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It’s a national emergency!!!

May 28, 2010

Quite frankly, this government is completely outrageous . . .

And Stephen Bartholomeusz agrees. He is an economic commentator for Business Spectator and generally presents rather dry analysis of economic and business matters of the day but today was different. The KRUDD government has so outraged him that his tone was less than measured in his article today.

It’s such a great read I’ve quoted the whole article:

Omigod! Australia is facing a national crisis so threatening that the federal government has had to invoke national emergency powers. The crisis? Someone disagrees with the government!

Well, actually, it’s the fact that a lot of people disagree with the Rudd government proposed resource super profits tax that has caused Wayne Swan to use a special exemption under the national emergency powers to enable the government to mount a massive taxpayer-funded advertising campaign in support of the tax.

To do so, with the cooperation of his colleague, Special Minister of State Joe Ludwig, the government exempted itself from its own guidelines requiring tax-payer funded advertising to be cleared by an independent committee of former public servants.

The crisis? Well, according to Ludwig, he granted the exemption because of the need for “extremely urgent action” to respond to the mining industry campaign against the tax. He said he noted and accepted the Treasurer’s advice that there was an “active campaign of misinformation about the proposed changes”.

So, millions of dollars of taxpayer funds are going to be spent on an advertising campaign – there is a $38.5 million budget allocation to promulgate the virtues of the government’s tax reform package (although the RSPT is the only significant measure the government adopted from the Henry Review and even then the tax is different in some significant detail to that put forward by the review panel).

Now, we know this is a rather autocratic government with a rather aggressive streak to it (witness the destruction wreaked on Telstra) but it is a big stretch to see a vigorous debate on a major and retrospective change to the tax system as a national crisis, unless an argument of ideas is in itself seen as a threat to the democracy. That’s not a concept that would have been contemplated before the ‘Ruddocracy’.

The Rudd government brought the backlash from the industry, its investors and those concerned about sand-bagging our most competitive externally-facing sector upon itself by trying to dress up a political strategy as tax reform and cloaking it with a version of economic nationalism tinged with xenophobia.

In trying to find a way to create the perception of fiscal responsibility – the forecast $1 billion surplus in 2012-13 – while still funding a raft of spending promises in the lead-up to the election the government seized on the resources sector as a soft and juicy target. That’s despite the fact that resources and the power to levy taxes on them belong to the individual states, not the Federal Government.

Or that taxes on super profits from a commodity boom, if they are to be levied, ought to be tucked away in a sovereign wealth fund to provide inter-generational equity and insurance against rainier days, not devoted to recurrent spending in the lead up to an election.

So it seized on the very theoretical, very complex and very unworldly RSPT – cynically mislabelled as a tax on super profits when it is very clearly a super tax on ordinary profits – and then mounted a hate campaign against the industry based on shonky and dated data, a draft report by a US graduate (which happened to leave out royalties and the petroleum resource rent tax from its calculations of tax rates) and a series of half-truths from ministers who don’t appear to understand the detail or implications of their own tax.

Even the latest line being spun by Treasury Secretary Ken Henry – that the industry is the recipient of generous allowances that disguise the paucity of the actual tax it pays on gross income – is a distortion, given that (a) all companies get various deductions from tax and (b) the biggest contributor to the difference between the miners’ gross operating surpluses and their pre-tax profits would be depreciation. This is a very, very capital intensive sector.

BHP Billiton had a 43 per cent effective tax rate last year. The sector’s effective tax rate, once royalties and the petroleum resource rent tax is included, was about 41 per cent. The corporate tax rate is 30 per cent. Go figure!

If the national interest is being harmed, it is by the proposal, not the debate. If there is an issue of sovereign risk, or damage to the market value of Australian companies, or to the currency, it is the RSPT that has caused it, not the debate.

But, of course, there can’t be any damage caused by the RSPT to Australia’s reputation, can there? It is, after all, a “neutral” tax (or so Ken Henry says). It won’t affect investment in the industry (or so Henry and the government say).

The resource companies will still, after getting their share of what’s left after the RSPT is applied, with an uplift factor of less than 6 per cent, to the near fully-depreciated cost bases of their projects, be allowed reasonable returns. Perhaps not returns that cover their cost of capital, but that’s the price they should be prepared to pay for investing too much and becoming being too profitable in the past. Isn’t it?

It is open, of course, to the government to truncate the public debate by committing to having a proper consultation process – not the farce of pretending to consult while preventing its panel from addressing any of the key features of the RSPT – and saying that all aspects of the tax and its implications are up for negotiation. That would stop the industry’s advertising campaign.

But that would, of course, pull the rug from under the mythical $1 billion surplus and funding of the government’s election platform.

Ah, now I get it. That’s the national emergency. It would be a national disaster if this government weren’t re-elected!

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