Australian Prime Minister Julia Gillard’s tax on iron ore and coal profits raised A$126 million ($130 million) in its first six months, trailing targets and denting her economic credibility seven months before a federal election.
“Revenues from resource rent taxes have taken a massive hit from the impact of continued global instability, commodity price volatility and a high dollar,” Treasurer Wayne Swan, who in October forecast the mining tax would reap A$2 billion in the year to June 30, said in an e-mailed statement today. “Revenues across the board are down very substantially.”
Gillard’s bid to promote her government’s economic credentials is being damaged by weaker growth, lower prices for Australia’s resources, and a strong local currency that’s curbing tax receipts. She was forced in December to abandon a pledge to return the budget to a surplus this year, with time running out for her minority Labor government to gain ground in polls ahead of the Sept. 14 election.
“This puts a severe dent in the government’s credibility because it’s hard to say you can manage the economy when you can’t organize a new tax correctly,” said Andrew Hughes, who conducts political-marketing research at the Australian National University in Canberra. “It shows they have put too much faith on the resource cycle being able to hold up the economy.”
Gillard’s Minerals Resource Rent Tax, which puts a 30 percent levy on iron ore and coal profits, has drawn criticism from companies such as Fortescue Metals Group Ltd., business lobbyists and the mining states of Western Australia and Queensland. The Tony Abbott-led National-Liberal coalition claims the shortfall in revenue is an example of her government’s fiscal bungling.
“Wayne Swan is the most incompetent treasurer in Australia’s history,” shadow treasurer Joe Hockey told reporters in Sydney today. Government programs that were to be funded by the tax are now in jeopardy, he said.
Swan’s announcement today pre-empted disclosure of the revenue raised by the taxation office. The opposition voted with the Greens in the Senate this week to order the office to reveal details of the revenue so far collected by Feb. 15.
In its October mid-year review, the government forecast a budget surplus of A$1.08 billion in the 12 months ending June 30. It recorded a A$44 billion deficit last fiscal year. It cut the estimated revenue from the mining tax to A$2 billion from a A$3 billion forecast in May.
Swan backed away from the surplus pledge on Dec. 20 after he said government revenues had been hit by a “sledgehammer.”
“The disappointing mining tax revenue confirm the government’s quest for a budget surplus was a pipe dream,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “The hit to commodity prices from the global downturn seriously dented expected revenues.”
The tax was designed by Gillard after she conducted a back-room party coup in June 2010 and defeated predecessor Kevin Rudd, whose popularity with voters plunged in part due to an advertising campaign conducted by the mining industry against his proposed Resource Super Profits Tax. That levy drew miners’ ire by proposing a 40 percent tax on all mining profits, including gold, nickel and uranium.
“It’s a double whammy for the government,” said Hughes. “They’ve been hit in the revenue and you’ve got to expect they will be hit in the polls for it.”
Weaker commodity prices and an elevated currency have prompted mining companies including BHP Billiton Ltd. to put off projects and cut jobs, while a construction slump forced building-materials company Boral Ltd. to reduce payrolls.
Iron ore prices into China averaged about $117 a metric ton in the six months to Dec. 30, compared with about $159 a year earlier. Queensland coking coal averaged about $173 a ton in the half, compared with about $250 a year earlier.
In March 2012, the Bureau of Resources and Energy Economics expected Australian iron ore to average $140 a ton for the year. In December, the government forecaster cut that to $128 a ton after spot prices plunged.
Coal used to produce power has climbed 19 percent since dropping to a three-year low of $78.05 a metric ton in October. Japanese steel makers agreed to pay BHP a record low of $165 a ton for metallurgical coal in the first quarter of this year, UBS AG said in a Jan. 31 note.
“The MRRT is a top-up tax that has come on top of A$20 billion paid in tax and royalties in the last 12 months by the Australian mining industry,” Ben Mitchell, a spokesman for the Minerals Council of Australia, said by phone. “It is a de-facto super-profits tax and it’s working as it’s meant to work.”
Gillard has seen support for her party slump in recent weeks. Labor fell 5 percentage points to 44 percent on a two-party preferred basis, with Abbott’s Liberal-National coalition surging 5 points to 56 percent, according to a Newspoll survey published in the Australian newspaper Feb. 4. The measure is designed to gauge which major party is likely to win the seats required to form a government.
“The sharp fall in commodity prices in the back end of 2012 was a key reason why the government had to step away” from its surplus target, said Tom Kennedy, an economist in Sydney at JPMorgan Chase & Co., which expects about a A$15 billion deficit this fiscal year. “It’s really hitting their bottom line and it just works in conjunction with the decline in total business taxation revenue that we’ve seen.”