PERTH (miningweekly.com) − The Institute of Public Affairs (IPA), a free market think tank, on Wednesday called on the federal government to scrap its proposed mineral resources rent tax (MRRT) and carbon tax in light of the looming economic downturn in Australia's biggest export market, China.
“The recent stock market roller-coaster and the European and US debt crises have shed light on the risks associated with Australia's reliance on China's thirst for our resources,” Hugh Tobin, director of the North Australia Project at the IPA said.
He noted that China's inflation was now at a three-year high, and that the country had nowhere to move on interest rates at the moment. Furthermore, China could ill afford another massive stimulus package like the one that kept the country growing strongly during the global financial crisis, Tobin said.
“China is an export-driven economy. As the global economy slows we will see demand for Chinese goods slow as well. This will have a flow on effect to Australia as China will need less iron-ore and other raw-materials to produce their exports.”
The IPA predicted that while China would continue to grow, even a modest decline in Chinese growth would have disastrous consequences for the Australian economy.
“Once global demand drops in the resource sector we will see commodity prices fall from the current high levels. The combination of falling commodity prices mixed with the introduction of mining and carbon taxes will make many Australian projects unprofitable,” Tobin said.
China was deliberately moving to reduce its reliance on Australian minerals in favour of increasingly cheaper markets in parts of West Africa and South America, he noted.
“Why would we want to add on new taxes and make ourselves uncompetitive at a time like this?”
He advised that Australia should be cutting taxes, adding that the country needed to simplify regulation and increase the supply of skilled workers.
“These are problems that should be the major priorities for the government,” Tobin said.
The IPA, in conjunction with Australians for Northern Development and Economic Vision, was calling for the establishment of a Northern special economic zone (SEZ) to combat tax and regulatory burdens and skills shortages.
“The government must think through the long-term consequences of its policies for Australian jobs and the economy. We need a low tax, low regulation SEZ throughout Northern Australia so that we can remain competitive and prosperous even with a slowing Chinese economy,” Tobin said.
Under the MRRT, the federal government is proposing to impose a 30% tax on profits by the iron-ore and coal industries, while the proposed carbon tax would impose a levy of A$23/t on carbon emissions.