Australia: Mining tax battle intensifies

By Patrick O’Connor
28 May 2010

The political furore triggered by the Rudd government’s proposed 40 percent “Resource Super Profits Tax” has intensified in recent days, with the mining companies and the opposition Liberal-National coalition campaigning against the measure. Robert Gottliebsen of the Business Spectator, who opposes the new tax, has warned of “the mother of all capital strikes”. Rio Tinto, BHP Billiton and other companies have predicted significant job losses and Liberal leader Tony Abbott has issued lurid warnings of higher prices on everything from homes to food.

In the face of this extraordinary offensive, the Labor government of Prime Minister Kevin Rudd has proven unable to make any effective appeal to ordinary people in defence of the proposed tax. The central reason is that of the $3 billion in additional revenue expected to be collected in 2012-13, and $9 billion the year after, not a cent will go toward improved public services, welfare or social infrastructure. Instead, big business as a whole is the beneficiary. The corporate tax rate is to be reduced from 30 to 28 percent, the finance sector receives a boost from increased superannuation funds generated by higher compulsory employees’ contributions, tax compliance regulations on small business have been eased, while the mining companies and other exporters have been promised billions in additional infrastructure development.

In a striking illustration of the business interests involved, Rudd this week hosted a private dinner for leading superannuation industry executives and encouraged them, according to the Age, to “lobby BHP and Rio Tinto to tone down their language, stop making misleading claims and negotiate with the government”. Rudd and Treasurer Wayne Swan have attempted some pseudo-populist rhetoric about the tax being aimed at ensuring that Australia’s mineral wealth benefits the population and that the mining companies pay their “fair share” of tax. But this has fallen flat.

The new tax essentially represents a modest redistribution of wealth within the bourgeoisie. The Labor government’s central appeal in defence of the tax has not been issued to the electorate but rather to big business, finance capital, and their media and academic representatives. Far from being an unexpected measure, enacted in an ill-considered manner, as suggested by the Liberal Party, the resource tax was long advocated by economists and business representatives as a means of addressing imbalances in the “two-track” economy generated by record commodity export prices and stagnating domestic economic activity.

The 40 percent tax was recommended in the Henry tax review, which included a raft of measures aimed at bolstering the long-term competitiveness of Australian capitalism. Review author and Treasury secretary Ken Henry yesterday defended the new tax before a federal senate committee. He caustically rejected Abbott’s claims that the tax would lead to inflation, saying that he had “learned in high school” that profits-based taxes ought not affect prices. Henry described mining company claims that they already paid an effective tax and royalty rate of about 40 percent as “not very surprising and not very meaningful”. The real rate paid is believed to be about 17 percent.

Henry’s testimony highlighted the fact that the treasury department’s top bureaucrat now has a higher public profile than most government cabinet members. This reflects the Rudd government’s function as a representative of finance capital and big business as a whole. Labor has adopted virtually every measure advised by Treasury since assuming office, from issuing a multi-billion dollar guarantee of the banks’ holdings during the 2008 financial crash to now preparing an austerity program aimed at slashing public spending and undermining the living conditions of working people.

Henry’s testimony followed the release of a public statement in support of the resource tax issued by 22 economists, including Allan Fels, the former head of the Australian Competition and Consumer Commission, Fred Argy, former director of the Economic Planning Advisory Council, and 15 professors from leading universities. The new tax, the statement explained, “is consistent with economic theory and recent work of the OECD and IMF on the application of economic principles to guide taxation policy”. It added that the “counter-cyclical nature of tax revenues will help to stabilise both the macro-economy and the level of activity of the mining sector”.

OECD secretary general Angel Gurria weighed in, telling ABC Radio: “Whenever there is a bonanza, whenever there is a period in which there is a price spike or a price hike then it is legitimate for a sharing of that bonanza and that benefit, especially if there are ways in which that can be used to stabilise markets in the future.”

All the major newspapers have editorialised in favour of the resource tax, albeit with various reservations about its specific mechanisms and the way the government announced the measure.

That the Liberals have chosen to defy this general consensus and instead champion the mining companies is a reflection of the political crisis that has emerged after the 2008 financial crash. Previous opposition leader Malcolm Turnbull was closely aligned with finance capital, both politically and personally, and he backed all the government’s major economic initiatives—including the bank guarantee, fiscal stimulus spending, and the now defunct Emissions Trading Scheme. This bipartisanship meant, however, that the Liberals could find no effective means of demarcating themselves from the Labor Party and regaining the support of big business.

Abbott has combined a populist right-wing pitch on issues such as refugees and welfare, aimed at mobilising the Liberal Party base, with an economic reform agenda tailored to specific sectional interests within the ruling elite dissatisfied with aspects of the Rudd government’s program. Abbott withdrew the Liberals’ support for the Emissions Trading Scheme and gained the support of the mining companies, electricity generators and less efficient manufacturers, who stood to lose out while the financial sector and others reaped enormous profits from carbon trading.

In opposing the mining tax, Abbott has also had to oppose the various measures Labor proposes to fund with the new revenue. He is against the reduction in corporate tax, despite this being a long-standing demand of business. He also opposes the increase superannuation contribution, insisting that this would impose too great a burden on small business.

Two factors are fuelling the opposition of the mining companies to the new tax. Firstly, there is the ingrained hostility of the corporate giants to any interference with their “right” to make profits. But that alone is not enough to explain the fury that has greeted the Resource Super Profits Tax. Notwithstanding media hype about the strength of the Australian economy, the mining CEOs are well aware just how fragile the economic situation is both in Australia and internationally. Their operations and profits are threatened by the worsening sovereign debt crisis and recent tremors on the financial markets that could trigger another major global contraction, including in China and other growth markets, leading to the immediate collapse of the commodities boom.

Leaked media reports have suggested the government is preparing major concessions to appease the mining companies. Rudd is said to soon change the definition of “super profits” from 6 percent to 11 or 12 percent, significantly affecting the levels of profit subject to the 40 percent tax rate. Billions in tax revenue would potentially be lost, resulting in the government likely having to rescind measures such as the promised 40 percent rebate on any capital investment and exploration losses incurred in the resource sector.

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