Labor have brought the potential of another mining tax to the fore, however they have put consultation with the industry in its development on the agenda.
In an interview with Fairfax earlier this week, Labor leader Bill Shorten has highlighted the party’s plan to devise a new mining tax, using the failed examples of its predecessors as a lesson in what not to do.
It comes only months after the previous mining tax, Julia Gillard’s Mineral Resource Rent Tax (a watered down version of former PM Kevin Rudd’s maligned Resources Super Profit Tax) was defeated in the Senate and abolished in September.
When the MRRT was introduced by the Labor government in 2012 mining lobbyists argued the tax was highly complicated and discriminatory as it focused on iron ore and coal miners of a certain profitability level, at a rate of 22.5 per cent.
However, the tax included rules that allowed miners to use prior capital spending as a tax deduction, which ensured few companies made payments, and even saw some like BHP come out ahead by using tax credits.
In the half year ended 31 December 2012 it paid US$ 78 million for the MRRT, however it actually came out ahead by US$ 462 million in the half year ended 31 December 2013 thanks to a series of offsets
“The Group expensed US$ 29 million of MRRT in the period (31 December 2012: benefit of US$ 62 million; 30 June 2013: expense of US$ 114 million). This was offset by the remeasurement of deferred tax assets associated with the MRRT, which reduced taxation expense by US$ 491 million (31 December 2012: increase of US$ 140 million; 30 June 2013: increase of US$ 207 million),” BHP explained.
It is understood that this is in part due to concessions which allow miners to deduct the market value of existing assets over many years instead of subtracting the book value over five years.
This means large investments the miner made in operations at a time when commodity prices were at their peak can be used to offset their liabilities.
Added to this is also around $1.7 billion in tax credits that both Rio Tinto and BHP accrued this time last year, which allowed them to offset the mining tax, although they do not affect the levels of company tax they pay.
Due to movements like this the MRRT only raised $126 million in its first six months, nowhere near the $2 billion forecast for the financial year 2012-23, and generated only $600 000 for the June quarter just passed, again short of the $150 million forecast.
Yet this was still seen an improvement to the former RSPT which aimed to slug miners at a rate of more than 40 per cent, yet failed to raise the billions forecast, putting the government in an economic blackhole.
One of the major impediments to the development of the original mining tax was the lack of consultation with the mining industry, which led to a huge media campaign against Kevin Rudd and the tax, and played a part in his ousting.
Now Bill Shorten has planning to introduce the third iteration of a mining tax, but claims he has learnt from the mistakes of his predecessors.
Shorten told Fairfax that unlike the flawed introduction of the super tax, his party would undertake serious consultation with the industry rather than hijack it.
He has called for business input, and dispassionate discussion, on any policy developed.
This is little surprise for industry, after Shorten declared at the time of the MRRT abolition that he would never bring back the tax repealed by parliament.
"The mining tax that was repealed, we won't be bringing back," he told Adelaide radio 5AA at the time.
"There are lessons out of the mining tax – before you do anything, work with the states and work with industry – no surprises," Shorten said.
However with the peak of the mining boom well and truly gone, it is unknown how the Labor party, if elected, will construct a proposed mining tax and the income that can be generated from said tax.
Image: ABC/Getty/ Stephen Postles