The Australian today ran a big photo with its lead business story of former Rio Tinto CEO Leigh Clifford sitting next to BHP-Billiton CEO Marius Kloppers at a mining industry function in Canberra last night.
Clifford was laughing away and the lads could well have been amused to have together amassed a net worth exceeding $50 million courtesy of their exploitation of Australia’s mineral wealth during the China boom.
Indeed, even after all these claims that the proposed RSPT has smashed resource company share prices, the combined market capitalisation of BHP and Rio today is about $400 billion.
That’s more than the market capitalisation of the world’s most valuable company, Texan oil giant Exxon-Mobil, which is this morning capitalised at $US285 billion ($A341 billion).
Rio Tinto director Sir Rod Eddington last night entered the fray slamming the Rudd government’s policy-making process and failure to consult.
This was a powerful hit given Sir Rod is chairman of Infrastructure Australia and also chaired the long since disbanded business advisory council, which Kevin Rudd established when opposition leader.
However, there is one fundamental problem with the mining industry’s complaints about a lack of consultation — they would never have agreed to such a monumental tax slug anyway.
Like most democracies, a combination of unprecedented stimulus spending and plunging revenues has left Australia structurally in deficit. In our case, the debt-funded government spending by Canberra and the states exceeds revenues by about $80 billion a year, much of which is borrowed offshore.
Rather than sending more than $50 billion a year offshore to the foreign owners of more than $500 billion worth of Australian resources projects, surely it makes sense to tax more of this capital flow given that prices for commodities such as iron ore have increased six-fold over the past decade.
This would improve Australia’s current account deficit and the Budget position of the federal government, which, in turn, is the largest financier of state spending.
If you asked the community who they’d like to see a $10 billion annual tax slug imposed on, then the obvious answer is foreign mining companies, which are making out like bandits.
None of this excuses the incompetent political selling job that Kevin Rudd is doing, prompting Alan Kohler to label its spin a disgrace on Business Spectator this morning.
While Rudd should be flogged for his reckless stimulus spending, backflips and sneaky spin, commentators who are railing against the RSPT should nominate the sector they believe should instead cop a tax slug, or the proposed austerity measures that should be imposed.
Elected officials have a duty to extract maximum value for public assets. A mining concession is like one on-going privatisation program and Australia has the world’s best dowry and the world’s most foreign-owned resources sector, largely due to the incompetence of the Australian Directors Club in squandering the assets over several decades.
Look no further than MIM’s ridiculous sell out to Xstrata in 2003, something Paul Keating, MIM CEO Vince Gauci and even Robert Gottliebsen were in furious agreement about opposing at the time.
Despite what Zug-based Xstrata CEO Mick Davis might claim in his letter to the Financial Times this morning, his company has more than tripled the $18 billion it has invested in Australia over the past decade.
The same goes for Rio Tinto and BHP. When the BHP board gave away 42% of the company to Billiton in 2001, this was only worth about $25 billion at the time.
Today 42% of BHP is worth about $100 billion. No wonder former Billiton and BHP-Billiton CEO Brian Gilbertson claims that he still gets thanked by fund managers whenever he visits Cape Town for giving them exposure to such wonderful Australian assets.
Gilbertson, by the way, has so far collected more than $20 million from his exposure to Australia’s resources dowry and is on an indexed pension for life that is presently running at almost $2 million a year.
If BHP-Billiton has to pay an extra $2 billion a year in tax to Canberra, it will still be valued by the market at close to $200 billion and London-based Gilbertson will still collect his outrageously excessive pension.
Disclosure: Stephen Mayne sold 98 Rio shares this morning and retains 6.
Does Rod Eddington have a conflict of interest in this discussion?
If XStrata an Anglo Swiss miner delays ripping Australian ores from the ground I will say Hurrah.
It is not even listed on the Australian Stock Exchange.
Stephen Mayne is correct, the government has grossly misrepresented the situation concerning this tax proposal when it did not need to do so. The real issue in this whole debate is the factual underpinnings of the government’s decision and the way in which it was represented to the community.
It is beholden on the government to provide accurate information to its constituency concerning its proposed policy changes. Claiming that the mining industry pays 17% tax is fine if you can prove it. I have written to the Prime Minister, the Treasurer, and the Deputy Prime Minister seeking clarification of these issues and have had no response.
A constructive and progressive tax adjustment to return a larger proportion of the benefits of recent very high mineral export prices back to the Australian community could have been easily justified by presenting the facts to the Australian community without-bullshit, and with our grossly misrepresenting the situation in relation to the amount of tax being paid. Mining companies pay franked dividends and franking credits reflect the tax already paid by the mining companies. The ATO has this information but the government has chosen not to use it because it didn’t fit in with their poorly chosen class war strategy.
Having failed dismally to communicate a reasonable strategy, the government is trying to play the class war trick depending on the cheap throw-away line of “taxing the rich”. The “rich” however include anybody in Australia with mining shares in their superannuation portfolio and any individual silly enough to have purchased mining shares on the basis of good economic return. If there is to be increased tax revenue share to the exchequer, people with mining shares need to be reassured that their investments are not going to be trashed on the altar of Rudd government misrepresentation. Furthermore it is now known that the planning for the advertising campaign preceded the public announcement by several weeks so the claim that the so-called “emergency” response to the mining industry is a complete fabrication.
I for one had hoped that the Rudd government would not continue the disgraceful behaviour of the Howard government in terms of lying cheating misrepresentation and malfeasance. However I am having trouble indifferentiating between the two governments based on recent performances.
Actually they announced changes to taxes and the mining morons and their toadies went ballistic.
Why the fuck do they have to “sell” a tax? We all pay tax, even the poorest of the poor can’t escape the GST.
Those of us who pay taxes, and I suspect many of the Rudd acolytes who are in favour of this new tax don’t pay any income tax, realise that it is forced appropriation of income. Taxation without an equitable explanation of the reasons of the tax it is considered unreasonable by most if not all taxpayers. The issue is not one of whether tax should be paid or not but the basis upon which the tax is being calculated and the method by which information has been promulgated.
On this particular issue the government has resorted to misleading propaganda rather than a factual explanation, and has manufactured an emergency so that they can use taxpayers dollars to fund there political propaganda in an obscene episode of wedge politics that John Howard could have been proud of. This is clearly an election strategy and not a good piece of public policy development. I expect more of my political leaders than gambling by deliberately creating an unnecessary crisis in the hope that it will cover their tracks in relation to other policy failures coming up to the next election
It is becoming increasingly obvious that some of the implications of this policy proposal will have a negative impact on the Australian economy. This occurs if the tax appropriation leads to projects becoming economically unviable either within Australia or compared to other potential projects overseas.
Some aspects of the proposal may be quite justified, but the appropriate process for resolving these issues is to put policy proposals on the table and have a reasonable discussion about the implications before locking oneself into a particular strategy. Having structured a half baked policy without full understanding of the implications, and then seeing the situation as our total win lose proposition, the government has painted itself into a corner. Killing the goose that lays the golden egg is not an appropriate strategy.