Resources debate needs less heat, more light

THERE is no meeting of minds. There are no agreed goals. So it is no surprise that the Rudd government and the miners are in total conflict on how much tax the industry pays.

Prime Minister Kevin Rudd and Treasurer Wayne Swan tell us the domestic mining companies pay a company tax rate of only 17 per cent, and multinational miners pay just 13 per cent. (But isn't it their job to make us pay the lawful tax rate in this case, 30 per cent?).

\#\*/@!, say the miners. The average corporate tax rate paid by the mining sector is 27.8 per cent, they say. Add royalties, and its effective tax rate is 41.3 per cent. Under the government's tax, it could rise as high as 57.8 per cent.

Let's try to make sense of this. Start with the Tax Office data. It shows that in 2007-08, the mining industry paid $8.1 billion of tax on $29 billion of net taxable income.

Yep, that's 27.8 per cent, just as the miners say. That's roughly in line with the tax paid by other sectors. Why can't the government agree with that?

Well, according to a Treasury paper released by Swan's office, taxable income is not the best measure of "economic income". It notes that in 2004-05, mining accounted for 17.5 per cent of the corporate profits (to be precise, its gross operating surplus), but only 8 per cent of corporate income tax. "This result is surprising, given the start of the mining boom early in this period," it observes.

Why so low? "The industry receives generous deductions for [depreciation], including the immediate expensing of exploration expenditure, certain infrastructure expenses and site rehabilitation," the paper explains.

"These factors result in large deductions, allowing such firms to reduce their taxable income below their economic income."

OK. That is the core difference between the government's figures and those of the miners. The Treasury team constructed their own definition of "net operating income", which restored all those deductions and hey, it estimated the mining sector's tax rate was 12 percentage points lower than the average.

But it was not just mining. The electricity, gas and water sector paid an even lower tax rate. Construction, transport, communications on Treasury's measure, all the capital-intensive sectors paid lower tax rates than the labour-intensive sectors, thanks largely to their high depreciation allowances, and their ability to write off interest costs.

Is the government proposing to change those tax breaks? No.

And why did Treasury use 2004-05 data for its study? Well, by 2007-08, the mining sector's share of tax paid grew from 8 per cent to 14 per cent. In 2008-09, it would have been at least 20 per cent. It's fair to assume that Treasury used out-of-date figures because they suited the government's case.

Surely we deserve better than this. As Ross Garnaut argued last week, this debate needs less heat, more light.