May 05, 2010 | Graham

Some reasons why miners are upset and you should be too

If you want to know why miners are upset look at this table. According to Citi, Australia’s miners will be the most highly taxed in the world if the government implements its resource rental tax.

Comparative mining tax rates post-Henry

Under this regime Australia’s miners would be taxed at a rate 45% higher than their nearest competitor, which is the USA and more than twice the rate of their cheapest competitors in Canada. Even, the current rate, which is competitive, is at the high end of what is charged by our competitors.

I’ve been looking around the ‘net this morning and there are some sophisticated, but ultimately wrong-headed, attempts to justify a resources rent tax. James Farrell’s is probably the most convoluted, and Marxist John Passant’s the most honest.

What the table quite clearly shows is that in a world where capital is global, investing in Australian mining is dramatically, not marginally, less attractive today than it was yesterday, and that will mean fewer mines in the future, fewer miners, less jobs, and less national income than we would have otherwise received. This is where the PM likes to fight his battles, because the future notoriously won’t get to vote until long after he has left office.

The government justifies its decision on the basis of some concept it calls “super profits”. Apparently any profit that yields more than bank interest rates is a “super profit”, according to the Prime Minister. The idea of a “super profit” is absurd. For a start it neglects that fact that large mining companies make their income from a portfolio of investments – some pay off handsomely and others are huge duds. And the financiers who support the smaller speculative miners also spread their risks around, sharing them between high-risk/high-reward one-mine speccies. “Super profits” are necessary to cope with the losses from “super duds”. Overall, the return on assets invested in mining is less than that in many other industries, suggesting nothing “super” is happening here at all.

In fact, no-one goes into business or invests to make anything other than what the PM would call a “super profit”, and that includes the superannuation funds that the PM believes are going to sustain Australians in their old age. Next time he lies his head on the prime ministerial pillow next to his wife’s he should ask her just what return they get on their assets. As her wealth is somewhere around the $100m mark you can be sure he earns a “super super profit”. But while profits in business can be good, they can also be not-so-good, because with higher profits comes higher risks, a point which the PM is now demonstrating. 

If you think this move is a good one – think again. The whole country depends for its wealth on “super profits”. Today the government might be targetting the “super profits” of remote mining companies, many of whom it characterises with Hansonite candour as “foreign-owned multinationals”, but tomorrow when that income has declined because it was taxed too much, it could well be the “super profit” that pays the wages in your business, or puts the return into your superannuation fund.

The lessons we learnt in the 70s were that taxation is a good thing, but it needs to be fair and it needs to be internationally competitive. It took us 32 years of reform by Liberal and Labor to recover from the last episodes of financial buccaneering, and the world we live in now is incomparably fairer, richer and more exciting as a result. Let’s not waste that education.

Posted by Graham at 1:47 am | Comments (20) |


  1. Bullshit Graham, If the miners currently here don’t like it and leave …….they will be replaced.

    Comment by Newlyn — May 5, 2010 @ 2:52 am

  2. Newlyn. I’m not sure what it you’re smoking but I think we could all benefit from some of that.
    Tell me why would anyone with the choice invest in an operation that was going to return them less than they could elsewhere. Companies are, will be and need to be quite focused about where they put their shareholder’s funds. It seems so obvious to me that blind Freddy can see attracting capital in Australia after the current invest,ments have run their course will not happen until all the other resources in other countries have been used first. Then in desperation you might be right Newlyn–they will come back–because there will be no alternative. Not sure I want to wait that long.

    Comment by Frank Holland — May 5, 2010 @ 8:36 am

  3. Such a large increase in one go is not very clever.As many others and Graham have observed,the super funds have a lot of their money in our resources.Kevin has not spent the borrowed stimulus money well at all.What makes us think the extra resource taxes will be spent any wiser?

    This Govt has lurched from one debacle to another,and this last tax grab is a sign of a desperate Govt pushing populist policies to secure votes.

    We really need to look at the banking system and how they create inflation via the fractional reserve system when creating new money.The Commonwealth Bank should not have been sold off and the RBA is populated by too many corporate interests that can manipulate the money supply to suit their interests.

    When they were elected,I suggested that they were so light on talent,that they would be one term wonders and now it seems,that reality is unfolding.

    Comment by Arjay — May 5, 2010 @ 9:49 am

  4. I well remember how Whitlam’s reign wrecked Australia’s Exploration and mining industry during and for long after his disasterous term.

    There is no such thing as a windfall profit. Huge profits indicate that a producer is serving his customers well. The social benefits of profits is that they generate new capital and also induce competitive producers to enter production.

    The Rudd governments Resource rent tax is a capital destroying exercise and as such becomes a job and production destroying activity.

    All sensible Australians should vote against this lunacy.

    Comment by Ronald Kitching — May 5, 2010 @ 7:39 pm

  5. I have a suggestion for Kevin and his wasteful party.Instead of the resource companies paying tax directly to the Govt which they then waste,let these companies who have a lot of expertise in building roads etc fix our infrastructure and this be offset against their tax bill.The Govt could get estimates on the cost of a project and the if private enterprise comes in under that price due to eficiencies,they then save on tax.

    In other words all these tolled roads could now be free if infrastructure built by private enterprise was offset against their taxes.

    Comment by Arjay — May 5, 2010 @ 9:09 pm

  6. Apparently “HUGE” profits are anything over bank interest according to Rudd. That makes no sense Kevin. Where is the risk/reward for taking the risks mining companies do? You are removing the incentive to take the risk—well in Australia anyway.

    Comment by Frank Holland — May 5, 2010 @ 9:55 pm

  7. Mining Companies have in the past built their own roads, their own railway lines or financed them, their own towns and water supplies, financed schools etc etc.

    And are willing to do so again, including financing and establishing ports and other facilities.

    And on top of all of that are slugged unmercifully with taxes and royalties.

    Comment by Ronald Kitching — May 6, 2010 @ 12:35 am

  8. The Australian mining industry is booming mainly because of China’s seemingly insatiable demand for raw materials. The mining companies in their haste to make hay while the sun shines are with their labour/material demands pushing up housing and infrastructure costs in the mining States well beyond normal capacity affordability with the inherent danger threat of inflation and the explosive rising cost of goods and services to the non mining employee/public.
    Their untrammelled production must be dampened down to a more orderly economic model. In this capalistic society taxation on excessive production is the only viable method to do this this.
    The alternative, as practised in Norway, is nationalisation. Taxation may be the lesser of the two evis.

    Comment by Jack Randles — May 6, 2010 @ 5:08 am

  9. Jack, the biggest reason for house prices being high is nothing to do with nothing and everything to do with extraordinarily high immigration rates coupled with over-regulation and over-taxing of the housing sector. Mining has a small effect on one and virtually zero affect on the other.

    If miners don’t get in and get the markets now, someone else will. There is no good argument for damping mining development down.

    Comment by Graham — May 6, 2010 @ 5:20 am

  10. Ronald,you miss my point.I’m not saying there should be an increase in taxation.Govt wastes at least 50% of what it collects in taxes.I’m saying that companies with the capital and expertise could tender for infrastructure projects,build them and this reduces their tax liability by the tendered amount.In other words don’t let fools in Govt get their grubby wasteful hands on the money in the first place.

    Now if that company comes in under the tendered amount,they keep the profit in the form of reduced tax liability.

    The other really big cost in Govt is the over the top regulation paper work that adds enormously to costs.On average the Education Revolution building costs are 4 times a regular contractor.They can build a fitted out high rise for $2500 per sq m.A school canteen costs over $13,000 per sq m.

    There is some rorting here too with favoured contractors like Leightons keeping out the smaller more efficient ones.See who is donating to Labor and how much.

    Comment by Arjay — May 6, 2010 @ 5:20 am

  11. I am constantly amazed at what is either arrogance or incompetence of the Rudd government to sell its ideas. On this one I have to believe they are not selling it to the public because they haven’t thought it through or because we ‘shouldn’t trouble our little minds’ over something that will be handled by the ‘important people in Canberra’. It was the same for the ETS–might have been a good idea but so poorly sold the average voter had no idea what it was about and as a result was open to the ambit claims and rhetoric of all parties.
    An idea on a bit of paper is worth nothing if you don’t get to implement it Kevin. And you won’t get to implement any ideas if you don’t give the rest of us a chance to ‘buy’ the concept—so get out and sell it else it will loose you an election for sure because nothing I have heard to day tells me this is a good idea

    Comment by Frank Holland — May 6, 2010 @ 5:21 am

  12. The late Ainslie Mears the famous Melbourne psychologist who, through his simple meditation exercises, could cure all manner of anxiety, even inoperable cancers in men and women wrote the following in Chapter 3, (page 59), titled “Anxiety and Depression, in his book “Let’s Be Human”.

    In Australia the move to socialism has recently been accelerated, and I have been struck by the number of patients consulting me who have linked their increased nervous tension with frustration due to the governmental curbs on their business initiative.

    Most of these have been men who have simply been frustrated in their pursuit of personal gain. But not all. In many enterprises there is a mixed motivation in which personal gain is associated with real altruism.

    If he was still in practice, he would now have a new flock of Exploration and Mine managers, not to mention exploration and mining entrepreneurs to deal with.

    Comment by Ronald Kitching — May 6, 2010 @ 5:32 am

  13. Hi Frank,
    I agree there has to be a favorable risk to reward ratio for companies to invest. Its not the company executives that decide, its the shareholders who want a reasonable return on investment (read super funds for example). Yes, the risks are greater in resources, witness the slump in the share market over the last couple of weeks. Moreover, we have had the GFC but dark clouds are looming again and next time (could be very soon) it will be catastrophic because the developed world is already in dire straits due to debt so a bit of support from the mining industry would come in handy. I do take issue with your comment that Keven 07 should sell his message better. I have a real problem with his smugness, mastery of spin (use of hyperbole, insult etc) and hubris (everything he does is a miracle, revolution or world shattering). I wish he would just shut up and hide for the next few months or better still get off the political scene otherwise he will stuff up everything. He is too tricky for me even more so than Howard!

    Comment by Frank Frok — May 6, 2010 @ 6:14 am

  14. I think it is now high time Kevin Rudd handed back the keys to Kirribilli House and resign to writing fiction novels. How many more ill-conceived, poorly thought through Labor policies do we as a nation have to endure. Kevin Rudd is clearly out of his depth. No previous Labor Government,(OK Whitlam came close) has 16 failed policies recorded against it. Go Rudd go!!
    Montpellier of SA

    Comment by Frank Kovacs — May 6, 2010 @ 9:29 am

  15. The assumption here appears to be that mineral deposits are undifferentiated in assay,size, distribution and location amongst Australia’s competitors and that tax rates are the only criterion investors would use when making ROI decisions.
    Whether or not the super tax is misguided,at least this government is looking to the future when the quarry is empty and Donald Horne’s prediction comes true–we can’t rely on the drones that run much of industry in Australia to develop the alternative competitive industries that we need after the boom ends.


    Well,like most economic theory you statement is true in particular circumstances only.Often competitors are unable to enter the market.Profits are not necessarily social benefits,eg the profits of the tobacco and the asbestos industries-the external costs of those are enormous and as often occurs, the taxpayers pay the bill.

    Comment by Russell W — May 6, 2010 @ 10:42 pm

  16. Graham: Read this mornings Reserve Bank report which upwardly revises its forecast for inflation and economic growth, signalling more interest rate rises needed to temper the upsurge in activity fueled by the hefty upswing in commodity prices. This is a direct result of the Asian commodity price increase for iron ore, coal and gas. The Reserve Bank very obviouly see the need for a dampening down of the mining industry hence the crying need for a taxation increase on their inflated earnings. Investment in mining is at record levels and will remain so in the foreseeable future, notwithstanding the media bleatings of the overseas investers.
    Iron ore, coal, gas, are not perishable goods, will always be in demand, and should be mined to the nations advantage in an orderly manner to the greater advantage of the owners of the land. The Australian public.

    Comment by Jack Randles — May 7, 2010 @ 4:38 am

  17. The 1912 publication of The Theory of Money and Credit made Ludwig von Mises the most famous economist in Europe.

    By 1952 he could clearly see that the present fiat monetary system was doomed to collapse – as it is now doing. So he wrote Part 4 to his book and titled it “Monetary Reconstruction.”

    You can read The Theory of Money and Credit, See ONline:

    And get hard copies from

    Also Mises essay titled Profit and Loss is available Online:

    This is also essential reading for keen students.

    It too, together with all of von Mises books and those of almost all Classical Liberal Scholars are available at

    Comment by Ronald Kitching — May 7, 2010 @ 5:38 am

  18. All Mises hard copies and those of almost all Classical Liberal authors from:

    Comment by Ronald Kitching — May 7, 2010 @ 5:41 am

  19. I have to wonder if the reserve bank report took this new tax into account.

    Comment by Frank Holland — May 7, 2010 @ 5:45 am

  20. Jack I don’t see anything in the Reserve Bank report that says the see a need to “for a dampening down of the mining industry hence the crying need for a taxation increase on their inflated earnings”. You just made that up.

    If you did see the need to damp demand you would raise interest rates, not apply a specific tax to one industry which would stay in place forever!

    If you are looking for causes of inflation, you should look at the government’s pump-priming of the economy with a needless $40B which has been largely wasted on over-priced buildings and needless imports, and was so unnecessary that it is still being spent even though we are clearly past the danger period.

    That’s one of the reasons for this totally unjustified slug on miners – they need to take the money from the productive economy because they’ve spent too much rescuing us from a threat that wasn’t nearly as large as they thought.

    Comment by Graham — May 9, 2010 @ 12:23 am

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