Victoria on brink of recession; SA, Tasmania in it

VICTORIA is on the brink of recession and South Australia and Tasmania are already in one, as the high dollar, high interest rates and government spending cuts slowed Australia's economic growth in the December quarter to just 0.4 per cent.

A day after Reserve Bank governor Glenn Stevens left interest rates on hold, telling Australians that growth was ''close to trend'', the Australian Bureau of Statistics reported that growth in the year to December slowed to 2.3 per cent. Even in the six months to December, annualised growth was just 2.5 per cent.

Virtually all of the growth was in the coal and iron ore states of Western Australia, Queensland and New South Wales. Victoria, South Australia and Tasmania all went backwards.

The figures came as Treasury secretary Martin Parkinson revealed that federal and state revenues are now in crisis, with tax collections down by 4 per cent of GDP - almost $60 billion a year - and unlikely to return to former levels ''for many years to come''.

He warned of more pain ahead, saying: ''For both levels of government, surpluses are likely to remain at best razor-thin without deliberate efforts to significantly increase revenue or reduce expenditure.''

Dr Parkinson blamed the revenue collapse partly on tax breaks for mining. He revealed that mining companies earn about 20 per cent of all corporate profits, but pay only about 10 per cent of all corporate taxes, thanks to their huge deductions for depreciation.

Yesterday's figures show that in the first half of 2011-12, company tax collections rose just 1 per cent year-on-year. Last May the federal budget papers forecast an increase of 29 per cent. If the gap persists, it implies a revenue loss of $16 billion a year.

The bureau said state governments' revenue across Australia rose just 1 per cent in the first half of the financial year, while their spending rose 5.4 per cent. The state revenue collapse - mainly due to the slump in house prices - turned a combined surplus for the states of $4.15 billion a year ago into a deficit of $500 million.

The Baillieu government is implementing deep spending cuts to keep its budget in balance, cutting 3600 public sector jobs. The Gillard government has told departments and agencies their budgets will be cut by 4 per cent next year, implying thousands more jobs lost.

Treasurer Wayne Swan said that the poor revenue and weak growth figures would force the government to make ''significant'' spending cuts and/or revenue increases in the May budget to achieve its goal of a budget surplus in 2012-13.

''There's no doubt that there'll have to be significant savings,'' he said. ''But we think we absolutely need to do it ? to send a signal to the world that we're in good fiscal nick.''

Yesterday's figures show spending cuts are already dragging growth down. Cuts in state government investment wiped $2.5 billion off the nation's output for the December quarter, falling 15 per cent year-on-year as federal stimulus payments end and governments put off projects to stay in the black.

Victoria was less affected than most. But in seasonally adjusted terms, the bureau estimates total spending in the Victorian economy fell 0.5 per cent in December, after growing just 0.1 per cent in the previous quarter. On its preferred trend measure, Victoria's bottom line fell marginally in the December quarter.

Victoria, SA and Tasmania are being dragged down by the combination of a very high dollar, relatively high interest rates and government spending cuts. NSW is being kept going by coal investments, while WA and Queensland are booming.

The bureau figures show a very sharp divide across Australia. Spending in Queensland, NT and WA combined grew 11.3 per cent year on year. In Victoria, NSW, SA, Tasmania and the ACT, combined spending grew by just 1.4 per cent.

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Treasury chief denounces subsidies, sweeping cuts

TREASURY secretary Martin Parkinson has hit out at subsidies for industry, calls for further sweeping budget cuts, and pessimism about Australia's economic future which he says is "incredibly promising".

Appearing before the Senate economics committee, Dr Parkinson implicitly poured fuel on calls to cut government support for the car industry. But he also warned that more deep spending cuts as the Coalition proposes would hurt growth for no gain.

Dr Parkinson pointed to the recession now engulfing Europe, where governments have given deep spending cuts priority over economic growth. He warned that Europe's recession would last for years and be a source of global instability.

"If you want to be really hairy-chested about this, you run the risk of getting into quite dangerous territory," he told Liberal senator Arthur Sinodinos.

Treasury, he said, estimates the combined effect of federal and state budget cuts already will cut Australia's GDP by 4.25 per cent over two years.

Dr Parkinson said there were times when fiscal consolidation could enhance growth, when budget deficits were hurting business confidence. "But that's not the issue we're confronting here." He said the dangers of deep spending cuts were magnified when trading partners all cut spending together, as in Europe now.

"When the Greeks started, the expectation was that their GDP would shrink by 2 per cent, and they would do a fiscal consolidation of 8 per cent over three years," he said.

"Now their GDP has already fallen 8 per cent in 12 months, and the fiscal consolidation is about 25 per cent of GDP. How you can consolidate back into a sensible fiscal position when your economy is shrinking so rapidly is beyond me.

"We're taking the view that Europe is going to be both in recession and probably a source of global instability for a number of years to come."

Dr Parkinson, who had earlier attacked government intervention to support industries, repeated the attack to the committee, telling Labor senator Doug Cameron that the car industry has been receiving taxpayer support for 105 years.

In a speech on Thursday night, Dr Parkinson warned that industry assistance would fail in its goal of creating competitive advantage unless it was focused, defined and limited in its term.

"If you replace quotas and tariffs with other interventions, no matter whether to create 'national champions' or to support so-called strategic industries, you are placing producer interests ahead of those of consumers," he said. "It is still akin to protection."

Dr Parkinson told Senator Cameron, the former head of the Australian Manufacturing Workers Union, that the task was to transform the car industry and the rest of Australian manufacturing into "something sustainable" with a high Australian dollar.

"The exchange rate will threaten the viability of a whole lot of industries," he said. "If you think it's going to last for 12 or 24 years, we can't pretend that things can stay the same.

"The challenge for us is, how do we help manufacturing and other sectors transform themselves so they can cope in a world where we have a high exchange rate . . . We will end up with a very successful manufacturing industry." Dr Parkinson said the best way to do this was by improving the education system, workplace skills, management skills, infrastructure and industrial relations.

His third theme was to denounce pessimism, declaring Australia was "in the grip of unjustified economic gloom".

"It's almost as if most Australians think we live in Greece. We don't," he said. "We actually have an incredibly bright future ahead of us. Yes, there are challenges, but the opportunities ahead of us are the sort we've never seen before."

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Resources boom presents real challenge for government

THE OECD's question for Australia is simple: how do you manage a resources boom to maximise the gains and minimise its negative impacts on inflation, the budget, and other industries?

Its own answers are mostly good ones, even if they seem to have been written by Treasury, like a ventriloquist using the OECD as its dummy.

First, ensure taxpayers get the benefit of the boom by putting a comprehensive tax on mining profits, and not the three-legged dog Julia Gillard gave us. The mining tax should be redrawn to cover all minerals, all mining firms, and raised higher rate so taxpayers do not end up paying the miners.

Second, the government should not spend the money on routine services, but save it, or spend it only on infrastructure.

Third, keep open the doors to skilled migrants, to avoid labour shortages pushing wage rises out of control, and forcing the Reserve Bank to drive up interest rates.

Fourth, lift spending on infrastructure and regulate it better. Invest more in public transport, and make trucks pay the full cost of the wear and tear they impose on our roads. Slow the rollout of the NBN, to encourage competition between internet technologies.

Fifth, start a new wave of reform, mainly through comprehensive tax reform, but also by removing government support for the car industry. (Like Treasury, the OECD simply ignores the real-world impact of closing down our biggest manufacturing industry).

And last, set up a serious anti-poverty program, to bring more people into the workforce by tackling the underlying causes of their disadvantage: poor health, poor education, homelessness, welfare traps and dole benefits below the poverty line.

This is a real challenge for a government that has messed up the few bold decisions it has taken, and for an opposition that likes reforms only if they're popular. But if Treasury is right, this is the environment we are facing, so challenges can't be avoided.

It's a pity the OECD relied so heavily on Treasury's advice, and hence proposes to shut down the car industry. That would intensify the damage the resources boom will do to the south-east, where most Australians live. Learn to think outside the square, guys.

But the rest of its report raises many ideas our politicians should be thinking and talking about. Not that they will. Treasurer Wayne Swan yesterday ignored the 98 per cent of the report focused on reforms to highlight the few bits that let him pat himself on the back. How ungainly. How out of touch.

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Labor punts on modest debt level

THE Finance Department and Treasury have urged the Gillard government to make big spending cuts. But there were none in yesterday's mid-year budget update. The question now is whether they will come next year or not at all.
On these figures, you could argue there is no need. Treasury estimates that Australia's budget deficit will shrink rapidly over the next two years, and turn into surplus by 2012-13.

If so, we do not have a budget problem which is the almost unanimous view of the ratings agencies, global financial institutions and market economists.

The Coalition argues we should cut spending faster. But yesterday's figures predict government spending will shrink this year by 1.1 per cent of GDP, or $14 billion.

Next year it will shrink by another 0.8 per cent of GDP, more than $10 billion. The following two years will deliver a similar cut between them.

Yesterday's update makes only minor changes to Treasury's economic forecasts and bottom lines. The only real "spending cut" was to put off $400 million of investment in the new rail line through Melbourne's western suburbs.

The forecast peak in Australia's net debt has risen to 6.4 per cent of GDP. Wow. In the US, they're asking whether it will peak this side of 100 per cent.

But in their briefings to the new government, Treasury and Finance warned that achieving the goal of a surplus in 2012-13 would be touch and go, and urged ministers to lock it in by making further spending cuts. Labor did not respond this time.

Will it do so in next year's budget, or just punt on being lucky?

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Don't listen too closely to Treasury, PM

AUSTRALIA is catching up with New Zealand. After an election, NZ departments put on the web their briefings to incoming ministers. Last Friday, Treasury became the first Australian department to do the same and what a briefing it was.

Treasury's red book, as it is known, tripped across almost every policy portfolio federal or state with criticisms, hints, warnings and reform plans. It was terse, just 80 pages of which 10 per cent was blacked out. But it was engrossing stuff: flawed but forceful, pointed and positive.

But pity the PM seeking guidance as to what should be her top priorities, when her government could be forced into a sudden-death election at any time. The red book is a great big Treasury wish-list, with no sense of priorities.

But some messages come through loud and clear: most of them important, a couple misguided.

As I read it, these are Treasury's priorities:

. To persuade the government to make room for the mother of all mining booms in WA by shepherding resources finance and workers there from other states and industries.

Treasury argues (ludicrously) that the economy is now close to full employment. To avoid inflation, manufacturing and tourism must shrink so mining can grow. It urges the government to speed this by scrapping support for "inefficient industries", apparently meaning cars and shipbuilding.

If adopted, this advice would shut down car manufacturing in Australia: the Ford plant at Broadmeadows, the Toyota plant at Altona and the Holden plant in Elizabeth, SA, where unemployment is already 19 per cent.

Treasury offers no proposals to address the devastation this would cause in Melbourne and Adelaide. It seems to assume that the unemployed workers would migrate to the WA mining towns.

. The projected budget surplus in 2012-13 is uncertain. If the world economy slows and mineral prices fall, it might not happen. Treasury wants the government to cut spending and resist pressure for tax cuts, both to secure the surplus and to generate savings to pay for difficult reforms.

As Access Economics director Chris Richardson puts it, the government's surplus forecast "is a pure punt that China and India will keep growing faster than the world's miners can keep digging deeper . . . If that punt is wrong, then Australia and its budget have big problems ahead."

. Australia needs to introduce emissions trading as soon as possible. It is clearly the cheapest way to reduce emissions. And without it, we will not reach the bipartisan target to reduce emissions to 5 per cent below 2000 levels by 2020.

. Tax reform must be tackled hard, with reform of state taxes, taxes on investment income, trusts, superannuation (especially tax dodges by self-managed super funds), welfare traps, and simplification as priorities.

. Welfare reform to increase workforce participation is a priority. But Treasury warns that this is likely to cost big money, which could rule it out until the budget is stronger.

. Co-operation between the Commonwealth and state governments is essential to reform. But Treasury's agenda is 100 per cent centralist. One thing it sees no need to reform is the mismatch of federal and state taxing powers, which has made the states beggars needing Canberra's money to do their job.

There are many vague hints and warnings: unstated fears about the national broadband network; patients should pay more of their own health bills; the navy should buy its ships overseas; and private investors should build more of our infrastructure.

These issues are important for Australia's future, especially tax, climate change and the budget. Between 2000 and 2008, governments cut income tax far more than we could afford, badly weakening the budget.

Chris Richardson points out that income tax as a share of wages and salaries has fallen 25 per cent since 1999-2000, to its lowest level in decades. He warns that global supply of minerals will catch up with demand in future, putting minerals prices back on their long-term declining trend.

That means we will not be able to rely on taxing mining profits to fund the long-term entitlements we have created. The budget will be in trouble.

But the implications of a future minerals bust go well beyond the budget. As Ross Garnaut put it two weeks ago: "The resources boom is not sustainable". Mining prices and investment will fall sharply at some point, putting pressure on the budget and on the economy. And industries being weakened by higher interest rates and the high dollar might not be there to rescue us.

"We've been pulling resources out of other sectors of the economy," Garnaut told a Melbourne Institute lunch. "Other trading sectors will have been very substantially weakened when they will be asked to make a bigger contribution".

Garnaut cited tourism and education, but the same is true for manufacturing and agriculture.

Treasury wants an economy where we put all our eggs in one basket: mining. That will be more volatile, more recession-prone, and massively disruptive.

Wrong way. Go back.

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Treasury's main fear: good times

TREASURY has warned the federal government that the economy has entered a mining boom running at close to full employment and manufacturing and tourism will have to shrink to make room for it. In an unprecedented burst of open government, Treasury yesterday released a censored version of its confidential "red book", briefing the new government on a range of policy problems and steps it should take.

While about 10 per cent of the report was blacked out, the rest treads on hot coals on a wide range of issues. It urges the government to move quickly and boldly to introduce an emissions trading scheme, tackle tax reform, increase consumer taxes, consider making patients pay more of their health bills and stop "propping up inefficient industries".

A key theme in the book is that Treasury fears the economy is at risk of overheating. It urges the government to make more spending cuts, close tax rorts singling out self-managed superannuation funds as "the tax minimisation vehicle of choice" and institute reforms to get more bang for buck.

It warns that Australia's huge foreign debt, housing debt and high housing prices make it vulnerable if foreign lenders lose confidence or if a new global financial crisis erupts when most Western countries have used up their means to fight it.

But Treasury's big fear is not that things will go badly, but that they will go too well. It fears the mining boom, coupled with the shortage of skilled workers, could drive up inflation and interest rates, intensifying damage to the rest of the economy.

"For an economy at or near full capacity, this requires a relative decline in trade-exposed sectors like manufacturing and tourism," it says.

It urges the government to slash industry support which bolsters jobs in Victoria and buy more defence equipment overseas rather than building it.

It also urges more "measures to lift labour force participation and productivity" to reduce pressure for interest rate rises.

"A number of policy settings will also require adjustment, tax in particular," it says. "It will be important to shift taxes away from domestic investment towards other less mobile tax bases such as land, resources and consumption."

It urges sweeping reforms of state taxes, scrapping stamp duties on house sales and business deals, reforming payroll and land taxes by removing exemptions, and introducing traffic congestion charges.

Treasury says our housing, water and infrastructure markets are "chronic failures" in need of reform. And it urges speedy introduction of emissions trading, saying it is "the most cost-effective way" to cut emissions, and the direct action both sides propose "will not do the job".

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Mining tax backflip to cost billions Price of Gillard's peace deal revealed

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.

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Mining tax revenue is a guessing game - REALITY CHECK

"WHERE is the money coming from?" the Coalition wants to know. How can the government reduce the revenue base for its mining tax so drastically, yet reduce the revenue forecasts so little?

It's a good question. After all, the original tax applied to nearly all minerals, the new tax to just iron ore and coal. The old tax was to take 40 per cent of all profits above a return of 5 per cent or so.

The new tax will take 22.5 per cent of all profits above a return of 12 per cent. And that's not all the changes the miners won.

Sure, there are offsetting factors. The government will no longer have to pick up 40 per cent of mines' losses or pay royalties for miners now outside the tax. But several private analysts estimate the tax take will be far lower than Treasury has forecast.

Who is right? Yesterday's budget update shed some light but left uncertainty. It told us:

Treasury now thinks the prices and volumes of mineral exports will be much higher than it predicted earlier. It now says the original version of the tax would have raised $18 billion in its first two years, not the $12 billion originally forecast.

So the revised mining tax reduced its take in the start-up years from $18 billion to $10.5 billion. The government misled us by not mentioning this when it announced the new version on July 2.

The impact in years one and two of the new tax is stunningly different. In year one, the original version of the tax would have seen many companies claim losses. Under the new version, revenue that year is now forecast to fall by just $1 billion. But in year two, the forecast revenue will be cut in half by the new version of the tax: from $13 billion to $6.5 billion. That's a huge change. And surely, isn't year two the best guide to what will happen in years three, four, five, six and so on?

Not necessarily, says Treasurer Wayne Swan. We don't know what future prices will be.

"Prices will go up, they'll come down, they'll bounce around," he said. "But they will be a higher level [than] the historical average was."

Well, maybe. But that's exactly the point.

If Treasury can revise its revenue forecasts from the tax by 50 per cent in just two months, how can anyone seriously know how much it will raise in two years, four years, let alone 10 years?

Like everyone else, all Treasury can do is guess. The May estimates are guesses. The new estimates are guesses. The forecasts by the Coalition and private analysts are also guesses.

Treasury's forecasts are for the terms of trade to peak in the second half of 2010, then fall slowly. But if they fall fast? Or if companies find ways to avoid the tax? We could easily end up with too little revenue to pay for the tax cuts and new spending it is meant to finance. That's the risk.


THE MINING TAX

OLD AND NEW

REVENUE FORECASTS FOR: 2012-13, 2013-14 TOTAL

$b $b $b

Rudd version

Budget 3, 9 12

Now 5 13 18

New version

Now 4 6.5 10.5

Revenue loss -1 -6.5 -7.5

SOURCE: TREASURY

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New paper finds mining tax breaks 'excessive'

TREASURY has renewed its claim that the mining industry has been paying less than its fair share of tax, releasing new estimates showing mining's share of corporate profits is almost double its share of company tax.

In an updated version of the controversial paper issued by Treasurer Wayne Swan late in May in the heat of the tax battle, senior Treasury economists have questioned whether excessive tax breaks for the mining industry are drawing too much investment into the sector.

The new paper is released today in Treasury's quarterly economic round-up. It is mere coincidence that it appears as the warring parties sign a peace treaty.

The paper, Disparities in average rates of company tax across industries, is by Peter Greagg, Dean Parham and Pero Stojanovski of Treasury's business tax division.

It carries the usual disclaimer that it does not necessarily represent the views of the Treasury.

The new paper updates the out-of-date figures used in the earlier version, and concedes that mining's share of corporate taxes has risen.

But it finds that even in 2007-08, the miners earned 24 per cent of company profits, but paid only 14 per cent of company taxes.

It blames this disparity on "generous" tax breaks including immediate deductions for exploration and some infrastructure spending, and generous depreciation rates for plant and equipment.

The paper says the electricity, gas and water industry enjoys an even bigger disparity, earning 4 per cent of company profits but paying just 0.3 per cent of company tax.

It repeats its warning that such tax breaks lead to a misallocation of investment into tax-favoured industries at the expense of "worthwhile investment in other industries".

To reduce the disparity, it proposes "a review of deductions, concessions and allowances", focusing on reducing excessively generous depreciation rates.

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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.

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