When a new tax is good news…

When a new tax is good news…

I’ve been a little doomy and gloomy lately.

Perhaps more so than normal.

Most of my writings to you have been about falling gross domestic product…

Holes in unemployment data…

The potential crashing of the Aussie dollar…

And then there’s been the endless editorial about how low interest rates are proof the Aussie economy is set to dive.

It’s enough to make you run and hide. Who wants to hear bad news all the time?

Well, today I have some good news for you.

And it all starts with a tax.

Yep, that’s not something I ever thought I would say either…

How to plug the property hole

How do you hide bad news?

You send it out on a Friday afternoon — that’s how!

And that was exactly what the Victorian government did last week.

Rather than release the state budget on a Monday — and give the press a full five days to chew on it — the government snuck some teasers out late last Friday.

And who could blame them?

The budget wasn’t full of good news. The entire thing is basically a bunch of new taxes on Victorians. It was never going to go down well.

Although, the new taxes shouldn’t surprise people either.

Property prices have been falling for almost two years. Plus, the volume of sales is down significantly in that time.

Meaning the Victorian government isn’t getting the billions in stamp duty revenue that it used to get.

So it’s doing what governments do — looking to increase taxes everywhere else to offset the loss.

And it’s a mighty big, $5.2 billion hole to fill.

How is the government filling that hole?

Well, there’s the usual suspects.

Increase taxes on luxury car sales over $100,000.

Increase taxes on foreign businesses.

Bump up a land tax and force people to consolidate their land to minimise that tax.

And then there was the very obscure decision to tax Victorian gold producers…

Follow the taxes

Somehow — for decades, in fact — Victorian gold miners have managed to dodge paying a royalty tax to the state government. Victoria is the only state in Australia that doesn’t have a royalty tax for gold miners.

Which is odd.

Because Victoria — and the rest of Australia — owes its entire economic fortune to the southern dirt. 

The Australian gold rush literally began in a place called Poverty Point in Victoria.

In early August 1851, a blacksmith by the named of Thomas Hiscock found gold there… By mid-October, 2,000 men were sifting through the mud and muck hoping to strike it rich.

By the end of the decade, the Victorian population had grown six times to over 500,000 people.

Since that first gold rush, it’s estimated some 48 million ounces of gold have been poured in Victoria alone.

I say ‘estimated’, but I really do mean ‘best guess’.

Many early sizeable gold discoveries weren’t reported. That way, prospectors could avoid taxes and licence fees. So actual historical gold production could be far higher.

Today, Victoria pours 350,000 ounces of gold each year, worth roughly $647 million.

That’s a large sum. So it’s surprising that the local gold companies have been able to dodge the tax man for so long.

But, while a new tax is never good news, investors should see it as a positive sign…

80 million ounces to find

The Victorian gold rush may be over, but there’s still a whole lot more gold left to find.

There could be as much as 80 million ounces of gold still to find in Victoria. And many think that 32 million ounces of that can be found around Stawell, Bendigo and Ballarat.

And I know of plenty companies that are looking to find gold around here too.

However, the point is, the new gold tax for Victorian miners might not be such a bad thing.

Of course, the mining companies are up in arms because they didn’t get warned about the new tax. Undoubtedly, we would feel the same way if we had a tax dumped on us at the last minute.

But, as desperate as the Victorian government is to plug that cash hole, it wouldn’t attack a sector that’s struggling.

In fact, I would say the Victorian government has assessed that the sector is strong enough to hit them with an unavoidable tax.

To me, it’s a bullish signal that there is more investment underway in Victoria.

Governments don’t tax businesses or sectors that are struggling. They avoid taxing struggling sectors, and offer tax avoidance incentives as a way of encouraging ‘new’ business or more investment in the state.

The fact that the Victorian government feels the industry can take a broad tax — now the highest in Australia — is a sign that there is money to be made in the Victorian gold industry.

Perhaps the long-forgotten Victorian gold sector is warming up. And it took a government tax grab to bring our attention to it.

Investors take note. The second Victorian gold rush might not be too far off.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia