A miner speaks out



The mining tax is expropriation by any other name, says Andrew Forrest

THE mining tax is no way to maximise the wealth of Australians. The worst economic policy ever formulated in Australia's history, the Mining Super Tax Mark 1 (resource super-profits tax), was dropped like a bomb on the people of Australia. Like any repugnant policy launched by government, it came complete with the propaganda package to sell it.

We all recall mining companies being called liars, foreigners and tax cheats, and the Australian people being told that the federal government, not the states, owned the resources, that these resources were about to run out, and all the rest of the community-dividing diatribe. It was a deliberate ambush to create a wave of sentiment against the resources sector, driven by government and union advertising.

In all quarters of the global capital markets the advertising fell on deaf ears. The government's move was seen as either incompetent or, far worse, dishonest. Such a massive move to the hard socialist Left should only have been the result of major and national consultation, certainly not an ambush without any discussion.

Among economic historians, the term "expropriation" was employed to describe the government's erratic behaviour. No doubt, adopting that term in this comment will lead to some hysterical reactions.



The term "expropriation" derives its meaning from the forced acquisition by government, normally below market value. The tax involved the acquisition of a 40 per cent economic interest by government of the entire mining and resources sector. The consideration offered was seemingly worthless promissory notes (the government's now infamous tax credit in failure or bankruptcy guarantee), that came with a substantially below-market rate of interest.

A promissory note of questionable value that no one understands? With an uncompetitive yield? In exchange for 40 per cent of the entire economics of the engine that saved Australia from the GFC. That's expropriation.

There is a dangerous irony in Kevin Rudd coming back. Rudd was already in the process of removing the RSPT when he himself was removed, allowing Julia Gillard to claim the credit. However, let's not forget Labor's and the Greens' original determination to introduce Mark 1. The surplus impact of this tax was rushed into the formal budget within days of its announcement. The Labor government was spending it before most people knew anything about its dreadful implications.

Now that Rudd is back and with the very strong support of the Greens (despite Bob Brown being fully aware of the devastation it would cause to the economy) this disastrous policy could be put back on the table. Like the secret Mark 2 deal, we can only wonder what the Greens-Labor preference deal contained.

Make no mistake, the Greens want this tax, and more, in complete ignorance of the necessity of a strong Australian economy.

Indeed, it was terrifying to see how the government, backed by the Greens, immediately returned Australia to a class-war scenario. The politics of envy was used in a crude attempt to wedge the electorate. Union and government advertising, funded through the misuse of so called "emergency powers", was mobilised even before the RSPT bomb was dropped. There never was any consultation with the mining industry.

Despite the Treasurer's (now seen to be ridiculous) claims at the time that he and the government consulted with the mining industry, they were in fact planning a co-ordinated government and union advertising campaign to cut down the very industry it was claiming to consult with.

Investment in Australian resources immediately became woefully uncompetitive to global debt and equity providers the instant Mark 1 was announced. Suddenly the taxman was elevated ahead of debt service obligations, threatening the very capital that creates the profits in the first place.

In an instant, debt financing became extremely difficult or impossible for all projects without extremely high rates of return. The Canadian Prime Minister joined other sovereign competitors to Australia in cheering our incompetence.

While the Mark 2 Super Tax may have modified the tax impost, like its original launch, the attempted defusing of the Mark 1 bomb has been shrouded in secrecy. It is an equally unfair proposal and the ability to model it, and in turn finance projects, remains debilitated by the lack of detail and transparency of the new arrangements.

We estimate that the marginal rate of tax has fallen from around 57 per cent (RSPT) to around 50 per cent (MRRT), but this remains a long way above the 40 per cent rate that is the next highest rate to be found anywhere else in the world.

The changes in the new tax are biased against infrastructure providers like Fortescue, who provide services to others, and so further handicap the market's ability to provide its own infrastructure. We'll become a nation that can't survive without the government teat. Also, Mark 2's debt finance benchmark advantages companies with large balance sheets, as opposed to start-up companies like Fortescue that rely on commercial finance to fund project and infrastructure development.

The government and the three multinational, multi-commodity resource companies negotiated a secret agreement that would absolve just those companies from paying much tax at all by way of Mark 2 for the foreseeable future. Those companies, and their associated industry representative bodies, were forced to sign secrecy agreements that prohibited them from discussing Mark 2 until after the election. Commentary with the media was banned. What could be so bad in that agreement with our government that the Australian people are not allowed to judge it until after they cast their votes?

A similar tax was brought into Papua New Guinea by the same people who supported this tax, only decades ago. It didn't raise a cent over all that time, but did successfully and efficiently deter investment. Unsurprisingly it was thrown out, but not before it cruelled investment in that country.

It's no surprise that since Papua New Guinea threw out its own Mark 2 mining super tax, international investment has been flowing back in and new project developments are flourishing.

In the face of that raw example, why on earth would any responsible political leader burden Australia with it now?

Australia, a capital-starved country, must bring in policy to rejoin itself to a reputation of responsible economic leadership. After all, there has never been a country that has taxed its way to prosperity.

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