Kate SlackThe super-profits tax: An update
June 29th 2010 09:42
Still the cause of significant debate, this coming Friday marks two months since the resource super-profits tax was announced. It has also been 2 weeks this Thursday since I made comment on the issue. So, what has happened with regards to this policy in the last two weeks and more importantly what impact has the change in leadership had on negotiations?
The first round of “negotiations” with the Rudd government proved fruitless for both parties even though the government announced that it was prepared to make certain concessions for different projects and resource sectors. The Government was then reported to have accused some in the mining industry of adopting “strong-arm tactics” to achieve their desired results. The mining industry denied the accusation and demanded proof of Mr Swan’s claims. Without willing to point to anyone in particular, the government attempted to shift the media’s emphasis towards their consultation efforts. Treasury claimed that 265 hours of direct consultation had been completed by its staff and the Resource Tax Consultation Panel had discussed the matter with 26 companies. Overall in the consultation process Mr Swan was quoted in The Australian on Monday 21 June 2010 as saying:
"So far, over 600 representatives from around 366 companies, industry and tax associations, financiers and states have participated in the consultation process. Unfortunately, at the same time, some companies and lobbyists have been waging a very public scare campaign. It is not surprising that certain mining identities have poured millions of dollars into advertising campaigns making a series of claims which have turned out to be false, rather than simply admitting to Australians that they do not want to pay them a fairer price for their non-renewable resources. As Treasurer, I cannot sit idly by and watch these permanent windfall profits simply walk out the door. That’s the debate, and it is a debate which will run through right until the election."
At this point in time it is obvious that Mr Swan certainly expected the issue to not be put to bed well before the election despite Labor MP’s calling for the dispute to be settled by August. Also at this point Mr Swan maintained his steadfast commitment to the 40 per cent rate of tax. Another government stumble was revealed on 22 June 2010 when the Prime Minister’s office confirmed that the government failed to seek advice from the Solicitor-General regarding its ability to bind future parliaments to its plan to pay compensation to miners under the super profits tax plan. The government’s practices were therefore yet again brought into question as consultation with the Solicitor-General is a standard practice particularly when complicated legislation is being framed. The significance of this failure was highlighted when the opposition vowed to overturn the resources super profits tax if passed, when it returned to government. If the Rudd government had have consulted their legal counsel they would have been informed that the doctrine of parliamentary sovereignty applies to this tax meaning that no parliament can bind a future parliament which gives the next parliament plenty of room to overturn such a tax.
Meanwhile, the government announced that it was willing to compromise in so far as allowing the coal-seam gas industry to operate under a revised version of the petroleum resources rent tax. The Australian reported on 22 June 2010 that, “Under the proposed deal, the new tax rate would also apply to future offshore petroleum projects and the giant North West Shelf liquefied natural gas project.” The difference between the super profits tax and the petroleum resources rent tax (PRRT) is the point at which the tax kicks in. Under the PRRT, the 40% tax is intended to accrue at 5% above the long-term bond rate which is approximately 6%. In comparison the super profits tax accrues when the profits reach the bond rate. Despite this concession the Minerals Council of Australia continued to argue that the 40% rate of tax was inappropriate for minerals but was competitive for the oil industry. It based this argument on results collated by KPMG which suggested that returns from iron ore, black coal, nickel, copper and gold would all decline by between 47 and 79%. The results also implied that bauxite returns would increase by 41%.
Throwing a spanner in the works mid week, the Treasury chief Ken Henry attempted to persuade tax consultants and economists to “put down their weapons and get behind proposals such as the resource super profits tax”. Despite the governments concession and Mr Henry’s attempt to shift the debate, Mr Forrest demonstrated his unwillingness to concede and was quoted in the Australian as saying that the tax was “now officially dead…if it proceeds forward it will look nothing like that dreadful economy-smashing tax.” Discrediting the basis upon which Mr Henry attempted to shush economists, Canada’s leading tax authority, Jack Mintz advised the Australian School of Taxation conference that the tax review conducted by Mr Henry “failed to recognise how its recommendation could discourage investment in mining much more than for other industries”. And then Rudd’s leadership was overthrown…
One of Prime Minister Gillard’s swiftest moves in her new role was to promise a more ‘genuine’ form of negotiations and pull the government’s $38.5 taxpayer-funded ad campaign supporting the new tax. Presented to the mining industry as an olive branch for the continuation of the negotiations under her leadership, it was accepted and the level of good faith offered by the government was matched by the mining industry when it too announced its arrest of its ad campaign.
If the government decided to hedge its bets and bank on being re-elected the tax may pass after the closure of the polls. This is because Senator Bob Brown informed Mr Forrest on Tuesday 22 June 2010 that “we [the Australian Greens] are a social justice party as well as an environmental party. The country’s wealth needs to be shared.” (The Australian Greens would prefer a 50 per cent tax rate) This plan is of course dependant on two big ‘ifs’: 1) that the Labor party is re-elected and; 2) that the Australian Greens hold the balance of power in the Senate. This was a fate the party decided was not worth the gamble under Rudd. This plan is unlikely to be adopted considering that on 28 June 2010 the Sydney Morning Herald reported that the “Gillard government plans to end the war with the mining industry this week”. Details of how this would be achieved were disclosed by The Herald to be largely the same as those Mr Rudd was preparing to announce and the close of last week. “These were designed to address the concerns of the coal seam gas industry by reshaping the tax to more closely resemble the petroleum rent and resource tax, which applies to offshore oil and gas. The rate at which a super profit is defined would increase from 6 per cent to 11 per cent. The government would drop $1 billion in exploration rebates and taxpayer-funded write offs for failed ventures, and change the point in the production process at which the tax is levied.” The Sydney Morning Herald revealed today that Ms Gillard wanted the mining tax debacle resolved by the end of this week. If it’s not the mining industry have threatened to lift the freeze on the ad campaign and will reinstitute it. Above all, it is most likely that Gillard will push as hard as possible for a deal even if it means making more concessions than Rudd was prepared to make for few other reasons than to demonstrate her control and leadership capabilities.
The first round of “negotiations” with the Rudd government proved fruitless for both parties even though the government announced that it was prepared to make certain concessions for different projects and resource sectors. The Government was then reported to have accused some in the mining industry of adopting “strong-arm tactics” to achieve their desired results. The mining industry denied the accusation and demanded proof of Mr Swan’s claims. Without willing to point to anyone in particular, the government attempted to shift the media’s emphasis towards their consultation efforts. Treasury claimed that 265 hours of direct consultation had been completed by its staff and the Resource Tax Consultation Panel had discussed the matter with 26 companies. Overall in the consultation process Mr Swan was quoted in The Australian on Monday 21 June 2010 as saying:
"So far, over 600 representatives from around 366 companies, industry and tax associations, financiers and states have participated in the consultation process. Unfortunately, at the same time, some companies and lobbyists have been waging a very public scare campaign. It is not surprising that certain mining identities have poured millions of dollars into advertising campaigns making a series of claims which have turned out to be false, rather than simply admitting to Australians that they do not want to pay them a fairer price for their non-renewable resources. As Treasurer, I cannot sit idly by and watch these permanent windfall profits simply walk out the door. That’s the debate, and it is a debate which will run through right until the election."
At this point in time it is obvious that Mr Swan certainly expected the issue to not be put to bed well before the election despite Labor MP’s calling for the dispute to be settled by August. Also at this point Mr Swan maintained his steadfast commitment to the 40 per cent rate of tax. Another government stumble was revealed on 22 June 2010 when the Prime Minister’s office confirmed that the government failed to seek advice from the Solicitor-General regarding its ability to bind future parliaments to its plan to pay compensation to miners under the super profits tax plan. The government’s practices were therefore yet again brought into question as consultation with the Solicitor-General is a standard practice particularly when complicated legislation is being framed. The significance of this failure was highlighted when the opposition vowed to overturn the resources super profits tax if passed, when it returned to government. If the Rudd government had have consulted their legal counsel they would have been informed that the doctrine of parliamentary sovereignty applies to this tax meaning that no parliament can bind a future parliament which gives the next parliament plenty of room to overturn such a tax.
Meanwhile, the government announced that it was willing to compromise in so far as allowing the coal-seam gas industry to operate under a revised version of the petroleum resources rent tax. The Australian reported on 22 June 2010 that, “Under the proposed deal, the new tax rate would also apply to future offshore petroleum projects and the giant North West Shelf liquefied natural gas project.” The difference between the super profits tax and the petroleum resources rent tax (PRRT) is the point at which the tax kicks in. Under the PRRT, the 40% tax is intended to accrue at 5% above the long-term bond rate which is approximately 6%. In comparison the super profits tax accrues when the profits reach the bond rate. Despite this concession the Minerals Council of Australia continued to argue that the 40% rate of tax was inappropriate for minerals but was competitive for the oil industry. It based this argument on results collated by KPMG which suggested that returns from iron ore, black coal, nickel, copper and gold would all decline by between 47 and 79%. The results also implied that bauxite returns would increase by 41%.
Throwing a spanner in the works mid week, the Treasury chief Ken Henry attempted to persuade tax consultants and economists to “put down their weapons and get behind proposals such as the resource super profits tax”. Despite the governments concession and Mr Henry’s attempt to shift the debate, Mr Forrest demonstrated his unwillingness to concede and was quoted in the Australian as saying that the tax was “now officially dead…if it proceeds forward it will look nothing like that dreadful economy-smashing tax.” Discrediting the basis upon which Mr Henry attempted to shush economists, Canada’s leading tax authority, Jack Mintz advised the Australian School of Taxation conference that the tax review conducted by Mr Henry “failed to recognise how its recommendation could discourage investment in mining much more than for other industries”. And then Rudd’s leadership was overthrown…
One of Prime Minister Gillard’s swiftest moves in her new role was to promise a more ‘genuine’ form of negotiations and pull the government’s $38.5 taxpayer-funded ad campaign supporting the new tax. Presented to the mining industry as an olive branch for the continuation of the negotiations under her leadership, it was accepted and the level of good faith offered by the government was matched by the mining industry when it too announced its arrest of its ad campaign.
If the government decided to hedge its bets and bank on being re-elected the tax may pass after the closure of the polls. This is because Senator Bob Brown informed Mr Forrest on Tuesday 22 June 2010 that “we [the Australian Greens] are a social justice party as well as an environmental party. The country’s wealth needs to be shared.” (The Australian Greens would prefer a 50 per cent tax rate) This plan is of course dependant on two big ‘ifs’: 1) that the Labor party is re-elected and; 2) that the Australian Greens hold the balance of power in the Senate. This was a fate the party decided was not worth the gamble under Rudd. This plan is unlikely to be adopted considering that on 28 June 2010 the Sydney Morning Herald reported that the “Gillard government plans to end the war with the mining industry this week”. Details of how this would be achieved were disclosed by The Herald to be largely the same as those Mr Rudd was preparing to announce and the close of last week. “These were designed to address the concerns of the coal seam gas industry by reshaping the tax to more closely resemble the petroleum rent and resource tax, which applies to offshore oil and gas. The rate at which a super profit is defined would increase from 6 per cent to 11 per cent. The government would drop $1 billion in exploration rebates and taxpayer-funded write offs for failed ventures, and change the point in the production process at which the tax is levied.” The Sydney Morning Herald revealed today that Ms Gillard wanted the mining tax debacle resolved by the end of this week. If it’s not the mining industry have threatened to lift the freeze on the ad campaign and will reinstitute it. Above all, it is most likely that Gillard will push as hard as possible for a deal even if it means making more concessions than Rudd was prepared to make for few other reasons than to demonstrate her control and leadership capabilities.
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