BHP Billiton has complained it gets a better reception from Chile’s socialist government than some Australian elected officials, with the resources giant admitting it needs to improve the “terrible” way it communicates the amount of tax it pays in its home country.
In a short speech at a drinks function on Monday night in London, chief executive Andrew Mackenzie described “this continual questioning of our economic and social contribution” in Australia as “chilling” when compared to countries such as Chile and the UK. BHP will hold its annual meeting in the British capital on Thursday.
Mr Mackenzie told those in attendance that he visited Chile, where BHP owns 57.5 per cent of the massive Escondida copper mine, last week and enjoyed a positive conversation with the South American country’s leftist President Michelle Bachelet whose government received $US596.6 million in taxes, royalties and other payments from the Melbourne-based company in 2015-16.
“I asked the president if there was anything more we could do for the country. And she said, ‘not at all just keep doing what you are doing – it is great’,” Mr Mackenzie said on Monday evening.
Hooray for Brendan Grylls:
This morning, Mr Grylls took aim at two key arguments against the policy — that the 1960s State agreements containing the production rental could only be changed with the agreement of the companies, and that State owed the miners goodwill for investing in the Pilbara.
Mr Grylls told the audience he had in the past week read the parliamentary speech by former Premier Sir Charles Court giving effect to one of the State agreements, which spoke of both “benefits and obligations” by the company.
“In it, he talks about the obligation for the companies to build the towns and the ports,” Mr Grylls said.
He said the State Government through Royalties for Regions had invested “$1.7 billion in making Pilbara towns, almost come up from scratch” since 2008.
“I don’t believe the companies have actually met their obligations set down by Sir Charles Court to build the towns, and they certainly haven’t maintained the towns otherwise there wouldn’t have been a job for the Nationals’ Royalties for Regions to do,” Mr Grylls said.
“Given that Sir Charles Court envisaged an iron ore sector of 500 million tonnes a year, (and) with a massive growth to 600 million tonnes a year now under the State agreements, you would have thought that the terms of those original agreements would require ongoing investment into those towns.
“So that those towns were exciting, vibrant hubs of activity in the north, rather than how we found them in 2007. Tired. Old. No architecture. Nothing. Essentially how they were built in Sir Charles Court’s day. That’s how they were. I don’t think that’s right.”
Grylls has quite rightly placed BHP and RIO the context of their social obligations and right to operate. These firms are not just globe-trotting global capital (and even if they were some of these arguments would still hold) they are Australian born national champions that have enjoyed all of the benefits of protection and special dispensations for decades to build their dominant positions in iron ore extraction.
And what is these charming firms response? Corrupting the media, fighting tooth and nail against any taxation and, sometimes, full scale attempts to subvert democracy. BHP’s effort today absolutely typical:
“But in our home country of Australia where we have contributed hugely to employment, and through taxes and royalties, we still find ourselves blamed for problems that we didn’t cause and the target, if you like, of people who assume that we are the ones trying to avoid tax.”
Chile has a copper royalty regime that takes 12-14%. WA’s iron ore royalty regime is 2.5-7.5% depending upon quality. Admittedly, the Chile’s corporate tax rate is 24% versus Australia’s 30% but it’s been marching higher in recent years from 17% in 2010. No wonder the Chileans are happy!
Having said that, there is a lesson from Chile for Brendan Grylls as well. It runs a USD20bn sovereign wealth fund with its much higher royalty take, and its contributions and withdrawals wax and wane counter-cyclically versus the commodities cycle, ensuring fiscal tightness during good times and fiscal easing during bad.
In sum, WA is clearly not charging high enough royalties when BHP and RIO are operating on margins well north of 100%:
These are super profits and the people of Australia are being reamed for the privilege of developing their dirt. Remember that this is a non-renewing natural resource owned by the people of WA. It’s depleting nature needs to be reflected in the revenue being received by them.
But, this debate is about equity and investment. First, the Australian people should be getting more. Second, the amount should be calibrated so that BHP’s and RIO’s competitiveness is not adversely impacted causing them to lose volumes (and investment). That level is more like $2.50 per tonne than the $5 which would put them on par with Vale, from UBS:
As is the case with Chile, I would like to see Mr Grylls also commit to paying down debt with the windfall (or invest it strictly in infrastructure or an SWF). If the debate is about equity over generations then the revenue should be accordingly distributed over time.
More generally, Australians might reflect upon BHP’s constructive relationship with Chile and wonder how it is that the poster child of Banana Republics, with a long history of political turmoil inspired in part by foreign corporations, can have a better tax take than we do.
