Tag Archives: mining boom

Swan Hides Budget Risk

17 May

Well done Michael Stutchbury.

But you’re not forgiven until you retract the smear. And join the chorus now recognising that Barnaby was right about the risk of US debt default.

From The Australian:

The confused reaction to Wayne Swan’s budget stems from its refusal to properly spell out the risks of relying on Australia’s China-fuelled terms of trade remaining close to their 60-year or even 140-year highs.

This commodity price bonanza has delivered eight years of tax cuts, a big expansion in middle-class welfare, billions of dollars of wasteful spending – and this year’s $50 billion budget deficit.

Yet all our previous commodity export price spikes have swiftly reversed, typically ending in double-digit inflation and recession.

A must read.

Bloomberg: ‘Down Under Hypocrites Bet All On China’s Boom’

13 May

Bloomberg savages the hypocrisy and incompetence of Labor’s budget:

All in.

That’s essentially the message Treasurer Wayne Swan is sending about Australia’s odds-defying bet on Chinese growth. The government’s latest budget pledges to deliver the quickest improvement in the nation’s finances on record — without specifics about how that will happen.

The absence of such detail is telling and can be boiled down to one thing: an even bigger gamble on China’s 10 percent growth and its voracious appetite for Australia’s resources. It’s risky to so fully hitch the hopes of 23 million people to a single nation that’s still developing.

Hypocrisy was in the room last month when Australia rejected a Singaporean offer for its stock exchange. Swan called slapping down Singapore Exchange Ltd. (SGX)’s $8.8 billion bid for ASX Ltd. a “no brainer.” The whole shareholders-come-first vibe that pervaded before the global crisis lost its oomph among voters.

The debate distracted attention from a far bigger takeover happening by stealth: China’s designs on all things down under. Down under the ground, that is.

Costello: Wayne’s World A Parallel Reality

28 Apr

Peter Costello has stepped up with some hard facts and figures to debunk the Goose’s latest myth-making efforts.

From the Sydney Morning Herald:

Five years ago the prices of Australia’s exports began rising sharply. The price of iron ore hit about $US30 a tonne and thermal coal about $US50. Australia had not seen export prices like that in a very long time.

The federal government was running budget surpluses. It had paid off its debt so it established a sovereign wealth fund – the Future Fund – to save for the future. This was to prepare for a time when things were more normal and to cover the costs of the ageing population. About $60 billion was deposited into it.


This year the iron ore price is nudging $US170 a tonne (about five times what it was when the Coalition was ”wasting” the boom) and the coal price is about $US130 (nearly three times the price of five years ago). If you look at a graph of historical prices, we are at the peak of Mount Everest. The rise of 2006 looks like Monticello – a small rise visible only because conditions were quite depressed before it.
The Reserve Bank’s index of commodity prices shows an all-time high in March 2011. The index is nearly double where it was in 2006 and triple the levels of the late 1990s. Adjusting back into Australian dollars it rose 32 per cent in the past year.

And mining profits are super strong. In 2006, BHP’s profit after abnormals was a massive $10 billion. This year it reported that profit for just the first half-year.

Since it was apparently wasteful to run budget surpluses, build a savings fund and cut tax in 2006, Swan could show us how things should be done now we are in a real boom. He could, but apparently he will not, because last week he gave a pre-budget speech lamenting how hard everything had become and saying that we should not expect too much, not even a balanced budget in May, let alone a substantial contribution to the Future Fund. And although he has found a way of sharing the pain of the Queensland floods with a flood levy, we should not expect to share the prosperity of the mining boom through any tax cuts.

There is reality. And then there is Wayne’s world.

In Wayne’s world a boom is something that happens to others, not to him. In his world, others find rivers of gold, but for him the river never rises.

In Wayne’s world, Labor is a superior economic manager which runs into bad luck all the time, while Liberals are poor financial managers who waste opportunities and somehow get good outcomes when the dice fall their way. It’s a weird place inside Wayne’s world.

Costello’s depiction of Wayne Swan as living in a “Wayne’s World” parallel universe has some rather interesting and ironic … parallels.

In the movie Wayne’s World, our hero Wayne falls in love with Cassandra Wong, a Chinese-American lead singer for a heavy metal band.

In our real-life version of Wayne’s World, our hero Wayne has fallen in love with “Cassandra Wong”, the Chinese-American buyer/s of 73% of our 189+ Billion sovereign debt.  This “Cassandra” has sung a tune about an endless China boom, promising decades of heavy metal-fuelled prosperity for Australia as a result.

And Wayne has fallen for her siren song.

Joyce: ‘More Modelling Than Naomi Campbell’

3 Jun

Barnaby Joyce accuses Labor of using dodgy statistics in its propaganda for its Orwellian-named “Resource Super-Profits Tax” (RSPT).

From The Australian:

The Federal Government has more modelling “than Naomi Campbell” on its proposed mining tax, but none of it makes any sense, Nationals Senate leader Barnaby Joyce says.

He has accused the Government of hiding behind questionable statistics in its push to implement a 40 per cent tax on the super profits of mining companies.

They’ve got more modelling than Naomi Campbell, but it’s all wrong,” Senator Joyce said today.

Indeed, the modelling is all wrong.

Professor Steve Keen, winner of the Revere Award for being the international economist who first and most cogently forewarned of the coming GFC, has demonstrated that Treasury’s modelling is based on economic fallacies and “a gaping hole in logic“, in a series of articles for Business Spectator.  They can also be found on Professor Keen’s DebtWatch blog.

Returning to Barnaby:

He took special aim at Treasury over pie charts Treasurer Wayne Swan used to back the Government’s argument miners have been paying half the tax they were paying a decade ago.

Respected business commentator and ABC TV’s Finance presenter, Alan Kohler, today checked the numbers for himself in a column for Business Spectator titled, “The Government’s RSPT Spin Is A Disgrace”:

Another big accounting firm, Deloittes, has gone through ATO data and demonstrated that the effective tax rate for Australian mining companies (company tax plus royalties) is 41.3 per cent, compared with the average across all sectors of 27.18 per cent. I went into the ATO website and did the same calculation: it’s true.

In one of its taxpayer-funded advertisements, the government says: “Before the last boom Australia got 1 in every 3 dollars of mining profits in royalties and resource charges, we now receive just 1 in every 7 dollars.”

This statement is a disgrace, even leaving aside the fact that we are paying for it.

Back to Barnaby:

Senator Joyce wants to see the figures Treasury used to formulate the charts, but Departmental officials have opted to stall at a series of Senate estimates hearings this week.

“The pie charts don’t make any sense,” he said.

“They’ve had four days to explain two pie charts and they can’t do it.”

Indeed, according to mining magnate Andrew ‘Twiggy’ Forrest today, the head of the Treasury department Ken Henry – the architect of the now infamous Henry Tax Review – can’t even explain it himself:

Mr Forrest said Dr Henry had effectively conceded at a lunch with leading economists late last month that he was uncertain how financiers would view the rebate.

“When asked … he (Dr Henry) said, `I’m sure some clever banker is going to find out how to make it work’,” Mr Forrest said.

What he’s saying to the Australian people is that he doesn’t know.

“Ken Henry doesn’t have the answers and what I know with absolute certainty is that he didn’t consult with the banking industry, like he didn’t consult with the mining industry.

As this blog has highlighted many times, Treasury secretary Ken Henry is not fit to hold his position, and should be sacked.  The huge controversy over the RSPT only serves to confirm this view.

Yesterday Andrew Forrest revealed details of his own private conversations with Ken Henry over the RSPT, during which Henry admitted that the “logic” of his RSPT all rests on one critical assumption.  The fact that this assumption is dead wrong, further proves Henry’s ivory-towered, disconnected-from-economic-reality incompetence:

“Ken has described to me how the tax works and it relies on a critical assumption, that the so-called guarantee of 40 per cent of losses in bankruptcy actually has a value to financiers,” Mr Forrest told ABC Radio.

“If it doesn’t, then in Ken Henry’s own words, the logic of the entire tax collapses and this is just a 40 per cent take, which of course will then damage the industry.”

Mr Forrest said he had told Mr Henry that the 40 per cent tax credit guarantee on losses would be worthless to the mining industry as it would not be worth anything to financiers when they decided on loans.

“It theoretically works for economists in textbooks, it doesn’t work in the real world.”

Which is exactly what contrarian economist Steve Keen says is true about almost all mainstream economic thought, in his brilliant book Debunking Economics.

UPDATE:

From The Australian:

One of Australia’s most respected economic forecasters, Chris Richardson, has demolished the intellectual and economic modelling behind the government’s resource super-profits tax, effectively telling Treasury it got it badly wrong..

The assault on the fundamental logic of the tax will seriously embarrass the government and the architect of the tax, Treasury secretary Ken Henry, given their repeated claims that their model will not deter investment and the mining industry is merely running a fear campaign.

Mining Tax Puts Australia On Frontline of Market Fury

21 May

Highly respected Australian economics commentator, Robert Gottliebsen, puts forward the same basic point as investment giant Goldman Sachs/JB Were in their recent note to clients – that the Rudd’s government’s mining tax is a prime cause of the dramatic collapse in the Aussie sharemarket and Aussie Dollar.

From Business Spectator:

Global stock markets are losing faith in governments to manage the escalating problems stemming from the sovereign debt situation. But it is worse than that. Bankers are also losing confidence in governments. The sharp falls in stock markets will affect business activities and will have repercussions on economies around the world.

Solvent governments such as Germany are effectively borrowing vast sums to prop up bankrupt countries like Greece and most of the other PIIGS . The bankers say it will not work. Traders are liquidating their portfolios and the shorters are selling European shares.

And whereas we should have been one of the pillars of stability in this global crisis, our crazy mining tax has caused Australia to be in the front line of the market fury.

We have already been hit by a massive bear raid and now we will hit again by the falls on Wall Street.

We need good government at this crucial point in history. Instead we have bad government, so our economic recovery will be stalled if markets keep plunging. Treasury’s optimistic budget forecasts now look as silly as its mining tax.

Joyce: Rudd Expects Miners To Pay Off The Debt

20 May

Media Release – Senator Barnaby Joyce, 19 May 2010:

Senator Barnaby Joyce, whilst on his “Straight Talking Tour” in Deniliquin said, “It was interesting to read the answer given yesterday to a question I asked on notice at the Senate Standing Committee on Economics in February as to what our debt position is.”

In 2008, there were six countries in the OECD that had higher net foreign debt as a proportion of GDP than Australia. These countries are Iceland (355 per cent of GDP), Portugal (72 per cent of GDP), Hungary (72 per cent of GDP), Greece (68 per cent of GDP), Spain (66 per cent of GDP) and New Zealand (60 per cent of GDP). In the same year, Australia’s net foreign debt amounted to 56 per cent of GDP. Around 10 per cent of Australia’s net foreign debt is held by the public sector. In the US, around 64 per cent of its net foreign debt is held by the public sector while in Greece, the public sector holds more than 100 per cent of the stock of net foreign debt.

“I also note that our Commonwealth gross public debt has gone from $139.182 billion to $141.282 billion in the last week. In addition to this is the fact that the aggregate borrowing of the states’ non-financial public sectors is expected to be $164 billion in 2009-10. There is also the money owed by entities such as utility companies that have borrowed money to pay state so-called ‘dividends’. As these debts do not come under the government sector financial reporting, who knows how much they owe.

Are we to believe that this government with their current track record has the capacity to fix things up over the next three years?

The Labor government solution is to go to the only section of the community that is making good money and to impede them on the capacity to pay off the debt. Australia has to maintain the vibrant integrity of its mining sector especially if the global economy starts to peel off through the ructions that are currently being seen in Europe. A resource tax would have to be the most foolish decision that a government could make at this point of time in global economics.

The Labor Party members have to ask themselves one question. If the mining sector is not bringing in money to our nation, and the agricultural sector, which they have managed to tie up with green and red tape, is not bringing in the money, then where exactly are our export dollars going to come from? Export dollars underpin the service industry where the vast majority of Australians work. You may not work in an export industry, but your pay depends on them.

In simple terms, if no money turns up on the table from export dollars, there is no money to pass around the table to reflect our GDP and ultimately to pay the debt on what is one on the most indebted nations on earth.”

More Information- Jenny Swan 0746 251500 / 0438 578 402

China Brakes, Australia Breaks

14 May

From Business Spectator:

In an ominous sign for Australia, the Chinese sharemarket is slumping on worries that the Chinese government will soon lift interest rates in response to rising inflation and surging property prices. Such a move would slam the brakes on Chinese growth, and deal a cruel blow to Australia, which is counting on Chinese growth to keep commodity prices high.

Although it rebounded by 2 per cent yesterday, China’s Shanghai Composite Index is down more than 20 per cent from its peak in August 2009, which means that it is still technically in a ‘bear’ market.

The market’s gloom has been deepened by signs of mounting inflationary pressures in the Chinese economy. Inflation figures released this week showed consumer prices rose by 2.8 per cent in April from the year before, an increase from the 2.4 per cent rise in March. Meanwhile, home prices in 70 large and medium-sized Chinese cities rose by 12.8 per cent from a year earlier in April, picking up pace from the 11.7 per cent rise in March. There are also worrying signs that the property price bubble is spreading beyond the major cities and into the country-side.

So far, the Chinese government has held off raising interest rates – which are currently negative after allowing for inflation – in order to cool the super-charged economy. Instead, its ordered banks to hold more deposits on reserve, as well as lifting the minimum deposits that home buyers require to make to get access to home loans, and raising mortgage rates for second and third home buyers.

But there are intense worries that these steps won’t prove sufficient. Earlier this week, the Chinese central bank reported that banks lent 774 billion renminbi ($113 billion) in April, which is about 30 per cent more than in the same month last year. Lending for the first four months of 2010 has now reached 45 per cent of the total quota of loans for the year.

This explosion in Chinese bank lending has led to worries that the country will eventually be saddled with a mountain of bad loans. These concerns were heightened after China’s National Audit Office reported that it had uncovered lending irregularities amounting to tens of billions of renminbi in its latest audit of the Agricultural Bank of China.

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