Redirecting Royalties to the Rural Rump – The Nationals go vote-harvesting

The Western Australian election 11 March will be a furious battle, but don’t bother with the popcorn – the ALP led by Mark McGowan is set to win easily and the fireworks of One Nation will prove a damp squib.

Facing certain defeat, the Liberal–National Coalition are playing hard-ball to minimise their losses. The close partnership that has run WA since 2008 is suddenly two distinct parties with two different agendas.

The Nationals have gone bush to kick up the dust.

Their leader Brendon Grylls wants a $5 a ton increase in the iron ore royalty, to double up on the hugely popular ‘Royalties for Regions’ that channels spending to country towns – heavily branded as a National Party initiative so bush folk know who to thank on the ballot paper.

For example, the 94 public swim pools in rural WA gets direct annual funding of up to $32,000 each and an extra $10,000 for attached water playgrounds. This gift simply means lower council rates, over time.

Grylls’ campaign to increase iron ore royalties from 25c to $5 a tonne has drawn the ire of the Minerals Council of Australia. Digging up dirt in WA is one of the most profitable businesses on earth and miners’ capacity to pay is beyond question.

A larger royalty would not change the staggering competitive advantage of BHP and Rio. Their operations remain profitable at price levels that would bankrupt all other iron ore miners.

Grylls’ royalty will come straight out of BHP and Rio’s bottom line. As three quarters of BHP and 80 per cent of Rio are foreign owned, reducing their profits will have local electoral consequences somewhere between minimal and nil.

The Nationals’ plan is damn good politics and they know it.

The MCA has interfered in Australian political life before. They destroyed the Resource Super Profits Tax in three easy stages. The RSPT was proposed by federal Treasury in Australia’s Future Tax System, introduced in a diluted form by Kevin Rudd, weakened by Julia Gillard and scrapped by Tony Abbott. Nevermind the RSPT was economically sound and scrupulously fair.

To defeat Grylls, the MCA commissioned opinion polls in WA mining seats, economic analysis from Deloitte Access Economics and employed a veritable army of PR flacks to change the Nationals’ minds.

Opinion polling is very expensive. The Liberals use it the most, the ALP sparingly, Greens and One Nation not at all. The MCA gave the data to Matthew Stevens at the AFR, who wrote:

“As recently as October the mining industry’s polling indicated that the WA electorate was reasonably open to a proposition whose thesis is that BHP Billiton and Rio Tinto are so wealthy and intractably wedded to the Pilbara that they could wear another great big tax without too much damage being caused to anyone.

“State-wide polling conducted for the WA Chamber of Mines suggests that just more than 50 per cent of people supported the Grylls plan even though the polling also evinced a far more robust base of support for the major miners than many may have expected.

“A telephone poll of 400 people conducted between November 19 and December 2 identified that 90 per cent of respondents were aware of Grylls’ plan to introduce a new iron ore tax. It found that 36 per cent of respondents supported the tax, with only 20 per cent offering strong support. On the other hand, some 51 per cent opposed the tax with 37 per cent of that being strong opposition.

The Nationals might speak slowly but are not stupid. They can certainly call on experts to unpick whether the polling questions were honestly asked or framed to get a particular response. My dollar says the MCA would be unable to resist a chance to bias the answer; the Nationals’ unchanged political stance backs this.

The economic analysis from Deloitte is excruciating and economically barely supportable. The core of their argument is royalties distort miner behavior by making marginal mines unprofitable.

This is both right and wrong. The assassinated RSPT was framed to avoid this well known and deep economic flaw in mining royalties, yet none of BHP and Rio’s iron ore mines in WA can be classed as ‘marginal’.

The misinformation spouting from WA miner organisations around this is astonishing. The WA Chamber of Minerals and Energy chief claimed in the AFR:

“Like any business which faces increasing costs, BHP Billiton and Rio Tinto will be forced to further reduce their overheads to offset the new cost as proposed by Grylls.

“It will directly result in less employment and impact on the 845 WA businesses currently supplying goods and services to these two companies.

This deserves howls of derisive laughter. The $5 royalty will have no employment or economic activity consequences – these mines are eye-wateringly profitable. Don’t take my word for this, The Australia Institute says the same:

“The iron ore mines that would pay the proposed fee have very low costs of production, with costs ranging from $US15-20 per tonne. With the price outlook at $US47-54 through to 2020, a $5 per tonne levy is very reasonable, affordable and fair.

“Because the increased levy would create no incentive for the highly profitable mines to reduce production, it is unlikely to lead to any reduction of employment in Pilbara mining.

“Western Australia is facing a revenue crisis, and this measure would raise around $2.8 billion per year. Our analysis finds that if those additional state revenues were invested in infrastructure projects, they would create an estimated 4,600 jobs.

TAI’s conclusions differ wildly from Deloittes’ paid analysis – probably due to different assumptions, particularly around how much the feds would claw back by reducing grants to WA.

The question stands: Why should WA iron ore royalties be spent only on WA bush dwellers, lavishly marked with the National Party of Australia brand?

1 Comment

  1. Jim13-01-2017

    Great analysis David,
    I wonder why Grylls went for a dollar amount rather than calling for a more imaginative system of compensation. Surely it will just wash through the GST system (shrinkage assured)

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