Henry Tax Review, Mining and the Environment: Why Kevin Rudd is on the Right Track

UPDATE – A new graph sent to the Squid for this post shows mining royalties vs mining profits over time. It shows the share given back to the Australia public has been significantly dropping.

Kevin Rudd may not have done a great sales pitch, but his reforms proposed under the Henry Tax review are on the right track.

Australia is increasingly becoming reliant on income from the resources sector, we are no longer riding the sheep’s back, but are now firmly planted on the conveyors carrying exploded dirt onto ships heading off to Asia.

The result is that life is more difficult for other sectors of the economy – in part a phenomenon known as the Dutch Disease and also just simple increases in costs such as domestic labor, and Australia is at risk of catching it. Just have a look at WA during the previous boom – housing was becoming unaffordable and any business not associated with mining was struggling to employ for staff – including even the Government Departments put in place to regulate the industry.

Reallocating funds to the future through Superannuation and to other sectors of the economy, especially small businesses that keep the economy ticking, makes very good sense. Of course the mining companies won’t like it, and an increasingly opportunistic opposition will side with them, but that doesn’t mean it isn’t right.

There is also a longer term sustainability issue. Just like there is Peak Oil, there is a Peak Minerals phenomenon, as Dr Gavin Mudd has explored in depth in his recent paper The Sustainability of Mining in Australia – Key Production Trends and Their Environmental Implications for the Future. Australia needs to put aside something for the post mining boom era.

In addition to getting our minerals cheaply, the mining industry continues to get very cheap access to large amounts of fresh water in an increasingly drying climate, diesel fuel rebates designed to help rural farmers and a number of other incentives. An advanced and established industry still prospers under a tax and incentive system designed for a fledgling industry struggling to establish itself – perhaps the sort of incentives other small businesses such as renewable energy companies now need to provide the next boom in Australia’s future. That is something they’d want to hang onto.

The main argument against the new tax on mineral profits is that it will slow down the minerals industry in Australia. After the last boom, that seems like a good idea. Let’s make our minerals export industry last a bit longer, and contribute more to Australia’s long term future. Lots of the junior companies that might be squeezed out are targeting areas of low value resource with high impact on the environment – the Banded Ironstone Formation ranges in WA being a good case in point. The Happy Squid wrote more about Australia’s increasing comfort with, and reliance on, the resources boom recently.

The idea that mining companies will abandon Australia wholesale is ridiculous. We have good quality mineral deposits in a country very close to massive markets in Asia and with a stable and supportive Government. The mining companies aren’t going anywhere.

However, Australia does have a history of poorly managing boom and bust industries for the future – mining the natural resource wealth of this great country and leaving legacies of environmental, economic and social pain for the future. The sheep’s back analogy is a case in point. The vast clearing and overgrazing of Australia’s rangelands for wheat and sheep has left a legacy of salinity, lower rainfall, erosion, desertification, feral weeds and animals, extinction of native mammals and dying towns. Had that boom been managed more sensibly we may still have had the growth boost it provided to Australia without so much of the downside that will continue to be a burden on the economy and environment for years to come.

So in theory this is very good policy, although the devil is always in the detail. But that detail is not being discussed as the opposition jumps on the bandwagon with the big miners and increases its anti-Government vitriol with little care for the policy implications or Australia’s future.

Hopefully Kevin Rudd can get back on his feet in selling this economic reform. It should have been dubbed Funding Our Future, rather than letting it be called the Super Tax. Good policy needs good sales skills too, but ultimately this seems like a sound move for the future, with positive economic benefits and positive side effects for the environment.


One thought on “Henry Tax Review, Mining and the Environment: Why Kevin Rudd is on the Right Track

  1. Pingback: Rudd Australian miners Is He will continue the fiscal year (Update1) | digguk

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