Keeping the mining tax won’t kill investment
In the past week of parliament, due to action by both sides, the budget deficit will be increased. The abolition of the carbon tax and the inability of the government to end the mining tax will see a larger deficit than was expected. But as a recent report showed, it won’t hinder Australia’s position as a great place for mining companies to invest.
There was a pretty high level of stupidity flying around parliament last week. We had the carbon tax being abolished but the compensation that accompanied it being retained; and we had the government wanting to remove the mining resources rent tax (MRRT) but also get rid of the compensation.
This meant that the government was often using an argument for one that contradicted the other.
For example Liberal MP Sarah Henderson opened her speech on the carbon tax repeal bill arguing that “we are concerned about the cost that this tax is causing to our economy. We are concerned about the way in which the previous Labor government drove up the debt and the deficit”.
This was a rather curious opening attack given the carbon tax raises over $7bn a year. Even if the revenue were to drop once Australia shifted to the European carbon price, it still created a big hole given the government is keeping many compensation measures. In total the cost to the budget was estimated in the legislation to be $7.55bn over the forward estimates.
The day after the carbon tax was abolished however, Eric Abetz told the Senate that “it would be nice to live in a world of magic pudding where we did not have to raise any taxes but could expend a lot of money and spread largesse to the Australian population”.
Largesse brought in to compensate for the carbon price I guess is not one of the ingredients in the magic pudding recipe.
In the same vein, the prime minister, Tony Abbott, told ABC’s AM: “We said that we would abolish the mining tax but we would also abolish the spending that the tax was supposed to fund. You can’t get rid of the tax responsibly without also getting rid of the spending.”
One of the problems with the mining tax was that the spending measures the ALP linked with the tax, such as the schoolkids bonus, the low-income superannuation contribution and the income support bonus, cost more than the tax raised.
So the ALP introduced a tax that raised less revenue than the amount spent on associated expenditure, and the LNP abolished a tax that raised more revenue than the amount spent on associated expenditure.
Australian politics in a nutshell.
With the mining tax remaining in place, the rhetoric that it kills mining investment and jobs will continue. NSW Mining for example has already suggested that “the MRRT has failed to raise any significant revenue for Australian taxpayers and threatens mining investment in NSW”.
They are right, the MRRT has failed to raise significant revenue – a mere $170m in the last financial year, compared to the expected $3.5bn that was predicted when it was introduced.
But it’s an odd argument that a tax which isn’t raising any tax – and thus not costing the industry greatly – is also apparently greatly hurting the industry.
The reality is the MRRT has not cruelled mining investment in Australia.
Last month, mining investment consultant, Behre Dolbear released its annual ranking of countries for mining investment. The report oddly got scant coverage in the media – only Bernard Keane in Crikey gave it any real coverage.
The reason for our fall however was not because of any penalty due to the MRRT or the carbon tax but because Canada, which had been ranked second for the past four years, was given improved rankings in certain areas.
The report marks countries against seven criteria: economic system, political system, social issues, permitting delays, currency stability, corruption and tax regime.
Australia ranked in the top three in all categories, and is ranked highest (or equal highest) for our economic system, social issues, currency stability, corruption and tax regime.
Yes our tax regime, which at the time of this report included both the MRRT and carbon tax, was rated as the best in the world.
The report noted of taxation that in recent times countries have been exploring ways to increase revenue from mineral production. It suggests “the inspiration for these efforts may have been bolstered by Australia’s actions over the past year to increase taxes, both directly and indirectly on mining operations”.
And yet the report actually boosted our ranking on tax regime up three points from 5 to 8, putting us equal best with Canada. Back in 2011 Behre Dolbear did downgrade our tax regime score because the “debate about a minerals resources rent tax … raised uncertainty about its tax policies”.
Given there is no longer any uncertainty about how the MRRT works (and possibly how little impact it has had), Australia’s ranking on tax is now higher than it was in 2010.
The reason Canada improved was because of a jump in its score on “social issues” and “permitting delays”. The main factor for this was Behre Dolbear’s displeasure of “the “Nimby” (Not In My Backyard) syndrome, where personal prosperity outweighs public’s necessity for minerals”.
Whereas it suggests Canada’s situation has improved, the campaigns against coal seam gas in NSW and Queensland (such as the “lock the gate” campaign) saw Behre Dolbear fail to improve our ranking on such issues – though given we scored nine for social issues and eight for permitting delays, there’s not much higher we can go.
Indeed the CEO of Behre Dolbear, Karr McCurdy, wrote in Forbes that “the average time to bring a US mine through permitting and into production remains at over seven to 10 years — significantly longer than resource-rich fellow industrial democracies Canada and Australia”.
Given how linked investment is to the price of the minerals being mined, Australian mining investment has actually held up well since the MRRT (and carbon tax) came into effect: