Will the budget be $13.8 billion better off if the mining tax is scrapped?

Updated

The Federal Government says the mining tax is not raising any money. At the same time, it says scrapping the tax will benefit the budget by over $13 billion.

"Only the Labor Party can be so incompetent to come up with a massive new tax targeting an important industry for Australia, the mining industry, and leave the budget worse off," Finance Minister Mathias Cormann said on March 18.

"The fact that scrapping the mining tax would actually improve the budget position by $13.8 billion tells you everything you need to know about the mining tax."

The Senate rejected legislation to repeal the mining tax on March 25, when Labor and Greens senators voted against it. In the Senate debate, the Coalition argued the tax was discouraging resource investment, particularly in the state of Western Australia, and was raising little revenue. Labor argued mining companies should be paying more tax for exploiting Australian resources.

ABC Fact Check examines Senator Cormann's claim that the budget position would be $13.8 billion better off without the mining tax.

The claim: Mathias Cormann says scrapping the mining tax would improve the budget position by $13.8 billion.

Mathias Cormann says scrapping the mining tax would improve the budget position by $13.8 billion. The verdict: The $13.8 billion figure is not from scrapping the mining tax alone. It includes abolishing eight spending measures, the largest of which was never associated with the mining tax. Senator Cormann's claim is exaggerated.

Revenue raised by the mining tax

The Minerals Resource Rent Tax (MRRT) came into force on July 1, 2012 and places a 22.5 per cent "super profits" tax on coal and iron ore producers. The most recent revenue forecasts by the federal Treasury are in the Mid-Year Economic and Fiscal Outlook 2013-14, published in December.

In this financial year the tax is projected to raise no money. Next year it is projected to bring in $450 million. In 2015-16 this rises to $1.2 billion, and in 2016-17 to $1.8 billion. The cumulative total over the four years of the forward estimates - the standard period used in federal budgets - is $3.4 billion.

The Abbott Government introduced its repeal legislation in November and the House of Representatives passed it that month. It was then referred to a Senate inquiry.

A Treasury submission to the Senate inquiry listed revenue forecasts for the mining tax, going back to the original estimates made in July 2010.

MRRT Estimate History 2013-14 ($m) 2014-15 ($m) 2015-16 ($m) 2016-17 ($m) Total Original MRRT Estimate July 2010 6,500 6,500 5,500 4,000 22,500 Budget 2011-12 4,000 3,400 n/a n/a n/a Budget 2012-13 3,500 3,200 3,700 n/a n/a Budget 2013-14 700 1,000 1,400 2,200 5,300 Pre-election Economic and Fiscal Outlook, August 2013 700 800 1,100 1,800 4,400 Mid-Year Economic and Fiscal Outlook, December 2013 0 450 1,150 1,800 3,400

Associated measures

The Minerals Resource Rent Tax Repeal and Other Measures Bill 2013, as it is formally known, does not only repeal legislation for the mining tax. It also amends the law relating to "superannuation, social security and family assistance and for other purposes".

The bill seeks to repeal or adjust eight spending measures.

Repealing the mining tax: The spending cuts in detail Here's a quick glance at the savings expected from abolishing spending programs in the mining tax repeal legislation.

The estimated savings are over four years and are sourced from the December Mid-Year Economic Fiscal Outlook. Abolishing the low income superannuation contribution, with an estimated saving of $3.8 billion. This policy required the Commonwealth Government pay up to $500 a year to the superannuation accounts of certain low income earners. Unwinding the instant asset write-off for small business with a $5,000 threshold, saving $2.3 billion. This policy allowed small businesses to write off depreciating assets costing less than $6,500, and the first $5,000 was offset against the mining tax. Slowing the superannuation guarantee increase so it remains fixed at 9.25 per cent until 2016–17 before increasing incrementally to reach 12 per cent by 2021–22. Estimated saving $1.6 billion. Discontinuing the company loss carry-back, a benefit for small businesses, saving $950 million. Dismantling the accelerated depreciation for motor vehicles, saving $450 million. Ending geothermal exploration treatment, saving $10 million. Scrapping the Income Support Bonus, which includes payments to the children of veterans and is a lump-sum supplementary payment made twice a year to people on certain income support payment. Estimated saving $1.1 billion. Abolishing the Schoolkids Bonus, a lump-sum payment to parents of school-aged children twice a year. It is the largest single savings measure in the repeal bill, estimated at over $5.2 billion. Here's a quick glance at the savings expected from abolishing spending programs in the mining tax repeal legislation.The estimated savings are over four years and are sourced from the December Mid-Year Economic Fiscal Outlook.

During the election, the Coalition promised it would "abolish the mining tax and most of the associated spending measures. This will leave the budget in a significantly better fiscal position".

One policy set to be scrapped in the legislation is the Income Support Bonus, a payment to recipients of various types of income support including children of veterans who have died or been incapacitated while serving in the military.

On March 21, Palmer United Party leader Clive Palmer said: "If the Abbott government doesn't take this measure out then we won't support the abolition of the mining tax in the Senate." Depending on the outcome of the re-run of the Senate elections in Western Australia, the Palmer United Party may hold the balance of power in the Senate after July 1 and be able to block the passage of the bill.

But Prime Minister Tony Abbott is holding to his election promise to scrap the Income Support Bonus. "We were upfront with people before the election that this particular benefit would be removed, because it was a benefit that was supposed to be paid for by the mining tax, and the mining tax is not raising any money," he told parliament.

Labor disputes Schoolkids Bonus link to the mining tax

Another of the eight measures to be abolished is the Schoolkids Bonus, the largest single savings measure in the repeal bill, estimated at over $5.2 billion over four years.

Opposition treasury spokesman Chris Bowen criticises the Government's decision to include the Schoolkids Bonus in the legislation.

Asked about Senator Cormann's claim that scrapping the mining tax would improve the budget position by $13.8 billion, Mr Bowen's spokesman said: "The only thing we would say, in terms of the maths, is that the Schoolkids Bonus is not part of this equation. I have yet to see the Coalition point to a government policy or document that explicitly link the Schoolkids Bonus with the Mining Resources Rent Tax."

A digest about the bill prepared by the parliamentary library says the link between the mining tax and the Schoolkids Bonus "is particularly contentious for a number of reasons".

It says, like the Income Support Bonus, there is "no direct budgetary link" with the mining tax. However, in the case of the Income Support Bonus, there is an indirect link via a package in Labor's 2012-13 budget called 'Spreading the Benefits of the Boom'.

That package was funded by the benefit to the budget of not proceeding with a cut in the general company tax rate from 30 cents to 29 cents. Labor had intended to spend revenue from the mining tax on the reduction in the company tax rate, but it was blocked by the Coalition and the Greens.

The bill digest says the Schoolkids Bonus was not part of that package.

When Labor announced the Schoolkids Bonus, it was not a new program but was slated to replace an existing education tax refund paid through the taxation system.

Mr Abbott announced before the election he would scrap the measure. "We won't continue the Schoolkids Bonus because it's a cash splash with borrowed money that our children will have to repay," he said at his campaign launch.

Senator Cormann's view on the Schoolkids Bonus

Senator Cormann's office referred Fact Check to two formal budget documents from 2012 and two radio interviews, as evidence that "Labor in government actually linked the Schoolkids Bonus to the MRRT".

The budget documents are the 2012-13 Budget Paper Number 1 and Mr Swan's budget speech to parliament.

Senator Cormann's office said these showed the Schoolkids Bonus was included in the Spreading the Benefits of the Boom package.

Fact Check examined the budget paper and found the Schoolkids Bonus was not included in a table of expenditures marked 'Spreading the Benefits of the Boom', although the Income Support Bonus and the small business loss carry-back measures were. Following the table, the budget paper said: "This package, combined with a new Schoolkids Bonus, will help families, students and those on low and middle incomes make ends meet."

A detailed explanation of the Schoolkids Bonus can be found under a different heading, 'Supporting parents with education costs'.

In his speech, Mr Swan said he was "proud to announce a new Spreading the Benefits of the Boom package; $3.6 billion to share the proceeds of the mining tax with families and small businesses". After referring to the details, including the Income Support Bonus, he then said: "On top of the new measures funded from the mining tax, we are also giving parents more help with the cost of schooling their kids. From next year we will deliver a new Schoolkids Bonus."

The radio interviews put forward as evidence by Senator Cormann's office included the following two quotes from the former Labor government:

Former prime minister Julia Gillard on May 13, 2012: "The Schoolkids Bonus before 30 June this year and then it can become an (inaudible) part of how they meet the costs of getting the kids to school. It's part of what we did in the federal budget to make sure we're spreading the benefits of the boom, spreading opportunity to every part of the country."

Former finance minister Penny Wong on June 6, 2012: "I think it's about making sure we use the benefits of the boom wisely. And I think the Government’s approach with the mining tax and making sure the benefits of that flow through to families, particularly low and middle income families through the School Kids Bonus, where people get assistance for kids’ education costs, [does that]."

The parliamentary library's bill digest refers to two doorstop interviews where former treasurer Wayne Swan informally linked the Schoolkids Bonus to the mining boom.

The bottom line on the Schoolkids Bonus

Fact Check agrees with the parliamentary library's bill digest that there is no budgetary link between the mining tax and the Schoolkids Bonus and that the bonus was not part of Labor's Spreading the Benefits of the Boom package.

Senator Cormann's $13.8 billion figure

A spokeswoman for Senator Cormann told Fact Check the minister's $13.8 billion figure came from Treasury's submission to the Senate inquiry into the mining tax repeal legislation.



That submission concludes: "Together with the revenue loss resulting from the repeal of the MRRT, the mining tax repeal package is estimated to result in a total saving of $13.7 billion over the forward estimate period."

The submission took into account the benefit to the budget of abolishing the eight savings measures, including the Schoolkids Bonus. It also calculated further savings from discontinuing a regional infrastructure fund. It then offset the cost to the budget of losing the projected revenue from the mining tax to reach a final figure of $13.7 billion.

The verdict

The only reason scrapping the mining tax would improve the budget position by $13.8 billion is because the Government included the abolition of eight spending measures in its legislation.

Seven of these measures had direct links to the mining tax in Labor's budgets, but the Schoolkids Bonus - which is the largest single saving at over $5 billion - did not.

Including this measure dramatically increases how much the legislation can improve the budget position.

Furthermore, Senator Cormann did not mention these "associated measures" in his claim. Scrapping the mining tax alone would leave the budget $3.4 billion worse off over the next four years.

Senator Cormann's claim is exaggerated.

Sources

Topics: tax, mining-industry, mining-rural, mining-environmental-issues, government-and-politics, liberals, federal-government, australia, wa

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