20/05/2010 - 00:00

Tax leaves little incentive for investment

20/05/2010 - 00:00


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Expect to hear a lot more from miners about their social contribution in coming months.

Tax leaves little incentive for investment

IF you missed the exchange between Prime Minister Kevin Rudd and ABC 7.30 Report presenter Kerry O’Brien, you really ought to go and check it out on the internet.

Mr O’Brien confronted Mr Rudd on his emission trading scheme backflip, questioning how something that was the greatest moral challenge last year, that required Australia to lead the world, had slipped off the agenda because other countries had not committed.

“You know something Kerry, where I think you’ve got this fundamentally wrong is um, frankly being absent from the negotiations in Copenhagen themselves,” Mr Rudd said during an angry answer.

“There was no government in the world like the Australian government, which threw its every energy at bringing about a deal, a global deal, on climate change.

Penny Wong and I sat up for three days and three nights with 20 leaders from around the world to try and frame a global agreement.

“Now it might be easy for you to sit in 7:30 Report land and say that was easy to do. Let me tell you mate, it wasn’t.”

It is hard to know where to begin with this.

Mr Rudd spent a few hard nights negotiating for what he hoped would be an outcome that would improve his (political) stocks and boost his chances of (electoral) success.

It didn’t work and now he wails like a child about it.

Perhaps he ought to put himself in the shoes of the entrepreneurs of Western Australia who do that on a regular basis, seeking not political power but to make their fortunes and leave their mark on the community with real projects that offer lasting value.

Ask the men and women of West Perth, and their lawyers and advisers, what a few nights on the trot without sleep might be like. I’m sure they’d have plenty of war stories, it is after all stock in trade for these people. They’ll most likely throw in some hard drinking with assorted Chinese beverages or some long, dusty and tedious months in the harsh outback.

Even the big boys of mining go through this kind of process on a regular basis.

You don’t hear them moaning on about it like some sort of kindergarten martyr.

That’s because people in business understand risk and reward. They are prepared for long nights, to opt for equity ahead of salary, to work to build something from nothing.

That is the tragedy of the federal government’s resources rents tax. It takes account of none of this. It assumes that digging rocks out of the ground and selling them to China is as simple as it sounds.

Worse, the Commonwealth is not prepared to put its money where its mouth is and assume real risk.

Instead, it just wants to be rewarded for all the heavy lifting the mining sector has done for the past four decades.

Mr Rudd and Treasurer Wayne Swan say they are sharing the risk by being prepared to allow losses on marginal projects to be offset against other profits.

If the tax proposed was on new projects that might seem truthful, but the government is preparing to tax existing players who have already done the long nights, drank with their Chinese counterparts and spent months surveying the remote Australian bush.

They may not have done all that if they’d known 58 per cent of the reward was going risk-free to the government.

Worse, they seem to be favouring marginal projects over profitable ones. Why does that benefit Australia?

The mining sector in Perth has created something of value to us all. Like the entrepreneurs of Silicon Valley, they have created a global hub that attracts expertise and capital from which Australia benefits.

Could you imagine what would have happened if the US had applied a super profits tax to the technology sector? After all, weren’t they benefitting from the wealth of the American people and the communications systems set up by that society?

Would Microsoft still exist, would we have computer power as we do today, if the state had sought 58 per cent of Bill Gates’ profits? I doubt it. Would there be iPods and iPhones if Steve Jobs had to give away the majority of Apple’s profits? Errr, no.

Today, the US leads the world in technology, and all its people (as well as us) are better off for it – due to the risks taken by its technology entrepreneurs.

For the future of our country, perhaps Mr Rudd and Mr Swan would have been better off doing some late night negotiating with the mining industry instead of wasting those very precious hours in Copenhagen.

As the argument over the federal government’s Resources Super Profits Tax continues I think we’ll hear more and more about what the resources sector contributes to our community and what they will withdraw if Canberra has its way.

In recent weeks I’ve been doing a side project on what some of these big companies put into education in this state.

BHP Billiton Iron Ore, for instance put in $33.1 million in community spending, including $6.1 million committed to education last financial year.

For example, BHP and the Labor state government struck a Pilbara Education Partnership to support schools and vocational training in Port Hedland and Newman. The objectives included boosting school retention rates and offering young people a more diverse range of career opportunities.

This was just one of a series of different partnerships.

There are plenty of others doing the same. Alcoa has a range of programs directed at schools.

While it is possible to argue that many of these programs are aimed at communities within which the miners operate, there is no doubt that such enlightened self interest improves their position and lightens the load of government.

Obviously, if resources companies have less money to spend on education and other community programs, people will seek to supplement that with state funds.

But the resources rent tax will be managed from Canberra and all those pressing political needs that occur in a democracy, which doesn’t recognise that where the votes are from doesn’t necessary equal where the profits are made.



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