Time to bury resource theft

WHEN are we going to be relieved of the misery of having the minerals resource rent tax on the books?

The imposition of this mining tax, the second catastrophic version, is right up there in terms of the worst policy initiatives of the previous Labor government.

It has been a fiasco from the start. The first version was a form of institutionalised theft which would have meant every global mining company leaving Australia in due course. The second version, which was designed by the big mining companies themselves, is much less harmful in terms of discouraging investment, but it doesn’t really raise any revenue.

Driven by the political imperative of quickly sealing a deal, the Gillard government made a slip by agreeing to refund all additional mining royalties levied by the states. The net effect of these refunds and lower commodity prices (the tax is only levied on coal and iron ore) has been to produce a mere $600,000 in net revenue to the federal government in the June quarter.

No, this is not a typo — the figure was $600,000. Recall that the Gillard government, under the stewardship of treasurer Wayne Swan, expected to raise $300 million this financial year and a total of $26.5 billion over the period 2013-14 to 2016-17.

If the dribble of revenue is not bad enough, the Labor government’s decision to link a whole lot of poor quality spending to the revenue from the mining tax has been calamitous. In fact, the spending is locked in whether or not the revenue projections are achieved.

It is impossible to believe that this form of heroic hypothecation was endorsed by the Treasury: their officials would normally argue strongly against making these links, especially as there were no real arguments to connect the tax with the spending programs. Mining tax funds Schoolkids Bonus — it doesn’t make any economic sense. It was all about politics.

There are still some desperate commentators around who cling to the dream of having a federal profits-based mining tax. The reality is that the only sensible reform would be to fold the state-based royalties into such a tax and this would require very delicate negotiations with the states as well as compensation.

So what is holding up the abolition of the mining tax in the Senate? A number of senators, who should know better, are seeking to have some of the associated spending continue, including the unjustifiable Schoolkids Bonus and the ill-directed Low Income Superannuation Contribution.

But here’s the thing: the mining tax is unlikely to raise serious revenue and the spending commitments amount to some $17bn over this year and the next three years. Something has to give — the expenditure has to be abandoned along with the tax.

While the tax sits there on the books, mining companies are likely to add several basis points to the required rate of return for investing in Australia. There are plenty of other countries with prospective mineral deposits, lower costs and no mining taxes akin to ours. We should say good riddance to the MRRT as soon as possible.