Rebored mining tax leaves hole in plans
The Labor government has simultaneously ticked the box on getting the Minerals Resource Rent Tax through the Lower House and left a trail of debris and budgetary uncertainty.
The Labor government has simultaneously ticked the box on getting the Minerals Resource Rent Tax through the Lower House and left a trail of debris and budgetary uncertainty.There was a lot riding on raising $11 billion in revenue from this tax over three years, even before the Independents successfully lobbied the government to tinker with it.As a result of deals over the past couple of days, the receipts will come up shy and the government has been forced to find a way to fill the hole.The answer has been to hit foreign financial organisations, which were meant to get some relief on withholding tax. This will now be phased in on a longer-term timetable.The MRRT was earmarked to fund increased superannuation and some broader corporate tax cuts. Yesterday we learned it was also supposed to fund a couple of other initiatives. The trouble is the tax now appears to raise less than the cost of the initiatives it was designed to cover.One report suggested the MRRT would fund only a third of the superannuation spending it was meant to cover. Separately, nothing has been built into the government's costings to cover concessions to the mining companies for any of the increases in state royalty payments.The West Australian and NSW governments have moved or proposed increases to state-based mining royalties.If Labor's Anna Bligh loses control of Queensland, a conservative government there would be next in line to increase state royalties.As part of the MRRT package, the federal government agreed to reimburse mining companies for state royalty payments.The increasingly large revenue hole makes a mockery of the tax, which experts are now describing as a dog's breakfast.And all this assumes that Treasury estimates for the $11 billion were realistic to start with. They have never been measurable because the government maintained that a breakdown of where the revenue is coming from falls under the banner of commercial in confidence.There are plenty of tax experts and academics suggesting the architecture of the tax, which shields companies based on the value of their resource at the point of extraction, will mean the large companies in particular will escape having to pay most of the tax.In other words companies will receive, in effect, a tax credit on the value of the minerals under the ground and the licences to mine them. In the case of the big iron ore miners, BHP and Rio Tinto, this value is in the tens of billions.These companies maintain that the MRRT will still cost them money but none, other than Andrew Forrest's Fortescue, are prepared to go near answering how much.Forrest announced via newspaper ads last week that in the first three years of operations Fortescue would pay between zero and $20 million of this new tax - an amount he refers to as a rounding error.Given Fortescue is the third most profitable iron ore producer in the country after BHP and Rio, there must be a large question over the $11 billion tax windfall the government has built into its budget.Perhaps Treasury is counting on a big boost in the price of iron ore and coal, a fall in the Australian dollar or massive growth in volumes.But while the additional capital being poured into coal and iron ore development sets the scene for large growth in profits, it also serves to fortify the tax shield as the value of the assets increases.There is nothing wrong with the ideology behind asking the booming minerals industry to share the spoils with the wider community. This was the intention of the MRRT's predecessor, the super profits tax, which was abandoned after resistance from the mining lobby threatened to undermine the government.The MRRT that replaced it was hastily cobbled together behind closed doors by the government and three miners - BHP, Rio and Xstrata.One can only assume that if it all turns to custard in a few years, and Julia Gillard remains in power, there will need to be some far more serious tinkering to this tax.Tony Abbott's plan is to abandon the tax completely and fund the various superannuation and corporate tax presents in another, yet unspecified, way. That sounds even more implausible.