'You're Gunna Get Wacked!' The Political Economy of the Australian Carbon and Mining Tax Reforms

For most developed nations the last five years have ushered in difficult economic times. Not though for resource rich Australia which has sustained high economic growth courtesy of the unquenchable thirst of China for its minerals. However the benefits of the mining boom have not been evenly felt, giving rise to the description “two speed economy”. In fact, the success of the mining industry has contributed to a dampening effect on some other sectors of the economy that have struggled in response to inflationary pressures, higher interest rates, skill shortages and the high Australian dollar, all a bi-product of the resources boom. Furthermore, peculiarities in the way that State mining royalties are calculated have not seen any substantial increase in Government revenues compared with soaring mining profits. Under the mantra “spreading the benefits of the boom” the Commonwealth Government stepped in to address this perceived structural flaw in the economy by proposing an additional tax on mining resource rents or “super profits” from 1 July 2012. In an extremely effective anti-tax campaign the industry was able to have the tax threat all but removed with the aid of the very community for whose benefit it had been conceived. In the process the industry succeeded in having the Prime Minister, who proposed the tax, dismissed by his own party and deceived the new leadership team into agreeing to a regime that to date, has raised almost no revenue. At the same time the Government introduced an carbon tax/emissions trading scheme (“ETS”) putting it at the cutting edge of climate change response using fiscal measures. However the path to the introduction of this regime was similarly not easy. Whilst Australia had been active in negotiating the 1997 Kyoto Protocol, during the subsequent decade the Liberal coalition Government refused to embrace a price on carbon. With the election of a Labor Government in 2007 the Kyoto Protocol was promptly ratified and an ETS proposed. However it met neither the expectations of environmentalists nor industry and in 2010 was shelved. Although it seemed that the impetus had been lost, with the toppling of a Prime Minister later that year and a Federal election resulting in Labor forming a coalition with the Greens, momentum again swung in favour of an ETS. There may be political economy lessons for the rest of the world in both how the mining tax was blunted and also how the ETS was designed and implemented in Australia