For a group of pick wielding boof heads mining sure does a hell of a job on its public relations. Such a good job, in fact, it is running rings around the city-slicking bags of fruit who are supposed to understand the services business. What the hell am I talking about? This, from the SMH today:
A new report suggests the federal Treasury used an ‘‘unconventional’’ method in claiming the mining industry paid just 27 per cent tax during last year’s heated debate over the now defunct resources super profits tax (RSPT).
Deloitte Access Economics, in a report commissioned by the Minerals Council of Australia (MCA), found that the minerals industry paid an average tax rate of 41.5 per cent between 2007-08 and 2009-10.
In 2010-11, the industry is expected to pay a record $23.4 billion in taxes and royalties to federal and state governments.
Releasing the findings this morning, council chief executive Mitch Hooke accused the government of using the notion that the Australian public was not getting a fair share of the mining boom as the foundation of an ‘‘undisguised revenue grab’’.
‘‘The government charged the industry with not paying its way,’’ Mr Hooke said in a statement.
Labor justified its position by arguing that charges on mining companies for non-renewable resources had fallen from one dollar in three of profit for the first half decade, down to one dollar in seven, he said.
However, Deloitte has collated ‘‘real world data’’ and established that the royalty and company tax take in the three fiscal years 2007 to 2010 averaged 41.5 per cent with very little variation across those three years.
‘‘Had they properly considered the official data, they could have reached no other conclusion than the effective tax rate of combined royalties and company tax was in excess of 41 per cent,’’ Mr Hooke said.
It is not my goal in this post to gauge the merits of this economic assessment (we will do that later in the week). I simply want to make the observation that, in a public relations sense, here we have a well timed piece of paid-for research by an economic group whose brand carries weight with the pubic, and it’s trashing the Federal Treasury. It is doing so in a preemptive strike against anyone contemplating tackling Dutch disease at its source – mining.
This is masterful piece of media management and ‘thought leadership’ (which does not necessarily make it true). What it is doing is setting out the frame of reference in which any debate will proceed. According to DAE:
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During the 2010 mining tax debate the Australian Government argued that “the amount the Australian community charges mining companies for our non-renewable resources has fallen from one dollar in three of profit for the first half of the decade, down to one dollar in seven today”. The key tax-take ratios were summarised by the Government in two charts (reproduced in Chart 1), showing royalties paid by the mining sector accounted for only 14% of profits in 2008-09, and that royalties plus company taxes were 27% of profits.
…The MCA survey data has been used to calculate “tax-take” ratios broadly comparable with those published by the Government. While the official measure used resource profits (or “rents”) as the denominator in its tax-take ratios, the analysis below instead uses taxable income (or the corporate tax base) before deducting royalties. While these are different concepts, the differences between them have been relatively small over most of the last decade.
Chart 2 shows survey results for both the royalties and total tax tax-take indicators as calculated across all the surveyed larger miners. In the most recent survey year (2009-10), the royalty tax take was 17.5%, while the total tax take (royalties plus company tax) was 42.2% (Chart 2). This was up from a tax ratio of 40.6% in 2008-09. This latter figure was well above the estimate of 27% headlined in the official figures in the tax debate last year.
Masterfully simple and clear. The miners are paying more than their fair share of taxes. Only a fool would disagree.
Except. None of this is relevant to a discussion about whether or not the miners are earning economic rents. And that’s the point. The level of tax, even if right, tells us nothing about the levels of profits. Nothing about historical rates of return. Nothing about whether or not the non-renewable resource of minerals is being taxed appropriately.
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In short, this study rips mining out of any context in which we might reasonably discuss the appropriate treatment of windfall profits. Mining has won the debate before it has started by defining its rules.
By sad and sorry contrast, the peak bodies of two other sectors that find themselves being evicted from the economy in order to make way for mining have today had the brainstorm that turning on their own staff will improve their prospects. First up, retail. Also from the SMH:
Shop workers’ penalty rates should be cut so the retailers can compete in an increasingly tough market, the industry says.
Australian Retailers Association executive director Russell Zimmerman says paying employees time-and-a-half on Saturdays and double-time on Sundays is not sustainable.
“It is vital that retailers remain competitive,” he told reporters after giving evidence to a Productivity Commission inquiry into the sector.
“We don’t want to return to Work Choices.
“We believe that employees do need some compensation (for working weekends) but it is a seven-day-a-week business and you just cannot compete with the wages they’re paying at the moment.”
The Australian Industry Group will launch an assault on Labor’s industrial relations system today, blaming the Fair Work Act for the country’s feeble productivity growth.
Previously cautious in her remarks about the act and consulted closely by Julia Gillard as industrial relations minister in drafting it, Ai Group chief executive Heather Ridout will tell a workplace conference that after two years, parts of it have been ”found wanting”.
”The idea that the Fair Work Act represents the perfect balance between all the competing interests and should not be altered is simply not sustainable,” she will tell the conference. ”It is common for new, major pieces of legislation to lead to unintended consequences and the Fair Work Act is no exception.
Some microeconomic reform is likely to be of minor benefit, yes. This Labour government has pushed the IR pendulum a little too far back.
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But, hello. It’s not an answer to Dutch disease. And meanwhile, a real answer, beefing up mining taxes and getting relief for their struggling members from the high currency via an SWF, or even the RSPT proposal of tax cuts, is getting more distant by the day.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
