SYDNEY LETTER:A proposed resources supertax has fallen prey to the deep coffers of the mining companies' advertising budget, writes PÁDRAIG COLLINS
WITH AUSTRALIA one of the few countries to survive the global financial crisis without going into recession, you would think being labelled a “sovereign risk” (endangering national ability to repay debt or a company’s ability to meet commitments) was unlikely. But that’s exactly what Tom Albanese, chief executive of Rio Tinto, the world’s third largest mining company, said Australia’s proposed “resource super profits tax” is. “The proposed supertax is the number one sovereign risk priority we face anywhere in the world,” he said. In common with all statements on the issue from mining companies, the word “profit” was absent.
Retailer Gerry Harvey, who owns the Harvey Norman chain which operates in Australia and Ireland, called the Australian government "bloody amateurs" for the way it handled the proposed tax. Mining billionaire Clive Palmer called the treasurer, Wayne Swan, a "communist" and a "goose". (Mr Swan has lowered income tax in each of the past three years and is lowering company tax from 30 per cent to 28 per cent – not behaviour likely to win him friends in Pyongyang.) Australia's richest man, mining magnate Andrew Forrest, told an "axe the tax" protest in Perth that "in China right now there's a fierce debate about how to lower their resources tax to encourage the mining industry. . . I ask you which communist is turning capitalist and which capitalist is turning communist?" Forrest, who has 4.75 billion Australian dollars (€3.33 billion) to call his own, wasn't to know that China Daily, the Communist Party's English-language newspaper, had already praised Australia's proposed tax.
“A hint to this nation’s policymakers: if they are looking for guidelines to the long-awaited tax reform, take a good look at Australia’s latest plan to increase worker pension funds with a new tax on resource projects,” the genuine, non-goose, communists said on May 26th.
Australia is blessed with iron ore, coal, gold, copper, zinc, uranium and more. The 40 per cent tax on mining super-profits, in addition to the usual company income tax, is planned to start on July 1st, 2012. With a depreciation allowance included, the total tax will amount to around 57 per cent. Despite deep reserves, these are finite resources, so the “make hay while the sun shines” argument should have been an easy sell to the public, or so the government thought.
But the now former prime minister Kevin Rudd reckoned without the tax minimisation desires of the mining companies, and their $100 million advertising war chest. Within days there were television, internet and full-page newspaper ads attacking the government. They kept the message simple. “Weaken mining, you weaken the country. But that’s exactly what the government’s new super tax is doing,” said one ad.
The government decided to fight fire with a bit over one-third as much fire. Opposition leader Tony Abbott taunted Mr Rudd in parliament: “This shameless prime minister is prepared to spend $38 million advertising a tax that he can’t explain, he can’t defend and he won’t even legislate until after the next election.”
The government’s response ad was both long-winded and short on detail. It featured an actor giving a lecture, complete with PowerPoint presentation: “I think everyone agrees that mining plays a key role in Australia’s prosperity. I think we can also agree that we need to improve the way mining is taxed and that those changes need to protect the industry’s long-term sustainability. Moving away from royalties to a system that taxes the actual profits that mining companies will make, will do just that. So it’s important to know the facts,” he droned.
The public let it be known which side it believed through successive opinion polls which saw the government’s and Mr Rudd’s popularity plummet. Some polls had Labor losing 30 of its 83 seats.
Swiss company Xstrata has suspended two mining projects in Queensland and claims 3,000 jobs are at stake because of the tax, but Rio Tinto was forced to deny reports it had shelved an $11 billion expansion of iron ore projects in Western Australia. In a statement to the stock exchange it said “no decision has been made to shelve any projects”.
Mining companies have form when it comes to tax in Australia. The gold tax introduced in the 1980s was supposed to wipe out gold mining, and Aboriginal land rights resulting from a 1992 court case were going to lead to a mining exodus. Nothing happened in either case.
But this time the mining companies’ advertising budget has already contributed to Rudd’s downfall, and his successor, Julia Gillard, sought to calm the situation within hours of becoming prime minister yesterday. She said she was “throwing open the government’s door to the mining industry”.
Ms Gillard also announced she was stopping government advertising about the tax and called on the mining companies to do the same. The Minerals Council of Australia immediately suspended its ads and others are expected to follow. A compromise on the tax rate could be next.
