Who stitched up Australia's "ground breaking" minerals tax?
Published by MAC on 2011-06-20Source: Sydney Morning Herald
It's not a done deal by any means - though some may think so. See: Controversial Australian mining tax law moves closer
Australia's Mineral and Resources Rent Tax (MRRT) is still coming under heavy fire, especially from domestic companies claiming it discriminates against them.
Now they are preparing to make a constitutional challenge to the proposed new legislation.
Billionaire mining philanthropist, Andrew Forrest, is one of them. In a March 2011 letter to the prime minister (only recently released) Forrest alleges:
"The tax base will be unreasonably narrow, being focused on 320 taxpayers in two resource areas: coal and iron ore. It will be a volatile tax subject to huge fluctuations depending on international commodity prices (making it unsuitable to fund ongoing budget commitments)"
Forrest identifies three world-class mining outfits that will benefit most from the MRRT, and accuses them of stitching up the arrangements up for their own benefit. According to The Sydney Morning Herald last week:
"The proposed MRRT was borne out of private consultations between the government and mining giants BHP Billiton, Rio Tinto and Xstrata. It was then fleshed out by a government advisory group known as the policy transition group, chaired by former BHP chairman Don Argus, which released 94 recommendations."
But, says the newspaper, when a Senate committee called Argus in to question him on the intricacies of the deal, he refused to turn up.
In its current form the MRRT would not be levied on uranium, gold, nickel and copper output, which means the Newmont, Newcrest and AngloGold, among others, won't have to pay it.
And, although they are Australia's biggest iron and coal producers, BHP and Rio Tinto also have a virtual monopoly on uranium, while BHP's Olympic Dam mine is the country's leading source of copper. See also: London Calling reviews Australian taxation - the tax is dead, long live the tax...
Mining Tax a Mystery Tour
Sydney Morning Herald
13 June 2011
THE Gillard government's credibility is about to take another battering, this time on one of its more complex and ad hoc tax reforms, the minerals and resources rent tax, as some key players in the iron ore and coal mining industry gear up for a constitutional challenge in the High Court.
Andrew Forrest's Fortescue Metals is expected to be a party to mounting a constitutional challenge, with the West Australian, Queensland and New South Wales governments odds-on favourites to join any claim.
After the savage battle with the miners reached boiling point 12 months ago, when mining companies spent more than $20 million on an anti-mining-tax advertising campaign, many believed the worst of the hostilities had finished.
But if the draft legislation that was released on Friday afternoon is introduced to Parliament without amendments that satisfy the likes of Forrest and others, the whole mess has the potential to flare up again.
Put simply, this tax, which is scheduled to take effect from July 1 next year, is far from a done deal.
Once the details of the legislation become clear, later in the year, Fortescue and others can apply to the High Court to launch a constitutional challenge against the tax. It can be revealed that in a letter written to Prime Minister Julia Gillard on March 18, Forrest outlined concerns and "flaws" with the proposed MRRT and requested a meeting to discuss his concerns.
Despite Forrest founding a company that now has a market cap of almost $20 billion, and holding similar concerns to most of the iron ore and coal mining industry, no meeting was forthcoming.
In the letter, Forrest wrote: "The tax base will be unreasonably narrow, being focused on 320 taxpayers in two resource areas: coal and iron ore. It will be a volatile tax subject to huge fluctuations depending on international commodity prices (making it unsuitable to fund ongoing budget commitments your government has made such as reducing company tax and funding increased superannuation)."
Other "flaws" raised in the letter included the possibility that the MRRT would be unconstitutional given the likely discrimination between the states. "And the deductions given to the multinational, multi-commodity companies are so large as to protect them from retrospectivity that they are unlikely to make a commensurate contribution to this tax," Forrest said in his letter.
He also wrote about his concerns that the three companies that privately negotiated the MRRT - Rio, BHP and Xstrata - would not contribute commensurately to the $7.4 billion of MRRT that Treasury expects to raise in the first two years.
"No one can see how you will raise this amount given the enormous deductions that BHP, Rio and Xstrata will enjoy in the first years of the tax." Indeed, "in the iron ore industry, it is likely that the MRRT will not be paid by the industry giants, but will be paid by the smaller, up-and-coming companies."
Against this backdrop, the Association of Mining & Exploration Companies, which represents the smaller end of the iron ore and coal mining sector, will no doubt crank up its lobbying efforts. AMEC launched its own television and newspaper advertisements against the MRRT last year and has reserved the right to revive the campaign.
The proposed MRRT was borne out of private consultations between the government and mining giants BHP Billiton, Rio Tinto and Xstrata. It was then fleshed out by a government advisory group known as the policy transition group, chaired by former BHP chairman Don Argus, which released 94 recommendations.
Earlier this year, a Senate select committee headed by Senator Mathias Cormann tried to get to the bottom of the process behind the Argus-led policy transition group by calling Argus up as a witness to ask him a series of questions. It came to nothing as Argus didn't attend and the Senate opted not to use its powers to summons him.
The problem with the MRRT is it is seen by many in the industry, including tax experts and consultants such as Henry Ergas, as complex, onerous to administer, and unfair.
It is easy to see why. First, the tax only includes the coal and iron ore industry, not all non-renewable mining resources such as uranium, gold, copper and nickel, as originally intended.
This means the gold sector, for example, doesn't have to pay the tax despite the fact that gold is trading at record highs. In Western Australia, there are two huge gold mines, Newmont's Boddington Gold project and AngloGold Ashanti's Tropicana Gold project, both of which will be rivers of gold for the multinational gold giants.
BHP's expanding Olympic Dam project in South Australia is also excluded from the MRRT. This is a project with the world's largest uranium deposit, fourth-largest copper deposit and fifth-largest gold deposit.
With so many backflips, the Gillard government will have to face the miners, the states and the whole debate on carbon tax over the next few months.
How it will end is anybody's guess, but one thing is for sure: such complicated tax reforms without proper consultation makes a mockery of the Labor government's root-and-branch tax reform that was supposed to make tax simpler and fairer.
With a minority government, polls indicating that it will be tough to get re-elected and a constitutional challenge about to get thrown into the mix, the MRRT might well be a flash in the pan.