The Mining Council put forth with its latest public relations extravaganza on Thursday, overstating once again the contribution its mining company members make to the Australian economy and calling for further cuts in the corporate tax rate.
Reliably, the peak body for multinational miners has engaged in its usual chicanery, conflating taxes with royalties and deploying convenient ratios and data time-frames to push its case for further mollycoddling at everybody else’s expense.
It should be said that mining does play a huge part in Australia’s economy, as evinced in recent days by fears in the government that the fall in commodity prices may wreak further havoc on the budget.
Yet it is never as big a part as the mining lobby makes out, either as an employer or as a contributor to the nation’s finances. The tax take from mining companies is dropping dramatically – not rising, as their lobby group attests.
The fact is that as commodity prices fall, so do taxable profits and so therefore do taxes, too. Although its contribution is falling – not rising, as the lobbyists claim by the tricky use of ratios – the miners (ever vigilant against the possibility they may be taxed more to shore up the budget deficit) have launched yet another campaign to reduce the tax rate.
In its latest foray, the MCA has been more brazen than ever in mixing up taxes with royalties.
“Just like other taxes that affect miners, royalties are levied to ensure the community gets a slice of mining companies’ revenue”, they say.
Just like other taxes? A royalty is not a tax; it is a cost of goods sold. It is the payment which a company makes to the states for the pleasure of buying its resources and selling them. Any economist or accountant will tell you that … well, almost any.
Once again Deloitte Access Economics has put its name to Minerals Council’s research and pushed this royalties-as-taxes line.
A royalty is the price of an asset. Every time the state leases ground to a mining company it is effectively privatising an asset. That asset belongs to the people of Australia. The underlying implication of the MCA research is that miners should take our minerals for free and ship them offshore to foreign buyers.
Then there was this bit of spin:
“Miners have just invested a trillion dollars in new mines and associated infrastructure. The benefits of that to Australians will last for generations.”
Says Australia Institute economist Rod Campbell: “Will future generations really thank us for building coal railways to outback Queensland, usually with public subsidy? Not when they realise this comes at the expense of transport where people actually live. And certainly not if the world stops using so much coal.”
The MCA claims: “But the other factor was that the states boosted royalty rates”.
“The states didn’t “boost” royalty rates,” says Campbell. “At best they gave them a nudge – a 1 per cent increase on coal in NSW – partially offset by deductions, and Queensland’s increase applied only when prices were high. Gold is still free in Victoria – zero per cent royalty.”
The MCA claims: “Mining expenses rose”.
“Mining expenses rose because we tried to build all the biggest projects all at once, with no consideration of what that would do to input costs and no consideration of the inevitable supply increase that we are now all lamenting,” says Campbell.
“Commodity prices fell,” says the MCA.
Commodity prices have fallen … but only after the most spectacular peak of recent memory. That’s what drove this whole argument in the first place. Coal prices are back to near long-term averages, so it’s wrong to look at this as a fall. Deloitte fails to look at the peak.
Another point to be made about the tax situation of the miners is that thanks to aggressive tax planning, Australian governments are losing billions of dollars to Singapore via “marketing hubs”.
Nowhere do Deloitte or the Minerals Council make mention of their contribution to the economy of Singapore, entirely financed by minerals which belong to Australian people – minerals moreover which are not even used by the people of Singapore.
Singapore undercutting Australia is a crisis for the nation’s coffers as it leads to both lower royalties (as goods are sold to related parties in Singapore on the cheap before being repriced and sold again to the end users) and lower profits as taxable income is lower.
Compared to other industries, the mining companies are in clover, being the beneficiaries of billions in state and federal subsidies a year.
In 2001, the Howard government cut the corporate tax rate from 33 per cent to 30 per cent as part of a package of reform that scrapped accelerated deprecation for nearly all industries except resources. The miners still get the benefits of accelerated depreciation but also get the benefits of the lower company tax rates. When it comes to the tax system, the miners are often given special treatment.
The idea that we should consider the amount of royalties paid by the miners in the context of their taxable income is absurd. Accelerated depreciation artificially suppresses their taxable income and, by reducing the denominator, makes the royalties they pay seem larger. Rather than exhibit any shame for hanging on to accelerated depreciation when other industries lost it, the miners are now using their loophole to exaggerate the significance of the royalties they pay.
Of course the big lie is suggesting that the royalties they pay are a tax rather than a price they pay for using the community’s raw materials. If royalties are a tax then so too are the electricity bills paid by NSW electricity customers. Needless to say, such an argument is as ridiculous as the claim that the mining industry doesn’t receive any subsidies.
They should be paying more in tax and royalties, not less.