I said earlier this week that you couldn’t believe anything the mining industry said in the mainstream media about the Resources Super Profits Tax. I didn’t expect to be justified in that quite so quickly. The mining industry campaign against the Resources Super Profits Tax went over the top today, and paid the price.
Rio Tinto executive Sam Walsh was the man in the hot seat. “We’ve got our projects on hold while we try to understand the ramifications of a 40 percent increase in taxes,” he was reported as saying yesterday. The smear machine at News Ltd lapped it up. “Rio Tinto shelves billions in projects,” it shrilled. News Ltd wasn’t the only one. Bloomberg ran it (sans the hysteria) and so did Reuters.
So where was the disclosure of this massive decision to investors? Surely this was material — massively material — to the company’s share price?
Well there was a Rio announcement yesterday to the ASX. “We will comprehensively analyse the potential impact on our business of all of the government’s proposals and want to play a proactive, constructive role in the consultation process outlined by the government,” the statement concluded.
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Not a word about putting anything on hold. Where was the disclosure?
Just like yesterday’s press coverage suggesting Cape Lambert Resources was turning its back on a $10 million-$15 million Australian investment in favour of Sierra Leone — which turned out to be that it wasn’t proceeding with a $1 million, three-man drill operation — this turned out to be a crock as well. Rio backtracked at a rate of knots this morning. Reuters reported Rio spokesman Gervase Green as saying:
“Mr Walsh said that we need to understand and need greater clarity on what is being proposed, but he hasn’t shelved. We haven’t made any investment decision on our next stage of expansion of the Pilbara.”
Rio’s statement to the ASX was quite correct. There’s a consultation process with the government over the details of the RSPT. If executives are making investment decisions before there’s even been consultations on the final shape of the taxation arrangements, investors should be demanding to know why.
Let’s be clear about what the RSPT involves. This is economic orthodoxy. The current resource royalty system is a seriously bad tax. The Henry review calculated that for every dollar raised via royalties, we lose more than 70 cents in marginal consumer welfare — more than any other tax, even state government nuisance taxes. And a similar tax to the RSPT, the Petroleum Resources Rent Tax, has been operating since the 1980s in the petroleum industry with, apparently, no ill-effects on that industry. Even Clive Palmer — he of the magical disappearing South Australian mining project — liked a resources rent tax in February, when he said “we’ve got to make sure that our resource revenue … flows into community benefits for the general person.”
And the tax will constitute less than 8% of the industry’s revenue at most. According to the Minerals Council of Australia, this financial year the industry will generate $109 billion worth of exports. Using this as a basis for calculating the impacts of the tax in 2013-14 — which is wrong because global growth has severely hit mining revenues this year — the $9 billion forecast to be generated by the tax in 2013-14 will be about 7.3% of industry exports that year. The real figure will be far smaller because the commodities boom will pump industry exports up rapidly off their current low base.
And by the way, that’s on top of the benefit the industry will get from the shelving of the CPRS. Remember how, according to the mining industry, the CPRS was going to cause massive dislocation and force the closure of mining projects? Well, that’s gone now, so the industry will be in stronger shape than ever.
The mining companies and the right-wing media can keep trotting out this garbage and we’ll keep pointing it out. Crikey will be keeping a running tally of the lies peddled by the mining industry.