COVER STORY / EDITORIAL: by Peter WestmoreNews Weekly
Mining tax will hit Australian industry and super
, December 10, 2011
In the last sitting days in the House of Representatives this year, the Prime Minister pushed through the new mineral resources rent tax (MRRT) and expanded petroleum resources rent tax (PRRT) — collectively called the mining tax — which will go to the Senate in the new year.
Along with the carbon tax and the surrender to people-traffickers, this represents the culmination of Julia Gillard’s year of “decision and delivery”.
Public debate on the mining tax issue has concentrated almost exclusively on its effect on the mining industry, because the new tax was negotiated between the Federal Government and three of Australia’s largest mining multinationals, Rio Tinto, BHP Billiton and Xstrata.
Even the parliamentary debate on the new tax concentrated on the relative impact of the tax on mining companies, rather than its effect on the economy as a whole.
Because some of these companies, including Fortescue Metals Group (FMG), have paid little or no tax, yet are producing millions of tonnes of iron ore, the Government has traded on the perception that these companies should be paying their fair share of taxes, and have not been doing so. Many Australians therefore support the new tax.
Whatever the merits of this argument, the fact is that this tax will affect the whole of Australia, not just a handful of mining companies operating in remote parts of the country.
The effects of the new tax will be both direct and indirect, and will worsen over time.
The new tax, at a rate of 22½ per cent, is applied to iron ore and coal miners only. One immediate consequence will be to ratchet up costs for Australia’s struggling iron and steel producers, One Steel and Bluescope Steel, which recently received a $300 million package to offset the effects of the carbon tax.
Despite this, both companies are facing fierce competition from imported steel. After the package — called the Steel Transformation Plan — was adopted, OneSteel announced that the future of its loss-making steel plant at Whyalla, South Australia, was in jeopardy, while BlueScope Steel has already closed one of its blast furnaces in Port Kembla, south of Sydney.
These two companies are the foundation of the Australian steel industry, employing directly thousands of people, and producing millions of tonnes of steel every year, used in a huge range of products for homes, motor vehicles, and in major infrastructure projects.
The extent of the crisis in the steel industry can be seen in the price of BlueScope’s shares. Before the financial crisis hit in 2007-8, BlueScope shares traded above $8.
Having lost $1 billion in 2010, and facing further massive losses this year, the company announced a restructure last August, which saw the company’s shares fall to just 61 cents. After a $600 million capital raising in November, its price fell to just 40 cents a share.
OneSteel, established when BHP Steel was spun off from its parent company, is not in as precarious a position. It is a profitable business, but its net debt over the past year has risen from about $1 billion to $1.8 billion, due to restructuring.
The mining tax will greatly add to the cost pressures facing Australia’s steel manufacturers, by significantly increasing the price of the raw materials. The mining tax will increase the price of both major components of Australian steel, iron ore and coking coal.
In contrast, imported steels face no such impost. With a global glut of steel, global steel prices have fallen from around $800 a tonne before the global financial crisis (GFC), to about $200 a tonne currently, encouraging a flood of imported steel into Australia.
Additionally, the domestic steel industry faces rising fuel and electricity charges as a result of both the carbon tax and the mining tax.
These pressures could lead to the collapse of the domestic steel industry, and the direct loss of thousands of jobs and Australian production. Rising steel imports will also add to Australia’s balance of payments deficit.
While the immediate effects of the mining tax will be felt by the steel industry and coal and iron ore miners, the indirect effects will flow through the community.
The affected industries are overwhelmingly owned by Australians, including the superannuation industry.
The effects of the new tax will therefore be felt by the millions of Australians whose savings are tied up in superannuation. The amounts involved are substantial. While the actual mining tax income will depend on prices, the last Budget estimates put the mining tax revenue in the two years to 2013/14 as about $8 billion, and continuing indefinitely into the future.
While the immediate effect of the new mining tax will be felt by resource companies, it will impose long-term damage on productive Australian businesses, cause the loss of thousands of jobs in manufacturing, and hit the superannuation savings of millions of Australians. Australia cannot afford this.
Peter Westmore is national president of the National Civic Council.