Barnaby: The Economic Illuminati

9 Jun

Opinion piece for The Punch – Senator Barnaby Joyce, 7 June 2010:

The Mining Tax:  Treasury’s Own Love Formula

Every now and then, a select group from the economic illuminati retire to their monastic study and devise a splendid idea to try and pay off their previous splendid idea.

Splendid idea number one was to borrow so much money that we put ourselves in more strife than the early settlers in our desire to adorn the nation with an eclectic mix of rubbish that apparently was going to save us from Asia ceasing to purchase our minerals. The relationship between our stimulus and mineral exports was as clear as mud, but there was an emphatic defence of this fantastic proposition by Labor.

The Treasury corruption of the graphs depicting the relationship between our and other nations’ fiscal stimulus packages and the effect on their respective economies shows that when the graphs were corrected the relationship was hardly apparent. We really were sold a lemon on Labor’s “go hard, go early, go household strategy” in response to the North American and European financial crisis and are currently lumbered with in excess of $144 billion gross federal debt while on our merry way to in excess of $220 billion gross federal debt.

The next chapter in the Labor Party Magnus Opus was called “massive debt” and the next problem for Treasury was “how do we pay it off?” The Labor Party thought to increase their revenue stream in the most politically parochial way. They explained to Australia that the big miners are morally lacking, are exploiting the workers, and they as a government, Robin Hood – like, would restore the balance of fiscal morality. It would mean the partial nationalisation of our whole mining sector, however. They had it on good advice from the Secretary of the Treasury, that he had studied a theorem at high school that no matter how you flog this mining sector, it’s going to hang around and continue to support you.

The sobering reality is this, despite the Secretary of the Treasury stating that you can put taxes up in the mining sector and not affect the investment profile, he is wrong on this occasion. If taxes go up at an exponential rate to where they formerly were, people will make the logical decision to go where the taxes are less. If the Secretary of the Treasury tells you that a new tax will assist in cooling the planet, you really have to ask yourself if this is necessarily so. If you surround yourself with hedges of economic theorems and carpets of policy papers and spend your nights fanatically trying to turn human emotion into predictable mathematical models, and don’t recognise what is yelled to you as common sense by the peak industry groups, you will come unstuck when you find that your models don’t match their experience.

During Estimates one can get quite frustrated with well meaning pontificating by well paid bureaucrats about a perfect world they have created and what happens in it. This world has created a Newtonian expectation of preciseness to economics as required to match government policy desires. It supposes that gravity and economics are the same and that people’s actions are as predictable as other items of physics- like a mathematical model for love. Commonsense expectations on actions and reactions are put aside for superb anodyne reflections on economic issues. The basic premise that must be first applied when analysing the RSPT is this – if a miner can make more money in another venue, then to that other venue they will go. Unfortunately it appears that this statement of the bleeding obvious, that one cannot predict the economic speed of sound, has meant that a realistic gut instinct of what happens when you put a 40% tax on mining has not been followed.

The reality of the RSPT, which was blatantly obvious to virtually everyone, has now of course come to be in the actions of such companies as Xstrata in the reduction of their investment decisions in Australia. How can we believe the Labor Party’s lauding of their so-called management of the GFC and take for granted their endorsement that it was their school halls program that saved us from a recession, when it is the same Labor Government inspired brains trust that is creating this stuff up?

Dr Henry, in answer to my question at the Economics References Committee Inquiry earlier this week, stated that it didn’t matter whether the RSPT tax was at 40, 60 or 70 percent, as to how it would affect investment in Australia. I was left no choice but to believe that he was correct in his description of a theory but had completely departed from reality as to what was actually going to happen.

This new tax will not only be a bombshell to such mining areas as Gladstone, Townsville, Wollongong Newcastle and Mackay and the whole of WA, but ultimately it will affect those other big coastal towns such as Brisbane, Melbourne and Sydney as they come to the startling reality that these Labor Party splendid ideas are going to have dire consequences to the investment and export structure of our nation.

In the town of Wandoan, there are some farmers who are happy today due to the fact that a major mine is not going ahead and yes we should not be mining prime agricultural land because this is the ultimate non renewable resource. This Labor Party package was not to protect prime agricultural land but to prop up Treasury with a new tax. In fact the Labor Party hoped the mining would go ahead in Wandoan. However, there are some other families who were hoping that the income from the mine will increase their standard of living, and they are very unhappy, because Labor Party hopes are not their reality.

There were people who were going to build a $1 billion railway line from Wandoan to Banana and they are unhappy today as they are not going to build it anymore. There was supposed to be the development of a massive income stream to support lots of shops, chemists, school teachers, nurses, contractors, metal fabricators, diesel fitters and they are all going to miss out. They are all very unhappy. They are all unhappy because some group of individuals in Canberra decided that they were beyond questioning and resolute in a desire to inflict on the Australian economy what would have to be the most incongruous economic policy since the 1949 desire by the Labor government to nationalise the banking industry.

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3 Responses to “Barnaby: The Economic Illuminati”

  1. fluffy bunny June 10, 2010 at 2:53 pm #

    I’ll vote for you Barnaby. Your time will come.

  2. val majkus June 22, 2010 at 9:13 pm #

    Hi Barnaby; look forward to seeing you on Q & A next Monday; by the way don’t miss http://www.quadrant.org.au/blogs/qed/2010/06/why-ken-henry-gets-it-wrong
    by Peter Smith
    just to quote a couple of paras :Economic models use numbers of interrelated equations and data from the past. At their clumsy and proximate best, they provide a rough guide to what on average over a lengthy period might have caused what in the past. They cannot be used to predict the future (note to Henry re the RSPT). Nor can they be used to show what has caused what over any short time horizon. Nevertheless, we had Henry advising the Government that the wasteful stimulus schemes had created 225,000 jobs; not because anyone had actually identified and counted the jobs and assessed whether they represented a net gain in jobs, but because a model had said so. And, this misuse of modelling resulted in a complete fiction being put on the public record.

    Government spending will always be recorded in the national accounts as having contributed to output and growth, dollar for dollar. The economic models will always show that any increase in government expenditure creates jobs. That is the way the national accounts and economic models work

    Unemployed rose from 8 to 10 percent in the US despite its fiscal stimulus; and the stimulus worked to create many jobs we are told. In Australia, unemployment stayed well below early predictions; and the fiscal stimulus worked to create many jobs we are told. So we have quite different results but the same story.

    I often wondered where that figure of 225,000 came from

  3. fluffy bunny June 27, 2010 at 7:27 pm #

    “Splendid idea number one was to borrow so much money that we put ourselves in more strife”

    That’s how the system is organised

    Barnaby, as the one man with the gumption to tell Australians this key fact, can you tell us who owns the RBA?

    Who owns the Australian Dollar?

    The Fed is privately owned, as is the Bank of England (by a complex arrangement)

    So, who owns our money?

    Because if it was we Australians, then we would not countenance the debt foisted upon us.

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