If Kevin Rudd had proposed a Super Banking Tax he'd probably still be in power, and the tax may have even raised some money. Alas, ANZ's $5.7 billion fiscal year profit is all its own. And alas, none of the big three miners included in the government's revised mining tax — BHP Billiton, Rio Tinto, and Xstrata — paid a single cent in tax in the first quarter, according to today's Australian.
Zero is not a big number, and it's certainly a lot less than $10.6 billion, which is how much the Australian government originally hoped to raise with the mining tax. But Monday was the deadline for the big three posting their first quarter payment. And according to the paper, they paid nothing.
The math isn't terribly hard here, even if you're a politician. The Mineral Resources Rent Tax is paid on a quarterly basis. The quarterly payment is an estimate of the annual liability divided by four. Given that the first quarterly payment is zero, it follows that the anything zero divided by four is also zero. The tax is a big zero.
You can't really blame the miners for this. Sure, they probably shifted some capital spending around to get the profit level below the threshold at which the mining tax kicks in (provided anyone understands how the mining tax actually works). But the super profits are gone because the super cycle is over.
Even the Reserve Bank understands this. Remember, the RBA claimed the mining boom had three basic phases: the price boom (driven by a supply deficit and a surprise surge in demand), the investment boom (scheduled to end next year but probably already over), and the volume boom (where all that investment leads to increased export volumes).
Each phase delivers different benefits to the economy. The price boom led to instant profits. You didn't have to increase iron ore and coal exports to make money. Prices did the trick. The investment boom delivered jobs and incomes to the miners and mining services (and to shareholders). The volume boom has yet to materialise. And there is some doubt about it, at least in your editor's eyes.
The designers of the mining tax made a simple mistake: they were greedy when they should have been fearful. Prices contain information. But not everyone receives that information in the same way. To a big government-loving busybody, high mining profits are like a honey pot that must be raided. The money is irresistible, especially to people who make a living taking other people's money and finding ways to lose it.
But a more informed understanding of the commodity price spike would have told the government that it was all part of the commodities cycle. That high prices don't last forever. And that years of low margins and low profits precede these periodic glory days. But you can't blame the government for being stupid and greedy any more than you can blame a frog for being green and toady. A thing can only be what it is.
The stock market doesn't seem too fussed about the mining tax bust. By now, the expectation of lower mining profits and earnings ought to be priced into the Aussie stock market. And investors ought to have completed their rotation out of high-growth shares and into something more sustainable.
Maybe 4600 is the new 4500. When you look at a year-to-date chart for the All Ordinaries, you see a rally that ended in early May with the index sticking its nose over 4500 and then falling back to 4033 by early June. It's up 12% since then. But breaking through 4600 will require a whole new campaign, we reckon.
We ran into a distracted and heavily stubbled Murray Dawes upon returning to our Melbourne HQ this morning. Murray's been looking for a large sell-off in the market. He explains his position on the stock market here . He later ducked his head in to apologise for his distraction. It turns out he has quite a few short positions on at the moment in Slipstream Trader, so there's more than a little at stake with his view.
Regards,
Dan Denning
for The Daily Reckoning Australia
From the Archives...
China's GDP Growth Ponzi Scheme
19-10-2012 - Greg Canavan
An Australian Property Boom and Bust all at Once
18-10-2012 - Greg Canavan
The Fed's New Stooge
17-10-2012 - Bill Bonner
Discordian Religious Advice for the Investor
16-10-2012 - Nick Hubble
Electric Cars and Platinum Mines
15-10-2012 - Dan Denning
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by watcher7 on 25 October 2012:
* Lu Wang, DeMark Sees S&P 500 Index Peaking Around 1,480 Before 12% Tumble, bloomberg.com, October 25, 2012:
The Standard & Poor’s 500 Index will advance 5 percent to about 1,480 over the next two weeks before the rally ends and stocks fall, according to Tom DeMark, the creator of indicators to show turning points in securities.
The gain would push the benchmark index above the 2012 intraday high of 1,474.51 reached on Sept. 14 before buyers are exhausted, said DeMark, whose prediction last year that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77 on Oct. 4, 2011. The advance will fizzle, with the S&P 500 heading for a potential decline of 12 percent to 17 percent, he said in an e-mailed statement.
“There is still some unfinished business upside that will totally surprise and shock most market followers,” DeMark, the founder of Market Studies LLC, wrote.
* Antonia van de Velde, West in a ‘Colossal Mess’ in Five to 10 Years: Marc Faber, cnbc.com, October 22, 2012:
Faber believes the Chinese and Japanese stock markets could see a rebound, while in the U.S. the S&P 500 is likely to see a 20 percent downward move.
"I think here we’re going to go down 20 percent from the recent top at 1,470. The technical position of the market is poor and the corporate earnings are worsening. And I believe that if the statistics were precise – which they aren’t – (…) I think there’s hardly any growth," Faber said...
Comment by Garry on 26 October 2012:
The mining tax was never a goer - Period. Blind Freddie could see this from the outset, because it was designed by the very same people who fumbled the ball on the simple issue of pink bats - and a raft of other dead easy issues.
Coming up with a "profits tax", in a business environment where profits can be whatever a corporation chooses them to be....Weird country governance, one might suggest
Given that our mineral resources are finite - A once "ever" phenomenon(non renewable)and supposedly there for the benefit of future Australians, then taxes should have been decided on the tonnage leaving our shores - A take what your want from Australia' attitude, and just pay the bill. Which of course would have soon translated into a reduction of mining activity. But no, Australia has a government with a desperate need for cash, so it will turn to other creative ideas to get their hands on it. The MRRT is a dead issue - indeed, was from the start because we have mental Pygmies running the show in Canberra. Four year windows, that's their maximum time horizon.
Meanwhile the price of iron ore trades at more than 250% of its carry value when the Pygmies first took office. Yet according to them - and numerous other so-called experts pounding the media pages - mining is dead - the profits just aren't what they used to be
Weird - the raw materials to sustain life as we know it, just won't be needed.
Comment by Crabby on 12 November 2012:
Typical Socialist (spread it around) Economics. They create the problem and then they have to fix the problem by raising extra taxes only: they can't!! They're too addicted to spending our dollars and they're going to create MORE debt for the next Guv to payback. Stuffing around like this should be a crime. HFBC.