Cut the mining BS

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I had both the privelege and misfortune of being a commentator at Business Spectator (BS) during the last period when an Australian government raised taxes on the coal industry. It was during the Resource Super Profits Tax (RSPT) debacle when BS exploded in indignant anger. BS openly dedicated itself to the destruction of the tax and, along with The Australian (which was a bit more even handed), undermined the Kevin Rudd administration.

I certanly don’t blame BS for Rudd’s subsequent fall, that was Labor’s fault alone. But what the BS campaign did do was tear up the terrain upon which any public discussion of what was a fair and reasonable way to tax the mining boom could stand. In the process of doing this, BS failed in its responsibility as media to provide a forum where tax options could be rationally discussed. Instead it razed any notion of a tax on mining and then salted the ruined earth. (For disclosure, at that time I supported the tax in principle, that is, in the need for it as a macro economic mechanism, but criticised its structure for being overly complex, borderline approporation and politically naive.)

Since that time and in the sweep of history, I think it fair to say that some kind of tax was necessary. Without it the nation was bereft of fiscal mechanisms to manage the boom and the public purse has next to nothing in savings to show for a once in a century boom.

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But, unsatisfied, the BS boys are back today with more outraged and outlandish claims, this time directed at the Queensland Newman Government for having the temerity to raise coal royalties. First is Alan Kohler:

At least Queensland coal miners now have a face to put on their dartboard – that of Premier Campbell Newman.

Yesterday’s decision in the Queensland budget to increase coal royalties more than expected has put the mining industry into a frenzy of outrage, since the plunging price of coal has already reduced profits to the point where miners are being laid off.

How a state so blessed with fossilized forests that it can supply the world’s turbines and blast furnaces with coal as well as the world’s stoves with gas from the cracks in the coal beds, managed to lose more than $6 billion this year is a source of wonder, but there it is. Years of growing expenditure at 7.5 per cent a year, or almost three times the inflation rate, will do that.

The answer is to sack public servants and tax the coal miners, since they have the money.

But beyond exasperation lies ‘sovereign risk’.

At MB we have been pretty harsh on all governments for relying on ephemeral revenues and bloating costs. But is it really a soverign risk when a government raises a long standing tax to stabilise its revenues for the longer term? Is there some perfect government somewhere that never alters its tax arrangements?

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Yes, in the head of Robert Gottleibsen:

What Queensland’s Coalition Premier, Campbell Newman, did yesterday was the last straw.

BHP Billiton, Rio Tinto and most other world minerals and energy groups have now concluded that Australia is one if the most dangerous places in the world to invest. We are going to see a capital strike of immense proportions, which will take a long time and much effort to reverse. And when it is reversed miners will still require much greater returns from Australia because of the demonstrated sovereign risk of investing here. And the trouble is we will not recognise there is a capital strike for two or three years because of the vast number of projects in the pipeline.

…That’s the sort if thing you expect from African dictators. But in Africa, mineral companies know there is high risk so they protect themselves. In Australia, they thought they were investing in a low risk country so did not protect themselves. They will not make that mistake again.

Come on, fellars. This ‘hyperbowl’ is ridiculous. It is not a “sovereign risk” every time a government changes a tax. The royalties regime is as old as the hills themselves. They are royalties on minerals that the government owns (and has leased). The regime has grossly undertaxed for nearly a decade. Redress was overdue.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.