So, the mining executives of BHP, Xstrata and Rio who negotiated the mining tax did not even give the government a face-saving drachma of revenue in their first quarterly payment.
From those firms’ perspectives the negotiation of a settlement of the issue that triggered the downfall of Rudd and accession of Gillard was one of using the ample offsets from earlier investments to minimise the tax they would need to pay. Businesses always have an advantage over the tax office in estimating their future liabilities and so it has been shown.
Originally set to raise $4 billion a year and pared down to $2 billion, the failure of the companies to lodge any tax liability in the first quarter probably means nothing will be raised this year.
But the Schadenfreude from seeing the government once again to be demonstrated to be utterly incompetent should not blind us to the damage the tax does. It places a new impost on new mining activity as well as retrospectively imposing a tax surcharge on existing mines. And while many long-established miners can avoid paying it on existing facilities, the impost on new developments remains.
Although it is a tax that will collect far less than the looters envisaged it will reduce the incentive for new mines by making Australia’s mining fiscal regime among the most onerous in the world and setting mining apart for discriminatory taxation compared with other activities.
China and other fast growing economies have vastly boosted demand for raw materials and Australian mining firms have shown themselves to be expert at supplying that demand cost-effectively. The Government and its advisers have taken the view that mining is a huge pit from which revenue can be extracted at no cost to future activities. Big mistake.
We have a real advantage over many countries in the world because of our political stability etc. but exactions like the mining tax mean that we trade-off government revenue for greater levels of economic activity.
As we have seen with the one-off business tax hit from the monthly tax returns announced in MYEFO, the government’s priority is more revenue, with prosperity way down the list.
It seems that its taxation surcharge on mining will not only sacrifice economic activity but it will also fail to raise much additional revenue.