Saturday, July 3, 2010
The miners were right to bring out the champagne after the deal was done. They have won big time. The concessions they won are bigger than most expected, well beyond the changes needed to make it fair.
Then why did the government give them so much? Because politically, they had got themselves most indelicately stuck on a barbed wire fence. That's painful. The more they tried to wriggle free, the deeper the wires went in. Only the miners could lift them off. And they charge a big fee for help.
What went wrong? The original tax plan defied commercial sense, and imposed tax rates much higher than other countries charge.
Its big selling point was that it would pay miners 40 per cent of their losses as well as taking 40 per cent of their profits. But the miners didn't plan on making losses, and weren't keen on losing so much profit. Taxpayers didn't like the idea of paying out failed miners either.
Then the government's selling of the plan was just as bad as the design. And you can't run an election campaign when you're stuck on a barbed wire fence.
Hang on. The government says the tax will still raise $10.5 billion in the first two years, compared with the original estimate of $12 billion. That's not much of a cut. Sure, but look at the detail. In year one, they now expect to raise more money than under the original proposal, $4 billion instead of $3 billion. That's because they've ditched the part where they would have to pay miners 40 per cent of their losses.
But look at year two. On the original plan, Treasury forecast the tax would raise $9 billion once it was bedded in. That's now been reduced to $6.5 billion and some question if it will even get that much.
The year two estimates, assuming they're right, show the real cost of the deal. Yesterday's changes add $1.6 billion to the estimated surplus in 2012-13, more than doubling it from $1 billion to $2.65 billion. But they cut the estimate of the 2013-14 surplus from $5.4 billion to $4.1 billion.
Well, the deal does exempt most minerals, doesn't it? Yep, it now just covers iron ore and coal, with the old petroleum tax now extended to cover all oil and gas. But between them, they account for two-thirds of our minerals exports the most profitable two-thirds. The main reason the tax take is expected to be so much smaller is the decision to slash the tax rate.
From 40 per cent to 30 per cent? More than that. It's really been almost halved, from 40 per cent to 22.5 per cent. To disguise the size of the backdown, part of it has been labelled an "extraction allowance", to recognise "the contribution of the miner's expertise to profits".
How can you mine anything without extracting it from the earth? It's ridiculous.
So they gave away too much? Yes. But politically, they had to buy a deal, at taxpayers' expense. Still, we've ended up with a better tax than we started with. Miners will pay more for our earth. We won't drive them away. That's a deal.