Australia's mining reforms have gone distinctly "down under"
Published by MAC on 2012-05-15Source: Business Spectator
The Labor-held federal Australian government last week presented its much-awaited 2012 budget.
And what a mess of potage it turns out to be!
According to Rob Burgess of the Business Spectator, the country's mining sector "currently accounts for 30 per cent of 'gross operating surplus' - its basic approximation of who's making all the money in this country."
Miners pay only 15 per cent of company tax at present, and they were expecting a further cut in the tax, ostensibly to promote more jobs.
But this hasn't materialised. For the cut was "to come out of the revenue that the government speculates can be raised from the minerals resource rent tax [MRRT]."
Now, it seems, the MRRT itself has just about bombed.
According to Burgess, the tax "was expected to generate $10.6 billion over the fiscal years 2013, 2014 and 2015".
However, "[s]ix months later that figure is $9.7 billion. That's $0.9 billion gone up in smoke". (At least it is, on a yearly basis, if the loss continues).
The mining industry, says Burgess, also "feared that the government would abandon the diesel fuel rebates and defer tax deductions on overburden removal.
"Such measures would have decimated coal expansion and caused BHP's Olympic Dam project in South Australia to be mothballed"
That's what we pointed out last week on MAC, with a little optimism added. See: London Calling muses on the future of Mining's Giants
But it won't happen.
According to Business Spectator's Robert Gottliebson:
"South Australian Premier Jay Weatherill knew Olympic Dam faced mothballing and pleaded with the federal government not to take that action. He was successful".
Ironically, says Gottliebson: "Had the government raised money from diesel it would have not have had to rely on an optimistic forecast for the mineral resources rent tax to gain a surplus".
Concludes Rob Burgess: " Getting our commodities into world markets as quickly as possible puts downward pressure on prices, and 'super profits' - the very slice of profits the MRRT is set up to capture...
"[T]he MRRT is a flop of a tax that will, ultimately, fund not much at all".
Another Business Spectator columnist, Alan Kohler, agrees:
"Iron ore and coal companies aren't expecting to pay any MRRT, so the $3.5 billion budgeted from that in 2012-13 looks dodgy".
Adds Kohler:
"[T]he rest of the [budget] increase depends on economic growth of 3.25 per cent and on the companies that are due to pay the carbon tax continuing to spew out greenhouse gases at the same rate, rather than doing something about it to avoid tax".
To cap it all, the government is also deferring millions of dollars of funding for projects designed to promote "green" energy alternatives to Australia's continuing addiction to fossil fuels.
So, abandon hope all ye about to enter Oz, if you fondly imagined its extractive industry would now be giving back a fairer share of its egregious gains.
Or if you expected to find politicians climbing over themselves to show the rest of us how to tackle adverse climate change.
[Comment by Nostromo Research, 14 May 2012]
Federal Budget 2012: End of a miner miracle
By Rob Burgess
Business Spectator
8 May 2012
The budget has been handed down at the end of a week of bank-bashing over how much of the RBA's 50 basis point rate cut was passed on by the big four banks.
But the budget papers also provide some ammo for that other breed of basher - the miner-bashers.
For those who wish to see for themselves, pages 5-9 of Budget Paper 1 hold a couple of charts that show how badly Labor has managed the creation of the mining tax.
First, Treasury notes that the mining sector currently accounts for 30 per cent of 'gross operating surplus' - its basic approximation of who's making all the money in this country. At the same time, miners pay 15 per cent of company tax.
The main reason for this is well understood - as commodity prices have steadily risen, the rush to invest (mostly foreign) capital in the resource states has gathered pace. The more you invest, the greater the write-off against your tax bill and the less tax you pay compared to gross profits.
And look what's happening to MRRT revenues at the same time: at MYEFO last November, the MRRT was expected to generate $10.6 billion over the fiscal years 2013, 2014 and 2015. Six months later that figure is $9.7 billion. That's $0.9 billion gone up in smoke.
Treasurer Swan, asked in his budget press conference why this was so, put it down to our high dollar. The higher it goes, the less competitive our mining exports are. The less competitive they are, the lower miners' profits. And the lower the profits, the lower Swan's MRRT revenues.
Okay, no market works in such neat terms, but Swan's argument broadly stands - the higher dollar undermines MRRT revenue.
But there is a second factor depressing the MRRT take. The investment write-offs that allow miners to make 30 per cent of the nation's gross profit, while paying 15 per cent of our corporate tax, are designed to help them shift more ore and more coal.
Getting our commodities into world markets as quickly as possible puts downward pressure on prices, and 'super profits' - the very slice of profits the MRRT is set up to capture.
Put another way, the more this tax succeeds, the more it fails to generate revenue to pay for Labor's promised increase in the super guarantee over the next few years from 9 to 12 per cent.
More to the point, the more it succeeds, the more it fails to fund the cut in company tax that, until tonight, was central to Labor's claim to be business friendly.
That promise has not been deferred - it has been scrapped. Yes, scrapped.
Looks like Wayne Swan has realised what critics have been saying for a year and a half - that the MRRT is a flop of a tax that will, ultimately, fund not much at all.
Federal Budget 2012: Where are the tax cuts?
By Robert Gottliebsen
Business Spectator
8 May 2012
The differences between Australia and the US have been starkly illustrated in the 2012-13 Australian budget. In the 2012 Presidential election campaign, Mitt Romney wants to cut US taxes to 25 per cent while President Obama wants them cut to 28 per cent - remarkable unanimity.
Our government was planning a 1 per cent reduction in company tax and was expecting consequent growth dividends to benefit all Australians and reduce unemployment.
But, of course, that company tax cut was to come out of the revenue that the government speculates can be raised from the mineral resources tax.
The corporate tax cut was rejected by the opposition who plan to abandon the resources tax.
The government has responded by not cutting corporate tax, so the Australian company tax rate will stay at 30 per cent. That will boost the budget bottom line by $300 million in 2012-13, $1.2 billion in 2013-14, and $1.55 billion in 2014-15.
Total money that the 1 per cent tax cut would have returned to the corporate sector over four years was $4.5 billion.
But the government has spent most of the $4.5 billion corporate tax cut money on low-income benefit schemes, which are effectively welfare, and do nothing for productivity. They will be hard to reverse.
The employment benefits and community prosperity benefits that the Americans recognise stem from corporate tax cuts have been lost on 'old-style labour values'.
But Tony Abbott must share part of the blame. It is unlikely Australia can sustain a 30 per cent corporate tax rate when America is 25 or 28 per cent.
By contrast, miners feared that the government would abandon the diesel fuel rebates and defer tax deductions on overburden removal. Such measures would have decimated coal expansion and caused BHP's Olympic Dam project in South Australia to be mothballed.
South Australian Premier Jay Weatherill knew Olympic Dam faced mothballing and pleaded with the federal government not to take that action. He was successful. Had the government raised money from diesel it would have not have had to rely on an optimistic forecast for the mineral resources rent tax to gain a surplus.
Meanwhile, there are a number of corporate measures that will help the small enterprise sector and boost productivity.
From July 1, businesses with a turnover of less than $2 million will be able to write off each eligible business asset costing less than $6,500. Some 2.7 million businesses will be able to update computers, phones, etcetera, and gain an immediate tax deduction.
In addition, in 2012-13 companies of all sizes will be able to ‘carry back' losses of up to $1 million. That means that if a retailer made a profit in year one and paid $300,000 in tax then, and in the next year that retailer incurred a loss due to depreciation on new investments, then it will be able to get back the $300,000 tax paid.
So, in 2012-13 there will be some refunds. It's not a big item but it will encourage smaller enterprises to update their equipment.
Small enterprises are becoming important users of new technology, which is not expensive, and these measures will encourage them to invest. It's one of the few things in the budget to help productivity.
Federal Budget 2012: Expenditure deferral should get Hunt's attention
By Tristan Edis
Business Spectator
9 May 2012
As predicted yesterday we've seen a huge deferral of expenditure into later years for grant tendering programs run by Department of Resources, Energy and Tourism (DRET). This funding deferral merry-go-round has been a constant feature of these types of programs. It illustrates what an incredibly bad idea it is to fund clean energy through tendering that relies on officials' subjective judgement to predict the best projects well in advance of them ever generating a MWh of electricity or abating a tonne of CO2.
Low Emissions Technology Demonstration Fund (LETDF) - $101 million deferred (again!)
The saga of Howard Government's 2004 LETDF program's almost endless deferral of expenditure continues in this budget. The $101 million planned over this year and next will now be zero, with the department planning on spending $160 million over 2013-14 to 2015-16. Greg Hunt and the Coalition take note - don't even think about using the same grant tendering model for Direct Action.
Carbon Capture and Storage (CCS) Flagships - $75m deferred
Expenditure for CCS Flagships has been pushed out again. In 2011-12 and 2012-13 expenditure has been reduced by combined total of $75 million, but expenditure in 2014-15 is planned to be $278.8 million and a whopping $450.4 million in the never never of 2015-16. I'll believe it when I see it.
Other CCS programs were relatively untouched with the CCS Institute maintaining its funding.
Connecting Renewables - $72 million deferred
The Connecting Renewables program has been subject to major funding deferment. Now no money will be spent in 2012-13 and half the planned expenditure for 2013-14 has been cut, making a total of $72 million shifted to later years. I'll now predict the program will be cut altogether in next year's Budget on the basis that the CEFC can fund transmission infrastructure.
$93 million underspend in Solar Flagships and Australian Centre for Renewable Energy (ACRE)
There was a $93 million underspend in the 2011-12 financial year for Solar Flagships and ACRE. Deferral of future expenditure is hidden by the roll-over of these programs into the Australian Renewable Energy Agency.
Australian Renewable Energy Agency (ARENA) needs to roll-out money fast
No sooner has the Australian Renewable Energy Agency been established and it will have to shovel $292 million out the door in 2012-13. The only way this seems possible is if the retendering around the solar PV portion of Solar Flagships can be brought to a swift conclusion and the selected project is shovel-ready.
The year after the expenditure increases to $344.9 million, then $436.6 million in 2014-15 and $321.8 million in 2015-16. This kind of money is not large relative to the kind of capital expenditure involved in renewable energy projects. But to achieve this rate of spending will require some major improvement in how renewable energy grant programs are administered relative to the sorry history of the past.
No change to $1.2 billion Clean Technology program
As part of the Clean Energy Future package $1.2 billion in funding was committed to a Clean Technology Program to help improve energy efficiency in manufacturing industries and support research and development in low-pollution technologies. The funding for this program is unchanged from the previous budget and is managed by the Department of Industry, Innovation, Science, Research and Tertiary Education.