No wonder voters are in despair about Federal politics. The Government passes its Minerals Resource Rent Tax, aka the Mining Super Profits Tax, and the Opposition, rather than concentrate on reselling the reasons for why this is a bad tax spends most of its time pursuing the government because it did a “secret” or “dirty late night” deal with the Greens to get it through.
Here are just a few of the reasons they should have been giving for opposing the legislation.
- As Alan Kohler points out it is a “deficit” tax. That is – it costs more money to implement than it raises. This is the second such tax this government has implemented, the first is of course the Carbon Tax. If every tax was like this the country would be broke. Passing this tax wasn’t about economics, it was about ego. The government didn’t want to lose face so spent what it had to, even if it didn’t have what it spent.
- There is no such thing as a super-profit. It is a theoretical concept subscribed to by some economists that bears no relationship to how the world actually works. There are profits, and there are larger profits. As long as a profit is not gained by milking a monopoly position or government rents it is legitimate, no matter how “super” it is. Many businesses achieve a 20% return on assets. Private businesses typically change hands on 3 to 5 times earnings, which means that it is the norm in the SME world. Banks make that sort of return. Software companies like Microsoft do much better.
- Taxing “super profits” is not a smart thing to do. The Australian economy needs more companies making larger than average profits, that way the economy, and living standards, grows more quickly. Rather than taxing companies that make “super” profits we should be looking at ways to encourage them to locate here, and to encourage companies who are here to become “super” profit earners.
- If taxing mining “super” profits is a good idea this year, then why wouldn’t taxing bank, or software, or private company “super” profits be a good idea next year. If you have a profitable business this tax should make you very nervous next time the government needs money.
- Mining companies do make a contribution to the Australian economy. They pay royalties to Australian states, they pay company tax to the Australian government, and they pay dividends to shareholders, many of whom have the job of looking after the retirement funds of “working Australian families”. In a financial climate when investment returns have been negative, thank god there is an investment that can still make a positive return, but why would you add an extra tax to it?
- Miners do pay for their use of the minerals they mine. The payment is called mining royalties. They may also pay special levies on rail to transport their coal and be provided to pay money to improve community assets in the areas where they operate. When resource prices are high the royalties are even adjusted upwards. The “problem” for the federal government is that these payments go to the states because at federation it was decided that the states would retain the right to minerals mined within their borders. This tax is an act of expropriation from the states and is probably unconstitutional. We’ll no doubt find that out some time after it is passed and one or more of the states take the Commonwealth to the High Court.
- The mining tax is not about sharing the benefits of the mining boom – see point 4. It was originally about grabbing some money to prop-up the government’s bottom line from one of the few sectors that was doing well. It is now just about saving face for the government and the Prime Minister – point 1.
- We are not running out of resources. While Malthus may well prove to be right in the long run, it is a very long run and generations will have passed before it arrives. So there is no sense that this is a once in a lifetime opportunity to grab something for the common good before the resources run out.
- We are not in an absolute position of strength and if we leave the resources where they are they will not necessarily be more valuable tomorrow. Until the industrialisation of China and India the real price of all metals was in a downward trend. That trend will probably reassert itself when those two countries evolve to a stage where they no longer need huge inputs of metals. The net present value of our mineral resources will probably be smaller in the future than it now, so putting barriers in the way of mining companies at a time when the resources are most attractive to them makes no sense.
- Mining is not a sunset industry, it is a sunrise industry. It is a tribute to Australian ingenuity and innovation that we are a world leader in mining. Our mining expertise is not only running mines in Australia, but all over the world. It was pointed out to me last week that PanAust, the largest mining company in Brisbane, doesn’t own a single Australian mine – they are all in South-East Asia and South America. Two other mining stars in Brisbane – Mincom and Runge – aren’t even miners at all, they are mining services companies, selling Australian know-how to other companies all over the world.
That’ll do me for this morning. Ten good reasons to oppose the tax, yet yesterday I didn’t hear the Opposition raise one of them. Nor for that matter did I hear the mining industry, nor a single journalist, with honourable mention of Alan Kohler.
Re point 8
Fossil carbon is essential for a reasonable standard of living for the human race for as long as possible into the future. Without fossil carbon it is not possible to produce essential metals from oxide or sulphide ores. Technology will not change that essential fact of chemistry.
Malthus wrote about population and at the current population level the human race is already consuming resources at an unsustainable rate. Oil is only being discovered at a rate equivalent to a quarter od current consumption and production from wells in the USA, The North Sea and Bass Strait are at between 15% and 30% of the past maximum rate.
Comment by John Turner — November 24, 2011 @ 7:48 am
Point 11, The royalty system isn’t cutting it and the mineral tax is a fair market-linked stake for all Australians in their own resources.
Comment by Craig Lucanus — November 24, 2011 @ 9:14 am
Hi John, I used to think we’d need to move to nuclear, and still do in the longer term, but all of this newly accessible natural gas alters the balance and the time scale.
I don’t understand your point Craig. In what was isn’t the royalty system “cutting it”?
Comment by Graham Young — November 24, 2011 @ 10:21 am
1. Royalties only benefit individual states with resources,not all Australians.
2. They are not set at a level that causes Australians to feel they are getting a fair price for them, while both Australian and foreign shareholders are killing the pig.
3. They are not market-linked to ensure a fair price is gained for them.
Comment by Craig Lucanus — November 24, 2011 @ 12:37 pm
Gas is essential for eons into the future as feedstock for fertilizers and chemials so we need to get away form use of fossil fuels as quickly as possible and the only long term reliable energy source is nuclear fuelused as efficiently as possible and in ways which produce minimum hazardous waste.
I also agree with Craigs point, many of the services necessary for a good life in this country should be available equally for everyone and not depend on the resources unevenly distributed over the various states on the continent. Many of those resources were unknown when the states federated and in my view every Australian should benefit from the “lottery prize” effects of recent discoveries.
Comment by John Turner — November 24, 2011 @ 1:38 pm
Craig, are you seriously saying that any benefit any state gets that other states don’t they should be confiscated and given to the other states? And why shouldn’t the mining states be recompensed for the investment they have to make in getting mining up and running? Do you think it is just a matter of bringing a bull-dozer in and digging it up? Or do you understand it takes ports and roads and railways and dams and housing and people and more to get a mine up and running. And who do you think supplies all of that? The Commonwealth, or the states?
Your point 2 shows you are xenophobic and don’t understand the economics of investing in mining. It doesn’t really matter whether you can convince Australians they aren’t getting a fair price, if the price is fair. And people who invest in mining know they will make good money some times, and poor money other times. It has high fixed overheads. Much higher than any other business I can think of.
John, I don’t have a problem with the need for hydrocarbons to make fertilisers etc. but you can make them from a range of hydrocarbons, not just gas.
I also think you don’t understand the nature of mining. That there were mineral resources in the states was certainly contemplated at the time of federation. We’d had a few gold booms by then and new about the coal resources in the Hunter.
Perhaps if you think minerals are a “lottery” then you would agree to the rest of us being compensated because Sydney won the “lottery” of having the best harbour in the world at its feet?
Comment by Graham Young — November 24, 2011 @ 9:34 pm
You are taking a hyperbolic angle on what I am saying, Graham. “any benefit” no, but minerals yes. And yes, the mining states should, and will be compensated for their infrastructure outlay by the Commonwealth.
Royalties are never set at anything like the value of the resource. You sound very knowlegable about mining, Graham, so you would know that mining companies have had it good for a long time without royalties rising to anything like a fair thing. As soon as a fair market-linked arrangement is put the squealing starts about the sky falling in. Notice that mining investment barely faltered with the overhanging prospect of the MRRT existing since 2007? That tells us all we need to know about what mining companies really think about its impact on profits.
The Sydney Harbour statement is more hyperbole. How much do you reckon the Great Barrier Reef is worth?
Comment by Craig Lucanus — November 24, 2011 @ 11:24 pm
Craig where were you, with your interest in fairness, when we had all the other states but NSW & Vic paying to subsidise their industries. It really was a case of they got the jobs, & we got the bill.
Everyone throughout the country paid 30/40% extra for everything either in import tariffs & duties, or in prices for goods manufactured in those 2 states, sold for exorbitant prices, protected behind that tariffs wall.
Even development of things from the mining industries, & public roads was slowed by the extra costs introduced to benefit just those 2 states, & protect their inefficient industries.
The term sour grapes comes to mind reading your posts.
Just be satisfied that WA & Qld generate the foreign exchange that allows everyone, even NSW & Vic people, access to cheep imports. Without them we’d all be back to paying a weeks wages, [before tax], for a little 21 inch, black & white TV, as we were when they all came from Sydney manufacturers.
If you want to have an equity fight, get your facts in first, we’ve still got a long way to go, for the mining states to catch up.
Just to start, have a look at the number of university places per 1000 population, in the “Golden Triangle” compared to the mining states. I’ve got a thousand others If you’d like.
Comment by Hasbeen — November 25, 2011 @ 10:12 am
We can argue about whether the policies Hasbeen attacks were effective and just but, together with the MRRT, they they share the commonality of being done for the greater good.
There’s no point at which people like Hasbeen and I will ever see eye to eye as one is for the individual and the other for the group. There is only compromise and that is usually where policy ends up. The MRRT legislation is just that. Its hardly extreme and the sky won’t fall in.
Comment by Craig Lucanus — November 25, 2011 @ 11:18 am
Pity about that Craig, I thought you might be for education equity, but apparently not.
Just for “equity” for NSW & Vic, & I’ll bet Canberra, which is for the greater good, isn’t it?
Comment by Hasbeen — November 25, 2011 @ 1:28 pm
Craig, there was no mining tax in prospect in 2007 – it was a later invention. Royalties were, and are, set at commercial levels. Whether you think they reflect the value of the minerals is probably beside the point – I’m not sure what basis you are using for valuing the minerals apart from what appears to be an ideological drive to grab some of the value for “the group”.
If you knew more about mining you’d know that miners were hardly likely to walk away from existing investments, so would continue to invest into them, so the fact that investment hasn’t altered much tells you that it is a capital intensive longterm business, but nothing about the direct effect of the MRRT. it’s the pipeline of investments that will suffer. I get a lot of prospectuses crossing my desk for Australian miners opening mines up overseas. Fresh capital won’t be nearly so willing to invest in Australia.
I think the Great Barrier reef is worth a lot, but I know that the financial sector is worth a whole lot more and it is in Sydney and also operates on a similar return on assets to miners. So why not tax their “super” profits as well as distribute them. You can apply the same logic just about everywhere you look.
Someone is always going to have an industry everyone would like to get a share of, but life isn’t like that – you have to make your own luck for yourself. We’ll keep our mining and our barrier reef and you can keep the Opera House and your financial district.
Comment by Graham Young — November 25, 2011 @ 4:07 pm
Are you fed up with our dysfunctional system of government?
You can do something about it!
We have seen how the present government system is not working. We have a government that has made way too many mistakes, that is dominated by a minority party and the Independents, and that rides roughshod over the wishes of the electorate without giving us a chance to have a say in important decisions, such as the Carbon Tax.
The only way to fix the myriad problems with our society and our system of government — and restore power to the People where it rightfully belongs — is to change the Constitution to bring it into line with today’s reality.
Join us at http://www.restoreaustralia.org.au/ to sign the petition to CHANGE SECTION 128 OF OUR CONSTITUTION.
Comment by Observer — November 25, 2011 @ 4:57 pm
Graham, countries invade other countries to control physical assets, such as oil and minerals, not to take control of the services sector. Why would anybody invade Switzerland?Please try to see the difference. Mining IS a business that is based on buy cheap sell high, but with huge overheads. Miners can pay more anfd they are prepared to.
Sorry observer, we are in a democracy and you’ll have to wait until the next election to get another lot into power
Comment by Craig Lucanus — November 25, 2011 @ 6:35 pm
@Craig, we are not interested in putting any of the current lot into power. Please go and read our website at http://www.restoreaustralia.org.au to find out what we are doing.
To state that we are in a democracy is pure wishful thinking. Since when does a democracy allow the antics we are seeing in Parliament? Our democracy has always been based on a gentleman’s agreement between the pollies and their electorate. Unfortunately, that agreement has been torn up and the politicians are doing whatever they like because they are not constrained by a Constitution that serves the needs of the people.
Why do you think so many Aussis are apathetic about politics? Because we all know we have NO POWER to make the country into what we want.
We at Restore Australia aim to change that by making one small change to Section 128 of our Constitution to allow not only our politicians, but We the People as well to initiate changes to the Constitution. Once we have that power we will be able to vote on proposed changes as long as a large majority of the people vote for the change. This is what real democracy is.
I bet you cannot tell me you are happy with the current situation. I have spoken to people all over Australia and every single one of them has said they want to see change because our Constitution is not working.
Comment by Observer — November 25, 2011 @ 6:52 pm
Observer, you are going way off topic and I’ll delete any more posts in the vein of your previous one.
Craig, I have no idea what you are talking about. Apart from the fact that your thesis about why countries invade other countries is nonsense, what has that got to do with the minerals tax? We can only tax things that people might be interested in invading a country for? Or you are likening the tax to an invasion of one country by another.
If you looked at the long term return on mining assets you’d know that your claim that they buy cheap and sell high might be something they aspire to, but rarely achieve. Mining has a good return on assets at the moment, but it was pretty crook a few years ago, and tends to be cyclical.
The miners aren’t happy to pay the tax either – that’s why they campaigned against it and limited it to just a few minerals. But they are also international companies, and they’ll move elsewhere rather than pay it, so ultimately they won’t fight about it, they’ll just gradually disappear.
Comment by Graham Young — November 25, 2011 @ 11:15 pm
Sorry about going off topic. But I believe the mining and carbon taxes are just the symptoms of a much deeper malaise. The ten points you raise are right on the money. It’s a pity we don’t have anyone in Parliament with the guts to stand up and tell it like it is.
As you point out, it takes money to set up the infrastructure for mining. At the moment the States are responsible for that investment. If we could eliminate the states we would be able to distribute the investment and the returns more equitably, giving ALL Australians a share of the pie.
Once more, this brings me back to what I wrote above. I hope you can see more easily now where I am coming from. It would help if you viewed our website so that you see what we are advocating.
Comment by Observer — November 25, 2011 @ 11:48 pm
Sorry, I did write my comment on the run, I don’t think I said all wars are based on ownership of physical assets, Graham. We’ll obviously have to disagree on the difference between mineral assets that are not sustainable (i.e. are consumed until gone) and
others such as thriving service industries, or beauteous natural wonders that can be exploited for tourism.
You said “mining has a good return on assets at the moment, but it was pretty crook a few years ago, and tends to be cyclical.”. Good point, the MRRT goes up and down with cycles to accommodate this fact.
I have considered this, while the buy-sell margin on amineral assets is one aspect of profit, another is the efficiency with which the asset is exploited.
Something I’ve though about; The MRRT doesn’t incentivize efficiency improvement (as far as I know), which is a little concern of mine even if efficiency is running extremely high already. On the other hand why, as a PAYE taxpayer, am I not allowed the deduction before tax of the cost of getting to and from work daily? I accept swings and roundabouts and maybe the mining industry should too. I guess companies could be more efficient if they didn’t pay bloated executive bonuses irregardless of profit levels.
Comment by Craig Lucanus — November 26, 2011 @ 10:25 am
Going back to first principles, I would say that the natural resources of Australia are the birth-right of ALL Australians.
The question then is, how best to ensure all Australians benefit from the exploitation of those resources.
Extraction industries need to know up-front what they will be required to pay so they can work up a viable business plan.
So, I suggest a system in which extraction industries hand over say, 25% of the sale price of the natural resources they exploit and that this be used in such a way as to benefit all Australians.
Comment by Charles Mollison — November 27, 2011 @ 8:58 pm
To me the most important point is the 1. If it costs more money to implement than it raises, then all other debates are pointless. The only “fair share” will be that we all share the cost of the difference.
Comment by Jiri Pavlin — December 3, 2011 @ 1:40 pm