Dear God, its an emergency. Its all hands on deck, every man to the barricades, all hands to the pumps and every finger in a dyke. Australia faces a disaster the likes of which it has never before seen. I'm doing my part, I'm pumping barricades like crazy which isn't easy with both my hands on the deck and as for the dyke, lets just say I'm lucky the police weren't called. Fortunately our federal government is on the case. They have leapt into action and launched an advertising campaign. The emergency I refer to is the insistence of the mining companies in saying bad things about the governments proposed new tax. To ward off the collapse of civilisation as we know it the government has used emergency powers to permit them to use government (ie, our) money to fund an advertising, sorry "public awareness", campaign to point out what should be the self evident benefits of the new tax.
Since the new tax will fall on the mining industry they have, unsurprisingly, been a little miffed and have alerted the public to this state of miffedness through statements by various CEOs and an advertising campaign of their own. Responding with a level of hysteria that seems a little over the top the government has accused them of lying through their teeth, of paying a criminally low amount of tax and demanded 38 million advertising dollars to set the record straight.
So where does the truth lie? Where do the lies lie? What the hell is going on? The answer is simple; the tax is another quite clever idea which the government has attempted to implement with its characteristic clumsiness and incompetence. I find it difficult to remember a government with so many good ideas that it has managed to bugger up so badly. Of course the mining companies don't like it, do you like paying tax? However they would probably have been prepared to accept it if the bloody stupid bits had been removed. Having cocked up or backpedalled on pretty much every idea they've had so far the government has dug in its heels over this one and has effectively declared war on the most productive part of our economy.
Speaking from a position of pure ignorance the situation seems to be as follows; the new tax is touted as being a tax on super profits. That is, its an extra tax on those profits over and above what the government considers to be a reasonable profit for an industry to earn. So far so good, there's a mining boom going on and minerals companies are raking it in. The problems appear in the details, firstly the government seems to consider about 5.9% to be a reasonable profit. This is based on the return on government bonds which, at least in this country, are some of the safest investments in the world. The mining companies, understandably, have pointed out that if they wanted that sort of return they wouldn't spend billions looking for minerals, they would simply buy government bonds. Mining demands a vast capital investment with no guaranteed return and when a return comes the investors want the profits to reflect their risk. Secondly, apparently the tax is to be levied on existing operations rather than just on new ventures meaning that a lot of the figures the companies relied on when working out the profits from what they're doing right now are meaningless.
Of course the mining companies haven't helped their position by claiming that if the tax is imposed then everyone in Australia will die in poverty tomorrow. The CEO of Rio Tinto claimed that this tax has raised the sovereign risk of investing in Australia's mining industry to the highest in the world. This is patent rubbish although since the guy who made that statement was the one who damn near managed to bankrupt Rio Tinto in the middle of a commodities boom its entirely possible he believes it.
For those who don't know, sovereign risk is basically the finance industries measure of exactly how barking mad the government of any country is. The crazier the government, the more interest they will charge on finance for investments in that country due to the increased risk of the government doing something that will completely screw up the original basis of the investment. Such as introduce a retrospective tax for example.
The mining industry overstated their case but they had genuine concerns which a little consultation would probably have been able to relieve. The government screamed to the heavens and claimed that the minerals industry was paying a ridiculously small amount of tax and backed this up with an academic paper prepared by a couple of guys in North Carolina. Said guys pointed out that their paper was an academic study that didn't include all the data and wasn't meant to be used as an actual guide for tax reform. Oddly the government didn't think about asking the Tax Office how much tax the companies had paid.
My personal opinion, impose the tax on new projects only and have it cut in at about twelve to fifteen percent. Unfortunately the government has already spent the money and if they backflip on one more thing they're going to look like a circus sideshow. So now we have an emergency, I have bought a hard hat and a whistle. When society collapses I will be ready, I'll use the hard hat as a begging bowl and the whistle to attract dogs which I can then kill for food.
In unrelated news Serena Williams has just won her latest round in the French Open despite appearing to be unwell. I don't think I have yet seen a tournament when she was in perfect health.
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