EDITORIAL: Labor’s taxing disaster

VOTERS know the federal election campaign has begun, but not all may be aware of another, almost equally important campaign over the nation’s mining tax.

In recent days the government has been forced to admit what most informed commentators already knew:  the tax will raise little money in its first year. 

This year the much-vaunted Minerals Resource Rent Tax (MRRT) will scratch together barely $126million.

And it has been reported  the mining giants Rio Tinto and BHP Billiton have already accumulated $1.7billion in tax credits to offset against future liabilities.

Combine this with  the government’s foolish agreement to make present and future state mining royalties fully deductible against the federal tax and it is clear the MRRT cannot possibly be the cash cow that Labor said it would be.

This is a huge problem for the government, because much of the money the tax was supposed to raise has already technically been spent – allocated to new initiatives including disability support reform.

So, as the Gillard government drifts towards an election where a major defeat could put Labor in opposition for multiple terms, it must decide what to do about its MRRT budget black hole.

Backing away from its big-ticket reform proposals would be politically suicidal, as that would mean disappointing the expectant electorate as well as admitting its flagship tax was botched.

Many might suggest  the government should fix its broken tax, returning it to something closer to the model proposed by former prime minister Kevin Rudd.

But that would upset the mining companies whose $22million anti–Labor advertising campaign played a big role in bringing Mr Rudd undone, as well as angering the states by cancelling the deductibility of their royalties.

The mining giants, flush with billions of dollars in profits from Australian coal and iron ore, have warned the government to leave them alone, taking out full-page newspaper advertisements this week, arguing  they were already paying a big enough share of taxes and royalties.

Tony Abbott’s Coalition stands to inherit the headache if it wins power in September, but it can afford to let the government suffer alone, waiting until after the election to declare that Labor’s budget and tax mistakes necessitate a recasting of priorities.

Voters will ultimately pay, no matter which side wins office. 

But for now the mess that Labor made is Labor’s to deal with.  

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