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Testing the ‘bleeding obvious’ on prophecies of doom

How did dire predictions about government tax changes in 2008 pan out? We decided to check.

As another pre-emptive mining industry campaign fires up to warn the government off considering removing tax concessions to fund corporate tax cuts, it’s worth doing a reality check on the track record of industry in opposing government decisions.

It was a tax that was “one of the greatest assaults on the living standards of Western Australians I have ever seen in the history of Federation”, one Liberal senator Liberal senator said; one that demonstrated “all of the morality of carpetbaggers and burglars”. Another Liberal senator declared it would “have disastrous consequences for our sovereign risk profile”. “Our reputation has gone down the drain because of this. Every single large project boardroom is saying: ‘What is happening in Australia’?”

And it was “bleeding obvious” that the tax would be passed on to Western Australian consumers, another Liberal said.

It was the removal of the condensate excise exemption in 2008, introduced in the Rudd government’s first budget. As a kind of warm-up act to the hysteria of the mining tax, an alliance of The Australian, resources company Woodside and Coalition senators was formed to attack the removal of a generous 1970s exemption designed to encourage offshore petroleum exploration. The Australian boasted about its role in alerting the world to the impact on consumers.  And in August, when the relevant bill was before the Senate, Woodside chief Don Voelte began an epic period of whingeing that wouldn’t cease until he left Woodside for the warm embrace of Kerry Stokes several years later.

Woodside must pass on increased costs,” Voelte piously intoned. “The idea that we can somehow afford this cost into our business is unrealistic. This unexpected new tax is no different to any other cost.” A few months later Woodside unveiled a record profit for 2008, up 70% on 2007.

The passing-on of the tax was an odd thing, too. Domestic gas prices did rise in Western Australia, but not because of the condensate excise: in June 2008, Apache Energy’s pipeline on Varanus Island blew up, causing a huge spike in WA gas prices. Prices fell when supply was restored, but thereafter began a slow but steady rise and eventually reached double those of domestic gas supplies in the eastern states. Were Voelte and The Australian right? The WA Parliament held an inquiry into gas prices in 2011.

But what the committee found was that:

… the local market has witnessed an extended period of oversupply, courtesy of the existence of large low-priced legacy contracts, which removed the incentive for further exploration and development of alternative gas resources … The predicament in Western Australia has been exacerbated by the fact that production costs have risen sharply for existing domgas developers and new entrants to the LNG market. This is attributable to a combination of factors including the commercial reality that the cheapest fields — and those with higher liquids content — have already been developed. Moreover, the cost of supplying materials and labour has doubled during the global commodities boom: a problem made more acute in Western Australia due to the remote locations where local gas reserves are being extracted.”

Woodside’s submission to the inquiry didn’t even mention the removal of the condensate exemption, even in its section on why Australia was a high cost place to do business. “In the last 2-3 years,” Woodside told the committee, “a tightening market and the need for higher revenues to support the development of new higher cost resources, has seen a rise in pricing for new gas contracts”.

What about petroleum exploration? Did investors flee the country in response to the removal of the excise from July 2008? According to ABS data, the decision preceded a huge spike in investment in petroleum exploration in WA.

And while we’re on what politicians say about the impact of taxes, here’s one more. In the same 2008 budget, the Rudd government lifted the luxury car tax on vehicles over about $57,000. That, too, prompted outrage from the Coalition. ”The politics of envy and class warfare,” railed one Liberal senator. Barnaby Joyce fulminated about the impact on the bush of farmers unable to buy expensive 4WD vehicles. NSW senator John Williams accused Labor of placing rural lives at risk:

… there are those people who choose to live out of town. They might be schoolteachers, wives, kids. They just need a vehicle. They might have four children and therefore need a bigger vehicle — a Toyota Prado, say, that comes in at around $64,000 … It is just a tax on those country people for having a vehicle for their safety and their security and to be able to get along the rough, wet or muddy roads perhaps even to get their children to a doctor or a hospital in the case of an emergency. But this government says, ‘We are going to tax them out of existence. They are irrelevant.’ It is disgraceful.”

The Federal Chamber of Automotive Industries attacked the increase in a submission to a Senate inquiry, warning it would reduce car sales, affect safety and reduce the take-up of “emerging technologies in the Australian vehicle market”.

So what happened to 4WDs after the extension of the tax, backdated to July 1, 2008? Well, all car sales fell in 2009 during the financial crisis, and 4WDs did too. Maybe that was because of the luxury car tax and not the financial crisis. But whatever impact it had seems to have been limited since then. The ABS’s data on 4WD sales in trend terms shows SUV sales in rude health since we were warned the tax would see fewer sales?

Still, all of this is ancient history. No one ever bothers to go back and find out whether all the dire predictions about the impact of government decisions ever came true, right?

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  • 1
    Steve777
    Posted Thursday, 27 September 2012 at 7:23 pm | Permalink

    Of course any new tax, any tax increase and any winding back of a tax concession is always decried by those affected as the greatest disaster in the history of the known universe (and probably the rest as well), impacting widows, orphans, fluffy kittens and especially impacting you. Very few ask the question of who pays and who gains. In fact, no one asks why corporations would allow the change to wreak such havoc when they could alleviate its effects by taking a modest reduction in profits. Everyone wants the Government to do stuff for them but no one, least of all Corporations and the wealthy, want to pay for it.

  • 2
    AR
    Posted Thursday, 27 September 2012 at 7:38 pm | Permalink

    The scope for massive national savings, removal of the fuel excise exemption for miners would be $4B minimum, would pay for a lot of hospitals, teachers and medical care. And that’s just for starters.
    Middle class welfare is obscene enough but the massive, not-so-hidden to anyone bothering to look, subsidies to various industries would cut/add 20% to government revenues without the electorate being affected.
    I’ve noted lately that the government is starting to do the things a Labor administration shoiuld do, were it true to its original purpose of levelling the disparity between capital/privilege and the real people who work their guts out for their children.
    Go Gillard, more! more! more!!!!

  • 3
    John Bennetts
    Posted Thursday, 27 September 2012 at 7:50 pm | Permalink

    AR, there is a quite reasonable argument against taxing the inputs of the exporters, eg taxes on diesel used in mining equipment, but you wouldn’t want to hear that, would you? Your mind is fixated on taxing anything that makes a profit and supporting anything that does not.

    A decision not to tax diesel used for these purposes is not a subsidy.

    Nuance. Balance. Lost concepts for some.

  • 4
    izatso?
    Posted Thursday, 27 September 2012 at 8:54 pm | Permalink

    CORPORATE WELFARE ! I say loudly. HIDDEN CONCEPTS FOR SOME ! I say louder …… Descisions made by the entitled few, at the cost of the increasingly angered many

  • 5
    floorer
    Posted Thursday, 27 September 2012 at 9:10 pm | Permalink

    all I’m getting on Crikey now is the sound of tumbleweeds tumblin……

  • 6
    Denise
    Posted Thursday, 27 September 2012 at 9:57 pm | Permalink

    I am finding the new look crikey painful. Bring back the old easy to use cover page now.

  • 7
    Mike Flanagan
    Posted Friday, 28 September 2012 at 9:43 am | Permalink

    Denise;
    I do agree it has become a pain. Technically it is slower and harder to navigate. It takes my laptop at least three times as long to enter the site than any of more than thirty sites I might visit over a day.
    It frequently gives me a 500 note of server inadeqaucy to react to the traffic.
    I suspecdt the influence and the proliferation of Tablets together with Facebook and Twittershpere are working, in the IT industry, against the users of desktops and laptops.
    The removal of the Enviroment section as an editorial descision I think supports my contention that there has been quite a change in editorial emphasis over the last months.
    Considering the changes weather and climate patterns are going to have on our individual and collective lifestyles, one would have thought Crikey, of all the available media, would try to meets its obligation to inform its subscribers and given the subject its’ relevant priority.

  • 8
    oldskool
    Posted Friday, 28 September 2012 at 11:05 am | Permalink

    I agree the new- look Crikey is awful, slow, crashy and what happenned to yesterdays subscriber edition?

    Anyway, the funny thing about the luxury care tax argument is that the threshold changed from $57,009 to $57,123!

  • 9
    Mark Duffett
    Posted Friday, 28 September 2012 at 2:21 pm | Permalink

    Despite his pious fulminations on report whacking, Keane proves here that he can cherry-pick and mislead with the best of them. His first graph purports to demonstrate a lack of impact of condensate excise exemption removal on petroleum exploration in WA: “…the decision preceded a huge spike in investment in petroleum exploration in WA”.

    Did it not occur to him to check the primary driver for petroleum exploration - oil prices - over the same period? Such as the graph at http://static5.businessinsider.com/image/4f477a056bb3f7642a000030-430-270/oil-prices.jpg?

    It clearly indicates the exploration expenditure peak in late 2008 to have been led by a spike in oil prices six months earlier. But what’s more instructive is what happens after that. Since the GFC-induced crash in late ‘08, oil prices have risen steadily. Yet exploration expenditure has continued to fall. I’m not saying this is necessarily all down to the exemption removal, but it’s certainly consistent with a significant impact from it and entirely contrary to Keane’s thesis.

    I’m not sure what’s worse - that Keane failed to check something as obvious as the oil price driver, or that he did, but left it out because it didn’t suit his story.

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