The Government is not, of course, in the business of picking winners. But it sure isn’t that easy to tell. Andrew Robb told us all yesterday that:
Mr Robb, the first Coalition minister to visit China since the September election, said yesterday Baosteel president He Wenbo was positive about tax changes proposed by the new government.
Mr Robb, who met Mr He at the start of a three-day trip, said the Baosteel chief was pleased with the Coalition’s promise to roll back the carbon and mining taxes put in place by Labor.
…”Our first legislative move is to reduce the cost of doing business in Australia,” Mr Robb said.
To borrow an expression from the PM today, hogwash. The Chinese want to keep building so they get the cheapest possible ore. Moreover, cutting the MRRT will do nothing for new projects. It doesn’t collect anything. And the compliance costs are puny in the scheme of things:
MINERS are tipping a resurgence of small players in the iron ore and coal industries in the wake of the government’s move to exercise its election mandate and repeal the minerals resource rent tax.
Joe Hockey yesterday revealed the draft legislation to scrap the tax and with it implement $13 billion in budget savings – axing the Schoolkids Bonus, a superannuation contribution for low-income earners and depreciation write-offs for small business – sparking a new stand-off with Labor and the Greens.
As the Treasurer announced he would introduce repeal bills into parliament next month to remove what he had said was a “signature failure” for Labor, big business applauded the move and small miners said it would remove hundreds of thousands of dollars a year in compliance costs.
Atlas Iron chairman David Flanagan said he believed the abolition of the tax would help draw more junior miners and explorers into the iron ore and coal industries and “make the playing field more even” between the major miners and smaller players.
With respect, “hundreds of thousands” of dollars do not determine the future of mining projects. What it will do is ensure that in the very long term, when the rorting of the tax via depreciation benefits is concluded, the rents will continue to accrue to shareholders. That’s really all there is to it.
Meanwhile, our charmed mining sector is suddenly vocal about the rising dollar:
GROWING alarm over the resurgent dollar could lead to more resource projects being shelved or lost to rivals, including North America and Africa, adding further pressure to the federal budget.
With Joe Hockey this week moving to raise the debt ceiling and increase cash reserves at the Reserve Bank as insurance against a possible US-led economic downturn, The Australian can reveal that economic forecaster BIS Shrapnel will today downgrade forecasts of construction work.
BIS Shrapnel will forecast that engineering construction work will decline 7.6 per cent in 2013-14, compared with the 5.4 per cent decline it was predicting in March. It will cite weaker outlook for resource projects, particularly coal and other minerals, and for publicly funded projects as state governments struggle with weak revenues and high debt levels.
“The risk is that if the Australian dollar remains higher for longer, then we could see more mining projects, particularly, drop out of the forecasts, and the fall in engineering construction work will be steeper,” senior manager Adrian Hart said.
The article proceeds with series of quotes from worried mining executives. I don’t dispute this at all. A rising dollar is massively material to mining project prospects. It makes the puny MRRT burden infinitesimal. In fact, while the tax is saving “hundreds of thousands” of dollars, the iron ore price has fallen about $13 in local currency in a few weeks, wiping out approximately $7.5 billion in revenues and roughly half that in profits if annualised.
The MRRT cut is an illusion. If the Government really wants to reboot the mining boom, there is a tax it can reform that will do it. Chop negative gearing or even just shift it to new homes. Or, cut back Peter Costello’s disastrous late nineties capital gains dispensations for property.
Either will have the same effect. House prices will stall and resume a slow melt (if handled right), interest rates will go straight to 1% and the dollar below 70 cents. Then watch the mining boom get a second wind!
