CANBERRA OBSERVED: by national correspondentNews Weekly
Folly of the new tax that raises no money
, November 10, 2012
The Gillard Government may go down as the first in Australian history to introduce a tax that raises no money.
In truth, the jury is still out on the likelihood or otherwise of the mining tax bringing in at least some revenue, with some reports suggesting that the big mining companies squeezed the Government so hard in negotiations that they may feel obliged to assist in some token way in return.
However, the Gillard Government will almost certainly lose money on the mining tax in the context of the billions of dollars it has committed to spend against expected revenue.
This is because taxpayers will be borrowing money to pay for Treasurer Wayne Swan’s promised largesse that Treasury had forecast would flow from the tax, but which is now unlikely to ever materialise.
Perhaps it is in keeping with the surreal world of Australian politics these days that has recently seen the national dictionary being re-written to accommodate a deliberately wrong word choice by the Prime Minister in Parliament.
But it also follows the introduction of another peculiar tax — a tax on man-made carbon dioxide emissions — which will have no measurable effect on the temperature of the planet, but which disadvantages Australian businesses against their overseas competitors.
It is also in keeping with a government that turns a blind eye to unconscionable conduct on its own side of politics, but confects outrage on an international scale against the Opposition leader any time he makes an off-hand remark such as about housewives and ironing.
Mr Swan originally hailed the mining tax as an “historic reform”, but so controversial was the original version of the proposed tax that it precipitated the downfall of Kevin Rudd as prime minister.
The minerals resources rent tax (MRRT) was hurriedly conceived, very poorly explained to the companies that would be affected by the tax, and has changed so many times it is barely recognisable from the original plan as proposed in the Henry Tax Review.
Treasury’s latest estimate of the mining tax revenue is $2 billion for this financial year, but in the first quarter the tax raised nothing.
However, Treasury’s $2 billion estimate is actually the seventh downward variation on the tax since it was first introduced. More downward revisions are certain.
Over the forward estimates it is forecast that the tax will bring in $9 billion, but based on lower commodity prices, this looks the most optimistic of projections.
Originally, the Gillard Government promised to use the billions raised from the mining tax to fund a 1 per cent lower company tax, but this pledge was ditched.
Instead, the phantom mining tax is meant to be paying for a raft of measures that includes superannuation contributions for low-income earners, increasing the super guarantee rate to 12 per cent, small business asset write-offs, a regional infrastructure fund, and a “Schoolkids Bonus”.
All of these items remain in the government’s forward spending program despite the downturn in the commodities boom.
The simple fact is that the mining tax on super profits was set in train when commodity prices were close to their peak.
It was designed, according to Labor, to “share the wealth” from the mining boom with the Australian people.
But it was also designed on the basis that the boom would be ongoing, and that China’s economy would continue to grow at breakneck speed for another decade or more.
Opposition Treasury spokesman Joe Hockey summed up the situation thus: “Only Labor could introduce a tax that raises no money, yet increases Australia’s sovereign risk profile, adds record levels of red tape for business, and still hangs as a threat over successful mining companies.
“This is Labor’s new low benchmark in public policy.”
After various revisions, the mining tax is now aimed at catching the windfall profits of just three of the biggest companies, BHP Billiton, Rio Tinto and Xstrata; but the tax has also caught smaller mining companies in its wake which have had to incur millions in accountancy expenses to make sure they didn’t have to pay the tax.
It is surprising there is not more outcry over the mining tax.
Perhaps its flaws will become more apparent as each quarter of the financial year passes and nothing arrives in the Government’s coffers.
The Government is now backing away from its promise to bring the Budget into surplus, and will more than likely go to the next election always having spent more than it earned in taxes.
The Government’s grand narrative now includes greater engagement with Asia, as if this was not the most obvious path for the future prosperity of the country already.
Increasingly, it is becoming apparent that this is a government that is making up policy as it goes along.