08/11/2011 - 08:56

Analysis: Andrew Forrest's big dare

08/11/2011 - 08:56

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Analysis: Andrew Forrest's big dare

Andrew Forrest has a habit of causing controversy, but his latest assault on the establishment could go much further than a headline grabbing declaration about Fortescue Metals skipping any mining tax liability for at least five years.

There seems little doubt that Forrest is playing a much bigger game than simply seeking to embarrass the Australian Government by claiming to have found a gaping hole in the tax which targets iron ore and coal miners.

The real prize could be to unveil the cosy relationship between big government and big business – or to demonstrate how three of the world’s biggest mining companies fooled the Australian Government into designing a tax which suits them and nobody else.

Much of his argument against the tax has been aired, but what he did yesterday was the equivalent of a business strip show, revealing to the world his most intimate financial secrets and then daring rival iron ore miners to do the same.

So far all that’s been heard from BHP Billiton, Rio Tinto and Xstrata is the sound of silence, and from the Australian Government rather crass personal abuse.

“Bunkum” is one of the words used by Australian Treasurer, Wayne Swan, to describe Forrest’s criticism. A more detailed attack is along the lines of: Mr Forrest running a big risk of being seen as a billionaire “looking after himself”.

That allegation of Forrest looking after himself has become somewhat unsustainable after the “we’ll pay no tax” declaration yesterday because it is a rare day when a man publicly thumbs his nose at the people who have taxing power over your business and says “I dare you”.

Swan has no choice but to accept Forrest’s dare and call in his Treasury officials, or the Australian Tax Office, to check whether a major potential taxpayer has indeed found a loophole which permits an iron ore miner to avoid paying a tax which already appears as an $11 billion item in future budgets.

BHP Billiton, Rio Tinto and Xstrata will also feel the heat caused by a fellow miner declaring that it is tax free because if the loophole is good enough for Fortescue it’s good enough for them.

At first glance the biggest problem for Forrest’s three mining rivals (and the government) is that the loophole is so terribly easy to understand.

All that Fortescue has declared is that it has large, and legal, deductions available from the billions of dollars sunk into its Pilbara iron ore business.

Anyone who claims a tax deduction for money invested in self education, or a car, or tools of trade, can understand the point about lowering a tax liability.

But, until Forrest’s “we’ll pay no tax” declaration the government had been able to deflect criticism because the three big miners (BHP Billiton, Rio Tinto and Xstrata) were on its side, while saying as little as possible except through their tame lobby group, the Minerals Council.

Saying nothing is no longer an option for the big miners as far as their tax liability is concerned because of the way Forrest has broken ranks and declared that Fortescue will be tax free for years.

When, not if, the big miners are dragged into the open Forrest will play his trump card by demanding to know exactly who drafted the mining tax, and whether someone in the big three was so close to the government that he was able to orchestrate the design of the tax to suit his employer.

Getting to this point has been a long game for Forrest. He has been fuming for more than a year about his iron ore mining rivals writing a tax that suits them and nobody else.

Until now his rivals had probably assumed that Forrest would go along with the game because he was a winner too, and the smaller miners would never have the muscle to shift the government.

Declaring that he will be tax free for years shows which side Forrest is supporting and no amount of personal abuse by Swan will hide the fact that the top end of corporate Australia and the top end of government have some explaining to do.

By effectively martyring himself before tax officials and declaring that he will not have to pay the tax Forrest will flush others out.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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