For Twiggy, war on Labor and MRRT remains an option
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Andrew Forrest seems like a guy walking around Pitt Street wearing a Hypercolour T-shirt and listening to a Sony Walkman. While the business community and much of the industry has moved on after the creation of the MRRT, Twiggy remains devoted to the cause, threatening to re-declare war on Labor with another mining advertising blitz. While the MRRT is not without flaws, Forrest’s claims seem somewhat ambitious. For a start, by reducing the scope of minerals covered by the new tax, the federal government also minimised the number of effected companies from more than 2500 to only 320. Further, the vast majority of the tax is being paid by BHP, Rio Tinto and Xstrata anyway, so the ability for Forrest to cobble together a rag-tag bunch of aggrieved iron ore and coal miners to challenge the government appears a difficult challenge. The proposed vehicle for Forrest’s alleged advertising blitz is the Association of Mining and Exploration Companies — the umbrella group for small and medium miners. Some of the Association’s members include mining heavyweights such as Gunson Resources (market capitalisation: $10 million), Atlantic Gold ($14 million) and Fairstar Resources ($55 million), several of the other listed members of the AMEC’s website no longer appear to be trading on the ASX. One doubts whether AMEC will be able to afford advertising space on MasterChef given its relatively lowly membership base. Twiggy has also got it wrong in another respect when he raised doubts as to the ability of the tax generate revenue for the government of $10.5 billion. Forrest claimed: If it fails to achieve that revenue, where will the money come from? More than likely it will come from a redesign of this tax proposal — it will come from greater demands on the iron ore and coal mining industry. The point Forrest was trying to make was actually a good one — the rarely mentioned “sovereign risk” element, which is caused by the MRRT. The sovereign risk argument, a key criticism of the RSPT has been completely ignored by business commentators and politicians in the new iteration of the tax — this is especially surprising because the MRRT does raise a real risk that may curb investment in certain mining projects. While the mining lobby was especially critical of the RSPT leading to an increase in Australia’s sovereign risk, in reality, this most likely would not have been the case. For all its flaws (and there were many), the sovereign risk attaching to the RSPT wasn’t especially significant because the tax itself was very far-reaching. It was set at a high rate and covered all minerals mined on-shore. Also, the risk that the government would increase the rate of tax was mitigated by the fact that it was already levied at a high rate (these arguments were made, but poorly explained by the government in its RSPT documentation). By contrast, the MRRT gives rise to a significant sovereign risk. That is, the risk that if commodities prices slip and revenue generated by the new tax is low, the government may impose the tax on other metals (such as gold or copper) or increase the rate of tax, or remove the extraction allowance (which effectively reduces the rate of the tax to only 22.5%). Twiggy may very well have a point about the MRRT — he just has two problems: first, he doesn’t realise it, and second, he doesn’t have enough rich friends to help him out this time. |
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11 Comments
Adam states:
By contrast, the MRRT gives rise to a significant sovereign risk. That is, the risk that if commodities prices slip and revenue generated by the new tax is low, the government may impose the tax on other metals (such as gold or copper) or increase the rate of tax, or remove the extraction allowance (which effectively reduces the rate of the tax to only 22.5%).
Soverign risk? Good grief! The option of increasing tax, diversifying tax or creating a new tax is an option available for every government every day. Adam, subject to the constitution, the Government could tax anything at any rate. On your argument this broad plenary power should have foreign capital heading for the hills! Yet somehow Australia is still attracting foreign investment.
I suspect this is the reason why Twiggy hasn’t run with your argument….
Opps. Forgive the spelling of “sovereign risk”.
I understood that sovereign risk was all about governments not being able to pay their debts.It relates to international transactions, not domestic.Am I mistaken or are these people just talking bullshit?
These people are talking bullshit, DavidK.
Adam Schwab has made a rare strange error, because it is completely inappropriate to refer to sovereign risk in this way. As has been pointed out by others, when the boss of (Rio or Woodside, I forget) first raised it as a scare tactic, the IMF and World Bank do not even include Australia on their lists of countries rated for sovereign risk — ie. because it is utterly unlikely we could ever pose such a risk — it is immeasurable for Australia. The word refers to countries unable to renege on their sovereign debt, ie. our government’s foreign borrowings. The kind of thing that Argentina did a while back and Greece was at risk of until rescued by the EU.
Personally I think it is totally reprehensible, irresponsible and amoral of those mining chiefs to resort to these totally unfounded scare stories. As has also been pointed out by sensible financial commentators Rio, Woodside and BHP-B all have considerable projects in all sorts of countries which have actually serious sovereign risk, so add hypocrisy to the charge sheet. It is disappointing to see Schwab perpetuating this nonsense. Whatever risk he may be referring to it is not sovereign.
Adam Schwab has, in a most unprofessional way, continued doggedly to misrepresent his argument (whatever it may be) as “sovereign risk.
It ain’t sovereign risk, not even nearly or approximately or kind of.
Adam, please grow up and use language properly.
More to the point, given the reaction to the MRRT deal from the MSM and much of the public was ‘what about the other 7.5 billion dollars?’, I think the boat has sailed on trying to water the MRRT down further or get it killed off.
It was quite funny to watch Twiggy say words to the effect that Fortescue had previously ‘stayed out’ of the debate. Being the poster child of the anti-tax campaign was staying out of the debate hey? If you’re going to pretend to be in the big league, and if you try to use financial clout and propaganda to subvert the process of government, don’t be surprised if you get burnt somewhere along the line.
Bottom line for us plebs is he one very rich m**********r,despite his protestations.
@ Jackol
I recall reports of Triggy boasting (immediately after the removal of PM Rudd) that he and Kev had been negotiating on the RSPT and were on the brink of an agreement.
Does that constitute Fortescue staying out of the debate - or doesn’t discussion with a Prime Minister qualify as participation? Let alone leading a street march dressed as, bless his cotton socks, an actual miner.
Wait, so who is Twiggy barracking against? The party that will increase his company taxes or the one that will raise his employment costs by cutting immigration?
The ‘sovereign risk’ argument is bogus. There is no real risk to the already obscenely healthy mining profits in Australia, due to government action. That is a standard threat made by the already rich just jockeying for an even better outcome (for them).
If Twiggy, et al, don’t like it, they can always move into another business. Given the mining industry is already the most profitable major industry in Australia (and then some!), I suspect they will stick it out and limit themselves to one new Ferrari a year instead of two. If not, there will be no shortage of other companies happy to take up the mining leases under the new and still highly profitable mining tax system.
Greedy, narrow minded tosser.