Oops…there’s a hole in my budget

Wayne Swan faces a great big problem of his own making…a ginormous hole in his budget:

Revelations today that not a single cent of mining tax was paid in the first three months of this financial year indicate the $1.1 billion surplus forecast on Monday may be gone already.

The mid-year budget update estimated that due to falling commodity prices, primarily a result of declining demand from China, the revenue from the minerals resource rent tax would be downgraded from $13.4 billion to $9.1 billion over its first four years of operation.

This financial year, the MRRT revenue was downgraded from $3 billion to $2 billion. Now that appears ambitious at best.

You might not think that is a big problem but it is…because just like here the government has booked and allocated spending based on that revenue. Working for Families was implemented by Labour when they were claiming that budget surplus’ were structural. When National came in the Global Financial Crisis wiped out those surplus’ but the spending remained.

The mining tax is pegged to profits and commodity prices and if the latter is down, so is the former.

Regardless of this formula, claiming vindication today will be people such as Andrew ”Twiggy” Forrest, who claimed from the outset that the big miners ? BHP, Rio Tinto and Xstrata ? swindled the government when they renegotiated the mining tax after Kevin Rudd was ousted by being able to deduct the market value of their operations from their mining tax liability.

The crisis of the tax making little or no money will be exacerbated by several factors.

First, the government has already spent the budgeted proceeds on cash handouts for low and middle-income families, tax breaks for small business and increased superannuation contributions. It was to fund a company tax cut but the government junked that promise at the May budget because the Coalition and the Greens would not pass the legislation for a company tax cut.

Second, the government is still committed to refunding all future state royalty increases because the renegotiated MRRT had a massive loophole promising to refund the miners for all current and future royalty increases imposed by the states.

Unless the government makes good its threat to punish the states, which continue to increase royalties by withholding other forms of revenue, it faces further budget pressure.

Third, the government is bound to come under pressure from the Greens and independents to go back to Parliament and toughen up the legislation. At the very least, the Greens are stepping up claims this morning to close the royalties loophole.

Labor is already hated in the state after taking a bath in every state election. by punishing them further as a result of the budget hole Swan risk consigning Labor to the scrap heap in an electoral bloodbath.

Gillard is under pressure on many fronts by sticking up for dodgy ministers and former unionists, but now having a massive hole int eh budget to contend with things are looking dicey.