Tag Archives: mining tax

Barnaby Absolutely Nails It. As Usual

13 Feb

“Well, they’re trying to work out how to pay it back [$260b Federal debt]. So they devised the mining tax; the trouble is, of course, the people who came to help them out with that were the major mining companies, and they devised a mining tax where they don’t actually pay any tax. They said we’d have a mining tax, [BHP’s] Marius Kloppers said ‘You certainly will’, and then Marius Kloppers whipped out a pen and a paper and he gave them one. And it’s working very well for BHP. It’s working very well for Xstrata. And good luck to them, I mean, if a fool invites you to their office and opens the chequebook then you just start writing out your own cheques…

… So they’ve come to this conclusion: they have no money. They have to go finding money. So, first thing they do when they try to look for money is set up a class war. Or, things have to start with a moral prerogative, ‘We must find evil people'”…

They’re going to go and – obviously – just flog the money out of people’s super. Simple as that…

It’s so sneaky.” – Senator Joyce

Alas, I have long neglected to catch up on Senator Joyce’s YouTube channel.

It is the best place for you to enjoy catching up with, and hearing the latest from, one of the few politicians left in this country who might, just might, actually have a genuine devotion to interests other than his own.

Like his constituents, for example.

And the Australian people and nation as a whole.

About a week ago there were a bunch of new videos uploaded to Barnaby’s YouTube feed. The following one is particularly topical, in light of the recent media and political focus on superannuation, and the mining tax. Note in particular from the 1 minute mark, after Barnaby’s delightfully authentic, unpolished and rambling preamble:

Note independent Senator Nick Xenophon’s helpful correction towards the end. And see my recent post Your Super Screwed By The Laboral Party.

I maintain the view sent to Senator Joyce some months back.

The Nationals … and if not the Nationals in toto, then he himself … should split from their ‘senior’ Coalition partners, and go independent.

As a matter of principle, and integrity.

And participate in forming a new government with whomever they wish, according to their own principles and the views of their constituents.

Not those of the Liberal Party’s machine men.

IMO, the Liberals are no better than Labor.

Tweedledum and Tweedledee.

The Laboral Party.

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Swan’s Tax Avoidance Scheme

13 Feb

Quelle surprise!

A stunning revelation emerges.

From the Sydney Morning Herald:

Miners hoard credits to avoid resources tax

Mining companies Rio Tinto and BHP Billiton have built up a combined arsenal of $1.7 billion in tax credits that can be offset against future mining tax liabilities.

Exactly as predicted here on this blog, way back in December 2011 (GilSwan Conned – Mining Tax The Greens’ Pit of Despair)

Note well how the “progressive” (ie, international socialist) SMH follows the ALP (ie, international socialist) party line, by immediately switching the focus of this awful tale of inequity away from international companies, and onto an evil billionaire “Tall Poppy”.

Local Aussie miner, Andrew “Twiggy” Forrest:

And billionaire miner Andrew Forrest confirmed to Fairfax Media that his iron ore company, Fortescue Metals, would not be paying any tax under the Gillard government’s minerals resource rent tax this year.

Mr Forrest, who challenged Treasurer Wayne Swan’s claim that the tax would still raise billions in revenue for the government after being watered down during [exclusive] negotiations [by Gillard and Swan] with [foreign-owned multinational giants] Rio, BHP and Xstrata, appears to have been vindicated after Mr Swan’s admission that the tax has net a paltry $126 million in the six months to December 31.

”The record stands for itself,” Mr Forrest said.

And to make sure you do not miss the underlying propaganda message – that the real “evil” here is your fellow Aussie-made-good entrepreneur – the SMH chooses to headline the article with a photo of Mr Forrest.Not with one of the foreign-owned BHP, RIO, or Xstrata chief executives.

Wayne Swan would be pleased (The Galactic Hypocrisy of Wayne Swan ; Swan’s Anti-Australian Rant A Smokescreen For Treason).

While the focus has been on the dramatic shortfall in mining tax collections compared to original Treasury projections of more than $10 billion over four years, the most recent financial accounts of Rio Tinto and BHP Billiton show the two miners have built up $1.1 billion and $637 million in tax credits respectively.

The credits did not reduce the amount of company income tax they had to pay, but can be carried forward to offset future mining tax liabilities.

Just as predicted here.

Speaking of credit, we should give credit to the SMH for devoting one (1) whole paragraph to a misleading and deceptive recognition of the fact that the vomitous Wayne Swan singled out Aussie miners like Twiggy Forrest for exclusive vilification while belching out his galactically hypocritical smokescreen for treason:

Mr Forrest’s recent MRRT brawl with the government has seen him subjected to criticism from Mr Swan – part of which was his inclusion in the ”badly behaving billionaires” club that included Clive Palmer and Gina Rinehart. Sources have said that Mr Swan included Mr Forrest as a member of the billionaires in an essay in The Monthly – against the urging of his advisers.

Misleading and deceptive?

Yes.

In seeking to further the progressive (internationalist) agenda – in this case, through minimising damage to the PR image of huge multinational oligopolies, while enabling damage to the public image of successful local/national enterprises by invoking “Tall Poppy” syndrome – the SMH propagates the old revolutionary socialist strategy of “class warfare”.  And conveniently neglects to inform readers of the full picture.

You have to find that, at blogs like this.

Indeed, you have to read right down to the last two paragraphs of the SMH article to gain even an inkling of the truth – though of course, it is still not explicitly spelled out:

The major mining companies are loath to talk about the tax that they negotiated with the Prime Minister, Julia Gillard, and Mr Swan. They have kept their heads below the parapet this week as Mr Swan has been in the firing line.

The government has responded to the attack by suggesting various changes to the tax but the prospect of a big overhaul before the election is unlikely. The campaign by BHP, Rio and Xstrata that led to the super profits tax being replaced with the more benign MRRT was so potent that Ms Gillard will not take them on again over the next seven months.

Remember, the article is headlined with a generic “Miners hoard credits…” title.  And a photo of Aussie miner, Twiggy Forrest.

Only the fully alert and informed reader, one who knows that BHP, RIO, and Xstrata are majority foreign-owned multinational giants, is likely to note the above bolded words at the very end.

And possibly, just possibly, have a dawning realisation that something fishy … something against the best interests of Australians … is the real truth behind this story.

UPDATE:

Too late, Independent Andrew Wilkie wakes up and smells the coffee; says Andrew Forrest was right –

Mr Wilkie told Fairfax Media that he had been wrong to believe Treasury predictions of company liabilities under the renegotiated tax instead of the alternative arguments put forward at the time by Mr Forrest.

Mr Forrest had complained that the compromise to allow miners to write off the long-term value of assets from their mining tax liabilities had allowed the big three miners off the hook.

”It is beyond argument that the government was wrong, is wrong, and Andrew Forrest is right,” he said.

For readers who have not read my earlier posts on this topic, the key point to understand from the above is this: A major reason why the redesigned mining tax favours the multinationals – unsurprising, since they designed it, in secret, with Gillard and Swan – is that the Big 3 miners have vast existing assets. Their redesigned tax allows them to write off the “market value” of their existing projects, and thus claim credits against any MRRT liabilities.

UPDATE 2:

Via Andrew Bolt’s blog:

Wayne Swan specialises on perhaps this government’s defining characteristic – to meet argument with personal abuse. And there is no fouler example than this – Swan accusing miner Twiggy Forrest in 2011 of being a tax dodger for warning of exactly the flaw that has made Swan’s mining tax a colossal flop:

Wayne Swan has accused mining magnate Andrew ‘’Twiggy’’ Forrest of trying to avoid paying tax, describing as ‘’bunkum’’ new analysis suggesting the world’s biggest miners would get a free ride under Labor’s mining tax..

Mr Forrest said new analysis by accounting firm BDO revealed Treasury forecasts of an $11 billion budget boost from the MRRT were an ‘’absolute fiction’’.

He said tax would allow the world’s biggest miners to wipe out Australia’s smallest because of the huge deductions available for the industry’s biggest players…

EXACTLY what I argued back in 2011. A mining tax, designed by the Big 3 foreign-owned multinationals, behind closed doors, with the local miners locked out, in cahoots with the traitorous Gillard and Swan, one that enables the Big 3 to increase their oligopoly over the Australian mining industry, at the expense of far smaller, locally-owned competitors.

And claim tax credits and deductions for doing so.

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When Frustration Over Politicians’ Deceit Spills Over

19 Apr

Regular readers know that there is far, far more to the story of the mining tax, and the knifing of popularly-elected PM Kevin Rudd, than what has been presented by politicians and the mainstream media.

[see Swan’s Anti-Australian Rant A Smokescreen For Treason; also The Galactic Hypocrisy Of Wayne Swan; also What Your TV Will Leave Out Of The Clive Palmer “CIA” Sound Bites]

Indeed, it is a veritable cesspool of international intrigue, plutocratic coercion and bribery, treason, and geopolitical manipulation.

So I am confident that many readers will, as I do, closely identify with the profound sense of frustration felt by all those who are awake to the far-reaching implications of the lies and deceit at the core of Australian politics; a frustration well enunciated here by Daily Telegraph writer Joe Hildebrand (h/t readers “Kevin Moore” and Twitter follower @Prronto for the link):

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Swan Lied To Parliament, Must Resign Or Be Sacked

5 Apr

From Hansard, 22 November 2011 (emphasis added):

WAYNE SWAN (Lilley, Australian Labor Party, Treasurer) –

There is no greater engine room of jobs in our economy than small businesses. We have 2.7 million small businesses in this country and they employ a lot of Australians. Putting in place the $6,500 instant asset write-off is a big job generator for small business and a big job generator for our economy. If those opposite vote against a $6,500 instant asset write-off, that will be a very dark day for those in the party of Menzies who think they stand for small business—the party that Mr Menzies described as standing for the strivers, the planners and ambitious small businesses. That is where we stand on this side of the House. We stand for the strivers, the planners and those with ambition in our economy. That is why we stand for a significant tax cut to small business. But it is a measure of how negative those opposite have become. It is a measure of how far they will go to wreck sensible policy proposals that they could oppose a tax cut for small business. We on this side of the House also stand for working Australians and a big boost to their superannuation funded by the profits of 20 or 30 superprofitable mining companies* and, by and large, supported by the mining companies.

The Leader of the Opposition gave a speech last night about economic policies. I would call it the magic pudding speech. He claimed he had fiscal discipline and then announced he was going to abolish a tax paid by the 20 most profitable companies in the country. He wants to spend more, save less and have bigger surpluses. That is a magic pudding and it shows how unqualified and unfit for office those opposite are.

So, Tony Abbott said that he would abolish “a tax paid by the 20 most profitable companies in the country”, did he?

Sound plausible to you?

It didn’t sound plausible to me.

MacroBusiness blogger “The Prince” (Twitter @ThePrinceMB) very kindly provided me with the following list of the Top 20 companies on the ASX, ranked by Return On Equity (ROE):

Source: The Prince, macrobusiness.com.au | Click to enlarge

Quite clearly, the “20 most profitable companies in Australia” are not all mining companies.

Indeed, 12 of the top 20 most profitable companies are not mining companies at all. A 13th and 14th are gold miners, thus not subject to the MRRT. A 15th is a nickel miner, thus not subject to the MRRT. A 16th and 17th are copper + gold miners, thus not subject to the MRRT. An 18th is a small mining explorer, thus not subject to the MRRT. A 19th is an oil and gas company, thus not subject to the MRRT. In fact, there is only one (1) company in the Top 20 most profitable companies in Australia that is a miner subject to the MRRT – Andrew Forrest’s Fortescue Metals Group.

Wayne lied to Parliament. According to the Westminster conventions, he must resign.

If he will not resign, Gillard must sack him.

Even if we give Wayne the widest possible latitude for error, and say that he meant “the 20 biggest companies in Australia”, he still lied:

Source: The Prince, macrobusiness.com.au | Click to enlarge

That’s the Top 28 companies in Australia, ranked by market capitalisation.

There can be no plausible excuse for Wayne’s lie.

He is the nation’s Treasurer, and had been so for over 4 years at the time of making this statement to Parliament.

He is the purported architect of the mining tax, the topic upon which he was speaking.

So there can be no excuse that he “didn’t know”, that he misled the Parliament “unintentionally”.

Wayne Swan is arguably the government’s worst offender when it comes to engaging in rank sophistry. Including putting words in other people’s mouths, and then attacking what they did not say.  It is a delightful irony (or simply karma?) that he was doing precisely that, putting words in Tony Abbott’s mouth and attacking him for it, when he lied to Parliament.

Wayne Swan has a long and inglorious track record of lying and deceiving. As oft-documented on this blog.

It is long past time that his lies caught up with him.

Over to you, Mr Abbott.

* This is a second lie. The increase in compulsory superannuation is NOT being paid for by the MRRT at all. It will be paid for by employers. The largest employer in Australia is small business, a significant number of whom are not registered corporations, and so will not benefit from the tiny company tax cut that the government claims will be funded by the MRRT. According to the Hansard, many other government ministers have repeated this particular lie in Parliament – the subject of a future post ( h/t Twitter follower @Prronto ).

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The Simple Way To Tell That The Mining Tax And Carbon Tax Are Unconstitutional

22 Mar

“By their words you shall know them.”

What is the biggest red flag alerting you to the likelihood that a government bill is unconstitutional?

When the wording of a government bill repeatedly insists that it is in compliance with a section of the Constitution.

Or, when the bill repeatedly insists that it does not do something, or is not something, that would constitute a breach of the Constitution.

Because if it were in keeping with the Constitution, then there would be no need whatsoever to say anything.

This is not just the rational surmising of your humble blogger.

A constitutional law expert agrees.

From Yahoo!7 News (emphasis added):

Government facing mining tax revolt

… [Macquarie University’s] Dr [Margaret] Kelly not only thinks Fortescue will get a hearing but that it has a decent shot at winning the case.

“Given the shortness of the Act, the lack of definitions in the Act, and the very general nature of the Act, then I, if I were the Commonwealth, wouldn’t be as hopeful as apparently the Prime Minister currently is,” she said.

She says challenges made under section 114 of the Constitution would attract serious consideration by the High Court.

“The fact that each of these acts purports to say the Act does not impose a tax on the property of the states, I think, quite clearly raises that question unambiguously.

“The acts in their various forms also raise the question of, is this really a tax as opposed to being, as I say, a pecuniary penalty or some kind of fee?

“That too is a constitutional question.”

Dr Kelly is right.

In the 425 page (!?!) Explanatory Memorandum to the 288 page Minerals Resource Rent Tax Bill 2011, we find the following (emphasis added):

Imposing the MRRT

3.31    The MRRT is imposed by three different imposition Bills. One imposes MRRT to the extent that it is a duty of customs [section 3, MRRT customs imposition Bill]; one imposes MRRT to the extent that it is a duty of excise [section 3, MRRT excise imposition Bill]; and one imposes MRRT to the extent that it is neither a duty of customs nor one of excise [section 3, MRRT general imposition Bill]. This reflects the constitutional requirement that laws imposing duties of customs shall deal only with duties of customs and that laws imposing duties of excise shall deal only with duties of excise (see section 55 of the Constitution). However, there is only one assessment Act.

“This reflects the constitutional requirement” does it?  Utter bollocks!  What it “reflects”, is Australian governments’ now standard method of circumventing the clear wording and plainly obvious intent of the authors of the Constitution. I for one have no doubt whatsoever that when the authors of our Constitution wrote section 55, they certainly did NOT do so with the intent that every new tax, customs duty, or excise duty, should require the separate drafting and passage through both houses of Parliament of multiple, interdependent but at the same time, mutually-contradictory bills defining the new impost as being (1) not a tax, (2) a duty of customs, (3) a duty of excise, and (4) neither a duty of customs nor a duty of excise. To suggest otherwise is risible, and would be to assume that the authors of the Constitution wanted to make it as complicated and difficult as possible for government to impose genuine taxes, customs duties, and excise duties. No dear reader – the true reason why Australian governments (both “sides”) use this multiple interdependent but mutually-contradictory bills technique, is plainly obvious: their new imposts are not taxes, customs duties, or excise duties. They are unconstitutional money grabs … and they know it.

3.33    MRRT is not imposed on property belonging to a State. That ensures that the MRRT complies with section 114 of the Constitution, which prohibits the Commonwealth from imposing a tax on any kind of property of a State. In practice, this will only have an effect to the extent that a State mines its own taxable resources. In that case, the State will not be subject to MRRT.

Sorry BrownGilSwan.

Sorry Big Three multinational mining oligopoly PM-removers and tax-dodge designers.

Your saying so, does not make it so.

Indeed, the opposite is true.

Your saying so, almost certainly makes it not so.

Previously, we have seen exactly the same blatant Constitution-sidestepping ruse used in the 19 different bills and 1,000+ pages of the Clean Energy Future 2011 legislation:

Charge payable

(10) If a carbon unit is issued to a person in accordance with this section, the person is liable to pay a charge for the issue of the unit.

(11) Subsection (10) has effect only so far as it is not a law imposing taxation within the meaning of section 55 of the Constitution.

Note: See also:
(a) Part 2 of the Clean Energy (Charges—Excise) Act 2011; and
(b) the Clean Energy (Unit Issue Charge—General) Act 2011.

Compare …

Clean Energy (Charges – Excise) Act 2011

A Bill for an Act to impose charges associated with the Clean Energy Act 2011, so far as those charges are duties of excise

And compare …

Clean Energy (Unit Issue Charge – General) Act 2011

A Bill for an Act to impose charges associated with the Clean Energy Act 2011, so far as those charges are not duties of excise

The government’s bills for the mining tax, and the carbon tax, are not unlike a spoilt domineering child trying to get its own way.

Fingers inserted in ears.

Eyes screwed tightly shut.

And insisting, “It IS it IS it IS it IS it IS!”

Or, “It’s NOT it’s NOT it’s NOT it’s NOT it’s NOT!”

Basic rule of life, dear reader.

Listen very, very carefully to a government’s words.

Then ask yourself, “What is the opposite of what they have said?”

The opposite, is far more likely to be the truth.

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Conversations With The Constitution

21 Mar

Sometime in 2004, your humble blogger was waiting for a flight at Melbourne airport and went in search of something interesting to read.

Leading constitutional law expert Professor Greg Craven‘s cleverly written “Conversations With The Constitution: Not Just A Piece Of Paper” made a long wait for a short flight highly entertaining, frequently amusing, and genuinely enlightening.

Professor Craven has now added his voice to that of constitutional barrister Bryan Pape, and the legal counsels of self-made Aussie miners Clive Palmer and Andrew Forrest, in publicly stating that the Green-Labor government’s mining tax, and carbon tax, are indeed open to challenge as being in breach of the Australian Constitution.

Interestingly, Professor Craven indirectly refers to the very same sections of the Constitution that your humble blogger has long cited as having been deliberately circumvented by the government in legislating their new “taxes” (emphasis added):

Constitutional law expert Greg Craven said it was also likely the MRRT would face twin legal challenges by states and mining companies.

The Australian Catholic University vice-chancellor said the states could challenge the new laws on the grounds that they interfered with resources rights.

A mining company could argue the tax interfered with its property without just terms, he said.

“There are a lot of arguments that could be raised,” he said.

“It’s a little bit like the carbon tax, there are some laws that are born to be challenged because they are so complicated.”

“It is very likely it will end up in court but what will happen there is much more unpredictable.”

Professor Craven said such a legal challenge could potentially take years to resolve.

As we have seen previously (“GilSwan Conned – Mining Tax The Greens’ Pit Of Despair”), the mining tax is a farcical Trojan Horse, designed by the Big 3 multinational miners, for the Big 3 multinational miners, in a secret and corrupt exclusive deal with Gillard and Swan, to increase the Big 3 foreigners’ oligopoly in Australia at the expense of their much smaller, locally-owned competitors.

And of course, regular readers know only too well that the carbon “tax” is nothing of the sort, but is in plain matter of fact another Trojan Horse; it is a CO2 derivatives scam, designed by bankers, for bankers.

Now that both “taxes” have been railroaded into law by the Greens and Labor, it has fallen to Mr Palmer and Mr Forrest to take up the legal fight against these laws, in the national interest:

Billionaire miner Andrew “Twiggy” Forrest says he is close to mounting a legal challenge to the Gillard government’s mining tax.

Mr Forrest said his listed company, Fortescue Metals, was not opposed to paying tax, but the minerals resource rent tax was “poorly designed” and biased against smaller miners.

“The minerals resource rent tax is unfair, narrowly based, complex, inefficient and will reduce investment and future jobs in the Australian mining industry,” a spokesman for Mr Forrest told The Australian Online.

“As Fortescue has previously advised, the company has engaged senior counsel and will commence legal proceedings after the legislation has been enacted and legal opinion has been finalised.”

The Australian Online understands Mr Forrest will urge smaller miners from the Association of Mining and Exploration Companies to join the proceedings.

Mining magnate Clive Palmer, who has vowed a High Court challenge against the government’s carbon tax, is yet to decide whether he wants become involved.

“One person can only do so much at one time,” he told The Australian Online.

“If I thought the mining tax bill was unconstitutional, I would mount a challenge.”

Finance Minister Penny Wong said she believed the mining tax would survive the challenge.

“We have sought legal advice and I am confident the minerals resource rent tax will withstand any challenge,” Senator Wong said.

However, Liberal Senator Mathias Cormann said the tax was likely to be scuttled.

“I have no doubt that Labor’s dodgy mining tax will be thrown out by the High Court just as their dodgy Malaysia people swap deal was thrown out by the High Court,” he said.

We shall see.

I for one have little faith in the wisdom, impartiality, or integrity, of the befrocked, high and mighty, “progressive” “intellectual” lawyers (need I say more?) who have risen above the ranks of their parasitic, ambulance-chasing brethren to preside over Australia’s so-called “justice” system. Like those special turds, that always float to the top.

Nevertheless, we live in hope. It would be very pleasing to see motions of injunction successfully filed against both “taxes”, prohibiting the government from handing out “compensation” payments etc, until after the legal challenge/s have been decided.

Indeed, it would be a sweet, sweet irony if a legal injunction stayed the executioner’s sword being brandished by this government over the economy … just as their 4-years-and-counting delay in the FWA investigation into Labor MP Craig Thomson has stayed the executioner’s sword being brandished by the Australian public over this government.

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The Galactic Hypocrisy Of Wayne Swan

6 Mar

The red mist has descended.

Your humble blogger is angry.

Very angry.

Wayne Swan has publicly attacked three local, homegrown Aussie miners.

Ms Gina Rinehart. Mr Clive Palmer. And Mr Andrew Forrest.

Wayne claims that he is fighting for a “fair go”, for “equality”, against “rich” “vested interests” that are “threatening our democracy”.

Oh really?

Wayne Swan did a secret, exclusive deal on the design of the mining tax with the Big Three foreign-owned multinational mining companies, BHP Billiton, Rio Tinto, and Xstrata, just before the 2010 election.

Wayne’s secret deal is widely claimed to favour the Big Three foreigners, at the expense of the much smaller local Aussie mining companies.

Wayne’s secret deal is alleged to have come about after the Big Three foreign-owned mining companies “gave the nod” for Julia Gillard to knife democratically-elected PM Kevin Rudd, and promised to pull their anti-mining tax ad campaign.

Tell us again, who is a “threat to democracy”?

Wayne Swan accuses three local Aussie miners – two of whom are self-made, from humble beginnings – of being “champions of privilege”.

Oh really?

Wayne is a career political hack, with an Arts degree, and zero business experience.

Wayne receives $346,000 per annum, $6,653 per week, paid for by the taxpayer.

Wayne voted himself an $84,000 pay rise late last year.

Wayne blew $75,440 of taxpayers’ money on empty RAAF VIP “ghost flights” to collect and ferry him around, in just 6 months last year.

Tell us again, who is a “champion of privilege”?

Wayne Swan is a vile, disgusting, public trough-swilling, grossly overpaid, thoroughly under qualified, pathologically dishonest, monumentally repugnant, morally destitute, vomitous, self-serving, bottom-dwelling, anti-Australian, treasonous, galactic hypocrite.

* I have chosen to keep this piece focussed on Swan and his attack on locals in the mining industry. I could write an entire new piece on other “vested interests” that Wayne oh so conveniently neglects to mention, much less publicly attack. For example, the unions who finance (and rule) the ALP, and the clubs industry whose “power” and political activism prompted the Labor government to brazenly renege on a written contract with Andrew Wilkie for poker machine reform. And that’s just for starters.

** The media in this country are deserving of very similar epithets to those attributed to Wayne Swan above. I am not aware that a single journalist has challenged Wayne Swan on any of the above facts.

*** Note well: this blogger is no fawning acolyte of miners, big business, or “free markets”. On the contrary, if it were within my power I would nationalise all mineral, petroleum, and natural gas resources – see “Why I Hang Farther To The Left Than Bob Brown”.

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I Wonder How Much These “Experts” Pull?

16 Feb

Back in December, your humble blogger published a comprehensive critique of the Green-Labor-Independents’ disaster-in-waiting dubbed the “Minerals Resource Rent Tax”.

Or “mining tax” for short.

Today, Professors’ Carey and Fargher of Deakin Uni and the ANU respectively, have combined their scintillating intellects to do the same.

This will all sound very familiar to regular readers.

From the Age (emphasis added):

Illustration: John Spooner | Source: The Age

Flaws in the mineral tax mean Australia may profit little from its resource wealth.

Could Australia end up with little to show for its mining boom – as an echo of what happened to Nauru once its considerable phosphate wealth was exhausted?

Close examination of the proposed minerals resource rent tax reveals serious flaws that could leave the federal government well short of the forecast revenue. It is conceivable that some large and highly profitable mining companies could reorganise their affairs to pay little or none of the tax.

The first and most obvious shortcoming of the MRRT, in terms of its revenue potential, is that it applies only to coal and iron ore. All other minerals are exempt. But it is the design of the tax as it applies to coal and iron ore miners that could leave the government facing an unanticipated multibillion-dollar shortfall.

The main problem is that the tax is based not on an objective measure such as tonnes of material mined, but on ”super profit” (mining profit less allowances). Profit at the best of times is a highly flexible concept that can allow accountants to apply creative techniques to minimise a company’s tax obligations. With the MRRT, the incentives and opportunities for creative avoidance appear even greater than those applying to company tax.

…

The minerals tax is not based on audited company profits from statutory accounts, but on a narrow portion of profits from particular mining activities. It requires the taxpayers (that is, the mining companies) to determine the amount of proceeds and costs that relate to these activities.

Ruh roh!

Does that sound familiar?

According to Carey and Fargher, the companies who are supposed to be “taxed” are the ones who will do the measuring (accounting) that determines how much tax they will pay!

That’s exactly like the Clean Energy Future “carbon tax” (see “An OSCAR For The Clean Energy Future”), where the entire scheme relies on “encouraging” the “biggest polluters” to “self-assess” their emissions … and the “audit” procedure by the government is quietly but openly admitted to be nothing more than an exercise in managing the public’s “perceptions” of compliance by the “polluters”.

This reliance on the miners themselves to determine the appropriate proceeds and costs creates a significant incentive to estimate profit from taxable activities in the most tax-efficient manner. For example, the MRRT requires the miners to split revenue between the taxable value earned to the point of producing a stock of coal or iron ore and revenue earned after that point. Transfers within the company also need to be valued. Losses can be offset between operations.

This point yielded a key insight in my detailed critique of the mining tax (see “GilSwan Conned – Mining Tax The Greens’ Pit Of Despair”).

The design of the MRRT actually creates an incentive for the Big 3 multi-nationals to buy out their smaller competitors – including loss-making junior miners and explorers. Why?

Because they can claim numerous deductions against their MRRT liabilities from existing mines, by gobbling up smaller, locally-owned competitors.

In other words, far from “spreading the wealth” of the mining boom, the design of the mining tax will actually help the Big 3 to increase their monopoly, thus sending even more profits offshore.

At numerous points, opportunities exist to reduce revenue estimates and increase costs so as to minimise the taxable profit reported. Volatility in commodity prices could also allow strategic timing of the recognition of revenue and expenses. All these factors, combined with any decline in the underlying commodity price from the record levels seen when the tax was first envisaged, could greatly reduce the expected proceeds to government coffers.

So, too, could the generous and sometimes unconventional allowances built into the tax. There are more than 50 pages of allowances that can be used to reduce a firm’s tax liability. While most allowances have their foundation in generally accepted accounting principles (e.g. royalties paid to state governments or pre-mining exploration expenditure), other are less conventional.

For example, under division 75, miners can choose between the ”book value” or ”market value” of an asset, which will be allocated against revenue over the productive life of a mine in order to calculate MRRT liability. Depreciating assets based on market valuation is not generally accepted accounting practice, yet it is allowed in the legislation. In simple terms, a mining asset that cost $100 million to bring to production might today be worth $350 million if sold on the open market. A miner could use this higher valuation to calculate depreciation, which would reduce the profit subject to the tax.

Business transactions can be complex, and legislation must therefore contain a range of provisions that require subjective interpretation. The mining tax legislation adds a further layer of complexity, which at times defies conventional accounting and can be used to aggressively minimise the amount of tax payable.

…

Even at this late stage in the process, key improvements might be made if there were full transparency in the revised revenue estimates, the underlying assumptions and, in particular, the ability of the tax office to monitor and collect the minerals tax. It is not surprising that critics have begun to question Treasury’s revenue estimates, which are based on private information supplied by the mining companies that is not on the public record.

Mining companies are entitled to make a profit, but if the nation decides it is also entitled to a return on the exploitation of national resources, then it is important to design a tax that is effective. Once the resources are gone, they are gone for good…

Well done Professors.

Better late than never.

I wonder what a “professor of accounting at Deakin University’s faculty of business and law” pulls?

Indeed, what does a “professor of accounting at the Australian National University’s College of Business and Economics” pull?

One thing’s for sure. The Big 3 multi-national mining companies pulled the wool over Swan’s eyes in their backroom, closed door deal.

Unsurprising really.

Since Wayne Swan’s intellectual power wouldn’t pull the skin off a custard.

(h/t @CaroChristie )

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GilSwan Conned – Mining Tax The Greens’ Pit Of Despair

22 Dec

See those storm clouds gathering?

Over the Pit of Despair?

I wonder how Greens’ supporters will respond, when they wake up and discover the truth.

That their party’s deal with Labor on the mining tax will have the opposite result of what they were told.

I wonder what will they say, when they discover that the Minerals Resource Rent Tax (MRRT) will not result in the kind of wealth redistribution that was touted, a “fair share of our mineral wealth for all Australians”.

That instead, it will result in the Big 3 multinational mining companies … getting bigger. And richer. And more powerful.

And the government’s budget digging even deeper into the red.

When PM Gillard and Treasurer Swan went behind closed doors with the Big 3 miners to thrash out a hasty “fix” to former PM Rudd’s Resource Super Profits Tax (RSPT) debacle, thinking folks knew it would not end well.

Except for the big miners, that is.

Rather than scoring a vital goal for her “decisive” new leadership before the 2010 election, the secretive deal always looked more likely to result in yet another decisive Labor own goal.

And indeed it has.

Especially after Gillard and Swan again went behind closed doors, this time with the Independents and Greens, to thrash out a political deal to secure passage of the legislation in the parliament.

Late last month, after the new MRRT legislation passed the lower house, mining correspondent for The Australian Andrew Burrell belled the cat:

FEWER than one in 10 iron ore and coal miners operating in Australia will earn enough profit to start paying the $11.1 billion minerals resource rent tax from next year, according to Gillard government estimates.

A spokesman for Wayne Swan said yesterday he could not provide the names of the “estimated 20 to 30″ companies that were likely to pay the MRRT in 2012-13 because it was impossible to say how many companies would earn more than the annual profit threshold of $75 million.

“We haven’t got a precise list,” the spokesman said.

“But we have said the vast bulk of MRRT will be paid by the big three (BHP Billiton, Rio Tinto and Xstrata).”

Mr Burrell went on to reference the PM’s ever-changing claim for how many miners will be impacted under her revised grand design.

A claim most noteworthy not for its credibility.

But for its familiarity.

A remarkable familiarity to her “1,000 biggest” / “500 biggest” / “more like in the order of like, 400 biggest polluters” claim.

And the “half a million” / “300,000” jobs creation claim.

And the “4%” / “3.25%” projected GDP growth claim.

And the “3.5bn surplus” / “1.5bn surplus” projected budget outcome claim.

Big Labor government claims that are always being revised … downward:

Julia Gillard said last year that 320 iron ore and coal miners operating in Australia could be eligible to pay the MRRT — down from 2500 under the original resource super-profits tax that applied to all commodities.

In a deal with Tasmanian independent MP Andrew Wilkie on Monday, the government agreed to raise the profit threshold for the tax from $50m to $75m.

Mr Wilkie revealed the move would restrict the number of companies paying the MRRT to fewer than 30.

But this failed to quell criticism from junior miners, which claim the design of the tax still favours the established miners.

It remains unclear how the government will raise $11.1bn in the first three years of the MRRT.

Billionaire miner Andrew Forrest added to the confusion last week when he estimated that his iron ore company, Fortescue Metals Group, would largely avoid paying the tax for at least five years thanks to the substantial writeoffs available to all big producers.

Many in the industry also doubt whether BHP, Rio and Xstrata will face big MRRT liabilities, particularly in the early years of the mining tax.

This is because the design of the tax allows iron ore and coalminers with existing operations to price their assets using today’s inflated market values and claim potentially massive deductions…

Glyn Lawcock, a top-rated mining analyst at UBS, said it was impossible to predict with accuracy how much MRRT companies would pay from next financial year because it was difficult to calculate a company’s market value, which was used to determine MRRT liability.

When asked whether he believed the government could raise $11.1bn over three years, he said: “I scratch my head a little bit at that.”

It certainly is a head scratcher. Especially when one takes the time to carefully review the Treasury department’s Minerals Resource Rent Tax Bill 2011 document.

Recently a mining industry chief executive walked your humble blogger through this document. And explained that there is a very good reason why there has been little except “token noise” from the mining industry over the GilSwan MRRT, in stark contrast to the spirited fight put up against the original Rudd RSPT.

It is because in his words, “big miners will pay nothing for years, and small miners will pay nothing at all”.

But there’s more. In having the details explained to me, an even bigger flaw dawned.

A key insight, that mainstream economic commentators have not cottoned on to.

The clever accountants and lawyers for the Big 3 appear to have conned GilSwan into creating a tax mechanism that not only allows the Big 3 to defer paying any MRRT for years. It is a “tax” that acts as a financial incentive for the Big 3 to increase their monopoly, by gobbling up their smaller competitors and getting MRRT write-offs for doing so.

To understand how, let’s work through the details of the Treasury department’s document (emphasis added):

• New investment will be given generous treatment in the form of immediate write‐off, rather than depreciation over a number of years.  This allows mining projects to access the deductions immediately, and means a project will not pay any MRRT until it has made enough profit to pay off its upfront investment.

Sounds good if you are a start-up miner or explorer, right?  No doubt this idea was sold to GilSwan by the Big 3 as being “necessary” to encourage future mining investment, given that the MRRT places Australia at a competitive disadvantage versus other nations that do not have an MRRT.

But it’s also an obvious loophole that immediately dawned on your humble blogger. One that favours the Big 3 miners, who have the deepest pockets.

Consider.

What happens if a big multinational miner such as BHP, Rio Tinto, or Xstrata buys out a smaller mining company, such as a junior explorer or a company with proven but unrealised in-ground reserves?  It would appear they can claim the cost of that “new investment” as an immediate tax write-off, thus offsetting any MRRT they might otherwise be obliged to pay with respect to their other mining projects.

As you will see in a moment, this is no mere speculation by a sceptical blogger with an eye for detail.

It is exactly what the mechanism allows.

But it gets better for the big miners.

What if that smaller miner or junior explorer that they have now bought out, is presently making losses? Remembering that all do, typically for the first 5-10 years of the mine’s life:

• The MRRT will carry forward unutilised losses at the government long term bond rate plus 7 per cent.

Buy up a smaller, loss-making mining company. And claim the value of their unutilised losses against your other MRRT obligations.

Can’t believe that GilSwan (and the “bozos” in Treasury) could be this stupid?

They are:

• The MRRT will provide transferability of deductions. This supports mine development because it means a taxpayer can use the deductions that flow from investments in the construction phase of a project to offset the MRRT liability from another of its projects that is in the production phase.

No use to a small mining company with only one project. But manna from heaven to a large multinational miner with multiple projects.

Buy up a junior explorer, or a mining company that has proven reserves but has not yet begun/completed construction on the project. Claim 100% of the costs against your MRRT liabilities from other, active producing projects.

Thanks to the MRRT, the initial ‘new investment’ in swallowing up a junior mining company, and the ‘unutilised losses’ of that junior mining company, and the construction costs of taking that newly-acquired mining company’s project to production stage, all these now become tax-minimising assets to a hungry Big 3 multinational looking to take over their smaller, up-and-coming (Australian-owned) competitors.

But there’s still more:

• The MRRT will recognise the particular characteristics of different commodities, by applying a taxing point close to the point of extraction, and using appropriate pricing arrangements to ensure only the value of the resources extracted is taxed.

The Big 3 miners were very clever indeed in negotiating this “deal” with GilSwan.

As my mining industry source pointed out to me, the point of extraction is the point of lowest value of the ore; the grade is far below “shipping grade”, and so its value is far below the actual market value. He cited the example of copper ore.

At the point of extraction, the ore may only comprise 1% copper. The value of the ore at this point is around $20 per tonne.

But when subsequently processed into a 25% copper concentrate, the value is around $1,387 per tonne.

And the cost to the mining company of processing the raw 1% copper ore into 25% copper concentrate?

“About $30 per tonne.”

When the Big Miners insisted on the tax being applied “close to the point of extraction”, they took advantage of GilSwan’s abject ignorance of real-world business.  An ignorance that has been all too often seen in their many other policy calamities – think ceiling insulation, school halls, computers in schools, subsidised Toyota hybrids, green schemes, set-top boxes, and the daddy of them all, the no cost/benefit analysis NBN.

You should not be surprised, dear reader.  Not when our World’s Greatest Treasurer has an Arts degree, zero business experience, and has never worked a real job in his life.

Which explains, of course, why we are paying him $262,000 per year. And why we are about to increase his salary by $84,000 per year. And why we have spent $75,440 in 6 months on empty RAAF VIP “ghost” flights to ferry him about.

This ignorance of how things work in the real world is borne out even more starkly however. Not only have GilSwan agreed to impose the mining tax “close to the point of extraction”, (ie) at the ore’s lowest value, far below its value-added market value. They have also agreed to a 25% extraction allowance:

• The MRRT will provide a 25 per cent extraction allowance to further shield from tax the important value add and capital that mining companies bring to mineral extraction.

“Further shield” it?!  When they are already applying the tax “close to” the point of its lowest value?!

Ignore if you can all the other write-offs and deductions for a moment. What this “extraction allowance” really means is that GilSwan have not only agreed to tax the ore at or near its lowest value. They have also agreed to an effective tax rate of only 22.5%. Not the headline 30%.

In other words, this so-called “super profits tax” will be applied at 25% less than the standard company tax rate that even my own small business has to pay!

But where the now-familiar Labor descent into complete farce reaches its denouement, is when we get to the Treasury department’s modelling:

How the MRRT works

The following example is intended to illustrate how the MRRT will apply to iron ore and coal projects, commencing after 1 July  2012.

The example presents outcomes for a single project company with an equity financed mine that operates for 5 years.  The company is assumed to invest $1 billion in the first year of the project.  Over the life of the project the pre‐tax rate of return (revenue less operating and investment costs) is 50 per cent.

Click to enlarge

As my mining industry source assured, the modelled assumptions are beyond fantastic.

They are positively delusional.

The Treasury assumes this fairytale mining company begins to show “Revenue” of $520 million at Year 2 (see table). In the real world, a start-up mining project typically absorbs 5-10 years of losses before they even begin productive operations. My mining industry source pointed out that he has never heard of any mining company ever going from zero revenue to half a billion in a single year.

The Treasury also assumes this fairytale company has Year 2 operating expenses of 25% of revenue, and 25.5% at Year 6. Again … unheard of figures.

Back to the modelling:

The MRRT is levied at a rate of 30 per cent of the operating margin (revenue less operating and investment costs) less the MRRT allowance and the extraction allowance.  The MRRT allowance is calculated as the value of unused losses uplifted by an allowance rate equal to the long term government bond rate plus 7 per cent…

When we look at Year 4 in the example, the year in which Treasury has modelled the first MRRT “profit” (an inconceivable $436m), we find another problem. It is unclear whether Treasury has modelled “Revenue” as being Company revenue, or, as the “extraction point” value of the ore. If, as appears likely, the modelled “Revenue” figure is actually Company revenue, then on this point alone Treasury’s modelling is gravely flawed. Company revenue has nothing to do with the value of the ore at the “extraction point”. Meaning, the Treasury figures are nonsense.

Indeed, my mining industry source described them as “totally made up and have no resemblance to reality”.

Rather like Treasury’s modelling for “green jobs” (see one of 2011’s most popular posts, Barnaby Bamboozles Chief Of Climate Change Modelling Unit … Again).

Back to the MRRT modelling:

State royalties are assumed in this example to be equal to 7.5 per cent of sales revenue and are credited against the MRRT liability to produce the net MRRT liability. Where royalty payments exceed the MRRT liability in any one year, the balance is uplifted at the allowance rate to be offset against future MRRT liabilities…

We’ve left the issue of how the MRRT impacts on the payment of State mining royalties until now, to avoid complication. This is already a source of political angst between the governments of the mining states, and the Federal government. For the purposes of our look at the modelling, however, it’s pretty simple. The GilSwan grand plan grants a 100% credit for State mining royalties paid by the mining company.

In summary then, the MRRT is essentially calculated as follows:

MRRT 30% x Operating Margin (ie, Revenue calculated “close to Extraction Point”, less Operating costs)

less 100% write-off of construction costs

less write-off of unutilised losses

less 100% write-off of construction costs of acquired companies/projects

less write-off of unutilised losses of acquired companies/projects

less write-down of “market value” of existing assets over 25 years, OR

less write-down of “current written down book value” of existing assets (less the value of the resource) at an accelerated rate over 5 years

less Extraction Allowance (25%)

less 100% State Royalty credit …

It all begs the question … from where is the government’s claimed $11.1bn in MRRT revenue ever going to come from?

Treasurer Swan has claimed that “the vast bulk of MRRT will be paid by the big three”.

But in reality, given all the write-offs and concessions, the big miners will pay nothing for many years. If ever.

As Fortescue’s Andrew Forrest has affirmed.

So then, of GilSwan’s originally alleged “2,500 mining companies” in Australia, just who exactly are these “estimated 20-30” (small) iron and coal miners who will be earning profits of $75m per annum from July 2012?

Especially given that the boom in commodity prices has now peaked … and plummeted?

Others are asking the same question:

“Is this for real?

“Firstly, what 2500 companies are mining in Australia? There is NO WAY the number is that high unless one counts every Pty Ltd quarry and sand pit and borrow pit. Even then, it is an extraordinary figure and I cannot believe for one minute that it is real.

“But secondly, Gillard says only 320 iron and coal companies were captured under the MRRT. Really? Are there really 300-plus coal companies? Because as far as I know, there are only about 14 iron ore companies. And if you believe those figures to be true (i.e 320 dropping to around 30) that means that there are 290 iron ore and coal mining companies that are operating at an annual profit of between $50m and $75m since that is the only difference between MRRT Mk 1 and MRRT Mk 2. This is patently absurd.”

…

The broader point here is that there is just not a whole lot in the sustaining rhetoric of the MRRT that stands a cold hard reality check. Yet the government continues to represent the tax as a great leap forward in the commonwealth’s chase for a fairer share of the resources boom.

It isn’t.

As colleague David Uren made clear in his insightful dismantling of a tax “so compromised by its bastard birth that it puts the commonwealth budget at risk and cannot be considered an economic reform”.

Uren observed that a 20 per cent fall in commodities prices would wipe out the government’s MRRT revenue and leave it stumping up for the $4.5bn of recurrent spending commitments that were supposed to be funded from the fairer share.

And folks I am here to tell you that this is exactly the scenario that the government is facing.

The sustained retreat of iron ore and coal prices means that big mining is now some months past peak cashflows.

Indeed.

With the China bubble deflating, iron ore and coking coal spot prices are currently trading around 30% below their 2011 peaks:

Source: RBA Chart Pack, Dec 2011 | Click to enlarge

At least the Coalition is aware of the budget risk. Even if they too appear not to have twigged to what is a blindingly obvious extension of logic – that the MRRT is designed to help the Big 3 multinationals increase their profits, and their monopoly:

“There are serious question marks over who will pay what and when under Labor’s mining tax deal,” Shadow Assistant Treasurer Mathias Cormann said.

“FMG says it won’t pay any MRRT for a number of years given the tax design features favouring larger miners,” he said.

“There are credible suggestions that the big three miners who had exclusive access to the Prime Minister and the Treasurer to design the mining tax behind closed doors won’t pay any MRRT for years either.

“No wonder the big three say they are happy with the MRRT, while the smaller local miners are not.

“Wayne Swan has consistently refused to release the commodity price and production volume assumptions used to estimate MRRT revenue claiming that they’re based on commercial-in-confidence data provided by the big three miners.

“So not only are the big three miners allowed to design the tax to suit their needs, they’re also the only ones allowed to know the governments mining tax revenue assumptions. That’s just not good enough.

“Even on the government’s own figures, the mining tax package is a fiscal train wreck in the making.

The Great Big Mining Tax … that isn’t.

As my kind mentor concluded:

“This bill was drafted BY miners, FOR miners”

“I think the miners and their accountants outsmarted Gillard and Swan, and bamboozled them with mining jargon”

“The miners in reality love it.” 

Greens’ supporters … welcome to the Pit of Despair.

“What did this do to you? Tell me. And remember, this is for posterity so, be honest. How do you feel?”

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Mining Tax Con – Another Huge Hole In The Budget?

3 Dec

Yesterday your humble blogger received information from an experienced mining industry source concerning the Minerals Resource Rent Tax (MRRT).

Information that represents potential dynamite to the Gillard government.

Blasting a huge hole in a budget that is already shot to hell.

This industry source suggests that Gillard and her pack of no-business-experience-disconnected-from-reality incompetents, along with the equally disconnected-from-reality “modellers” in the Treasury department, have been comprehensively conned by the clever accountants and lawyers  of the Big Miners.  This source believes the design of the legislation is fatally flawed; so much so, that a consequence of the last minute change to a key threshold made by Gillard to gain the support of Andrew Wilkie to pass the bill, means that the government now may not receive any revenue from their MRRT at all. Or at the least, it may be quite a number of years before they even begin receiving any.

I have some serious follow-up research to do before bringing readers this story in full.

Stay tuned.

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