Friday, May 28, 2010

Henry fends off (most of) his critics

KEN Henry made the most of his reluctant appearance before a Senate committee. He put down his critics, and gave a lucid explanation of his resource rent tax offset only by an own goal and one sharp senator getting through his defences.

The Treasury boss had it easy as Coalition senators virtually invited him to explain how the tax would work, why it was needed, and what were the flaws in the arguments against it.

He challenged the Minerals Council's claim that miners pay 41 per cent of their income in tax and royalties, rising to 58 per cent in the new scheme.

Yes, he said, on their taxable income but only because tax breaks for depreciation made their taxable income "a fraction of their economic income".

"It's not very meaningful," he said. "We could remove all the mining industry's tax concessions and not change its effective rate of tax calculated [that] way." Yet losing billions of dollars a year in tax breaks would be "of some significance".

And yes, under the new scheme, in theory a company could have to pay tax as high as 56.8 per cent of its taxable income. But it would do that only if its profits were "infinitely high". On Treasury estimates, only companies earning returns of more than 25 per cent a year would pay 50 per cent of their income in tax.

Henry said he knew of no decisions to change the tax, despite speculation that the government will lift the threshold for resource profits from 6 per cent to 11 per cent. But he hinted darkly that if it did, there could be other changes to claw back the revenue loss.

But he kicked one own goal, claiming that, far from the mining industry "saving Australia from recession", the truth was the reverse: mining had "quite a deep recession", yet Australia had none. Mining shed 15 per cent of its employees, he said.

Bunk. The seasonally adjusted jobs figures are not reliable at that level. They show that mining jobs rose 30 per cent in the last nine months of 2008, then shrank 15 per cent in six months, then rose another 15 per cent. How can anyone believe that when the national accounts show mining output in 2009 was basically flat, with at most a brief fall of 1.2 per cent?

Then, under persistent questioning from independent Nick Xenophon, Henry conceded that the optimistic modelling of the tax ignored the prospect that mining projects could be deferred in response to the tax, to focus on the (very) long-term benefits. "Frankly, there is more than enough investment in train in the mining sector," he said.