Murdoch’s The Australian, on the warpath against Rudd on behalf of the mining companies, screams at its readers of the economic disaster it claims is to come:
Rio Tinto shelves billions in projects
Or not. Rio clarifies:
Global miner Rio Tinto Ltd has denied it had shelved plans to spend $11 billion on expanding its Australian iron ore operations because of the country’s new mining tax.
The world’s second-largest iron ore miner was commenting on a front-page report in The Australian newspaper which quoted Rio Tinto’s iron ore boss, Sam Walsh, as saying a plan to boost iron ore output to 330 million tonnes a year by 2015 was now on hold.
Let’s hope Australian readers don’t actually check up on the paper’s claims. They sound so delightfully devastating if you don’t realise they’re not true.
Anyway – so what if the big mining companies go on a “capital strike” over the next few months to try to swing the election to their representatives in Canberra, the Liberal Party? Why should voters cow to their threats and demands? When it’s unions, the conservatives demand that we BE STRONG and STAND UP TO THEM. But not when it’s the people signing the cheques?
The fact is that the resources are in the ground HERE. They are worth increasing amounts of money on the world market, whether we dig them out now or in a few years, and the mining companies know it. They also know that 60% of a bonanza is still 60% of a bonanza.
How gullible do they think we are?
Let’s see – I spend $X in Australia, or $X in Canada, and expect the $Y return on both. But wait – the Australian return has just been reduced by 40%.
How stupid would you have to be to think that taking 40% off the top makes no difference. The Canadians aren’t that stupid.
Most Australians appreciate that our prosperity depends on the mining industry, and that ravaging it for the sake of Rudd’s spendthrift tendencies is insane.
What really annoyed me about Rudd is that he said with a straight face that the long-term bond rate represented a normal profit and anything above that was a super-profit. Even Barnaby Joyce is not that economically illiterate!
Mate, there’s a reason the price is up – the market wants THE WHOLE LOT.
It’s not an either/or – the mining giants will be taking everything they can get out of both countries. If they go for Canada first, oh well – it’ll be worth even more when they come back to us.
What price. The miners have dropped more than the rest of the market this week.
I think there is a case for some sort of resources super-tax. I just loathe the dishonest way this was presented.
Most Australians appreciate that our prosperity depends on the mining industry
Then they should support this tax. There’s nothing wrong with slowing down the rate of extraction, if only to keep the wealth creation going, and so future generations of Australians can enjoy the prosperity also.
I agree confessions, I would prefer a less draconian design. This tax appears to be heavy-handed.
Australians are benefitting – anyone who has a super account that is not set at “cash” will no doubt have BHP and Rio shares, unless they have specifically opted out of them. They are just too much of the sharemarket index. BHP along is 10% of the index and has 60% of its shares traded on the ASX. Therefore Australians ARE benefitting from the mining boom. But hey, lets just get Australians to invest in property instead – oh hang on, that’s creating much greater problems isn’t it? Anyone who doesn’t think that the project comparisons for the major miners have changed in the last week (actually ever since this started to be leaked) is deluding themselves. There are risk metrics for political instability and Australia’s just went up. And if you think that Brazil isn’t observing this with glee, you would be sorely mistaken. I support a resource tax, but this is just one to buy Labor the next election – that and smokers!
Interesting post, Jeremy.
I’ve been thinking a bit about this supertax on mining since it was announced. At first I was in favour of it, roughly for the same reasons you are now; that is, since the resources are stuck in the ground in Australia, the mining companies can’t just pack up and go offshore to escape the high tax rate.
The only recent problem I’ve noted with that plan is it seems to assume the market has an unlimited supply of funds. That is to say, if taxes are high in Australia, and low in Canada, your model assumes there’s enough money to invest in both countries equally. The Liberals seem to be arguing (in a poorly worded form) that that’s not the case, and that limited resources to invest in the market will often end up being invested in a cheaper country rather than Australia.
From an economics point of view, is there any way of actually being able to tell what the actual situation is? That is to say, can we actually tell whether the market has enough money to invest in every single mining location in the world? If not, it seems that the new tax is just a bit of guesswork on the government’s behalf.
On another point, how do you think the money should be spent? The Liberals have actually made some valid points on this front, mentioning that you can’t peg it to long term spending projects like, say, Healthcare, as the mining boom will end one day, leaving those projects massively underfunded. So, what should this tax be used for?
It should be spent on infrastructure. Say, public transport networks or the NBN.
As for “whether the market has enough money” – it’ll have enough money as long as it has the demand. And the demand for those materials is well beyond the supply, and shows no sign of slowing down. If they want to go through Canada first while it’s got a lazy conservative government that’ll bend the country to their will, then fine – our resources will be here when they’ve taken everything Canada has to offer. And when the prices are even higher.
The mining tax was actually proposed by the mining industry peak body. Also, talk of Australians benefiting from the boom overlooks the fact that taxpayers more often than not fork out for infrastructure development to assist the industry.
It seems as though proposed tax changes has crashed the Australian dollar. Not good news for those holding overvalued real estate investments.
The issues in Europe are affecting the AUD.
“Then they should support this tax. There’s nothing wrong with slowing down the rate of extraction, if only to keep the wealth creation going, and so future generations of Australians can enjoy the prosperity also.”
Well said confessions, this is how I feel.
Maybe the mining industry could stop paying people exorbitant amounts to do things like drive trucks, they’ll make savings and they’ll be doing the rest of Australian industry/commerce (and by extension, Australia in general) a favour by not totally distorting the worth of certain jobs.
“It seems as though proposed tax changes has crashed the Australian dollar. Not good news for those holding overvalued real estate investments.
Nice try but as confessions pointed out the AUD problems are to do with things like…… Greece, the Dow Jones plunged too (because of an error)
“Not good news for those holding overvalued real estate investments.”
Ah well, I have no sympathy for those who’ve distorted the housing market, turning houses into commodities when I reckon FIRST & FOREMOST they are homes. The price of property dropping is a good thing IMO.
The other relevent point on slowing the rate of extraction is it means that supporting infrastructure and workforce support can be implemented concurrent with growth. When growth exceeds this, you get a situation like the latter Howard years: increasing interest rates to control inflation.
the mining tax proposal will never pass the senate, nor was it ever intended to.
its purpose is just to distract readers from the company tax rate cut (already at historic lows)
as confessions already mentioned, Minerals Council of Australia suggested the tax themselves, back in 2005. now they are outraged. very contrived 🙂
once the publics gone back to watching footy, parliament will mangle the superprofits proposal into an acceptable form for business, and everyone wins
“The mining tax was actually proposed by the mining industry peak body. ”
It was suggested as a replacement for other taxes — I haven’t heard Kevin Rudd mention making it a replacement, has anyone else ?
He is allowing a rebate against it for state royalties. SA & WA have said they will increase their royalties.
For anyone really interested in the design of the new tax, there is a link on this page (the 2nd pdf download, not the fact sheet).
This is off topic, but when i read it couldn’t help but think that SB would appreciate this article.