The budget has been handed down at the end of a week of bank-bashing over how much of the RBA's 50 basis point rate cut was passed on by the big four banks. But the budget papers also provide some ammo for that other breed of basher – the miner-bashers.
For those who wish to see for themselves, pages 5-9 of Budget Paper 1 hold a couple of charts that show how badly Labor has managed the creation of the mining tax.
First, Treasury notes that the mining sector currently accounts for 30 per cent of 'gross operating surplus' – its basic approximation of who's making all the money in this country. At the same time, miners pay 15 per cent of company tax.
The main reason for this is well understood – as commodity prices have steadily risen, the rush to invest (mostly foreign) capital in the resource states has gathered pace. The more you invest, the greater the write-off against your tax bill and the less tax you pay compared to gross profits.
And look what's happening to MRRT revenues at the same time: at MYEFO last November, the MRRT was expected to generate $10.6 billion over the fiscal years 2013, 2014 and 2015. Six months later that figure is $9.7 billion. That's $0.9 billion gone up in smoke.
Treasurer Swan, asked in his budget press conference why this was so, put it down to our high dollar. The higher it goes, the less competitive our mining exports are. The less competitive they are, the lower miners' profits. And the lower the profits, the lower Swan's MRRT revenues.
Okay, no market works in such neat terms, but Swan's argument broadly stands – the higher dollar undermines MRRT revenue.
But there is a second factor depressing the MRRT take. The investment write-offs that allow miners to make 30 per cent of the nation's gross profit, while paying 15 per cent of our corporate tax, are designed to help them shift more ore and more coal.
Getting our commodities into world markets as quickly as possible puts downward pressure on prices, and 'super profits' – the very slice of profits the MRRT is set up to capture.
Put another way, the more this tax succeeds, the more it fails to generate revenue to pay for Labor's promised increase in the super guarantee over the next few years from 9 to 12 per cent.
More to the point, the more it succeeds, the more it fails to fund the cut in company tax that, until tonight, was central to Labor's claim to be business friendly.
That promise has not been deferred – it has been scrapped. Yes, scrapped.
Looks like Wayne Swan has realised what critics have been saying for a year and a half – that the MRRT is a flop of a tax that will, ultimately, fund not much at all.
FEDERAL BUDGET 2012: End of a miner miracle
Ironically, the greater the MRRT’s success, the more pressure it puts on mining revenues – and it looks like Wayne Swan’s decision to scrap company tax cuts shows he finally realises what a flop the mining tax is.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free