By Michael Pascoe
Initial speculation about how Martin Ferguson and Don Argus will flesh out the mineral resource rent tax has centred on the conga line of vested interests wanting their own little exceptions made and rules bent – but there’s room for much bigger games to play down the track, when the election cycle is worth pressing.
You have a coal or iron ore mine earning $60 million a year and the MRRT kicks in at $50 million? Guess you’ll be wanting that threshold lifted to $100 million. Suddenly realised your operation could have picked up taxpayers’ money under the exploration refund offer that’s been dumped?
Guess you’d like Martin to give you another chance at dipping your hand in the government till. Fought long and hard to get the courts to rule that BHP and Rio’s train tracks aren’t part of their mines but now won’t get an MRRT deduction for your own non-mine infrastructure? Yes, I suppose Twiggy would like that changed. And as for magnetite being a “special” case, well, aren’t they all? (And guess what sort of iron ore Clive Palmer has? Hint: it’s not haematite.) And so on.
These are all matters that the Ferguson-Argus committee can be taking submissions on and thinking about until the federal election is safely out of the way, promising understanding to keep hopes alive without committing to anything that might cost money.
But the obvious special pleading is only a small part of the game ahead.
For starters, the states have been given a wake-up call about the level of their royalties: the federal government has made the case for them that they don’t charge enough for “our” minerals.
While Colin Barnett huffs and puffs about a constitutional challenge (Buckley’s chance of succeeding on what is a tax on profits), he should be ruing the billions of extra dollars BHP and Rio have agreed to hand over in quasi-royalties to Canberra.
That thought leads to speculation about which commodities might provide massive windfall profits next. The new MRRT is limited to a bulk commodities rent tax because that’s where the money is – for now. Coal and iron ore are the mines rolling in unimagined prices thanks to the urbanisation and industrialisation of the emerging economies, while the recovery in non-ferrous metals prices from their GFC falls has been much less spectacular.
Somewhere down the track though, it is not impossible to imagine copper or some other metal taking off again. Heavens, the gold bugs are forever forecasting that their shiny love is set to go through the roof. Should they be right at some stage, even if only during a fevered extension of a bubble, you can guess what tax system is ready and waiting to be applied. There are indeed other shoes waiting to drop.
On a more positive note, there’s a test waiting for just how good a negotiator Julia Gillard might be. It is a self-evident nonsense that the bigger miners have to go through the bookkeeping pain of paying state royalties just to get that money refunded by the feds. It was the inefficiency of those royalties that were the original excuse for the Henry review to propose a profits-based tax.
So the opportunity exists for the Prime Minister to demonstrate an ability to repair severely damaged federal-state relations. After Rudd’s botched health funding episode, it seemed there was no point in his government trying to do a deal to remove the state royalties system.
Now that system needs to be retained to continue to capture the revenue the MRRT isn’t touching, but it would show some good will on both sides and save MRRT and PRRT payers a bean counter or two if the redundant royalty payments were removed and the feds made good to the states.
Because it would require the states to trust Canberra, it won’t happen – but it does sit there as a potential test of promoted negotiating and consensus-building skills.
Besides, there’s another thorny federal-state issue lying dormant in the MRRT applying to coal: the transfer pricing the states indulge in to keep down electricity prices.
While there’s been predictable squawking about the pain caused by the latest electricity price rises (and it is funny to see ranting about that from some of the same voices who want us to get serious about carbon emissions), the unspoken truth is that NSW generators, for example, don’t pay market prices for their thermal coal. If they did, last week’s electricity price rises would be swamped.
Whatever might eventually happen (safely after the election) on an emissions trading scheme, there is a more obvious loss to federal revenue from transfer pricing for the generators. The ATO goes to some lengths to prevent transfer pricing if, say, a Chinese steel mill supplies itself from its own Australian iron ore mine. Now the ATO will want to examine the same practice with domestic thermal coal supplies.
There are other issues in that about state governments perverting green energy initiatives by suppressing coal-fired electricity prices, never mind NSW bending over backwards, jumping through hoops and turning somersaults in a desperate attempt to raise some cash by sorta-kinda privatising part of the power system – but that’s another story.
Michael Pascoe is a BusinessDay contributing editor