Tristan, you said,

"But in recent months these achievements have been obscured behind scandal over the implementation of Labor’s home insulation scheme; and almost entirely overshadowed by a co-ordinated campaign to derail Labor’s proposed “mining super profits tax”.

Yes, but what about the rest of Labor's stuff ups. May be you could write an honest summary of why the Rudd govt is on the nose. It took a while for Australians to see through Rudd (and the govt led by him), but they did wake up.

Why is it so hard for Rudd to sell this? Why can't he successfully remind the public of the benefits of distributive justive? Why is it that people are not being reminded that if they want hospitals, schools and roads then they have to pay tax. This does not lower the standard of living it raises it. Why hasn't the government objected to the liberal MP's who are attacking the government's position on tax when they themselves were responsible for introducing the GST which directly increased the tax of individuals. Why can't Rudd sell the fact that if the miners don't contribute to the cost of communal infrastructure through super profits it will be the individual that pays directly?

Leave Rudd in power long enough, and what he hasn't taxed out of existence he will have nationlalised.

To LEF It is impossible to sell because basically no one believes anything Rudd says any more. But to explain the flaws further, consider that the statement that all Australians own a valuable resource, that is minerals in the ground, is a deeply flawed statement. Yes we may own it but until an enterprising entrepreneur has put a great deal of work and enthusiasm into developing the particular asset it is valueless.
If you live in the suburbs you own (and pay a “royalty” to your local Council for) a fairly inert mineral – soil. However if you put in a lot of work and a small investment, it can be made to yield very considerable value in the form of vegetables. But until you put in the effort it has no value, just like the whole of undeveloped Aus.
Creating a viable resource is a very risky business and enormous numbers fail. If you reduce the possible reward for success (enormous profits on which you will have to pay income tax anyway) no one will bother in the future. Incidentally presumably as a result of the Petroleum tax, I am told that practically no new exploration has been done in Aus and we now import oil. The effort isn’t worth it.
Suggestion to the sensible socialists – Why not encourage the Future Fund, which is I think trying to reduce its forced holding in Telstra, to invest in BHP etc. That way we can get the “excess profits” right back into the ownership of all Australians without ruining the whole industry in the effort.

This article was a fair summation of the proposed new tax regime.

BHP sold off its steel making interest because they weren't profitable enough for the then directors but BHP retained many of the raw material assets and it is now very difficult for Bluescope and One Steel to make even basic profits as they are saddled with paying world prices for many of their feedstocks while competing with "slave labour" wage cost competitors.

Once the depleting non renewable resources are exhausted Australia will have no manufacturing industry and no capacity to pay for our imported needs. The standard of living of the then generations will fall dramatically.

At the end of WW2 the Chifley Government and the then directors of BHP and other companies realised that Australia needed to produce its own consumer goods and as a consequence the Australian car and white goods industries were developed. This required steel plate, sheet steel including galvanised sheet and tinplate production and the development of a fabricating industry. Most of these have now been forced out of existence. Australia now produces no trucks, few if any farm implements, little rail rolling stock, no whitegoods and fewer and fewer cars.

The mining industry is not the key to Australia's long term future. It may be that we should curtain expansion of that industry so that our resources last longer. We need to revive our manufacturing industry and taxing the mining industry so that taxes on manufacturing industry can be reduced and those industries once again become viable is a sensible move for our long term benefit.

Service industries are not a viable alternative.

Dickybird, you raise some good points.

I feel that more has to be said in any analysis of the mining tax to demonstrate the extent to which it is, or is not, scaring off investment. 2010 may pose a different context to the past given that many new mining areas around the world are opening up. It may well be that the world is even more competitive today in mining than what it was in the past.

I support some sort of resource tax, but the debate thus far appears to suggest a future compromise.

Dickybird, I think the idea of investing the future fund into BHP is one alternative but what are the risks associated with doing this? Surely there is another model of private/public partnership that will provide a 'least risky' option so that sustainable and responsible investment is encouraged.

@Dickybird:

"However if you put in a lot of work and a small investment, it can be made to yield very considerable value in the form of vegetables. But until you put in the effort it has no value, just like the whole of undeveloped Aus"

Dickybird I'm not sure this analogy really works. The soil has no value because it is not the soil that is being sold, it's the vegetables which are grown from it. But in the case of exractable commodoties it is the minerals that are being sold. They have inherent value - and they are a non renewable good, legislated and commonly accepted as being owned by the Government of Australia for its people. In the latter case it is simply a matter of owner setting the price, and seller buying. The fact that the seller has to perform some measure of work to secure the goods is factored into the price. It's an amicable agreement - we can't mine the minerals, and you can't own them. Let's work together shall we? You take your slice, and we'll take ours. To say that the minerals have no value until they are discovered is completely incorrect. Of course they do. They're extremely valuable and a shared public good.

"Incidentally presumably as a result of the Petroleum tax, I am told that practically no new exploration has been done in Aus and we now import oil. The effort isn’t worth it."

Incorrect, Australia's petroleum industry has boomed in recent times on the back of rising oil prices. That was partly the point of this article. Scroll down to the bottom of the page to see just how much.

http://www.abs.gov.au/ausstats/abs@.nsf/mf/8412.0/

Tristan might just as well have cut and pasted from the Labor website.

As with many political statements, what has been left out is more important than what has been included.

- The oil and gas industry has expanded with the rent tax, but notably, only those projects exempt from the tax have done so.

- The 37% profit on mines excludes massive investment in exploration, head office overheads etc. The real profit of the mining companies is much lower.

- The mines are already taxed above average world wide, the new RSPT will make them by far the highest taxed.

- All existing Australian mining assets will lose their value as leverage, and only the multinationals with external assets will be able to raise funding. The consequences of this is that small local companies will seldom be able to raise funds for new projects, and in the face of competition from multinationals will simply disappear.

- Any increase in superannuation for the next 10 years will be wiped out by the loss in value of the stocks.

ETC

@Shadow Minister

"The oil and gas industry has expanded with the rent tax, but notably, only those projects exempt from the tax have done so."

Do you have a link for this I can check out?

"The mines are already taxed above average world wide, the new RSPT will make them by far the highest taxed."

What do you mean by this? Do you mean that Australia's tax on mining is higher than the average world wide? The only relevance this would have is in discussions on whether the rate will negatively effect our comparative advantage over the long term. There is some evidence to suggest it will not.

Like Henry said, Norway is an example of a country that taxes their extractable commodities industry at a rate above what is being proposed here, and they have managed to avoid capital flight.

Your final two points sound more like scaremongering than anything solid.

Profit is directly related to risk. Take away the profit and no one wants to invest. If you had a block of land that you wanted to develop and put a couple of houses on it, the incentive is wiped away if the return is not there and the bank won't lend you money because it is too risky. The Australian public (and some overseas investors) have put a great deal of money into mining projects with no high dividends paid over many years. As soon as something pays off, the socialists are there with their hand out to spend as they think fit without taking the risk. It has been suggested that they will take some risk, to the extent that they will pay 40% of non viable projects, but out of tax payer's money of course.

Mining is not easy and takes a lot of investment and a lot of searching to find something worth developing and then years of hard slog to get a good return. As soon as it pays off however, the government is there to take any extra profit of course. It just replaces the superannuation taken from the retiree's dividends who had the foresight to invest in the first place. Resources don't belong to all Australians unless they have actually helped to find it and to dig it out of the ground; over and above the normal taxation imposed on all companies at a fair and reasonable rate.

Thank you Foyle for broadening the discussion to look at the implications of the RSPT on exchange rates and the competitiveness of other sections of the Australian economy. The Government have, I think, backed away from asserting these broader benefits because they could readily be distorted into fear mongering that Government is deliberately throttling the geese that lay the golden eggs. In industries other than mining, companies often expend up to 30% of their revenue in purchasing their raw inputs - they do not add this percentage of their costs to their reports of taxation paid. Nor ought mining companies include the cost of their raw materials in their estimates of percentages of taxation paid.

"Theoretically, government also has other options at its disposal. If a “capital strike” was to take place government could “step into the breach”. Abandoned mines could be commandeered, with fair compensation being paid to those who formerly held title."

Why not just compulsorily acquire them now with the same compensation paid to Aboriginal people in the NT when their land rights were compulsorily acquired and turned into 5 year leases, that is nothing!!

@Snake:

"Profit is directly related to risk. Take away the profit and no one wants to invest.  "

This tax does not take away the profit. Taking away the profit would mean having no profit at all. This shares the profit. It's a contract between the owner of a service/commodity and the buyer, no different to what happens a myriad of times every day in economies throughout the globe.

This all comes down to who has ultimate power over a particular good. The answer is always its owner, right? The Government as the seller has ultimate power over its own property in being able to set its price. It is however influenced by a need for a customer who will agree to the price, and so an equilibrium of sorts is met. Basic foundational economics.

You can only argue that mining companies will leave. I don't think they will, but even so I'm willing to accept the possibility I'm wrong. Even if I'm wrong and they leave – the tax will eventually be adjusted at a level to remain competitive, as Government also has an incentive for it to do so.

The miners don't like the idea of a resource tax. They know it places control in the hands of the legal owner of the good.

One further point worth remembering is that the Minerals Council itself recomended a profit based tax to the Henry review.

https://docs.google.com/viewer?url=http://taxreview.treasury.gov.au/content/submissions/pre_14_november_2008/Minerals_Council_Australia.pdf

I'm assuming there must be some support for such a thing within the mining industry, for its peakbody to recommend it to a Government review of taxation. Is it possible that it is only the big miners who are largely upset about this tax, the ones who know it "ruins the party"?

Tristan says: "the Australian people truly deserve a share when it comes the natural resources which belong, collectively, to all of them."

And: "And it is a very important principle to establish: as these non-renewable resources belong to the Australian people as represented by democratically-elected government; and there must be some reasonable kind of premium paid by miners on top of company tax to reflect this."

This is implying (framing?) that the miners are not paying anything now for the resource. Not so. In WA, the iron ore miners pay a royalty of 7.5% of the REVENUE. Not insignificant I would have thought.

The biggest spin in this whole debacle is the claim that Labor is losing support because of this issue. If that's the case, why has most of the shift in the polls been towards the Greens?

My major problem with this proposal is not that the mines weren't consulted first (does anyone consult me when my income tax rate is adjusted?) but that this was not part of Labor's election platform. Climate change was. Delivering something they didn't promise whether good or not is a strange substitute for failing on a core promise.

This combination has lost them the environment vote, followed up by losing the anti-environment side of politics. A poor political judgement, to be rewarded today almost certainly by Rudd being shown the door.

Grayzie

The comment on oil and gas was from an radio interview on the ABC with an industry analyst I have read similar comments elsewhere. You are free to investigate and contradict me if you can. But the recent major expansions have been in PNG which is rent tax exempt.

As for the superannuation, mining shares fell roughly 7% on the announcement of the tax, and based on super fund portfolios, this would reduce the average portfolio by 0.7%. Given the average portfolio is 20yrs old and the earlier half due to appreciation makes up to 60-70% of the final portfolio, this would make up nearly 20% of today's contribution, given the slow ramp up of the contribution this would even out in about 10 years.

This is bad news for anyone intending to retire in the next 10yrs.

Norway's mining income is overwhelmingly dominated by oil, and for a tiny country is a feeble comparison.

Try the USA, Canada, Brazil, Africa, Russia, China which are the major power houses of mining, and you will struggle to find a higher tax regime.

As for this tax hitting local miners harder than the multinationals, this gem I got from the recent TV interview with Colin Barnett.

@Shadow Minister
"The comment on oil and gas was from an radio interview on the ABC with an industry analyst I have read similar comments elsewhere. You are free to investigate and contradict me if you can."

The onus of proof is on you, but fine, I have. As you can see from the ABS link I posted previously offshore mining exploration has boomed in Australia. As far as I'm aware all offshore mining falls under the tax.

'Australia's biggest ever resource enterprise, the Gorgon gas project, has officially just begun.'
http://www.abc.net.au/pm/content/2009/s2685600.htm

Here's one example. And this project is most certainly subject to the tax. As was the $12 billion Pluto Woodside investment. I've provided evidence that contradicts your claim. It's now up to you to rebut it.

"As for the superannuation, mining shares fell roughly 7% on the announcement of the tax, and based on super fund portfolios..."

Of course they did. Markets operate practically entirely on sentiment. But this is not necessarily an accurate portrayal of a company's bottom line, and I think you know that. The real test will be over the long term, not in the immediate wake of a scare campaign from the miners themselves. If you cared to look you would have seen that the mining shares have been rising since.

It's also worth keeping in mind that the reason for the share drop is largely the fault of the mining industry itself, due mostly to its scare campaign.

Grayzie,

With the new projects, the owners negotiate with the government the tax regime to be applied. The Gorgon project will eventually pay 40% on super profits. However, there significant differences:

- The depreciation allowances allow them to write off the entire capital expenditure before paying this tax, which gets rid of most of the risk.
- The tax only kicks in at the bond rate + 5% (about 11% today) as opposed to the bond rate. (a huge difference)
- The provisions for valuation of assets against which the 11% return on capital is calculated is far more favorable.

If all these provisions were applied to the mining sector, the tax return would drop from about $9bn p.a. to about $2bn.

This is roughly what the mining sector is negotiating to get, but this would leave a huge hole in labor's tax forecast.

The other off shore projects have got similar special terms or as PNG the super tax is not applied.

As I have said in previous threads, I am not opposed to a RSPT in principle, but if it is badly applied, it is simply a tax grab and disincentive.

It would appear to be a moot point, as the new PM appears to have dumped the RSPT in its present form anyway.

Another analysis that is worth looking at is to establish just what percentage of total annual revenues of mining companies end up in the hands of federal, state and local governments.

You realise, don't you, that iron ore companies in WA pay 7.5% of their revenues as "economic rent". They also pay payroll tax, corporate income tax. Their employees pay income tax and GST on purchases. Their suppliers pay GST, payroll tax and corporate tax (if incorporated). Their employees pay income tax, and GST on their purchases. It is clear that a very substantial portion of their total revenues end up in the hands of government.

Do we need tax reform? Maybe. But lets do it on a well considered, fair basis

And if we are going to single out industries that are 'exploiting' a public asset, lets do it properly. There are many industries/companies that exploit public assets. Forestry, fisheries, broadband spectrum, TV licences, toll road corridors, air traffic corridors, and government guarantees advanced to monopsonistic banks. (many others as well).

And land is the ultimate public asset. Why don't we look at imposing a properly calculated economic rent on all these assets? Why just pick on the mining industry, which, compared with the examples given above, are already paying top weight. You don't agree? What about 7.5% of annual revenues for WA iron ore producers. Which other exploiter of public assets pays anything like that?

Get real Tristan.

“Norway's mining income is overwhelmingly dominated by oil,” as Shadowminister correctly says; but the rest of his statement “and for a tiny country is a feeble comparison” could do with a bit of un-feebling:
Norway’s StatOil has about three-quarters Norwegian ownership, two thirds of which is by the Norwegian Government.
The Norwegians seem to be doing far better under this system than Australia is under its own administrative arrangements of its mining sector

"As I have said in previous threads, I am not opposed to a RSPT in principle, but if it is badly applied, it is simply a tax grab and disincentive."

Look I don't disagree with that. It's quite clear that the Rudd Government messed this up in a bid to prop up the budget. But these are details that will be fleshed out in negotiations and over time. The tax will most certainly not be implemented in its proposed form - and it wouldn't have been even if Gillard hadn't taken over. It's reasonable to suggest that changes need to be made.

But most opposition to it is clearly exaggerated. To suggest that as the owner of the minerals Governments of the world are at the behest of multinational mining companies is placing ultimate power in hands where it does not exist.

As a CONSTITUTIONALIST I view the first issue should be if the so called SUPER TAX is constitutionally permissible. As the SUPER TAX is not a tax for the whole of the commonwealth then it is unconstitutional. Further, where this tax is basically to interfere with the States rights of royalties then again it is unconstitutional for this also. If a State takes the view that a mining company or for that any other company makes absurd huge profits then the State can do so to increase its royalties but it is not for the commonwealth to unc0onstitutionally interfere with this.
You might just find that once people are getting used to an unconstitutional tax then soon the federal government will apply it to other business sectors also! After all the unconstitutional Northern Territory Intervention Act was only against Aboriginals and garnishing part of their income, etc, and now it is being applied to the rest of Australia with pensioners having worked their whole life to earn their last years in peace now going to be subjected to a government telling them how they can spend their monies.
We warned that making a deal with the devil isn’t going to get you anywhere as once you concede they will increase it over time and so best is to oppose it on constitutional grounds and you may just all be better off.