The Great Mining Tax Debate
For students of politics, the current
clash between the mining industry and the Federal Government is
wonderful spectator sport. But as students of negotiating it
provides an ideal opportunity to analyse the ongoing debate in
using the process skills of Scotwork.
The first observation is that the Government made a pre-emptive
proposal for the Resources Super Profits Tax, (RSPT). The advantage
of such a proposal is that you get to choose the timing and issues
and it provides an element of surprise. Of these advantages the
timing was the critical element because the new tax allowed the
Government to announce a return to surplus by 2013, a key
objective. Unfortunately the dangers of such a proposal have all
too clearly been demonstrated.
A proposal not informed by the argue step
The principal concern of the mining industry has been the absence
of any consultation or dialogue about the design and implementation
of the tax. BHP's newspaper campaign has stressed this lack of
consultation. This is contrasted to the extensive consultations
that preceded a similar tax for the oil industry during the Hawke
government. The government has then compounded the situation by
stating that it had commenced negotiations with the industry but
seemingly without being flexible in any of the major elements of
the tax. This is hardly a design for a successful change.
A productive argue step is necessary to not only engage the other
parties but to ensure that the final proposal captures the possible
creative solutions that only a cooperative engagement can provide.
The point is often lost on negotiators that negotiating skillfully
while advancing your particular interests effectively often results
in best outcome for both parties. This rugged engagement is far
preferable to the desire to appease and compromise at the expense
of your own interests. Such an approach is framed around sharing
the unhappiness rather than getting the best possible outcome.
The government's failure to engage is illustrated by the miner's
total rejection of the proposal to pick up 40% of their losses on
failed projects. The government thought this was a major incentive
and yet it has been rejected as worthless (not bankable) by the
miners. This would have been apparent through earlier engagement
and could have lead to a redesign of the tax to reflect the
practical realities.
Argument Dilution
The government compounded its early failure to consult by producing
suspect or discredited data to support their case. As we know weak
arguments undermine stronger arguments rather than supporting them.
Hence the government's central argument that the miners could
afford to pay more tax was lost in a maelstrom of misinformation.
The government should have researched its position more carefully
before entering the debate and been on message (strongest argument
throughout).
Escalation
The miners have retaliated for their early exclusion by widening
the debate from a simple tax impost to issues of sovereign risk and
the threat to prospective investment opportunities to the future of
the industry. They have widened the debate to include the reduced
value and yield of superannuation funds directly resulting from the
tax. The government have accused the miners of "stand-over tactics
"and made implicit threats such as"we have long memories". In the
absence of any sign of a breakthrough both sides were to be digging
in for a war of attrition.
Deadlock and Face
As the costs of deadlock mount over time (remember the balanced
scales diagram) there is greater political and social pressure to
negotiate, to make concessions, to get a deal across the line. The
main impediment to that deal is in fact the face, or credibility,
of the Prime Minister. Unfortunately in this instance, he found
himself with diminished political capital as the result of his back
down on the ETS (Emissions Trading Scheme). Having caved in before
and suffered as a result the Prime Minister was determined not to
repeat the error.
Unfortunately, in such a situation where an individual's face is
the principal impediment to getting an important deal over line,
the solution is usually to change the "face". The conclusion of
this first stage is a convergence of the political and negotiating
process with a successful challenge to Mr. Rudd's leadership and an
immediate signal from Julia Gillard that she wanted real
negotiations to commence immediately. As a signal of her good faith
she signaled her intentions by unilaterally cancelling the
government's media campaign. Her concession was immediately
reciprocated by the Miners who cancelled their advertisements. So
the real negotiations finally commence.
This concession was a clear signal that the competitive style
previously adopted was being replaced by a more cooperative one. It
was also an easy one to make given the widespread view that the
government's campaign was largely ineffective and was breaking an
election promise . Added incentive is that the mining industry has
a $100 million war chest. According to newspaper reports the Prime
Minister then rang the Chairman of BHP to begin the deal
making.
A Magic Pudding Deal
With the Government under new management and with consultation with
three major mining companies the deal was done with very
quickly. The government made substantial concessions on all of the
major features of the tax. These include the rate, the starting
point, retrospectivity and even the name. We now have a Minerals
Resource Rent Tax (MRRT). The curious thing is that the big miners
and the Government are happy with the outcome. The budget will
still be in surplus by 2013 and according to the analysts the value
of the major miners will be little effected. How can his possibly
be? Well it appears that the commodity prices used to model the
MRRT were substantially increased over those used to model the
RSPT. It sometimes helps to move the goal posts. Of course much of
the devil is in the detail and we have a special bi-partisan
committee to negotiate the implementation. Of course not everyone
is happy particularly the junior miners who were left out of the
negotiations. For the Government they have the deal across the line
as the headline in the Australian proclaimed on the 3rd of July,"
Tax done, PM now turns to boats". Any conclusion about the MRRT and
the seeming apparent win win outcome can only await the eventual
implementation and collection of the tax. Until then the jury still
remains out .
by Keith Stacey