Politics of the mining tax

The case study in the chapter on Interest Groups in the textbook (Chapter 11) discussed the political process by which the Gillard government secured passage through the parliament of its Minerals Resource Rent Tax (MRRT).

The Rudd government had proposed a resources super profits tax (RSPT) of 40 per cent to profits from resource projects after allowing for extraction costs and recouping capital investment and would allow the states to keep their mining royalties and credit those payments to the mining companies (Rudd, K. & Swan, W. 2010, Release of ‘Stronger, Fairer, Simpler – a Tax Plan for our future’, Transcript of Joint Press Conference, http://www.ministers.treasury.gov.au/DisplayDocs.aspx?doc=transcripts/2010/036.htm&pageID=010&min=wms&Year=2-1-&doctype=2). The tax was to apply to earnings above 6 per cent return on capital and would be levied across the board to the mining of various minerals and existing projects.  As we saw in the case study, the mining industry embarked upon a vigorous campaign against the tax, including advertisements in the Australian media to which the government responded with its own advertising campaign.  The handling of this issue by Rudd was one factor in the parliamentary party’s coup in replacing him as prime minister with Julia Gillard.

When Gillard became prime minister she withdrew the government’s advertising and negotiated a compromise agreement on the tax with the three major mining companies – BHP Billiton, Rio Tinto and Xtrata – that the RSPT would be replaced with a MRRT capped at 30 per cent and applied only to iron ore and core. The existing Petroleum Resource Rent Tax (PRRT) would be extended to all Australian onshore and offshore oil and gas projects, including the North West Shelf.  Revenue from the MRRT would be used to fund an increase in the superannuation guarantee from 9 to 12 per cent and a decrease of 1 per cent in the company tax rate.

Independents Oakeshott and Windsor supported the legislation in the House of Representatives.  An amendment by Greens MP Adam Bandt to return the tax to the original proposal was defeated but he then voted for the second reading of the bill which was passed.  Greens amendments in the Senate to levy the tax at the original 40 per cent and to introduce a 25 per cent tax rate for small business instead of the 1 per cent tax cut for big business were defeated by the combined vote of the government and the opposition senators.  The legislation then passed the Senate with the support of the Greens but not the opposition who were rigorously opposed to the concept and content of the bills.

The legislation was seen by the government as a victory for its legislative program.  However, the compromises to the legislation made to gain the support of the ‘big three’ mining companies, a downturn in ore prices and profits and credits for increases in royalties levied by state governments meant that instead of the expected $2 billion projected for its first financial year only $126 million was received in the first six months. The net contribution to the Commonwealth budget was actually $40 million less than that because the mining companies used their mining tax payments to offset their company tax liabilities (Uren D. & Chambers, M. 2013, ‘Julia Gillard blames states for mining state fiasco’, The Australian, 12 February, http://www.theaustralian.com.au/national-affairs/treasury/julia-gillard-blames-states-for-mining-fiasco/storyfn59nsif-1226575767854). 

The Opposition attacked the government for its ‘incompetence’ in the design of the tax.  The government responded that the problems had been caused by low commodity not the design of the tax (Kelly, P. 2013, ‘Mining tax probe is more water torture for Gillard’, 27 February, The Australian, http://www.theaustralian.com.au/opinion/columnists/mining-tax-probe-is-more-water-torture-for-gillard/story-e6frg74x-1226586348900).

Resources Minister Martin Ferguson defended the MRRT as ‘the type of tax the resources sector wanted.  It is a profit based tax’, he said (Lateline, 2013, ‘Opposition continues to question the MRRT’, 13 February, http://www.abc.net.au/lateline/content/2013/s3689988.htm).  On the same day the mining industry placed advertisements in national newspapers arguing against any increases to mining taxes (http://australianpolitics.com/2103/02/13/mining-industry-advertising-campaign-starts-again.html).

On 12 February Greens leader Christine Milne stated that the Greens had been ‘pushing the government hard’ to fix the loopholes in the mining tax and said the question to the ‘prime minister and the treasurer was ‘why won’t you take on the mining industry’ and look at removing the accelerated depreciation provisions, increase the rate of the mining tax and expand its coverage.  She was critical that the government had ‘sold out the Tarkine (Tasmanian wilderness area) to the mining industry…at the behest of the big miners’ and the government ‘had given the go-ahead to expanded coal mining and coal seam gas projects’ (Milne, C. 2013, ‘Transcript: ChristineMilne and Adam Bandt: mining tax’, 12 February, christine-milne-greensmps.org.au/content/transcripts/transcript-christine-milne-and-adam-bandt-mining-tax).  On 16 February minister Ferguson said the government ‘had no intention of walking away from the tax deal struck with the country’s three biggest miners’ and ‘the deal would not be undone’ (ABC 2013, ‘Federal budget update shows $2.4 billion slip’, 16 February, au.news.yahoo.com/latest/a/-/latest/16156776/federal-budget-update-shows-2-4billion-slip).  On 19 February Milne told the National Press Club ‘what has become manifestly clear is that Labor by its actions has walked away from its agreement with the Greens and into the arms of the big miners’ and announced the Greens had ended their agreement to support the Gillard minority government (christinemilne.org.au/events/Christine-milne-national-press-club-speech-australian-democracy-crossroads). On 26 February the Greens and the opposition voted together in the Senate to establish a Senate inquiry into the mining tax.

The saga of the mining tax to date raises several issues associated with political processes discussed in the text book.

The first relates to the political power of the big business lobby (Chapter 11). It is clear that the large mining companies were secured modification to the mining tax to their own advantage and remain active in campaigning against any changes that would increase their tax liabilities.  The question for the government is whether their support for the mining lobby and the mining tax as it currently stands will create political problems electorally.

This leads us to the second issue, the political significance of the mining tax revenue debacle for the government’s electoral standing (Chapter 12, Political polling, pp 410-412). The failure of the tax to deliver the expected revenues leading to public criticism and ridicule from the opposition poured further fuel onto the government’s already poor performance in the polls.  The question is whether the government can maintain its stance on the MRRT in the context of dismal poll results in the lead-up to the federal election which it announced for 14 September 2013.

The third issue relates to the problems that can accrue when a government upsets the minor party that secured and supported Labor’s minority government (Chapter 9, Political parties and party systems, case study, pp 335-338). As we saw above the Greens have already used their status as the minor party holding the balance of power in the Senate to combine with the Opposition to set up a Senate inquiry into the MRRT.  This is likely to further embarrass the Gillard government politically and provide ammunition for the opposition in the lead-up to the September election.  However, the Greens, by maintaining their commitment not to vote against supply or no-confidence motions in the government did not put the government at risk of defeat in the Senate on those issues and on 25 February did vote with the government in the Senate against an opposition motion of no-confidence.

This issue illustrates why it is important to learn how Australian political institutions function so you can understand the complex and inter-related nature of the political processes associated with the development and enactment of public policy. 

Gwynneth Singleton

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