Quite clearly the debate regarding the Resources Super Profits Tax (RSPT) in Australia and abroad has not died down. Despite what the Government would like people to believe, it is not just the foreign mining companies that are opposed to this new tax, but also small Australian mining companies, business owners and the public in general.
The Resources Super Profits Tax is quite simply a tax grab which the Rudd Government has tried to disguise as some honourable way to redistribute wealth from the nasty foreign mining companies, to the average man or woman on the street.
Ken “the armchair businessman” Henry reckons that a life spent behind a desk in Canberra has given him unique insights into how the global economy works and therefore in the parallel universe his lives in, increasing taxes on successful mining companies will actually encourage them to invest more in Australia.
The masters of the RSPT disaster are a group of people who between them have never run so much as a hot dog stand. Rudd, Swan, Gillard, Tanner and Henry have no experience in running a business or any significant private sector experience, yet they believe they know better than anyone else how to manage an economy. It’s truly a scary situation.
This group of power hungry people have a shared common belief that the government should have greater control over our daily lives and the private sector. They also believe that if we give them vast sums of money then they can spend this money wisely and work miracles. This is because most of us are far too stupid to understand the magnificence of their ideas and planning.
Those who do not appreciate that greater government control over their lives is necessary for the good of the nation will be invited to attend training at the Rudd Institute at the Australian National University. (okay, I made this up, but you get the point right?)
But I have wandered off subject so let me get back to why I believe the RSPT is a stupid tax. To do this, allow me trash the arguments or myths put forward by the Government, Henry and their supporters used to justify this new tax.
Resource Profit Tax Myths
Myth #1. The aim of the tax is to give all Australians a fair share of the wealth created from the resources sector.
Okay, if this were truly the aim of the new tax then the Government could simply give all of us a tax rebate each year based on how much money they collected via the RSPT. But since the money will actually flow directly to the Government then the idea that the tax will benefit all Australian’s is simply a lie.
In truth the money will flow towards a range of projects and millions will be wasted either by mismanagement (i.e. just like the home insulation program) or be spent on dubious projects in marginal electorates to effectively buy votes.
Anyone who seriously believes that the RSPT is genuine attempt to give Australian’s a greater share of the profits generated in the mining sector must be chewing on the same magic mushrooms as Ken Henry.
In any case, Australian’s already benefit from our mineral wealth via existing taxes & royalities and indirectly via Superannuation for example. In addition, Australian’s are able to buy shares directly in companies like BHP & RIO and perhaps this would be a wiser use of national wealth as opposed to purchasing imported flatscreen TV’s, imported iPad’s or heading overseas to Bali?
Myth #2. The tax is meant to stop foreign companies sending their profits offshore.
Nothing illustrates the twisted logic of the Government quite as well as their attempts to convince the public that they are trying stop or limit mining profits heading overseas. Then in almost the same breath, Government Ministers say Australia is still open to foreign investment and welcomes foreign investment in the mining sector. I am confused..aren’t you?
So what Rudd, Swan and the other clowns are effectively saying to foreign companies, fund managers and banks etc. is: please invest in our mines, but if your investment pays off well, we are going to tax you heavily. (oh and we are going to portray you as greedy money hungry foreign devils for political purposes)
It seems to me that if you really wanted to stop money heading offshore you could simply limit the stake that foreign interests could take in mining projects.
But the truth is that the Government has actively been talking up Australia as an investment destination and has approved the foreign ownership structure of such enormous ventures such as the Gorgon project.
So as a nation we have been out selling Australia as a great place for foreign companies to invest, we have allowed them to take majority stakes in a whole range of resources related projects but we don’t want them to take any profits back home.
It doesn’t make sense does it?
The RSPT will probably reduce money heading offshore, but it will also reduce dividends paid to Australian based shareholders and Superannuation funds as well reduce the money flowing into businesses that support mining projects in Australia.
It called biting the hand that feeds you.
So the RSPT won’t stop money heading offshore and will cause just as much pain in Australia as it will to shareholder/investors overseas.
In addition, if the tax is truly aimed at reducing how much money heads offshore then why aren’t all foreign owned companies subjected to a super profits type tax?
Finally don’t forget that all major car makers in Australia are foreign owned and send their profits offshore. Are they going to be hit with a super profits tax? No. In fact these companies receive tax breaks and grants courtesy of the Australian tax payer.
So it seems it’s okay to send profits offshore, as long as your not a mining company.
Myth #3. The tax will create growth in the mining sector.
Need I even discuss how crazy this idea is?
Apparently the logic behind this myth is that the extra tax collected from the miners making “super” profits can be used to offset losses for mining ventures that are basically not doing so good.
But this concept just illustrates how little Henry knows about business or understands what motivates business people.
Most of us business or company owners don’t plan on going into business with the sole aim of collecting tax deductions or tax offsets etc. We go into business to try and be successful, i.e. generate profits.
This is one reason why even the small mining companies that Rudd thought would support his new tax grab are not happy. Because at some point they aim to generate profits, and you can be sure that people don’t invest years of effort and a small fortune getting a mine operational just to earn a 6% or less return.
So the big mining companies will rethink their plans to invest further in Australia, and as we know now, they are already putting projects on hold and even cancelling some. The small mining companies will wonder if all the hard years in front of them is really going to be worth it since if they do make the big time, they are going to be taxed heavily.
But the knock-out “myth-buster” for the suggestion that the tax will create growth is simply this. If the RSPT will truly drive growth in the mining sector then why not apply to same tax to other sectors of the economy? Heck, why not apply the RSPT to every industry and every sector?
Of course an extra tax won’t drive growth, the whole idea is complete nonsense. The only reason the RSPT is on the table is because the Government needs money. It’s that simple.
Myth #4. The tax won’t/hasn’t affected the stock prices of Australian mining companies.
David Koch (from the Channel 7 Sunrise TV show) is one of the few market commentators around that supports the new mining tax and he also argues that since mining stocks on the Australian stock exchange have not fallen any more than most other stocks, that the tax cannot be said to have adversely affected Australian mining stocks.
The serious problem with Kochie’s logic in this area is that big mining companies like BHP have global operations and are not 100% focused on Australia. So if the RSPT comes into force they can look at moving production elsewhere, therefore they can protector shareholder value in this way and thus the hit on their share prices will be reduced.
But if you look at companies that only have operations in Australia then the story is very much different as The Australian reported on the 5th June in an article entitled: Local mining stock values plunge 12pc
According to the article:
“THE market value of local mining companies that operate solely in Australia has plunged 12 per cent since the Rudd government announced its controversial resources tax plan on May 2, as international fund managers reassess their Australian investments.
However, the market value of miners that operate mostly overseas only dropped 0.9 per cent over the same period.
In an analysis of the top 150 ASX-listed resource companies excluding oil and gas companies, Gresham Advisory Partners found the results were consistent with industry views that the new tax would increase the cost of capital for domestically focused miners relative to those with offshore projects.”
Therefore it is quite obvious that the proposed tax is causing havoc with mining stock prices and that overseas fund managers are clearly looking to get out of stocks that are likely to be hit hard by the RSPT.
So this myth is also well and truly “busted”!
I am not saying that the mining companies could not be paying more in taxes, but to suddenly announce such a tax during a time of global economic uncertainty and without a lot of consultation with the mining industry is just plain stupid.
The Ken Henry Taxation Review has now turned into a complete debacle and a lot of the blame for this has to fall onto the shoulders of Ken Henry himself.
Henry has either willingly or unknowingly become a pawn of the Government and has shown time and time again, that he just doesn’t understand how business works. He might be a great bureaucrat, but it is very clear that he is out of his depth when it comes to understanding how his policy suggestions will impact the real world.
His staunch defence of the RSPT has now undermined his independence and it is not his role as a public servant to be launching counter attacks against those who oppose his tax plan.
Therefore I believe it is time for Ken Henry to either resign, be stood aside or sacked. We simply can’t have the Head of Treasury openly supporting or pushing policy like he/she is somehow a member of Government.
Personally I don’t think the Resources Super Profits Tax (RSPT) will ever see the light of day in it’s current form. But I do hope it makes the public realise that the Government is over-spending and that this tax, is simply a way for Rudd and Co to fund a series of policies aimed not at doing much good, but keeping them in power.