The new mining tax puts most of its chips on China’s growth continuing.
AUSTRALIANS once prided themselves on straight talking. Not today. The tangled web of deception that dogged the mining-tax debate in which truth flew out the window, and even the latest re-naming of the tax fails to explain what’s really happening.
Replacing the resource super profits tax (RSPT) with the mineral resources rent tax (MRRT) is nothing more than window dressing designed to hide three rather important questions: why we need the tax; who is really paying the tax; and what is actually being taxed.
The ‘why’ is because south-east Australia is going broke in exactly the same way as Europe has gone broke with excessive social welfare handouts and a ghastly entitlement mentality, which has replaced a culture of hard work and personal pride.
The ‘who’ is China, because a special tax on Australian mineral exports will eventually be passed on to the customer, and in most cases that means China.
The ‘what’ is energy, because if you look at last week’s changes to mining/resources tax, three of the four targets were pure energy – oil, gas and coal. The odd mineral included was iron ore – and the odd mineral left out (for now) was Australia’s fourth energy export, uranium.
Over time the answers to those three questions (why, who and what) will become clearer as the south-east corner of the country persists with a crazy concept of operating small and inefficient manufacturing plants in competition with low-cost (and high quality) Asian imports.
Either heavy subsidies will be required to prop up living standards in Victoria, NSW and Tasmania, or pressure will grow for a return of protectionism through higher tariffs, which are really nothing more than subsidies.
The truth in this case is being masked by a lie that some Australian states, WA and Queensland in particular, are resource rich when they are doing nothing more than choosing to use their resources while the south-east states choose to sit on theirs. Victoria, for example, could be one of the world’s great gold producers if it opted to snip some of the red, green and black tape that inhibits exploration and mining.
China’s role in the new tax system starts with the fact that China has driven up the price of commodities; and it is China that will continue to absorb the higher prices, ultimately passing on those costs to customers for its manufactured goods.
Rather than fiddle around with an alphabet soup of names we might one day drop the MRRT and just call it the ‘China tax’.
Another possible name is the ‘energy tax’ because of the focus of the tax on energy, with iron ore tossed in for now – though perhaps not forever as 39 new iron ore projects around the world rush to dump an estimated 500 million tonnes of new supply on world markets.
If, as some observers (including Bystander) expect, the iron ore market flips from shortage to surplus as it did in the 1970s when Japan encouraged excess output, then the worries of people such as Andrew Forrest will be resolved. His Fortescue Metals Group will not have to pay a super tax because FMG will not be earning super profits. Problem fixed.
Energy is what the super tax is all about, though the anti-uranium lobby can’t quite acknowledge this fact, or is there a sneaky game being played by the Australian government, which is waiting until BHP Billiton commits the $20 billion needed to expand its Olympic Dam copper and uranium mine in South Australia, before slipping uranium into the tax.
Growth state’s good
AS troubling as the absence of plain speaking has been in the tax debate, there is something comforting for WA and Queensland; these are the two states creating wealth, not sponging off it.
By being forced to become the cash providers to subsidise the lifestyles of the south-east, WA and Queensland will have a free rein to continue expanding their resource industries.
Opposition from the south-east to new projects in the west and the north of Australia will fade as people in the suburbs of Sydney and Melbourne discover that they are dependent on the cash flows of Queensland’s coal mines and WA’s iron ore mines – plus the gasfields of those two states.
It is far better to be on the receiving end of capital inflows, project development and job creation than to stand with a begging bowl, which, somewhat amusingly is what life was like in WA when Bystander was a boy.
Back in the 1950s and early 1960s, WA really was a backwater where little happened and the state government was forced to beg for handouts from Canberra.
Today, WA is one of the cash generation centres of the country and a much richer and exciting place for having made the switch.
HOW low can the markets go? Nouriel Roubini, the feted economist from New York University and the man credited with tipping the sub-prime crash of 2008, reckons much lower as the world’s debt crisis rumbles on.
He might be right, but there are pointers to a brighter 2011, in much the same way 2009 turned out to be a better year than expected, with the European debt crisis of today likely to follow the same path as the US meltdown of two years ago.
The question is whether Europe’s stimulus of its struggling economies has the same effect on commodity consumption.
If, as Bystander suspects, commodity demand remains strong because of the need to maintain output of basic industries, such as steel and electricity, then 2011 might not be a bad year for WA.
Early entry for Daffy
AN early nomination for Bystander’s ‘Daffy Duck Dope Award’ goes to Melbourne’s ConnectEast tollway business, which has finalised its dividend reinvestment plan, mailing to one former shareholder a cheque for two cents. Given that the act of banking the cheque will cost more than two cents, it is destined to become a wall decoration and permanent reminder of corporate idiocy, which can sometimes rival government idiocy.
“Most fools think they are only ignorant.”