The Minerals Resource Rent Tax

Description
The purpose of this paper is to look at the recent history of proposals to tax resource rents
in Australia, from Australia’s Future Tax System Report (the “Henry Tax Review”) through to the
proposed Resource Super Profits Tax (“RSPT”) and then the Minerals Resource Rent Tax (“MRRT”).
The process of change from Henry to the RSPT to the MRRT can best be understood in the context of
the Australian Labor Party (ALP) as a capitalist workers’ party. The author argues that it is this tension
in the ALP, the shift in its internal balance further towards capital and the lack of class struggle, that has
seen Labor preside over what the father of rent tax in Australia, Ross Garnaut, describes as a
“problematic” tax.

Accounting Research Journal
The Minerals Resource Rent Tax: The Australian Labor Party and the continuity of change
J ohn Passant
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The Minerals Resource Rent Tax
The Australian Labor Party and the
continuity of change
John Passant
School of Humanities and Social Inquiry, University of Wollongong,
Wollongong, Australia and School of Politics and International Relations,
Australian National University, Canberra, Australia
Abstract
Purpose – The purpose of this paper is to look at the recent history of proposals to tax resource rents
in Australia, from Australia’s Future Tax System Report (the “Henry Tax Review”) through to the
proposed Resource Super Profts Tax (“RSPT”) and then the Minerals Resource Rent Tax (“MRRT”).
The process of change from Henry to the RSPT to the MRRT can best be understood in the context of
the Australian Labor Party (ALP) as a capitalist workers’ party. The author argues that it is this tension
in the ALP, the shift in its internal balance further towards capital and the lack of class struggle, that has
seen Labor preside over what the father of rent tax in Australia, Ross Garnaut, describes as a
“problematic” tax.
Design/methodology/approach – Qualitative research using Marxist tools.
Findings – The paper argues that the poor health of the MRRT is a consequence of the nature of the
Labor Party as a capitalist workers’ party, the shifts in power and infuence within its material
constitution and in essence the ascendency of capital in the capitalist workers’ party.
Originality/value – Avery original approach to understanding the nature of the MRRTin Australia.
Keywords Marxism, Tax, Resource rent, Australian Labor Party, Minerals Resource Rent Tax,
Economic rent
Paper type Research paper
1. Introduction
In this article I look at the recent history of proposals to tax resource rents in Australia, from
Australia’s Future Tax System Report[1] (Henry et al., 2010) (the “Henry Tax Review”)
through to the proposed Resource Super Profts Tax (“RSPT”) and then the Minerals
Resource Rent Tax(“MRRT”). The process of change fromHenryto the RSPTto the MRRT
can best be understood, not just in the context of bad design, but, building on the work of
Bramble and Kuhn, in the context of the Australian Labor Party (ALP) as a capitalist
workers’ party (Bramble and Kuhn, 2009, 2010). I argue that it is this tension in the ALP, the
shift in its internal balance further towards capital and the lack of class struggle, that has
seen Labor preside over what the father of rent tax in Australia, Ross Garnaut, describes as
a “problematic” tax (Senate Economics References Committee, 2013).
The paper argues that the poor health of the MRRTis a consequence of the nature of the
Labor Party as a capitalist workers’ party, the shifts in power and infuence within its
material constitution (Bramble and Kuhn, 2010, pp. 14-18) and in essence the ascendency of
capital in the capitalist workers’ party. What then is a capitalist workers’ party?
JEL classifcation – H20, B51
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1030-9616.htm
Minerals
Resource Rent
Tax
19
Accounting Research Journal
Vol. 27 No. 1, 2014
pp. 19-36
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-08-2013-0058
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2. A capitalist workers’ party?
It was Lenin who outlined a set of useful criteria one could use for judging the real class
nature of a workers’ party. He said that “whether or not a party is really a political party
of the workers does not depend solely upon a membership of workers but also upon the
men [and women] that lead it, and the content of its actions and its political tactics”
(Lenin, 1920). Building on this insight, Bramble and Kuhn argue that the material
constitution of the Labor Party, in other words “its relationship with the different class
forces in society” (Bramble and Kuhn, 2010, p. 15) judged by the criteria Lenin suggests,
means that the ALP is a capitalist workers’ party (Bramble and Kuhn, 2010, p. 17). It is
a workers’ party because of “its structural connection to the working class – albeit
indirectly – via the trade union bureaucracy” (Hillier, 2011) . It is a capitalist party
“because of the class interests of the politicians and unions offcials who lead and control
it, and because of the role it plays for the capitalist class” (Bramble and Kuhn, 2010,
pp. 17-18). Labor manages capitalism; its “priority is to make capitalism work”[2]
(Bramble and Kuhn, 2010, p. 18; Hirsch, 1978). The relationship between labour and
capital is fundamentally contradictory and the ALP is a dialectical structure which
contains in both senses of the word that contradiction. The party has a dual nature –
capitalist in its leadership and programme, but with a working-class base and links to
that class through the trade union bureaucracy (Hillier, 2011).
Labor adopts the dominant economic philosophy of the time when in government
because it is a party committed to managing capitalism(Bramble and Kuhn, 2010, p. 22).
The needs of capital in the capital accumulation process change over time. The rise of
neoliberalism is a response to the reassertion of the tendency of the rate of proft to fall
fromthe late 1960s and early 1970s (Davidson, 2013; Lavelle, 2009; Campbell, 2005) and
a search for ways to address that, in the main looking for what Marx called
counteracting or countervailing tendencies (Marx, 1959). In the age of neoliberalism,
cutting taxes on capital is seen as one way of doing that. It frees up more surplus value
going to capital. According to the Rudd Labor Government in 2010, company tax cuts
could be paid for by imposing a resource rent tax to help equalise proft rates and
redistribute that “extra” surplus value from mining capital to all of capital.
While the relationship between Labor and capital has become more complex and
intertwined, at the same time the labour movement has declined in infuence and power.
Couple the end of the long boom with a collapse in class struggle in Australia over the
past three decades (Bramble, 2008; Australian Bureau of Statistics, 2008) and the decline
of trade unions and their membership numbers and the result has been “an ebb tide in
union affairs, a period of retreat that is still in progress” (Bramble, 2008, p. 125). Because
of the decline of union strength both in numbers and action, the material constitution of
the ALP has shifted. It remains a capitalist workers’ party in which the infuence of
capital has strengthened and that of labour and trade unions weakened. Bramble and
Kuhn summarise the wider trends well when they say:
The rightward shift in social democratic governments since the early 1970s can be understood,
more specifcally, as a consequence of capitalism’s tendency to economic crisis, the reaction of
governments the world over to accelerated globalisation and the relative lack of political and
industrial self-confdence amongst workers since the upsurge of working class militancy of the
1960s and 1970s abated (Bramble and Kuhn, 1999).
In relation to tax, the needs of the capital accumulation process set the drivers for,
parameters of and constraints on tax change and together with the factors Bramble and
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Kuhn have outlined above help explain the neoliberalisation of tax policy (Passant, 2008,
2013) and howa newtax imposing an increased liability on mining capital is part of the
neoliberal project. To understand the limits of change, we need frst to look at the
dependence of the state on the capital accumulation process.
3. Mutual interdependence
Tax is an extraction from surplus value, the difference between the value a worker
creates and the value of their labour power (Harman, 1991 2009)[3]. The creation of
surplus value in the production process is thus vital to the ability of the state to raise
revenue and survive. It cannot do so by undermining the process of capital accumulation
(Harman, 2009). Without productive capital employing productive workers to produce
surplus value, there would be no funds for the state to tax[4]. There is a structural
dependence of the state, and other capital, on productive capital[5]. But the dependency
is mutual because capital also depends on the state for a range of capital protecting
institutions, laws, secure borders in which to operate, regulation of disputes between
capitalists, the supply of labour, the development of a skilled working class and its
control. Productive capital depends too on other capital, especially fnance capital and
commercial capital, for the ability to create and realise surplus value.
However, productive capital, commercial capital, fnance capital, landlords and the
state – the band of hostile brothers[6] – also compete or fght among themselves for a
share of the surplus value productive workers produce. The result of the fght over the
distribution of surplus value, whether it be in the form of profts, interest, rent or taxes,
is determined by a range of factors, but in the end all are dependent in the frst place on
the creation of surplus value in the productive sector for their particular share of it. This
fundamental of capitalism and mutual interdependence (Harman, 2009, p. 114) sets the
limits of the autonomy fromcapital and capital accumulation that any state can develop
(Harman, 2009, pp. 111-112). Part of that battle among the hostile brothers is over rent,
the excess surplus value that accrues to sections of capital for reasons that do not refect
the level of capital and labour investment.
3.1 Rent
Surplus value is surplus labour. It is created in the sphere of production but arises in
concrete form in the sphere of circulation, i.e. the market. Its particular form, proft,
interest, rent or taxes, arises there. Competition means that there is a tendency for proft
rates to equalise. More proftable sectors attract increased investment both reducing
that sector’s average proft and increasing the sector the investment left. Sometimes this
process of equalisation is blocked by what Marx calls an alien force (Marx, 1959,
pp. 761-762), for example by monopoly or landed property. This means that certain
sectors can obtain a share of the surplus value greater than a normal return on its
investment suggests it would under usual market conditions receive[7].
These particular circumstances enable the retention or extraction of extra surplus
value, i.e. surplus value fromthe other hostile brothers. One of those circumstances is the
monopoly of private property in land. Another is that monopoly of resources in land, or
rather an oligopoly between state ownership of resources in minerals and private
ownership of land. It is why, for example, the Henry Tax Review referred not just to
resource rents but to the rent taxes it proposed arising from state ownership of the
resources in Australia as being “a charge for the sale of a public asset” (Henry et al., 2010,
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p. 2019, Part Two Detailed Analysis Volume One). But it is not just the Commonwealth
and the mining companies who want to obtain mining rents.
3.2 Royalties
There is a bifurcation of the state in Australia between States and Territories on the one
hand and the Commonwealth on the other. The States and Territories own the minerals
and resources on the Australian mainland; the Commonwealth owns the offshore
ones[8]. The Commonwealth effectively exercises a monopoly right to tax income
(Courchene, 1999). This bifurcation and the failure to replace ineffcient royalties with an
effcient rent tax is one of the problems of the MRRT[9]. Thus the Henry Tax Review
recommended that “the current resource rent arrangements […] be replaced by a
uniform resource rent tax” (Henry et al., 2010, p. 231, Part Two Detailed Analysis
Volume One), or in other words abolish State and Territory royalties and replace them
with a Commonwealth resource rent tax. Of course this would also require the
Australian and State Governments negotiating “[…] an appropriate allocation of the
revenues and risks from the resource rent tax” (Henry et al., 2010, p. 231, Part Two
Detailed Analysis Volume One). However, neither the Rudd Labor Government with its
proposed RSPT nor the Gillard Labor Government with its MRRT had the strength of
working class or other political support to negotiate this outcome or impose it on the
States and Territories. Its relationship with the various class and political forces – its
material constitution – was inadequate to deliver an effcient resource rent tax outcome.
Instead it shielded State and Territory royalties, an ineffcient outcome for capital but
not for the States and Territories. They could then increase these ineffcient taxes at the
expense of Commonwealth revenue, as they have done. The political outcome achieved
the exact opposite of one of the main rationales for a resource rent tax that the Review
argued for – the replacement of ineffcient royalties with an effcient rent tax.
Effcient taxes are at the heart of the Henry Tax Review. What are they and why are
they important?
3.3 Effciency and tax
The Henry Tax Review’s vision is of four robust and effcient tax bases to replace the
more than 100 mainly State and Territory ineffcient taxes (Henry et al., 2010, p. 11, Part
One the Overview). The vision and direction is of a comprehensive personal income tax,
growth-oriented business income tax, a broad simple consumption tax and taxes
capturing economic rents in resources and land (Henry et al., 2010, p. xvii, Part One the
Overview). These four tax bases are what Swank describes in another context more
generally as part of a “set of market-conforming tax policies” (Swank, 2006) or in effect
neoliberal tax policies (Swank, 2006, pp. 847-848). Resource rent taxes are part of this
neoliberalisation because they “offer an effcient way to divert a share of rents on natural
resources to the public sector […]” (Boadway, 2012) Rent taxes are effcient taxes
precisely because they impact on investment and other decisions the least (Henry et al.,
2010, p. 13, Part One the Overview). As “rents exist where the proceeds from the sale of
resources exceed the cost of exploration and extraction, including a required rate of
return to compensate factors of production (labour and capital)” (Henry et al., 2010,
p. 218, Part Two Detailed Analysis Volume One), taxing those rents or extra rewards
does not impact on investment decisions, and is thus, fromthe point of viewof the state
whose revenue raising is structurally dependent on the capital accumulation process
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and the creation of surplus value, and from the point of view of other capital, effcient.
Indeed in its analysis of taxes and their effciency, the Review found that the then only
existing rent tax in Australia, the Petroleum Resource Rent Tax, was the most effcient
because “[…] modelled as a pure rent tax [it gives] rise to a zero welfare loss” (Henry
et al., 2010, p. 13, Part One the Overview). The argument for rent taxes, especially in light
of declining proft rates and demands for more effcient ways of allocating investment
and addressing misallocation caused by ineffcient taxes, will not disappear.
3.4 Tax reform as part of the capital accumulation process
In relation to tax, the dominance of capital accumulation expresses itself as the state
adjusting or reforming its tax system to both make the system more effcient and to
attract capital, in other words to make the conditions for the creation of surplus value
more propitious and its distribution more in accordance with the level of capital invested
and not lost to deadweight costs[10]. Thus the Henry Tax Review focuses on four
effcient tax bases (Henry et al., 2010, p. xvii, Part One the Overview) and for a small open
economy like Australia’s, a tax regime that attracts foreign investment and encourages
home-grown investment (Henry et al., 2010, pp. 39-43, Part One the Overview).
In modern capitalism, fnance capital is essential to productive capital and the
creation of surplus value[11]. This has systemic consequences, including for tax, for a
capital importing economy like Australia’s. Nation states compete for mobile capital. In
relation to investment, as the Reviewputs it, “n a world of increasing capital mobility
company income tax and other taxes on investment have a major impact on decisions by
businesses on where to invest, howmuch and what to invest in and where to record their
profts” (Henry et al., 2010, p. 149, Part Two Detailed Analysis Volume One). It is this
belief on the part of policymakers and politicians, irrespective of its validity[12], that has
been driving company tax rates down around the world (Henry et al., 2010, p. 160, Part
Two Detailed Analysis Volume One) and explains, among other things[13], the Henry
Tax Review recommendation for a reduction in the short to medium term of company
tax rates in Australia from30 to 25 per cent (Henry et al., 2010, p. 167, Part Two Detailed
Analysis Volume One).
Effciency and using the revenue to cut company tax rates helps explain the focus of
the Review on a resource rent tax. One economic tradition views rent taxes as not
interfering in the process of capital accumulation (Garnaut and Ross, 1983). In terms of
the “least economic harmequals most effcient tax” argument, a well-designed resource
rent tax “[…] is less likely to distort investment and production decisions” (Henry et al.,
2010, p. 222, Part Two Detailed Analysis Volume One). This is because they have no
impact on normal rates of return (Henry et al., 2010, p. 222, Part Two Detailed Analysis
Volume One). They apply in other words only to the returns over and above normal
returns. Those normal returns continue to be received and are suffcient to ensure
investment and production occurs as usual. In fact, because the rent tax will be less than
100 per cent, and assuming its design is such as to only apply to economic rent, the
returns on investment will continue to be above normal rates of return, all other things
being equal[14].
3.5 Redistributing and increasing surplus value
For a social democratic party, the temptation of such a magic pudding tax (Passant,
2011; Ergas et al., 2010) appears obvious. Yet the spending programme associated with
23
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the $12 billion annual RSPT revenue was not social democratic. For the Rudd
Government, the RSPTrevenue was frst and foremost to be spent on company tax cuts
(Rudd and Swan, 2010). This is part of the wider neoliberalisation of tax policy and
practice (Swank, 2006, p. 847) which includes not just a trend to lower tax rates on capital
generally but differential and lower tax rates on mobile capital and savings, fatter tax
rates on income, especially reducing top marginal rates on higher income earners and
more emphasis on consumption taxes (Swank, 2006, p. 848). These reforms are aimed at
freeing up more surplus value for capital. In other words, the search for more effcient
taxes is about shifting the tax mix in the short to medium term, so if needed, the same
amount of tax can be taken from surplus value with less deleterious effects on the
production of surplus value out of more productive activity. It can also be a way, for
example, through company tax cuts for less tax to be taken fromsurplus value, leaving
more for the non-state hostile brothers to compete for or fght over.
But it is not just about the distribution of surplus value. At the heart of the Henry Tax
Reviewis the assumption that frms exist to maximise their profts through competition
and that government policies, such as taxes, must not only take the response of proft
maximising businesses into account[15] (Boadway, 2012, p. 38) but treat this process of
capital accumulation as paramount. The structural dependence of the state on capital
(Przeworski and Wallerstein, 1988a) and the effcient extraction of surplus value in the
process of capitalist production is a key to understanding the Henry Tax Reviewand the
RSPTand the MRRT. Because the collection of tax is dependent on the process of capital
accumulation and the creation of surplus value, the challenge for bourgeois
policymakers and politicians is to develop a tax systemor systems which create the least
distortions to the market and proft-making – the most effcient taxes – and provide, if
the pool of surplus value is suffcient and there is pressure fromthe working class to do
so, for social spending.
Yet, refecting class divisions, tax policy and its development is contradictory and
contested. This most often occurs at the level of ideas but progressive policies, including
tax policies, can become part of the lexicon of tax planners when class struggle emerges
(Bramble, 2008, p. 240). This is part of the wider story of the continuity of change within
Labor; the continuity of contradictions bound up in being a capitalist workers’ party.
This dynamic tension and developing dominance of capital over labour in the
relationship between the two, or as Bramble and Kuhn put it, “the distancing of the party
from many of its traditional policies and its ever closer relationship with big business,
and the maintenance of Labor’s basic connections with the trade unions” (Bramble and
Kuhn, 2010 p. 5), explains the life story of the latest iteration of rent tax in Australia,
from the Henry Tax Review recommendations to the RSPT and on to the MRRT.
4. The long and winding road to the MRRT
The Henry Tax Review recommended there be a resource rent tax for a number of
reasons (Henry et al., 2010, p. 231, Part Two Detailed Analysis Volume One). In essence
it was because the resources are non-renewable, the return to the community is lowand
the then current arrangements distorted investment and other decisions (Henry et al.,
2010, p. 217, Part Two Detailed Analysis Volume One). When it released the Henry Tax
Review, the Rudd Labor Government unveiled the RSPT, a tax based to a large extent,
with some modifcations, on the Review’s resource rent tax recommendations (Rudd and
Swan, 2010).
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4.1 Class interests in the responses to Henry
The government’s response to the Henry Tax Review made the RSPT the epicentre (and
almost the only measure) of tax reformadopted. There are in my viewtwo reasons for this
concentration on rent tax and the exclusion of other reforms. If substantially implemented,
the Review’s proposals and vision would have shaken up all of society – capital and labour.
The Labor Partywas neither goingtoallowanopportunityfor political branddifferentiation
to pass by nor expose itself to attacks from its own members and union and wider
working-class base by, for example, broadening the consumption tax in the interests of
effciency[16] (Henry et al., 2010, pp. 273-274, Part Two Detailed Analysis Volume One). For
this reason the Labor government did not consider, as the Henry Tax Review suggested,
another consumption tax, namely, a broad-based cash fow tax, a tax on the difference
between the cash infows and outfows of business, to fund the abolition of ineffcient State
taxes like payroll tax and insurance taxes (Henry et al., 2010, p. 276, Part Two Detailed
Analysis Volume One). Similarly, it did not take up the Review’s recommendation to fatten
thepersonal incometaxratesystemwith“a$25,000taxfreethreshold, a35per cent marginal
rate for 97 per cent of tax payers, and a 45 per cent marginal rate for very high-income
earners (those earning over $180,000 per year)” (ACTU, 2011; Henry et al., 2010, p. 29, Part
One the Overview). However, according to the Australian Council of Trade Unions (ACTU),
this would have increased the income tax payable by taxpayers earning between $36,000
and $93,000 (ACTU, 2011, p. 20). Again, Labor was not going to attack its base, especially in
the run up to an election due later that year.
The move to broadening the consumption tax base and to a fatter personal income tax
may be something that the Liberal Party, with its close links to business rather than labour,
is more able to propose and then pursue both because it can wear some opprobrium from
workers andbecause it canproclaimthe effciencyof suchchanges andthe seemingbenefts
that will fowfor all withmore conviction. Thus it was the HowardLiberal Government who
introduced the Goods and Service Tax (GST) in 2000 after winning a majority of seats but
not votes at the 1998 election on the issue. Tony Abbott, the newly elected Prime Minister,
has announcedthat his government will, within2years of comingtooffce, “consult withthe
community to produce a comprehensive white paper on tax reform” (Abbott, 2013). He
promised to “fnish the job that the Henry review started and this government squibbed”
(Abbott, 2013). That White Paper will include the GST and any suggested reforms will be
taken to the 2016 election (Kenny, 2013).
4.2 Labor, systemic solutions and tax
One strength of Labor fromthe point of viewof the systemis and has been its links to the
trade union movement, not business. This has at times made it the champion of reforms
that attack particular sectors of capital for the beneft of capital as a whole. Drawing on
an insight from Lance Sharkey, the former Secretary-General of Communist Party of
Australia (Sharkey, 1943; Bramble and Kuhn, 2010, p. 18 and cited at fn 32 p. 196),
Bramble and Kuhn argue that:
[Labor’s] partial independence from the capitalist class, both fnancially and in terms of its
voting base […] means that it can at times better serve the long-term interests of Australian
capitalism. Unlike the conservative Coalition parties which are tied up both personally and
fnancially with sectoral business interests, Labor enjoys a relative freedomto enact legislation
or introduce policies that hurt the interests of specifc sections of capital but beneft the class as
a whole (Bramble and Kuhn, 1999, pp. 38-39).
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The Whitlam government’s decision to cut tariffs by 25 per cent is one example, as are
the banking reforms of the Hawke Government (Bramble and Kuhn, 1999, p. 39). The
base broadening tax reforms of the Hawke Government in the 1980s are a further
example. Apart from almost pulling off introducing a consumption tax – unions
withhew support late in the day – the Hawke Government was able to include capital
gains in the income tax net and fx up the fringe benefts mess by making the employers
the taxpayer for benefts provided. It also bought the international tax system into the
twentieth century with credits for foreign tax paid. It introduced dividend imputation.
After some debate, it implemented the petroleum resource rent tax.
Neoliberal tax base broadening (Swank, 2006, p. 847, 848.) enabled the Labor
Government to make across the board company tax cuts from 49 per cent when it came
to offce in 1983 to 33 per cent when it left in 1996. It also cut the top marginal personal
income tax rate from 60 to 46 per cent. Yet there is a tension between managing
capitalism and implementing some measures that impact on sections of capitalism or
even all of capital for the beneft of capital. The imposition of the capital gains tax (CGT)
in 1985 is a case in point. Bringing such gains within the income tax net is an apparently
equitable move[17] which applies disproportionately to the well off (The top 20 per cent
own over 60 per cent of the wealth in Australia) (Australian Bureau of Statistics,
2011-2012). Yet the tension between capital and workers plays itself out here too. The
original 1985 CGT that Labor introduced only taxed real capital gains. The gains
were indexed so that only those gains greater than infation were included in
assessable income. All other income is taxed on notional gains. For salary and wage
earners, there was and is no infation adjustment.
Labor’s concessional tax treatment of capital gains laid the groundwork for the
Howard government to repeal the infation adjustment and offset it with a concession
that included only 50 per cent of a capital gain made by individuals or trusts on assets
held for more than 12 months in assessable income. Treasury estimates the revenue
foregone as a result of the 50 per cent concession at more than $4 billion in 2012/2013
(The Treasury, 2013).
The ability of Labor to impose solutions on capital that impact on sections of capital
is always contested. Further the political upheaval over the RSPT and the development
of the MRRTshowthat in times of very lowlevels of class struggle, with the weakening
of the role of the trade union leadership in the ALP and the strengthening of the role of
parliamentarians, plus the institutionalisation of neoliberalism in Labor (Bramble and
Kuhn, 2010, p. 168 et ff.), this ability to impose systemic solutions over the resistance of
sectors of capital has declined (Bramble and Kuhn, 2010, p. 184).
4.3 Showing weakness in strength
The mining companies’ backlash against the RSPT, as well as destroying a Prime Minister
(Passant, 2011, pp. 172-173), destroyedthe grandexpenditure dreams of one-thirdeachof the
estimated ten billion on company tax cuts, one-third on infrastructure for the mining
industry and one-third to cover the loss of revenue from superannuation tax concession
through superannuation guarantee increases[18]. The destruction of Kevin Rudd as Prime
Minister and the elevation of Julia Gillard to the position were orchestrated through both
right- and some left-wing members of the caucus[19] and the powerful right-wing union, the
Australian Workers’ Union (AWU), and Paul Howes, its leader (Bramble and Kuhn, 2010,
p. 183). The $22 million advertising campaign by the Minerals Council of Australia was
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having an effect. The ALPwas falling in the polls. An election was due in the next couple of
months. The right in caucus and in the AWU joined together to replace Rudd with Julia
Gillard. She introduced a much watered-down tax, the MRRT(Passant, 2011, pp. 169-176).
The unions showed their weakness in their strength. Their power was to change
Labor leaders. Their weakness was not being able to defend a tax on big business. They
used their power within the ALPto change the leadership and lead a retreat froma broad
resource rent tax. This process of retreat was mediated through a troika of politicians –
new Prime Minister Julia Gillard, Treasurer Wayne Swan and Minister for Resources
Martin Ferguson – and a troika of the big mining companies – BHP Billiton, Rio Tinto
and Xstrata. The double troika agreed to the MRRT[20] (Gillard et al., 2010).
The Gillard Government established a group which later became the Policy
Transition Group (PTG) headed by then Resources Minister Martin Ferguson and
former BHP Billiton Chairman Don Argus “to consult with industry and advise the
Government on the implementation of the new MRRT and PRRT arrangements”
(Gillard et al., 2010). These broad design features were in the Heads of Agreement that
the Government and BHP Billiton, Rio Tinto and Xstrata signed on 1 July 2010 (Policy
Transition Group, 2010). The role of the PTG then became “to advise on the technical
design of the new arrangements” (Policy Transition Group, 2010).
The campaign of the mining industry saw the biggest three miners in Australia set the
terms of the design of the proposed MRRT. Their power and dominance over Labor was
such that the industry not only forced Labor to remove a Prime Minister and set the design
parameters of a new tax. They were able to set those parameters so restrictively that they
andthe rest of the miningindustrywill paylittle taxunder the MRRT. What was missingin
this fght between Labor and mining capital was any counterbalance of unions, party
membership and/or left-wing politicians, let alone powerful political and social forces to the
left of the Party, to challenge the power of mining capital and reinforce government resolve.
The demise of the left in the party, the weakening of the trade union movement and the
collapse inmembership–important elements of the material base of the Labor Party–made
it more susceptible to a campaign by mining capital against the RSPT. This decline in
working-class numbers and strength in the ALP made the party more susceptible to the
anti-RSPT campaign and unable to develop a groundswell of support. As Bramble and
Kuhn put it: “The Party today has less of a base in the working class that it can use as a
counterweight to a section of the capitalist class mobilising against particular government
policies” (Bramble andKuhn, 2010, p. 184). The right-wingunions hadthe strength, together
withparliamentarians, toforce the removal of aPrime Minister, but that strengthwas part of
the wider campaign to retreat from the mild RSPT. The unions would not or could not
mobilise effectively against mining capital in defence of a resource rent tax. Labor leaders
and parliamentarians did not initiate or call on the membership or unions for such a move.
The Party was frozen in the headlights of mining capital by its weakened links with unions
and their reduction in social weight.
4.4 The chimera of revenue
The end result was a tax that raises very little compared to expectations and predictions.
Table I fromthe Parliamentary Library (Swoboda, 2013) shows the extent of the decline
in predicted revenue – from $3.7 billion (Australian Government, 2011-2012 McLaren,
2012) initially as the RSP, to the MRRTcollecting only $126 million in its frst six months
of operation (Zou and Creagh, 2013).
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In short, the predicted MRRTrevenue has been in freefall for two years. The question
is why the huge decline?
While market conditions – continued global instability, commodity price volatility
and a high dollar – were and are part of the explanation[21] (Swan, 2013), the real
problemappears to be the design faults in the tax, in particular the deductibility of State
and Territory royalties, the choice companies can make of market value of mines rather
than historical cost for the tax’s starting base and the downstreaming of profts to avoid
the application of the tax. The tax collected is miniscule[22] (Uren, 2013).
The difference between tax reform in the 1985/1986 period and under Rudd and
Gillard is that in the earlier period, the trade union bureaucracy was heavily involved,
while the Rudd and Gillard governments have distanced themselves from the union
leadership (Bramble and Kuhn, 2010, p. 169), with the consequence that the Henry Tax
Review and subsequent tax reform developments had no effective union involvement.
4.5 Tax to mimic competition
The RSPT was to be a measure to redistribute super profts frommining capital to all of
incorporated capital through company tax cuts. Its other role was to mimic competition by
reducing the amount that the rate of proft of mining companies exceeded the average rate.
One of the keys to understanding the dynamics of capitalism is the tendency for
proft rates to move towards the average both within industries and across them, or as
Marx puts it a “general equalisation of surplus-value to an average proft” (Marx, 1959,
p. 761). Competition does this. Thus where industries have high profts other capitalists
come in, reducing the proft rate in that sector and increasing it in sectors they have left
or not invested in. However, sometimes there are barriers to competition or other factors
that impede or inhibit or override competition, Marx’s alien forces (Marx, 1959, p. 761).
Monopoly or oligopoly provides one example. So too does landed property. Marx
described it this way. “Such an alien force and barrier are presented by landed property,
when confronting capital in its endeavour to invest in land; such a force is the landlord
vis-a`-vis the capitalist” (Marx, 1959, p. 761). The tax then becomes a mechanism for
Table I.
Changes in Minerals
Resource Rent Tax
revenue projections
($ billion)
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
May 2010 announcement of
Resource Super Profts Tax 3.0 9.0 Not available Not available Not available
November 2011 introduction
of MRRT Bills 3.7 4.0 3.4 Not available Not available
November 2011 MYEFO 3.7 3.8 3.1 Not available Not available
2012-2013 Budget 3.0 3.5 3.2 3.7 Not available
October 2012 MYEFO 2.0 2.4 2.1 2.6 Not available
2013-2014 Budget 0.2 0.7 1.0 1.4 2.2
Sources: Australian Government, Budget measures: budget paper no. 2: 2010-2011, p. 45, accessed
9 May 2013; Revised Explanatory Memorandum, Minerals Resource Rent Tax Bill 2011, p. 4, accessed
15 May 2013; Australian Government, Mid-year economic and fscal outlook 2011-2012, p. 264,
accessed 9 May 2013; Australian Government, Budget strategy and outlook: budget paper no. 1:
2012-2013, pp. 5-20, accessed 9 May 2013; Australian Government, Mid-year economic and fscal
outlook 2012-2013, p. 357, accessed 15 May 2013; Australian Government, Budget strategy and outlook:
budget paper no. 1: 2013-2014, 2013, pp. 3-18 and 9-21, accessed 14 May 2013
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helping address the effects of the alien force that is landed property rich in minerals by
reducing the rate of proft to the extent of the tax. The flcher is flched. The extra proft
arising from the flching is taxed and a redistribution of surplus value from other
capitalists to the monopolist or oligopolists occurs.
Private ownership of land in agriculture and state ownership of minerals together
with private rights to mine in the mining industry are the alien forces which give power
to this transfer, this “flching” of surplus value by the mining companies from other
capitalists. Indeed the state in extracting royalties or taxes on super profts may be
acting like capitalist landlords, flching surplus value through its ownership of the
minerals (State and Territory Governments) or through its effective monopoly income
tax power. Yet despite this notional power, the Labor Party in government could not
resist the powerful mining industry.
4.6 The power of the mining industry
The mining industry is powerful. Mining accounts for about 7 per cent of gross domestic
product and about 2 per cent of employees or 260,000 workers[23]. Minerals are the
country’s biggest export. Excluding oil and gas, they “were worth approximately $164
billion in 2011-2012, accounting for around 52 per cent of total exports (goods and
services) and 62 per cent of merchandise exports”[23]. Australia is near the top of the list
of mineral producers and has very large reserves in a wide range of resources[23].
Despite the Minerals Council highlighting possible sovereign risk issues and
suggesting one possibility for mining companies was to go to other countries during its
campaign against the RSPT, according to Behre Dolbear’s respected rankings system,
Australia was the best place for resource investment in the world, and has been for the
past three years (Wyatt and McCurdy, 2013). One of the seven criteria in judging that is
the tax regime as it applies to the mining industry.
This number one ranking may be because Australia’s RSPT/MRRT prompted other
nations to revisit their own tax regimes. Certainly other countries turned an eye towards
their mining industries. Behre Dolbear notes that increasing government debt and
mining booms have “inspired offcials in almost every minerals-producing nation to
consider raising mining-related taxes and fees” (Wyatt and McCurdy 2013, p. 9). They
go on to point out that Australia’s attempts to impose resource rent taxes may well have
been the catalyst or inspiration for this global re-awakening in governments wanting
better returns from the mining industry (Wyatt and McCurdy, 2013 p. 9).
The economic power that the mining industry has, and its potential future profts
from the massive reserves, translates into political power. The exercise of that power
resonated in the ALP and helps explain the fall of Rudd Mark I, the rise of Gillard to
power and the development of a tax that brings in much less than expected. The logic of
negotiating a tax with the three most powerful mining companies in Australia would
appear to be a tax that doesn’t tax much.
The specifc design reasons for this problematic tax should prompt the question –
how did this arise? That can only be understood against a background of decades of
class collaboration from the union leadership, a massive decline in strikes over the past
20 years, the ALP’s embrace of neoliberalism as part of the generalisation of class
collaboration and the weakening of the power of union infuence within the party. It is
the shift in the ALP over time from a capitalist workers’ party to capitalist workers’
party that explains the process of change that led to the MRRT and its lack of bite.
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Certainly the Labor Party’s greater overt commitment to the market, to
privatisations, to restraining unions, to cutting public services, the even greater
infuence and power of the Right and the shift of the Parliamentary Left to the right, the
changing nature of class background of Labor parliamentarians, the collapse in branch
membership, all indicate a party in change from in the past some balance between
capitalist and worker to more capitalist and less worker infuence.
The ALP, as a capitalist workers’ party, has always adopted the dominant economic
ideology of the time (Bramble and Kuhn 2010, p. 183). In Keynesian times, the Labor
Party is Keynesian (Bramble and Kuhn 2010, p. 183). In neoliberal times, the ALP is
neoliberal (Bramble and Kuhn 2010, p. 183), and its links with the trade union
bureaucracy make it a good vehicle for carrying the neoliberal programme into the
workplace. It is because the trade union bureaucracy are the mediators between labour
and capital that they are pro-capitalist and best able to spread capitalist ideas and
policies into the workforce (Hillier, 2011).
4.7 Elite gridlock?
The Labor Government’s lukewarm reaction to the recommendations of the Henry Tax
Review – they initially adopted perhaps 2.5 of the 138 recommendations (Farr, 2010) –
refects a pattern of tax timidity caused by elite gridlock. That gridlock stems in part
from two aspects of the class nature of the main parties. The Liberals’ close ties to
business make them less likely to impose systemic tax solutions that impact adversely on
major sections of capital. The focus will be ontaxinglabour andtheir systemic solutions, for
example the introduction of the GST, represent this underlying class approach. Their
proposed White Paper on taxation will focus on how best to tax workers, in the context
perhaps of a reduction in the need to raise revenue from effcient sources because of a
reduction in government spending, in particular on social and welfare services.
The decline of Labor as the party best equipped to impose systemic tax solutions for
the beneft of all capital at the expense of some sections of it, exemplifed by the history
of the MRRT, means that there will likely be no party into the future arguing for
progressive tax reform that taxes business.
The problem for the systemin the future is that this incremental slowapproach – even
if it occurs or eventuates a` la MRRT– fails to address the big challenges that the Henry Tax
Review tried to address: demographic changes, demands for adequate social spending on
health, education and the like, globalisation, the ineffcient mix of current taxes, the need to
attract foreign investment, the changing nature of Australia’s role in the global economy,
the rise of Asia and climate change (Henry et al., 2010, p. 3, Part One the Overview).
These drivers are not going to disappear overnight. Underlying this all is the
question of what is happening with proft rates globally and in Australia. If the global
economy goes into further recession and Australia joins them, the pressure for tax
reform that cuts tax burdens on capital may increase.
Against this background, delaying or dismissing tax reform action now will only
increase systemic pressure for big bang reformin the future. The effcient tax argument
is of particular importance. As Henry put it “[…] most taxes result in some loss of
economic effciency” (Henry et al., 2010, p. 13, Part One the Overview) because they
impact on work, investment and consumption choices. Couple this with the Review’s
analysis that many State taxes are ineffcient and that they should be abolished (Henry
et al., 2010, p. xviii, 12, 48 and 49, Part One the Overview) and a future shift to more
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effcient (but not necessarily equitable) taxes like rates and land taxes as well as
broad-based consumption taxes becomes not only a possibility but eventually, given the
systemic drivers for ongoing tax reform, a necessity. Indeed, the elite gridlock around
tax reform, one caused in my view by the particular and seemingly irreconcilable
interests of sections of capital, the close links of the Liberals with business, the weakness
of the ALP nowto impose solutions for the beneft of the whole systemat the expense of
sections of it and fear still of possible working-class reactions to further shifting the
burden of tax on to workers, means that the tax system may be moving towards stasis
if crisis. The solution of the Coalition, close to business, may be through tax shifts on to
labour and cuts to services that are labour’s social wage.
5. Conclusion
The foregoing discussion of the MRRT in my view indicates that the ALP remains
a capitalist workers’ party but that the capitalist aspect of the party has grown
stronger and that of labour weaker. The underlying economic crises of global
capitalism, the crises of proftability in much of the developed world, the collapse in
Australia of class struggle over the past three decades, the adoption of class
collaboration by the unions, the weakening of their strength, the ALP’s long slow
dance with neoliberalism and the Party’s commitment to managing capitalism help
explain both the RSPT proposal and its mini-me version, the MRRT, in the context
of Labor as a capitalist workers’ party and the changing nature of its relationship
with the two major classes in Australia today, capital and labour. The shift in the
balance of class forces to capital societally and in the ALP means that one of Labor’s
traditional roles of imposing solutions on sections of capital for the beneft of all
capital is being undermined. The MRRT is one logical consequence of that shift.
Notes
1. There are three parts to the Report and they have three distinct footnote references in this article.
1(a) Henryet al. (2010), Part One the Overview; 1(b) Henryet al. (2010), Part TwoDetailedAnalysis
Volume One and1 (c) Henryet al. (2010), Part Two DetailedAnalysis Volume Two. The linkto the
Final Report – all three sections plus other material – can be found here.http://taxreview.treasury.gov.au/content/Content.aspx?doc?html/pubs_reports.htm
2. Hirsh argues that during crises of proftability especially, states defend proft and attack
workers’ incomes.
3. As Harman notes elsewhere “To be absolutely accurate, it is the total state revenues minus
that portion of them that fows back to the working class in terms of welfare benefts,
subsidies etc that is part of the total surplus value; and the value of labour power is total take
home wages plus these benefts, subsidies etc.” (Harman, 1991).
4. Productive capital is that section of capital in which their workers, productive workers, create
surplus value, i.e. produce goods and services for sale on the market. See for example Marx
(1977); Callinicos (1996), Harman (2009, p. 114).
5. One view is that structural dependence means that “under capitalism all governments must
respect and protect the essential claims of those who own the productive wealth”. See
Przeworski and Wallerstein (1988b). There Przeworski and Wallerstein examine and critique
this argument, as do others. In the tax context see for example Swank (1998). For a defence of
the idea of the mutual interdependence of capital andthe state, see Harman(2009, pp. 110-112).
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6. I would use siblings instead of brothers but the phrase is now so entrenched in Marxist and
other leftwing writing that it is seemingly untouchable. Interestingly, although Marx talked
about hostile brothers, he never called them a band. Later writers ascribed the whole phrase
to Marx and it is now so established in leftwing discourse that I use it to describe capitalists
who own and control the commanding heights of the economy and have interests in common
(against labour) and opposed (in competition) to each other, and their state.
7. One at least of these circumstances – absolute rent - can be explained as the value of the goods
being greater than their prices of production.
27
This can occur for example in labour intensive
industries. So the price of these commodities can rise above their actual price of production
but still be below their value. The difference between the actual price and the price of
production is absolute rent. As David Harvey says “Part of the excess surplus value produced
in agriculture by its labour intensity (lower value composition) is ‘flched’ (as Marx puts it) by
the landlord, so it does not enter into the equalization of the rate of proft” (Harvey, 1982). But
for industries with a high Organic Composition of Capital and alien forces preventing
equalisation of proft rates, like mining in Australia, the argument becomes that that those
barriers to entry or other alien forces allow the flching to continue, not as absolute rent but
monopoly rent. (Harvey, 1982, pp. 349 and 353).
8. The States own the minerals and resources onshore and to the 3 nautical mile territorial limit;
the Commonwealth anything beyond that within Australia’s jurisdiction. See Cox (1994). The
Hawke Labor Government set up the Petroleum Resource Rent Tax in the mid-1980s to tax
economic rent arising from offshore petroleum and gas exploitation. For a fuller explanation
see (McLaren, 2012, pp. 69-84).
9. Ross Garnaut says: “There is no prospect of dealing with the full range of the MRRTproblems
except in the context of a new framework of federal fnancial relations. I note in passing that
the system for distributing the GST among states and territories creates large disincentives
for the states and territories to introduce on their own account fscal regimes for resource
developments that are economically effcient and equitable for the residents of their
jurisdictions. Thus effciency raising and equitable reform of resource taxation in Australia
requires comprehensive revision of fundamental aspects of federal fnancial relations”
(Garnaut, 2013). Garnaut also said: “Retention of state royalties means that the advantages of
the PRRTfor encouragement of complete economic utilisation of marginal ore projects are not
available within the MRRT. The shielding of liability for MRRTthrough credits for newstate
royalties invites instability in the overall mineral taxation regime and can be expected to
remove the tax’s capacity to raise revenue”. Abolishing royalties was within Labor’s control
if it were prepared or pushed to deny MRRTcredits for such taxes. It didn’t, because its links
to its working-class base have weakened.
10. “Deadweight losses arise when individuals change their behaviour in response to higher
taxes, substituting one kind of behaviour for another which would have been preferred had
the tax increase not occurred. For example, if income taxes rise, some people might decide to
work fewer hours, or they might conclude it is not worthwhile training for an additional
qualifcation, or they might stay on welfare rather than look for a job, or be deterred fromthe
risk of setting up a company of their own. Deadweight losses, in other words, represent the
disincentive costs of tax. They are the value of all the work and output that we lose as a result
of taxing people’s incomes” (Robson, 2005 Auerbach and Hines, 2002).
11. The issue is not so much the fnancialisation of capital but the close and interdependent
relationship between fnance and productive capital. See, for example Callinicos (2009).
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12. See for example (Swank 2006, p. 847). There Swank argues that the tax burden on companies
in the developed world had not changed much up to the mid-1990s. While Swank may have
been correct when he wrote this, his data are old and the drop in both headline and effective
tax rates on companies in Australia and the developed world appears real enough now. See
(Henry et al. 2010, pp. 160-162, Part Two Detailed Analysis Volume One).
13. Those other things might include the Review’s vision of lower tax rates on mobile capital
compared to fxed factors like resources, land, consumption and that labour which cannot
leave Australia for work.
14. For example a collapse in demand for resources would mean not all other things are equal.
15. Boadway was talking about optimal tax theory, but as the Henry Tax Reviewis an admittedly
unacknowledged attempt to put that theory into practice, the comment applies equally in my
view to the Review. See Passant (2013).
16. The current Goods and Services Tax has exemptions for fresh food, health and education
which mean it applies to only 57 percent of consumption (Henry et al., 2010, p. 273, Part Two
Detailed Analysis Volume One).
17. I say apparently equitable because it was driven by effciency considerations and was an
attempt to address the investment distortions which non-taxation produced.
18. There have been smaller company tax cuts and the SG increases are continuing.
19. Right and left now appear more as tribal descriptions than differential ideological ones.
20. The actual Heads of Agreement can be found here.http://archive.treasury.gov.au/documents/
1936/PDF/104_emai_fnal_version_with_comments_BHP.pdf
21. However, the dollar has declined over 10 percent since Swan argued this and the price of iron
ore and coal has stabilised and may begin to rise slowly.
22. If the proft can be allocated against downstream activity after extraction it is, so the
argument goes, not economic rent and hence not caught by the MRRT. Unsurprisingly,
mining companies have claimed a large amount of the proft they make comes from their
downstreamactivities. There are two answers. Tax Offce audits could establish if in fact the
proft arises in the extraction (rent) stage or downstream; and the economic rent of minerals
arises in part because of their fnite nature so including downstream profts in the bundle of
economic rents is arguably appropriate.
23. Geoscience Australia, “Minerals Basics”, www.ga.gov.au/minerals/basics.html
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About the author
John Passant has more than 33 years’ tax experience both in academia and the Australian Tax
Offce (ATO). Before he retired from the ATO, he was an Assistant Commissioner of Taxation,
including being in charge of international tax reform. In frst semester, 2014, he is tutoring in the
Politics of Asian Development at the University of Wollongong. He is undertaking a PhD at the
ANU on Marxism and tax. His immediate goal is employment in academia teaching and
researching in tax lawand, if there were a demand for it, Marxismand law, with the possibility of
also teaching in introductory law and some business law units. John Passant can be contacted at:
[email protected]
To purchase reprints of this article please e-mail: [email protected]
Or visit our web site for further details: www.emeraldinsight.com/reprints
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This article has been cited by:
1. Tom Bramble. 2015. Australia: A Mid-level Imperialist in the Asia-Pacific. Historical Materialism 23,
65-100. [CrossRef]
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