MRRT puts government folly on display

The MRRT stuff-up has highlighted the ongoing government ignorance of the mining sector.

As former Prime Minister John Howard once described us, we’re pretty much ‘relaxed and comfortable.’

For the most part this reference seems fairly innocuous, but politically there is a problem.

In terms of the left side of politics the ‘relaxed and comfortable’ notion instead takes on a more sinister aspect – one of complacency and even outright jealousy.

Its ultimate manifestation is the attitude of the Labor-Greens coalition with respect to our resources industry, which has been very much under attack since prior to the last federal election.

Meddling politicians seemingly are doing their best to interfere with and hamstring the one sector of our economy that’s actually worked well – the mining industry.

 

At a time when as a nation we should be doing everything in our power to encourage and maintain investment and confidence in the resources sector, our politicians instead seem hell bent on doing everything they can to drive both existing and potential investors away.

Whether it’s ad-hoc regulations on coal seam gas; the mining tax; the carbon tax; or greater red and green tape on resource projects; Australia’s federal politicians and bureaucrats seemingly don’t have enough hours in their day to conjure up ways of hampering the one industry that’s managed to keep us out of recession.

The mining industry is the key factor that differentiates us from the economic basket-cases of Europe and elsewhere.

Whilst our politicians point to clever economic management and sizeable stimulus spending in keeping Australia from falling into the economic abyss, the truth is if spending alone were to keep the financial wolves from the door then the United States and Western Europe would not be in the financial strife that they are now.

They’ve spent vastly more than we have for little benefit.

Throwing money at the problem clearly has not helped – in fact it’s made things worse.

After all, most overseas governments have spent a much greater sum in terms of stimulus measures, representing a much larger proportion of their respective GDPs.

The key differentiating factor between us and the economic stragglers has been the fact that we are fortunate enough to have a strong, vibrant and efficient mining industry – situated just a short shipping-distance from the world’s modern-day economic powerhouse – China.

One of the best examples of the Government’s cluelessness and ignorance with respect to the mining sector relates to the Mineral Resources Rent Tax (MRRT), which officially came into effect during July.

Reports have surfaced that Treasurer Wayne Swan was warned four months ago that the MRRT wouldn’t raise any revenue for the first quarter and possibly throughout the rest of the financial year, threatening Labor’s planned budget surplus.

We’ve of course been warning of the likelihood of sizeable revenue shortfalls for at least 12 months, as have other independent groups.

The MRRT is the derivative of the original Resources Super Profits Tax (RSPT), which would have levied a 40 per cent tax across all extractive industry, including base and precious metals, coal, uranium and mineral sands.

The MRRT would impose a 30 per cent levy on coal and iron-ore companies that report profits of more than $75 million.

This tax had initially been aimed at companies earning profits of about $50 million, but was later revised.

In terms of the MRRT, new investments will be given an immediate write-off, rather than a depreciation over a number of years, allowing mining projects to access deductions immediately.

A project is also not liable for MRRT payments until it has made enough profit to pay off its upfront investment.

The tax also provides recognition of past investments through a credit that recognises the market value of that investment, recorded over a period of up to 25 years, while also providing a full credit for state royalties paid by miners.

In other words, it benefits big miners and so far they haven’t paid a cent.

Rather than embracing the resource sector, the mining industry is instead viewed as a necessary evil to envious Canberra-based politicians.

The Greens’ persistent comments about the mining sector are both naïve and dangerous, particularly as they relate to Australia’s coal industry.

The Greens’ attacks on the level of foreign investment in our mining industry are also dangerous – were it not for foreign investment dating back as far as the 1850s in this country, we would not have a mining industry to speak of.

Investment dollars from all over the world – initially from Britain, then continental Europe, North America, Japan, and now the emerging economic juggernauts – China and India – have over the past 150 years helped establish the resources industry that our politicians now take for granted.

The greens have also targeted the issue of company earnings and dividends that flow out of the country, but they conveniently ignore the much greater sum that’s reinvested within our country – the many hundreds of billions of dollars of taxation and royalties that have been captured by State and Federal governments over recent years that have been used to fund spending programs.

And that’s not counting the salaries and benefits paid to employees, as well as the sums invested in exploration and development.

The Pilbara iron-ore operations in Western Australia and the eastern states coal industries of NSW and Queensland, supply the bulk of the export revenues that have helped keep us out of recession.

These were established by companies with long-term vision, more than four decades ago.

Such massive investment decisions aren’t made lightly.

They reflect a level of confidence in the future financial and political stability of our country.

But our politicians are conveniently ignoring this. In a thinly-veiled, politically-motivated cash-grab, they are pursuing political expediency and threatening the long-term health and investment prospects our stand-out industry, the mining sector.

I don’t know of any industry where greater levels of taxation have contributed to growth and prosperity.

Inevitably, the impacts of greater economic imposts on our minerals industry will be felt – but not immediately.

Whilst mineral deposits are of course not transportable, investment dollars most certainly are.

Ultimately, the junior and mid-cap players that account for the bulk of ‘greenfields’ exploration in this country will increasingly shift their investment focus offshore.

It’s already happening in a major way, with more than 50 per cent of funds raised by ASX junior exploration companies being sent offshore.

What this means is that the next generation of Pilbaras, Olympic Dams, Bowen Basins, Cadia-Rideways and De Grussas won’t be found here in Australia – instead they’ll be unearthed in places like Africa, Asia and South America.

Fewer new mining operations will be brought on stream in this country as a result.

When politicians refer to the supposed damage being done to future generations by inaction on the climate change front, they blindly ignore the damage they themselves are doing to future generations through the systematic degradation of our best performing industry, the mining sector.

In this vein I thought I’d conclude by sharing with you the following comments by Anthony Peters, who writes for the International Financing Review in Europe.

“Meanwhile, there were bright pictures on the telly this morning of a beaming Julia Gillard who has seen her Mining Tax passed by Australia’s lower house by just two votes.

“I believe that she, like so many politicians, hasn’t fathomed tah we are in a globalised economy and although Australia might be sitting on a pile of raw materials which cannot be moved like banks or other service industry head offices from one tax or regulatory jurisdiction to another, the big investment dollars could leave the Lucky Country and head for Africa or South America.

“Commodity extraction is a particularly long cycle business and any effects which a change in the taxation of miners might have will only become evident once Ms Gillard is sipping frosties by the pool while drawing the generous pension of a former Prime Minister.

“I am drawn to comparing this move with the taxation of pension funds’ dividend income here in the united Kingdom which already looked bad when it was introduced by the invisible Scotsman but which has proven to be an absolute disaster for pension savings and one which will blight a generation.”

 

Gavin Wendt is the founder of MineLife, publisher of the MineLife Weekly Resource Report