13/05/2010 - 00:00

Opportunistic grab at a finite resource

13/05/2010 - 00:00


Upgrade your subscription to use this feature.

It seems some profits are more ‘super’ than others.

I’VE always been an advocate of tax.

Unlike many Australians, who think tax dodging is a sport, I think tax is more than a reasonable concession for being part of a civil society. I think tax is the public rent for allowing individuals and companies to go about their business.

Few of us could earn a decent living without the laws that govern society, the roads our goods are transported on and the health and education systems that keep us, our employees and customers better able to contribute to furthering our own ends.

But that tax has to be fair (and, of course, spent wisely) and should be low enough to encourage all but the most outlying elements of society to choose their path equally. Apart from sin taxes on vices that are shown to have a negative impact on society, we should all be allowed to choose equally our livelihoods, business strategies and investments without having to consider the tax implications of that choice.

Of course things are not perfect in that regard, but in my view the federal government’s new tax on miners is an unnecessary distortion, which either fails to grasp this basic idea of equity or, more disturbingly, is simply the start of a range of new taxes to cream off the ‘super’ profits in a range of industries.

Banks, always unpopular, have already been mentioned as next cab off the rank. What about property developers? Or medical professionals? Transport companies? Telcos? Farmers? Winemakers? I could make a resources rent tax argument for any one of these.

Why is digging up rocks any different from selling a property development?

Some argue that mining is the exploitation of a non-renewable resource owned by the Australian people, which somehow makes it special. I don’t understand that argument. A piece of iron ore in the ground is just as under-performing to the state as an empty block of crown land. Whether the government earns a royalty in sales (which is surely just bringing forward future revenue it would have hoped to have earned from that rock) or takes stamp duty for selling the land and then taxes its use annually, the asset has no value to the state until it is developed.

But just as miners make a ‘super’ profit when commodity prices rise, surely so do property developers. When someone takes an old house, builds an apartment block and flogs it in the middle of a property bubble, why is that any better than the mining company making a poultice because the Chinese have suddenly discovered the joys of refrigeration?

And what about medical professionals? We, the people of Australia, pay for their education. In return we get charged unbelievably high fees to use their services. Worse, they take almost no risk. They may bring brains and passion to their career, but the government and their peers conspire to ensure that competition is held artificially low. The result really is a super profit. This is weird because the two biggest issues in the politically volatile world of healthcare are the cost and shortage of doctors.

What about transport companies or any form of business that uses roads to ferry its goods to consumers? Those roads are paid for from taxes. Sure, trucks pay licensing fees, but are they commensurate with the damage they do? Why does a transport company pay 30 cents in the dollar tax on its profits while I, who use the road far less frequently, pay a much higher rate of tax? Could there be a super profit in there?

At least the mining companies build their own roads, rail networks and harbours.

While mining companies held up our economy during the GFC, banks were propped up by the government. Despite that largesse, they have been very tight-fisted when it comes to lending to get the economy going again – suggesting they have leveraged Australia’s sovereign assets to contain their costs and lower their risks. Is there a super profit there?

Farmers and viticulturists use the soil, taking minerals from it, to grow their crops. In some years many producers do very well, often due to world commodity prices over which they have no control. Is that a super profit?

Plenty of people make so-called super profits (just ask the IT companies around the year 2000).

Some of them earn them because they are smart, some because they work hard and some, dare I say it, just got lucky.

The truth is, very few so-called super profits last long, because when people earn a lot of money everyone wants a slice of the action and competition usually takes effect over time.

That is no different in the resources industry. Here we have a group of people willing to take massive risks in unpleasant parts of the world. Why? Because there may be a big reward in it.

If we unfairly tax the rewards for effort we discourage people from taking risks and doing the hard work. That is no good for the future of this nation.


DOES the federal government’s resources rent tax offer Premier Colin Barnett a unique opportunity?

BHP Billiton is one of the most vocal critics of this tax, which is clearly designed to put the mining states, especially Western Australia, back in their boxes and show where the power lies – in the Sydney, Melbourne, Canberra triangle.

I’ve long felt that BHP ought to be based in Perth, a true resources capital, not Melbourne, where mining is something that city lost touch with decades ago as its state-protected manufacturing industries took precedence.

Perhaps Mr Barnett could take advantage of BHP’s plight and offer a carrot to lure the Big Australian here. What would it take? Given tax is the issue, maybe WA could offer BHP a payroll tax break for moving HQ to Perth.

Maybe all mining companies ought to be made the same offer.

As a message of goodwill it would also help soothe the impact of the federal government’s new tax – and make a statement that WA wants mining companies to prosper, develop and, importantly, profit.



Subscription Options