The mining tax will make a comeback
The mining tax will be back as 'good reforms often take one extra go around…' said Julia Gillard last year as part of the launch of her book My Story, in an ABC Radio interview.
The mining industry's media immediately responded to Gillard's tax prediction by posting a warning commentary, complete with a range of subscriber comments on the 'vote-destroying' mining tax. Of interest to a detached observer is how one Gillard statement was singled out from a wide-ranging interview that covered multiple issues from her three-year prime ministership.
A close reading of Gillard's book reveals her acknowledgment that the recent Labor Government's mining tax reform had been driven by the 'strictures of the (...) media'. Her plea for a shift to more authoritative sources of information on policy matters in the future should gladden the hearts of academics.
Petroleum Resource Rent Tax
Since the Rudd Government's 2010 announcement of a new mining tax, I have researched and published academic articles on the topic, and been consistently positive while rigorous about the concept of a mining tax. I have not been alone in this perspective amongst tax and economic academics. One need look no further than Australia's Petroleum Resource Rent Tax to see a well-designed tax, which since 1987, has raised over 20 billion dollars in revenue.
The first shipment of liquefied natural gas (LNG) from Queensland's Curtis Island went ahead this year, and LNG shipments from Western Australia's Gorgon and Wheatstone projects will eventually follow and be taxed. The Petroleum Resource Rent Tax will be redistributed to the other states of Australia. It is ironic that we have missed the boat to establish a tax mechanism to equitably redistribute the above normal profits from the iron ore and coal mining boom.
More strategic approach
My 2013 analysis of some 260 contemporary newspaper articles on the mining tax showed that most of the articles were published in The Australian and the Australian Financial Review. Sources of information for the newspaper articles included the government, the mining industry, and consultants - such as large accounting firms. I found a bias in favour of consultant and mining industry sources, which resulted in high incidences of negative issues raised about the tax.
In theory, when mining receipts are more than expenditure, a mining tax, or resource rent tax, is levied on the difference. Under the resource rent principle, the investor is allowed to recover resource exploration and development costs before tax is payable on 'above normal' profits. This design feature of a mining tax offers stability to a government's fiscal regime over time. There is real validity in Gillard's call for a return to discussions on a mining tax. The political party that once more engages with a mining tax has to be more strategic in its outlook and drop the tactic of time-wasting parrying with the 24-hour news cycle. It is ironic how partisan politics has excluded a mining tax rethink in the 2015 tax reform discussion paper Re: think. Better Tax, Better Australia.
In Papa New Guinea in both 2014 and 2015, I teamed up with Dr Craig Emerson (former Labor Government Minister) to argue for a re-introduction of a resource rent tax for the PNG mining industry. Our recommendations for a comeback are currently under review.
By Dr Diane Kraal