Australia Poised to Scrap Carbon and Mining Taxes

In its pitch to the Australian electorate during the recent election cycle, the Liberal-National Coalition vowed to scrap the country’s carbon tax as well as the Minerals Resource Rent Tax (MRRT), the latter of which is levied on the “super profits” of large mining companies. Indeed, back when newly elected Prime Minister Tony Abbott was a leader of the opposition, he made a rhetorical “pledge in blood” to do away with the carbon tax, which he had also characterized as “an octopus embracing the whole of [the] economy.”

Though planning and politicking for both taxes had been underway for a few years prior to their enactment, the timing for when they finally came into effect was exquisite. Both taxes became effective at the beginning of July 2012, roughly coinciding with the peak of Australia’s resource boom and, therefore, a fitting testament to the fact that politicians on all sides take wealth creation largely for granted.

But a slackening economy has caused some politicians to shift their focus toward removing barriers to growth. To that end, the newly ascendant Liberal-Nationals, who prevailed at the polls in Australia’s federal elections back in September, have wasted little time in working toward the repeal of both taxes.

Late last week, the lower house of Parliament voted to repeal both taxes, and now the bills head to the Senate. Although the Coalition should eventually hold the balance of power there, assuming they successfully woo the independents whose politics are aligned with theirs, the newly elected Senators won’t actually take their seats until next July. In the interim, Labor still controls the Senate thanks to its partnership with the Greens. As such, both bills are certain to be defeated in the Senate next month.

While it may seem pointless for the Coalition to put such bills to a vote before they control both houses of Parliament, the Liberal-Nationals could pursue a strategy that, though politically risky, could bring about the repeal of both taxes earlier than next summer.

After the Senate presumably rejects the legislation during this round, the House of Representatives could re-introduce both bills early next year. If the lower chamber passes them once more and the Senate votes against them again, then that may satisfy the conditions for what’s known as a “double dissolution,” a procedure by which the Australian Constitution resolves legislative impasses between the two bodies. If a double dissolution is triggered, the government can dissolve both houses of Parliament and call for new elections.

But it’s extremely rare for the government to follow through on double dissolutions, even when triggered. And it seems unlikely that the Coalition would pursue such an end given that it would only advance the timetable on repeal by a few months, while an already fatigued public has endured what was, by Australian standards, an unusually long election cycle this year.

Interestingly, though the Coalition hopes to repeal the carbon tax, it intends to replace that regime with an alternative approach to achieving Australia’s goal to reduce emissions to 5 percent below levels that prevailed in 2000 by 2020. The new government’s so-called “direct action” plan would pay companies to curb emissions via reverse auctions financed by an AUD1.55 billion Emissions Reduction Fund. Thus far, this plan has had a lukewarm reception among the public, as well as some industry groups and policymakers, so it remains to be seen whether it actually gets implemented.

But at the very least, with repeal of both taxes likely by next summer at the very latest, Australia’s resource sector will face two fewer challenges at a time when it could definitely use the help. And while that alone won’t be a game changer for our investments, it should prove helpful at the margins.