The way the RSPT debate unfolded yesterday is a nice illustration of how the Government is failing to cut through in its efforts to sell the tax.
On Sunday, Wayne Swan put the case that the mining industry paid 13-17% effective tax rate and linked to the now-famous Shackelford/Markle paper, which the Henry Review had considered last year, noting its findings on the rate of tax paid by multinational mining companies.
The beauty of the paper is that it facilitates a comparison of what taxes companies face across different countries and different industries. No other similar study as wide-ranging as this has ever been attempted. This morning much has been made of the fact that the paper was in draft form when the Henry Review considered it, but it has since been updated in a way that increases its utility for international comparisons (though it is still a working paper). And it goes directly to the mining industry’s claim that it faces the highest taxes in the world and is going to move offshore if there’s an RSPT, particularly if you factor in royalties, where Australia is in the middle of the pack internationally.
The response of the Minerals Council and of the Coalition was interesting. The MCA produced its own figures on Sunday to counter the study (which it described as “small”) and then yesterday at 10am produced Tax Office data purporting to show that the industry paid on average 27.8% tax and, when royalties (which, for those playing at home, aren’t a tax), pay 41.3%. This was different to what BHP had claimed the day before but what’s a couple of percentage points between friends.
The MCA’s use of the ATO data was, yet again, misleading, because it failed to include all the rebates, concessions and handouts the mining industry benefits from. Like the rebate for fuel excise, which is worth nearly $2b a year to the mining industry. Like the accelerated depreciation allowances the industry gets, which costs the rest of us another billion.
Still, misleading as it was, it engaged on the substance of the issue.
The Coalition simply attacked the authors of the study. Andrew Robb — pretty much the only figure in the Coalition who actually has the intelligence and background to engage on this sort of issue — went the low road and began attacking the authors immediately. “It’s a working paper by a Graduate Student at North Carolina University… This is the shonkiest piece of work you’ve ever seen… This is amateur hour,” he told the ABC.
The Coalition has form in this regard. As Workplace Relations Minister, the supposedly easygoing and avuncular Joe Hockey smeared two Sydney Uni academics when they dared to produce a study contradicting the official Howard Government line on Workchoices. Robb was doing the same yesterday. By Question Time, one of the authors, in the manner of Benjamin Button, had become an “undergraduate”. Today he’ll be lucky to have made primary school.
The Government’s response? Wayne Swan put out a press release at 10.30am demanding Robb “correct the record” on the paper. Swan had spoken on the early edition of AM about the RSPT, but otherwise that was his sole appearance in the media.
The Opposition carried the attack into Question Time, peppering the Prime Minister with questions about the paper.
The smart response would’ve been to defend the paper’s authors, note it was one aspect of a larger debate, and use it as a springboard back to the real issue, which is that the Government is simply seeking to return the proportion of tax it gets from the mining industry back to where it was ten years ago.
Instead, Rudd squibbed it, simply referring to Swan’s press release and sitting down. It looked like he was uncertain whether the paper was legit. Instead, Labor preferred to cite business figures who backed the RSPT, making much of the support of John Brogden and John Hewson, as if that was particularly crushing to Liberal hopes. Alas, Hewson’s views haven’t meant anything to his former party for fifteen years or more.
The Government also thinks attacking the Coalition over its receipt of mining donations is a weak point, in the same way it misinterpreted Tony Abbott’s 7.30 Report brain snap as being about admitting to lying, rather than about wilting under pressure. Voters don’t care about such issues because they figure all politicians are the same anyway.
It was left to the paper’s author, Professor Shackelford, one of America’s most distinguished tax economists, to defend his own paper yesterday evening to the ABC, saying the Opposition had got it wrong, and that it was the most comprehensive paper of its type.
At 5.00pm the Treasurer’s Office put out a release explaining that the MCA’s use of the ATO data was misleading. Treasury put out a paper showing mining had one of the lowest average tax rates in the country.
What was once a strong point of this Government, its capacity to chant a single message in unison with mind-numbing frequency, has vanished, replaced with uncertainty and different messages. It’s the media, business figures and commentators who are doing the heavy lifting of attacking the mining industry’s hysterical campaign, rather than the Government.
In just a few short paragraphs and a couple of charts in a note released last night, Macquarie Bank’s Rory Robertson did more to discredit critics of the RSPT than any Government figure has. In particular, he picked apart the industry claim about retrospectivity:
The argument that Canberra’s new pricing structure is “retrospective” is rather unconvincing. After all, every city-based household knows that its local-government rate payments will trend higher over time, even if the home was bought many years earlier. Similarly, owners of rural property know that government rates and rents are linked directly to the latest assessed value of the property, and that if that value doubles, then payments to government will tend to rise in proportion. Finally, those of us working hard over decades to build “human capital” would struggle to argue with a straight face that any increase in income-tax rates is unfair because it is “retrospective”. Government taxes and charges change all the time. Rarely do such changes come as a genuine shock, and a resource-rent tax has been “in the pipeline” in Australia for many years.
Macquarie Bank, incidentally, was the source of a recent anecdote — sent to virtually every media outlet including this one — about Wayne Swan not knowing the difference between the weighted cost of capital and the long-term bond rate, although apparently it was Macquarie clients, not analysts who spread it.
Clear, simple and compelling arguments for the RSPT can be made. Trouble is, they’re not coming from the Government. Its inarticulacy is damaging its prosecution of the limited tax reform it has taken on. It will damage a whole lot more than that if it keeps it up.