Wednesday, May 12, 2010

The Great Australian Tax Grab is sending the golden goose offshore

The Australian Budget matters to us.  The extent to which we haven’t descended here into a complete black hole of economic depression is in large part because of Australia’s still ongoing resource boom.

But Kevin Rudd and his Treasurer Wayne Swan are doing their level best to kill that particular golden goose.  Last night’s Budget saw them sharpening the axe as they prepare to carry out the plan to decapitate the miners in order to drink their blood.

The tale can be told in four excerpts:

From this morning’s Australian newspaper, we read the budgetary boasts of Kevin and Wayne who, despite still spending like water, are making far-out promises of balancing the budget:

    “Government debt is forecast to return to zero in 2017-18 - also three years earlier than previously predicted. Mr Swan predicted that the budget deficit, already down from $57 billion to $40 billion in 2010-11, would turn to a bare surplus in 2012-13 of $1 billion. “We have to grow together and maximise growth,” Mr Swan said.

From yesterday’s Herald Sun, we find out just how this fantasy is going to be funded.  Not by ending Australians delusions about their taxpaid “entitlements,” but by finding a new sap to fund them: by soaking the miners:

    “[By] the resources rent tax (RRT) , or as it is dishonestly titled, the resources super profits tax …
    “It is not petty cash. The RRT will [they hope] raise $3 billion in 2012-13 and $9 billion in 2013-14 - the last two years covered by the official budget forecasts.”

And from the Herald Sun, we see how illusory those figures (and this recovery) are going to be.

    “Fully half the $30 billion the Government claims as ‘savings’ over the next four years came not from real savings but from just two last-minute grabs for cash.
    “Nearly $5 billion is to come from smokers - for their own good, of course - and another $12 billion from miners, thanks to the new ‘super profits tax.
    “These are huge figures, and the mining tax depends crucially on there actually being ‘super profits’ left to plunder.
    “If China’s growth stalls and our mineral exports shrink, Rudd’s forecasts are finished.  If the miners, furious at Rudd’s smash and grab, keep announcing the cancellation or deferral of big projects in response, his tax take will shrivel, and our economy with it.”

And the miners? They’re already shrugging, as a local blogger spotted:

‘As they will say in Oz: "Where the bloody hell did ya go...?"
    “Well, apparently now its going to be Africa and other parts of Asia.
    “Anywhere but the super funds of working Australians.
    “Australian Prime Minister Kevin Rudd has managed to put a spanner in the works of that troublesome mining industry with his fabulous new taxes.

"Rio Tinto shelves billions in projects
    ”MINING giant Rio Tinto has shelved plans to spend $11 billion expanding its massive iron ore operations in Western Australia because of the wave of uncertainty sparked by the Rudd government's proposed tax on super profits."

If there’s anyone anywhere who really believes that Kevin and Wayne will manage to steal enough from the miners to backstop their budget deficits, without sending their economy’s backstop off-shore in pursuit of safer profits, they probably need their heads read.

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11 Comments:

Blogger Shane Pleasance said...

This comment has been removed by the author.

5/12/2010 11:35:00 am  
Anonymous Anonymous said...

In the mid-1930s the Western Australian government held a referendum as to possibly seceding from the Commonwealth of Australia. I believe it was inspired by the drain from Canberra on the wealth created within the state yet lost to the local constituents. The poll required a 65% majority to secede. The end result was a mere fraction beneath that threshold. It might be time for WA'ers to look to this notion again???

Chris R.

5/12/2010 12:06:00 pm  
Anonymous LGM said...

Chris

Probably a very good idea. they could and should walk away from the huge debts that Krudd is building for the future.

LGM

5/12/2010 03:25:00 pm  
Anonymous Anonymous said...

If WA was to undertake a further move today (and secede) it would be fraught with commercial difficulties. While the State of WA's mineral base contributes hugely to the entire Commonwealth economy the State is very much reliant on infra-structure which is administered from the Eastern States.This is not solely at Government level but also through private companies headquartering their distribution in the East. The remainder of Australia does not rely on mineral wealth from WA as it did a few decades ago. The expansion of mining in Queensland has given that state a material advantage over WA. The imposition of Rudd's new tax may provide cause for discontent in Queensland. That would be interesting.

Like NZ the major disadvantage borne by WA is a dearth of population. I believe the entire population spread over an area as large as Europe is about the same as NZ's from Te Kuiti to North Cape. Transporting anything, water included, around WA is a logistical and commercial hurdle.

Chris R.

5/14/2010 08:29:00 am  
Anonymous LGM said...

Chris

If WA did not take the option of seceding, that would be fraught with commerical difficulties also.

The infrastructure within WA is within WA. Administrators can be moved or replaced as required.

Now if QLD were to secede as well, that would be very interesting.

Anyway, if either or both states seceded, that would be good for Australians (neglecting slugs and parasites like Krudd and his chums).

LGM

5/14/2010 11:12:00 am  
Anonymous Anonymous said...

The Australian economy is always going to be afflicted by the tyranny of distance within the country's borders. In recent times it has been sustained economically by outstanding returns from its extractive industries. The mineral resources are enormous and unlikely to be ever exhausted through the present levels of demand. If demand for minerals truly abates the foundations of the WA and Queensland economies will be profoundly tested.(It is believed that should iron ore demand atrophy, the growing requirements for uranium will soften the outcomes.)

The agricultural industry is perennially challenging and is not likely to grow beyond present parameters through the harsh climate and (again) transport costs. The huge interior is losing population at an accelerating rate. It is said that more than 90% of the population of Australia now lives within 40 kms of the sea.

The persistent difficulty with Australia's economy will continue to be transport across a sparsely populated continent, no matter in which direction goods are to be moved. The imposition of capricious taxes will be an aggravating factor but not a pivotal one when the economic growth of the country is measured.

The compendious size of NZ is its most identifiable advantage over Australia. The trouble is that NZ politicians will continue to trash this through maintaining inefficiencies in the local and international transport industries.

Chris R.

5/14/2010 12:30:00 pm  
Anonymous LGM said...

Chris

Transport over distance is a matter of engineering. Dealing with it is best left to private capitalists and entrepeneurs. Trouble is, the government gets in the way and stops progress dead- it makes accumulation of capital much more difficult than it should be, it sets up arbitrary regulations which oppose innovation, it forbids creation of unconventional infrastructure arrangements, it ossifies existing forms and prevents their replacement by superior options, it forbids alternatives, it protects its own cronies and mobsters and their rorts, it insists its pet financial arrangers are employed to undertake anything, etc.

One of the Australian issues is the sparse (and falling) population of the centre of the continent. Probably the main reasons for this is the government. The Aussie tax code in relation to employers providing housing for workers in "remote regions" is notable in this regard. There are significant penalties and disadvantages erected against those who would prefer to leave the coastal areas to develop business operations inland. Developing anything inland is subject to all sorts of arbitrary bullshit rules and regs.

Far from being rugged tough outback pioneers and individualists, too many Australians are soft arsebackwards socialists who embrace the notion that they deserve entitlement to the money of others and that they are entitled to be set secure and safe for life without any effort of their own. That's bad enough but what is really dangerous for the future of Australia is that those urban softies have created a jerry-mandered political & social system which actively discourages the type of productive hard working pioneer who would enter into the life-long adventure to open up and develop the red centre and the north. Yes, there really is a two-speed Australia, but not in the sense that the Labour crock of shit pollies presently occupying the treasury benches would have you believe. Those shit bottles are doing their best to eliminate everything except dead-stop out-of-gear neutral.

As is well remarked, "Nature abhors a vacuum". The Red heart will be developed, one way or another. The question is when and by whom (quite possibly not by Australians).

Returning to the idea of WA seceding. Transport links with major trading partners do not have to rely upon infrastructure intensive over-land means. A perfectly adequate direct shipping route is available from WA to India and also to the rest of Asia. The South-Eastern seaboard of Australia is just not a vital necessity for WA or the NT ot even QLD.

You are quite right about NZ's advantages over Australia. Interestingly BHP and Rio both undertook significant analysis of NZ's mineral potential. Both concluded that NZ's per capita mineral wealth was far superior to Australia's. This was for three reasons- ease of access to the minerals of interest, ease of refining locally and transporting product out. Both also concluded that, for political and social reasons, investments for mineral projects were best made in Australia. And that's how it has been for the last two decades... Will that alter? Unlikely. Aussie might slow up now, but it is going to remain a far superior bet to NZ nevertheless.


LGM

5/15/2010 09:15:00 am  
Anonymous Anonymous said...

I agree with the desirability of avoiding land transport across the Australian centre. My wife and I import product from China through Fremantle then use "back-load" trucks to move it to Tullamarine from whence it can be airfreighted. The costs are manageable provided the loads are great enough. When supplying retailers the orders can be slight and either the retailer or the wholesaler needs to embody this cost into its price to customer.

I continue to believe that 20-30 years hence NZ is a better prospect for economic growth than Australia. I perceive the NZ electorate as being more fluid than the Australian constituency. A move towards a more productive outlook and away from savage socialism is more easily achieved in a fluid constituency.

Chris R.
PS our water resources are yet to be fully appreciated.

5/15/2010 11:14:00 am  
Anonymous LGM said...

Chris

In 20 to 30 years the Kiwi culture (as presently constituted) will be dead and buried. NZ's Asian creditors will have determined how many millions of immigrants there will be, where they'll settle and what resources they'll develop & exploit. Forget about Maori, Pakeha, Waitangi and all that nonsense. The creditors will, in essence, liquidate the failed welfare state of NZ. If you are a freedom loving capitalist that will be most good (assuming you're not retired or dead by then). For the slug breeders that ooze around NZ these days it'll be a time of intense difficulty and suffering. Can't say that isn't a pleasing thought.

LGM

5/15/2010 02:03:00 pm  
Anonymous Contemplationist said...

The congruence and similarity between the Obama and Rudd administrations is striking and scary.

1) Feckless, reckless fiscal policy? Check.

2) Support for emissions trading scam? Check

3) Moralistic finger-wagging speechifying combined with vague and vapid propagandistic phrases? Check

4) Budget-balancing promises far out, contradicting all current policy moves? Check

5/15/2010 04:40:00 pm  
Anonymous Anonymous said...

LGM: I agree without demur with your last posting. It is inevitable that "Kiwi Culture" as we believe we apprehend it today will be gone in 2-3 decades. If one can accurately recall NZ society 30 years ago, it has been full obliterated too.

Contemplationist: The USA/Oz comparison is acute. Both countries are led by self-serving socialists who give the non-productive the spoils wrenched from the productive. We rightly belly-ache about the expenditure through welfare in NZ but we are not alone. I cannot claim that all states of either USA and Oz are congruent with welfare costs (Lindsay Mitchell would possibly know,) but check out as examples state welfare expenditure in California and (the supposedly vibrant) Western Australia. It is easy to read the statistics on their state web-sites.

Chris R.

5/16/2010 09:11:00 am  

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