Australian Financial Review
The Yindjibarndi case boosts the case for law reform to establish minimum standards in agreements between developers and Indigenous communities.
Disruption has been the modus operandi of iron ore miner Fortescue ever since Andrew Forrest took control of a small prospector back in 2003, and now this force looms large in debates on resource taxation, the transition to renewables, and in native title.
It’s generally accepted that disruptors are a dynamic and positive force in our free market economy, but Fortescue is showing that not all of its disruption has a positive influence on national policy.
The miner’s drive to adopt green energy has recently seen it start a fight with the entire mining industry by calling for a cap on the diesel fuel rebate, which credits farmers and miners who don’t use diesel on public roads. Abolition of this rebate has long been a cherished goal of the Australia Institute (TAI), a left-leaning think tank that has been leading the campaign for a poorly designed 25 per cent royalty on all of Australia’s gas exports.
It’s perhaps no coincidence that the Minderoo Foundation, which is funded by the Forrests’ Fortescue dividends, emerged as a substantial donor to the TAI late last year. Both Minderoo and TAI call for a radical “Real Zero” approach, which would eliminate fossil fuel usage without the use of offsets.
The TAI’s focus on the gas sector follows this agenda, but it conveniently omits the other 85 per cent of the resources sector which is earning substantial economic rents from extracting Australia’s non-renewable resources.
The gas export “tax” is actually a regressive royalty that would be levied on the value of exports. Royalties must be paid regardless of profit; the gas royalty would discourage start-ups and, when prices moderate, drive marginal operators out of business.
The addition of this monster royalty to the mishmash of existing state resource royalties is contrary to the fundamental principle of tax efficiency. It’s worth noting that Norway’s $3 trillion oil fund is built on a system that only taxes profit. The country began phasing out production royalties in 1992 when it increased the oil sector tax to 78 per cent.
Fortescue’s disruptive approach can also be seen in the recent Federal Court decision which awarded the Yindjibarndi community $150 million for damage to hundreds of cultural sites.
Two decades ago the company broke ranks with the industry and engaged in what one former adviser described as some “mean-spirited” deals with Aboriginal communities. All seven of Fortescue’s Pilbara land use agreements are capped at a fixed dollar amount of a few million dollars, so they don’t involve genuine revenue sharing. And unlike other big miners, the Fortescue arrangements don’t involve robust structures to manage the money.
The Yindjibarndi community wanted the Pilbara standard, a 0.5 per cent royalty, which Fortescue refused with accusations of “mining welfare”. In a crash-through approach, Fortescue has earned more than $70 billion from Yindjibarndi land without paying a cent of compensation.
The dispute has resulted in lengthy litigation with Fortescue having unsuccessfully challenged the Yindjibarndi native title determination in the High Court, followed by a compensation case in the Federal Court.
It’s likely that the Yindjibarndi win, though far less than their ambit claim of $1.8 billion, will encourage many other native title groups to seek damages through the courts, as Mabo lawyer Greg McIntyre said after the judgment.
The Yindjibarndi case boosts the case for law reform to establish minimum standards in agreements between developers and Indigenous communities.
There’s an opportunity here for Prime Minister Anthony Albanese to show some leadership on resource taxation and native title. In a Hawke-style approach, he could call a tax summit aimed at achieving a uniform, efficient and effective tax regime for resources, one that would involve abolishing royalties and reimbursing the states through higher profits taxation. The GST system is a model for such revenue sharing.
And delivering simple and transparent compensation for impoverished First Nations communities affected by mining would indeed be a legacy that would rival Paul Keating’s response to the Mabo High Court victory.
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