Did you hear the one about the rent-seeker who got a government to draft a new tax exactly the way they wanted it, but then went ahead and bagged it anyway?
Let’s go back to early July 2010. It’s a dreary, wintry Friday in Canberra and new Prime Minister Julia Gillard has called a media conference in the main committee room with Wayne Swan to announce the deal she’s cut with BHP, Xstrata and Rio Tinto on the mining tax. Out back, the cleaners are still mopping the blood up from the knifing of Kevin Rudd just days before. The 'deal' as announced by Gillard isn’t a deal in the sense that there has been give and take on both sides: she announced that the mining companies have been given everything they want.
In a triumphant message to the steering committee behind the mining industry’s campaign against the tax, MCA head Mitch Hooke declares victory and makes a point of boasting that the tax will in fact be 22.5 per cent, not the 30 per cent figure being used in the media, because of a special "25 per cent extraction allowance”. Best of all, Hooke emphasises, "this is a resource rent tax applying to the resource – it is not a super profits tax – super profits was always a poor proxy for resource rent.”
Scroll forward nearly two years and the Minerals Council releases a report bagging the mining tax for being too volatile, based on the fact that it will resemble the Petroleum Resource Rent Tax.
The MCA report, written by economist Alex Robson, is for once intellectually rigorous. Robson examines predictions of PRRT revenue against actual outcomes, and shows that revenue has been volatile and almost impossible to predict.
But alas, the conclusion is of the "no shit, Sherlock” variety. Of course, a tax dependent on commodity prices, the value of the Australian dollar and the investment decisions of the companies concerned is going to be volatile compared to other taxes. In order to demonstrate how volatile the PRRT is, Robson compares it to overall tax revenue, a smoothly increasing line – up until the financial crisis. But that’s a little misleading. Other taxes bounce around too. Fringe benefits tax, for example – the budget papers show FBT revenue, which at about $3.5 billion a year is two to three times bigger than the PRRT, has been highly volatile as well over the past decade.
It might have been more useful if Robson had matched the PRRT revenue with the trajectories of some of the expenditure associated with the MRRT – the cost of the compulsory superannuation guarantee tax expenditure, for example – and demonstrated that not merely had the government over-committed MRRT revenue, but that volatility compounded this.
The real shocker though is this: it was the mining industry that made the MRRT significantly more volatile in the first place. The changes demanded and obtained by the industry from the government in June and July 2010 significantly exacerbated the volatility of the tax. The miners were allowed to immediately write off new investment, and would not have to pay any MRRT until mines had fully paid off investments. Losses became transferable to other projects. A revenue threshold was put in place that limited the number of companies that would have to pay the MRRT, narrowing the base on which the tax would operate. And it was only applied to coal and iron ore, further narrowing the base.
For the mining industry to complain now about volatility is rich indeed.
This story first appeared on www.crikey.com.au on June 25. Republished with permission.