You have to wonder when the penny is going to drop, and Gillard and Swan start to wonder if getting the big three mining companies to negotiate a tax to be imposed on them was a good idea.
The mining, or Mineral resource rent tax has plagued the Labor government since it was first mooted. It caused outrage within the mining sector, resulting in a massive campaign of opposition in which millions of dollars were spent by both sides in advertising. The ensuing stalemate and climate of hostility played an important part in the ousting of Kevin Rudd as PM.
Gillard managed to stitch a compromise together with BHP Billiton, Rio Tinto and Xstrata, after she gained the top post, but as with everything else she has involved herself in, it turned into a disaster.
Overseas observers must shake their heads in wonderment at the sheer unmitigated incompetence of a government that institutes a tax that raises no revenue. (We’ve gotten used to it):
THE Federal Government is standing by revenue projections from its mining tax, despite revelations it has raised zero revenue in the first three months.
Falling commodities prices mean major miners BHP Billiton, Rio Tinto and Xstrata have no liabilities under the minerals resource rent tax (MRRT) for the financial year to date, and the industry has warned global economic forecasts could seriously reduce their company tax contributions. …
… Shadow treasurer Joe Hockey said the government's economic strategy was in a mess. Mr Swan had "frauded" the Australian people over the tax and had some explaining to do, he said.
"Only Labor could introduce a new tax that doesn't raise a single cent but has billions of dollars of expenditure against it," Mr Hockey told ABC radio.
But it gets worse than that. Apparently in the rush to defuse the battle, the government agreed to offset state royalties against the tax. As result, rather than raising revenue, the government is actually accruing liabilities to the companies:
THE Gillard government faces a new threat to the estimated $2 billion in revenue it expects to raise this year from the mining tax because the biggest iron ore and coal producers are rapidly building up state royalty "credits" to offset their commonwealth payments.
While BHP Billiton, Rio Tinto and Xstrata did not make any profits-based payments under the new minerals resource rent tax in the first quarter of its existence, they are accruing millions of dollars in unexpected deductions from the tax.
The three mining giants all calculated a zero liability for the MRRT in the July-September quarter, but remain liable for billions in state royalties from iron ore and coal production that are "credited" against the federal tax.
Treasury forecasts for the MRRT revenue, almost halved to $2bn in 2012-13, take into account the offsets for state royalties, but assumed there would be tax revenue.
Under the mining tax negotiated with Julia Gillard and Wayne Swan after the removal of Kevin Rudd as prime minister in 2010, the big three miners insisted on all state royalties being offset against the MRRT and for those credits to accrue at a compound interest rate of 10 per cent.
The miners are still paying state royalties that rely on production, not profits. Last year in Western Australia, royalties on iron ore amounted to $3.8bn while royalties on coal in Queensland came to $2.3bn
Essentially, what was initially intended to be a redistributive tax to “spread the benefits of the mining boom,” has become a device by which taxpayers reimburse mining companies for the costs of state royalties.