These pig-headed would-be fascist bureaucratic monsters are trying to bore us to death and get us to settle for some watered down version of a resource rent tax. It’s a tax that would reduce investment in Australia’s mining industry, lead to lower employment, lower export volumes, and put taxpayers on the hook for failed mining projects.
By the way, you’d think miners would love to flog off losses on taxpayers. It’s worked so well for bankers. So why haven’t the miners embraced it?
Well, for starters, most miners (the ones you want to invest in) don’t go into business to make losses. But more importantly what self-respecting entrepreneur or company would get in bed with the Australian government on a deal that theoretically promised to pay for losses later?
After all, as this legislation shows, this is a government that is willing to change the rules in mid-stream. Fickle. Temperamental. Impulsive. Vindictive.
In this case, the impulsiveness takes the form of the retro-active taxation of projects that were made with an entirely different set of assumptions by the companies and their shareholders. What’s to prevent the government from telling the miners at some point in the future, “Sorry, we know we promised to offset your losses, but we don’t have the money! We already spent it! Suckers!”
Ever since our plane landed in Melbourne early Wednesday morning we have been channeling the energy from all those wide open Western spaces we flew over in America. It’s turning into aggravation over how much time we have to spend dealing with plundering and arrogant politicians. Granted, these are the duly elected representatives of the people. But they seem to be behaving in a pretty high-handed fashion.
Something about big sky and open space reminds you that countries like Australia and America were built and made great by risk-taking settlers and entrepreneurs and explorers. Not by grasping, lecturing, hectoring, scolding, smarmy and dreadfully boring career politicians.
Another by the way…why hasn’t the government revealed some of the basic assumptions of its tax scheme, like what it expects commodity prices to be?
One answer: its $9 billion RSPT cash haul for next year is probably based on the assumption of high commodity prices. If the government is basing its projections on an analysis of the mining industry done by the Treasury, that analysis probably also figures high but gently declining commodity prices.
You can bet it doesn’t figure crashing commodity prices from a blown up Chinese real estate bubble. Because that could never happen again..like it did in 2008 (by the blowing up of the American real estate bubble).
Frankly, we’d be surprised if there was a lot of thought put into a scenario where commodity prices fall. Why? After all, if the world is coming off a 20-year credit boom and is now reducing leverage and debt, you’d expect lower economic growth and lower demand for the key commodities which Australia exports and which the government wants to tax.
You’d expect that if you had two brain cells to rub together and weren’t running for public office. But if you’re trying to cover a huge hole in your budget because you spent the nation’s accumulated $20 billion budget surplus in an act of blind devotion to a failed orthodoxy (Keynesian stimulus), you don’t do much thinking.
You act first and make excuses later! And you spend more of other people’s money to buy votes. And when you don’t have the money, you find ways to take it from people that do (the miners).
In any event, we wish nothing but abject failure and embarrassment for the government in its mining policy. A wholesale repudiation of the plan (and the leadership of the government) might begin to restore some of Australia’s credibility on foreign capital markets. And as a bonus, we wouldn’t have to endure being lectured to and bored to death by the Prime Minister.
Yet why so cranky Daily Reckoning?
Stocks are up eight days in a row. Gold is rising. Though it looks like Spain is the next Greece (only bigger), stock markets are again embracing risk and turning their back on the possibility that widespread asset deflation is inevitable. Is it time to hold your nose and buy?
With central banks determined to keep interest rates low, doesn’t money have to go somewhere? And if not bonds, why not stocks? Gee. That doesn’t sound like speculation at all, does it?
-Back here in Australia, we hadn’t realised that RBA Governor Ric Battellino had once and for all settled all those pesky but mostly irrelevant concerns about the level of debt in Australia. Thank goodness he did!
We were beginning to think that having your banks borrow overseas to fund a house price boom was a case of inflating an asset class with other people’s money and putting lots of your own people in debt to keep an entire industry of bankers, real estate agents, and real estate spruikers happy, stylishly-dressed, and no-doubt well coiffed.
But that’s not what’s going on at all. According to Battelino, Australia has borrowed mostly to buy assets, and that makes people richer. What’s more, even though debt levels have grown relative to GDP and income, low interest rates make the debt serviceable. Battelino says that financial deregulation and “the structural decline in interest rates” contributed most to the house price boom.
Phew. That is SUCH a relief to know. Global deregulation and a worldwide credit boom drove down the cost of capital for Australian home buyers. Even though prices are way ahead of income growth, houses are affordable because credit is still cheap.
What’s that? What happens if the cost of capital rises and credit becomes harder to come by? Oh…well that would never happen. Ever.
Or would it? If one of the consequences of deregulation was a worldwide credit boom, doesn’t it follow that in a worldwide credit bust, credit is going to be less available to households, including Australian households? And doesn’t it follow that houses inflated by capital inflows into Australia would be deflated by a dearth of new capital or buyers?
Both probably follow. But Battelino persists. He says, “This structural decline in interest rates has facilitated the increase in household debt ratios because it reduced debt-servicing costs. Households have therefore found that they can now service more debt than used to be the case.”
They can as long as they have jobs and rates stay low. In a real China bust, unemployment in Australia is going to rise. And then? And then, in a true China-bust, the cost of capital is going to rise too as bad credits are written down globally and balance sheets are de-levered and banks get back to prudent lending.
We realise there is a very real debate about whether long-term interest rates can rise when central banks are determined to keep short-term rates low. But we’ll leave that one for next week. Until then…enjoy your weekend.
for The Daily Reckoning Australia