Saturday 20th of December 2014

yet another self-inflicted wound .....

yet another self-inflicted wound .....

from PoliticOz ….

a black hole in the budget ….

The changes that Gillard and Swan made to Rudd's original mining tax to make it more palatable to the big miners – and quiet their public criticism – are the reason it is being roundly condemned today. The amount collected by the federal government's new tax was near zero as a result of concessions made by Gillard and Swan.

In a slightly perverse outcome, it is state governments that have made off like bandits as a result of the new mining tax. When the MRRT was introduced, state governments realised they could essentially pinch the new revenues as a result of the loophole that allowed miners to deduct all state royalties from their MRRT liabilities. States promptly raised state royalties. So several billion in extra revenue has been collected from mining companies since the introduction of tax - it's just been going to state governments. Hence the frustration of federal MPs of all persuasions.

The upcoming GST division negotiations will be interesting.

a great big revenue hole .....

Mining companies Rio Tinto and BHP Billiton have built up a $1.7 billion arsenal of tax credits - and do not have to pay any mining tax until they are used up.

And with Prime Minister Julia Gillard facing a perfect storm over the mining tax, crossbencher Andrew Wilkie heavily criticised her role in the watered-down redesign of the tax - while Kevin Rudd also chimed in with a veiled swipe.

Heaping on further pressure was billionaire Andrew Forrest, who confirmed to Fairfax Media that his iron ore company, Fortescue Metals, would not be liable for any tax under the minerals resource rent tax this year.

Mr Forrest, who had challenged Treasurer Wayne Swan's claim that the tax would still raise billions in revenue for the government after it was renegotiated with Rio, BHP and Xstrata, appears to have been vindicated with the Treasurer's admission that the tax had netted a paltry $126 million for government coffers this year.

''The record stands for itself,'' Mr Forrest said.

Mr Wilkie told Fairfax Media he had been wrong to believe Treasury predictions of company liabilities under the renegotiated tax instead of the alternative arguments put forward at the time by Mr Forrest.

Mr Forrest had complained that the compromise to allow miners to write off the long-term value of assets from their mining tax liabilities had allowed the big three miners off the hook.

''It is beyond argument that the government was wrong, is wrong, and Andrew Forrest is right,'' he said.

While much focus has been on the dramatic shortfall in mining tax receipts compared with original Treasury projections, the most recent financial accounts of Rio Tinto and BHP Billiton crucially show the two miners have built up $1.1 billion and $637 million in tax credits respectively due to the MRRT.

The credits can be carried forward to offset future mining tax liabilities, casting doubt over when the government can expect to reap a substantial return on the tax, particularly if commodity prices take another turn for the worse.

The credits have accumulated due to the so-called ''starting base allowances'' on existing mining projects that were brought into the mining tax, in order to make up for the historical investment in those mines.

Tax specialists say the allowances are overly generous but that the government was also unlucky with its timing. The market value on mining projects for the purposes of the tax were determined when commodity prices were near their peak.

Rio Tinto is expected to report underlying earnings of more than $9 billion on Thursday.

Mr Rudd's comments on the underperforming tax linked its meagre return in its first six months with his replacement by Ms Gillard.

His intervention came via several media appearances as Ms Gillard and Mr Swan struggled to explain why they had committed billions in new spending on superannuation and business tax breaks funded by the tax, which has not delivered.

When asked in a Sky News interview if the new Labor leadership team had given away too much to the miners, Mr Rudd replied: ''History will be the judge of that.''

He said Ms Gillard had made ''significant changes to the structure of the tax''.

With the entire crossbench now backing a reconsideration, Mr Rudd stopped short of prescribing a fix but left no doubt about his views, ''given the fact that it has not collected any real revenue of any significance''.

Friction from crossbench and Labor MPs has increased fears within the opposition that Labor could make a late leadership manoeuvre. Liberals say a sudden switch back to Mr Rudd would ''reset the politics'' in this election year, putting new pressure on Tony Abbott's leadership.

Mining Tax: $1.7b Credit For Rio, BHP