03/06/2010 - 00:00

Canberra to reap the whirlwind of mine tax

03/06/2010 - 00:00

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The federal government is looking to drive a hard bargain on the resource super profits tax.

THE government needs $38 million in funding granted under emergency powers to explain its story.

Maybe they could try this one.

A stranger knocks on the door of a house in a semi-rural area and asks the owner about a derelict car body he can see poking through a tangle of thorns and weeds in an unkempt area of the property.

He explains he restores vehicles and rents them out to joy riders as a business and he might be able to do something with the vehicle.

“You’re welcome to have a look, it is sitting there doing nothing,” says the car’s owner.

The stranger, wearing overalls and looking very much the mechanic, looks it over and decides it’s worth recovering, so he approaches the owner with a deal.

He would take the car and restore it and, as payment, the owner could have the car at the weekend when his business was generally slow.

The owner reckons that’s not a bad deal. After all, the car was useless to him in its present state and he would get a flash vehicle to show off around the neighbourhood at the weekends.

So the stranger took the vehicle away, made the transfer arrangements and, within a few months, dropped off the newly restored vehicle each Saturday morning.

The former owner enjoyed the freedom of the car, which was a magnificent example of its period. It offered a change of pace, got him recognised in the district and allowed the breeze to blow through his hair on warmer days.

Sometime later, the former owner ventured into the city for business and, quite by chance, stumbled across his car outside a rental establishment in a ritzy part of town. He was astonished to see the car was advertised for rental at $1,000 a day.

He wondered at the possibility that the piece of junk from his yard could earn its restorer up to $5,000 a week.

Venturing inside he found the man who restored his vehicle – the first time he’d seen him on a weekday. Rather than his mechanics overalls or casual clothes, the man looked slick in expensive outfit and sports jacket.

“I’m amazed that you charge $1,000 a day; so people really pay that?” the former owner asked.

“Absolutely,” responded the car’s restorer.

“We don’t rent it every day, but since business picked up with the economy, we have it on the street more often than not,” he added.

The car’s former owner went home resentful at this news. If he had had the skills to restore the car and the outlet to advertise it, he could do the same. Instead, he just got to drive it.

That wasn’t fair, he decided. After all, he had given the car away for nothing hadn’t he?

After a gathering of his family – whom he saw infrequently – they all agreed he should get more. A local lawyer looked through the papers and discovered that the transfer wasn’t valid without actual monetary transfer. It seems the free use on the weekends did not constitute consideration for stamp duty and he still owned the vehicle.

Armed with this knowledge and flanked by his lawyer, the man charged into town to demand his rights.

He was already thinking of indulgent ways to spend the new riches he would acquire without needing to work any additional hours. How easy, what luck.

Confronting the owner with the dreadful truth, the man from the semi-rural district demanded 40 per cent of the profits from running the vehicle – an amount he thought struck a balance between his greed and the need to keep the other man working.

It was the car rental man’s turn to be astonished. At first he was angry and pointed out that the other man had given him something that was worthless until he turned up. Eventually, though, he realised the law was against him and he capitulated.

During the next year the man on the edge of town, the ‘rightful’ owner, started receiving cheques but they did not amount to as much as he expected. He also received bills for the registration and insurance, which only the owner could pay. Furthermore, the car restorer no longer arranged for the fancy car to be dropped at his place at the weekends. He missed having the car around.

At some stage, the cheques stopped coming altogether and just the bills arrived.

Eventually, he went into town to see what was wrong. He discovered ‘his’ car in a dreadful state parked at the rear, behind several other well-kept vehicles. A sign advertised that it could be rented at a cost subject to negotiation – “name your price” were the precise words.

He went into the office to confront the city man and started shouting.

The man’s reaction was unexpected. He simply gave him the keys and told him to go.

“I run an expensive business here, I’ve got a city property to pay for, high advertising costs in upmarket magazines and business newspapers to reach my audience, I drop the cars off to the country every weekend, which costs me fuel and labour, and I pay dividends to the original shareholders who got me started, not to mention taxes I pay and the economy which has dropped off,” he said.

“I can’t afford to lose 40 per cent of my operating profits to someone who didn’t value the asset until I restored it and does nothing to help me in my business.”

“Goodbye.”

Back to reality

WHETHER or not that analogy works across every facet of the resource super profits tax, it has been rattling away in my mind for a couple of weeks – apologies if it’s too long to be useful, it probably belongs on a soapbox somewhere.

Regrettably, the whole resources tax issue is so complicated I couldn’t work out how to introduce a government-paid advertising campaign into the analogy. That would just be ridiculous, wouldn’t it?

Nevertheless, if anyone wants to pick holes in this concept or even add their own part of the storyline with minor (or major) embellishments, go for it.

During the week, I also spoke to a few people about how the state could create a new entity to get around the federal government’s power over companies to enact the RSPT. However, the flaw in the system is that the Commonwealth would always find a way to enforce its revenue expectations, even if it came to doing so in Australian waters.

“The problem is the state doesn’t have tanks or guns,” said the lawyer. He probably could have added navy, too.

Thankfully, we have democracy with which to fight this one, even if the federal government is prepared to break its own promises to win.

• Feedback welcome to: mark.pownall@wabusinessnews.com.au

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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