Gillard's new tax will stymie mining, energy industriesby Peter WestmoreNews Weekly
, July 24, 2010The Prime Minister Julia Gillard's announcement of a 30 per cent limited resource rent tax to replace the Rudd Government's all-embracing 40 per cent resources super profits tax (RSPT), will confirm widespread concern over the Government's attack on the profitability of Australia's resource industries, push up the price of electricity and gas, and put at risk the Australian steel industry.
The new tax, announced after unprecedented public protests against the RSPT and a collapse in support for the Rudd Government, was designed to head off alarm over the future of the mining industry. The Rudd plan was introduced following a review of Australia's tax system which recommended a resource rent tax to help meet the Government's soaring deficit, arising from its spending spree of the past three years.
However, the essence of the new tax regime will stay in place, and it is likely to be expanded from iron ore, coal and the energy industry, at some time in the future.
The revised tax plan was negotiated by three senior ministers, Ms Gillard, Wayne Swan and Martin Ferguson, the resources minister, with three leading mining companies, RioTinto, BHP Billiton and Xstrata.
The multinational mining companies apparently were persuaded that the choice was between this deal and the Rudd plan. This is not true. The Gillard plan, like Kevin Rudd's earlier model, faces defeat in the Senate as the Coalition opposes any new mining tax, while the Greens want to maintain Mr Rudd's original 40 per cent RSPT.
Whatever the reasons for the mining multinationals' endorsement, the Gillard plan is complex, and as the chairwoman of Hancock Prospecting, Gina Rinehart, pointed out, is liable to be significantly worsened in the Senate if the Greens succeed in winning the balance of power.
She said: "The Greens, who are likely to hold votes the Labor Party would need to pass a new tax, have reconfirmed they won't agree to any weakening of the resources super profits tax.
"Those mining companies who may be currently thinking they'll be OK, that the tax won't affect them, need to understand that in the course of passing the new tax legislation changes are likely to be negotiated."
The Greens are not the only problem. The powerful Construction, Forestry, Mining and Energy Union has called for the original 40 per cent tax rate to be phased in over time.
The WA secretary of the CFMEU said, "The rate should be progressed [upwards] once the existing rate is bedded down." (West Australian
, July 5, 2010).
The new tax is also expected to face pressure on a number of other fronts. As announced by the Prime Minister, the new tax will apply only to iron ore and coal. This has the politically beneficial effect of removing from its operation many of the small mining companies; but when the Treasury Secretary, Dr Ken Henry, recommended the introduction of such a tax in his tax review, he was insistent that it should not have exemptions.
It is certain that there will be immediate pressure to include the uranium, gold and diamond industries where Australia is one of the world's largest producers. It is strange indeed to have a "resource rent tax" applied to iron ore, coal, oil and gas, but no other resource industries. All other mining industries will then be liable to be included.
The operation of the new tax regime will extend the operation of the Petroleum Resource Rent Tax (PRRT) from off-shore fields to include all producers.
People who have studied the development of Australia's oil and gas reserves argue that the development of existing oil and gas fields in places like Bass Strait, between Victoria and Tasmania, has been severely limited by the existence of the PRRT. Oil and gas producers, not unreasonably, decided to look elsewhere.
The application of the higher 40 per cent tax rate to all oil and gas producers, including new coal-seam gas fields in Queensland, will adversely affect oil and gas exploration and production on the mainland. As Australia moves away from electricity generated by coal towards gas, one effect will be to substantially increase domestic prices of gas and electricity, feeding into domestic inflation in the years ahead.
Additionally, the new tax regime will have a severe impact on Australia's domestic steel industry, which faces fierce competition from imports. (Iron ore and coal are the principal components in steel production.)
There are 3,000 people employed in OneSteel's Whyalla steel works whose jobs are on the line, as are thousands of jobs at BlueScope Steel production facilities around Australia.
The Opposition are to be congratulated for standing up against this new tax which will damage the expansion of the mining and energy industries in the years ahead. The job is to convince the Australian public that there is an alternative to the big taxing plan of the Gillard Government.Peter Westmore is national president of the National Civic Council.