Power struggle leaves mining tax in flux
With a hung parliament delivering rounds of political horse-trading between the two major parties and independents over the next days and weeks, the recent uncertainties affecting the mining sector are set to continue.
At the centre of this uncertainty is whether or not a federal mining tax will now be imposed in the first place, let alone at what rate and structure it will be set.
It is well-known that Julia Gillard and Labor are proposing a Mineral Resources Rent Tax of 30 per cent on iron ore and coal miners. The existing offshore Petroleum Resource Rent Tax will also be extended to onshore oil and gas projects.
These new arrangements will increase the effective tax on mining and so diminish the international competitiveness of some of our large export earners, driving potential new ventures offshore.
It is widely understood that the Liberal-Nationals Coalition under Tony Abbott will not progress with a dedicated federal tax on mining activity.
That the Coalition won a swag of seats in the resources state of Queensland, and performed strongly in Western Australia, provides some evidence in support of its anti-mining tax stance during the campaign.
It appears that a number of independents in the Lower House, including Bob Katter in Kennedy and the independent WA National Tony Crook in O'Connor, are staunchly against the MRRT.
Others, such as independent Andrew Wilkie and perhaps Tony Windsor, might support Labor's mining tax policy.
Given that the Greens have now assumed balance of power status in the Senate, it is necessary to also considertheir stance on the mining tax as a possible price for the formation of a minority government.
In early April, Greens leader Bob Brown called for a 50 per cent "resource rent tax" on mining company profits.
Revenue from this super-tax would be funnelled into a "national resources fund" for a range of pet projects osten- sibly determined by political priorities.
The Greens have already indicated a desire for revenues from their mining super-tax to finance a high-speed rail link on the eastern seaboard.
This is despite two decades of feasibility studies showing such a scheme to be unviable, particularly against high-speed, low-cost aviation.
During the election campaign, Brown maintained his push for heavier taxes on mining boasting that the million-plus expected votes for the Greens nationally would represent a mandate for "a bigger return from the big miners".
What happens next on mining taxation crucially depends on which major party happens to fall over the line of minority government.
If the Abbott-led Coalition secures sufficient support on the Lower House floor, the mining tax immediately disappears from the forward estimates of the budget papers.
If Gillard scrapes over the line, a mining tax will either stay or go.
The mining tax would stay if Labor chooses to engage with the Greens in the Senate. A clear risk is that the Greens might demand their preferred higher mining tax in exchange for giving Labor support for its legislative program.
As has been noted by recent international investment surveys, it is entirely possible that higher mining taxes could lead enterprises to redirect more of their money, time and energies away from Australia towards more hospitable mining tax locations around the globe.
This could imply either that currently exploited ore bodies in Australia will be mined less intensively than otherwise would be the case, or some deposits including those with lower-grade ore will not be extracted at all. Local mining investment, employment and export sales would all be adversely affected under this scenario.
On the other hand, if Labor decides to sideline the Greens and seek co-operation with the Coalition in the Senate then the mining tax may well be the first casualty of such an deal.
In this case Treasurer Wayne Swan will need to explore additional expenditure reduction options to balance the budget by 2012-13.
Nothing less than Australia's position as a leading mining investment destination will hinge on the outcome of the political horse-trading now in train.