Australia scraps mining tax

9 September 2014

Australian Prime Minister Tony Abbott last week successfully repealed the nation’s tax on mining company profits, a levy introduced by the previous Labor government in 2012.

After a seeming political stalemate around the repeal legislation since July, Abbott’s Liberal-National coalition government struck a bargain with various independent lawmakers in the Senate, including with the maverick Palmer United Party representatives.

The bill was then sent to the House of Representatives where, as expected by pundits, it was duly passed.

The tax, known formally as the “Mineral Resources Rent Tax,” was initially sold by Canberra as a bid to spread wealth from the country’s resources boom by financing infrastructure developments, retirement funds, and other welfare measures.

The levy targeted two of Australia’s largest exports – iron-ore and coal – at a rate of 30 percent. A number of Australian mining companies at the time of the tax’s introduction viewed it as “discriminatory” and “cumbersome,” according to Colin Barnett, Premier of Western Australia – an expansive, mineral-rich region of the country.

Critics of the tax also levelled that it harmed Australia’s domestic mining industry by sending jobs and industry to competitors overseas.

Australia is the world’s leading producer of minerals, exporting on a commercial basis primarily to its Asia-Pacific neighbours including China, Japan, South Korea and India. In recent years government officials have estimated the mining industry’s contribution to gross domestic product at close to ten percent.

The annulment of the levy comes hot on the heels of the government’s final scrapping of the carbon tax in July. (See BioRes, 17 July 2014)

The two repeals, both flagship pledges of Abbott’s election campaign, crown years of divisive debate. After winning office last year, the new Australian leader said his planned tax annulments would signal to investors that the country was “open for business.”

Adversaries of the former carbon tax similarly claimed it crippled the mining and coal export industries while proponents alleged it would help Australia – the world’s largest greenhouse gas emitter per capita – move to cleaner energy sources.

Budget challenge

Federal Treasurer Joe Hockey also lambasted the levy in the country’s parliament last week claiming that the tax succeeded in raising only one percent of what the former administration had forecast. A total of A$11 billion (US$10.1 billion) had been raised by the levy over a three-year period.

Other experts have suggested that the levy failed to generate higher income due to a drop in commodity prices as result of declining demand from China, a major buyer of Australia’s iron ore and coal.

The repeal of the mining tax has, however, thrown up a series of fiscal questions for the current coalition government.  

Independent lawmakers in the Senate agreed to Abbott’s proposition after redress to keep some spending mechanisms financed by the levy until the next election.

According to government officials, certain welfare and pension measures previously financed by the levy will be maintained until after the next election, following the deal struck with the Palmer United Party.

“By giving away some of its spending cuts in a tight budget climate it’s a bit of a Pyrrhic victory,” said John Warhurst, a political analyst at the Australian National University in Canberra in reaction to the news.

Great Barrier Reef reprieve

Last Tuesday, on the same day that the final repeal legislation was approved in full, Reuters reported that Australia may be reconsidering plans to dump 3 million cubic metres of dredged mud near an area of the Great Barrier Reef, a world heritage listed site.

The mud dumping, approved by the Great Barrier Reef Marine Park Authority (GBRMPA) last February, would be part of a project to construct the world’s largest coal port by extending Abbot Point – a 30-year old deep-water port – in order to facilitate US$16 billion worth of coal projects in the region. (See BioRes, 4 February 2014)

The decision followed approval by Australian Environment Minister Greg Hunt last December, although the politician conditioned his endorsement on the identification of alternate disposal sites for the mud within a set investigation zone.

Last week Reuters reported that North Queensland Bulk Ports – the port authority charged with governing the area in question – would re-submit proposals outlining alternative dumping sites. A spokesman for Hunt’s office, however, declined to confirm the media reports.

The move could augur well for the 600,000 year-old reef. Opponents of the coal expansion project had lobbied hard against the planned mud dumping, arguing that the move would cause sediment to drift into vulnerable marine areas, harming a fragile ecosystem supported by the reef. 

In June, UN experts also expressed concern for the reef, citing the planned coastal industrial developments as a potential threat. However, the decision to label the coral reef “in danger” was deferred, and Canberra was instead requested to report on the state of the reef by February of next year. (See BioRes, 26 June 2014).

Last week’s parallel developments highlighted a tension at the heart of Australia’s economic development, namely, its resource-based economy that served to tide the country through the worst of the global financial crisis set against a need to ensure sufficient conservation safeguards in a nation home to vast biodiversity.

ICTSD reporting; “Australia Repeals Mining Tax,” THE WALL STREET JOURNAL, 2 September 2014; “Australia’s mining tax repealed,” BBC, 2 September 2014; “Abbot Delays Budget Savings to Scrap Australia Mining Tax,” BLOOMBERG, 2 September 2014, “Mining companies approve mining tax repeal,” THE SYDNEY MORNING HERALD, 2 September 2014, “Australia’s proposed mining tax divides opinions,” BBC, 19 March 2012; “Australia to scrap plan for dumping near Great Barrier Reef,” REUTERS AFRICA, 2 September. 

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