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John Passant

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June 2010



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My interview Razor Sharp 18 February
Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

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The lies of the mining maggots

The mining maggots don’t give a toss about jobs. All they care about is their huge profits.

During the global financial crisis guess who sacked tens of thousands of workers? The mining maggots. 

They got rid of 15 percent of their workforce. So much for their concern about jobs.

Here’s how the head of the Treasury, Ken Henry, put it, as reported in the Sydney Morning Herald:

It is true that Australia avoided a recession, but the Australian mining industry actually experienced quite a deep recession. In the first six months of 2009 it shed 15 per cent of its workers. Mining investment collapsed, mining output collapsed.

Had every industry behaved that way our unemployment rate would have climbed to 19 per cent.

Let’s be a little more objective, shall we John?  According to a report in The Age , Ian Smith, Chairman of the Minerals Council of Australia said in March 2009 that the global economic crisis had severely impacted Australia’s mining sector.

The number of people directly employed in the industry doubled to 142,000 from 2004 during the resources boom, but 10,500 mining jobs have gone [in the three months] since November last year, he said.

Then there was the scare campaign against the Emissions Trading Scheme that the mining companies ran.

It was going to cost 23,500 jobs the maggots ranted. What they conveniently forgot to tell people was that overall employment, on their own figures, would actually increase 86,000 over the period in question.

So the impact of the ETS would have been, on the Minerals Councils’ own estimates, not to cut jobs but at best slow their growth.  They misled us then about jobs; they are misleading us now.

There is one threat to jobs and that’s from the maggots themselves. A capital strike would slow development and, depending on its severity, cause job losses. That would be the result of the maggots’ actions, not the Government’s.

A decent Government would threaten to take over the mines if there was a capital strike and guarantee jobs. But all we have in Australia is a Labor Government.

OK, but won’t the tax itself impact on investment and mean less jobs in the future? No.

The Treasury estimates are that it will actually increase GDP by 0.7 percent. This means more jobs across the economy and in mining.

There are a number of reasons why the Treasury figures are defensible.

Because the Government is guaranteeing to refund any losses on failed projects, the tax will increase mining exploration and early development. This creates mining jobs.

In addition the Government’s proposed 30 percent rebate for small companies undertaking resource exploration means we the Australian community are adopting 70 percent of the project risk in those cases. Again this will spur small miner exploration and jobs.

The Resource Super Profits Tax is a redistributive measure among the ruling class. The Rudd government is if you like robbing from the mining maggots to give the proceeds to all the other robber barons  in finance, manufacturing, retail and the like. 

That’s what the company tax cuts are about.  

The Government also tried to buy off small business with accelerated depreciation concessions.

Given the generally hostile ruling class reaction to the RSPT it might have been better for the Rudd government just to offer a five percent cut in company tax, as Henry recommended. That would have really split the bourgeoisie.

Given the seemingly hostile reaction of some workers to the tax (scared by the maggots’ lies about jobs) it might have made more political sense for the Rudd government to offer tax cuts to workers. I don’t know, maybe something like a tax free threshold of $25,000, as Henry suggested.

Some of the proposed tax revenue will be spent on improving infrastructure for the miners so they can get their products more seamlessly (is that a bad pun?) to China. So it saves them the costs of doing so.

The tax cuts give the lie to the argument that the RSPT will destroy superannuation.

In fact it might have some minor impact on mining companies’ share prices and dividend payments (although most miners don’t pay dividends) but at the same time other shares and dividend payments should increase in value. That’s one of the reasons the Superannuation industry loves the RSPT.

As for the increase in the superannuation guarantee from 9 percent to 12 percent, it isn’t capital which will pay for that; it will come out of wages.  You don’t have to believe me. Here’s how Ken Henry put it, according to The Australian:

[Henry] also suggested a proposed rise in the superannuation guarantee from 9 to 12 per cent for workers to be paid by employers would come out of wages, not profits …

Clive Palmer at one stage was suggesting mining companies would pay 70 percent tax. This is rubbish.

He has added the RSPT rate of 40 percent to the company tax rate of 30 percent. If this is the way he does his business calculations, don’t invest in any of his companies.

In fact John Kehoe in an article in the Australian Financial Review of 10 June called ‘Ads strike rich seam of exaggeration’ has done the figures.

A mining project with a rate of return of six percent will pay less tax under the RSPT and proposed company tax rate  than at present – 28 percent compared to the current 45 percent (including royalties).

It’s not till the returns hit 12 percent that more tax will be paid. As Kehoe explains it:

Projects with a return of less than about 12 percent will pay less tax because state taxes will be refunded and the company tax rate cut.

According to the Productivity Commission the return to capital in the national accounts over the period 1971 to 2008 averaged 8.5%. What about for mining? John Kehoe in the AFR again:

Mining industry sources estimate that the typical expected rate of return on a mine is between 15 percent and 20 percent.

A mining project earning 15 percent return (almost double the average for business in Australia) will pay under the government’s proposals 45.3 per cent tax. It currently pays 38.7 percent. That’s a difference of of 6.5 percent.

So this whole economic Armageddon campaign from the maggots is because they might on average have to pay an extra 6.5 percent tax? Give me a break.

Kehoe says that mines returning 20 percent will pay 48.2 percent total tax (RSPT plus company tax) compared to their present 37.6 percent (royalties plus company tax). The difference is 10.6 percent. Hardly the end of the world. 

In other words the Government is getting a little bit more in tax on those mines returning more than double the Australian average rate of return.

This is hardly earth shattering. (Is that another pun?)

The Minerals Council has been running advertisements this week claiming that after the tax the effective tax rate will be 57%, by far the world’s biggest resource tax on resources. What they conveniently don’t tell you is  that this only applies to super profitable mines. And I mean super profitable.

Kehoe estimates that mines returning fifty percent return will pay 53.3 percent tax under the RSPT combined with income tax. He adds that few mines are that profitable. Other than, you guessed it, some BHP and Rio Tinto projects in the Pilbara.

Some of you may have heard a bit of talk from the maggots about sovereign risk. For companies this is when Governments do things, or other events occur, that adversely affect the rate of return.

When you’re going to invest billions in a mine that lasts for 30 years or more you will judge the risk of invasion, civil war, natural disasters, increased taxes, nationalisations and the like and factor them into your expected return calculations.

Marius Kloppers, the head of BHP, described the RSPT as the biggest sovereign risk he had faced in all his years as a mining maggot.  As a report in The Australian said:

Mr Kloppers has joined Rio Tinto’s chief executive Tom Albanese in describing the proposed mining tax as the greatest sovereign risk facing his company anywhere in the world.

“It is the greatest that I have seen in 17 years in this industry,” Mr Kloppers said. “I have been through two Brazilian crises and the Asian crisis and this is by far the biggest issue I have seen by an order of magnitude.”

This is utter bullshit. Australia is a strong economy, with a stable political system and a well educated and docile workforce. It is an investor’s dream.

The real fear the mining maggots have is that other countries might follow Australia and impose their own version of an RSPT.

There is one threat to sovereignty the RSPT has provoked – from the miners.  Who runs the country – Clive Palmer or Kevin Rudd? So far the unelected billionaire Palmer and his mates are winning.

The mining maggots are eating the flesh of Australian democracy.

Let me finish off with some more figures from John Kehoe in his article in the Financial Review.

Treasury executive David Parker, who is heading the government’s consultations with miners, said last week some projects had a payback period of less than six months and rates of return of more than 400 percent.

These projects will fund a large share of the $12 billion the government expects to raise from the RSPT.

Imposing a little bit of tax on returns of 400 percent sure doesn’t look that outrageous to me.

What is outrageous is that the benefits are going to the other parasites in the ruling class, not to fixing health and education and addressing climate change and aboriginal disadvantage.



Comment from Arjay
Time June 10, 2010 at 11:24 pm

John,It was ill planned.Everything Rudd does is a knee jerk reaction to his own inepitude.

We have to tackle the inefficiencies of Govt also.The education debacle is a classic case.Govt is too concerned with covering it’s backside with red tape,rather than giving productive value to he tax payer.You worked there and know the truth.

I know public servants who feel lobomised by this inept system.

Getting rid of a capitalist system and replacing it with a centrally planned Govt,is just changing our masters, who presently manifest themselves as an oligarchy.

Comment from Kevin Rennie
Time June 11, 2010 at 2:11 pm

We probably get better treated than the Mongolians. they had to repeal their windfall tax. Mining Windfalls A Taxing Problem

Comment from Marco
Time June 11, 2010 at 5:45 pm

Got article, John, both this version and the one at National Times.

And it was fun to take part in the debate.

(from Pandemonium, smelling of sulphur and a bit sweaty)

Comment from John
Time June 11, 2010 at 8:38 pm

Thanks marco. I am too afraid to look at the comments on the National Times site. Link here.

Comment from Marco
Time June 12, 2010 at 1:59 am

Well John, Lesm (whoever he might be) is a good debater and there were several good interventions, too (including one by Marilyn).

As a veteran of these debates, let me tell you: you find pretty much the same.

There are some arrogant bastards who claim to be experts, on the basis of what I suspect are talking-points received from God knows who (a think-tank? the party?). I even suspect a single person may be posting under different names.

And lately, perhaps following the rather acrimonious exchange between government and cockroaches, the debates have become more vicious. Which means that you are bound to catch some flak; but you are also free to answer with some of it.

However, over time, I have found that more people are posting fairly lefty views.

Comment from John
Time June 12, 2010 at 11:11 am

Marco, I just read the comments in the NAtional Times. I was surprised how many were supportive.

Of the others I really loved Tbear’s go to North Korea diatribe.

Comment from dougl
Time June 12, 2010 at 12:05 pm

Sorry John, I would have commented, but I read the article belatedly. D’s claim in the comment section (not me, btw) that the new mining tax will be on top of existing royalties being charged is flat out untrue, as I understand that the tax overhaul is additionally designed to streamline Gov’t revenue by obviating alot of royalty charges alongside some of the excise on petroleum extraction, alongside subsidising any nascent investment in infrastructure (correct me if i’m wrong on this.
Overall, nice job trying to clear away some of the disingenuous crap being spouted by oil companies ATM, although that shouldn’t be hard, from what I’ve heard of their radio ads.

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