Thursday, July 15, 2010
THE federal government has revealed that changes to the mining profits tax negotiated with the big resources companies will cost the budget billions of dollars more than initially acknowledged.
New figures released by Treasurer Wayne Swan show that in 2013-14, the second year of the tax, it is expected to raise only $6.5 billion compared with $13 billion in its initial form.
Over the first two years, the expected take would shrink from $18 billion under the old version to $10.5 billion under the new.
The expected losses to revenue are far greater than the $1.5 billion claimed by the government when it unveiled the revised tax on July 2.
Explaining the discrepancy yesterday, the government said that since the original version of the tax was announced, Treasury had upgraded its expectations for mineral prices and exports.
The government failed to disclose this when it announced the revised version of the tax.
As the real cost of the tax backdown was exposed, the government came under attack over the issue from former Treasury chief Bernie Fraser, who accused Prime Minister Julia Gillard of selling out to the mining giants.
Mr Fraser also criticised Opposition Leader Tony Abbott for wanting to rescind the tax, saying it was amazing that an alternative prime minister could "put the vested interests of big mining companies ahead of the national interests of this country".
The tax controversy overshadowed Mr Swan's news of further improvement in the budget forecasts a boost also driven by higher estimates of commodity prices.
The government released the budget forecasts and mining tax details to help set the framework for the election, expected to be called within days.
Ms Gillard will appear at the National Press Club today and give a speech flagged to be on economic issues.
The new budget forecasts improve the bottom line by $7 billion over five years to 2013-14, mostly through higher estimates of company tax. Treasury says the improvement would have been $12.5 billion but for policy changes essentially to the mining tax.
The forecast budget surplus in 2012-13 has more than trebled from $1 billion to $3.1 billion. In the same year, the forecast peak in the government's net debt has fallen from $94 billion to $90 billion.
"These figures show we are on track to put the budget back in surplus within three years," Mr Swan said. "We will be in surplus before every other major advanced economy."
He emphasised that the surplus did not depend on revenue from the mining tax. "Despite all the uncertainty in the global economy, we can be confident about our future," he said.
But shadow Treasurer Joe Hockey and Coalition finance spokesman Andrew Robb dismissed the statement as "dodgy figures, used to explain a dodgy tax, delivered via a dodgy deal".
"The massive debt and deficit remains largely unchanged, the reckless spending will continue unabated, and the forecast of a surplus is still simply not believable," they said.
The bad news is that Treasury marginally cut its forecast of growth in 2010-11, from 3.25 per cent in the May budget to 3 per cent. Slower growth in consumer spending and housing investment is expected to be offset slightly by growth in mining.
Unemployment is tipped to be 5 per cent in mid-2011, much the same as now, despite the addition of 250,000 jobs.
The improved forecasts came as Westpac and the Melbourne Institute reported a stunning 11 per cent jump in consumer confidence in July. Most of the increase came from Coalition voters, who had previously been pessimistic. Now it is the poor who are most pessimistic.
The losses revealed from the mining tax backdown tend to confirm criticisms by analysts that the changes will cost tens of billions of dollars over a decade.
If mineral prices in coming years fell below Treasury's buoyant expectations, there is a risk that revenue from the tax would be too small to finance initiatives dependent on it company tax cuts, tax breaks for small business and better superannuation benefits.
But Mr Swan said he was confident the revised figures would be proved right. "Prices will go up, they'll come down," he said.
"But everybody can be confident that they will be a higher level [than] the historical average was."
Mr Fraser, who was head of the Reserve Bank from 1989 to 1996 and a former Treasury boss, said Ken Henry's resources tax in its original form was too complicated. "It was over-engineered in a way," Mr Fraser told ABC television.
And the subsequent minerals tax brokered with the big miners was a sellout, he said.
On Mr Abbott's vow to rescind the tax, Mr Fraser said it "amazes me, frankly, how any alternative prime minister or alternative government can put the vested interests of big mining companies ahead of the national interests of this country . . . Whoever has sort of really devised that line really has rocks in his or her head."
Mr Hockey said Mr Fraser's view of the Coalition was dead wrong. "I have never seen a tax that receives so much remuneration and is yet expected to create investment and create more jobs," Mr Hockey said.
Mr Fraser said the government should have been able to win the day on its mining tax plans, as former prime minister John Howard did with the GST.
"If Howard can sell a GST . . . and the government can't sell an RSPT without a great hullabaloo, something is very wrong," Mr Fraser said.