Grylls’ iron ore tax has flaws but electoral maths says it’s on the table

The West Australian on October 25, 2016:
“It’s an outcome that the polls suggested was likely and now it has happened — neither Colin Barnett nor Mark McGowan has the numbers to form government in their own right. Once again, the WA Nationals hold the balance of power.”
ABC election analyst Anthony Green, 8.40pm (WST), March 11, 201[6] Anyone who believes that Brendon Grylls’ $5-a-tonne iron ore tax is never going to happen needs to ask themselves whether the above scenario is completely unbelievable.
And, if it is believable, does anyone reckon Mr Grylls won’t use his bargaining power to force someone to agree to the tax on BHP Billiton and Rio Tinto?
Does anyone believe Colin Barnett and Mark McGowan won’t jump at the chance to make that deal? Yes, Mr McGowan has categorically ruled out governing with the Nationals. “Labor stands or falls on its own,” he said last month. “We will govern in our own right or not at all.”
It is a definitive stance. About as definitive as this one: “There will be no carbon tax under the government I lead.”
Grylls: “Mark, if you agree to this new tax I will support Labor and you will be the 30th premier of Western Australia.”
McGowan: “Brendon, after two decades in politics I have suddenly decided that I was wrong to spend my life trying to be premier and so at the last moment, with my lifelong dream within grasp, I am going to opt for another eight years on the Opposition benches.”
That’s about as likely as this:
Grylls: “Colin, if you agree to legislate this new tax you will be returned as premier of Western Australia. You will have enough money to fix the budget problem, your reputation will be rehabilitated and you can leave politics on your own terms.
Barnett: “Sorry, Brendon. I would prefer to be remembered as the premier who wrecked the books and then consigned WA to four years of the political and economic instability wrought by a minority government.”
Now, how far-fetched in this response byeither Mr Barnettor Mr McGowan to the same question on election night:
“Brendon, politically I can’t agree to a $5-a-tonne tax. I have been too strident in my opposition to it. But I think I can make us both look good if we settle on a $2.50-a-tonne tax. I can tell the miners I have saved them billions and you can still take credit for saving the budget and standing up to the big end of town.”
No politician turns down the chance of being premier. BHP knows it. Rio Tinto knows it. And Mr Grylls knows it.
The ferocity of the posturing you have seen over the past few weeks will ramp up as the March poll gets closer.
Expect to hear more from BHP and Rio about how much tax they pay. It is a huge number. But it’s not $1 more than they are legally required to shell out.
Big tax bills are the annoying by-product of big taxable profits. Just ask the Big Four banks, which paid $31 billion last year.
Do you have sympathy for a cardiothoracic surgeon complaining about the land tax they pay on their Eagle Bay weekender? No? Then don’t pity the miners on the tax front.
Critics of the Grylls plan see the eventual redistribution of the revenue away from WA to other States via the GST mechanism as a key flaw.
In short, Mr Grylls may raise $3 billion a year from the tax but the windfall will lead to WA losing that amount in GST, so the WA Treasury is no better off.
Mr Grylls knows this and has quietly set the scene for some classic wedge politics to overcome this hurdle.
Here’s how it works. Just about every senior Federal politician, including Barnaby Joyce and Malcolm Turnbull, have opposed the tax. But are they going to refuse to spend the billions of extra dollars in GST freed up when WA’s share of the GST pie shrinks courtesy of the iron ore tax windfall? No.
Will Mr Turnbull give BHP and Rio a company tax break to make up for the extra $5 a tonne they are paying? No.
Will the coalition use that extra cash to pork barrel projects in other States? Yes.
When politics is opaque, it’s always instructive to follow the money. Interestingly, the sharemarket has so far shrugged off the threat of the tax.
Perhaps professional fund managers don’t think it will happen. Or perhaps they believe the miners can afford to absorb the extra cost and still get their iron ore to market cheaper than anyone else.
Perhaps they reckon Rio and BHP’s Pilbara operations are so outrageously profitable that an extra $5 a tonne can be accommodated and still afford the miners the kind of return on investment that other blue-chip companies dream about.
Tax policy should be informed by more than the need to shore up a Budget. That’s the ideological flaw in the Grylls plan.
His ideological strength is that the game has changed since the State Agreements were signed half a century ago.
Consider the numbers above. In the mid-1970s the total amount of iron ore leaving Australia was about 100 million tonnes a year. Rio now does triple that by itself.
Every year, the weight of the ore which this one company exports is equal to the cargo that the entire world ships through the Panama Canal.
The amount of rock moved during a typical year’s mining could fill the MCG — every day.
The company’s search for iron ore sees it drill and blast its way through 12,000km of rock — the diameter of the earth.
Things have changed.