Lost in a forest of contradictions

Mining entrepreneur Andrew Forrest, it seems, is everywhere. Whether it be discussing mega deals to build dams in Africa, buying Olivia Newton-John’s wellness retreat at Byron Bay or the leasehold of the Lizard Island resort on the Great Barrier Reef, or turning his hand to the pharmaceutical benefits of cannabis, Dr Forrest is never far from the headlines.

Peak Forrest was reached at the COP26 climate summit in Glasgow, where the Fortescue chair power-talked with royalty and took out advertisements in the world’s most prestigious newspapers to lecture the fossil fuel industry that time was up with the advent of hydrogen power, a technology that does not yet exist at scale.

Dr Forrest is a good self-promoter and a generous philanthropist, something for which he deserves recognition. His company, Fortescue, has been a major beneficiary of the China development boom in which demand for Australian iron ore, and prices, soared. The company is also one of Australia’s biggest emitters of greenhouse gases. In financial year 2020, Fortescue’s mining and transport operations used 641 million litres of diesel. Paradoxically, Dr Forrest has become an active campaigner to end the federal government’s diesel tax rebate. The rebate is worth hundreds of millions of dollars a year to each of the nation’s major mining companies. The issue has been a long-term focus for environmental campaigners and is politically controversial.

Malcolm Turnbull refused to sign an international agreement to phase out fossil fuel subsidies in Paris in 2015, when the Paris Agreement was struck, because it might inappropriately capture Australia’s diesel fuel rebates. The issue became a problem for Labor leader Bill Shorten during the 2016 election campaign when several MPs signed petitions opposing the rebate. At the time, opposition resources spokesman Gary Gray declared there was “no circumstance under which the removal of the diesel fuel rebate will ever be good public policy”. He said such a move was not consistent with “age-old” tax traditions of not taxing business inputs.

A review of the rebate scheme by Deloitte, commissioned by the mining industry, found there was no case to apply a road user charge via fuel taxes on operations that did not use public roads. Rejecting the notion the rebate was a subsidy, Deloitte said the only reason money flowed from the government back to businesses was because it was easier administratively for businesses to pay excess tax upfront, then to have that refunded later. According to Treasury, fuel tax credits are not a subsidy for fuel use but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles. Their purpose is to avoid distorting business investment decisions and behaviour that would occur through taxing business inputs. Nor would the money saved through scrapping the rebate automatically be available for other purposes. This is because it would become an operating expense that could be discounted from profits.

The obvious point to make about Dr Forrest’s campaign to scrap diesel tax rebates for miners would be that if Fortescue feels it inappropriate to receive the roughly $300m it gets from the scheme, it is entitled not to claim it. Insisting other miners be denied access to the mechanism, which is a rebate, not a subsidy, and designed to avoid the scourge of double taxation, is something else altogether. If the argument is that Fortescue competitors would have an unfair advantage if only Fortescue declined the rebate, Dr Forrest should consider a broader world view in which other countries would be favoured if all Australian producers were penalised. All of the big mining houses have announced plans to reduce or offset their greenhouse gas emissions.

It is not for Dr Forrest or anyone else to dictate how they should do it. The most obnoxious implication of Dr Forrest’s campaign is that a tax-efficient mechanism that is not a subsidy would be exchanged for a direct subsidy for renewable energy, to an area in which Dr Forrest is not a disinterested observer. Scrapping the diesel tax rebate to subsidise renewables, including hydrogen, goes against the foundation principles of the Morrison government’s approach. That is to achieve decarbonisation through the development of technologies that can compete with those used today at equal or lower cost. Applying additional taxation to existing fuels to make them more expensive relative to potential alternatives is bad policy that will work only to lift prices and stifle innovation.