03/06/2010 - 00:00

Planned resources tax a power game-changer

03/06/2010 - 00:00

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WHEN it comes to influence, the resource super profits tax has the capacity to completely reshape who’s who in Western Australia.

Planned resources tax a power game-changer

WHEN it comes to influence, the resource super profits tax has the capacity to completely reshape who’s who in Western Australia.

It is not just the power of Premier Colin Barnett or the influence of the mining companies, from key players such as Sam Walsh, Andrew Forrest and Gina Rinehart, that could be challenged, but also a host of smaller company leaders and the sector’s lobby groups.

Not that the traffic’s all one-way, however.

The political careers of several WA-based Labor politicians are also threatened by the reaction to the RSPT.

While marginal seat holders like Sharryn Jackson or federal hopefuls such as Alannah MacTiernan will find the fight a little harder as a result of local ill-feeling towards the tax, the seats of likely future minister Gary Gray and even Foreign Minister Stephen Smith are thought to have been put in jeopardy because of the heated reaction to the tax.

The tax tests the growing power of Canberra against the recently increasing muscle of the resources sector. In the simplest terms, if the federal government is successful it will have a new source of revenue which will make it dominant over the resources sector and its billions in investment.

Importantly, the RSPT threatens the influence of the state government over the nation’s biggest export earner, which in turn puts in jeopardy the rising status of WA in the Commonwealth sphere.

There are a number of different scenarios that could be played out over the few next weeks and months. Ultimately, the most extreme outcome will occur if compromise can’t be reached and the RSPT – as it is proposed – is put to the people at the forthcoming election.

Prime Minster Kevin Rudd’s government is seeking a deal that diffuses the tax as an election issue but doesn’t cost it too much in terms of budgeted revenue and political capital.

To date, though, neither side has been very accommodating in finding ground for a solution.

If successfully introduced, the tax would not just mean more revenue for the federal government; at the extreme it could more deeply involve the government in business dealings because its direct link to commercial trade issues, such as iron ore negotiations, are likely to become more entangled in foreign affairs. It will control the levers on individual projects as never before.

As far as the resources sector is concerned, it will have a new master. In corporate parlance, a 40 per cent stake is considered, well and truly, a controlling interest – even if the government does not have a vote at annual general meetings.

The loss of profits and the increased cost of capital to investors are also expected to hamper the sector’s growth, though to what extent and for how long has been the subject of much debate. It is worth noting that neither government nor the investment world is fond of allocating resources to sectors where there is no growth.

At a local level that potentially means a slow down. While some may welcome this, it also means fewer employment opportunities, fewer high-flying corporate migrants and fewer office towers being built to accommodate a fast-growing workforce. In a worst-case scenario, Perth will return to the branch economy setting of the 1990s – a subdued economy with fewer decision makers.

For the state government the tax has mixed blessings.

In the short-term, Mr Barnett may find the tax, or even the mere threat of it, helps consolidate his political power in the state, a place he has described as “under siege” from Canberra because of reduced GST allocations, the proposed health takeover, and various other forms of centralist interference in state matters defined by the constitution.

That may be one outcome of the tax – a premier with more political capital overseeing a state with less.

His federal Liberal colleagues may also make mileage from this tax. Federal lower house member Don Randall, who holds the seat of Canning, is expected to benefit from the tax fears in his fight to see off the challenge from Ms MacTiernan. In the seat of Hasluck, Aboriginal health bureaucrat Ken Wyatt may improve his chances of disposing of Ms Jackson.

But the real influence may lie in the Senate, where Mathias Cormann is seen as the most powerful WA-based individual on the Liberal side of the house. While Labor may be prepared to risk lower house seats in WA due to the state’s small population, the federal structure gives WA proportionally more representation in the Senate.

On an individual level, the resources tax has threatened more than just the profitability of multinational resources companies, represented in this state by the likes of Rio Tinto Australian chief Sam Walsh, Chevron Australia boss Roy Krzywosinski, BHP Iron Ore WA head Ian Ashby, and Alcoa Australia CEO Alan Cransberg.

It has also threatened locally headquartered companies and individuals, provoking a strong public reaction from them that has gained national attention.

Fortescue Metals Group chief executive Andrew Forrest already had a national profile but the resources tax has put him at the forefront of the debate and ended the love-in he had with federal Labor due to his push for indigenous employment.

Woodside Petroleum chief Don Voelte and Wesfarmers managing director Richard Goyder have also been public critics.

Notably, Australia’s richest woman, Gina Rinehart, has been prepared to put her name, energy and money behind a campaign against the tax.

Ms Rinehart told WA Business News her motivation against the resources tax was her concern that it was against the national interest, with a return to the socialist policies of 40 year ago that prompted foreign investors to open up Brazil’s iron ore industry because Australia simply proved too difficult to deal with.

“That cost billions of dollars to Australia by creating competition and reducing the real price of iron ore,” she said.

Atlas Iron CEO David Flanagan, last year’s WA Business News 40under40 winner, has also been propelled onto the national stage as a pin-up boy for an industry keen to show that mining is much more than a cosy club of rich elites, foreign giants and Canberra-based lobbyists.

Mr Flanagan is a geologist who put his savings and career on the line to create an iron ore company before they became fashionable. He took the extraordinary step of paying for a full-page advertisement in The West Australian newspaper outlining his opposition to what was proposed in the form of an open letter to the prime minister.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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