Mining tax spreads wealth to 1% but Bolivia shows different path

Australian Treasurer Wayne Swan said on March 20 that his government’s Minerals Resource Rent Tax (MRRT) was "central to the government’s plan to spread the benefits of the mining boom to more Australians for generations to come".

Lauding the tax, which had passed through parliament the day before, he said the MRRT was about "ensuring all Australians share in the benefits of the mining boom, not just a fortunate few".

Despite this, Swan could point to only three concrete gains from the expected $10.6 billion that the MRRT is forecast to bring in during its first three years: tax cuts for business, investments in infrastructure in mining areas and improvements to workers’

superannuation.

That is, big business will benefit the most. Corporate Australia will save an estimated $1.6 billion a year in tax cuts. And the government will give back much of the tax to mining companies in the form of mining industry infrastructure.

Mining companies will pay far less tax than they would have if the Gillard-Swan Labor leadership had not caved in to the mining magnates’

campaign against former PM Kevin Rudd’s Resources Super Profits Tax.

As for workers’ superannuation, Treasury estimates show that changes to the rate of superannuation paid will cost the government $250 million in 2013-14 and $500 million in 2014-15, while the abolition of age limits will cost $15 million a year between 2013 and 2015.

This amounts to about 10% of the expected MRRT revenue, hardly evidence of "spreading the benefits".

The government has reassured big business that even this small improvement will not come at the cost of their profits. Instead, it will come from workers’ wages.

Superannuation Minister Bill Shorten told the November 23 Australian:

"Increasing superannuation is not a cost in terms of employers, because what happens is it is offset against real wage increases."

In reality, the MRRT is all about spreading the benefits of the mining boom from the 0.01% to the rest of the 1%.

To understand what it would take for a government to seriously redistribute wealth to the 99%, we should look to the policies of the Bolivian government.

The Bolivian people know all too well what it means to lose out from the benefits of a mining boom.

Following the discovery of Potosi’s legendary silver deposits in the 16th century, the Spanish crown ordered each indigenous family to hand over one of its children to work in the mines. Most mine workers died within six months due to the super exploitative conditions.

Despite Potosi’s immense wealth and the fact that its population at that time was bigger than that of London, New York and Paris combined, today Bolivia is one of the poorest countries in Latin America.

The other cities are key global financial centres today, a position they obtained largely on the back of the wealth they looted from Bolivia and the estimated deaths of 8 million people in Potosi’s mines.

This pattern was repeated in Bolivia over later centuries, as foreign powers moved on to pillaging Bolivia’s tin deposits and more recently its gas deposits.

Deciding that enough was enough, Bolivia’s people once again began rising up in 2000. Since then, this small nation has been rocked by more than a decade of mass upsurges demanding that Bolivia’s natural resources and wealth be used to lift the country out of poverty and underdevelopment.

In 2005, Bolivians elected their first indigenous-led government, headed by Evo Morales. The new government has presided over a process of change that has brought big advances.

The most recent move is a proposal to change the conditions under which mining companies operate in the country.

The day after the passage of the MRRT, Reuters reported that Swiss multinational Glencore had become the first company to sign onto Bolivia’s new mining contracts.

The contracts aim to bring the mining industry in line with the new constitution, which says all natural resources are property of the Bolivian people. As such, the Bolivian government will now receive 55% of all profits and have control over the sale of minerals extracted.

For companies to receive their share of the profits, they will have to fulfill their legal roles as "service providers". In Glencore’s case, this means investing at least US$100 million over the next five years.

This move follows similar measures that the government has taken in the gas sector. Before the government’s 2006 decision to nationalise Bolivia’s gas reserves, transnational companies took 82% of the wealth generated. Under the new regime, the state retains 80% to 90% of gas rents.

Total gas revenue received by the state during the first six years of the Morales government was about seven times more than revenue for the five previous years. Last year, the state received almost as much revenue as it did when the gas sector was privatised between 1996 and 2005.

When gas companies have failed to comply with their contracts, the government has not been afraid to nationalise them. In January, the government took over Pan American Energy’s 25% stake in one the country’s most important gas fields for failing to comply with investment targets.

Rather than using this wealth to fund tax cuts for the rich, the Bolivian government has focused on investment into productive sectors such as manufacturing and agriculture, while raising social spending.

The results are clear: record economic growth, almost half a million jobs created between 2006 and 2010, and a fall in unemployment from 8.2% in 2005 to 5.7% in 2010.

By 2010, the level of poverty had fallen from 60% to 49.6%, while extreme poverty had dropped from 38% to 25%. The gap between the richest 10% and poorest 10% has shrunk from 128 times more wealth to 60 times.

Of course, Bolivia’s wealthy 1% did not take this lying down. Rather than wasting time with a meager advertising campaign, they tried to organise a military coup. Unlike Swan, Gillard and the rest of the ALP leadership, the Morales government did not back down. Together with the country’s social movements, it defeated the offensive by mobilising popular support in the streets.

This is what a government of and for the 99% could do in Australia, something the ALP government clearly is not.

Instead it has backed down to the mining companies, worked to shift some wealth from the 0.01% to the rest of the 1% and tried to portray the fact that the 99% will have to pay for our increased superannuation with wage cuts as "ensuring all Australians share in the benefits of the mining boom".