EDITORIAL: by Peter WestmoreNews Weekly
Swan's budget surplus to depend on mining tax
, March 31, 2012
Having secured the Greens’ support to get its mining tax through the Senate, the Gillard Government has completed its immediate tax reform agenda, with the carbon tax and the mining tax to take effect from July 1.
For the federal Labor Government, whose economic credibility has been damaged by squandering billions of dollars in hand-outs to avert the global financial crisis, the pink batts scheme and the “education revolution”, its repeated promise to bring the Budget back into surplus in the next financial year has become an article of faith.
It is now clear that this will be achieved through the imposition of two new taxes which will have an acutely damaging effect on Australian households and on some of our major resource industries.
As coal is the feedstock of most of Australia’s electricity industry, the Gillard Government’s new carbon tax, which the government has described as a tax on “500 big polluters”, will actually ratchet up the price of electricity for consumers, including households, businesses (particularly large users like the aluminium industry) and even government utilities like railways and water boards, particularly in states where water desalination plants have been built.
The new coal tax will have some unexpected effects. One wonders, for example how the Greens, who support more public transport, can justify higher electricity prices which will push up the price of suburban rail travel for millions of people, encouraging more people to use cars on already choked city road networks.
And what about the fact that electricity generated by hydro-electricity and coal-seam gas — both of which the Greens oppose — will not be subject to the new tax, but will reap windfall profits when electricity prices rise as a result of the carbon tax on coal?
In its attack on the Coalition, which has steadfastly opposed the new taxes and promised to repeal them if elected to office in 2013, Labor has put the cost of the repeal of the carbon tax at $3.2 billion and repeal of the mining tax at $2 billion a year (Sydney Morning Herald, March 18, 2012).
In other words, these new taxes will have a net benefit to the next Budget’s bottom line of over $5 billion; so if these new taxes were not in operation, the Budget would therefore suffer a $5 billion hit.
Without these new taxes, there can be little doubt that the next Budget would run a substantial deficit.
The Senate select committee which inquired into the new mining tax contains a majority of Coalition members, and is chaired by Western Australia’s Liberal Senator, Mathias Cormann.
The majority report highlights a number of major flaws in the way in which the mining tax was adopted, and how it will be implemented.
It points to its genesis in the review of the Australian tax system commissioned by the Rudd Government, and conducted by a committee headed by the then Secretary of the Treasury, Dr Ken Henry. Its deliberations were largely private, and those industries affected had no idea of how the new tax proposals would affect them.
The Henry review was subsequently delivered to the Treasurer, Wayne Swan. Its 139 proposals included a single federally-administered resource rent tax, based on profits, to replace the existing complex of state taxes and royalties which are based not on profits but on mineral tonnage.
When the Rudd Government released the Henry report six months later, it announced simultaneously that it was going to introduce a resources super profits tax (RSPT), levied at a rate of 40 per cent on all mining operations.
The outrage from the most affected states — Queensland, New South Wales and Western Australia — was one of the factors which led to the collapse in Kevin Rudd’s popularity, and not long afterwards he was deposed in favour of Julia Gillard.
In her acceptance speech upon becoming prime minister, Gillard promised to consult the mining industry on the new tax. She said: “To reach a consensus, we need do more than consult. We need to negotiate. And we must end this uncertainty which is not good for this nation. That is why today I am throwing open the Government’s door to the mining industry and I ask that, in return, the mining industry throws open its mind” (The Australian, June 24, 2010).
Gillard then conducted private negotiations with three of the largest mining operators in Australia, Rio Tinto, BHP Billiton and Xstrata, and eight days later announced a new mining tax which would apply only to coal and iron ore, with generous concessions for the largest players in the industry ... who happen to be Rio, BHP Billiton and Xstrata!
The Federal Government falsely claimed that the mining tax was “the result of intense consultation and negotiation with the resources industry”.
The current Senate select committee inquiry has unearthed evidence showing that the new tax was actually proposed by BHP Billiton (Chapter 2, paragraphs 21-30).
The inquiry found that those states which are deeply affected by the new tax, most mining companies and even the federal Treasury were excluded from the negotiations.
This is the deeply flawed process by which the new mining tax was established. It must be repealed.
Peter Westmore is national president of the National Civic Council.