BHP-Billiton and the Federal government might be denying there was political pressure over the Big Australian’s iron-ore contract cave-in to the Chinese yesterday, but history suggests otherwise.

The Chinese were outraged that BHP-Billiton wanted to double iron-ore prices and the last thing John Howard wanted was for this to overshadow his visit to Beijing next week.

The key relationship is between the PM and BHP-Billiton chairman Don “Don’t Argue” Argus, the National Australia Bank CEO who extended extra finance to the Liberal Party during the 1996 campaign. Pamela Williams’s book The Victory quoted then Liberal Party treasurer Ron Walker declaring at the time that Argus was “the backbone of this campaign”.

The NAB’s Liberal Party loan eventually blew out to about $4 million and Argus insisted that Ron Walker eventually took it over personally until the party’s finances recovered, as they invariably do when in power.

Argus might have been smarting that this loan and the employment of Peter Costello’s best mate Michael Kroger as a lobbyist wasn’t enough to trigger a change in the Four Pillars bank policy that would have allowed him to take over either ANZ or Westpac before retiring in 1999.

However, the relationship with John Howard remains very strong. When Argus unveiled the controversial $58 billion merger with Billiton, which the likes of JB Were declared constituted a $5 billion transfer of value from BHP shareholders to the tough negotiators at Billiton, John Howard immediately declared it to be “a marvellous merger”.

Howard formed this opinion after a personal and persuasive briefing directly from his mate Don Argus and suddenly a deal that was not in Australia’s interest received the strongest political support it could hope for.

Fast forward another couple of years and when John Howard decided he wanted to meet The Terminator, it was Don Argus who joined him at the meeting with Arnold Schwarzenegger to discuss whether BHP-Billiton gas could help satisfy California’s future energy needs.

BHP-Billiton is already in Canberra’s good books at the moment after the decision to trump Xstrata’s bid for WMC Resources, thereby alleviating political pressure to stop the dodgy Swiss raiders. BHP’s refusal to include a scrip option in its $9.2 billion bid will deliver a capital gains tax windful of about $600 million to Canberra, although Crikey is struggling to find a breakdown of past CGT receipts. We tried this part of the federal budget papers but can’t see the breakdown. We’d love to hear from anyone who can solve this mystery.

China is the key driver keeping tax revenue surging into Canberra because its extraordinary growth is forcing up the commodity prices that the Australian economy so relies on. When you talk about company tax revenue rising from $17 billion to $41 billion over a decade, BHP-Billiton’s surging profits make it the biggest single contributor, a title Argus used to hold when NAB was making more money than anyone else.

Sure, Canberra would have enjoyed extra tax revenue from a successful doubling of iron-ore prices, but John Howard appreciates the need to maintain some goodwill with the Chinese as an FTA looms on the horizon and he obviously persuaded his close mate Don Argus to share this view.