Additional Mining Imposts Should Remain with States

Right from the outset I need you to know that I am philosophically opposed to new and higher taxes.

Adapting a line from Kerry Packer’s famous dressing down of a Senate committee, ‘Governments don’t spend taxpayers’ money wisely enough to make people pay more.’

The wasteful spending has been reinforced many times over the past two years and now there is a proposal to impose a huge new tax on the mining industry to pay for it.

Leaving aside the typical partisanship, this proposed new tax raises some serious questions.

First among these is how to get better value for the ‘people’s resources’ as the government refers to them. It sounds reasonable except for the minor detail that the minerals in the ground aren’t the ‘peoples’. Constitutionally they belong to the states. That is why the states apply a royalty regime for digging them up and the Commonwealth already applies a profit tax in the form of company tax.

The Commonwealth’s justification that ‘they’ belong to all of us is a furphy designed to appeal to the patriotic instincts of most Australians.

However, there are many Australians who believe the mining giants should pay more for developing and profiting from our finite resources. There are also those who advocate dumping the royalty regime and moving entirely to a profit-based tax. Included amongst these advocates are some of the big mining interests themselves.

And why wouldn’t they? After all, a royalty has to be paid whether or not you make a profit and we all know that company profits can be massaged (reduced) by clever accounting and confusing corporate structures.

Let’s remind ourselves what the initial justification for miners to pay more was.

Our mineral wealth is finite and the miners are making super profits from exploiting them. According to Mr Rudd and Labor, these profiteers need to distribute more of this wealth so that Australians get their fair share.

We have been reminded ad nauseam that the proceeds of this new tax are going to fund extra superannuation for all of us. It sounds appealing, but it is a load of codswallop.

The new tax will go straight into general revenue for the government. After wasting billions on flawed projects, the government is simply trying to prop up a budget black hole due to their extravagant spending. While they will try to convince you differently, the fact is that businesses, not the government, will be paying the proposed additional compulsory superannuation levy.

Now back to the taxation regime. If we accept the reasonable proposition that mineral wealth can only be used once and is a finite resource, then the royalty regime is the correct additional impost to apply to those exploiting that resource. It applies based on tonnage of ore removed, irrespective of whether or not the mining company makes a profit. This is perfectly reasonable as the ore, once mined and processed, can’t be replaced.

The royalty regime also allows those who own the resources (the states) to benefit from their extraction by setting an appropriate royalty rate. This can be varied by the states through agreement after considering the international and domestic investment environment. In essence, royalties are an example of our federalist system where those who own the asset actually benefit from them.

Rudd’s tax proposal supplants all of that. It concentrates power in the hands of the Commonwealth, a principle that the founding fathers of federation sought to limit. In doing so it raises considerably the risk of doing business in Australia because the predictability of our investment and regulatory regime has been eroded.

Rudd’s super tax on mining also compromises the concept of state’s rights. It undermines our international standing and enhances central government power. These reasons alone are enough to oppose it.

However, if you believe that miners should be paying more for using our non-renewable resources then the best method of doing that is through the existing royalty regime. The rate of applying and collecting those royalties is a decision for the states – and that is where it should remain.