I was at a pub a couple of weeks ago and a friend asked my prediction about the election. Not much into making predictions I speculated that Abbott would do better than anyone expected and the ALP were running a campaign that could ruin them. One of my other friends jumped in and said, ‘it’s the tax, the mining tax, the idiots should never tax the one thing that makes us rich’.
An interesting debate followed that only ended when someone reminded me that it was ‘my shout’. Being a Saturday night and with the footy on the big screen, I think we simultaneously decided that this discussions about tax do not make for an ideal night out.
While the country remains in political limbo and the power brokers are cutting deals, the mining tax is one of those issues that seem to be bubbling below the service.
Given that the ALP are bruised and battered from the campaign and the Coalition promised to ‘axe the tax’, how should the Independents deal with the proposed Mining Super Profits Tax?
Despite the fear campaign of the mining lobby and the accusations that the tax would turn us into a socialist haven, Julia Gillard has said that she won’t back away from the tax. This is a welcome sign as it is an important reform that needs to be seen through and implemented appropriately.
The question is whether there is room for improvement and whether the Greens, who support resource rents, can encourage the Independents to push this along and as well as ensuring the potential ALP government review its structure with the aim of longer-term benefits to Australia. With independent Rob Oakeshott promoting a more collegial approach between the two parties and Tony Abbott himself agreeing that this would be a good thing, there is even a possibility that the Coalition could be convinced that such a tax would be in Australia’s national interest.
Mining, like most industries, has both an upside and downside. While the economic benefits do flow into the community in the short term, we should not forget that the environmental consequences are severe, nor the fact that mining exports drive up the exchange rate and making other Australian industries less competitive on the international stage – a process that has been described as ‘Dutch Disease’. The result is that all our economic eggs are placed in one basket posing a real threat to our long-term economic security.
The Independents should make certain the resource super profits tax be pursued as it would provide an important opportunity to ensure that the benefits gained are shared more broadly while minimising the negative impacts.
Why would I argue this?
Contemporary Australian governments seem to be confused over their role in managing our economy. While tax cuts are great for funding overseas holidays, there is the need to adequately fund the very things that allow our community to function: roads, schools, hospitals, police, lifeguards - the list goes on.
Despite this, successive Australian governments have ignored infrastructure investment – with the National Broadband Network the first real venture in decades. The Howard Government made an art form of this introducing politically expedient tax cuts ahead of any long term planning. This was particularly the case during the initial mining boom where, according to former ANZ Chief Economist and now with the Grattan Institute, Saul Eslake, Howard instigated tax cuts that squandered the $283 billion in windfall gains.
Simultaneously, we seem to be seeling of our most valuable resources like we were running a garage sale. From water rights to minerals, the policy seems to written by special interest groups who access resources for basement level prices.
Consequently, if we sum up the resource policy mix of Australia, it looks like this: giving away money we can ill-afford while cheaply flogging off the family silver.
It is for this reason that the Independents should revisit the Henry Tax Review including the mining tax and attempt to understand what is the fair value of our finite resources.
One way to do this is to introduce the proposed resource super profits tax: which is an example of a resource rent tax placed on the ‘excess’ profits from selling mineral resources. The petroleum resource rent tax was developed in the 1980s to tax the North West Shelf oil and gas developments and extended to Bass Strait in the 1990s. It is a progressive tax in that it applies to ‘excess’ profit: the greater the profit the higher the tax paid. Importantly, it does not act as a disincentive to investments despite what the mining industry lobbyists’ claims as it only kicks beyond ordinary earnings.
The question we must answer is how can the resource tax be improved?
Key here is a National Resources Fund that not only focuses on improving infrastructure but is also about the future of the Australian community. This was the fundamental flaw in the original Rudd/Swan announcement: despite directing $700 million raised towards infrastructure, they provided no evidence that the resource rent tax will be directed towards investment into Australia’s future.
Such a National Resources Fund would be managed by the Future Fund with proceeds split: most flowing into an sovereign account that would ensure help stabilise the Australian dollar to a more realistic level, while the rest would be invested in community services including low-carbon technologies, education, health and transport.
We can turn to Norway’s Petroleum Fund (NPF) for evidence that such schemes work. The NPF manages the large (and often variable income) from the oil boom to ensure benefits to future generations. Annually, around 5 per cent of the income from this fund is used for budgetary purposes, most is held overseas to ensure the exchange rate does not become overvalued not does the economy overheat.
In addition, the money could flow into providing appropriate compensation for particular regions and local communities that now carry the risks and burdens from mining. In addition to the pressure on the resources of small towns, we also need to recognise that mining has real adverse health and environmental impacts these communities – they should be compensated appropriately. Ignoring the issue means that we are treating large parts of Australia as a quarry.
In this way, the Independents could promote the current proposal drafted by the Australian Greens to use the funds to secure the longer-term economic health of our nation while ensuring a more equitable spread of the windfalls.
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