Ad for Henry Halloran Lecture

Gillard no longer at the coalface

The federal government can take a breath of fresh air for now, writes Daniel Zwi

The federal government can take a breath of fresh air for now, writes Daniel Zwi

Labor’s Mining Resources Rent Tax (MRRT) ran the gauntlet, and has finally made it through the Senate. It marks a rare victory for a government usually bereft of good news, and can be celebrated in the Labor camp. Granted, the MRRT is a much-diluted version of the tax originally put forth by Kevin Rudd in 2010 – the one hastily retracted by the Labor leadership after a fierce advertising campaign by mining companies. However, it does represent a concrete step in Labor’s professed bid to more equitably tax Australia’s richest and reduce growing income inequality.

The MRRT is particularly handy for Julia Gillard as it comes off the back of her successful purging of the Rudd threat. To say that she has now succeeded where Rudd failed would be inaccurate, primarily because she was inextricably linked to the rejected Resources Super Profits Tax (RSPT) – indeed, she was second in command then. But it would also be inaccurate because the RSPT and the MRRT are two different reforms, the latter so much weaker than the former that to equate them seems misguided.

The differences between the MRRT and RSPT are numerous, but the salient ones are these: the MRRT only applies to iron ore and coal extraction, whereas the RSPT included gold, copper, nickel and uranium. After the tax-free allowance, the MRRT is levied on 30 per cent of profits, whereas the RSPT was levied on 40 per cent. No wonder that Rio Tinto, BHP Billiton and Xstrata – Australia’s biggest mining companies – are not publically opposed to the tax; they’ve got a fantastic deal. Indeed, they helped draft it. But a tax is a tax is a tax, and the passage of Gillard’s legislation undeniably shores up her authority after it was undermined in the recent leadership debacle.

The MRRT is also a win for the government because of the position that it has forced the Coalition to adopt. Vehemently opposed to the tax as they are, they must also forgo the measures it will fund. Perhaps most importantly, the Coalition has refused to back the government in lowering the company tax rate from 30 per cent to 29 per cent. It’s interesting to hear Tony Abbott, neo-liberal devotee, arguing against commercial tax breaks. It’s like seeing Greenpeace bludgeon a dolphin.

Abbott has pledged to repeal the MRRT once in power. He maintains that the tax will scare off overseas investment, limit new projects and lead to greater unemployment. Yet his aversion to taxing Australia’s most lucrative companies has compelled him to oppose a tax cut for all Australian businesses, many of which, outside of the mining sector, could do with some stimulation.

Despite his assertions, it seems unlikely that Abbott will roll back the mining tax if he becomes prime minister next year. The MRRT is predicted to garner $10.6 billion in its first three years. Can the Coalition really forsake that amount of government revenue? It seems especially unlikely considering they also intend to get rid of the carbon tax, fund Abbott’s paid parental leave scheme and deliver a budget surplus.

By not supporting the MRRT, Abbott finds himself in an unenviable position. If he keeps the tax, he will be accused of inconsistency; if he gets rid of it, he will make it that much harder to remain in the black. He also risks alienating those Australians who feel on an instinctual level that it is fair to take a small amount of the gargantuan profits made from the resources boom, and share them around.

In securing the mining tax, Julia Gillard has drawn a line between herself and Kevin Rudd, started addressing income inequality and allowed for the introduction of popular company tax cuts that Tony Abbott lacks the funds to support. Labor political wins these days are like rare birds, hardly ever seen, and Gillard would do well to enjoy it while it lasts.

Filed under: