It took more than luck to get the ‘resource rich’ states where they are.
TRUTH is said to be the first casualty of war, and we have certainly seen that in the war of words between the prime minister, Kevin Rudd, and the Australian mining industry annoyed by his proposed tax increase.
Bystander will get to the tax later, but first consider the original fib that underpins the claim that miners in ‘resource-rich’ states should be paying higher taxes.
It’s those two words that really rankle because there is nothing excessively rich about the geology of WA or Queensland, it’s just that over time those states have been willing to develop their geological wealth. Other states have not.
Victoria, for example, has some of the richest gold deposits in the world and was once the world’s major producer of gold.
Much (if not most) of the gold has never been mined in Victoria but that state has had a series of anti-mining governments that have made it all-but impossible to extract the stuff profitably.
Layers of red (government), green (environmental) and black (land claim) tape have been wrapped about Victorian gold, and other minerals, encouraging the voters of that state to believe that they are ‘resource poor’, when they’re not; just ‘government rich’.
South Australia was another excellent example of a state believing it was resource poor, until the government in Adelaide enlisted the former chief executive of Normandy Mining, Rob de Crespigny, to show how it could become one of the resource rich.
Mr De Crespigny did not create any extra minerals – that took a power that exceeded even his prodigious talents. What he did was work very closely with the SA government, even sitting as a de facto member of the state’s highest political authority, the state cabinet.
It was under his guiding hand that SA changed its mining laws to become more industry friendly, open ports to provide export access, and created a very clever government-funded exploration scheme.
The cost of the scheme was minimal, starting at about $20 million a year, but, it involved direct government grants for geophysical surveys (magnetic and gravity), and for drilling.
Hey presto. Discoveries were made and mines developed. In the best case, a small prospector named Rudy Gomez discovered the world-class Carrapateena copper deposit, which might one day rival other big nearby mines, including BHP Billiton’s monster, Olympic Dam.
From being a state suffering a chronic inferiority complex as an economic backwater with no growth industries and a declining population, SA started to grow rapidly. It had become resource rich with an exploration industry growing, at one stage, faster than those in WA or Queensland.
The point about being resource rich, or resource poor, is that luck has very little to do with it, because while the geology is important, the major factor is whether governments encourage exploration and mine development.
Older readers might even remember a time when WA’s now coveted iron ore industry barely existed, suppressed by an Australian government ban on iron ore exports.
The day the ban was lifted the Pilbara suddenly appeared. It had obviously always been there but it took people such as the late Lang Hancock to pester government to change the rules so it could be developed.
Henry did it
THERE are two other big fibs in the tax debate. Firstly, that what’s proposed is a super tax, secondly that it is the invention of an independent government official called Ken Henry.
Mr Henry, a talented if somewhat quirky boss of the Treasury Department inclined to hug trees and cuddle furry critters, made mention of higher mining taxes as part of his 138-point review of the Australian taxation system.
Under the real Henry review, Australia would have been revolutionised. What we actually got was two of Henry’s 138 recommendations. The rest were binned, sidelined, or kept by the Australian government for its next assault on taxpayers should it need more cash to pay for its policy failures, such as ceiling insulation or school halls.
Dr Henry might have suggested a big new tax on miners but it is very much Kevin Rudd’s baby, including the clever marketing that makes us all think it’s out of the Henry review, just in case the prime minister needs to jettison the idea if the political heat becomes unbearable.
As to the claim about the 40 per cent tax being a ‘mining super profits tax’, others have already spotted that as a casualty of war. It has nothing whatsoever to do with super profits because of its 6 per cent threshold.
For readers unfamiliar with what that means, the new tax kicks in after a miner has earned a 6 per cent return on his investment, roughly what is paid on government bonds, or what you can currently get on a 12-month term deposit at Westpac – which is also offering 7.05 per cent on a 60-month deposit.
What the government fails to recognise, or refuses to acknowledge as it vandalises the mining industry, is that no-one will take the risks associated with mining to be hit with a tax on profits above 6 per cent.
MINERS will not be the only victims of the great tax raid on the Australian resources sector. Property investors will not escape, nor will anyone who bought a mining-linked asset over the past year.
Top of Bystander’s thoughts in the ‘what-do-you-mean-I-paid-too-much’ department is reclusive mining services millionaire, Chris Ellison.
Late last year, Mr Ellison forked out a reported $57.5 million for the multi-layer mansion built by Angela Bennett in the cliff face at Mosman Park.
If, as seems likely, the Australian mining sector goes into a cyclical downturn, driven by higher taxes and reduced Chinese demand, then the only reason Mr Ellison will have to smile about his new home is that he holds the price record – and might do for many years.
ANOTHER place setting property records is Canada, arguably the biggest beneficiary of Australia’s mining tax hike. The latest price data shows a growing disconnection between the normal links of rents and prices, causing one seasoned observer, Gluskin Sheff economist David Rosenberg, to suggest that Canadian property is heading for price fall of between 15 and 35 per cent. Are we next?
“A government which robs Peter to pay Paul can always count on Paul’s support .”
George Bernard Shaw