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The tax that got away: Gillard v Rudd in mining revenue rout

$3 billion — that’s how much the government will lose based on MYEFO estimates today of the difference between the original mining tax and Julia Gillard’s compromise.

The federal government’s bottom line will be at least $3 billion worse off next financial year than if Kevin Rudd was still prime minister.

This morning’s Mid-Year Economic and Fiscal Outlook has revealed that Julia Gillard and Wayne Swan’s watered-down minerals resource rent tax will bring in $4.3 billion less over the next four years than first provided for in May’s federal budget.

A footnote buried on page 352 of the MYEFO document showed revenue tumbling from $13.4 billion to $9.1 billion to 2015-16. Lower commodity prices, export earnings and 8% weaker terms of trade (against 5.75%  in the budget) all contributed to the downward revenue revision.

But perhaps the most galling differential for Rudd supporters is the yawning $6.6 billion gulf between the $9 billion expected in 2013-14 from the original Rudd-designed resource super profit tax and the MYEFO MRRT estimate of just $2.4 billion.

Applying the approximately 40% cull in MRRT revenue estimates over the last 12 months, the shortfall between the Rudd RSPT and the Gillard MRRT will be about $3 billion next financial year, and potentially much more in subsequent years.

Changes in minerals resource rent tax revenue projections


2012-13 2013-14 2014-15 2015-16
May 2010 announcement of RSPT $3b $9b N/A N/A
November 2011 introduction of MRRT bills $3.7b $4b  $3.4b N/A
November 11 MYEFO $3.7b $3.8b $3.1b N/A
2012-13 budget $3b $3.5b $3.2 $3.7b
October 2012 MYEFO $2b $2.4b $2.1b $2.6b
Difference between introduction
of MRRT and 2012 MYEFO
 $1.7b  $1.6b  $1.3b N/A

The RSPT was subsumed by the MRRT after Gillard’s elevation to Prime Minister in June 2010. Negotiated with the big miners at the exclusion of mid-tier entities like Andrew “Twiggy” Forrest’s Fortescue, it has rankled with Rudd supporters like Maxine McKew ever since.

Even on the strict MRRT comparison, the gap is massive and growing. Compared to forward estimates proffered when the MRRT legislation was introduced last November, the total gulf is $4.6 billion over just three years (rather than four) to 2014-15.

parliamentary library comparison of MRRT revenue between the RSPT in 2010, the MRRT legislation, last year’s MYEFO and this year’s budget shows declines in revenue of $1.4 billion between 2012–13 and 2014–15 compared to the original November 2011 projections.

The 22.5% MRRT (30% before the extraction allowance was factored in) represented a massive backdown from the far more bullish 40% RSPT that also had a lower up-lift rate and weaker capital deduction rules.

And the situation could worsen still, with the actual amount entering government coffers requiring further downgrades. MRRT taxes are due to be paid to the Australian Taxation Office today but it has been widely speculated that just two miners — BHP Billiton and Rio Tinto — will pay anything (or nothing) under the tax to date. Remittance advice is expected to disclosed in December.

Speaking on AM this morning, finance minister Penny Wong said it would be a mistake to read too much into today’s receipts given they are based on first quarter profits.

The MRRT is also tied to a raft of linked expenditures, including notably the increase in superannuation from 9% to 12%. As parliamentary library researcher Kai Swoboda acknowledged after May’s budget, the MRRT package’s overall impact on the budget was -$43 million in 2011–12, +$2068 million in 2012–13 and -$619 million in 2013–14.

In typical understated style, the library acknowledged that “unless MRRT revenue increases significantly in future years it will be difficult to cover expected future higher costs of some measures, such as the $3.6 billion costs in 2019–20 associated with the superannuation guarantee reaching 12 per cent”.

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  • 1
    Mark from Melbourne
    Posted Monday, 22 October 2012 at 2:20 pm | Permalink

    You’re making the assumption that Rudd’s plan would have gone through. All the evidence suggests otherwise.

  • 2
    Boerwar
    Posted Monday, 22 October 2012 at 2:41 pm | Permalink

    The federal government’s bottom line will be at least $3 billion worse off next financial year than if Kevin Rudd was still prime minister.

    One of the very best laughs I have had for years. Thank you.

    I would suggest that Mr Crook sticks to whatever it is that he is good at, and leaves alternative history to the Sky Fairy.

  • 3
    Mark from Melbourne
    Posted Monday, 22 October 2012 at 3:56 pm | Permalink

    And at least there is a super tax framework in place. Should have been done back in Howard/Costello’s day when the market was just on the rise and then maybe we would have banked something from this boom cycle.

    If Fraser’s government get’s marked down for sitting on their hands in terms of advancement through policy reform then Howard should be marked down tenfold. Oh wait, Howard was Fraser’s Treasurer wasn’t he - common thread or what?

  • 4
    Arty
    Posted Monday, 22 October 2012 at 5:02 pm | Permalink

    Are you sure it wasn’t the fault of Ben Chifley breaking the miners’ strike?

  • 5
    Liz45
    Posted Monday, 22 October 2012 at 5:49 pm | Permalink

    @Mark from Melbourne - I was thinking the same as you while reading this article. If only Rudd had started his campaign via the media and got in first, the outcome could’ve been different. BUT, look at the money Gina has! She could’ve funded a massive campaign on her own and not even noticed the difference in her wealth! msm also supported the wealthy mining companies, and stupid people bought the crap!

    Our resources - their profits! Obscene!I find it galling, that over the years, so many resources have been removed from the northern states and WA, and yet aboriginal disadvantage is still alarmingly high! The mining companies have no shame! They’re just a pack of greedy bastards! Simple!

  • 6
    Ian
    Posted Monday, 22 October 2012 at 8:27 pm | Permalink

    Please someone,anyone, tell me why I pay for this.

  • 7
    Warren Joffe
    Posted Tuesday, 23 October 2012 at 10:04 am | Permalink

    A couple of points. Just because Fraser blew the opportunities for reform (and most galling I know to a lot of Liberals was the failure over workplace relations as it was not then called) and because Howard did to Costello as Treasurer what Fraser did to him in terms of b****ing up the Budget to try and win elections one shouldn’t take away from Howard his reformist credits including the support from Hawke-Keating reforms building on the Campbell report from Howard’s days as Treasurer.

    Let’s not fall for Liz45s glib “our resources” line. Legally of course they belong to the states but there it should also be noted that a deal is a deal and, normally, if someone disposes of their property (absolutely or by lease or licence) it is far too glib, and of dubious morality, for the party disposing of it to turn round and say simply “that is my property to do, still, what I like with it”. True the royalties arrangements with the states don’t have complete certainty but the implicit deal is, I suppose, that the states will adjust royalties downwards also in order to keep mining going in their states.

    A related matter often overlooked is that “our resources” (or Aborigines’ resources) don’t exist in any meaningful way until someone has expended money and skill (and of course luck sometimes) in finding them.

    The argument for a resource rent tax as a way of taxing mining and oil businesses is well known and largely valid. But you have to remember that they are already paying company tax just like any other business which pays more tax when it makes more money through luck or good management. It follows that, except in emergencies (like war, not because government has stuffed up its budget) the resource rent tax should not be added in to help a profigate government buy votes but should be part of the original deal which a company factors in when obtaining the right to mine. An alternative would be to just auction the mining rights and take the resources rent up front - a bit like taking bids for the running of a casino. That however would be too tempting to big spending governments and wouldn’t get the highest bids from companies suspicious of sovereign risk in the shape of exactly what has happened: a new tax on top of ordinary company tax and the deal (royalties to the states in the current case) already done and paid for.

    Anyone who has superannuation in any form should also note that almost every superannuation fund has bought mining company shares on the bssis that some shares do well and some not so well but that you can count on a government which is not desperate to leave the sources of your fund’s financial health without further damage. And if you don’t have an interest in superannuation and don’t care about the government doing such damage to superannuants then you should question your own morality.

  • 8
    Angie Smith
    Posted Tuesday, 20 November 2012 at 8:09 am | Permalink

    would love to see some reports on the pay salery rise in such a short time between what rudd was recieving when he was prime minister and his rise in salery up to his final day as prime minister and Julia Gillards rise in Prime minister pay salery in such a short time.Alot has seemed to have been forgotten within the publics view on Gillard and her everchanging promises.Particular of great concern is the way it was done in the middle of the night deals were made i am suppossing to put her as pm.Then she never went for the carbon tax that was until she realized that she would not get the greens votes.I thought the reason she became the leader of the labor party and in fact the prime minsiter was because Rudd was overspending. It seems that the finances have gone haywire and we are now facing a tough time to try and get out of the debt in which gillard has put us far beyond what rudd had ever done.. please some more articales on facts and figures. Even things like her misuse of money on the lodge being refurbished because she wanted it to be something she liked not because it needed to be done.I believe millions was spent on this..

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