An MYEFO mystery: what’s with the resource tax?

It’s the time of the mid-year Economic Fiscal Outlook (MYEFO) and we’re told that we’re about 11 billion deeper in the red this financial year than we thought, with the treasurer blaming the dropping iron price and the reduced wage growth. I have gone over the MYEFO documents (which are an exercise in obfuscation if ever I saw one), found that wage growth and the dropped iron ore price would ‘only’ cost us 2.3 billion each in this financial year (2014-2015), noted that this was far short of the 11 billion headline, and thus went looking for the ‘real story’.

This threw up the mystery of the resource tax. Here is what it says on table 3.2:

Table 3.2: Impact of Senate on the Budget (underlying cash balance)
Estimates Projections
2014?15 2015?16 2016?17 2017?18 Total
$m $m $m $m $m
Impact of decision taken as part of Senate negotiations(a)
Repeal of the Minerals Resource Rent Tax and related measures -1,684 -2,334 -1,670 -947 -6,634

which seems to means that the repeal of the minerals resource rent tax (and related measures) is costing us around 2 billion per year. Yet, in the ‘Overview Part’, the MYEFO says “The repeal of the Minerals Resource Rent Tax and other related measures will save the budget over $10 billion over the forward estimates and around $50 billion over the next decade.”.

What is going on?

Update (thanks Chris Lloyd): it seems to be a language issue. Part of the story seems to be that the MYEFO is counting the repeal of the mining tax, which was an election promise, as something the Senate inflicted on the budget, so the 2 billion a year is ‘revenue foregone’. So the MYEFO is blaming the Senate for the outcome of an election promise, using an odd formulation to say that the repeal will save us 50 billion when it seems to imply it would cost us 50 billion. Weird.

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I am and will always be Not Trampis
I am and will always be Not Trampis
6 years ago

Paul there is nothing wroing with the tax if you bank the proceeds as Lindsay Tanner said they would from any revenue from the commodity boom.

Unfortunately the previous government made certain spending measures based on this tax. Unfortunately the tax never collected anything like what they expected.

Anthony Towns
Anthony Towns
6 years ago

I think the MRRT entry is actually covering the extension of various social programs that was required to get the removal passed:

“The cost to the Budget of extending the Schoolkids Bonus, the Income Support Bonus and the Low Income Super Contribution is $6.8 billion over the forward estimates period. These changes are offset over the medium term, with the decision to delay the increase in the superannuation guarantee until 1 July 2021.”

(MYEFO Appendix A)

So I think it’s fair to put that blow out on the senate. However…

The 14/15 budget originally counted dropping the MRRT as being on the order of $100M (net, due to related programs), so it barely counted. So I don’t see where the “$10B over the forward estimates” could come from.

The superannuation guarantee notes in the MYEFO seem to only amount to $50M in the forward estimates, and there’s an increase of $2.5B in Government superannuation benefits in the forward estimates too by the looks. I guess there must be billions saved between 2019 and 2021?

Steve Blizard
Steve Blizard
6 years ago

The $6.6 billion ‘cost’ over the forward estimates does not come from ‘lost revenue’ it comes from the Senate forcing the government to keep three unfunded promises Labor attached to their failed mining tax in place until after the next election. Namely, the school kids bonus is now getting abolished from 31 December 2016 rather than from 1 July 2014, same for the low income support bonus, and the Low Income Super Contribution will now only be repealed from 30 June 2017, instead of 30 June 2013.

All of the above costs about $6.6 billion – that is the variation from the mining tax repeal package as envisaged at Budget time.

Importantly, all of that $6.6 billion cost over the current forward estimates will be more than re-couped in the period beyond the forward estimates by the end of 2023, by a further 3 year delay in the phased increase of compulsory super to 12%.

Finally, the reason why dramatic falls in iron ore prices impact on our revenue is because of its flow on effect on company profits and consequently on company tax payments as well as on economic growth more generally and consequently on wages and related income tax payments.

I am and will always be Not Trampis
I am and will always be Not Trampis
6 years ago

The promises were not unfunded. They were to be funded by the mining tax.

The revenue should have been banked.