Beating up on the rich is counterproductive; we want more of them.
WARREN Buffett has made big headlines for letting his name be attached to a US government proposal to increase the tax take for people earning more than $1 million a year.
Of course, the billionaire’s backing of the proposed ‘Buffet Rule’ has received a lot of good press. The summary of this issue is that rich people who are prepared to give their money away are good news, in contrast to the wealthy who want to keep theirs.
It is Robin Hood versus the robber barons.
We’ve seen the opposite of this in Australia recently with the portrayal of the state’s richest people as greedy for fighting against various forms of mining tax.
I have opposed the mining tax from the beginning. I see it as: retrospective, because it was introduced after significant investment in the sector; and distorting, because it selects one sector of the business community for special treatment due to its profitability. This penalises pre-tax investment decisions and discourages post-tax investment decisions.
Last year, at the height of the campaign to sell the tax, the government and other backers of the tax had two key targets in their vilification campaign; one was that super profits were going to foreign companies, the other was that super profits were going to rich Australians.
Australia has spent decades encouraging foreign investment in mining. It is interesting that, when that turns out to be profitable, it is a bad thing.
When it comes to the rich, without the Andrew Forrests and Gina Rineharts of Western Australia, governments of every hue would be earning far less from royalties, income tax, payroll tax, corporations tax and all manner of additional imposts if these people had not seized the opportunity they, at times almost alone, saw.
Mr Forrest was seen as so unlikely to succeed that most Australian institutions shunned his venture, forcing him to go to the US for funding. These are the same institutions that have supported the so-called reforms that included the mining tax because the federal government was also promising a massive increase in their revenues by lifting the compulsory superannuation levy from 9 per cent to 12 per cent.
It is unlikely Fortescue Metals Group would be mining today if offshore money had not been involved.
Mrs Rinehart has a different story. While many people describe her as an heiress, what she inherited was nearly unviable. It would have been easy for her to have sold up and lived a comfortable life.
Certainly, it is likely that companies like Rio Tinto – one of the largely foreign-owned bogeymen the federal government likes to bash up along with the rich – would have bought up some of those assets.
If Mrs Rinehart had sold then, someone else may have profited from the boom that occurred 15 years later. But she didn’t. She and many others on the pages of our wealth creators list (see page 11) believed that commodities were not in perpetual decline; that the rising standard of living across the globe would create demand for our minerals.
I can’t help recounting a few lines we published earlier this year when Hancock Prospecting executive director Tad Watroba spoke at the launch of the company’s first export of coal from the Galilee Basin – a project it has just sold for $1.26 billion to Indian company GVK.
“With our earlier successful development of a part of our iron assets in Western Australia, Mrs Rinehart could just have, after repaying the banks, cashed the income and indulged herself in a high-flyer lifestyle, sailing yachts in the Mediterranean or Caribbean, flying around the world in a new private jet, as some iron ore ‘kings’ do,” Mr Watroba said.
Instead, he said, Mrs Rinehart allocated that money to development. Not just anywhere, he added, her spending was in Australia, unlike multinationals and a lot of other companies.
Aside from her and Mr Forrest, there are dozens of people who have played their part in unlocking the mineral wealth of the nation and generating a bounty we are all enjoying – see our lists on pages 16-17 for an inkling as to the paper wealth they have generated.
Africa has similar natural resources, yet its governance issues mean that they have been slow to develop. The result there is continued poverty.
That is because governments in Africa and around the world continue to get things wrong. In contrast, at a time of great uncertainty, Australia’s economy has been strong because of the stability of its political system and the general acceptance of a tax and investment regime that encourages foreign capital, and allows those who work hard and think smart to reap the rewards.
That is what is so disturbing about the federal government’s ham-fisted approach to ‘reform’; it is discouraging capital from coming here just when we could be capitalising on our strengths.
The great thing about foreign investment is it allows the entrepreneurs of this nation to use the capital of others to build businesses and create wealth. Some of those who do that well, due to their ability, effort and, in part, good luck, do very well.
Hopefully, when Australians become rich they will invest their capital in ways that benefit all of us – be it in local businesses or growing Australian companies that invest offshore.
There are plenty of examples of this among the wealthy on our list. Some have sought investment in local mining or other industries, while others have created international businesses based in Perth. To many Africans, these are the foreign investors.
Personally, I don’t begrudge the rich for their wealth. I am one who acknowledges that I am better off in a society where those with ideas and a work ethic can go as far as their talents and labour will take them. In my view, they make their luck.
I think all people should pay taxes and give back to a society that has given them the platform to succeed at whatever level.
I also think taxes ought to be set at levels that do not encourage unnecessary tax evasion.
And if Mr Buffett thinks he ought to pay more tax, so be it. He could easily choose to do so, as he has voluntarily given up much of his wealth to a charity established by Microsoft founder Bill Gates and his wife Melinda; though not to the US government, it should be noted.
The Sage of Omaha, as Mr Buffett is known, is listened to because he has made so many good investment calls in the past. His views that the rich should pay more tax will resonate with many.
I am not sure, though, that everyone who is rich will think he should speak for them; they might prefer to decide for themselves would they would do with their money.