The minerals resource rent tax was the result of political ineptitude and shameless self-interest. And continues to reflect the circumstances of its birth.
The original resource super profits tax was excellent policy, abysmally communicated by the Rudd government, and particularly by Wayne Swan. It stands as a how-not-to guide to economic reform. The execution of Kevin Rudd and the shabby circumstances of the deal to replace the RSPT with the MRRT — in which three multinational tax-dodging mining companies and one of greatest rentseekers in the Australian policy environment, the Minerals Council of Australia, dictated the nature of a tax to a politically vulnerable government — have dogged it ever since.
Along with climate change and asylum seekers, the mining tax was identified by the Prime Minister as one of her key priorities when she became leader. More than two years later, it is clear Julia Gillard was no more successful at settling the mining tax than she was in settling the asylum seeker issue. The tax has been revised down twice, such that it will now provide a small fraction of the spending linked to it, and we now know the first instalment of payments have yielded not a cent.
It is true, as the Treasurer pointed out on Monday, that the MRRT revenue was always going to fall along with iron ore and coal prices — indeed, that is the purpose of a profits-based tax, to tax windfalls when they occur, but to reduce tax obligations when revenue falls. And the tax will likely yield some revenue this year, especially given iron ore prices have begun recovering from recent lows.
But it is only appropriate that a tax born out of political desperation should continue to inflict political grief on its architects.
The original RSPT was as far away from “excellent policy” as I can imagine. This was a genuine case of resource nationalisation which could only be expected from a third world economy. Make no mistake – it would have killed mining investment in this country.
Well said Phen. It wasn’t just the communication and preparation problems that rightly gave trouble for the government. It was only one out of very many Henry proposals which was plucked out because it gave Swan the chance to grab easy money. And it was absurd anyway in expecting that the (unlikely-to-be-believed) promise to pay loss making mining ventures out of the Consolidated Fund would be acceptable to the market – any market or any miners.
A resource rent tax is a good way, theoretically, to tax mining ventures for which you set the rules at pre-discovery, or at least pre-licence to mine, stage. Set aside the nonsense about there being “our resources” (nonsense in several ways) why should all business investors be told, in effect, “if you have the luck or good judgment to make more than the profits usually required to induce someone to invest we may – not even “will” according to a pre-existing formula – decide to top up our revenue at the expense of you, the business, and your shareholders, many of them indirectly self-funded retirees.”
Emergencies such as world wars require special measures which may be a bit rough and ready when it comes to adhering to principle but any major changes to tax law which change the rules on the faith of which people have invested or made other big decisions ought to follow only when some adequate and well debated statement of principle concerning the justifications for and implementation of change have been formulated and widely agreed.
It is not as though we are a tiny banana republic in the Caribean which has one major business which was acquired by good fortune. Even in such cases it is fair to allow the rich to behave properly, like the Clunies-Ross family wrt the Cocos Islands (was it not?) or Stanley Baldwin circa 1917 who not only supported big boosts in death duties but made a big gift of his own wealth to the UK Treasury. Not applicable today in Australia but let’s not pretend that the have-nots being able to take what they want from the haves simply because they have the numbers, or the have-quite-a-lots (such as Labor MPs, union leaders and senior public servants) to do the same to harvest votes or in-group prestige is good morality. Given the realities of necessarily self-serving people we, if we are or intend to be self-funded retirees, ought to be thankful that some mining companies stood up against the original resource rent tax proposal and that banks, for example, our big and powerful enough to carry weight on matters of policy (even if it let’s them off the hook when they pay executives unnecessarily handsomely).
FFS you two – are you saying a government shouldn’t vary business taxes?
No, of course not saying that (nice strawman though). Effective 40% nationalisation of all existing and future mineral profits is a helluva lot more than a variation in a business tax. It’s a fundamental rewriting of the parameters that an investing business would have reasonably have expected.