Miners dig the new tax
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Prime Minister Julia Gillard has reached a deal with the three biggest mining companies to replace the Resource Super Profits Tax with a new regime that meets nearly all of the concerns of the mining industry and confines the tax to the coal and iron ore sectors, while extending the present Petroleum Resources Rental Tax to all onshore and offshore oil and gas projects. Small and medium miners will be excluded from the regime. Critically, the effective rate of the new tax will be only 22.5%, rather than 40% under the RSPT, nearly halving the tax rate. The deal, thrashed out with giant foreign mining companies BHP-Billiton, Xstrata and Rio Tinto on Wednesday and Thursday, was this morning welcomed by the Minerals Council of Australia, until today the most dogged and savage opponent of the government on the issue. The essence of the compromise is:
To offset the reduction in revenue, which will be about $1.5 billion over Forward Estimates (revenue actually increases in the first year of the tax, 2012-13), the government has halved the corporate tax rate cut (saving about $950 million in total), so that will remain at 29% from 2012-13, and cancelled the resource exploration rebate, saving $1.12 billion. The most popular component of the government’s original package released in early May, the increase in the superannuation guarantee levy from 9%-12% over the rest of the decade, remains intact, as does the government’s small business deduction and infrastructure fund. The government has also reduced its forecast for a growth dividend from the tax by about a quarter of a billion dollars over the Forward Estimates, avoiding the suggestion it has padded its revenue projections. Foreign multinationals BHP-Billiton, Rio Tinto and Xstrata all issued a statement this morning saying they were “encouraged” by the government’s new proposal and promising to work constructively with the government. Surprisingly, the Minerals Council of Australia, which has been the most aggressive and partisan opponent of the tax and that co-ordinated its campaign against the government with federal opposition leader Tony Abbott, came out in support of the new arrangement. In a private message to CEOs of mining organisation, Mitch Hooke this morning said “the combination of the headline rate and the extraction allowance means the effective MRRT tax rate will be 22.5%. This is after the payment of royalties. If the MRRT is greater than the royalties paid then the company will be required to pay the difference. If the MRRT is less than the royalties paid then the company will be given a credit to carry forward losses with an up-lift equivalent to the LTBR plus 7%. The key point is that 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.” [his emphasis] By negotiating a deal with the industry giants and excluding small and medium miners, the government has in effect neutered any further industry campaign against the tax, at least until after the election. |
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47 Comments
Good that it’s taken the steam out of Tony Abbott and the Liberal party’s ‘election battleground’. As I write this I can still see Joe Hockey’s twitter message to the right proclaiming that it a bigger mess than when it started. Sure Joe, it’s such an unpopular tax that even the miners who were going to bankroll your election campaign have agreed to it. It just goes to show that the Liberals may purport to represent big business, may sell out common people to big business, and sometime ally with big business, but the only chumps in the relationship are the Liberal party and when the chips are down big business will leave them out to dry like they do everyone else.
On a broader scale though it is disastrous. Every single major business lobby in the country now knows that all they have to do is wage a major media campagin against this Labor government and backed by a still hostile media they’ll succeed in forcing a backdown. Real reform is dead with this government.
Now if Howard had only let the citizens of this country negotiate over the GST rate.
Just shows you whose interests are served in Oz.
The MRRT looks like Fool’s Gold
Actually you’ve missed the most significant concession which means the Govt will raise precisely $0 extra from the MRRT. The deduction is based on 12% x market price. The equivalent tax deduction on earnings is 12% x P/E x Earnings where P/E is the Price to Earnings ratio. Typically for listed miners P/E is 13-14 (for BHP-Billiton is it currently 19). So for any company where P/E > 8.33% (=1/0.12) the deduction is 100% of the base tax. Net the MRRT is 0. You can ever write the tax as
MRRT = 30% x Earnings x (1-P/E x 12%)
Looks like the Govt got dudded cause they forgot to do their sums. This means the miners will be back to paying the old royalty amount as this is the minimum they are required to pay under the agreement. Fool’s gold.
The news cyscle will be over this by tomorrow and asylum seekers will be front and centre once again
see how many times the Opposition hammer the phrase ‘we stopped the boats’ over the weekend, and how nasty Gillard gets to try to neuter the issue.
Will parliament pass this tax? The balance of power will possibly be held by the greens post election. Hopefully then it can be debated and amended by the MPs/Senators, rather than just the ruling party and 3 foreign mining companies.
ps. Jules, can I have that 25% extraction allowance apply to my tax? I want to be a billionaire like Twiggy too one day.
This crap cost us a perfectly good PM? Shame on Swan, this whole thing was his idea in the beginning but he knived Rudd over it.
Makes sense to me because as far as I can see the only programs being delivered efficiently are those actually devised by Rudd.
Like pension increases, maternity leave and so on.
This is a good outcome for both sides: a win-win situation.
Compromise achieved a better policy than before.
The whole nation is the true winner.
This is where shareholder democracy gets you. Mining profits benefit Australians, so long as they own mining companies. It certainly doesn’t profit anyone nearly as much as the managerial class which inhabits the upper levels of large coporations and are in a position to write their own pay cheques.
JAMESG
How you can confuse PE , potential earnings , with resource rent/profits and come to your conclusion is beyond me. Is this a red herring or just that you haven,t read what has been agreed to ?
Now that its post June 30 I’m going to be heading to Canberra for a meeting with the ATO and the treasurer so that we can “reach agreement” on the tax rate on my income.
Its currently set at the outrageous level of 38.5 cents for every extra dollar I earn and I’m just simply not going to accept it!
The mining industry has shown us that if we disagree with a government proposal they can’t just enact their own ideas - they need to meet with us and come to some agreement with us taxpayers before they can change the status quo.
Having a government being able to come up with their own ideas and enact them is simply unacceptable sovereign risk and the thin edge of the wedge as far as democracy in this country is concerned.
Phew! For a moment there it looked like the elected government might get away with governing the country. Thanks, foreign mining corporations!
On ABC TV today Mitch Hooke denied that the magnates had “bullied” the government - and he said it with a straight face.
The government has been screwed over but, as Singing Samson (above) says, will the parliament pass it? I hope the Greens block, the newly re-elected Labor government amend the legislation back to the original figures and then the Greens allow it to pass in the Senate.
Just so I can follow this thread…
I’m not sure what sort of deal we got out of this…really…I’m no accountant so I guess we have to trust the Swan mathematics! However I stop and look back and try to take a helicopter view of how things have panned out and I ask myself these questions:
1) Is the government that stupid that they were originally trying to impose a tax that would ruin the industry in Australia?
2) How is it the mining industry bleated about not being “consulted” but the end result was “negotiations”?
3) Was Kevin Rudd a purist at heart in regards to doing only what he thought best for Australia, where he was not affiliated with any Labor faction but also not approachable to any lobbying and thus crucified?
4) What does our vote count for if lobby groups and media empires are so powerful in manipulating governments and elected leaders?
5) Who is actually running the country?
I just cant help thinking we are all being duped on a regular basis!
The Senate politics of the tax are looking a bit like the ETS: the Greens will oppose for not going far enough; the Coalition will oppose for exactly the opposite reason with the upshot that the policy will not pass.
The last pretence that Australia was still a democracy is gone. We’re now officially a corporatocracy.
@john you are a comedian aren’t you where to you do you stand up routine?
@ JamesG Nothing would surprise me, but I lie, I am gob smacked if you have this correct - best $7m big corporate ever spent
The Media Skewers two PMs for the price of one - except one is a dead PM walking and doesn’t realise it
The small miners who do the heavy lifting for exploration get shafted by being left out of the concessions - great representation MCA!
and the Australian Public is left with this crap?
Tony Abbot = great big new boofhead.
@Filth Dimension
Yes but Tony Abbott isn’t new.
He is a great big boofhead though.
I don’t believe that the tax was every intended to stay at 40%. It was only ever the ‘first offer’, unrealistically high so that after a little bartering (i.e. ‘negotiating’) it would come out looking win-win: the government looks good to the public for getting a share of the multi-nationals’ profits for the people, while still appearing to be considerate of the wants of the mining companies.
Unfortunately for Uncle Kev he didn’t get the negotiations sorted quickly enough.
I wonder when the ignorant media will get that they played a singular role by whining about Negotiation?
Who the f……k said tax can be negotiated and why can’t stop paying GST if it is this easy.
Swan proves again that Rudd was the force behind the good things that did get done and he is a bone head.
now that we have reached the end of the financial year I look forward to negotiating with the treasury over how much income tax I am prepared to pay.
I have started my own advertising campaign by putting a notice on the pinboard at the supermarket detailing how much I contribute to society and how the government is hell bent on demotivated me by taking away my hard-earned
that’ll show them.
What a complete farce. Three weeks ago Swan and Gillard were actively supporting the RSPT in Rudd’s ‘kitchen cabinet’, and denigrating any opposition. Now that they have shafted Rudd they have rolled over like kittens. What a complete disgrace. These people have no principle whatsoever other than power for powers’ sake.
Mme La Guillotine has really lived up to her reputation. She has no moral principles whatsoever. Four weeks ago she was spouting the crap the crap that the mining companies paid 17% tax, and she had no idea concerning the details. Similarly Swan’s office advised that the 17% came from unpublished paper (not in the public domain) which we now know to be a draft document, yet government policy was based on this mantra.
Swan is a complete idiot and Gillard went along for the ride’. Swan as Treasurer is fundamentally responsible for taxation policy in the Cabinet. He delivered a crock of shit to Rudd, who was so full of his own importance is that he didn’t lift the lid off the crock to smell it.
If the country re-elect these idiots to government it deserves when it gets.
@ Skink
I hope you mentioned on the notice that your shareholders (read: dependents) are being short-changed and there is imminent danger of domestic sovereign risk. Is there a chance that jobs may be lost eg: cleaning lady, your lawn mower contractor, cancelling the new kitchen, ditto the tennis court resurfacing?
Going on today’s precedent you have a solid case.
If the estimate of the new bottom line re revenue - which has dropped from the previous $12 billion (Rudd) to the new $10.5 billion (Gillard) - stands up to scrutiny, then Australians will think, “Well, hey, the gov’t got MOST of what it set out to get, and - given that big mining has agreed to it - most likely there won’t be a big negative outcome (in terms of employment, or investment, for example), so WHY NOT?”
Therefore, Gillard (Labor) will win the coming election.
SAUSAGE MAKER: “The last pretence that Australia was still a democracy is gone. We’re now officially a corporatocracy.”
Do you think any amount of advertising from mining companies would make any difference if millions of Australians did not believe that the industry is good for Australia?
You people praise democracy when it pleases you, but you cry foul when the majority disagrees with you. And the polls clearly showed that in this case, you and Kevin Rudd were the odd ones out.
The MRRT will collect 90% of the revenue that the RSPT would have, and yet the mining companies are accepting it as a compromise.
You will still get 30 per cent more shares in your superannuation fund. And yet you people are still not happy, prattling on about the betrayal of democracy, you clowns.
(Of course if those shares have, say, 15 per cent less growth, that will be equivalent to paying an extra 1.5 per cent management fee or a 15 per cent performance fee on your superannuation fund, and most of you by now have seen the Industry Super ads about what high fees do to your retirement. But that’s years away and you’ll never blame today’s government for that.)
Powerisnotstrength, do you think millions of Australians would have thought that mining was good for Australia if you didn’t have false advertising information campaigns from the miners and the Liberals lying about how it ‘saved the country from recession’ when infact it suffered the worst recession of any industry in the country?
@ SKINK and reply from ZUT ALORS - I love it! Can we all use your formula? Sounds better than the bloody rubbish coming out of the so-called “negotations”.
I’m a bit worried about all those numbers (which I don’t understand) quoted by JAMES SG though. Have you taken those into consideration? We could end up with nothing! Sounds familiar!!
So - the only way to stop this BIG BAD NEW TAX (to be levied on a handful of the very largest mining companies, who’ve now agreed it’s not unreasonable) is to vote for Tony Abbott?
That must be worth several hundred votes for the Libs.
Might well come in crucial in a close contest.
@Zut Alors
excellent idea.
I will also be pointing out that there are a number a projects that I had been planning - writing the great Australian novel, climbing Everest, sleeping with a supermodel, replacing the shelving in the shed, re-grouting the bathroom - that I have been forced to shelve due to the uncertainty over how much tax I want to pay.
Really, unless the government agrees that I can choose how much tax I want to pay, and unless they do it by next Thursday, then I may have to let someone else write the great Australian novel. Maybe a foreigner.
I hear that Abbott said the figures sound fishy so maybe James SG has got in his ear. Thats the trouble with the likes of Abbott and Hockey they will believe anything that they cant understand. Every economist in the media has said the agreement ticks all the boxes in that industry and the government have come to a sensible outcome. Australia gets better reward for its resources and the miners dont have to pay as much plus operations such as sand are excluded. The only thing fishy is the oppositions reluctance to accept a deal that is good for all Australian. It had no qualms about the GST that impacted on those least able to afford it the most. James SG must run a financial service out of tent at a circus , part time of course. Otherwise it would interfere with his flat earth director duties.
By George, I think she’s done it (maybe)!! Well, at least she came to an agreement when no-one could… http://wp.me/pXIwk-2S
@ Skink
Now you’re really firing so here’s another suggestion…
Tell the government you are planning to write the great Oz novel but, at this stage, it looks as though you will have to take the project OFFSHORE. Then mention Canada. Inexplicably, when they hear this word it gives them an almighty rev - I’m not sure why but it works a treat. Of course you have no intention of ever decamping to Canada (or anywhere else) but, believe or not, this is an ingenious ploy to which they will never twig.
You’re on a winner, onya Skink.
The predictions 30 months ago about Swan were correct.
A political guttersnipe as Rudd recently found out and a turkey Treasurer which the country is only now beginning to fully appreciate.
Julia did well farming him off to Toronto whilst she and Mar’n sorted out the mess.
@geomac
if this was such a good negotiation why weren’t the minor/junior miners included?
was this deal costed by treasury and Ken Henry’s staff?
Tthis just seems to be replacment of the revenue states were foregoing when they dropped the ball on roylaties - we are no better off at all What does this say about the future of government when big business does not agree with its policy?
1GMD
Minor mines I think you would agree would not make more than 50 million profit a year. Mines in that category are unaffected by the resource tax deal. They may have however lost out because the risk factor the government was going to shoulder or underwrite , whatever term is applicable is no longer available to any mine. I think that was also 40% but its gone in any case which is another reason this deal is more sensible. Increased revenue and you say we are no better off ?
Does anyone think the GST was a good deal ? Remember the surplus Costello was always bragging about well do the maths. The GST replaced grants that the federal government was obligated to pay the states when they gave up state taxes, war time etc. So the federal tax Re GST meant those state grants no longer came out of general revenue. Not once has Costello publicly recanted on the falsehood that the GST was a state tax.
Business in general has lost a bit with the new deal because instead of 28% they get 29% tax from the present 30% so as with most deals there are winners and losers.
Thank God it’s been resolved, i can go back to putting the $100 notes on my weeties
in the morning, those 50’s taste awful. “Pass the sugar Twiggy”.
At the same time as “the rich get richer the poor get the picture” courtesy of Midnight Oil is stuck on replay in my head, as one of the small business owners who will now be worse off because of the agreement the government has made with the mining industry, I have to say how disillusioned I am with democracy in Australia today.
My right to vote for who should lead our country was more or less removed less than two weeks ago. Yesterday the Government’s right to set taxes as it sees fit was effectively handed over to a single industry who decided to hold the country to ransom - setting worrying precedents around “closed door negotiations” in the process.
I certainly agree that any extra tax revenue gained under the deal is significant and if that revenue gets spent in the right way that will be good for Australians. But the revenue doesn’t meet budget expectations, so what is going to be cut? Health? Education?
Again it is the process that is concerning. Is it only those who shout loudest that are entitled to be heard?
MELLOUFARRIS
How would you fare under the Abbott proposals ? I,m not sure about solid policy but who is with the coalition. No resource tax so therefore no reduction in business tax or another way of saying, it stays at 30%. What about the maternity thing , whatever its called, paying up to 150 k or was it 250k for paternity leave. So someone on a high wage gets paid their high wage to have a baby that they can afford anyway. Well actually thats not a good way to describe it but thats the general gist of it. One man one vote but one baby is worth 150 grand and the next is worth say 20 grand. Mind you its not a great big new tax because there aren,t going to be any new taxes according to Abbott. Its a temporary surcharge , levy type of thing. Sort of like the health policies such as clinics, that will be scrapped to pay for the mental policy but they call it cutting bureaucrats. Mind you thats to be funded by big firms which must be somehow different from big miners because the coalition says thats bad. I,m not being sarcastic because thats the line Abbott is pushing.
MELLOUFARRIS:
… and others saying similar things about betrayal of democracy. The outcome is based on material that has been all over the papers and the airwaves and the opinion polls since May. The lobbying campaign was about as public as it gets. Nothing clandestine about it.
Don’t get me wrong, I think small business has got a very raw deal out of this. You now will have to somehow find money for a rise in superannuation - equivalent to a compulsory 3% wage rise for all your employees, without a 3% rise in spending money for your clients, and without a commensurate drop in company tax. Actually I think it’s an apalling prospect and I don’t see how you can do it without a lot of marginal businesses going under.
But whatever else it is, it’s not undemocratic, and it’s not “behind closed doors”. We can’t cherrypick results like this and say the ones I like are democratic and the ones that hurt me are not. Quite simply, the public cares about that super rise a lot more than it cares about your ability to make a living from your business.
There have been plenty of hidden deals behind closed doors in the last few years. The big four banks in particular - CBA, ANZ, Westpac, and NAB - have benefitted from some very cosy deals and, incredibly, they have come out of the financial crisis more profitable than they went into it. Most of their non-bank competition is dead and gone, their unpopular Residential Mortgage Backed Securities were rescued by the Future Fund, house prices are up (supposedly to prevent a rise in defaults, in spite of the fact that Australian home borrowers can’t walk away from loans as Americans can, so going into negative equity would have had no effect on defaults here). Life has never been better for them.
Whatever the Big Four gave the government in return - campaign contributions or good economic scorecards or whatever - those deals have been done behind closed doors while everyone’s attention is on noisier issues like resources and carbon trading. Now that’s what magicians call “misdirection”.
@ Powerisnotstrength
No need to get too fraught about businesses going under trying to find the extra 3% for superannuation - the rise is incremental beginning with a fraction of one percent (I think it’s a quarter of one percent, not absolutely sure).
The full 3% is not achieved until 2019.
ZUT ALORS
Yes you’re right, fair point. So business will be no worse of than they are today. Long term, the super rise will be instead of wage rises.
My other points remain: This negotiation was way out in the open, nothing clandestine about it. Unlike the very nice deals that the banks got, which have gone almost under the radar.
The reason why there was only a drop of $1.5 Billion in revenue is because the original proposal was done on previous metal prices, and the new proposal done on much higher metal prices.
Using the new metal prices the original plan would have delivered around $17 Billion dollars, and the new proposal only delivers $10.5 Billion. So in reality Labor have just wiped off $6.5 Billion off the budget.
Please keep up the good spin though Labor hacks.
TTH, do you have any evidence for that? Or is this a bit of guesswork from the JamesG school of accounting? (see above, comment #3)
The RSPT originally included a 40% subsidy of failed projects and exploration costs; this has now been scrapped. (Mining is a lot harder and riskier than people here give it credit for.) Also the existing Petroleum Resource Rent Tax (PRRT), until now applicable to offshore projects only, will be extended to include onshore oil, gas, and coal seam gas.
These may go some way to explaining why the new MRRT tax model will collect 90% of the revenue that the RSPT would have collected.
It’s better than the discredited Rudd-Henry model, but it is still a great big new tax, which will be spent on politically expedient programs at the pleasure of the Prime Minister.
It will not even be used to pay off debt, or to alleviate the approximately 50% effective tax rate (income tax is only a part of it) that workers now pay on their wages.
3 Multinationals benefit the rest (Australian Companies) are left out in the cold
http://www.abc.net.au/news/stories/2010/07/05/2944513.htm?section=justin
TTH:
The prices of coal and iron ore seem to be dropping rather than rising lately, so your base assumption needs verification.
While I have not been able to find up-to-the-minute prices of ore and coal, Onesteel’s site indicates that markets for these and for scrap steel have trended steeply down. One forecast price I have been able to find shows lower prices for 2012 onwards than for late 2009, again suggesting that the Treasury estimates of revenue from e trending downwards rather than rising due to changes in market prices of ore and coal.
Well how about that … TheTruthHurts was right: Blowout in price of mine tax truce in today’s Australian.