From The Australian today comes another sad chapter in the history of the MRRT:
THE Gillard government faces a new threat to the estimated $2 billion in revenue it expects to raise this year from the mining tax because the biggest iron ore and coal producers are rapidly building up state royalty “credits” to offset their commonwealth payments.
While BHP Billiton, Rio Tinto and Xstrata did not make any profits-based payments under the new minerals resource rent tax in the first quarter of its existence, they are accruing millions of dollars in unexpected deductions from the tax.
The three mining giants all calculated a zero liability for the MRRT in the July-September quarter, but remain liable for billions in state royalties from iron ore and coal production that are “credited” against the federal tax.
Treasury forecasts for the MRRT revenue, almost halved to $2bn in 2012-13, take into account the offsets for state royalties, but assumed there would be tax revenue.
Under the mining tax negotiated with Julia Gillard and Wayne Swan after the removal of Kevin Rudd as prime minister in 2010, the big three miners insisted on all state royalties being offset against the MRRT and for those credits to accrue at a compound interest rate of 10 per cent.
This whole tax is a schmozzle. The original RSPT was designed to capture a greater share of the higher profits that were missed by the royalties regime because it is largely based upon volumes not prices. Now we have a situation in which, as the boom shifts to the volume phase from the price phase, royalties will grow nicely but will be offset by reduced federal revenues. In short, instead of plugging the gap in the original weakness of the royalty regime, Labor has managed to undermine the ability of the public sectors of the nation in total to capture more of the boom as volumes rise and prices ease in the so-called third phase.
There is an elegant symbolic irony in the 10% compound interest rate charged against the credits. The rationale for this is fair enough. Companies are essentially holding an asset against a future tax liability on their balance sheets which is the result of arcane Australian federalism, not any fault of their own. The 10% presumably reflects the risk free rate plus some margin for an agreed rate of return.
But you may recall that there was a similar calculation in the RSPT. The infamous 6% risk free rate of profits that was the threshold at which the tax kicked in. The miners wanted more and they got it in the MRRT. Now they have a 10% compounded carry between the royalties and the federal tax.
There is a kerfuffle today at the AFR as a cluster of independents attacks the government for its grab of lost super funds:
Independent MPs and the Greens are threatening to block a key policy that helps deliver the Gillard government a $1.1 billion surplus this financial year because they feel ambushed by Treasurer Wayne Swan’s budget fiddling to create a “designer surplus”.
Rob Oakeshott, Tony Windsor, Bob Katter, Craig Thomson, and Greens MP Adam Bandt may oppose the plan to treat $760 million of privately owned superannuation and bank account savings as government revenue.
I don’t agree with the grab either. But these guys all came to power on the back of the MRRT settlement. It’s time they turned their gaze to it and forced it fully into the daylight.
