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Tax war against States won't fix mining tax mess

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Media Release Senator Mathias Cormann Shadow Assistant Treasurer

12/0822/MC 22 August 2012

Tax War against States won't fix mining tax mess

The Treasurer running a tax war against the States and Territories in the face of yet another mining tax budget black hole of the Gillard government's own making is not the answer to this mess.

Julia Gillard and Wayne Swan have only got themselves to blame.

The budget is exposed to all sorts of new and additional risks because of the promises they made and because of the incompetent and highly improper way they negotiated their dodgy mining tax deal.

They decided to negotiate their mining tax deal exclusively and in secret with the three biggest mining companies only.

In their mining tax deal, they decided to make all sorts of commitments to the big three miners, locking in a number of competitive advantages at the expense of smaller miners along the way.

Those promises include the way state royalties are credited against any mining tax liability and the significant upfront tax deduction provided through the introduction of the market valuation method.

No State or Territory government was part of the Gillard/Swan mining tax deal.

Indeed it was Julia Gillard and Wayne Swan who decided to exclude everyone else from the negotiations, including 99 percent of relevant miners, State governments and even the public service.

The Coalition has pointed out for a long time that one of the fundamental flaws of Labor's mining tax was that it made the budget hostage to decisions by the States about their royalty arrangements.

We're in this mess because Labor failed to pursue genuine tax reform through a proper process.

The truth is that Wayne Swan didn't have the ticker to engage in genuine tax reform.

Genuine tax reform would have been based on an open, transparent and inclusive process involving all relevant stakeholders. That was clearly too hard for Wayne Swan.

Given the massive implications of the mining tax for State royalty and GST sharing arrangements, any genuine tax reform would have involved a proper engagement with the States upfront. That is before any such new tax was finalised.

That's what the Howard government did when it pursued major tax reform with significant implications for Federal-State financial relations back in the late 1990s and early 2000s.

Labor promised root and branch reform of our tax system to make it simpler and fairer.

Instead what we've ended up with is manifestly more complex, less fair, more distorting, exposes the budget to an increased structural risk and with question marks still over its constitutional validity.

There remain serious doubts about how much revenue Labor's mining tax will actually raise on the back of the deal Julia Gillard and Wayne Swan signed up to, while the cost of related promises will continue to increase.

Not even the Treasury seems clear on how much revenue the mining tax will actually raise.

That became clear in a Treasury briefing note less than 10 days after the last budget and released under FOI recently, suggesting that the Treasurer ask BHP Billiton CEO Marius Kloppers how much mining tax they expect to pay.

And Labor's mining tax is losing friends by the day.

Their own GST Review panel has pointed out that Labor's mining tax is 'ultimately unsustainable'.

Their own special adviser, former Treasury Secretary Ken Henry and Chair of the Henry Tax Review has pointed out that "there is no way the public can understand what has been legislated… it's actually more complicated than what was originally proposed."

Labor should cut its losses and scrap the mining tax.

If they won't the Coalition in government will.

MEDIA CONTACT: Senator Cormann 0411 874 546