The Australian mining industry is currently being attacked by the Federal government, which is trying to extort higher levels of taxes from the industry, to cynically boost its electoral-buying capacity over the Liberals. It has always been characteristic of Labor to go where 'no man has been before', so Rudd is not fresh faced in this respect. Some criticisms made of the mining industry need to be refuted:
1. Mining companies earn excessive profits. Actually the reality is that profits from mining are very volatile. i.e. They go up 200-400% and then come down. Those profits are used by the industry to finance further mining capacity. If Rudd taxes that capacity to finance more mining, the capacity will be developed overseas. There are a plethora of projects overseas, and if the tax impost does not drive the investment offshore, the arbitrariness of the impost will. i.e. Higher cost of capital because of the higher sovereign risk investing in Australia.
2. Mining investment supports downstream investment in railways, loading facilities, shipping, port services, towns, engineering, catering contractors, etc. More investment here results in lower costs as any new projects benefit from older investment.
3. Investors benefit from the volatility. If you like investing, the mining industry provides a fast track to success. There is however corresponding risks to consider, so those higher returns are well-justified; particularly since Rudd takes no steps to provide ASIC with the resources to rein in some of the mining cowboys ripping off shareholders.
4. Miners helping the country. Mining has minimal impact on the countryside in Australia. We are a low-rainfall country and the benefits of mining dwarf the impact on the environment. Miners are responsible for their impact. Besides that they create jobs, attract a lot of investment, develop infrastructure, support public administration. Might we do better to respect the investors and executives who create the wealth. Are they self-serving....certainly. Without the self-respect and self-serving qualities of entrepreneurship, we could be living in far less appealing economic circumstances. We no longer ride on the sheep's back, its miners. Don't abuse the privilege, otherwise you might just see the succession of WA from the Australian Federation.
5. We have it too good. The reality is we take our mining industry for granted. If we did not have the mining industry, our economy would mirror NZ. We would have a weaker currency, and there would be an exodus of educated Australians to foreign countries, and we would become a nation of farmers and retirees like NZ. Our national incomes are 30% higher than NZ. I suspect that 15% is singularly the result of the mining industry. Its that important.
6. Mining companies are using foreign labour. True enough the mining industry is having to import skilled migrants because there is a shortage in Australia. Most of these people will stay in Australia. I have lived in Asia. Most are jumping at the opportunity to have a better standard of living. What people 'who don't travel' don't realise is that travel changes people. These 'migrants' are often taken advantage of in their home country, so they would prefer to stay here, plus the lifestyle reasons for staying. Their children are growing up here. The relatives back home just want their money. If we don't have babies, and you have centralised government, you will depend on population growth to keep productivity and economic activity growing.
So when I hear that "royalties from mining companies have decreased disproportionately to profits over the last decade from about 16% to 11%", I recognise that metal prices at that point were 300% less than now. i.e. Copper is now $US3.10/lb, it was then $0.80/lb, and miners struggled for 10-15 years. They were helped by a low $0.50 AUD, just as now they are injured by a $0.90 dollar cross-rate.
The argument that we all own the ground they 'pillage' has some credence, but the mining industry already pays a great deal of taxes. This is opportunism for Rudd to get elected. It is the same strategy as Rudd artificially restricting land releases for housing so that property prices rise for the betterment of some at the expense of others. This government is not 'pro-poor' it is self-serving at the expense of anyone and everyone.
Yes, of course multinational mining companies don't like imposts, particularly when its really extortion. These companies are investing billions in the expectation that the government policy or tax rates will be at certain levels....then Rudd applies a huge tax impost. Come on! They can't pass on the cost because its not applied to their competitors. Does Australia really want their government to have more spending money given their historic performance?
In the late 1800s and early 1900s Australia was said to 'live on the sheep's back'. Now we live on the 'miner's back', or investors back, who supports them. The relationship between miner and investor is complimentary, the relationship between government and mining is becoming intolerably parasitical. Government's power needs to be curtailed. This financial crisis was made possible because Howard and Rudd facilitated a huge expansion in global debt. They are complicit with the US government in causing the financial malaise. The mining industry should not pay for it. Even taxpayers ought not to pay for it. It should be repudiated because sovereign debt is extortion by the majority over the minority. Politics has to change!
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Author
Andrew Sheldon
Resource Rent Tax
Applied Critical Thinking | www.SheldonThinks.com
Andrew Sheldon
Resource Rent Tax
Applied Critical Thinking | www.SheldonThinks.com
