It’s easy to be filthy rich when you don’t pay tax
A TAX that doesn’t raise a cent?
The sorry saga of the mining tax continues after revelations that Australia’s big three miners - BHP Billiton, Rio Tinto and Xstrata - paid not a single cent in the first three months of this financial year.
No one emerges as a winner in this political stoush; not Wayne Swan, not Joe Hockey and definitely not taxpayers, the ultimate owners of the nation’s precious mining resources.
Before the price bonanza, miners too had been calling for reform of state royalties, pointing out that a fixed tax on volumes was unfair when prices were low.
Of course, they weren’t so bothered when prices skyrocketed.
And so it was in May 2010, when, amid a resurgent commodity price boom, Kevin Rudd announced a resource super profit tax admittedly after failing to consult with industry and with significant drawbacks in its design.
Miners fought back, launching one of the most audacious con jobs ever on the Australian public, spending $22 million on advertising claiming the mining tax would destroy jobs and investment.
It was the nail in the coffin of Kevin Rudd’s prime ministership and Julia Gillard came to power, immediately agreeing to massive concessions on the mining tax.
The original mining tax was supposed to apply at a rate of 40 per cent on profits above a certain level.
This headline rate was cut to 30 per cent, plus a generous new deduction for the “value added” by miners in the mining process, which took the effective rate of the tax down to 22.5 per cent.
There were other costly concessions: A more generous starting base for deductions and rebates for all state royalty increases.
Estimates of the tax to be raised were dramatically scaled down by about $60 billion over 10 years.
So taxpayers have a right to be concerned the tax is now raising zilch.
It could have raised so much more over the long term if a lily-livered Government hadn’t backed down to bully boy - and girl - miners threatening to take their bat and ball and play offshore.
But in taking up the cudgels against the tax’s lack of revenue, the shadow treasurer, Joe Hockey, is being disingenuous.
If Hockey had his way, the tax would never raise a cent, the Opposition having vowed to scrap the mining tax but keep massive spending promises attached to it.
And it was the Opposition that joined forces with the miners against a “great big new tax”.
Because, for all its intricacy, the mining tax is still a good idea.
Applying on profits above a certain level, it captures a bigger slice of the action in good times for the ultimate owners of the commodities - the Australian people - while also sheltering mining companies from tax when times are not so good.
As taxes go, it is an efficient one.
But it is hard to quantify and prone to sharp swings in commodity prices.
As any business person knows, profits depend crucially on incoming revenue.
Mining revenue took a hammering in the September quarter as iron ore prices slumped from about $US140 a tonne to about $US85 a tonne.
They have since come back up to about $US120 a tonne.
Usually when commodity prices fall, so too does the dollar, as the prospects for the economy look less rosy.
But the Australian dollar has remained stubbornly high, above $US1, and this has hurt mining profits too.
As a quirk of international finance, commodity export contracts tend to be written in US dollars.
When the dollar is high and Australian mining companies go to exchange their US dollar profits into Australian dollars they lose out. It is a direct hit to their bottom line.
This combined revenue hit meant mining companies haven’t hit the profit level needed to trigger the mining tax.
Of course, the Government’s concessions mean this trigger point is now much higher than it might have been.
It could all change quickly. If iron ore prices returned to $US140 or more a tonne, the tax could soon be reaping billions of dollars of revenue.
But this, in turn, depends on many variables: China’s capacity for growth; the enduring euro crisis; the US elections; you name it.
As Frank Drenth, the executive director of the Corporate Tax Association, put it: “The mining tax is like a box of chocolates, you never know just what you’re going to get.”
$0: Revenue raised by the mining tax in its first three months.
$2 billion: What Treasury expects the mining tax to raise this financial year.
$9.1 billion: Treasury’s latest estimate of how much the mining tax will raise over four years.
$13.4 billion: What Treasury forecast in May the tax would raise over four years.
$5.3 billion: What forecasting group Macroeconomics expects the tax to raise over four years
$22.2 million: Cost of the mining industry’s anti-mining tax ad campaign.
$15.4 billion: BHP Billiton’s net profit last financial year, a 35 per cent drop due in part to falling commodity prices.
$US9.8 million: Marius Klopper’s pay last year, a drop of 16 per cent on the previous year.
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