Friday 15 February 2013

Treasury exposes mining tax flaws...


Treasury exposes mining tax flaws as Martin Parkinson blames Labor's concessions



TREASURY secretary Martin Parkinson has admitted the design of the mining tax is responsible for its failure to generate revenue, not the falling commodity prices, higher currency and state royalties blamed by the government.

In explosive testimony to the Senate economics committee yesterday, Dr Parkinson said Treasury had compiled its budget forecasts in ignorance of the real cost of concessions agreed to by Wayne Swan and Resources Minister Martin Ferguson when they renegotiated the tax in private with the chief executives of BHP Billiton, Rio Tinto and Xstrata in mid-2010.
"We've adjusted those estimates for the things that we can see that have changed in the interim. What we haven't done is adjust the estimates for things that we can't see," he said.
Reporting a $3 billion loss as it wrote down the value of assets, Rio yesterday confirmed that it had paid no minerals resource rent tax on its massive West Australian iron ore operations or its east-coast coalmines.

Dr Parkinson said that when Treasury lowered its forecast for first-year revenue from the MRRT from the $3bn predicted in last May's budget to $2bn in the October update, it had taken into account falling commodity prices, the high value of the Australian dollar and increases in state government royalties. "We can see the commodity prices . . . and we can get very quick estimates of movements in volume," he said. "The second thing we can see in real time is the exchange rate; and the third thing we can see in real time is state royalty rates."

Dr Parkinson said the two big variables it did not take into account - and which resulted in the tax raising only $126 million in its first six months - were the value that the mining companies put on their assets (the starting base for the tax) and the share of the profits that is attributable to downstream operations not covered by the mining tax.
He said Treasury was hoping for the assistance of the mining industry in working out where it had gone wrong. "We now have to find out: is there something we missed," he said. He said the mining companies had given Treasury estimates of the valuations they would put on their mines when the tax was negotiated in July 2010, but had not updated Treasury about revisions they might have made.
"When . . . the mining industry talked with us there was no legal obligation on them to have actually settled on the starting base," he 


said. "They actually had the opportunity to go back and think about what their starting base should be. They gave us their best estimate, as we understand it, their best estimate at the time, but they clearly had until the point they are legally obligated for the tax the opportunity to rethink that."
Asked by opposition assistant Treasury spokesman Mathias Cormann whether Treasury was "flying blind" when it compiled the forecasts, Dr Parkinson replied: "We can't see changes that may have been made."
The government has faced a barrage of criticism in parliament this week over the failure of the tax to meet its revenue forecasts.
Julia Gillard faces pressure from her own backbench, as well as the independents and the Greens, to make changes to the tax to fix the revenue shortfall. The government has indicated it has no plans to change the design of the tax but it will continue negotiations with the states aimed at taking away the states' ability to raise royalties at the expense of the commonwealth.
Dr Parkinson's testimony highlights the concessions given by Mr Swan and Mr Ferguson, and signed off by the new Prime Minister, when they renegotiated the tax one week after the overthrow of Kevin Rudd in mid-2010.
Where the original resource super-profits tax proposed by the Rudd government had required mining companies to value their projects at their written-down book value, the new tax allowed them to use the market value of their assets at March 2010 and then claim depreciation.
An assessment by investment bank UBS compared the book value of BHP's Queensland Coal mines of $3.7bn with its market value of almost $18bn.
With a higher value, the companies can make bigger tax deductions for depreciation.
The revised tax also applies only to profits derived from mining, not from processing, transporting and shipping minerals.
Dr Parkinson suggested the mining companies may be attributing more profit to these downstream activities than Treasury expected.
Senator Cormann said Dr Parkinson's testimony showed Mr Swan had been "reckless" in agreeing to the concessions. He had "signed up to a major concession as part of his failed mining tax deal, formally committed the commonwealth to it and even got the Prime Minister to sign it when he had no idea what the cost of that significant concession was".
A spokeswoman for Mr Swan said there was nothing unusual in Dr Parkinson's admission that Treasury did not know what values the mining companies would be using for their assets in calculating the tax. "Treasury does not have access to the full financial details of individual taxpayers, but bases its forecasts on the best available data," she said.
Broking analysts and mining companies suspected, from the beginning, that companies' ability to put a market value on their assets would have a big impact.
A week after the tax was agreed, the then Coalition industry spokesman Ian Macfarlane suggested no tax would be paid: "The companies involved in the negotiations will be paying no more tax than they are now. We're starting to think the whole thing is a sham."
Association of Mining and Exploration Companies chief executive Simon Bennison last night told a Senate estimates hearing that Treasury understood the concessions that had been offered to the big miners. "They went in with their eyes wide open, knowing the design of the tax would provide for big tax deductions from their starting base," he said.
Announcing his company's annual results, new Rio chief executive Sam Walsh revealed that his company - the nation's biggest and most profitable iron ore producer - has paid no MRRT since the tax was introduced last July. He would not say whether Rio expected to pay the tax this year.
Mr Walsh said calls to rejig the tax could affect future investment in the mining industry. "It's very important in our industry . . . that we have certainty," he said.
Lance Cunningham, national director of tax at BDO, told The Australian it was well known in the industry how the MRRT and its depreciation scheme would work.
"The method they have used has given them the advantage of being able to claim a greater amount from their starting value than perhaps the government had envisaged," he said.
Additional reporting: Lauren Wilson, Matt Chambers, Sid Maher
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COMMENTS ON THIS STORY

  • Old fella of Queensland Posted at 12:56 AM Today
    Why all this waste of Public Service time & thus taxpayer Money? It a few months time the whole farce will become history so who care who was the biggest fool. Can't we concentrate on the realities after Julia & Scrudd and get on with repairing the damage they have caused to us?
    Comment 1 of 44
  • col of far north Posted at 1:24 AM Today
    Dumb and dumber, this sorry saga continues. Swan should resign and gillard should put us all out of our misery and call the election today.
    Comment 2 of 44
  • Sam Ordinary Australian of Hope Valley SA Posted at 2:03 AM Today
    Wayne Swan and Martin Parkinson should both resign, or be forced out! This is unbelievable incompetence from the Australian Treasurer and the Head of Treasury, who appears complicit because of his now public disclosure.
    Comment 3 of 44
  • Old Seadog of Newcastle NSW Posted at 2:58 AM Today
    Whitlam and his duumvirate, Swann and Ferguson in private talks with Miners... makes one wonder whether the Unions and their Labor Party are really interested in due parliamentary processes. God knows what else goes on that the Elecyorate should be conerned about.
    Comment 4 of 44
  • Willo Posted at 3:55 AM Today
    Kerry Packer said "You only get one Alan Bond in a lifetime" when he sold NINE for a premium. Likewise the three CEOs of BHP, Rio and Xtrata must have been rubbing their hands with glee and licking their lips when Gillard, Swan and Ferguson walked into the room. What a bunch of incompetent morons in charge of the country.
    Comment 5 of 44
  • MickRWC of Adelaide Posted at 3:58 AM Today
    It's not so bad that the tax didn't raise much money, after all, it's a profits based tax. It's do bad that this foolish govt spent all eggs money before it came in.
    Comment 6 of 44
  • The Blackeye Rose Posted at 5:56 AM Today
    What a pair of incompetent fools Gillard and Swan must be. It's not just their incompetence in setting this whole debacle up, it's about Sovereign Wealth. What share do we get from this, the people of this country need to know? It' s ok to splash cash around if you have it in your hand, however this pair of fools have splashed the cash and now have to borrow from overseas to repay it. What breaks my heart is that they are still promising huge spending plans for the future and there is no way they are going to pay the debt that is recurring every day. Fools, the pair of them.
    Comment 7 of 44
  • Sandy Symons Posted at 6:16 AM Today
    Inept ,incompetent and in disgrace .Labor are on par with the greens when it comes to economic management.
    Comment 8 of 44
  • Russell of Brisbane Posted at 6:32 AM Today
    Rio says that they paid no mining tax but $7B in other taxes including royalties I suspect. This shoud not be overlooked. The industry is paying a lot of tax. If we must have an additional burden on this industry, then the tax structure is in fact pretty good as a super profits tax. If prices go up more profits and more tax. But rejigging this tax to make a bigger take when there are not super profits will have a negative effect on investment and the returns to our superannuation funds. If the government takes too much profit from these companies they will eventually exit and leave the industry in the hands of Chinese companies who are less interested in profit. In which case even less Tax will be paid. This the a real risk.
    Comment 9 of 44
  • Terry of Melbourne Posted at 6:52 AM Today
    What a joke, this government is useless, and as for the mining tax you can blame Gillard and Swan as they were responsible for it. How much longer do we have to put up with these bunch of clowns for? Too long if you ask me.
    Comment 10 of 44
  • Warren of Canberra Posted at 6:57 AM Today
    And these folks did not see this? Either this government has not done is homework or they were convinced to change the depreciation writeoff values to get the three big miners on side. Therefore, they either sold the farm before they signed up or they were outclassed by the miners. My money is on the fence.
    Comment 11 of 44
  • Useless treasurer of Bundaberg Posted at 7:00 AM Today
    Not very smart from " the worlds greatest treasurer" in other word he is "the worlds dimmest treasurer". A great big joke
    Comment 12 of 44
  • robynne of merrimac Posted at 7:11 AM Today
    This government has got so farcical that the whole world is laughing at AUSTRALIA.
    Comment 13 of 44
  • Harry of Norwood Posted at 7:19 AM Today
    Time to get a petition going to get rid of the untruthful PM and Treasurer. We can't wait until September. They have misled the House on this issue infact lied to the House, it should be all over. Recall Parliament now, the people demand it.
    Comment 14 of 44
  • Maximus of Sydney Posted at 7:20 AM Today
    Incompetence and failure with no accountability. That's the problem with labor. Any minister that stuffs up on the scale that Swan Gillard and Ferguson have should be sacked. But we have a situation where they are all as incompetency as each other. There's no CEO type figure setting standards of performance
    Comment 15 of 44
  • Train Wreck Posted at 7:31 AM Today
    In other words, Gillard has misled parliament...
    Comment 16 of 44
  • David of NSW Posted at 7:59 AM Today
    Maybe Wayne Swan will stop harping on about the Coalition having Treasury vet its "costings". His own "costings" don't look too flash.
    Comment 17 of 44
  • Maggie Qld Posted at 8:03 AM Today
    Swan demands the Coalition have their numbers crunched by Treasury? How many times has Treasury let us down in the last five years? Who do we trust indeed.
    Comment 18 of 44
  • The Observer Posted at 8:03 AM Today
    So, surprise, surprise, the world's greatest treasurer, and his boss, have stuffed up again. How long do we have to put up with this rag tag union rabble running the country?
    Comment 19 of 44
  • Paul of Coffs Posted at 8:05 AM Today
    Proving once again that Labor is too stupid to run the country!
    Comment 20 of 44
  • FRED of 2010 Posted at 8:06 AM Today
    so we the tax payers get screwed again by swan/ gillard/fergusion no surprise this govt is completely ignorant re $$$ management how much longer will the voters of OZ suffer this incompetent govt we wait to give pay back at the ballot box SOON PLEASE
    Comment 21 of 44
  • Fitza of Cairns Posted at 8:19 AM Today
    As was pointed out by an online writer yesterday, Swan only has an Arts Degree - in Public Administration, apparently. Therein lies a huge problem, the treasurer running this country does not have an Economics or Accountancy Degree. He would not even get to the interview level, if he was applying for a private enterprise job in a similar position. The other problem child JG, has a Law Degree. These days, the Degrees and their professions are becoming increasingly specialised, due to the complicated world we live in. Voters need to start demanding more information on potential politicians - before we get to vote for them and if voted into office, the leaders must be more careful about examining the qualifications and skills, in my personal opinion, of those they promote into powerful positions. It is not the 19th century, when you might be able to go a long way without a university degree. At least with TA, we know he is well qualified, so no problem there.
    Comment 22 of 44
  • jeb Posted at 8:24 AM Today
    Mr Swan please resign . It is obvious this tax has actually cost us money. Australian is it possible to start a petition in your paper asking for his resignation
    Comment 23 of 44
  • Justin of Brisbane Posted at 8:27 AM Today
    World's greatest treasurer.
    Comment 24 of 44
  • donkeygod of Cardiff, NSW Posted at 8:38 AM Today
    Parkinson is covering up. When he's trying to forecast revenue, and he doesn't have the data he needs, what would any reasonable person expect him to do? He's got two choices: either a) ask for the data, or b) tell Swan and Gillard no reliable estimate can be made, and why. Which did he do? Ian Mcfarlane said at the time the MMRT would collect no tax, and he wasn't the only one. But Treasury went ahead and prophesied a fair few billions that didn't eventuate. In the event, the massed brainpower of the Treasury Department didn't come close. Because Parkinson is a nong? Doubtful. Because Swan insisted? Was Treasury misinformed? More likely the latter. Hard to say, since when Gillard & Swan 'negotiated' their 'secret' deal, they did so without Treasury's involvement. That was unprecedented, and obviously it was a VERY bad move. Regardless, the reliability and integrity of Treasury have been seriously compromised. Surely, the rationale for their advice to government is on record. The honest thing would be to revisit the process used to estimate MMRT income at a public inquiry. Billions are involved. We need to know what went wrong, and why.
    Comment 25 of 44
  • Nick of Canberra Posted at 8:40 AM Today
    It is not only Dr Parkinson who has stated that the design of the mining tax is flawed and thus failing to produce the forecast revenue.This tax was negotiated by the PM, Treasurer and Martin Ferguson behind closed doors with the three biggest mining companies in Australia. it appears that no treasury officials were present. We ar now witnessing the results of that old saying 'do't send a child to do a man's job'. This is exactly waht has occurred. The three government stooges have been proved to be totally out of their depths and had therefore been completely out manoeuvred.It also seems to have been illustrated that the government negotiators were unaware of the difference between royalties and taxes. The net result is the unholy mess in which the government now finds itself and with little chance of extricating itself before the election.
    Comment 26 of 44
  • Jon of Adelaide Posted at 8:44 AM Today
    The MRRT is obviously so badly designed that even Treasury doesn't fully understand it. Moreover, the federal government has declared its intention to interfere with ('negotiate') mining royalties, a sovereign right of the states. This tax deserves to be abolished.
    Comment 27 of 44
  • Dave of Cleveland Posted at 8:46 AM Today
    So even if the price of the minerals had not drop would Mr Swan still only received $350 million dollars in tax and not the billions he expected. If Mr Swan and Miss Gillard did just pick the bones out of the Henry Report reforms them this would be a less of a problem. But no they are to frighten because they must pander to the people and borrow more money.I would like to hear Ken Henry on this whole matter. In the chain of money, tax is the last and lowest thing you what to pay and mining companies have proven this point.Both Swan and Ferguson failed in arithmetic class, no doubt Swan and Co will blame Treasury. No doubt we will hear more.This tax will not to hard to over turn by team Abbott as there is no money in it. Next question how much revenue from the carbon tax.
    Comment 28 of 44
  • Joan F Posted at 9:00 AM Today
    outsmarted by big business = this is what happens to union political wannabes with no business experience
    Comment 29 of 44
  • Peter Posted at 9:05 AM Today
    They introduce a tax which they say will produce billions of dollars in income, they then spend the money that they have not yet collected, and then work out that the money is actually not their to be collected. However it is no ones fault, and no one will resign, or even apologise. In the the private sector they would all be sacked.
    Comment 30 of 44
  • Beetle of Brisbane Posted at 9:06 AM Today
    So the government knew they may not have had all the facts but they erred on the upper end of the estimates and then portrayed it as gospel. Sounds familiar....more hubris from an incompetent government. Just as well Swan is the Treasurer of the Year because obviously only he saved us from a worse outcome.
    Comment 31 of 44
  • Dismayed of Adelaide Posted at 9:06 AM Today
    Another misleading headline amid the ongoing misinformation program being run by this publication. This publication is now nothing more than a conservative opinion mouthpiece.
    Comment 32 of 44
  • Ken of Melbourne Posted at 9:21 AM Today
    How interesting.....not only the general public and Caucus kept in the dark, but the Public Service as well. How long will it take for everyone to realise that Julia Gillard does not play with a 'straight bat'? Just wait and see, she will almost certainly endeavour to use Treasury as a weapon against her opponents at the forthcoming election.
    Comment 33 of 44
  • john Bird of Somerville Posted at 9:22 AM Today
    Our Feral (Federal) Govt have much to learn. If Ian McFarlane knew that no tax would be paid one week after the new Gillard- Swan renegotiation was signed off, how is it that it took this Govt years to find out!
    Comment 34 of 44
  • Fiona Ann Murray of Australia Posted at 9:25 AM Today
    It just goes to show how incredibly incompetent and ignorant Gillard, Swan and Parkinson are to allow the mining companies to design the tax. Of COURSE Rio Tinto, X-Strata and BHP didn't pay tax - THEY designed it that way and must be laughing all the way to the bank. NOW Swan and Gillard want to help themselves further to our Superannuation. September 14 is too far away - we want an election now.
    Comment 35 of 44
  • vecchio of chiswick Posted at 9:41 AM Today
    It is beyond belief that our country is in the hands of people so incapable, naive and un-business like. What fools!
    Comment 36 of 44
  • Terry Kidd of Perth Posted at 9:44 AM Today
    Julia Gillard and Wayne Swan both have no scruples. They stand in Parliament and blame everything but themselves, then they leave a senior public servant to deliver the truth in a forum where lies cannot be told. Both Swan and Gillard would have been briefed on everything that Dr Parkinson said. It would have been no surprise. Yet they still let Dr Parkinson take the heat for their own incompetence. Why would you want to work for these poor excuses for leaders?
    Comment 37 of 44
  • Perry Spanbroek Posted at 9:45 AM Today
    It is appalling to think that Swan and co got it so wrong. It is obvious that they went in as chickens to the slaughter with the savvy mining giants outsmarting them.
    Comment 38 of 44
  • Ivor G Williams of Australia Posted at 9:47 AM Today
    We want the news, not the opinions of propagandistic journalists
    Comment 39 of 44
  • Ivor G Williams of Australia Posted at 9:56 AM Today
    I believe it's time that all State and Federal politicians should be made to disclose their annual Taxation Returns for public scrutiny.
    Comment 40 of 44
  • Keith of Brisbane Posted at 9:58 AM Today
    What has treasury been doing since mid 2010,that they only FIND a flaw in 2012.
    Comment 41 of 44
  • Keith Smith Posted at 10:25 AM Today
    This massive error by Gillard, Swan and Ferguson has caused extreme economic damage to Australia as a nation. It was a decision that has now been proven to have been seriously against the national interest. Industry would not tolerate such incompetence in management of such magnitude and those responsible would resign as happeneqd with RIO recently. If such a blunder occurred in industry an Extraordinary Special Meeting of shareholders would be called and demand that heads roll. In political terms this would equate to an uprising in the community demanding an immediate election on the grounds of serious economic mismanagement of the nations finances amounting to negligence at the highest level.
    Comment 42 of 44
  • John Morrissey of Hawthorn Posted at 10:34 AM Today
    And this is the Treasury on whose costings Julia Gillard demands each Coalition policy be judged in the 7 months to the Federal election. When you pull assumptions out of a hat and neglect relevant factors because they don't fit the needs of the government of the day, you are totally compromised. Wayne Swan, Treasury and even Martin Ferguson were focused only on Julia Gillard's coup-against-Kevin day pledge to solve the Mining Tax crisis and end the advertising campaign of BHP, Rio and others. Blind Freddy could see that WA had only to lift its royalties and, under this agreement, the Commonwealth would have to forego revenue, and anyone with business nous should have seen the implications of the write-off clauses in the agreement. But not the Gillard government - nor Treasury! They all deserve the opprobrium for their stupidity which is heaped upon them today!! And more!!!
    Comment 43 of 44
  • Ken of SA Posted at 11:19 AM Today
    Lots of comments about how dumb/incompetent etc swan is, but who voted swan in with a majority on 2PP in the Qld seat of Lilley in 2010 and before? Seems to me there are plenty of people in Qld who live in the electorate of Lilley that are much dumber and stupid than what wayne swan is.
    Comment 44 of 44
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