The Minerals Council of Australia (MCA) delivered a masterclass in spin and corporate lobbying this week. It’s worth going through it in detail to see how industry groups are able to push their agendas regardless of facts — even those in their owned commissioned research. Rod Campbell from The Australia Institute reports.
The MCA put out a press release saying miners are ‘paying their fair share’, with an ‘effective tax rate of 51 per cent’ and this ‘conclusively busts the myth that Australian mining companies pay little or no tax.’ In fact, say the MCA, they’re paying so much tax that they need a cut in the company tax rate.
It’s easy to see why the mining lobby would want to claim that they are paying tax and the company tax rate is too high. There have been plenty of headlines like ‘‘The tax trick big miners use to avoid paying millions’ ‘BHP to contest A$1bn Australia tax bill’ ‘Rio Tinto is fighting a $447 million tax bill over Singapore sling’. A quick look at ATO tax statistics shows others like Yancoal, Centennial Coal (Banpu) and New Hope Coal have paid zero company tax in recent years.
— PWYP Australia (@PWYPAustralia) January 8, 2018
So it’s hardly surprising the public is getting the impression miners don’t pay tax. It’s also no secret that big business is campaigning for a corporate tax cut and people like Treasurer Scott Morrison have told CEOs to go out and fight for it.
So is any of this true? Are miners really paying their “fair share”? Do they need a tax cut?
Of course not. Leaving aside what is “fair”, the first thing to notice about the 26 page “independent study” the MCA commissioned from Deloitte Access Economics (Deloitte) is that it doesn’t say how much tax the miners actually paid last year.
Let that sink in — the report that busts the myth that miners don’t pay tax doesn’t say how much tax miners paid. It does talk about tax rates, more on those later, but doesn’t talk about dollars paid.
You’d be hard pressed to notice this if you only read the press release, which states:
‘The Australian minerals industry paid $185 billion in Federal company tax and state and territory royalties between 2005-06 and 2015-16 (Source: Estimates of royalties and company tax accrued in 2015-16, report by Deloitte Access Economics for the Minerals Council of Australia, 5 January 2017).’
Take a hard look at the source. Same consultant, same client, same financial year (15-16), similar content but dated January 2017. Maybe that’s a typo — after all, who doesn’t make a few early in the new year?
Not the MCA. These guys are pros. This very similar-seeming report has never been publicised by the MCA, with no previous media reports and no release on their website around that date.
And coal ‘sales’ are not independently valued in calculating royalties and this allows coal firms transferring profits to tax havens i.e. their Singapore ‘trading hubs’. No one can trust the MCA to fairly report on this key issue, it is a foreign funded lobbyist!
— 💧 Tim Buckley (@TimBuckleyIEEFA) January 9, 2018
The report was sent to me by the MCA when I pointed out that the $185 billion figure didn’t appear in the report released this week. Internet archives have never archived this report, while most parts of the MCA site from early 2017 have been archived once or twice. I asked the Media Director of the MCA when this report was released and he said he didn’t know. It may have been posted just yesterday in response to my query.
So the MCA has two reports on miners and tax for the 2015-16 financial year. One doesn’t say how much tax they paid, released with considerable fanfare this week. Let’s call that the “tax rate report”. The other, let’s call it the “tax paid report” does say how much tax miners paid, but it has been kept quiet for a year.
“The tax paid report actually shows company tax paid
by mining companies at the lowest level on record”
Here’s why. The tax paid report actually shows company tax paid by mining companies at the lowest level on record:
Figure 1: Company tax table from Deloitte ‘tax paid’ report
Figure 2: Company tax graph from Deloitte ‘tax paid’ report
Deloitte’s estimates show company tax paid by the mining industry plummeted to a fraction of the level in the mining boom, lower than in the Global Financial Crisis and half the level paid before the final abolition of the mining tax.
It gets worse. Royalty payments – which are not taxes, more on that shortly – have also declined to their lowest level in six years despite massive increases in the quantity of minerals mined in Australia:
Figure 3: Royalty tables from Deloitte ‘tax paid’ report
To be clear, the ‘tax paid’ report that the MCA says “busts the myth” that miners pay little tax actually shows record low payments of company tax and royalties.
Rather than publicising this awkward fact, the MCA summed all these payments from 2005-06 to 2015-16 and boasted of $185 billion in payments. This was reported in the Financial Review as:
[MCA acting CEO David] “Byers said the industry had paid an estimated $185 billion in company taxes and royalties in the past decade.”
See anything wrong with that? It’s not a decade, it’s 11 years. I pointed this out to the Director of Media at the MCA, who replied:
“Our media release made it clear that it was over an 11 year period. What the AFR reports is up to them.”
I’ll leave it up to you as to whether it’s clear or not, but if my boss was wrongly quoted in a major newspaper and I was the Media Director, I’d be making a few calls.
Michael West slams Minerals Council tax lie http://t.co/Hcsy5k96bj
— Macro Business (@macro_business) August 18, 2014
Turning to the “tax rate” report that was just released, it doesn’t estimate taxes paid, but on tax ratios. Deloitte say there are two key reasons for this:
“First, although there have been ups and downs, over time absolute tax dollars have grown due to the enormous growth in the demand for and price of industrial commodities.”
This is clearly not true. Deloitte’s own ‘tax paid’ report shows that the absolute tax (and royalty) dollars are at long-time lows. They go on:
“Second, ratios abstract from the size of the sector and allow debate to focus on tax rates and the associated tax burden rather than absolute dollar values.”
This is exactly what the mining industry, other big business and the Treasurer would like — for the public to not look at how much tax is actually paid by big business, but to focus on abstract notions like tax rates…sorry “burdens”. Let’s have a nice abstract debate, while the mining industry goes on avoiding tax.
The headline result of Deloitte’s tax ratio paper is that the mining industry pays an “effective tax rate” of 51 per cent. This is nonsense for several reasons. Here are just four:
- This includes royalties — the money mining companies pay to the public for the minerals the public actually owns. This is not a tax, but a payment for an input. It’s like Coca-Cola claiming that their cost of sugar is a tax.
- This rate is also based on the companies’ self-reported claims of taxable income. Not total profit, not income before taxes, but income taxable in Australia. It excludes all the taxes avoided through marketing hubs in Singapore and other offshore tax havens, just like those Rio and BHP are fighting the tax office over.
- Deloitte assume that companies will pay 30 per cent of what their survey respondents claimed as taxable income. A quick glance at ATO data shows this isn’t the case. For example, BHP’s main entity paid a rate of 25 per cent last year.
- The ABS estimates mining industry operating profit before tax in the decade to 2015-16 (yes, I mean decade) at $498 billion. Deloitte estimate mining industry company tax paid over that period at $103 billion, an effective company tax rate of 21 per cent.
Hi @D_AccessEcon @Deloitte. You seem to have made an error when commissioned to do a report by the MCA. You've erroneously considered the cost of materials (royalties) as a tax. I am sure it is an error because a professional & ethical organisation would not do so deliberately.
— Psyberus (@Psyberus) January 9, 2018
To summarise, the Minerals Council’s own reports commissioned by Deloitte show that company tax and royalties paid by the mining industry are at long-time lows. Their estimates of company tax payments amount to just 21 per cent of ABS estimates of operating profit before tax. This confirms years of ATO data, media and research reports showing that mining doesn’t pay a lot of tax.
The genius of the MCA is that they can turn such overwhelming numbers into headlines like ‘Minerals Council says taxes and royalties take half of profits’, ‘Miners call for company tax cut after paying 51 per cent of profits’, or at worst ‘Miners pay their ‘fair share’ of tax if you count royalties: report’. The average reader, bureaucrat and politician got the impression that the miners are paying up big-time.
There’s no doubt the MCA are very good at what they do. These are the same people that brought down the carbon tax and the mining tax, scuttling climate policy and costing Australian taxpayers billions. They boasted about it in their 2013 annual report:
‘The MCA was at the forefront of the debates over the carbon and mining taxes; and their abolition (expected after July 2014) will be in no small part due to the council’s determined advocacy on both issues.’
Now they’ve got their sights set on the corporate tax rate. Hopefully, this time Australia’s public, journalists and decision makers can see through some of the MCA’s spin, no matter how good it is.
Rod Campbell is Director of Research at The Australia Institute.
You can follow Rod on Twitter @R_o_d_C .