Here come the iron ore mining “tax” hysterics

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From the AFR comes Reg Howard-Smith, chief executive, Chamber of Minerals and Energy of Western Australia:

It is Grylls’ plan to skyrocket the cost of operating in Western Australia for BHP Billiton and Rio Tinto by slugging them with an additional tax of $5 per tonne of iron ore on top of all the fees, rates and charges they currently pay.

It is the same plan which threatens Western Australia’s reputation as a stable investment hub, where capital is safe from sovereign risk. His new tax would make WA the world’s highest taxing iron ore jurisdiction – three times larger than Brazil, our biggest competitor.

Like any business which faces increasing costs, BHP Billiton and Rio Tinto will be forced to further reduce their overheads to offset the new cost as proposed by Grylls.

It will directly result in less employment and impact on the 845 WA businesses currently supplying goods and services to these two companies. These are the same businesses that supplied $10.9 billion worth of goods and services in 2014/2015.

Rubbish. Such cuts would be necessary only volumes fell otherwise they’d already have been made. Who cares what they contributed in some vague number. WA is clearly not charging high enough royalties when BHP and RIO are operating their iron ore businesses on margins well north of 100%:

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These are “economic rents” 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 and Australia. It’s depleting nature needs to be reflected in the revenue being received for their development.

The Grylls levy is too high. The amount should be calibrated so that BHP’s and RIO’s competitiveness is not adversely impacted causing them to lose volumes (and therefore investment). That level is more like $2.50 per tonne than the proposed $5 which would put them on par with Vale, from UBS:Capture115

I would like to see Mr Grylls (also commit to paying down debt with the windfall (or to 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.

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Meanwhile, Matthew Stevens exposes his entitlement:

The risk that Grylls will line the state’s pockets with mining profits is real. WA will go to the polls next year and one of the many possibilities is that the state emerges with a minority Labor government that is indulged by Grylls’ Nationals. And there is nothing coming from the federal leadership that might set the state boss to rights.

But back to Costello and what was the Minerals Council’s second Annual Mining Industry Lecture. Like another famous ex-treasurer, Costello does a good line in scorn and he took the opportunity offered by a welcoming audience to unload on an environmental lobby he described as “hostile” to modernity.

“Mining is not at risk from the ideas boom, from technological disruption or innovation. It is not the modern that threatens mining, it is the anti-modern,” he said, noting that mined materials are the raw materials of a modern life.

“Some environmentalists are deeply hostile to this. They yearn for a pre-industrial age – in their minds if not by their lifestyle. They see closing the industries that took us out of a State of Nature as positive steps to get us back to a state of nature. It is, of course, a fantasy. But fantasies are ideas and ideas can be powerful.”

Just ask Mr Grylls.

Asserting that Mr Grylls worships Satan is not an argument.

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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.