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.