The government’s inability to end the mining tax may hurt the budget, but it’s wrong to fear it will scare investors
In the past week of parliament, due to action by both sides, the budget deficit will be increased. The abolition of the carbon tax and the inability of the government to end the mining tax will see a larger deficit than was expected. But as a recent report showed, it won’t hinder Australia’s position as a great place for mining companies to invest.
There was a pretty high level of stupidity flying around parliament last week. We had the carbon tax being abolished but the compensation that accompanied it being retained; and we had the government wanting to remove the mining resources rent tax (MRRT) but also get rid of the compensation.
This meant that the government was often using an argument for one that contradicted the other.
For example Liberal MP Sarah Henderson opened her speech on the carbon tax repeal bill arguing that “we are concerned about the cost that this tax is causing to our economy. We are concerned about the way in which the previous Labor government drove up the debt and the deficit”.
This was a rather curious opening attack given the carbon tax raises over $7bn a year. Even if the revenue were to drop once Australia shifted to the European carbon price, it still created a big hole given the government is keeping many compensation measures. In total the cost to the budget was estimated in the legislation to be $7.55bn over the forward estimates.
The day after the carbon tax was abolished however, Eric Abetz told the Senate that “it would be nice to live in a world of magic pudding where we did not have to raise any taxes but could expend a lot of money and spread largesse to the Australian population”.
Largesse brought in to compensate for the carbon price I guess is not one of the ingredients in the magic pudding recipe.
In the same vein, the prime minister, Tony Abbott, told ABC’s AM: “We said that we would abolish the mining tax but we would also abolish the spending that the tax was supposed to fund. You can’t get rid of the tax responsibly without also getting rid of the spending.”
Well quite.
One of the problems with the mining tax was that the spending measures the ALP linked with the tax, such as the schoolkids bonus, the low-income superannuation contribution and the income support bonus, cost more than the tax raised.
So the ALP introduced a tax that raised less revenue than the amount spent on associated expenditure, and the LNP abolished a tax that raised more revenue than the amount spent on associated expenditure.
For the rest of this article, click here: http://www.theguardian.com/business/grogonomics/2014/jul/21/keeping-mining-tax-wont-kill-investment