The planned Minerals Resource Rent Tax has generated a lot of heated debate but remarkably little sensible analysis.
The planned Minerals Resource Rent Tax has generated a lot of heated debate but remarkably little sensible analysis.
ONE of the common laments of modern politics is that intelligent, in-depth debate has been lost to the all-powerful 10-second sound bite.
This is usually attributed to the rise of electronic media, with the recent emergence of Twitter and other social media just reinforcing this trend.
Politicians who mastered the art have added to the phenomenon.
Federal opposition leader Tony Abbott, with his unrelentingly negative campaign style, can always be relied upon to deliver a snappy quote for the assembled media.
Treasurer Wayne Swan is much the same, ensuring he always has a catchy line to try and cover even the most complex economic and financial issues.
These thoughts lead me onto the debate over the planned Minerals Resource Rent Tax; by any measure, one of the most significant tax reforms considered in this country.
It’s worth remembering how we ended up with the MRRT.
The tax in its current form was born at a time of political crisis. It followed the ill-fated Resource Super Profits Tax proposal, which set a new benchmark for poorly planned, rash policy.
The RSPT played a big part in bringing to an end the leadership of then prime minister Kevin Rudd.
His successor, Julia Gillard, vowed to quickly bring an end to the controversy; the result was the MRRT, which was thrashed out very quickly in negotiations with three mining industry giants – BHP Billiton, Rio Tinto and Xstrata.
With their support, Ms Gillard and her government colleagues must have thought the debate was over. How wrong.
The government has come under criticism from all sides. Greens MP Adam Bandt wants the tax extended beyond iron ore and coal to other commodities like gold.
Independent MP Tony Windsor wants some of the proceeds locked up in studies into the impact of proposed coal seam gas developments.
And perhaps most importantly, a broad alliance of junior and mid-cap mining companies has started to challenge the construction of the tax.
Most mining companies would prefer the tax didn’t exist at all, but they must acknowledge – privately if not publicly – that some form of ‘resource rent’ tax is inevitable.
It is inevitable because of the extraordinary profits the industry is generating, in large part as a result of the large and sustained rise in commodity prices.
As Resources Minister Martin Ferguson pointed out last week when the MRRT legislation was introduced: “FMG’s latest profits showed a 76 per cent surge to a net profit of $985 million. Last year Rio made a record $14.32 billion profit, a record it’s on track to break this year. BHP Billiton’s $22.48 billion in profits for the year ended June 2011, an increase of 86 per cent.”
The continued big investment in iron ore and coal projects to some degree confirms the rationale for the tax.
It is designed to tax ‘rents’, the super profits over and above normal profits.
There is an alternative explanation, however, flowing from the work undertaken by accounting firm BDO and iron ore miner Fortescue Metals Group.
They believe larger mining companies – BHP, Rio, Xstrata, even FMG itself – will pay almost no tax for the next five years because of flaws in the design of the MRRT, including the ability to amortise historic capital investments against future tax liabilities.
This analysis concludes that smaller miners, including Perth company BC Iron, will actually pay more tax than the big end of town.
This suggests that measures designed to protect smaller mining companies – notably, a tax-free threshold of $50 million and a phased increase up to $100 million – will be inadequate.
Mr Swan responds by insisting that the Treasury projections are correct, and that the big miners will pay the bulk of the MRRT. But he hasn’t released the assumptions underpinning the Treasury estimates, so that they can be subjected to scrutiny.
And just as worrying, he has attacked FMG boss Andrew Forrest, implying it’s all a ruse to cut Fortescue’s tax bill, rather than addressing the issue.
Wouldn’t it be more constructive to instead have an open, robust debate?
