Labor must not further weaken the mining tax.
UNLESS the government bows to Opposition Leader Tony Abbott's plea for extra sitting days, on Thursday Federal Parliament will rise until next year. And since Mr Abbott made his request because he bizarrely thinks the Treasury should revise its economic modelling for the carbon tax, it is unlikely Prime Minister Julia Gillard will grant his wish. The carbon tax is already law, and the government wants to complete the parliamentary year by securing House of Representatives approval of another key item on its agenda, the minerals resource rent tax.
If the legislation reaches the Senate next year in something resembling the guise in which the government previously announced it, it can be expected to pass that chamber, too. Whether it will emerge from the House unscathed is unclear, however, even after the deal the government announced yesterday with independent MPs Andrew Wilkie, Tony Windsor and Rob Oakeshott.
There is a real chance that this major reform, which has already been watered down from the form in which the Rudd government proposed it, might be diluted further still. That in turn is likely to cost the Greens' support in the Senate, leaving the legislation in limbo. A tax that would deliver a fair share of mining profits to all Australians, allowing a cut in corporate taxes and thereby funding the increase of employers' superannuation contributions to 12 per cent, would have fallen prey to the sectional lobbying that has undermined so many attempts at tax reform in the past.
Mr Windsor has obtained a guarantee that funds will be set aside to study the regional impact of coal seam gas mining. More contentiously, Mr Wilkie has won a concession on the profit threshold at which the tax must be paid. It will now be $75 million instead of $50 million, with an increase to $125 million to be phased in. The change purportedly eases the burden the tax would place on small Australian miners, although a definition of "small" that includes mines generating profits of $50 million is really only a reminder of how lucrative the resources boom has been for the biggest international companies, whose profits are much higher.
The change has threatened passage of the legislation in the Senate, with Greens leader Bob Brown warning yesterday that his party will not support it unless the government can show that "so-called small miners" will not be retaining money that would have flowed to "schools and hospitals and transport and housing".
The Greens would certainly refuse support for the legislation if it is amended as WA Nationals MP Tony Crook has reportedly proposed. Mr Crook wants the tax to apply only to companies mining more than 10 million tonnes of coal or iron ore, which would effectively raise the threshold for payment from profits of up to $50 million to up to $500 million. Independent MP Bob Katter is believed to favour this proposal, and how the Opposition might vote remains uncertain. The Coalition has said both that it will repeal the mining resource rent tax if it wins the next election and that it will consider support for mitigating amendments while the tax is being legislated. Through this minefield of conflicting demands the government must try to steer its legislation.
A government without a majority has no alternative to negotiation. Ms Gillard, Treasurer Wayne Swan and their ministerial colleagues should ask themselves, however, why they have struggled to prevail in public debate about a tax that distributes the benefits of the boom without threatening the industry that will pay it. It is profits, not revenue, that will be taxed, and the revenue will fund nation-building. Yet the government seems reluctant to argue that case, preferring to make deals with MPs who argue on behalf of miners whose businesses they dubiously describe as "small".
Frequently Asked Questions about this Article…
What is the Minerals Resource Rent Tax and why does it matter to everyday investors?
The Minerals Resource Rent Tax (MRRT) is a tax on the profits of mining companies, designed to ensure Australians get a fair share from the mining boom. For everyday investors, it matters because it could help fund national projects like schools and hospitals, support corporate tax cuts, and boost super contributions, all of which indirectly benefit the broader economy and investment environment.
Why has the government struggled to pass the mining tax legislation smoothly?
The government has faced challenges passing the mining tax due to heavy lobbying from mining interests and political negotiation hurdles. Changes like raising the profit threshold for tax liability have diluted the original bill, causing uncertainty around its passage and support from key Senate players, which everyday investors should watch because such instability impacts market sentiment.
How does changing the profit threshold impact small and big mining companies differently?
Raising the profit threshold (now $75 million, phasing to $125 million) means smaller miners pay less or no tax, while larger, highly profitable mining companies remain the main contributors. This shift affects how much revenue the government can raise and might reduce funding for public services, something investors should consider when evaluating market policies linked to resource industries.
What role do independent MPs and the Greens play in shaping mining tax reforms?
Independent MPs like Andrew Wilkie, Tony Windsor, and Rob Oakeshott, along with the Greens, hold significant sway in negotiations because the government lacks a majority. Their demands can change the tax’s design, including environmental studies and tax thresholds. Investors should keep an eye on their stance since it can delay or reshape legislation affecting mining stocks and related sectors.
Could the mining tax reform lead to cuts in other taxes, and how does this benefit investors?
Yes, the plan is that the revenue from the mining tax could fund cuts to corporate tax rates and increase employer superannuation contributions, which could stimulate economic growth. For investors, this is a positive as it may enhance business profitability and worker savings, improving market confidence and long-term investment returns.
Why is the Coalition's position on the mining tax important for investors to know?
The Coalition has promised to repeal the mining resource rent tax if elected but also indicated it might support some amendments during legislative debate. This uncertainty means investors need to watch upcoming elections and policy shifts closely since changes to mining tax rules can impact company profits and stock market performance.
How might delays or dilution of the mining tax legislation affect Australia’s economy and investment climate?
Delays or watering down of the mining tax may reduce government revenue available for infrastructure and social services, potentially slowing economic growth. For investors, this could translate to more volatile markets and uncertainty in sectors tied to government spending or mining profits, so staying informed about political updates is key.
What can everyday investors learn from the government’s approach to negotiating mining tax reforms?
The government’s strategy highlights the complexities of tax reform where competing interests—from big mining companies to regional communities—demand attention. For investors, this underscores the importance of understanding political risks and regulatory changes as they can materially influence markets, especially in resource-heavy economies like Australia.
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