Tuesday, July 06, 2010

Henry - 'It's not as good as it was'

Treasury boss Ken Henry has distanced himself from the Gillard government's new mining tax saying it'll be worse for jobs and investment than what it replaced, a point he says the companies who signed the deal with the government "point-blank refused" to accept.

Under the new deal the mainly smaller companies that lose money or make small profits will be required to pay royalties. Under the arrangement proposed by Dr Henry's tax committee they would have had royalties refunded.

Appearing before the Senate's fuel and energy committee the Treasury Secretary said the original plan would have boosted employment and investment because it would have replaced a distorting tax, royalties, with a tax that was neutral in its effect on the economy, "a proposition most economists would agree with - well the numerate ones would".

Asked whether the impact on jobs and investment would now be worse than under his original proposal, Dr Henry replied "You mean in aggregate? We think that is the case, we agree with you on that."

Asked whether the government had modeled the effect of its compromise on jobs and investment or was "flying blind" the Treasury head said it was not for him "to defend the government, even less to defend the companies".

"The companies simply point-blank refused to accept our analysis. They said that is wrong. They also say that under this new design the economic outcomes in respect of investment, employment and so on will be stronger than under the originally announced package"...

In any event, the mining boom gathering pace would "swamp" any impacts of tax changes.

"Bear in mind the whole time that we have been having this debate prices have been going up and the sector has been demanding more, not less, of the nation’s factors of production. I know some executives have suggested otherwise, but the data suggests that the sector has continued to strengthen, which is to say while the tax might have some impacts they are being swamped by - and are likely to be swamped by - broader effects," he said.

The Treasury had played little role in the negotiations that sealed the deal beyond crunching numbers and "some due diligence on design parameters".

Dr Henry confirmed that the government's estimate of the amount to be raised by its new tax had been bolstered by upward revisions to predicted coal and iron ore prices. The new tax would certainly raise less over time than the original but that he was not prepared to say how much less because he did not regard his department's long-term estimates "as having sufficient quality".

Asked whether he was disappointed by what had happened to his advice he replied, "believe it or not, not really, or at least not much."

"After 25 years of providing difficult and controversial or contentious advice to government, it is almost something of a surprise when something does get up."

Meeting mining executives in Perth resources minister Martin Ferguson said he wanted to "draw a line in the sand" on debate and leglislate the deal.

Asked why the government had scrapped the proposed $1.8 billion exploration rebate as part of the deal with the big miners he said the small miners "didn't lobby too hard for it" when he thought they should have.

Published in today's SMH and Age

The full transcript is worth reading here.

Here's my highlighted version:

Ken Henry Fuel and Energy Hearing 5 July 2010

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