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Issue #1582      February 20, 2013

Editorial

The pretend mining tax

The admission last week that the mineral resources rental tax (MRRT) has only raised $126 million in the first six months of operation was another blow to the Labor government’s budgetary woes. In the 2012-13 budget, the government predicted the mining tax would raise $3 billion. With the promise of a budget surplus hanging like an albatross around its neck, the government now has to face the inevitable reality that its promise of “sharing the riches” of the mining boom with the people of Australia has gone up in smoke.

Resources Minister Martin Ferguson, also known as the minister for mining corporations, staunchly defended the poor result and the MRRT, saying the big three mining corporations designed the tax and are happy with it. They have every reason to be happy with it! Rio Tinto, BHP Billiton and Xtrata sat round the table and negotiated the MRRT which was to replace the original super profits tax put forward by the former Prime Minister Kevin Rudd. He was unseated by the mining companies with the help of a right-wing union. Rio Tinto has admitted that it has not paid a cent of the MRRT on all of its highly profitable, multi-billion dollar mining operations.

When the tax was introduced, Treasurer Wayne Swan defended it, saying that “wholly-domestic mining companies paid an effective tax rate of only 17 percent and multinational mining companies paid an effective tax rate of only 13 percent – both dramatically below the headline company tax rate of 30 percent”, on corporate profits. He argued that a “handful of vested interests that have pocketed a disproportionate share of the nation’s economic success now feel they have a right to shape Australia’s future to satisfy their own self-interest.”

We were told the income from the MRRT would fund an increase in government superannuation contributions to low-income-earners; investment in roads, bridges and other infrastructure to assist the mining sector; and the next round of company tax cuts – one percent – as compensation for the increase in superannuation payments which are being raised from nine percent to 12 percent in 0.5 percent instalments over six years. (At the same time the government was demanding that workers forego part of their next wage rise to fund the increase in super contributions!)

MRRT flawed from the start

When the MRRT legislation was passed, The Guardian warned that it was flawed: “There is a big question mark over how much the mining companies will actually pay or be out of pocket. Part of the deal involves the federal government refunding state royalties paid by the mining corporations to state governments. These royalties are based on the volume of production, not profits. When the boom comes to its inevitable end, the government could find itself losing money on the deal.” (Issue #1530, 07-12-2011)

“Australians will receive an appropriate return on their non-renewable resources, which they own 100 percent,” Financial Services Minister Bill Shorten told Parliament when moving the MRRT. He then went on to explain some of its loopholes. “The tax doesn’t apply to the value added by miners through processing. It applies only to profits attributable to the resource at the valuation point just after extraction.” In other words, the tax is not based on the company’s overall profits from coal and iron ore. Companies must calculate the profit made up to the point of extraction. This calculation excludes profits attributable to value added through such processes as washing, crushing, sorting, separating or refining of the coal or iron ore following extraction.

Companies will be able to immediately write-off exploration costs and all new investment and deduct expenses for projects in calculating net profit. “No MRRT will be payable until the project has made enough profit to pay off its upfront investments,” Shorten said. The scope for creative bookkeeping is enormous. The main reason given for the shortfall is that the companies have reduced the original estimates of profit at the point of extraction provided when designing the tax. The deal with the Big Three did not lock in the break down of how the profit is allocated between the point of extraction, washing, sorting, etc.

The only way that the people of Australia, including the traditional Indigenous owners, can share the wealth that the minister correctly points out belongs to them, is for the mining companies to be nationalised. Public ownership would see all profits returned to the public purse – adding hundreds of billions annually to provide quality public health, education, housing, transport, renewable energy, infrastructure, and the social, economic and cultural needs and rights of Indigenous Australians.

Next article – Help Save the Nursing and Midwifery Health Program

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