The big mining companies are laughing all the way to the bank thanks to the Gillard government. A report published just before the introduction of the Minerals Resource Rent Tax (MRRT) has revealed that revenue from the new tax will fall $5.5 billion short of government predictions in the first 3 years. The shortfall flows from both the slowdown in China as well as the flawed nature of the MRRT itself.
Andrew ‘Twiggy’ Forrest has been jumping out of his skin to boast that despite being one of the wealthiest mining magnates in the country, he will pay very little of this tax. This coincides with his launch of a high court challenge to the MRRT, which according to most reports seems doomed to fail. He clearly has enough money to spare on costly court cases.
When Kevin Rudd was ousted as Prime Minister following a multi million dollar campaign by the mining industry, his proposed Resource Super Profits Tax (RSPT) was replaced with the MRRT. While the RSPT was modest from the start, Gillard’s back room deal with the big mining companies represented a massive back down. We warned at the time that “it is likely that even more changes will be made in their favour”. This has unfortunately been proven correct.
More concessions made by ALP
The MRRT came into effect on July 1 and covers only iron ore and coal. The final version is even more generous to the mining industry than the original announcement from Gillard.
Mining companies with profits under $75 million per year will be exempt, up from $50 million. Even then, not a cent will be paid until enough profit has been made to cover the upfront investment. The headline rate of 30% (down from 40% under the RSPT proposal) is now in fact 22.5% when an ‘extraction allowance’ is factored in. On top of this a litany of deductions and credits will be granted, including a full credit for state royalties, which render the MRRT a joke before it has even got off the ground.
While the mining industry continues to receive billions of dollars in tax payer funded hand outs each year, coalminers will likely pay nothing in tax for the first 5 years. A UBS report has predicted that the MRRT will generate as little as $4.78 billion over the first 4 years compared to government figures of $13.4 billion. That is just 35% of Treasury estimates. By 2016/17 UBS predict that the annual take from the MRRT will be just $201 million.
This would leave the federal budget in dire straights. In order to fund the increases in superannuation and tax cuts that have been introduced alongside the MRRT, and keep the promised budget surplus, the federal government will be forced to look for ‘savings’ (read ‘cuts’) in other areas.
You need only look at the last federal budget to get a taste of what this will mean, with over $30 billion of spending cuts and up to 4,200 public sector job losses. It is clear that the ALP government expects ordinary working people to pay for any downturn while the super rich resource companies catch a free ride.
BHP reported profits of $21.7 billion in 2011, while Rio Tinto posted $6.8 billion over the same period. This obscene wealth has been creamed off the exploitation of workers and our environment. As the federal government themselves point out “these are non-renewable resources which can only be extracted once”. Yet the ALP government is set on seeing the mining industry continue to rake it in at our expense.
Imagine how much revenue could be raised if these profits were taxed at a higher rate. We could use this immense wealth to invest in socially useful projects such as renewable energy. To give one example, the 10,000 jobs that have been lost since 2004 from the major car companies and associated suppliers could be reversed with factories being retooled to produce wind turbines and solar panels.
Australia: the best place to be a mining boss
The big resource companies and their mouthpieces in the press have repeatedly threatened a flight of capital over the introduction of the MRRT. While workers are demonised for fighting for pay rises to address the rising cost of living, governments bend over backwards to appease the demands of these industry giants.
With all the talk of ‘sovereign risk’ and recent reports of the looming end of the mining boom, you would be forgiven for believing Tony Abbott’s claim that “now it is safer to invest in Argentina, in Tanzania, in Zambia, in Ghana and in Botswana than it is to invest in Australia”. However, despite this claim a leading US mining consultancy has ranked Australia as the best place to be a mining boss for the last 3 years in a row. This is largely thanks to the policies of the ALP.
While the pace of growth of mining investment has more than halved in the 6 months to April this has little to do with the MRRT. Rather it is the crisis engulfing Europe, the continued slowdown in China and falling commodity prices that is leading the big resource companies to reduce investment. That said they are still on track to make a killing in the coming year.
While strengthening the MRRT would be a start the only way to really ensure that the wealth generated by the mining boom is used to benefit the majority of people is to bring the mining industry into public ownership under democratic control. As long as the big resource companies are left in the hands of the profiteers they will continue to exploit people and the environment.
By David Suter