Isn’t it annoying when things don’t go according to plan?
Normally the Australian Financial Review’s Business Summit this week would have been a gathering of business heavyweights (which, by the way, you can “volunteer” to work at) to demand the usual big business agenda — company tax cuts, IR deregulation, handouts for industries, etc. Inconveniently, however, it was overtaken by the gas “crisis”, which has turned from the subject of a government scare campaign into a major policy problem caused partly by the government’s inability to manage its internal divisions.
Worse, both David Gonski and Elizabeth Proust used the conference the undermine the case for corporate tax cuts by stating what should be blindingly obvious but what proponents of tax cuts for multinationals prefer to keep secret — that tax rates are only one of many factors in business investment decisions.
Furious at this sidetracking, the AFR ran an angry editorial today railing at Labor and declaring that company tax cuts would “reduce the budget burdens on future generations” — and gave summit sponsor BHP a free kick in its op-ed pages. Sadly, the effort by BHP chief financial officer Peter Beaven only serves to draw attention to some painful issues for The Company Formerly Known At The Big Australian.
Amid the standard corporate pablum offering such insights as “jobs are a fundamental building block of the Australian economy” (actually, Peter, we think most people see jobs as the key output of the economy — we don’t exist to serve the economy, it exists to serve us — although that’s probably a contested view in the multinational boardrooms), Beaven claimed “cutting company tax would help Australia create nation-building jobs”. ”Australia’s decline in investment is not confined to the resources sector,” goes the Gospel According to Peter. “This is a national problem that, without action, could become an economic crisis.”
Well, as we’ve pointed out innumerable times about company taxes, no advocate has ever offered a skerrick of proof from the many countries that have cut company taxes that it increases investment, jobs, economic growth or, for that matter, magically increases tax revenue. And Beaven ignores that the key reason investment is declining (and it’s not strictly true that other sectors are also declining) is that we’re still coming down off the biggest investment boom in Australian history, one seemingly unhampered by our disastrously high rate of company tax, during which — at least in the Labor years — Australia was regularly rated as the world’s best destination for mining investment.
But more to the point, Beaven — who boasts “I am accountable for recommending the allocation of capital for every material investment BHP Billiton makes” — is rather reticent about BHP’s own investment record. Because BHP has blown up tens of billions of dollars in investment here and overseas.
For example, in 2009 BHP wrote down the value of its Raventhorpe nickel mining project in Western Australia and the Yabulu nickel refinery (later sold to Clive Palmer for next to nothing) by around $4.3 billion (US$3.62 billion). Three years later it wrote off another $432 million (now well over $500 million with a weaker exchange rate) of its Nickel West business.
And it has spent more than US$37 billion on buying and developing US shale oil and gas businesses in the past seven to eight years — with nothing to show but a string of losses and weak to non-existent returns. In the middle of 2016, it wrote off another US$2.8 billion from its gas assets, following a US$7.2 billion write-off at the start of 2016, with total impairments now more than US$15 billion — well over A$20 billion at current exchange rates.
“Shale was not a good investment, we paid too much, and then we invested too much because we were all chasing a very, very high oil price… Unfortunately, you [shareholders] have paid the price, as we have,” said one BHP executive last year — that executive being Beaven himself. But he’s happy to lecture us about why we’re deterring BHP investment with our punitively high company tax rate.
There were many smaller cuts and write-downs in Australia on smaller projects, such as coal mines in Queensland and other projects, which have led to the loss of tens of thousands of jobs — sorry, fundamental building blocks — in Western Australia, South Australia and Queensland in coal, nickel, copper/uranium and iron ore.
These write-offs, the product of an investment rush to beat the company’s rivals into expanding capacity or building new mines, fields and plant (while complaining about the high cost of labour as they furiously bid for it in the boom) aren’t just paper losses. They have weighed down on the Australian economy ever since, generating huge depreciation and tax losses to shelter earnings for years to come and starve the government of revenue.
And we’re a little surprised that Beaven mentions how Brazil is scoring increasing mining investment compared to us, given BHP’s role in the Samarco disaster and the fact that the United Nations chipped the company for its response less than two months ago.
Another business figure, Business Council chair (and now BHP director) Grant King, stuck his head up to blame the gas problem on too many renewables and too little fracking, demonstrating that good old-fashioned “dig it up and bugger the consequences” mentality still thrives at the top of the business tree. But hang on, wouldn’t that be the Grant King who as head of Origin Energy was the man responsible for billions of dollars of write-offs and losses — especially on Origin’s Queensland coal seam gas LNG project, one of three that has caused tens of billions to be written off because of over investment? And it is those three projects and their LNG exports that are behind the current gas crisis/energy supply scare.
And let’s not forget AGL, which is currently making a song and dance about gas supplies, forward sold its gas reserves from its Queensland projects to the Origin LNG project for 11 years — starting in January this year. Without that deal, the company could have been supplying considerably more gas into the domestic market.
Corporate hypocrisy at its best.