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Dryblower explores the increasingly tangled web of tax and politics

“OH what a tangled web we weave when first we practice to deceive.” It’s a bit long, but if the Australian government ever gets around to adopting a national motto, Dryblower reckons that old saying is a perfect fit in the wake of the great mining tax fiasco.

Tim Treadgold
Dryblower explores the increasingly tangled web of tax and politics

The latest twist in this horrible story of an attempted bushwhacking, back-peddling, and half-baked solutions to a tax conceived by a committee of intellectual pygmies highlights what happens when trickery is piled onto trickery.

The new development is actually a re-run of one of the oldest mistakes made by government in Australia – the chaps in Canberra forgetting that Australia is a federation of states, and that the states have their own taxing powers, with royalties one of the most important.

That’s why Dryblower almost burst out laughing when he read last week that the government of Western Australia would not even discuss the possible removal of royalties to resolve the latest mining tax impasse.

“It’s not my problem,” WA Premier Colin Barnett said. “The state won’t be discussing that because there is nothing to discuss.”

Barnett is 100% correct. WA has nothing to discuss, not that he will fail to instruct lawyers to start working on a High Court defence when the Australian government tries to force WA into its latest web of deceit.

For non-Australians, or anyone who has not followed the country’s mining tax charade, a potted history.

- Last May the Australian government announced an all-encompassing super-tax on mining profits – without extensive discussion with anyone and apparently with only two men knowing the details, then prime minister, Kevin Rudd, and Treasury Secretary Ken Henry.

- Mining revolted. Rudd lost his job. Henry kept his. Julia Gillard was appointed PM – largely because she promised to “fix the tax” in a week.

- Her fix was to restrict the tax to coal and iron ore, plus a promise to allow miners to offset (deduct) state royalties before calculating her new tax.

Oops, huge oops, Gillard had promised something she simply could not deliver, and like the original tax plan it was hatched in secret.

The only companies allowed inside the government’s cone of silence were BHP Billiton, Rio Tinto and Xstrata – an amusing little troika because (a) they are all run by foreigners, and (b) those foreigners also failed to nail down the big issue, the conflict between state and federal taxing powers.

Two South Africans (Marius Kloppers for BHP and Mick Davis for Xstrata), plus an American (Tom Albanese) appear to have left critical tax negotiations to their juniors, or simply not been aware that when the Australian government promised to permit royalty deductibility it was promising something it could not deliver without prior state approval.

That such a massive mistake could be made is hardly surprising given that the original tax was cooked up without talking through the implications, or its application.

This has led to a classic Aussie constitutional crisis with Ken Henry already out of the starting blocks with threats against any state that holds out.

At the time of that threat he was only referring to WA, but after the recent election of a conservative government in Victoria he has two states to worry about – as well as the miners.

Gillard’s “one-week fix” is looking less like a fix every day, which will weaken further her already tenuous claim to power in Canberra.

Barnett’s perfectly understandable intransigence, given that Gillard thought she could simply rip royalties out of state hands without so much as a polite request, has given the miners a political friend who they would clearly be prepared to support should the mining tax head for the High Court.

Dryblower’s prediction is that the mining industry should be prepared for a long fight that will become increasingly dirty as the next federal election gets closer – and that could be sooner than most people think given Gillard’s wafer-thin majority.

All this because of an original attempted tax surprise, followed by an attempted secret fix which overlooked state rights, and which will be very much alive as political and legal issue for years to come.

*First published on Monday in ILN’s sister publication MiningNews.net.

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