With high iron ore prices, driven by Chinese demand and continuing supply problems in Brazil, and the government racking up half a trillion dollars in deficit spending to keep the economy afloat, the case for an iron ore super profits tax has never been stronger.
And for the reason why, we can turn to none other than Scott Morrison.
It was Morrison himself who, as treasurer, slapped a $6 billion extra tax on the banks in the 2017 budget. His rationale? It was “an additional and fair contribution from our major banks” to “support budget repair”.
Morrison then made it permanent, on the basis that not merely was it required to help repair the budget, it was required to keep the budget in surplus. “Tell them you will pony up and help fix the budget”, Morrison lectured the banks when selling the budget.
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The major banks had jointly notched up over $30 billion in profits the previous financial year and just over $25 billion the following year. Despite warnings that the tax would undermine the financial system, the banks survived it and survived the impact of the pandemic in 2020, emerging in the final quarter in top condition, backed with over $100 billion in extra deposits and nearly US$26 billion in provisions made last year to help defend themselves against any rise in bad debts this year. The decision of Malcolm Turnbull and Scott Morrison to impose the tax has been borne out.
The banks’ profits back then were around what BHP by itself is expected to earn this year — around $27 billion (despite writing down a billion dollars on thermal coal in NSW), with Rio Tinto and Fortescue — which Andrew Forrest says is making nearly one billion a month — likely to add tens of billions to that figure.
The results will put the focus on Australia’s trade tensions with China in perspective: for yet another year, China has proved a source of huge income for Australia, not through any particular genius of Australian business, but because of China’s capacity to defeat COVID and the lack of alternative iron ore supplies.
The big miners might cry “sovereign risk”, as they did in response to Labor’s resources super profits tax, but this is not a government that has any concern about sovereign risk. There was no talk of sovereign risk when Morrison imposed the banking tax, or when the Turnbull government threatened to block gas exports if gas prices didn’t come down, or when Morrison, at the behest of News Corp, proposed to force Google and Facebook to pay billions to Australia’s failing media companies.
“An additional and fair contribution” to the long, slow recovery in the nation’s finances would be a far better use of the iron ore sector’s windfall profits than handing it to foreign shareholders and Australia’s hyper wealthy. Alternatively, it could be handed to the Future Fund, which might do more with it for taxpayers, given current low interest rates.
Morrison has done it before and should do it again.