TAX NEWS - 2010

Gillard needs to act fast on resource super profits tax

"If it's simply the same old shit in a new package, then World War III is back on again."

This grimly gritty observation from one potential participant in Julia Gillard's apparently still evolving proposal to reopen negotiations on the resource super-profits tax rather sums up the rock-hard consensus of the greater Australian mining industry.

The Prime Minister has been given the benefit of the doubt by the miners.

But the goodwill generated by her politically savvy decision to end the $38.5 million taxpayer-funded campaign against the miners will not last without further comparatively immediate succour. Suggestions that Gillard might indulge the industry in return for industry-wide silence during the forthcoming election campaign have, in fact, only exacerbated the sense of betrayal and mistrust that now characterises the miners' dialogue with government.

In fact, Gillard has probably as few as two weeks, but certainly no more than four, to provide the industry with firm guidance on her government's intentions for the super tax. Private promises will not work this time. The only way the government will keep the miners out of next federal campaign will be to make firm prime ministerial commitment to the parameters of the negotiation that has been promised.

Suggestions of an agreed hiatus in negotiations were greeted by the industry yesterday with diplomatic scorn, but scorn nonetheless.

There is some agitation too that requests sent on Thursday and Friday asking for a speedy reopening of negotiations remain unanswered. No one I spoke to yesterday had received notification, formal or otherwise, of either the nature of the timing of the "negotiations" that will be conducted by Treasurer Wayne Swan and Resources Minister Martin Ferguson.

"There's no industry appetite for drawn-out negotiations on the mining super-tax proposal," Minerals Council executive director Mitch Hooke noted yesterday. "In the interests of the industry and the national economy,the mining super-tax issue must be resolved quickly and categorically. Every day the super mining tax debate continues, more harm is done to the national economy.

To restore confidence and certainty to the industry and, in the interests of all Australians whose livelihoods depend on mining, there should be a definitive resolution to the tax debate before the next federal election.

That categorical resolution must address the headline and uplift rates, the tax base and retrospectivity with regard to international competitiveness and sovereign risk."

The miners are determined they will not be "rope-a-doped" again. They were convinced to play a private game during the Henry Review on the basis firm change would come only after negotiation.

There was no discussion between industry and government ahead of the May 2 announcement of a new tax that utterly re-cast the financial metrics of the industry.

The result is, as we have reported several times now, trust between the miners and government is at an unsustainably low ebb.

The miners will not wait until after an election to be delivered from the uncertainties created by the super tax cooked up by Ken Henry, Treasury's Swan and prime minister Kevin Rudd. They will not remain silent during Gillard's attempt to secure a mandate on promises that post-election negotiations will consider the rate of the super tax and along with its retrospectivity.

One reason for so short a timeframe for trust is so short is that the mining lobby is working on the basis that Gillard could go to an election as early as mid-to-late August. The cornerstone of that logic is that she will go ahead of Parliament's recall to new session on 24 August. When they do the maths, the miners come to a view that they have about two or three weeks before the campaign would begin. Hence the need for speed and certainty. The miners want some publicly expressed certainty over the depths of concessions on the tax by maybe the second week of July or they will head back to the ramparts.

Ultimately, the industry's core fear here is that Rudd's departure will prove to be another opportunity scorned. There are fears expressed, for example, that the NSW right in particular turned on Rudd because he so spectacularly failed to sell the super tax but that it is now confident Gillard can.

And while that approach seems to ignore the previously exposed potential that in WA and Queensland, where many voters directly prosper from mining, the government could lose up to 12 seats if it persists with the tax, it has some considerable currency in an industry now without confidence in the government, however it is constituted.

Mind you, between now and any revival of hostilities, the miners will play a thoroughly diplomatic hand. After all, amid the mixed signals emerging from Gillard over the past few days, there have been indications she wants to end this saga and move forward.

The problem is that there have been other more uncertain messages too.

Within industry, there is awareness aplenty that an overly hasty return to open warfare would threaten community goodwill and risk reinforcing the preferred industry caricature as drawn routinely by Swan. The Treasurer has complained that some in the industry have behaved like thugs and observed that many have refused the opportunity to join his consultation on the tax.

Again, as we have said often enough, a consultation that involves two sets of one-way conversations is not consultation at all.

Swan's descriptors are ruthlessly self-serving and false. What's more, the extremely positive community reception to the industry's campaign against the RSPT, announces that there is a broad appreciation of the Treasurer's attempt to spin his way out of his dunce's corner.

And talking of spin, the government's continued use of its line about securing a "fairer share" of resource industry profits for all Australians is both really annoying the industry and reinforcing its wariness about Gillard's ultimate intentions.

What Gillard regards as a "fair share" is not clear. But it certainly means more than the circa 45 per cent of profits currently extracted from the successful miners through corporate tax and state royalty payments. There is some acceptance across industry that any speedy resolution of this issue will result in more cash heading Canberra's way. But there will be no peace in anyone's time while the tax hits existing projects, not while the rate is 40 per cent and consistent across all commodities and not while it extracts revenue before the payments of such a fundamental business cost as interest.