This morning is the official launch of the mining election campaign. From the AFR:
The government is believed to be looking at curbing business tax exemptions as part of its revenue sustainability drive. This prompted the Minerals Council of Australia to fire a fresh salvo on Tuesday with a new advertisement that tells the government to back off.
Amid industry fears the government could target diesel rebates, the deductability of exploration expenses, and tighten thin capitalisation rules to make it harder for companies to shift profits to lower-tax countries, the miners’ ads which will run on free-to-air and pay TV, highlight the industry’s $20 billion tax and royalty contributions to state and federal coffers.
OK, so mining wants to be elected. Let’s see how their policies are travelling. The Australian is carrying a story this morning about the MRRT:
BHP Billiton has hit back at claims that the failure of the mining tax to hit its revenue targets is because of a design flaw, declaring it inherently volatile and susceptible to commodity price movements and cost pressures.
The chief executives of BHP, Rio Tinto and Xstrata negotiated crucial changes to the minerals resource rent tax, including being able to use the market value of their assets to create their starting base to pay the tax, which will mitigate it in its early years.
The Weekend Australian revealed on Saturday that the tax office will scrutinise the “appropriateness” of the approaches that miners have taken and will work with Treasury to examine why the MRRT raised $126 million in its first six months of operation when it had been forecast to bring in $2 billion over its first year.
But BHP has said that the issue centres on moderating demand from China and a surge in cheap supplies in many markets, weighing on commodity prices while the Australian dollar remains stubbornly high.
“It is in this context that the lower-than-anticipated revenue outcome from the MRRT needs to be understood — namely, when profits fall, MRRT reduces or is not payable,” BHP’s vice-president of government relations, Christian Bennett, told a Senate inquiry into the tax.
“That does not demonstrate a flawed design. Rather, it is evidence that profit-based taxes in the resources sector are inherently volatile and that the response of the MRRT to market conditions is an essential and desirable design feature.”
It’s quite possible that BHP is right. Last year’s heavy falls in bulk commodity prices may rightly have hit MRRT revenues. The media stampede to condemn Labor has definitely played a role in relegating this simple fact to the dustbin of history.
But the degree of fall is the question and we have no way of forming a judgement about that for one simple reason. The tax that BHP designed has so little transparency that we’re all left wondering what kind of price thresholds trigger it. I’ve written about this tax for four years. I follow every bit of trivia surrounding iron ore. And I still have no idea what iron ore price will set it off.
There is also the simple theoretical point that undermines BHP’s argument. So long as market valuations for mines are included in tax calculations – as BHP designed them – then a rent tax by definition cannot work. The rents – those excess profits targeted for extra taxation – are included in the contemporary (market) mine valuation. So taxing them triggers a simple rebated offset as the valuation of the mine falls.
It’s a bit rich therefore for BHP to complain about our lack of understanding of the workings of its own tax. Given it is the author of it, BHP should release the full details of how the MRRT is calculated. The argument that the tax is commercially sensitive is twisted. Commercial sensitivity relates to loss of an advantage or level of security versus competitors not the tax-payer.
We’re all trading in the very uninformed market that BHP designed. Give us a break, BHP, if you want to mess with Australian democracy, give us the tax details.
