Julia Gillard has capitulated to the mining companies to end their campaign against Labor’s mining tax. The speedy acceptance of her compromise deal by the wealthiest mining companies BHP Billiton, Xstrata and Rio Tinto shows the extent of the government’s retreat.
The scale of the backdown is such that it is hard to believe Gillard’s claim that it will only cost the government $1.5 billion over the first two years in lost revenue, out of the original $12 billion intake. As Fairfax economics writer Ross Gittins said, “What’s hard to understand about the deal is that so many changes could be made at such a small net loss to revenue”.
The Sydney Morning Herald claimed the government’s figures relied on an upwards revision of minerals prices. But with some detail still to be released, the government’s concessions may be even bigger than they now appear. But to guarantee the mining companies they will win from the final result Gillard has appointed former BHP chairman Don Argus to head a “policy transition group” to finalise the details.
The new tax rate has been cut by almost half, from 40 per cent to an effective 22.5 per cent once a new “extraction allowance” is factored in. It will now apply only to coal and iron ore. Analysis in The Australian claimed the total tax rate under Gillard’s renamed Minerals Resource Rent Tax (including ordinary company tax) would be just 45 per cent—a tiny increase from the 42 to 44 per cent paid under the existing state royalties regime. The super profits tax was initially going to take 57 per cent of windfall profits.
BHP Billiton and Rio Tinto both expect to increase their profits by 100 per cent over the next two years, to make $23.5 billion and $15.7 billion in profit respectively by 2011. Now Gillard is trying to pretend their “fair share” of tax is only a 1 to 3 per cent increase!
On most of the mining bosses’ other demands the government has also caved. The tax will now not apply until company profit rate reaches 12 per cent, as opposed to 5 per cent originally. Companies can also chose to have profitability assessed on current market value of mines, not what was actually invested, to address their demands the tax not be “retrospective” and apply to already built mines. Onshore oil and gas miners will be taxed at the level of the existing Petroleum Resource Rent Tax previously only applied to offshore drilling.
To partially offset its losses, the government will reduce its cut to the overall company tax rate. It will now be lowered to 29 instead of 28 per cent.
Who runs the country?
Gillard has effectively conceded the right of big business to run the country. Not that this government ever intended to stand up to big business in the interests of ordinary working people. Even over the mining tax, they expected the rest of the business community to back them in imposing higher taxes on mining, so they could slash corporate tax for every other industry. But big business chose to back the miners’ anti-tax campaign, worried the government might one day force them to pay their fair share too.
Corporate tax rates have been in freefall for years—from 49 per cent in the mid-1980s to 29 per cent when the latest cut is passed on. Getting serious about taxing their huge profits could allow government to fix up public hospitals, make a real difference to school class sizes and undo funding cuts to our universities.
But the bruising experience of facing down the mining companies’ rage means Labor is likely to be even more beholden to big business in future. This means they will be incapable of properly funding public services, delivering serious action on climate change, or getting rid of the rest of Howard’s anti-worker laws like the ABCC.
Kevin Rudd failed to stand up to big polluting companies when designing his CPRS climate policy—doling out billions in compensation. Most of the WorkChoices anti-union laws remain on the books.
Now Gillard has shown again there is one rule for the rich, and another for the rest of us. When the mining bosses threaten an investment strike, the government has shown it will offer them generous concessions. If workers threaten to strike, Gillard threatens the full force of the law. Mining workers in the Pilbara in WA have been on strike fighting for wages and decent accommodation. They were threatened with huge fines and court action in response. Adelaide building worker Ark Tribe is facing jail for defying the ABCC anti-union police.
Julia Gillard may think getting the mining tax off the agenda will boost her support at the election. But her willingness to bend over backwards to please the mining bosses shows that, like Kevin Rudd, she is unwilling to challenge the vested interests that stand in the way of real change.
Her first few weeks have confirmed that pressure for change—both through voting Greens at the ballot box but more importantly building the movements for change on the streets—is going to be necessary to force any shift. And if we want to put a check on the power of big business workers will need to start using strike action to hold them to account. Striking to stop Ark Tribe going to jail, and to get rid of the ABCC, would be a good start.
