While John Howard and Peter Costello did leave the federal Budget in structural deficit with all those tax cuts, you can always rely on a Labor government to crank up the spending and worsen the fiscal outlook.
However, at least most of the Rudd government’s new initiatives have been one-offs such as pink batts and the building education revolution.
And as most Western countries are now discovering after the GFC, budgets are severely in the red and no one wants to go the way of Greece.
Which brings us to the extraordinarily comprehensive range of revenue-raising options presented by Ken Henry’s report and the selection of one single monster tax to save the Budget over the medium term.
An extra $6 billion-plus a year in revenue from the Resource Super Profits Tax is no small beer but that also relies on some fairly heroic assumptions about commodity prices holding up. People forget that Australia suffered continuous terms of trade deterioration for almost 50 years until the China-driven boom really kicked in over the past decade.
With a market capitalisation of $120 billion, Rio Tinto isn’t exactly about to go broke. And BHP-Billiton is trucking along quite nicely with a market value of $228 billion.
Robert Gottliebsen’s Business Spectator column yesterday was head-lined: “Are we pushing BHP and Rio offshore?”
Frankly, London-based Rio Tinto is effectively a foreign company already, given that Australians only own about 13% and there are just three Australian-based directors on the 14-person board.
If the company had followed the advice given at the 2008 AGM and moved its global headquarters to Australia whilst wrapping itself in the flag, it wouldn’t be such an easy target now.
Even BHP-Billiton is now down to Australian ownership of about 40%, largely thanks to the folly of former chairman Don Argus giving away 42% of the company to Billiton shareholders in 2001 for a bunch of assets that would struggle to deliver 15% of the value these days.
The main reason a resources super profits tax works best for Australians is that more than 80% of our resource profits go to foreign owners. The North West Shelf is only about 10% Australian owned and we’ve got virtually nothing in Mt Isa since MIM fell to Xstrata in 2003.
While BHP and Rio together have Australian operations worth almost $200 billion, there is another $200 billion-plus of projects down under controlled by the likes of Xstrata, Mitsui, Mitsubishi, Marubeni, Shell, Exxon-Mobil, BP, BG, Chevron, Anglo-American, Peabody, Conoco-Philips, Apache Energy, Alcoa, Newmont and the Chinese government. That’s another 16 players all of which would have Australian resource investments worth more than $10 billion. Each!
If you want the detail on who owns and operates what, check out this comprehensive list of the major Australian resource projects that are majority foreign owned, along with shareholding breakdowns and royalty regimes where available.
It is an indictment on the directors’ club and institutional shareholders that Australia has not been able to develop and retain ownership of a major global player in oil, gas or gold, but at the very least we should claw back some of the super profits going to the foreign players who are doing it for us.
Such a tax will also substantially improve the current account deficit because the $40 billion-plus a year currently being repatriated from Australian projects to foreign investors will be reduced somewhat.
We’ve already seen the Fortescue Metals Group team led by Andrew Forrest rail against the new super profits tax, but besides Twiggy and his 31.5% stake worth a tidy $4.5 billion, there are very few major Australian investors on the FMG top 20.
While the miners will gripe about the total tax bill at the top of the cycle, the state-based revenue regimes still apply at the bottom of the cycle when projects are making losses.
This will make the federal Budget even more susceptible to wild cyclical swings, but if the total tax take is substantially up over time, then it doesn’t matter so much.
All up, this is a very good initiative by the Rudd government and Tony Abbott should show some consistency with his anti-immigration policies by supporting a move that slugs huge foreign companies but benefits little Aussie battlers.
Is Joe Hockey having a brain snap over there on twitter? Sure looks like it.
Thanks for this Stephen, most stupid Australian’s seem to think that these mining companies are Australian and that the profits are staying here.
They are not.
What gets me is the total inability of the media in this country to notice that the last two years have been globally shocking and that business as usual is not able to happen.
We have wrapped ourselves in this putrid little bubble of self-serving greed and we don’t even consider the rest of the world.
A good reason to demand this sort of tax is being played out in the Mexican Gulf as we speak, was played out in the East Timor Sea and so on.
Abbott is a tin-eared political fool if he thinks that campaigning against a resource rent tax has popular resonance. His oppose everything strategy hit a deep pothole with health reform and opposing the rent tax might just break the axle.
Most Australians are not stupid enough to spell Australians as Australian’s
STEPHEN MAYNE: And I thought I was being a ‘Dog in the manger(ist)’ and was feeling guilty for being a sh*it.
Now you come along with your excellent article, and I’m overwhelmed with a deep case of schadenfreude. It’s about time those huge mining giants realised from whence came the golden goose. How golden it is. And the facts say the birds home is in Oz.
Perhaps the government could pay them a small bounty for selling first to the home market. Storing some of the stuff for when we as a country might use it wouldn’t hurt either.
Someone on the radio was saying that Brasil could seize the iron ore market from us.
Wouldn’t that mean much higher shipping costs?
As for miners crying poor and stating that they’ll go offshore or not develop in Australia as much, what a load of patent phooey. They have had the double luxury of a series of complacent and complicit governments (both State and Federal) and the societal stability inherent in this country to operate under: the benefits of both a developed country and the malleability of a hungry LDC.
Not about time that a suitable super profit tax is applicable: as Mayne correctly pointed out, most of our mining operations are wholly foreign concerns, and that all of them have been flogging our dirt for very little recompense to the nation. It’s high time that they realise that they cannot get away with the idea that they can have their yellowcake and eat it too: there ought be a suitable fee form operating in a country that actually spends revenue on nation-building activities, such as infrastructure, universal healthcare and social welfare.
I’m sure that a few might take their bat-and-ball and go to some other less-developed nation and try exploit them. Until they realise that there are certain things which when go wrong, they go terribly wrong, such as falling out of favour with whomever is in receipt of kickbacks, entrenched systemic corruption (having to meet the myriad obligations of that…or else) and likelihood of violent uprisings and coups. Although there are undoubtedly shenanigans in business Aussie style, these are exceptionally mild compared to other commodity nations.
So what do they really want? Costly compliance, but conducted in a transparent and reasonably consistent manner, or takes their chances with some tinpot dictatorship, where the startup maybe cheap, but the unpredictable nature of feeding a corrupt beast?