Andrew Forrest may be vindicated for his views on the mining tax, but for Australians it may be an expensive "I-told-you-so", writes Elizabeth Knight.
IRON ore magnate Andrew Forrest was travelling around the isolated wilds of his mining operations in the Pilbara on Wednesday when, despite the limited phone coverage, a call came through. It was the independent MP Andrew Wilkie and he was offering his apology.
The Tasmanian former Green was responding to Treasurer Wayne Swan's freshly minted admission that the centrepiece of his government's revenue raising collection, the Minerals Resource Rent Tax (MRRT), was going to add only $126 million in 2012 to its coffers rather than the $2 billion projected.
On Thursday night, just over 24 hours after this conversation, Australia's second-largest mining company and a major producer of iron ore and coal, Rio Tinto, admitted it paid no MRRT in 2012.
Wilkie was shamed by the fact that he had supported Swan's mining tax despite warnings from Forrest that it was flawed and would allow the giants of the industry off the hook and place the onus on the smaller developers to dig into their corporate pockets.
In late July 2010 Forrest started a roadshow - his mission was to convince a handful of politicians that the government's proposed MRRT was a fiscal con job. The targets for his campaign were the crossbenchers, Tony Windsor, Rob Oakeshott and Wilkie.
Forrest's visits spanned the corridors of Canberra to country electoral offices, but he managed to garner no support.
This tax pilgrimage included several meetings with Swan whose support for the MRRT was unshakeable, and whose response to Forrest's persistence was defensive and venomous.
According to the West Australian miner, he was told by Swan, "If you don't like it you can take your state and secede." It set the tone for a two-year brawl between the pair.
"Mr Forrest is campaigning against a resource rent tax which is going to be used to fund tax breaks for 2.7 million small businesses and a big boost to superannuation for working Australians, and he is seeking to actually stop that from happening," was one of Swan's numerous criticisms.
In response to it being called a mining tax, Forrest countered, "That's such an oxymoron. It's not a mining tax, it's a tax on [mining] juniors, a tax on explorers, a tax on exactly the part of the economy you want to encourage, and it lets off the big guys . . ." But how could Swan's revenue numbers have been so at odds with those done by Forrest's company, Fortescue?
Swan promised on the announcement of the tax policy that it would raise close to $13.5 billion over three years - the bulk of which would come from the three largest iron ore/coal miners, BHP Billiton, Rio Tinto and Xstrata. Rio has now stated its position and remarks made by BHP suggest the amount paid by the majors appears to be next to nothing.
The new consensus, shared by just about everyone but the government, and consistent with the views of its original detractors, is that the MRRT's structure is flawed. It has a build-in tax shield protecting - in particular - the profits of large miners who are able to revalue already depreciated assets and use this as an offset against future profits.
This is recognised as a net income tax benefit or a deferred tax asset, which in the case of BHP and Rio, amounted to a total $1.7 billion arsenal against any MRRT tax liabilities.
In essence it is a war chest that can be used to soak up MRRT profits. Exactly how each company calculates its deferred tax asset is not clear and nor does it seem to be consistent across all mining companies.
The extent to which the MRRT allows mining companies to offset tax is in part a function of these asset revaluations on their coal and iron ore assets - the amount by which the new "market value" exceeds book value. But the dollar amount of the revaluations does not need to be made public.
An industry source conceded to Fairfax Media this week that the market value "came down to judgment".
For such an ineffective tax policy to have been devised by a government trying to maximise revenue appears counter-intuitive. For the government to have earmarked the proceeds of the tax is fiscally irresponsible.
Whether the government was complicit, gullible or blindsided is a matter for conjecture. It was certainly expedient.
In 2010 it needed to reach a truce with the major miners that were engaged in a deadly public campaign to get rid of the super mining tax or topple the government. The compromise deal agreed by Julia Gillard as a pre-cursor to her successfully challenging Kevin Rudd for the party leadership allowed the miners to devise their own replacement mining tax.
BHP Billiton executive Gerard Bond sent a copy of the draft MRRT agreement to Swan's office a couple of days before the policy was unveiled without any input from Treasury. It had evolved out of a series of secret meetings between Gillard/Swan and representatives from BHP, Rio and Xstrata.
By the time the MRRT was announced less than a week later, the government was claiming the revenue it stood to raise was only a fraction less than that which would have been raised by the tax's predecessor, the Resource Super Profits Tax. If this was likely, it was implausible that the miners would have agreed to it.
To achieve these heady revenue collection estimates involved an inspired use of smoke and mirrors, and optimism. The assumptions around the price of iron ore, coal and the currency had been massively enhanced to achieve a palatable fiscal outcome.
These assumptions mostly went unchallenged by the media, which were distracted by the political coup.
Swan's subsequent hosing down of the tax collection estimates has been incremental. But it wasn't until a week ago that the government finally confessed its tax take from the MRRT had fallen massively short of the $2 billion contained in even its relatively recent watered-down projection.
Even the peak body that represents the mining industries, the Minerals Council of Australia, warned last June about the folly of trying to estimate how much revenue the MRRT would raise. A Minerals Council report said the tax take depended heavily on the exchange rate and commodity prices, making revenue forecasts volatile and difficult to predict.
The government defends the structure of the MRRT and spent this week's parliamentary question time repeating its claim that the tax shortfall is nothing other than a reflection of lower commodities prices and a higher Australian dollar.
Rio's new chief executive, Sam Walsh, was singing from the same song sheet on Thursday, saying the MRRT instalment fell due last October when iron ore and coal prices had fallen in a hole.
He said it was designed to be a tax on super profits and was living up to its design. "We are paying our way . . . and we are meeting our legal obligations."