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Feb 12, 2013

Labor spins its wheels on the mining tax

Both sides are stuck with an expensive superannuation policy that will cost billions in future years, regardless of what happens with the mining tax.

When Julia Gillard and Wayne Swan walked into the main committee room in Parliament House on July, 2010 to announce the new mining tax deal hammered out with the world’s biggest mining companies, they may have thought they were finally free of the issue that had helped destroyed Kevin Rudd’s prime ministership.

“We’ve been stuck on this question as a nation for too long,” the newly minted Prime Minister said at the time. “Today we’re moving forward together …”

Two and a half years on, the government is still stuck on the question, considering changes to the tax it managed to get through the House of Representatives at the end of 2011 in a triumphal end-of-year session that yielded Peter Slipper’s ill-fated speakership as well.

On current form, the MRRT will raise barely enough revenue to cover the $240 million cost of the first year of the increase in compulsory superannuation in 2013-14, let alone the $500 million the following year or the billions a year it will gradually cost via concessional taxation, never mind the other expenditure attached to the mining tax.

That’s not an immediate problem for the government, given attention in the May budget will be on 2013-14, but it’s a poor fit with the Prime Minister’s commitment the other week to find “structural savings” to offset the long-term cost of NDIS and Gonski reforms: in effect, it still has some catching up to do on the MRRT before it can start from scratch with finding cuts for disability services and education.

Kevin Rudd sniping today about the tax — making the high-minded suggestion that “history will be the judge” as to whether Gillard and Swan gave too much away to the big miners — only serves to draw attention to its troubled gestation, including Rudd’s own wretched handling of the Henry Tax Review.

Labor’s problem, though, is relatively simple compared to the tangled knot the Coalition has wrapped itself into. Labor’s tax doesn’t raise enough money. The Coalition simultaneously decries the tax for not raising enough money, and for being damaging to the mining industry, and promises repeal, but remains — despite a stumble by Joe Hockey on Friday — committed to the compulsory superannuation increase it funds. So it too has the $240 million, then the $500 million, then the billions rolling off into the outyears on its books, and even less money to offset it than Labor.

“This is pretty immature stuff, heavily influenced by the way we assume fiscal rectitude is the be-all and end-all of economic management …”

How the Coalition will deal with this won’t be explained until some days before the election. Yesterday Joe Hockey used a statement of the bleeding obvious by Phil Bowen, the head of the Parliamentary Budget Office about PEFO, to justify delaying the release of the Opposition’s policy costings until after the release of the Pre-Election Economic and Fiscal Outlook. The most accurate costings would be done after the release of PEFO, Bowen told Estimates. That, plainly, doesn’t stop the Coalition from releasing individually costed policies or savings measures. The only thing it stops is an Opposition forecast of what its likely deficit or surplus will be — and even then the only discrepancy will be the difference between the budget forecast in May and the PEFO forecast in mid-August.

Still, all this is a straw man. Joe Hockey correctly pointed this out this morning, saying “we will do what Labor and every other Opposition has done. That is, release policies even well before the election.” That’s not strictly accurate — Hockey and Andrew Robb put out their deeply flawed costings virtually on election eve in 2010. But oppositions, no matter what their stripe, are not in the habit of exposing their fully costed policies to enemy fire until as late as possible. In effect, Hockey is admitting that political reality, and not PEFO, is the reason why there’ll be no costed policies until the election campaign. But Labor did precisely the same thing under Peter Costello’s Charter of Budget Honesty charade.

This is pretty immature stuff, heavily influenced by the way we assume fiscal rectitude is the be-all and end-all of economic management, with even minor deviations or errors blown up into evidence of ineptitude or worse. The faux-scrutiny of “gotcha” moments in election campaigns thereby prevents genuine, nuanced scrutiny that takes into account the broader economic and fiscal context.

In Labor’s case, though, the ongoing problem of the MRRT is a difficulty entirely of its own creation. The government hasn’t “moved forward” at all from that cold Friday morning in 2010 when it thought it had put its mining tax troubles behind it.

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57 thoughts on “Labor spins its wheels on the mining tax

  1. Jimmy

    “The Coalition simultaneously decries the tax for not raising enough money, and for being damaging to the mining industry” The question I have is that given the Liberal states have all raised royalties knowing the Federal govt will refund the mining companies what happens when Abbott removes the MRRT and the miners are faced with a less efficient scheme with higher rates than before the MRRT?

    Also given the Iron Ore Price was down to $87 in September and was lower than it it is currently for a significant portion of the December quarter wouldn’t it stand to reason that if prices hold the revenue from the MRRT for the next 6 motnhs would be considerably higher than what it has been, possibly even close to the orginal forecast?

    Also why are we rushing to judgment on this reform, some criticisms have been that the miners have been deprecitaing their investments which has resulted in them not paying the MRRT, well assuming they are using the diminishing value method the benefits of this are fornt ended and will run out long before the minerals do, meaning that in the future lower commodity prices will still see higher MRRT payments.

    On the costing issue this is the pay off for Gillard on setting the date early, journalists are already growing restless of the Libs avoiding releasing their costings, they might of been able to get away with it for 8 weeks but not 8 months, especially when everybody nows the figures can’t add up.

  2. PkD

    Is this an issue of the forecasts supplied by Treasury? Or the interpretation of the supplied forecasts?

    Does Treasury supply one forecast, or do the supply a range of forecasts based on market sensitivity? Don’t most mature gold and oil stocks have a fairly predictable sensitivity to the price of gold, oil and exchange rates?

  3. zut alors

    ‘When Julia Gillard and Wayne Swan walked into the main committee room in Parliament House on July, 2010 to announce the new mining tax deal hammered out with the world’s biggest mining companies…’

    My version: When Julia Gillard and Wayne Swan walked into the main committee room it was patently obvious a couple of guileless sitting ducks had been well and truly done over by the mining industry bullies. I can’t recall two politicians appearing so pleased with themselves having just been outwitted and tightly stitched up by a few businessmen.

  4. Apollo

    Grow some balls and redesign the tax now so they can collect the money next quarter and show the benefit of it to the Australian public.

    They’re having a reputation of beholden to the unions, now they want to have a reputation of beholden to the miners as well. Not representing the interest of the public.

    The piss weak attitude is going to usher Abbott into power with ease. But have no fear, Abbott will bring back the more than the golden years of Howard’s socialism. Pop out a baby and you’ll have enough to deposit for another investment homeloan.

    Our secret scientists have installed great socialist value into Abbott’s brain. He is now considering about following the Republic of China’s economic model to set up special economic zone.

    Ne vous inquiétez pas! La vie est belle, il faut me croire Kameraden.

  5. Jimmy

    Apollo – “Grow some balls and redesign the tax now so they can collect the money next quarter and show the benefit of it to the Australian public.” I have a feeling the Govt are playing a smarter game than that, they delayed the release of the December quarter figures by about a month, which meant that by the time they released them they had 6 weeks of actual commodity prices and only 7 weeks to “project” to estimate what the March quarter will look like.

    I think the reason for the sudden change of heart of about the confidentiality of the tax records was that they have already estimated that the March quarter will see significantly higher revenues from the MRRT. Based on that I think they are trying to “rope a dope” Abbott, let him come throwing haymakers about the lack of revenue this quarter and then step forward next quarter with a couple of smart jabs a drop him with all this extra revenue he plans to give back to the miners.

  6. Apollo

    Jimmy, I’m sure the revenue will be higher, but it won’t be high enough.

    For all the political hit they got from proposing the mining tax, the amount of revenue collect is not worth the effort. K.Henry even wonders why they bother with it. Go bigger and bolder. Gold should have been included in it, not because global instability has push its price up, but the growing demand from Chinese and Indian middle class is tremendous.

  7. Dogs breakfast

    Kevin Rudd can hardly look back and say that histroy will judge. My recollection is that Rudd was on the ropes because he had just abandoned his promises on the carbon tax, he was wandering around in a political funk, unable to do anything apart from announce another enquiry, and in an attempt to look like a man of action, picked a fight with a well organised and funded mining community without having settled on the legislation.

    The effect was that this as much as anything caused him more wobbles, which led to him sending out his chief of staff to ‘sound out’ support, which directly led to the challenge from Gillard.

    If Rudd had managed it correctly from the start he might still be PM. He didn’t, he wobbled, he lost, and Gillard was half obliged to clean up the mess to clear the decks for an election.

    I’m with Zut, when the ‘agreement’ was announced my heart sank. You don’t want multi-billion dollar companies agreeing to your new tax measures, you want them squealing like stuck pigs.

    And they were cheshire cats.

  8. Jimmy

    Apollo – “Jimmy, I’m sure the revenue will be higher, but it won’t be high enough.” What is high enough?

    This is a long term reform and you can argue that they should of included this or that but I wouldn’t be surprised if they get up around the $1b for the year if prices hold which is pretty significant coin, especially considering the massive drop in the September Qtr, As the depreciation unwinds the price required to achieve good revenue comes down.

    The MRRT in it’s current form will generate enough money to raise serious question about how Abbott will replace the revenue.

  9. Apollo

    Jimmy, $1 billion is below $2 billion at mid year forecast, and $3 billion in May budget. It should at least come close to the $2 billion midyear forecast. I’d prefered the tax to raise at least $5 billions to spread the benefit for all Australians.

  10. Dogs breakfast

    Considering that the design of the tax allowed them to offset any changes to the states royalties, you would fairly include that value in the overall tax take as well. I suspect that it will get closer to $1b for the year if iron ore prices hold, and more if you count the extra royalty money to the states.

    The royalty side of the tax was, if I recall correctly, part of the original design from the Henry review, but it never made sense to me. It was always an invitation for the states to increase their royalties, which should be tied in any case to the final price rather than just being given away, as they have been since the first fleet.

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