I’ve spent a delightful morning reading all about the fall-out from the mining tax. Both The Australian and the Financial Review have several stories – all critical of the tax and Wayne Swan.
A new meme seems to be developing – it’s not all Gillard and Swan’s fault and things could have been worse. Laurie Oakes tells a version of the story in the Daily Telegraph:
It is claimed that Gillard, Swan and Resources Minister Martin Ferguson conducted the negotiations themselves, and that officials from Treasury – “the ones who really understood the tax being discussed”, said one newspaper report during the week – were shut out of the room.
According to this account, the big three mining companies effectively authored the new tax themselves, and were able to ensure they paid as little as possible. Not surprisingly, Tony Abbott and Co have had great fun with this version of events, at Swan’s expense.
In fact, it is not true that Treasury officials were shut out of the process.
Swan’s chief advisers and the number-crunchers from the mining companies assembled in a ground floor room in the Treasury building with all the Treasury experts.
Spreadsheets were projected on the wall and discussed line by line. Information was compared and debated. Numbers were run. Assumptions were tested. The session went late into the night. “Exhaustive and exhausting,” is the way one participant describes it.
That may be true – but there is a huge difference between doing some modelling and negotiating the tax design. If true, it simply reinforces my view that Treasury didn’t understand the mining industry. The difficulty I have with this story is that it seems inconsistent with Treasury Secretary Martin Parkinson’s testimony to the Senate Estimates committee this week. He told the Senate that Treasury hadn’t known what value the miners would place on their assets. That explanation sounds right – whether it is a reasonable excuse I don’t know – but that suggests the modelling wasn’t as exhaustive and exhausting as suggested.
The second part of the ‘not all Gillard and Swan’s fault and things could have been worse’ argument appears in the AFR.
Industry figures said that had the original Resources Super Profits Tax been implemented, the government would be sending the mining companies cheques rather than lamenting the small income from the Minerals Resource Rent Tax.
Under the RSPT, the government would have had to refund existing state royalties paid by coal companies – including BHP Billiton, Xstrata and Peabody – even though a plunge in coal prices meant they would not have paid any of the super profits tax.
That story is so funny I laughed out loud. Unfortunately I don’t think it’s correct. It assumes that the only reason the MRRT isn’t raising revenue is because of the decline in coal prices. But the reasons are more complex than that – first the miners are depreciating the market value of their assets creating huge depreciation tax shields. Those wouldn’t have been available under the RSPT that was based on historical cost. Then under the RSPT miners paid tax on returns in excess of the risk free rate, and the States wouldn’t have had any incentive to hike up their royalties. So while it is a good story – and very funny – it is probably not correct.