Disappearing Boom Taxes

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–How much money is left in this boom anyway? For company profits….for shareholders of the mining companies…for state governments…and, of course, for the nice people in Canberra running the Federal government.

–Before we elaborate on the vanishing billions of the boom, a quick operational note. For the first time in our five-year history in Australia, the Daily Reckoning is going to take a proper holiday like everyone else. We won’t be back live until Tuesday, January 4th, 2011.

–Don’t think that means you’re off the hook for next week, though. Last week we asked the editors of each of our investment services to answer five questions. You’ll read their answers next week, one publication per day. If, by the way, you’re looking for your Bill Bonner fix, we assume Bill will be unable to keep himself away from a computer down in Nicaragua. You should be able to find his work over at www.dailyreckoning.com

–Incidentally, the five questions we’ve asked Murray, Alex, Kris, and Greg are:

  1. What was your best performing investment idea of 2010 and how well did it do?
  2. What was your worst performing investment idea of 2010 and what went wrong?
  3. What’s the most valuable lesson you and your readers learned this year?
  4. In investment terms, what keeps you up at night?
  5. What’s your big forecast for next year or the one investment idea you’re most excited about?

–Back to here and now, John Kehoe has the big scoop of the day in the Australian Financial Review. He writes that, “A senior government figure and officials told the Australian Financial Review the contentious minerals resource rent tax would raise far less than the government claims. Sources close to Treasury said a more realistic figure was less than $5 billion.”

–Ouch.

–The issue? “Commodity price and volume assumptions used by the government and provided by the big miners to forecast the revenue were unrealistic and required downward revisions.” This issue of elevated (unrealistic) expectations about the boom lasting forever (instead of being cyclical) is highlighted by the two charts below, both courtesy of the Reserve Bank of Australia.

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–The last time Australia made this much money selling commodities to the rest of the world, it was riding high on the sheep’s back in the 1950s. The Korean War was in full flight and agricultural commodities ruled the export roost. Today, of course, the economy is riding on the dirt’s back, and the coal’s back.

–What you’ll notice about both charts is how pointy and steep the recent rises look. They are far above trend. If they’re mean reverting—as most things in life are—then they’ll decline.

–But that’s too simple an explanation, isn’t it? The counter argument is that is a structural revaluation of resources that shifts pricing power and long-term benefits to commodity producers. Commodity prices may decline a bit and the terms of trade might retreat, but it needn’t be a collapse.

–You can expect to see a lot more on this debate in next week’s editorial interview series.

–In the meantime, we’re going to wish you and your family and Merry Christmas and Happy Holidays. Our own offices here in St. Kilda have already started to thin out as people make their way home. So we won’t keep you any longer either!

–Thank you from the whole crew here at Port Phillip Publishing for your attention, your patience, and your many kind (and even some not so kind) comments over the year. We wouldn’t have a business without! In fact, we’ll leave you today with the musings and thoughts of some of your fellow travellers.

Hi,

I am wondering when there will be an article about The Global Socialist Government we are heading into.

There are signs all over the place, if one chooses to take note.

I believe the financial system is slowly but surely being collapsed in order to bring in a one world currency, and eventually a one world government with a one world leader. Already we are seeing countries bound by the IMF. The amount of finance this Labour Government has borrowed, our turn is on the way.

I don’t know anything about finance, but there are those out there that are never satisfied and never seem able to get their hands on enough.

The thing that really shocks me, is the lack of reporting by the media of this country. They could not see what a loser K Rudd was, until even the drovers dog was barking. So it’s scarcely any wonder the massive con with global warming and carbon credit rackets, go as not noteworthy news.

I think when the next part of the financial collapse comes marching along, there will be superannuation funds disappearing all over the place.

I’ve had my little say, time reveals all.

Kind regards ,

Ray C

Hi Dan,

Love your newsletter.  Even though the NAB/Westpac story hasn’t been a hit with the bigger newspapers, there are still lots of people aware of it. This is actually a concern for the banks, because they know if there is another financial crisis , there will be a run on the banks started by the “smart money”.

It is just one of these things, sure you wouldn’t have 50000 cash in the bank the next time the cookie crumbles and neither will I.

You are pretty spot on with your banking story anyway. Might want to dig into the CBA buying Bankwest. What did the government give CBA to take over a bankrupt bank at the time. Dirty deals I’ve been told anyway.

Regards,
Homer

Dear Dan,

This is what is going on in the world.

There are many bankrupts. Some are individuals. Some are Companies. Some are Nations.

Each bankrupt has only one privilege. In the end that privilege is to choose who they pay before they actually go bankrupt.

Those that trade honestly and pay all honest traders and leave the crooks to “Whistle Dixie” will keep their reputation and come out of bankruptcy. They will have learned their lesson and will recover much of their past fortunes and never go bust again.

Those that cheat and lie will be hung out to dry.

The next reality will be quite simple…”Honesty is the best policy” … or … “Thy word is thy bond”. That was the way of our Fathers and strangely enough … “The apple does not fall far from the tree”.

Kind regards,
Jolyon

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. “we’re going to wish you and your family and Merry Christmas and Happy Holidays”

    Yep, Merry Xmas to all!

    The mining boom? – Dunno. But I do know that I just got my annual Chrissy greeting from a body hire company here in Brissy that caters largely to the mining industry and it commences with:

    “The Global Financial Crisis has abated just as suddenly as it came upon us. Several months back the phones started ringing again and they have not stopped.”

    So someone’s happy even if Gerry Harvey isn’t! :)

    Reply
  2. One for Dan.

    http://www.bloomberg.com/news/2010-12-23/-grotesque-basel-rules-may-kill-denmark-s-mortgage-bonds-credit-markets.html

    Book finished, 91,000 words. My xmas prsent to myself. Search for publisher to start and may take as much time.

    Merry Xmas and happy New Year. A special note to watcher7 who has nailed it this year.

    Reply
  3. A bit of a conspiracy theory on the one world government & currency? All the trends seem to indicate the EURO will fracture and if that happens other countries will be very reluctant in the future to join currencies at the expense of their own.

    Happy Christmas all!!!

    Richo (the Second)
    December 24, 2010
    Reply
  4. World conspiracy to become one-big GSC? Ray C might be right…nice theory. If the EU cracks up, governments will cling to a floating dead horse to save themselves.

    Reply
  5. Australia’s sovereign debt risk is low right?

    All our risk is with private banks right?

    All those guarantees are catching up with us even before the bubble bursts.

    Guess who ranks as less risky than us?

    From among the PIIGs
    Ireland
    Spain
    Italy

    Among the others
    Russia
    UK
    USA
    China

    http://www.economist.com/blogs/dailychart/2010/12/sovereign_debt

    Reply

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