EDITORIAL:
Stop Rudd's super profits tax!

by Peter Westmore

News Weekly, May 29, 2010
The Rudd Labor Government's resources super profits tax (RSPT), which the government estimates will yield a massive $9 billion a year in four years' time, is one of the foundations on which the government intends to cut the budget deficit in the years ahead, and bring it back into surplus.

This is how the Treasurer, Wayne Swan, proposes to "meet the highest standards of responsible economic management", as he said in delivering the Budget speech on May 11.

While there are sound arguments for a special tax to facilitate national development, the fact is that the Rudd Government's super tax will simply go into consolidated revenue to assist it to meet its massive deficits.

According to the Budget papers, the government deficit was $57 billion in 2009-10, a large part of which was created by the extravagant school refurbishment program (called the "education revolution"), and the multi-billion home insulation fiasco.

The government congratulated itself that the deficit will fall to just $41 billion in 2010-11, although most of the reduction comes from the lower-than-expected unemployment rate (higher levels of employment leading to increased income and company tax revenue), and the massive $2 billion additional tax on cigarettes.

Super tax rate

According to the mining industry itself, the 40 per cent super tax on the industry will increase the effective tax rate to almost 60 per cent, twice as high as for other industries, including the immensely profitable banking, gaming, property and mega-retailing sectors.

The effect of differential tax rates is always to drive investment towards lower costs, which means either overseas or out of the resource industries. For multinationals such as Rio Tinto, this means that iron ore projects in Africa and coal projects in countries like India and Indonesia are likely to be developed ahead of Australia's.

If implemented, the new tax will undoubtedly put a major barrier on future investment in the mining industry, whose profitable exports rescued Australia from becoming a victim of the global financial crisis, by sustaining Australia's national income at a time of a rapid global downturn, and by contributing through the taxation system.

The Commonwealth Government has claimed that the super tax will have no impact on the development of the mining industry, and pointed to the growth in exports of petroleum and natural gas after the 40 per cent resource rent tax was introduced by the Hawke Labor Government in the 1980s.

However, data from the Australian Bureau of Agriculture and Resource Economics (ABARE), a government research centre, contradicts this claim. ABARE figures show that crude oil production has fallen consistently since the resource rent tax was introduced, while production from the two fields exempted from the tax (the Bass Strait and the North-West Shelf fields), increased until about 2000, before beginning a natural decline.

Almost all of the additional natural gas production since then has been generated from the North-West Shelf fields which are exempt from the petroleum resource rent tax.

While the targets of the resources super profits tax are corporations such as Rio Tinto and BHP-Billiton, small mining companies which have been at the forefront of mineral discovery are likely to feel the weight of the proposal. The managing director of Encounter Resources, Will Robinson, warned, "As the tax plan stands, it is going to encourage mediocrity and disincentivise exploration, and while the targets are the BHPs and Rios, the smaller end of town in going to bear the brunt." (The Australian, May 15-16, 2010).

He said that the government failed to understand mineral exploration which is highly risky, but has substantial rewards for success.

He continued: "The main motivation for people to invest in exploration is to get the prize, and it is a highly speculative investment. Putting an additional significant tax on that prize has provided a significant disincentive to invest in Australia. It has distorted the risk/reward profile for people making these speculative investments."

Despite the intervention of the Australian Workers Union in support of the resources super profits tax, many workers in the industry are totally opposed to it, as it will put the long-term future of mining at risk.

One result of the new tax is that billions of dollars of new investment - in projects as diverse as coal-seam gas developments in Queensland, iron ore and manganese projects in WA, and off-shore exploration in the Timor Sea - have been put on hold.

If the tax goes ahead, it will have a damaging effect on an industry which has been crucial to Australia's economic development over the past 40 years or more.

The Opposition leader, Tony Abbott, has drawn a line in the sand by opposing this iniquitous tax. But the Opposition does not have the numbers to stop it in parliament.

What is needed is a mass mobilisation, by ordinary Australian men and women, to defeat it. The challenge now is to bring this about.

Peter Westmore is national president of the National Civic Council.