Dynamic Export

The proposed tax on mining super profits is continuing to attract debate at every level, with Ross Garnaut, treasury secretary Ken Henry, small business minister Craig Emerson and opposition leader Tony Abbott all weighing in.

Rudd has proposed the tax, originally suggested in the Henry Tax Review, as a measure to share some of the profits from the resources boom in Queensland and Western Australia with other states. This is to mitigate the effect of the resources boom on the Australian economy as a whole, which Rudd sees is in danger of becoming a “two-speed economy”, with Queensland and WA leading the charge and leaving the services states behind.

Garnaut has cautiously expressed support for the new tax, claiming that slower growth in the resource-boom states would ease inflation and interest rates in slower-growth areas. The resource boom is “really squashing everything else”, Rudd’s preferred economist said.

However, opposition leader Tony Abbott believes the proposed tax will have the same effect. “Rudd’s great big mining tax doesn’t just hit BHP and Rio, it hits every product that comes out of the ground. It hits quarries, that means your road-making material, your home-building material goes up in price; it hits phosphate mines, that means that fertiliser goes up in price, that means that food goes up in price”. If Abbott’s assumptions are true, this will drive up general living costs and increase overheads for small business.

This reflects comments Craig Emerson had made before the release of the Henry review, which highlighted Australia’s dependence on the mining sector. “Any proper economic analysis would confirm that Australia’s mining and energy resources sector utilises a vast array of services, including financial services, engineering, construction, transport and communications. Take out the mining and energy resources sector and you take out much of the service economy with it, plunging Australia into a deep recession with soaring unemployment”, the minister said.

Henry has contacted press outlets this week to defend the tax, saying that the “resource super profit tax will grow the mining sector and the economy”. While Rio Tinto claim to be reviewing all local projects, other major Australian mining holdings and some major Chinese steel-makers are forging ahead with planned projects and planned investments, indicating that the proposed tax may have little impact on the mining industry in the immediate future.

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