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May 20, 2010

RSPT debate: Wayne Swan’s day of reckoning

My ALP contacts tell me that Treasury has had no experience in mining projects put together by the states and they genuinely had no idea of the impact of the RSPT, writes Robert Gottliebsen.

Yesterday, Treasurer Wayne Swan attacked BHP for its mining tax threats, which had been made by CEO Marius Kloppers in an interview in the Australian Financial Review.

To his great credit, last night Swan went to BHP’s Don Argus farewell dinner. On his way into the dinner, I spoke with him. He was critical of my comments on the mining tax and we expressed different points of view in a very frank way. However, Swan added that I had made factual errors. These columns are open to the Treasurer to put his point of view and correct any mistakes that he believes I have made.

In my view, the tide is turning on this tax and I believe it will be substantially amended. My Canberra contacts on the ALP side tell me that we should “watch this space”. Many ministers appear to understand that taxing retrospectively is a very dangerous tool and using a base return of about 6% before applying the resources rent tax is absurd.

My ALP contacts tell me that Treasury has had no experience in mining projects put together by the states. They genuinely had no idea of the impact of what they were doing. Exactly the same thing happened with insulation, where a different department had no experience of conducting an exercise of that particular magnitude.

Swan, in his BHP-attacking statement in the AFR, says: “It’s a bit rich when the company goes public with these sorts of dire predictions when in fact they’ve yet to go to the [Treasury design consultation] committee.”

Of course, the truth is that it was “a bit rich” for the Treasury to mount a $9 billion attack on the mining industry without any consultation.

Treasury will need the help of the big miners to get itself out of the mire. And it better bring the consultative project forward before we get hit with another wave of bear raids.

Finally, a word of sympathy for Swan. He has been a good Treasurer who, as with the mining tax, followed the advice of his department. Unfortunately, as many of his cabinet colleagues now know, that advice was wrong because it did not alert him to the inevitable consequences of such an action.

The government must deal with those consequences. If my Canberra contacts are right, that’s exactly what they will do.

But it is not easy because the government has spent some of the money already and also issued forecasts on the basis of the tax. Those forecasts will simply have to be amended.

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12 thoughts on “RSPT debate: Wayne Swan’s day of reckoning

  1. John

    Dealing with the consequences ought to mean dealing Ken Henry out of the negotiations.
    If the guy fucked it, you can’t trust him to fix it.

  2. Paracleet

    Hey Gottliebsen, go and look up the definition of sovereign risk. I want see the correct one chalked up 500 times at the bottom of your next story.

  3. Greg Angelo

    The problem with the Resources Super Profits Tax (RSPT) is not the concept per se, but the method of its introduction. Any mining company earning above the bond rate is to have its marginal tax rate lifted to 58 %. Mining company profits either form part of the dividend stream or are used to finance new development. The RSPT will appropriate a significant proportion of the risk margin factored into each mining project which compensates for the substantial uncertainty of future returns from these ventures. The returns are factored into individual shareholders’ expectation of future returns and form the basis of investment decisions including the funds in which most Australians have their superannuation savings.

    In part, the government is “mining” the future superannuation returns of every Australian to pay for its profligate budget expenditure, as well as creating uncertainty in relation to Australia’s sovereign obligations. The Prime Minister should go back to Rousseau and the concept of the social contract. Precipitous changes without consultation destroy trust, and the RSPT is no exception.

    Is absolutely ludicrous that the government would introduce such a tax without consultation and displaying a complete lack of understanding of business finance and commercial risk management. It would appear that the greatest exposure to risk management of the Treasurer and his Prime Minister have had years maintaining factional votes and the associated underlying problems mitigated by branch stacking.

    One can only assume appropriate Treasury advice was not obtained because anybody who has done Business Finance 101 would have an understanding of weighted average cost of capital, required commercial rates of return, and the
    required risk margins embedded in required rates of return for commercial undertakings.

  4. Mr Squid

    having gottliebsen commenting on taxes is like having bozo the clown commenting on the Olympic 100m hurdles. remember this is the fruitloop who tried to get John Hewson elected prime minister!

  5. Gavin Mooney

    Robert Gottliebsen writes: “In my view, the tide is turning on this tax and I believe it will be substantially amended… Many ministers appear to understand that taxing retrospectively is a very dangerous tool and using a base return of about 6% before applying the resources rent tax is absurd.”

    But where is the mining industry on all of this especially in practice and ignoring for a moment all the hot air from Andrew Forrest and co?

    In today’s Mining News ( the mining industry’s newsletter which is described as ‘authoritative, insightful, timely’ it states: “for now, it seems business as usual in the Australian mining industry (except, of course, for Andrew Forrest and one or two others who have taken the super tax very much to heart).”

    Rather than go along with Mr Gottliebsen, I’d tend to believe this ‘authoritative, insightful, timely’ source which is after all straight from the mining industry’s horse’s mouth – so to speak. Who does Andrew Forrest believe I wonder?

  6. Gavin Moodie

    Yet again Gottliebsen parrots the errors of big business to support their interests. The resource super profits tax is not retrospective but planned for introduction on 1 July 2012, more than 2 years away. Of course it would apply to assets already built, but this is hardly the conventional understanding of retrospectivity. On this argument any tax such as the fuel excise could be increased only for vehicles bought after after the announcement.

  7. Hoss

    Would I be correct in assuming that banking licenses (like mining licenses) give the holders a privileged position and the potential to earn profits in excess of the bond rate? Would I be correct in assuming that vehicle manufacturers have certain privileges (subsidies?) conferred on them by Government? If so, would it not be fair to ask these and similarly anointed industries to also pay a super tax?

    Whether the right is to dig minerals out of the ground, or to dig m0ney out of the borrowing public’s collective purse, the principle is the same.

    Also I have been told that dividends paid out of “super” profits will be taxed again in the hands of shareholders. Apart from introducing complexities for all companies and shareholders, the incentive for companies will be to limit dividends to those from the bond rate profit.

    Oh, and of course the bond rate changes daily.

  8. Jackol

    Robert Gottliebsen said ‘Of course, the truth is that it was “a bit rich” for the Treasury to mount a $9 billion attack on the mining industry without any consultation.’ Strangely enough, there was consultation, not least in the fact that submissions were open to the Henry review, the Minerals Council of Australia made a submission to the review requesting something along the lines of the RSPT.

    Further (see, treasury officials were out talking to the miners months before the Henry review was released talking about the rates and mechanisms. Tony Jones in the interview with Clive Palmer at the link above said:

    “I’ve got to put this to you. This figure out 40 per cent for the super profits tax. This was widely known quite a long time ago.

    “In fact, a treasury official named David Parker had a graph that he took to a conference of miners that actually showed that under this 40 per cent tax on super profits, instead of state royalties and replacing state royalties, miners would have actually paid less tax between 2001 and 2004 – more tax between 2005 and 2008.

    “So it appears that the whole idea behind this and perhaps the reason the Minerals Council asked for a tax like this is that when the mining boom levels off or declines you actually pay less tax.”

    So I would put it to you that Robert Gottliebsen is not being entirely accurate when he says that “Treasury mounted an attack … without any consultation”

  9. Gavin Moodie

    There is indeed an argument for a rent tax on all those who get higher income from government regulation, such as banks, tv stations and doctors. But arguably the miners are in a different class since such a high proportion of their revenue is from unimproved natural resources. Yes, there is some skill in extracting and shipping natural resources, but it is a modest proportion of the value of miners’ sales in comparison with other sectors.

  10. Michael

    Excellent article Robert – except for the third last paragraph.