Oct 23, 2014

Fairer share of mining profits still part of Whitlam’s unfinished business

Fairly and effectively taxing the mining industry has been the Labor party's white whale for decades.

Paddy Manning

Crikey business editor

For all Gough Whitlam did, he also left Australia some unfinished business -- particularly, how can the Australian public get a fairer share of the profits from the extraction of its non-renewable resources, flowing largely to foreign-owned mining companies? The quandary helped Whitlam come undone, as it did Kevin Rudd. As this excellent radio documentary produced in 2012 for the ABC’s Rear Vision program showed, both sides of politics in Whitlam’s day feared Australia was "selling off the farm" to foreign miners like America's Utah, which were repatriating profits overseas. The formation of the Organization of the Petroleum Exporting Countries and the oil shock of 1973 was the consequence of a wave of nationalisation of resources projects worldwide, and Whitlam was swept up in it. He commissioned the Fitzgerald Review, which showed extraordinary degrees of foreign ownership and expatriation of profits. Then-minerals and energy minister Rex Connor created a new Petroleum and Minerals Authority, a statutory body that could get involved in joint projects with private resources companies in developing Australia’s natural wealth. As former secretary of the department of primary industries and energy Paul Barratt told Rear Vision:
"Well, they introduced strong foreign investment policy for all minerals so that there was a Foreign Investment Review Board and the Treasury had to look at all proposals for new mines and determine whether they were in the national interest. And the assumption was if there was 50% Australian equity that would sail through, but otherwise there would be a decision to be made. Second ... they passed legislation in 1973 to establish a Petroleum and Minerals Authority, and it was to be a government agency that could take investment positions in new mines, so it could become an equity holder. That enabled the government to insist that people who claimed they couldn’t find enough Australian equity to get up to 50% to go and talk to the Petroleum and Minerals Authority. It didn’t mean the PMA would necessarily take a position in a mine, but it meant that you couldn’t say you hadn’t tried hard to get equity if you hadn’t talked to the PMA. And in fact in the early years of the policy, Rex Connor, the minister, was quietly telling companies, ‘If you can find 25% Australian equity, we will support your application.’ So the 50% was aspirational and anything above 25%t would get a tick."
The proposal caused uproar in the mining industry, and the legislation, only passed after the double dissolution election of 1974, was repealed when the Fraser government took office after the dismissal in 1975. Fast forward to 2010 -- past the Hawke government's introduction of the Petroleum Resource Rent Tax in 1987 -- and the introduction of Rudd’s Ken Henry-designed Resources Super Profits Tax, levied at 40% of income above a risk-free rate. Arguably the most contentions aspect was the idea the government would become a silent, joint-venture partner in mining projects, effectively sharing 40% of the upside and 40% of the costs -- see this excellent discussion by Fairfax Media's Peter Martin. Opponents like Fortescue Metals billionaire Andrew Forrest said he did not want the government as partner and called the RSPT a “40% nationalisation” of the mining industry. The likes of Bruce Teele, former chairman of the venerable Australian Foundation Investment Company (AFIC), harked back to the Whitlam days :“We can see similar characteristics,” Teele said. “There is the same philosophy to make the public sector a bigger part of the economy. Then it was financed with debt and this time it is increased with tax.” Once Rudd was ousted and the three big miners BHP, Rio Tinto and Xstrata (now Glencore) were done with new leader Julia Gillard and then-resources minister Martin Ferguson, the watered-down Mineral Resources and Rent Tax was barely worth the bother -- at least, that seemed to be Henry's view. But with the mining tax gone, we are not quite back to square one. The MRRT did unintentionally spur the state governments of Western Australia, Queensland and New South Wales to lift royalties substantially. Given the price slump in key commodities (iron ore and coal) that has since befallen the mining industry, they may rue their abandonment of advocacy for a shift to a profits-based tax. Former long-time Treasury secretary John Stone recalls in this morning’s Australian Financial Review that the Whitlam government was “incorrigibly hostile to business generally … Connor notoriously described Australian mining industry executives as ‘hillbillies’.”  Scandalous! But Connor’s legacy may be due for reappraisal. The disastrous Khemlani loans affair, which signalled the death-knell of the Whitlam government, was partly triggered by Connor’s desire to fund a pipeline to bring gas from the North West Shelf over east. Given the vast gas resources that have since been discovered off the coast of WA, Connor’s dreams for a national energy grid look visionary. Four decades later, with the mooted Alice Springs-Moomba pipeline, Australia will finally complete a pipeline network extending all the way from Bass Strait to the Browse Basin.

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11 thoughts on “Fairer share of mining profits still part of Whitlam’s unfinished business

  1. Mark Duffett

    Given the price slump in key commodities (iron ore and coal) that has since befallen the mining industry, they may rue their abandonment of advocacy for a shift to a profits-based tax.

    I don’t see how that follows. Profits are even more vulnerable to commodity price shifts than royalties based on tonnage of product.

  2. Scott

    “But Connor’s legacy may be due for reappraisal. The disastrous Khemlani loans affair, which signalled the death-knell of the Whitlam government, was partly triggered by Connor’s desire to fund a pipeline to bring gas from the North West Shelf over east”

    Really? Just because Gough is undergoing a deitification process after his death should mean you extend this to his dodgy cabinet.
    It wasn’t the reason for the loan that got Rex into trouble…it was the way he went about it and the fact that he mislead parliament about it.
    It’s like saying I bought a house (good) with embezzled funds (bad) so therefore, I’m good. Please.

  3. john2066

    Yep, pretty much all of us have to pay more tax so that the miners can keep stealing the minerals for next to nothing. I suggest just filling out an invoice for this increased tax and have your nearest coalition voter pay for it.

    What really sticks in my craw is that the idiot coalition voters who voted for a tax cut for the miners, are increasing their own tax bills. But they are so genetically stupid they dont realize what they are doing.

    Just get them to pay the bill.

  4. john2066

    And dont forget, your local murdoch monkey – ie Terry McCrann, should also be paying the increased taxes we’re missing out on because of no proper mining tax.

    ‘The more the miners steal, the more the coalition cheerleaders pay’ sounds like good policy to me!

  5. AR

    Duffer – how about both? At double the current rates!
    Wotta they gonna do, take their holes elsewhere?

  6. Scott

    AR, if it becomes unprofitable to dig, they won’t dig. Pretty simple. We live in a world full of resources and there are plenty of options for your global mining company. If Australia is out of the picture because of tax rates, they will focus on Africa/US/Canada/Chinese/South American “holes” as you put it.
    And if is the case, the miners will leave…taking their state royalties, company tax, GST, transport fees, investment and operating expenditure with them.

  7. Liamj

    Norway has a 78% tax on oil & gas revenues and have no shortage of investment, it’s only clueless colonies like Oz that give away their resources.

    Whitlam & Rudd were both rolled soon after trying to raise taxes on foriegn/anglo-yank owned miners so i’m not saying its easy, but it’d be nice to leave the kids something other than holes & tailings dumps.

  8. GideonPolya

    Excellent article.

    Whitlam attempted to buy back the farm from foreign miners and get a bigger share of the profits for Australia. Whitlam attempted to raise billions of dollars in loans to get Australian ownership of major mineral resources (e.g. minerals, coal and gas), Unfortunately, the Arab Oil Crisis due to genocidal Apartheid Israeli militarism lead to a worldwide economic downturn that involved higher inflation and unemployment in Australia with restricted access to capital.

    Whitlam Labor’s attempt to raise money from oil-rich Arab sources rather than traditional “White” European sources was a red rag to Australian racists and led to the “Khemlani Loans Scandal” beat-up that helped damage the Labor Government when the king-maker Rupert Murdoch’s Media Empire that helped install Whitlam in 1972 turned against him in 1975.

    History repeated itself when Labor PM Kevin Rudd attempted to get a better share of mining royalties for Australians in 2010 but was betrayed and removed in a US-approved, foreign Miner-funded and pro-Zionist-led Coup. Labor PM Julia Gillard drafted a toothless Mining Tax. The Coalition opposed the Mining Tax which it abolished in 2014 with the help of the Mining billionaire Clive Palmer MP’s Palmer United Party (PUP)).

    It cost the largely foreign-owned mining companies only $23 million to get rid of PM Kevin Rudd (they had actually promised to spend $100 million) – the harsh reality of Murdochracy, Lobbyocracy and Corporatocracy Australia in which Big Money purchases, people, politicians, parties, policies, public exception of reality and political power.

    Whitlam gave Australia peace, engagement with Asia, recognition of China, womens rights, equal pay for women, no fault divorce, Aboriginal rights, Aboriginal land rights in the Northern Territory , universal free access to health services and tertiary education, rejection of explicit racism, abolition of the White Australia Policy etc etc but his enormous humane legacy that is fervently supported by the Australian Greens is being attacked by the Zionists and the pro-war, pro-Zionist, US lackey, neoliberal Coalition and Labor Right (for a detailed and documented analysis of Whitlam’s humane legacy in 28 areas that is being variously svaged by the US lackey, neoliberal Lib-Labs see Gideon Polya, “ Greens support but Coalition & Labor Right attack humane legacy of former Australian PM Gough Whitlam”, Countercurrents, 23 October, 2014: ).

  9. CML

    @ Scott – Oh!good. How long before we can get rid of them?
    Then we can do a Rex Conner, buy back the mines, and dig the stuff up as required.
    That way, the Oz public can ALL participate in the profits now going to the cossetted few local and overseas ‘investors’!!
    Perhaps we could start a protest movement to that effect? Any takers!!!!

    Agreed, Liamj!

  10. Mark Duffett

    CML, the likes of the DRC (then Zaire) tried this sort of resource nationalism in the 70s. It turned out to be an absolute disaster, turning what should be the world’s most fantastic copper mines into basket cases from which they’re still recovering.

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