Yesterday, Treasurer Wayne Swan attacked BHP for its mining tax threats, which had been made by CEO Marius Kloppers in an interview in the Australian Financial Review.
To his great credit, last night Swan went to BHP’s Don Argus farewell dinner. On his way into the dinner, I spoke with him. He was critical of my comments on the mining tax and we expressed different points of view in a very frank way. However, Swan added that I had made factual errors. These columns are open to the Treasurer to put his point of view and correct any mistakes that he believes I have made.
In my view, the tide is turning on this tax and I believe it will be substantially amended. My Canberra contacts on the ALP side tell me that we should “watch this space”. Many ministers appear to understand that taxing retrospectively is a very dangerous tool and using a base return of about 6% before applying the resources rent tax is absurd.
My ALP contacts tell me that Treasury has had no experience in mining projects put together by the states. They genuinely had no idea of the impact of what they were doing. Exactly the same thing happened with insulation, where a different department had no experience of conducting an exercise of that particular magnitude.
Swan, in his BHP-attacking statement in the AFR, says: “It’s a bit rich when the company goes public with these sorts of dire predictions when in fact they’ve yet to go to the [Treasury design consultation] committee.”
Of course, the truth is that it was “a bit rich” for the Treasury to mount a $9 billion attack on the mining industry without any consultation.
Treasury will need the help of the big miners to get itself out of the mire. And it better bring the consultative project forward before we get hit with another wave of bear raids.
Finally, a word of sympathy for Swan. He has been a good Treasurer who, as with the mining tax, followed the advice of his department. Unfortunately, as many of his cabinet colleagues now know, that advice was wrong because it did not alert him to the inevitable consequences of such an action.
The government must deal with those consequences. If my Canberra contacts are right, that’s exactly what they will do.
But it is not easy because the government has spent some of the money already and also issued forecasts on the basis of the tax. Those forecasts will simply have to be amended.
Dealing with the consequences ought to mean dealing Ken Henry out of the negotiations.
If the guy fucked it, you can’t trust him to fix it.
Hey Gottliebsen, go and look up the definition of sovereign risk. I want see the correct one chalked up 500 times at the bottom of your next story.
The problem with the Resources Super Profits Tax (RSPT) is not the concept per se, but the method of its introduction. Any mining company earning above the bond rate is to have its marginal tax rate lifted to 58 %. Mining company profits either form part of the dividend stream or are used to finance new development. The RSPT will appropriate a significant proportion of the risk margin factored into each mining project which compensates for the substantial uncertainty of future returns from these ventures. The returns are factored into individual shareholders’ expectation of future returns and form the basis of investment decisions including the funds in which most Australians have their superannuation savings.
In part, the government is “mining” the future superannuation returns of every Australian to pay for its profligate budget expenditure, as well as creating uncertainty in relation to Australia’s sovereign obligations. The Prime Minister should go back to Rousseau and the concept of the social contract. Precipitous changes without consultation destroy trust, and the RSPT is no exception.
Is absolutely ludicrous that the government would introduce such a tax without consultation and displaying a complete lack of understanding of business finance and commercial risk management. It would appear that the greatest exposure to risk management of the Treasurer and his Prime Minister have had years maintaining factional votes and the associated underlying problems mitigated by branch stacking.
One can only assume appropriate Treasury advice was not obtained because anybody who has done Business Finance 101 would have an understanding of weighted average cost of capital, required commercial rates of return, and the
required risk margins embedded in required rates of return for commercial undertakings.
having gottliebsen commenting on taxes is like having bozo the clown commenting on the Olympic 100m hurdles. remember this is the fruitloop who tried to get John Hewson elected prime minister!
Robert Gottliebsen writes: “In my view, the tide is turning on this tax and I believe it will be substantially amended… Many ministers appear to understand that taxing retrospectively is a very dangerous tool and using a base return of about 6% before applying the resources rent tax is absurd.”
But where is the mining industry on all of this especially in practice and ignoring for a moment all the hot air from Andrew Forrest and co?
In today’s Mining News (dailynews@miningnews.net) the mining industry’s newsletter which is described as ‘authoritative, insightful, timely’ it states: “for now, it seems business as usual in the Australian mining industry (except, of course, for Andrew Forrest and one or two others who have taken the super tax very much to heart).”
Rather than go along with Mr Gottliebsen, I’d tend to believe this ‘authoritative, insightful, timely’ source which is after all straight from the mining industry’s horse’s mouth – so to speak. Who does Andrew Forrest believe I wonder?