Readers will know that part of the reason that I left Business Spectator many years ago was the mutual disgust felt by myself and my betters over my holding to account their disgraceful conduct around Kevin Rudd’s Resource Super Profits Tax (RSPT). It was predictable then that today’s resource taxation debacle would transpire given the degree to which Australians were swindled out of a fair share of commodity boom gains. And here we are at it again six years later with a ruined budget and still unable to tax dirt properly.
‘Downgrade Morrison’ kicked us off yesterday with his announced review of the Petroleum Resource Rent Tax (PRRT). The Australian sums up the problem best:
The resources investment boom fuelled by sustained high commodity prices has built a store of $187bn in exploration and development expenses that can be deducted from liabilities under the PRRT.
But the law also allows companies to carry forward those expenses with an “uplift” of the long-term government bond rate — currently 2.8 per cent — plus 15 per cent for some expenses, increasing the cost of the deductions and delaying any pay-off for taxpayers. On current figures this means that for the equivalent of every $100 spent on investment in oil and LNG projects, some $118 can be deducted.
The review, outlined by the Treasurer yesterday, reflects concerns within the government that Australia may not see any significant tax revenue from its emergence as a gas superpower and the biggest exporter of liquefied natural gas in the world.
But the large well of deductions, combined with the generous “uplift’’ and sustained low oil prices, have raised concerns that there will be no pay-off for the tax office.
Mr Morrison said he did not buy into claims that companies were “gold-plating’’ their projects to claim greater deductions.
What Downgrade means but is too cowardly to say is that he completely believes firms are ripping us blind. Why have the inquiry otherwise?
But, as I have pointed out many times, the real problem is that the shiny new plants actually make no money. They all have break even levels around $12-13mmBtu and LNG is selling at $6-7mmBtu. They have every right write down, devalue and depreciate these dud investments.
Undoubtedly the oil and gas tax is being gamed via transfer pricing, the ludicrous uplift rate, as well as expensing BBQs and presumably the review will tighten all of these things up. However, the dividend will be small. Fundamentally, the plants are white elephants and should never have been built. There are no profits to collect!
The same cannot be said for what is transpiring in WA. While Downgrade Morrison is desperate enough for new tax revenue that he’s prepared to grasp the third rail of Australian tax policy, he’s not so mad as to take on the real super profits of the nation’s Banana Republic gougers, BHP And RIO in the Pilbara. This was Downgrade Morrison a few lousy months ago:
Treasurer Scott Morrison opposes the WA Nationals’ proposed mining tax on Rio Tinto and BHP Biliton, saying more tax isn’t the answer.
“Taxing is not the answer, what’s important is you have to make sure the people who have to pay tax, pay tax, that’s why we’ve cracked down on multinational tax avoidance,” he told 6PR radio.
“That’s one of the key reasons we’re making changes to superannuation, to make sure that system’s sustainable into the future.”
WA Nationals leader Brendon Grylls proposes increasing the charge from 25 cents to $5 per tonne of iron ore for the two major mining companies, to help fix the ailing WA budget.
So, as Downgrade aims to tax the new LNG plants that make no money, he can’t abide touching iron ore margins currently sitting at 210%:
These are real super profits in the flesh. Nobody makes margins like this in business. Not least on materials that they don’t even own. Remember that the PRRT carry forward and uplift rate of 18% or so is supposed to reflect the profitability of the sector, yet here we have dirt gougers sitting on 210%!
These are economic rents extracted from a sub-altern Australian public bullied into submission by a rampant mining lobby. It is at it again today:
The pre-election row between WA Nationals leader Brendon Grylls the state’s peak mining lobby has spread to the state’s Goldfields.
With the Nationals heading to the March 2017 State Election pledging to hit BHP and Rio Tinto with a $5 charge for every tonne of iron ore mined, Western Australia’s Chamber of Minerals and Energy (CMEWA) has targeted both Mr Grylls and his party with a television and online advertising campaign against the move.
But while the Nationals remain focused on the iron ore giants, CMEWA chief executive Reg Howard-Smith used a letter to the Kalgoorlie Miner newspaper to suggest Mr Grylls could not be trusted.
“When he says he will not target gold or other commodities with increased charges, we just can’t believe him,” Mr Howard-Smith said.
Mr Howard-Smith said the Nationals leader’s willingness to change Western Australia’s long-held state agreements added to the uncertainty.
The letter followed on from the pair’s duelling appearances at the What’s down the track economic forum in Kalgoorlie-Boulder a fortnight ago.
Mr Grylls said he had made his position clear at the forum and rejected suggestions of dishonesty.
“I’m very happy to put my credibility to the test against people like Reg Howard-Smith, who are paid by the big miners to represent their interests,” Mr Grylls said.
The prospect of a gold royalty hike was flagged by the Barnett Government during its 2014-15 review of the state’s mining royalty system.
But the Nationals, spearheaded by Kalgoorlie MP Wendy Duncan, vowed to oppose any increase, with the rate eventually maintained at 10 per cent of mine head value.
Two years down the track, the Nationals are arguing the 25 cents per tonne royalty.
Mr Grylls said the Nationals had a proven track record when it came to the gold industry.
“Essentially, Reg Howard-Smith is asking the gold miners who were saved from a royalty increase … to believe there’s some underlying plan we want to do the opposite,” Mr Grylls said.
“It’s simply not true … [I can] absolutely 100 per cent guarantee that I have no interest in looking at the gold sector.”
Nobody can promise that to anyone. The Australian Budget it toast and needs fixing. We’ll no doubt have to enter crisis first but, make no mistake, when it happens mining tax reform will be back on the agenda and big. There are super profits to collect in the Pilbara, gold, coal and base metals tax and royalties to hike, LNG tax reform and a fat diesel rebate to pare back.
The country’s number one export profiteer will not be able to laugh all the way to the bank as its host nation sinks. I suggest anyone thinking otherwise consult the US election.
