‘Two botched efforts to extract tax revenue from the mining industry will not have helped the Australian Labor Party’s chances in this month’s election’

Australia’s attempts to tax its miners’ huge gains resulting from Asian demand in recent years have become a curse for its politicians.

The ill-conceived resource super-profit tax (RSPT) broke Kevin Rudd’s prime ministership in 2010, while the minerals resource rent tax (MRRT) was similarly damaging for his successor as Labor PM, Julia Gillard.

The MRRT created considerable global uncertainty as the share prices of Australia’s resources companies – some of the biggest in world – were marked down after its implementation in July 2012.

Only a meagre amount has been raised so far, suggesting that the cost of administering the tax could even exceed the revenue raised. In fact, the most significant impact of the MRRT, a tax on profits made from the extraction of non-renewable resources in Australia, is that it has created more jobs for accountants, who are needed to tackle its mind-numbing complexity.

A replacement for the RSPT, which was withdrawn just before its planned implementation, the MRRT is levied at 30 per cent of “super profits” gained from the mining of iron ore and coal.

A company becomes liable when its annual profit reaches A$75m – a measure designed so as not to burden smaller players. Potentially, more than 300 firms could be affected. There is no time limit; the tax is there in perpetuity unless a future government decides to end it.

Rudd and his finance minister at the time, Wayne Swan, had announced the RSPT as part of their response to a wide-ranging review of the tax system chaired by Ken Henry, then secretary to the Treasury.

The RSPT was to be levied at 40 per cent and to apply to all mining, including for gold, nickel and uranium. The planned measure was a key factor behind Rudd’s downfall in June 2010.

Gillard replaced it immediately with the MRRT after she took over as PM. The tax won support from the Australian Council of Trade Unions and various miners’ unions, along with conditional backing from the Australian Greens.

BHP Billiton and Rio Tinto have not opposed the MRRT publicly in the same way that they resisted the RSPT, but other big industry players and the Liberal/National opposition have all come out against it.

Andrew Forrest, chairman of Fortescue Metals Group, said that the tax would “reduce investment in Australia”, while Gina Rinehart – the nation’s richest person and owner of Hancock Prospecting – argued that it would do so to the tune of billions of dollars.

The measure must be seen in the context of Labor’s pledge to cut the company tax rate from 30 per cent to 29 per cent in 2013-14, but with no commitment for another cut until the fiscal position improves.

In the May 2012 budget it was claimed that the MRRT would bring in A$3bn for the year. By October the forecast was cut to A$2bn.

In May 2013 the government was forced to admit that its annual MRRT receipts were expected to be a mere A$200m. Rudd said that his Labor colleagues Swan and Gillard had to take responsibility for the MRRT and “deal with the consequences of its near non-existent revenue”.

The controversy was another nail in the coffin for Gillard’s increasingly unpopular leadership. On 27 June she resigned after losing a party ballot to Rudd, who was reinstated as PM.

The campaign to tap some of the vast new wealth of Australia’s extractive industry has not only undermined the value of its leading companies. It has also come at a cost to Labor’s credibility as the general election approaches.

Sarah Thompson is editor of the “Street talk” section of the Australian Financial Review

Illustration: Lyndon Hayes/Dutch Uncle

21/08/2013

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.

Words

 
close

 

 

All future Financial Management online content will now be available through the FM app. Download the free app from the Apple App Store, Google Play or Amazon by searching for 'CIMA FM'.

Old issues will still be available in the archive.

  •  
  •  
  •