4.1
While criticisms of the MRRT were broad and varied, a common thread
running through this criticism was that the MRRT's design flaws were, in large
measure, attributable to the deeply flawed process of developing the tax.
4.2
In particular, critics from both the resources sector and academia
suggested that the government had engaged in rushed, behind-closed-doors
negotiations with a small group of multi-national, multi-project mining companies,
to the exclusion of the overwhelming majority of Australian miners, and
entirely for reasons of political expediency.
4.3
This chapter considers the process by which the MRRT was designed,
including the extent of the involvement in that process of the Department of
the Treasury and mining corporations that would be paying the tax.
4.4
As noted in chapter one, the design features of the MRRT were determined
in negotiations in late June, early July 2010 between the government and
representatives from BHP Billiton, Rio Tinto and Xstrata. The agreement struck
between the government and the large miners on the key features of the MRRT was
recorded in the MRRT Heads of Agreement.
4.5
AMEC characterised the MRRT process as 'ill thought-through, shambolic,
[and] non-consultative,' and emphasised that neither it nor its members were
consulted during the Heads of Agreement process.[1]
4.6
As AMEC told the committee:
The MRRT was clearly ill conceived as it was a direct result
of a private and secret consultation process with three large multinational
companies. AMEC was not consulted in any way during this private negotiation
process. It should be acknowledged that these companies had no mandate to act
on behalf of hundreds of mining and exploration companies with Australian
projects or interests in iron ore and coal. They did not have any mandate to
act in any way on behalf of AMEC or its wide membership base.[2]
4.7
FMG endorsed AMEC's characterisation of the Heads of Agreement process, telling
the committee that FMG was 'very frustrated with the outcome' of the 'secret
negotiation' between the government and the three large miners.[3]
4.8
Despite having a very different perspective on the merits of rent-based
resource taxation, Dr Denniss was also critical of the manner in which the MRRT
was developed. While conceding that the process behind the development of the
MRRT was beyond his area of expertise, Dr Denniss suggested that he did not
believe:
...you get the best policy when you design it very quickly, in
isolation. It seems to me that if we had had a more transparent process we
probably would have had more views. We would have had more people putting
information on the table, rather than the mining companies themselves, and we
probably could have overcome some of those problems I have identified.[4]
4.9
Concerns have previously been expressed regarding the extent of
Treasury's involvement in the negotiations between the government and the three
large mining companies on the tax.[5]
These concerns were explored in the current inquiry.
4.10
It is already a matter of public record that Treasury officials were not
present present during the government's negotiations of the Heads of Agreement with
BHP Billiton, Rio Tinto and Xstrata. Instead, the government was represented by
the Treasurer, the Minister for Resources and Energy, their respective chiefs
of staff, and a senior advisor to the Prime Minister, Mr Tom Bentley.[6]
4.11
However, the significance of Treasury not being 'in the room' during the
negotiations was disputed by Treasury officials during this inquiry. Asked if
Treasury officers were present during the Heads of Agreement negotiations, Mr Rob
Heferen (Executive Director, Treasury) emphasised that it was not the case that
'this business was going on and we were miles away not being engaged.' He
further suggested that it was not particularly noteworthy that Treasury
officers were not present during the negotiations:
And advice had been provided in the lead-up to the
discussions so issues were worked through. Like any department doing its role,
Treasury provided advice to its minister. The cabinet analogy, where ministers
make decisions in cabinet, is a useful one; it is very rare for others to be
involved in that decision-making process.[7]
4.12
Under questioning from the committee, BHP Billiton indicated that they
did, in fact, have meetings with Treasury officials during the Heads of
Agreement negotiation process.[8]
4.13
Treasury also rejected suggestions that it had been unusually reliant on
information provided by the mining companies in arriving at its projections
during the development of the MRRT. Treasury, as Mr Heferen told the committee:
...has its own avenues to try and understand the price of
volumes and so forth. Information for the minister is very important, but it
would go through a pretty considered process of triaging that to make sure that
it resonates with everything else around that could be used to check, and those
processes were certainly gone through.[9]
4.14
The government has also been criticised for not consulting with the States
on the design of the tax, particularly in light of the Henry Review's
recommendation that the Australian and State governments 'should negotiate an
appropriate allocation of the revenues and risks from the resource rent tax.'[10]
4.15
In his submission to this inquiry, the Treasurer of Queensland, the Hon
Tom Nicholls MP, also linked the shortfall in revenue collected to date from
the MRRT with the apparent failure of the Commonwealth to consult with the States
on the tax:
Despite the experience gained by the States through many
years of partnership with the mining companies in the development of their
industry, we were not invited to be in any way involved in the forecasting of
revenue collected in the first half of the year – forecasting which has been
proved inaccurate.[11]
4.16
Asked if the Commonwealth had in fact asked Western Australia to agree
not to raise its royalties as part of the introduction of the MRRT, Mr Marney
told the committee that he had no recollection of any such request ‘in the
limited negotiations and consultations that were undertaken and my recollection
is that the Premier made it very clear to the Commonwealth Treasurer as to what
his intentions were in terms of royalty policy going forward.’[12]
4.17
Supporters of the concept of a rent-based resources tax – if not
necessarily of the design of the MRRT specifically – also told the committee
that given state ownership of resources, it would have been logical to design
the MRRT in consultation with the States.
4.18
For example, Dr Denniss told the committee that a 'well-designed scheme'
(which he did not think the MRRT was) 'would have started with both the federal
government and the state government in the room.' Dr Denniss further agreed
with Senator Cormann's suggestion that while Dr Henry had recommended that the
Commonwealth consult with the States on a resource rent tax, the Treasurer had
never attempted to do so.[13]
4.19
As discussed further in the next chapter, Professor Garnaut was also
strongly of the view that given the legitimate interest of both the States and
the Commonwealth in onshore resource taxation, it followed that negotiations on
a rent-based resources tax in Australia would ideally take place within broader
Commonwealth-state discussions about federal financial relations.[14]
Committee view
4.20
It is widely accepted by both supporters and opponents of the MRRT that
the process followed by the government in developing first the RSPT and then
the MRRT was deeply flawed.
4.21
First there was the complete lack of consultation.
4.22
When commissioning the Henry Tax Review, the government raised
significant expectations. It was to be root and branch reform of our tax system
to make it simpler, fairer, more efficient and less distorting.
4.23
Instead of releasing the Henry Tax Review when the government received
it, the report was kept secret until the government was ready to announce the
RSPT along with the revenue it would generate for the budget.
4.24
Furthermore, neither the RSPT nor the MRRT bear much resemblance with
what was recommended by the Henry Tax Review.
4.25
When the RSPT ended in tears, instead of cutting its losses, the
government made a bad process worse.
4.26
They excluded 99 per cent of the industry, to negotiate the design of a
new tax personally, exclusively and in secret with the three biggest miners
operating in Australia.
4.27
State and Territory governments, which have a significant interest in
how the MRRT was to interact with royalties on iron ore or coal, incredibly and
incompetently, were excluded from the process.
4.28
To cover up the lack of credibility of its original MRRT revenue
estimates the Treasurer went out of his way to keep his flawed MRRT revenue
assumptions secret, where other governments release that sort of information
transparently as a matter of course.
4.29
The government failed to properly assess the cost of significant
concessions made in the MRRT Heads of Agreement, signing up without a proper
understanding of the fiscal implications of the mining tax deal.
4.30
When various flaws in the MRRT Heads of Agreement became too obvious to
ignore, the government started to blame everyone (except themselves) from the
States and Territories who were increasing their royalties to Treasury who had
failed to run proper forecasts.
4.31
Every step of the way, when further failures of the government's mining
tax were exposed, the government sought to hide the fiscal implications through
more secrecy and cover-ups.
4.32
The reality is that the failure of the MRRT was entirely predictable and
indeed predicted.
4.33
Moving forward, genuine sustainable tax reform can only be successfully
pursued with genuine, active and inclusive engagement with all relevant
stakeholders through an open and transparent process. Indeed genuine tax reform
should be pursued from a position of fiscal strength, not just as a lazy grab
for cash by a Labor government under constant short term fiscal pressure.
Navigation: Previous Page | Contents | Next Page