Tag Archives: mining boom

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.

Is The China Bubble Starting To Burst?

14 May

We’ve just seen the Rudd Government present a truly fantastical budget.  One that relies completely on the hopeful fantasy that the Chinese building boom will continue for a decade to come, and so, a “great big new tax” on the “super profits” of mining companies can return the budget to surplus.

A lovely story.

But what do professional strategists on the China economy have to say about China’s prospects?

From MarketWatch:

China’s economy is teetering on the edge of a major slowdown … according to a noted China strategist.

David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world’s third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge.

“We’ve got the beginnings of a credit-bubble collapse in China,” said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.

While that may not sound bad, Roche believes the collateral damage from the cooling will be anything but mild, as the banking sector comes under pressure from cumulative years of bad investment and mispriced capital.

The emerging picture is one of a substantial contraction in credit growth and infrastructure expenditure, he says.

The shrinkage is grim news for an economy heavily dependent on such outlays. China managed to escape recession during the global crisis mainly because of bridges, railways and other infrastructure-project spending, estimated to have accounted for about 90% of economic growth last year, according to Roche.

About 85% of the funding for these projects was arranged by local government financing vehicles “borrowing money they can never repay” from state-owned banks, says Roche. Nearly 3 trillion yuan ($440 billion) of the 11 trillion yuan extended to these entities has been wasted or stolen, he estimated.

***

More worryingly, as bank lending dries up, there won’t be the firepower to sustain new investments in infrastructure, eroding a core pillar of China’s growth model, he said.

Much of the focus on potential asset bubbles in China has been on the property sector, but Roche suggested that housing-price inflation is intertwined with unsustainable gains in other areas.

***

A slowing Chinese economy could also have ramifications for the resource sector.

A scaling back of the infrastructure-building binge is negative for industrial commodity prices such as copper and iron ore, with the latter potentially slumping 50%, he said.

“I would not own resource stocks,” Roche said.

Iron ore prices to fall by 50%?

Hmmmmm… any guesses what that would do to the “super profits” of mining companies? And to the “great big new tax” that Rudd Labor is relying on to get the budget back to surplus?

UPDATE:

Calculated Risk notes that the Shanghai Composite Index is falling already –

Keep an eye on the Shanghai index (in red). It appears China’s economy is slowing.

Shanghai SSE in red (click to enlarge)

Surpluses By Sophists

13 May

Stephen Bartholomeusz at Business Spectator shines a brilliant, all-revealing light on the Rudd Labor “return to surplus”. Unsurprisingly, he shows that the government’s latest budget is really just an exercise in pure political sophistry:

Wayne Swan might claim that the Federal Budget wasn’t a political document but the lengths the government has gone to so it is able to forecast a $1 billion surplus in 2012-13 while still being able to announce some popular pre-election spending tends to contradict his stance. In fact the budget represents a very clever political strategy.

It is a strategy built on the mislabelled resource super profits tax and the increase in tobacco excise announced just ahead of the budget. Without those taxes the surplus wouldn’t have arrived three years earlier than originally forecast, assuming it does arrivethe whole budget is predicated on a massive windfall from the terms of trade generated by a continuing book in commodities.

The really clever bit is that Swan and Rudd know that the opposition can’t support the RSPT, at least in its present form.

By dedicating the revenues they say they will raise from that tax to spending on health, superannuation, cuts to company taxes et al they appear to have funded the core of their platform and will be able to go into the election with the cloak of fiscal rectitude – even though the detail of the tax and the actual revenue it will raise, if any, won’t be known until after the election.

The opposition, therefore, if it wants to match the government in terms of fiscal credibility and deliver that surplus in three year’s time, will start at least $12 billion behind it. It will either have to propose slashing spending or raising taxes, or both to fill in that gap.

The government is presumably betting that the RSPT and its attack on greedy miners and their foreign owners will play favourably in the electorate, particularly as the tax will be dedicated to probably popular measures. So, the opposition will be accused of supporting big miners and opposing worthy spending if it opposes the tax and the measures it is supposed to fund.

After the election, of course, if the Rudd government were returned, their planned protracted ‘consultation’ with the resource sector could, and almost certainly will, lead to significant changes to the detail of the tax.

However, while it might look like clever politics, the RSPT is destructive economics which is going to have a chilling effect on resource industry investment until it is finalised and certainty is restored and which will have long-term and damaging implications for perceptions of sovereign risk and Australia’s attitude towards foreign investment and investors, given the way the sector was ambushed by the nature of the tax and the language the government has used in promoting it.

Whether the tax is ultimately imposed in its current form or redesigned, it won’t raise the revenue the government is claiming it will to get to that $1 billion surplus and, in the meantime an increasingly angry resource sector is telling the world that Australia is now a less attractive and less stable destination for mining sector investment – direct or portfolio.

The RSPT might represent a clever political strategy but the way it has been unveiled and the anti-industry and xenophobic language the government has used to leverage the political mileage in it is increasingly damaging to the national interest.

Regions Lose Under Budget

12 May

Media Release – Senator Barnaby Joyce, 12 May 2010:

Senator Barnaby Joyce asked today, “What has regional Australia been given in this budget?”

“Australia is heading toward a peak debt position, so the Labor Party tells us, of $222 billion. However, they are so totally unbelievable with every other prediction they make, you can take this prediction with a grain of salt.

Their plan to pay for their stuff ups comes from another attack on the mining wealth of regional Australia. Trouble is the stuff ups seem to be continuing at break neck pace. The Labor Party has managed to avoid this absurd form of economics since the attempt to nationalise the banks in 1949.

If you tax the mining profits to 57 per cent, the mining companies will be sure to be highly motivated to do one of two things. Move their operation to somewhere else or move their profits somewhere else. With the presence of vertically integrated cross border mining companies in Australia, this will not be as hard as some think. The trick will be how you trace profits. I can see a lot of hard work and brave souls that will have to exist in the tax department if this tax ever comes in.

The only sensible thing to do is to stop the tax. Mining has provided many regional areas with a once in a lifetime chance for development and the Labor Party has once more become a  parasite on the benefits.

If the Labor Party was interested in getting a fair deal for regional Australia, they would have announced in the budget a plan to return some of these extra funds to the areas where they were generated.

This budget is yet another promise the Australian people are expected to believe even though the Labor party has never got within a bulls roar of being an economically responsible government.

This time we’re supposed to believe they will be earnest, just like when they were earnest about the ‘greatest moral challenge of our time’,” said Senator Joyce.

More Information- Jenny Swan 0438 578 402

China On ‘Treadmill To Hell’ Amid Bubble

9 Apr

From Bloomberg:

China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.

Barnaby Joyce has been warning about the external threats to the Australian economy since October 2009.  With every passing month, more and more evidence coming from economies around the world – including those such as China that are vital to Australia’s economic interests – indicates that there is big trouble brewing.  While the Ken Henry-led Rudd Government slumbers on in La La Land, spending like drunken sailors, confident of an unending China boom to lift us out of debt, more and more economists abroad are predicting a China crash.

Barnaby is also the only Australian politician with the courage to publicly question the Rudd Government’s weakening of Foreign Investment laws, which have allowed foreign ‘investors’ to help spike Australia’s already unaffordable housing bubble, and put our ownership of vital national assets at risk.  Only Barnaby Joyce has had the courage to call out the Rudd Government for ‘selling the farm’, paddock by paddock.

China Losing Control of Economy

8 Apr

From Bloomberg:

Failure to rein in local government spending could push inflation to 15 percent by 2012, said Victor Shih, a political economist at Northwestern University who spent months tallying government borrowing.

“Increasingly the choice facing the government is between inflation or bad loans,” said Shih, author of the book “Finance and Factions in China,” who teaches political science at the university in Evanston, Illinois. “The only mechanism for controlling inflation in China is credit restriction, but if they use that, this show is over — a gigantic wave of bad loans will appear on banks’ balance sheets.”

Attempts to curb borrowing by raising interest rates would boost debt-servicing costs for local governments. At the same time, tightening credit may stall projects, triggering “a build-up of bad loans,” the Basel, Switzerland-based Bank for International Settlements said in a quarterly report in December.

Sun Mingchun, an economist with Nomura in Hong Kong, estimates local governments have proposed projects with a value of more than 20 trillion yuan since the stimulus package was announced in November 2008.

Should the boom end in a property-market collapse, even those stocks tied to the local government projects will be affected along with most other industries, said Shanghai-based independent economist Andy Xie, formerly Morgan Stanley’s chief Asia economist.

“Corporate profits are very much driven by the property sector,” said Xie. “The largest sectors will be hit hard, especially banks and insurance companies.”

A gauge of property stocks has fallen more than 6 percent this year after more than doubling in 2009 as the government takes steps to cool rising prices, including raising the deposit requirement to 20 percent of the minimum price of auctioned land. Property sales were equivalent to 13 percent of gross domestic product last year.

“Policy makers may need to start thinking about how to handle the aftermath of the bust,” said Nomura’s Sun.

China’s Debt Bubble: When Will The Ponzi Unravel?

6 Apr

From Naked Capitalism via Roubini Global Economics:

Independent Strategy’s latest report, “China’s credit bubble: the missing piece in the jigsaw” makes a persuasive case that China’s debt fueled growth model is due for a hard landing, but the timing is uncertain, since the debt is funded internally.

China is barely past an episode of dealing with banks chock full of bad loans (there were debates among Western analysts in 2002 and 2003 as to how bad the damage was and whether the remedies were sufficient). On a more fundamental level, China has copied the Japanese mercantilist development model pretty much wholesale. It arguably hit the wall with the 1985 Plaza accord, when the US found the continued trade deficits unacceptable and succeed in organizing a G5 intervention to drive up the yen (that succeeded too well, the yen overshot, leading to the Louvre accord to push up the greenback). Japan’s central bank lowered interest rates to stoke asset prices in the hopes that the wealth effect would produce higher domestic consumption and offset the effect of the fall in exports.

We all know how that movie ended…

The report forecasts a large decline in growth rates, as well as land and real estate prices, since LGFVs [Local Government Financing Vehicles] will need to liquidate holdings to try to pay off non-performing loans.

%d bloggers like this: