EDITORIAL FRIDAY 02.07.10.
It can be tempting to say “I told you so”. From the very beginning, I predicted that there would be a negotiated settlement between the Federal Government and the mining industry. Despite the insistence of not only the then Prime Minister, but also the Treasurer and now Deputy Prime Minister Wayne Swan that there would be no compromise on the essential elements of the plan, I had no doubt that in the end key items would be altered. I forecast that the threshold set at the Commonwealth Bond Rate would be increased; it has been, to the Bond Rate plus 7%. I forecast that the headline rate of 40% would be reduced possibly to 30%; it has been. I even criticized the original name of the tax. Calling it the “Resource Super Profits Tax” was always dumb, because it was inevitable that such a mouthful would be abbreviated to become known as a “Super Tax”, and nobody in their right mind would like the sound of that. Amazingly, the name has now been changed to the much more sensible “Minerals Resources Rent Tax”, which is suitably dull and boring for a tax which is not going to impact on the pockets of ordinary everyday Australians.
Despite having been right about so many things, what I didn’t expect was that a Prime Minister would be dumped in order to get there, and I still believe that Kevin Rudd would have reached more or less the same conclusion anyway, although that will now remain a matter of speculation forevermore. Of course, opponents of the Government are now describing the agreement as a massive backflip and a cave-in. That’s only to be expected, but the real question is whether it is a good outcome. By any objective assessment the answer has to be “yes”. The miners, who actually supported a profits based tax regime all along, have had all of their major objections addressed. The Government will still receive the bulk of the revenue originally forecast, and the plans to increase investment in infrastructure and boost superannuation remain in place. The only downside is that company tax won’t be cut by as much as originally planned.
It remains to be seen just how the broader business community will respond to the disappointment on company tax which was to have been cut from 30% down to 28%. Instead, it will now be cut to 29%. While one percentage point might not sound like a huge difference, try telling that to anyone in business, or anyone with a mortgage. I wonder just how far the mining industry could have pushed their claims if they were actually going to end up costing the rest of the business community any more. While the mining moguls were all running around telling us the new tax would send them broke and ruin the economy, the truth all along was that company tax across the whole business sector is a far bigger brake on economic activity than the RSPT ever would have been. But again, what would have been will forever remain subject to speculation.
Clearly, the outcome of the negotiations represents a big win for the mining companies. It’s also a win for the Gillard Government because now we can all get over it and get on with it. The Government can go to the election looking forward instead of looking backward, and the business and investment community can see some certainty. There has even been a modest bounce in the polls suggesting that Prime Minister Gillard’s chances at the election have improved. On reflection, it looks like everyone’s a winner… except of course, Kevin Rudd.