royalties represent 20 per cent of the Western Australian state government revenue, nine per cent of Queensland's state government revenue and six per cent of New South Wales state government revenue. The Gillard government's mining tax deal hits the federal budget hard. State governments in New South Wales, South Australia, Tasmania and Western Australia have already increased royalties on iron ore and coal. Queensland has reserved its right to do so in the future. That effectively deals a $3 billion blow so far to the federal budget. That is a big whack.
None of the states were privy to the Gillard government's mining tax deal. They were not even consulted—not even considered. A responsible federal government, making far-reaching reform of resource taxation and royalty arrangements, would always, one would have thought, engage in detailed and frank consultation with state and territory governments. Not this one. But then, 'responsible' and 'Labor' are two words which do not, it seems under the present administration, belong in the same sentence.
This mining tax package will leave the budget considerably worse off and over the medium to long term it will worsen the current structural deficit. Revenue from the minerals resource rent tax will be extremely volatile and downward trending. Treasury projections of the mining tax revenue to 2020 released under freedom of information show that Treasury expects revenue to reduce over time, as commodity prices revert to more normal levels after a global 'supply response' to today's record highs. At the same time, the cost of measures the government has earmarked for the mining tax will continue to grow—and grow strongly—over the years. The cost of the proposed increase in compulsory superannuation from nine per cent to 12 per cent is likely to increase to $3.6 billion in 2019-20. That is when it would be fully implemented. That same year, Treasury projections of the mining tax revenue is $3 billion.
But this Labor government will not let anything get in the way of a tax it can impose—no way. There is not a tax this government does not like. The mining tax could well initially mask the government's own economic mismanagement and failure. For the Treasurer, yet to produce anything near a surplus, that surely will be a plus. But, while the minerals resource rent tax will assist Labor to create the con of an early surplus in 2012-13, it will leave the budget substantially worse off from 2013-14 and beyond. The Senate inquiry into the mining tax has cautiously calculated that, over the next decade, the net cost to the budget—that is, the minerals resource rent tax minus the cost of related measures—will be $20 billion. That is a shocking statistic.
Peter Costello, that deliverer of prudent, sound and immeasurably better budgets than his successor, must cringe when he reads how badly the nation's coffers are faring. The Labor government has already broken its promise on debt. On 11 March 2009, the Treasurer, invoked 'special circumstances', permitting the government to borrow up to $200 billion. In the May 2011 federal budget, the government changed the Commonwealth Inscribed Stock Act 1911 to allow it to borrow up to $250 billion. The government refused to allow the parliament to debate this increase in separate legislation, which has always occurred when it has needed to be increased in the past. This will no longer be a 'temporary' increase due to 'special circumstances'. The government's amendment means a permanent increase in the amount that the government can borrow.
There are 12.3 million taxpayers in Australia. Every taxpayer will owe an extra $12,314 now that Labor has put $150 billion on the nation's credit card. Over the past 12 months, Labor has borrowed $135 million a day, every day. Over the next four years, Australians will pay $18 million a day in interest on this debt. Economics Professor at Harvard University, Dr Ken Rogoff, recently compared debt growth across different countries. He found that, in percentage terms, only Iceland and Ireland had increased debt at a faster rate than Australia.
The carbon and mining taxes will harm Australia's international competitiveness. Spending billions of dollars buying carbon offsets overseas will not help Australia's environment. Imposing the world's harshest carbon emissions tax on Australia's biggest businesses, biggest job creators—Labor calls them polluters—will not reduce the temperature and will not lower sea levels. Imposing a mining tax on selected mining companies will stifle investment, force mining companies to lay off staff to meet shareholder expectations and not return money to the regions from whence it came, where it was dug out of the ground.
As with everything Labor does, the modelling is all wrong. Labor will not so much as reveal the modelling for the carbon tax, because it was based on other countries across the world imposing a similar carbon reduction scheme—and we all know that is not going to happen any time soon, if ever. We have been left here in Australia high and dry. We will be left in a similar position, high and dry, with the mining tax.
The coalition opposes the government's plan to introduce a minerals resource rent tax. The tax is project based on economic rents made from taxable resources—iron ore, coal and some gases—and the tax is imposed on a mining profit less its MRRT allowances at a rate of 22.5 per cent. You cannot trust Labor to properly spend money made from burdening the nation with yet another tax. You cannot trust Labor, full stop.
There is a better way. Genuine and sustainable tax reform can only be achieved through an open, transparent and inclusive process involving all relevant stakeholders, not just a chosen few, not just the ones that Labor chooses to bring into the tent. The parliament should stop the minerals resource rent tax from going ahead and the government must start again. The government needs to get its spending under control. It cannot continue to spend the way it has been over the past four years, because the nation demands it and the taxpayers demand it. The government needs to focus on lower, simpler, fairer taxes and genuine tax reform based on a proper process giving everyone a fair opportunity to have their say and to be heard.