Mining Tax Grab - How will it pan out?

[Putty7]

I'm not an expert on tax or the budget, but on the idiot box last night it was suggested that Swann and Rudd put the tax in the budget to show a surplus before the election knowing that it will be knocked back anyway and won't be included in final Budget figures, any thoughts on this from the more knowledgable political followers ....

 

[Julia]

I'm not an expert on tax or the budget, but on the idiot box last night it was suggested that Swann and Rudd put the tax in the budget to show a surplus before the election knowing that it will be knocked back anyway and won't be included in final Budget figures, any thoughts on this from the more knowledgable political followers ....

That sounds quite feasible, Putty. The other thing they did was not include the huge cost of the NBN, apparently because they can claim it is a "commercial" project (even though the government is going to build it!) and therefore doesn't come into the category of government expenses.

It will be interesting tomorrow night to see how Tony Abbott deals with the budget and what he manages to come up with for the Opposition.

 

[drsmith]

http://www.businessspectator.com.au...onceived-pd20100514-5ET5A?OpenDocument&src=mp

Earlier this week Xstrata's Mick Davis gave a presentation in which he showed Australia's tax regime on resources relative to our major competitors. We were at the higher end of the scale, although not that far out of kilter with similar economies. The RSPT would put us out there in a space that no other major resource economy would inhabit – we would be the world leaders, by the length of the straight, maybe several straights, in our taxing of resource companies.

Is the above presentation available publically ?

It would make for an interesting read.

 

[bunyip]

Business spectator commentary Robert Gottliebsen -:
A mammoth capital strike looms

At this stage it's just private words to selected journalists and few decisions have been made, but Australia is on the brink of the greatest capital strike in its history and one of the largest ever seen in the world.

In the vicinity $100 billion of resource projects that were almost certain to go ahead are now headed for mothballing until the resources tax is either abandoned or severely modified. If the private words to me and other journalists are converted to action and a new mining project capital strike is launched, then almost certainly Kevin Rudd will not win the next election. The economies of Queensland, WA and South Australia would be decimated.

I have never seen an industry so angry. As we saw in the medical area, Rudd just put the proposal on the table and tried to bully his way through. But miners are much tougher than state premiers and the international majors have a raft of projects in other countries that will now take precedence over Australia. They can wait until sanity returns down under. The sufferers will be the myriad of contractors that have based their business on what appeared to be major mining investment programs.

Yesterday I had the chance to talk with a number of people who will play a key role in whether there is a capital strike or the miners roll-over. The people I spoke to have no doubt that there will be a strike.

Stephen Bartholomeusz pointed out yesterday the $60 billion worth of coal gas and LNG projects at Curtis Island and surrounds are now in grave danger of being mothballed.

Rio Tinto has $5 billion globally to spend on new projects and $12 billion on global project candidates – WA iron ore was close to the top of the list. It is now at the bottom and will be scrapped.

BHP is in no hurry to develop Olympic Dam further and the project that SA Premier Mike Rann staked so much on, is a prime candidate for mothballing, which would devastate South Australia. There are a raft of other smaller projects likely to be suspended. Like the Western Australians and Queenslanders, the South Australians only have Kevin Rudd to blame.

Just as the Rudd government had no idea about the chaos they were creating with the badly structured emissions trading scheme, the inexperienced Rudd team had not the slightest idea of what they are doing to resource projects when they drafted the new tax.

Less than a decade ago resource projects were struggling. They will struggle again some time in the future. The Rudd plan assumes a ridiculous 6 per cent return and then lumps a 40 per cent extra tax on earnings above that, which takes the tax rate to the vicinity of 58 per cent and in some cases it can be higher. If a miner is well into the construction of a new project they will have to keep going, but if they have not started, the rewards now do not match the risk. Even if a resource company was prepared to take a punt it is unlikely that a banker would back it.

Moreover, all the major resource groups have projects from all around the world competing for their capital spending dollar. By starting a new project in Australia big miners are declaring that a 58 per cent tax rate is acceptable. If any global company, including Australian-based global companies are prepared to be taxed at that rate in Australia, then they would face the danger of similar rates elsewhere.

Nevertheless it is always possible that Kevin Rudd may get one major resource company to break the strike, but for the most part it will remain for as long as it takes.

Already Canada is pleading for global resource companies to divert money from Australia to develop their projects. Africa will point out that they are more politically reliable than Australia and that past decisions in Australia have been made on a totally wrong tax premise.

But it gets worse for Australia. The flower of confidence has been trampled on by our Prime Minister and no one will want to go ahead with a major project unless there is an act of parliament setting the tax rate forever.

Kevin Rudd is now caught in a massive pincer. At the top, there is about to be a capital strike . At the bottom, assistant treasurer Nick Sherry wants to eliminate independent contracting as we now know it (One man can make Abbott PM, March 3).

And in the middle, we have a series of blunders led by insulation and education building and a botched emissions trading scheme. Oppositions don’t win elections, governments lose them.

 

[bunyip]

http://www.theaustralian.com.au/new...nal-about-mining/story-e6frg6zo-1225866340058

 

[Julia]

I liked this comment to "The Australian" today, made in the wake of Mr Rudd and apparently some members of the Reserve Bank suggesting it will not be a bad thing if the miners cancel some of their proposed projects, because we need to slow the economy (in part to make things easier for foreign students studying here!!!):

Carl Chapman of Brisbane Posted at 7:55 AM Today

If slowing the economy is so important, why does he persist with his stimulus spending?

So much inconsistent spin.

 

[drsmith]

I am pretty sure that our treasurer attends meetings regularly with other finance ministers from around the world and I'm sure he talks with others while there. All governments like new taxes, especially those with budget deficits.

I have a suspicion that other countries will follow with this type of tax on resources, and the mining giants know it. The world is heading towards 'peak resources', prices will rise, and governments want a larger cut.

brty

If the above is true, those finance ministers may have convinced the Australian government to "jump first" in an attempt to gain access to more mining investment capital themselves.

Moreover, all the major resource groups have projects from all around the world competing for their capital spending dollar. By starting a new project in Australia big miners are declaring that a 58 per cent tax rate is acceptable. If any global company, including Australian-based global companies are prepared to be taxed at that rate in Australia, then they would face the danger of similar rates elsewhere.

 

[drsmith]

I liked this comment to "The Australian" today, made in the wake of Mr Rudd and apparently some members of the Reserve Bank suggesting it will not be a bad thing if the miners cancel some of their proposed projects, because we need to slow the economy (in part to make things easier for foreign students studying here!!!):

I'd love to be a fly in the wall at RBA board meetings.

From the same economic growth, the government is forecasting lower underlying inflation than the RBA (Government: 2.5% to June 2011 and 2012, RBA: 2.75% to June 2011 and 3% to June 2012).

 

[trainspotter]

My favourite part was when Abbott told parliament "If the tobacco tax is supposed to stop people from smoking can the PM tell us why if taxing the mining companies it is supposed to stimulate their economy ?"

An epiphany of clarity that should have been RAMMED home to take advantage rather than going on morning TV and radio going "Aaahh ahhh I am a wimp ... ahh aaah ... I can't answer that .. aah aaahh ... it might have been discussed but so were many other things in the party room ... AAAH AAH "WHERE are their handlers? Where are the advisors? Where are the spin Doctors to assist? HUH ?

Or is it that Labor is the only political party that has the nous to polish their act to appeal to the voting public. Dare I say it ... GO JULIA !

OOOOOOOOOOPS .......wrong thread !!

 

[drsmith]

What both sides of politics need to to consider is that the big mining companies might consider them both to be basket cases and take their future investment elsewhere anyway.

 

[brty]

take their future investment elsewhere anyway.

This does assume a couple of things...

1 There are plenty of easy to get at minerals out there.

2 They don't lose the rights to a resource by not mining it.

brty

 

[It's Snake Pliskin]

What both sides of politics need to to consider is that the big mining companies might consider them both to be basket cases and take their future investment elsewhere anyway.

They might get involved in politics to counter both side sand their crap.

 

[drsmith]

https://www.aussiestockforums.com/forums/showpost.php?p=554955&postcount=83

According to Allan Kohler (Inside Business), the 57% total tax take is 13% higher than the next highest mining taxer and Canada taxes resources at 25%.

http://www.abc.net.au/insidebusiness/content/2010/s2900620.htm

 

[cutz]

Breaking News !!!

Opposition health spokesman purchased 50 BHP shares after super tax announcement ,

Woopee !!!

 

[medicowallet]

It is interesting to hear incompetent politicians talk about the economy, its condition and faults.

ie BHP is X% foreign owned.

Who cares? Australians who have not been investing in the resources boom surely haven't. They have been borrowing up big to fund a housing boom so that they cannot invest in our resources.

Why would then the government, which is supposed to bee run by professionals, not see that a solution to the problem is not to tax the mining companies and their vast investments in Australia, but to offer incentive for Australians to purchase shares in the Super companies BHP, Rio etc.

They could scrap the first home owners grant, and instead subsidise shareholdings in RIO and BHP for superfunds.

This would not cause the inflation that is being caused by the housing bubble, would allow people to retire on decent incomes, and also give our children the opportunity to purchase affordable housing.

But no.

Keep the bubble going, and can the companies that actually contributed to Australia's stability during the GFC.

 

[YELNATS]

Breaking News !!!

Opposition health spokesman purchased 50 BHP shares after super tax announcement ,

Woopee !!!

Maybe Peter Dutton believes that this hairbrained idea will be dropped/shelved/shafted, like most of us hope it will.

"Mr Swan said the revelation of Mr Dutton's BHP shares showed the opposition couldn't be trusted." A classic case of the pot calling the kettle black.

I was a Rudd/Swan supporter until this latest escapade, but they've now lost me entirely.

Abbott also looks incompetent, particularly in the vital field of Economics which he admits he hates/doesn't understand, so it looks like an informal vote from me at the next election.

 

[Julia]

Breaking News !!!

Opposition health spokesman purchased 50 BHP shares after super tax announcement ,

Woopee !!!

Mr Dutton did a poor job of defending his purchase. He seems to have been all defensive and waffly about it, instead of simply saying something along the lines of the tax was so manifestly unfair that obviously it wouldn't ever be legislated. Always a bad look to be defensive, rather than take the initiative.

Abbott also looks incompetent, particularly in the vital field of Economics which he admits he hates/doesn't understand, so it looks like an informal vote from me at the next election.

Mr Abbott at least has a degree in economics, which is decidedly more than can be said about any of the key members of the government.

All of them, though, on both sides, are woefully lacking in any business experience which is why they so consistently stuff up what would be basic business decisions.
Malcolm Turnbull at least has experience in business, but he's equally woefully lacking in political nous.

Sigh.

 

[drsmith]

Mr Dutton did a poor job of defending his purchase. He seems to have been all defensive and waffly about it, instead of simply saying something along the lines of the tax was so manifestly unfair that obviously it wouldn't ever be legislated. Always a bad look to be defensive, rather than take the initiative.

He could have just said his purchasing of them was as a vote of confidence in the coalition winning the next election.

 

[Bushman]

Here is the latest from Swan:

'The miners know in their heart of hearts that they are going to have to pay a bit more because the royalties regime has not kept pace with the value of this resource, which is 100% owned by the Australian people," he said.'

Is this the least impressive Treasurer in Australia's history? Listen to the way he speaks - it is so naive and it is not funny anymore.

To pick it apart:
1. the miners know in there 'heart of hearts'. No they don't Swanny. See recent releases from BHP and RIO. They know in their 'heart of hearts' that this will kill foreign investment in the resources industry.
2. a 'bit more', no it is increasing from 43% to 57% (BHP numbers), hardly a bit more.
2. Royalties have not kept pace - err, what about a flat 30% company tax on profits. So if profit increases, the tax take increases.

blah blah blah. Craziness!

 

[SmellyTerror]

Yeah good article. Much more informative without so much rethorical commentry.

http://www.businessspectator.com.au...ysteria-pd20100510-5ARLS?OpenDocument&src=sph



The Screen Capture shot below headed 'New tax rates' goes here.

A friend sent me that one, too. Here's my stupidly long answer:

---
Hey hey! Welcome to the output of my meal break… Food is for the weak!


I’m not saying it’ll be the death of mining, or even that "Tax is Bad" (personally, I think income tax needs to go back up a little - instead of bribing voters with money, bribe them with hospitals, I say) just that it’s a silly way to do what they say they’re trying to do. Look at it this way (3 points):

1. Share price value goes down = super value goes down

Company share prices are based on projected earnings. If projected earnings go down, the price goes down. Unless the tax disappears, the share price will be permanently effected because earnings will be permanently effected – this is a re-rating.

Australian super funds own shares. The value of those Australian-owned shares has just dropped by billions and billions of dollars.

This would be fine, if it wasn’t for the fact that the government has been selling this tax as “putting more into super”. They’ve just wiped out more super than they’re going to put back for years! A new government could put billions of dollars into super, instantly, by scrapping the tax.

This seems to be a pretty silly tax.

Consider the poor bastards who wanted to retire already, but got slammed by the GFC, and had to stay working longer until their super picked up. Well things were just getting back on track when – oops, we’re REDUCING your super now so we can INCREASE your super five to ten years down the track. Not really a vote winner, is it? Bit of a gift to the other side, really.

2. Slower growth = slower growth for super

And all of that is working on the assumption that this will have absolutely no impact on future investment. Even though mining is the most infrastructure-dependant, capital-hungry industry around. Unlike oil (used as an example in the article), there is no cartel fixing prices with minerals – it’s bloody competitive. Unlike oil, you can’t pipe it into tankers – you need rail, trains, much bigger ports, much bigger investment. Unlike oil, demand for minerals swings wildly, so infrastructure you build today might stand idle in five years. More risky than oil, and a LOT more expensive.

So we’ve got all these bottlenecks in the Australian industry. There were some big projects in the pipeline to build more rail, upgrade more ports, to increase capacity – but why, when every excess ton they produce from their current windfall will be taxed at – what? The top rate from the table in the article goes from 35.5% to 53.3%. Why not continue to produce at the current rate, and use that money and projected difference in profit to buy out a South-American producer, and upgrade THEIR infrastructure. Profit is profit – why spend the same money to make less of it?

There will still be investment in Australia, because, yeah, it’s profitable. But there is a finite amount of investment money. Of course, if something is less profitable, there will be less investment in it. It’s supply and demand. Right now there is X investment based on Y return. Reduce the return, and some of that investment goes somewhere else. It must. I could spend 5 billion on new rail to have the output of that rail taxed at 50%, or I could spend 5 billion to buy / expand output in another country and be taxed at 40%. Which is the better use of my money?

So in addition to a permanent re-rating of mining (ie loss of super right now) there will be a permanent – however small – drag on growth over time, to reflect the reduction in competitiveness of Australian mining. And that means a reduction in the growth of super down the line.

3. Less money from foreigners = less money for super

And finally, there’s the effect on international investors of uncertainty. As the rest of the world recovers (whenever they do) and people consider where their money needs to be, Australia is now less attractive – too many people have woken up to see their industry / shares hit by new legislation. Again, there will still be foreign investment, but continual goal-post shifting by the government makes people less likely to put their money here, and less likely to keep it here. It’s as much the way it was done, as what was done – little consultation, seemingly populist. Everyone wonders - who’s next? Should I get out now, at least partially? Should I reconsider getting those shares? Because the day they announce a bank super-tax it’ll be too late, I’ll have already lost 10% on the open. Maybe better to look elsewhere…

So that’s going to mean a re-rating of the Australian economy in general (again, hitting super funds over the next year) and discouraging investment in the long term (putting another drag on ecomonic growth). We’ve already seen this, with currency-adjusted impacts from Greece etc being worse for us than even the US, despite our economy supposedly being in a more solid position and theoretically far less at risk from Euro-troubles. That’s a measurable change in how foreign investment sees us. They’d rather repatriate their money or keep it in the US than gamble on this government not shifting the goal-posts again. Not ALL of them are doing that, of course. Not even most of them. But enough of them to mean a decline over the next year as better /safer opportunities come along and money is pulled out to take them, and a longer-term drag as people are more willing to take other options.

All of this might only change things by fractions of a percent, and honestly if it was just standing alone then I wouldn’t be so derisive. But it’s the fact that they say this tax is to put more into super! ...when it’s actually doing significant damage to super – and it’s quite possible that the extra money they’re going to put in will never catch up to the damage they’re doing to get the money in the first place. So we’ve slowed our economy (however slightly) – for what?