This week there was much excitement about a possible government backdown on the RSPT.
It came from what are now the usual suspects in this “debate”: the plutocratic mob at the AFR, Labor’s enemies at The Australian and Crikey’s overly excitable colleagues at Business Spectator, all of whom have been waging an hysterical campaign against the RSPT.
Well, don’t believe everything you read.
Even the less-cluey business commentators have worked out that a government beleaguered by criticisms of backflips is hardly going to walk away from key elements of the proposal. Instead, speculation centred around an abandonment of the “co-investment” nature of the proposal, a shift that would move the RSPT closer to the PRRT.
Remember that the RSPT works not just by taking 40% of profits above the government bond rate, but by the government covering 40% of the risk of individual projects, by allowing companies to offset losses against super profits across all the company’s projects, at an uplifted rate and refundable in the event, say, the company leaves the industry with carried-forward losses outstanding.
That’s why the RSPT is a better resource rent tax for smaller and more marginal mining projects than for large miners with well-established projects generating strong revenues. Currently, both pay the same rate of royalties.
The idea being pushed by the anti-RSPT brigade is that the transferability and refundability of losses is some sort of fantasy produced by academic and Treasury economists that doesn’t stand up to scrutiny in the real world. Why? Various reasons have been advanced. One is that governments won’t actually refund in the future any unused losses if they’re too large, which when stripped of its economic clothing is simply an assertion, without evidence, that governments will act in bad faith and can’t be trusted.
One online commentator also thinks future offsetting of losses has little value for miners because they’re by nature optimistic. Seriously.
But you can see where this is going in the speculation about a government backdown — it could drop these apparently worthless deductibility and transferability aspects and lift the rate at which the RSPT cuts in on profits — from 6% to 11%. Such a change will have an impact on revenue, but would be offset by the reduced exposure of the Commonwealth to losses, and higher revenue from non-offset profits (yes, that’s doublethink, I know — if the treatment of losses is so trivial it wouldn’t counter-balance the fall in revenue).
There’s been an eerie silence on all this from one section of the mining industry — the smaller, less-established miners, or those operating or investigating more marginal projects.
They’ll be the ones thoroughly f-cked over by such a deal, because that will destroy the very thing that makes the RSPT so appealing for them.
There’s speculation that smaller companies have been leant on by the big players to keep silent. One source believes the big miners have used their considerable leverage over smaller players in areas such as infrastructure access to make sure they don’t give any impression the industry is divided.
But the campaign being run in the media reflects the interests of the big, foreign miners such as BHP and Rio Tinto, not smaller miners.
The Minerals Council of Australia is an honourable exception to that, however. Its idea of a compromise with the government doesn’t involve any trade-offs involving treatment of losses, but the government simply ditching the whole idea. Points to them at least for policy purity.
The speculation over a government backdown was particularly ill-timed because the government knows not merely that any sort of agreement now would be portrayed as a spectacular backflip, but that the best time to compromise is at the end, not the beginning, of the consultation process.
This might be the one thing it got out of the CPRS debacle, where it repeatedly backed down in the face of industry pressure, encouraging other industries to ramp up their demands, resulting in a series of cave-ins to polluters between the release of the Green Paper and the final deal with Malcolm Turnbull that wrecked the effectiveness of the mechanism.
And the consultation process still has a ways to go, despite the government receiving its first report from the consultation panel today. A series of workshops in each state capital started this week and continue until mid-June, before an Issues Paper is released in July. There’ll be more consultations on that until August before a Final Design Paper is prepared. That, of course, takes us into the election, although you can be certain that the government will make its final position clear before we go to the polls.
The RSPT has dominated the political media cycle this week but it won’t last. In fact, it may struggle to hold the media’s interest into next week’s sittings, even with the huffing and puffing from its opponents. It just doesn’t have the legs, especially when Tony Abbott has his own Great Big New Tax aimed at much more than just the mining sector.