Israel, spies and passports:
Denis Goodwin writes: Re. Yesterday’s editorial. In response to yesterday’s offerings in Crikey on the expulsion of an Israeli intelligence officer, can I reiterate what was written in your editorial that this is not about Israel. If this takes place regularly in the world but goes unnoticed then, that is very different to when it is publicly revealed in the international community. The issue then becomes an issue for all traveling Australians as we risk becoming known as a nation that allows Israel to use our passports in their espionage activities.
This does not dramatically alter our nations perspective on the Middle East but does send a message, as the Minister rightfully has done, to Israel not to involve us by the use of official Australian documents in their espionage activities.
John Carmody writes: The really shocking thing about Alexander Downer’s interview on PM on Monday night on ABC Radio, was that he was chuckling and giggling all through it. It’s a very serious issue yet he cannot take it remotely seriously. How seriously did he take other aspects of his responsibilities when he was Foreign Minister?
David Havyatt writes: Re. “The Israel lobby treats us like fools — and Israel will pay the price” (yesterday, item 2). The truly disturbing thing about Julie Bishop’s suggestion that Australia only responded to Israel’s counterfeiting Australian passports was due to the Australian government “currying favour within the Arab community” is that she believes it.
It would be bad enough if she was merely engaging in yet another case of dog whistle politics, but we instead have a Foreign Affairs shadow who is simply deranged.
RSPT, you know what it means to me:
Martin Gordon writes: Re. “Ask the Economists: what impact will the RSPT have on the Australian economy?” (yesterday, item 5). The May 2010 announcement of the so-called Resource Super Profits Tax (RSPT) and confirmation of its critical revenue impacts in the subsequent Federal Budget will probably be a good case study in how not to pursue a substantial public policy initiative. The consultation follows a declaration of a start date and estimated revenue, with sectors included that Ken Henry had recommended be left out.
I support a Resource Rent Tax (the technical and economically correct term to describe a tax on resource profits) but am surprised the Labor Government has not understood the tax implications for future resource developments, and the differential impact on various extractive industries from quarries to oil and gas fields.
The need to sell the tax as critical for funding superannuation and an emotional title for the tax as well is a throwback to the days when a degree of political bigotry blighted political discussion in our democracy. The tax is not necessary to fund superannuation at all; they are entirely unrelated, except for political spin purposes (miner bashing as opposed to bank bashing for a change).
More critically the tax is key in Labor Party priorities to bring the Australian Budget back into surplus, they are locked in. They have no wriggle room. The political timing is unbelievable and a godsend to an opposition.
I have been impressed by the number of well informed critics such as Profession Ross Garnaut (a resource rent tax proponent, and Labor’s choice for emissions trading advice) and a former ALP State Treasurer Keith De Lacy (who of late is associated with Macarthur Coal). Even though the mining industry proposed a profits based taxation regime to the so-called Henry tax review, it probably never imagined it would end up with such as mess, with state and territory royalties remaining, plus a new high rate of taxation across the whole sweep of extractive industries.
The sales pitch in the form of frequently asked questions (FAQ) suggests that the tax is good for miners, and that the government is sharing in your risk! This is nonsense, as overwhelmingly the risk is on the upside (why would the government be in it otherwise?). Even geothermal operators (amongst the few to benefit financially in the short term, welcome the exploration rebates offered) will eventually pay significant additional tax. The tax value factored into the budget gives the game away, expected revenues of $9B pa (at least) from 2013-14 which essentially finances any surplus plus any new Labor Government measures suggests that revenue is the major driver, not a wish to “share the risk”.
Whilst proponents of the tax talk down the price impact of the tax on exports (and even electricity prices, and they are largely correct on this) with quarries it is likely to lead to small price impacts on building materials, from houses, buildings and infrastructure which all use such products. These will affect ordinary people directly.
The returns in various extractive industries vary enormously; quarries would be at the bottom of returns, whilst petroleum elsewhere in the world the returns are high enough that overall nominal tax rates of 80% may apply. A more nuanced regime of rates for particular industries may be in order (Garnaut agrees), or a higher risk return factored in. The proposed resource tax and corporate rates would lead to a 56.8% effective rate at most. Even if the tax payable is nil, or very small the administration will not be inconsequential, so for small operations it will be a burden.
In a way the timing of the measure just before a Federal election is a means of the Labor Party demonstrating its commitment to something (which has been tested by a range of backflips of late e.g. emissions trading, childcare, insulation, etc). The impact of the tax is several years away in the Budget (just in time for a 2013 election to finance sweeteners).
The Coalition could point out that the proposed increases in compulsory superannuation vary considerably from the 1992 Paul Keating script which was a 9% employer contribution, a 3% government contribution and a 3% employee contribution. Whilst currently trying to sell a ‘something for nothing’ message to voters (the 9% to 12% employer contribution over 10 years), the reality is that the employer payments are foregone wages, and they will impact on consumer prices and taxes for taxpayers (e.g. for publicly funded activities such as aged care, hospitals and schools with higher costs).
The 3% government contribution mutated into a co-contribution scheme (which the Coalition introduced), which provides some equity to low income earners, whilst the employee contribution would considerably enhance employee interest in superannuation and business matters as their own contributed money would be at stake. Whilst the Labor Party pats itself on the back for superannuation, it does not draw attention to the considerable tax take that it introduced with it, the three stage — contributions, earnings and payout taxation (with only the latter lessened by the Coalition for those over age 60). With superannuation there is a familiar pattern of Labor taxes and Coalition tax reductions.
The resource tax will only apply to Australian resources, so there could be interesting situations where depending on the tax regimes in place overseas (something economist Nicholas Gruen also picked up on), some companies may prefer to develop overseas operations rather than Australian ones. Supporters of the tax point that the share price impact on resource companies to date has not been great, but if I reduced your after tax profits by up to 20% (as seems the case with some miners, big and small), there must be some impact. Miners are cranky about the in effect retrospective impact of the tax, I would be too.
I think the Labor Party and Treasury has underestimated the downside risks to investment decisions, having been taken in by the overall revenue target that it is expected. As Australia is heavily dependent on foreign capital inflows to finance investment, the apparent lack of awareness of the potential impact of the tax is astonishing.
The political impact might be significant too, as it is just not the resource region, but many fly-in-fly-out miners live all over the place, including metropolitan areas, and the financial impact on suppliers of services to the industry, plus superannuation returns from diminished mining profits will bring a political bite too.
The Greens have predictably leapt into support the tax, but I wonder if they have actually read any of the material that backs it up. Treasury commissioned accounting firm KPMG, and surprisingly the new tax will apparently reduce prices (CPI) by 1.1%, whilst increasing production, wait for it — for coal production by 14.4% and oil and gas by 4.9%. How this will sit with the guardians of the environment I can only guess but I am sure they will not be entirely happy with this area of growth. Curiously (except for economists) the resource tax increase and the company tax decrease will both contribute to the increased production, something which may take some explaining for the ordinary punter.
The RSPT has many more acts, chapters, and 24 hour media cycles to go. The cack handed management of it is just breathtaking. The lust for revenue by Labor is consistent with the performance of previous Labor governments in the form of introducing new taxes. Whilst the affected industry is special pleading, I don’t know of too many people that would quietly accept a 20% cut to their income, which is basically what the government is saying they should accept. By the way the 20% cut will flow onto dividends to superannuation funds etc; I have not noticed the Australian Workers Union (AWU) ads mentioning that at all — funny that.
Bryan Buchanan writes: Trying to become more informed on the merits of the RSPT, I read the Minerals Council Guide to Super Tax, and was rather surprised that it shows the royalty paid by miners, which I assume is typical across the industry, is only 5%. So 95% of the value of what the miners dig up, is theirs.
For sure there are significant costs associated with exploration and extraction, but the miners don’t create the minerals, generally don’t value add and yet get to keep 95% of the value. I think the average punter would be equally surprised as I was that a community owned asset was so “equally” shared.
It’s little wonder that the big miners are so astronomically profitable.
Gavin Greenoak writes: I am one of those old fashioned cloth and coat fellas, who knows that if I’ve not got the cloth then it’s really no good going to a bollock naked Emperor. But when I have got the cloth, and the Emperor wants a few bolts of it, then my coat size is going to have to change in the smaller direction. How the Emperor approaches will be important.
The Aussie dollar:
Niall Clugston writes: Re. “Economics 101 on the rise and fall of the Aussie dollar” (yesterday, item 3). I don’t completely buy the analysis offered by Bernard Keane and Glenn Dyer (Tuesday, item 3).
They make the interesting point that “The Aussie is the world’s sixth most traded currency, while we are about the 20th largest economy.” But why is that? I suspect it is because it is easier for the currency traders of Wall Street and the City of London to speculate in the currency of an English-speaking country.
They can follow our news. But they wouldn’t do so at any depth and wouldn’t know that the RSPT policy “had been well leaked for more than a month before it was announced”. The headlines indicate investor disquiet, and that’s enough to start selling.
I don’t believe the Australian dollar is “important”, even less that it is a “global proxy for risk”. Rather the US dollar is still superficially considered a safe haven, even though it has been declining in the longer term. So it surges, and the our dollar falls. The other factor has been the (speculative) news story that interest rates here may have peaked.
In short, rather than being some omen to be interpreted, the fall of our dollar is merely the result of some short-term speculation of a few fairly ignorant people a long way away.
PMs at war:
Matthew Lee writes: Roger Colman (yesterday, comments) wrote: “Lastly, when it comes to putting some business executives in charge of the country, that is exactly what happened in 1939-1945 when the Curtin Government essentially delegated the running of the war effort…”
Quite frankly I’m stunned — I didn’t realise that Robert Menzies, as Prime Minister for the first two years of world war two (and Arthur Fadden for another 40 days after that, just for the pedants), had first delegated the war effort to John Curtin and his then non-existent government. Thanks for the history lesson Roger.
Gabriel McGrath of JustOneMoreGame writes: The annual CeBIT (Information and Communications Technology) conference is currently taking place in Sydney. On Monday night, the NSW Government hosted drinks at the art gallery, and the night’s entertainment may raise a smile amongst the Crikey readership. What was it? Two men dancing a tango, while a blonde looked on, in annoyance. Remind you of any recent news stories?
Mitchell Holmes writes: Re. “Tips and rumours” (yesterday, item 6). Would it be easier perhaps to start listing locations from which newspapers are actually sold? Perhaps it would be a shorter list!
Harry Goldsmith writes: Re. “Ask the Economists: what impact will the RSPT have on the Australian economy?” (yesterday, item 5). JP Morgan chief economist Stephen Walters is concerned about the possible destruction of “Australia’s golden goose”. I think he means the goose that laid the golden egg. One should not use a metaphor unless one understands it. It detracts from what else the writer says.
Kim Lockwood writes: Re. “Tips and rumours” (yesterday, item 6). Crikey published: “How to beat a hiring freeze. Victoria’s Department of Primary Industries is continuing to flaunt parliamentary scrutiny of caps …”
No. The department is continuing to flout, not flaunt, the scrutiny. Journalism 101.