Mining tax. Bring it on, a hostile[Western Australia state premier] Barnett tells Swan [federal treasurer] Jennifer Hewett, National affairs correspondent From: The Australian March 26, 2011 12:00AM COLIN Barnett has a distinctly hostile message for the federal Treasurer. "Bring it on," he declared. "Western Australia won't be intimidated by the likes of Wayne Swan."
The fiasco of the original mining tax may have helped blast Kevin Rudd out of the Lodge. The attempt at a revised mining tax is still going to cause his successor huge political difficulties. The premiers, the Greens, the Liberals, the smaller miners - led by an irate Andrew Forrest at Fortescue - are all lining up to attack it from very different angles.
The difference this time is that the assaults won't be led by the big miners. BHP Billiton, Rio Tinto and Xstrata are all happy enough with the deal they negotiated with Julia Gillard as she desperately tried to settle the issue before calling the election last year. That's partly because they privately don't think the proposed tax will raise anything like the $7.2 billion Treasury claims will come in the first two years of its operation. The companies employ highly paid experts to assess this. In contrast, Treasury's initial estimates on revenue from a mining tax were laughably inaccurate and have been radically altered several times.
But the other reason the big miners are relaxed about the deal is that they also know that any future royalty increases imposed on them by the states will not be their responsibility to pay. Instead, the bill will be sent straight to Canberra. That is because all future, as well as present, state royalties will be credited against the companies' liability for the federal tax. That presents obvious risks to the federal budget if the states decide that raising royalties will be a cost-free way of improving their own finances.
Gillard and Swan understand this could have most unpleasant fiscal consequences in Canberra, which is why they started trying to publicly suggest late last year that "all" applied only to existing royalties rather than future increases. The miners were having none of this supposed misunderstanding. Aware of the commercial significance of the meaning of "all", their lengthy negotiations leading to the deal had focused on precisely this point. The federal government quickly backed off, especially after its own policy transition group, co-chaired by Resources Minister Martin Ferguson, backed the companies' interpretation.
What is more remarkable is that Gillard and Swan thought they would be able to get away with quietly making such a switch without provoking another brawl with the big miners. They both appreciate exactly how risky that could be to personal political longevity. Just ask Kevin.
But that means Canberra now needs to persuade the states that they can't raise royalties. That attempt, to put it mildly, is not going down too well.
The Treasurer was still trying to insist that there would be no "great kerfuffle" because he didn't expect the states to raise royalties, given there was no justification for them to do so. He also suggested that Canberra could effectively punish recalcitrant states by reducing some funding.
The response from Barnett was immediate. He was not going to give into Canberra's bullying, he insisted, particularly over a tax he described as "the most clumsy, inept exercise in public policy" he had seen in 20 years. What's more, his government was already contemplating gradually raising the royalties paid on a certain type of "fine" iron ore.
A very big problem. Just imagine the politics of trying to punish the states for royalty increases. That's even if Canberra has the power to do so, an issue sure to be tested in the High Court.
Queensland Premier Anna Bligh, contemplating an early election, is being more polite to Swan. But the Queensland government also has insisted it will never cede its ability to raise royalties. A new NSW Liberal government, in dire financial straits thanks to the state Labor government's years of mismanagement, will also be tempted sooner rather than later.
But in Canberra the dynamics are precisely the opposite. The Greens and some of the independents are already complaining that the government has been too generous to the miners. Bob Brown is promising to oppose the bill in the Senate, which ironically would combine with the Liberals' antagonism to the "big new tax". That spells trouble with a capital T for a struggling government trying to simultaneously negotiate a carbon tax. Just don't expect Swan to admit it.
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