Well, it looks as though the pathetic mainstream press has started to awaken from its slumber on the Super Tax.
Over the last day or so we’ve finally seen the penny drop as they realise the Super Profits Tax isn’t a tax on Super Profits, it’s just a bigger tax.
As our example showed yesterday, it’s not just so-called Super Profits that will be stung with the tax, even companies on small profit margins will get slugged with it.
I tell you what, it never ceases to amaze us how governments can get away with false, deceptive and misleading advertising. If Woolworth’s or Coles make a mistake with an advertising campaign the Australian Competition & Consumer Commission (ACCC) is all over them like a rash.
Yet when the government claims it’s only going to tax Super Profits when the reality is it’s going to tax small profits too, the ACCC is nowhere to be seen.
But at least the gutless mainstream media is starting to question the whole Super Profits Tax nonsense. Even if it is three days too late.
But what do you care? You’re not a mining company. It’s not taking money out of your pocket. Or is it?
For a start, not only is bad news for the resources industry bad news for you, but the odds are that if the Fairy Ruddfather backs down from his Super Profits Tax, it will involve you receiving a direct tax hit rather than an indirect tax hit.
This line from an article in today’s Melbourne Herald Sun should leave you with hairs standing up on the back of your neck:
“Mr Rudd said only that he believed the rate was “about right” before attending a private dinner with industry chief executives led by Fortescue Metals Group’s Andrew Forrest, Rio Tinto Iron Ore’s Sam Walsh, BHP Billiton Iron Ore’s Ian Ashby and Woodside Petroleum’s Don Voelte.”
If there’s one thing worse than a government acting unilaterally, it’s when a government teams up with businesses to act multilaterally.
In the old days they called it Fascism. Today they call it Public-Private Partnerships.
Because one thing is guaranteed. When they’re talking about easing the tax burden on the mining companies, the outcome won’t result in the government cutting spending. The outcome will result in the government getting its money from a softer target…
You!
Think about it. Where’s your lobby group? Where’s your spokesperson? When was the last time you got invited to dinner with the PM to talk about tax?
Believe me, based on the emails we receive into the Money Morning inbox, there are enough government and tax lovers out there who are prepared to vote for a government that taxes the life out of the economy, just so they can get their fair share of someone else’s money.
We’re still astounded that anyone could think it “fair” for them to take a slice of someone else’s hard work.
But anyway, back to the point we left you with in yesterday’s Money Morning:
“It’s funny isn’t it? One industry spends billions of dollars to recover useful and tangible resources. The other spends nothing to create money from thin air in order to ensure the continued expansion of credit, the property bubble, and the terminal indebtedness of the Australian population.”
And you need no further confirmation of that than by taking a look at the Victorian State Budget news that:
“An extra $4000 will be available to first home buyers buying newly constructed properties in regional areas, taking their total entitlement to $26,500. Those buying in metropolitan Melbourne will receive $2000 extra, up to $20,000.”
Yep, there you go, says it all really. But don’t be fooled by the fact that the Super Profits Tax is a federal tax and this home buyers boost is a State tax, because it doesn’t make any difference.
What’s more important is the flow of cash. Money is being expropriated from productive and useful industries and being given to the singularly unproductive housing industry.
Make no mistake, whatever you may have read elsewhere, housing is NOT productive. It is a consumable.
But something else on the Super Profits Tax is our argument that unless you’re an investor in a mining company, or that you’re part of a mining company, then you don’t deserve to take a share in the profits of the mining company.
No more than I have any right to demand that you give me 40% of your money in return for some undefined product or service I may or may not provide in the future – which is effectively what government taxation is.
Therefore, a parasitic government doesn’t have any justification whatsoever to take 40% of anyone’s profits. Whether it’s a mining company or any other business.
We’ve received a number of emails telling us that it’s only right that miners should give something back to the community. That they’re making a lot of money from digging up “our” resources and that the community should get its fair share.
Other arguments have suggested that the tax is no different from a landlord charging you to rent a house or a factory. The house or the factory is on the property owner’s land, and in the case of the miners, they are mining on government or Crown land.
Both arguments are not only incorrect, but they are nonsense.
We think we’ve already answered the first one sufficiently. Mining companies already give plenty to the community. They dig stuff out of the ground, they employ people, they enable other businesses to make stuff from the stuff dug from the ground.
The ‘selfish’ action of Rio Tinto extracting copper from the ground in order to make a profit ultimately results in an electrician being able to put copper wiring in your home.
Rio doesn’t dig up the copper out of some kind of philanthropy. It does it because it wants to make a profit. Its ‘selfish’ profit motive enables you to switch on a light when it’s dark.
What more could they do to provide an important service to the Australian economy?
Let’s get this straight, all taxation is theft of private property. It’s impossible to argue against that position. Tax isn’t voluntary. It’s forced on individuals and businesses. There is no choice.
Think of it this way. The money you earn as a wage is your property. You protect it just as you would any other item of property.
If we lined up a wallet full of your cash, your television, your kitchen table (which all families sit around to discuss things apparently!) and your computer, you would say that all of those items are your property.
If someone took one of those items without asking, you would say it is theft.
Yet for some reason, when the government skims 20%, 30% or 40% from people’s wages, very few consider that to be theft. But it is.
Let me put it this way. Let’s say there wasn’t an income tax. Instead there was a personal property tax. So, rather than taking 30% of your income every month, the government forcibly entered your home and took away 30% of your possessions.
How would you respond? I’m sure you wouldn’t be happy. And not surprisingly, because guess what, you now have to go out to work in order to earn enough money to buy items to replace what the government has taken.
But don’t get too attached to them, because next month the government will be back again, forcibly entering your home and taking 30% of your possessions. And so on it goes, every month…
Show me how that’s any different to how the tax system works? I’ll let you know if anyone tries to justify it by saying “It’s only fair.”
If we apply the same principle to the mining industry, imagine if the government didn’t take a 40% Super Profits Tax and instead it just took 40% of all the iron ore BHP Billiton produced, or 40% of the copper Rio Tinto produced.
Does that sound fair? Of course not.
And that’s where the landlord analogy falls down. Comparing a private landlord to government taxation is perhaps the most ridiculous and incompetent analogy we’ve come across. In fact, it’s an embarrassing analogy.
Typically, if you’re renting a property from a landlord you’re doing so because they’ve improved the site. They’ve built a house on it for you to live in, or they’ve built a factory for you to do business in.
Quite rightly the landlord will want to charge you for the use of those facilities. The landlord will want to make a return on their investment. No-one (except the socialists) would rightly argue with that.
But what has the government done to the sites it hands out permits for?
Has the government surveyed the area for minerals so the explorers don’t have to bother? Has the government turned over a few million tonnes of earth so the miners can get straight to the mineral for no effort?
Of course not. When the explorers and miners turn up to begin work it’s just a great big patch of dirt. The government has expended no effort whatsoever on the land before authorising the permit.
In fact, if you look at all the hoops explorers have to jump through, governments actually increase the workload for mining companies by enforcing excessive regulations.
Even if we agree with the idea – which we don’t – that the land is Crown land, then the most the government could justify for unimproved land would be a small peppercorn rent.
But the idea that a landlord should take a percentage cut of the company profits is absurd. We’ve looked at hundreds if not thousands of advertisements for commercial properties and not once have we ever seen a requirement by the landlord that the tenant must hand over 40% of profits.
Have you ever rented a house where the landlord demands 40% of your salary as rent?
I mean seriously, if you’re a profitable business or a prospective housing tenant, would you take out a tenancy on those terms?
Which brings us nicely to how the pathetic Super Profits Tax could potentially destroy the Australian mining industry.
Already one Australian company, Cape Lambert Resources [ASX: CFE] has decided that a 40% Super Profits Tax is so burdensome that it won’t proceed with the Cape Lambert South Project.
What’s it doing instead? Unsurprisingly it’s going to develop the Marampa Project in Sierra Leone instead!
Sierra Leone for crying out loud. Haven’t they just had a civil war?
Cape Lambert would prefer to operate in a former civil war torn country than in Australia. It reckons it can get a better return on capital from dodging bullets and kidnappers than it can from dodging camels and kangaroos in the Western Australian outback.
But that’s only the beginning. Sure, not every miner is going to take their bat and go home. But for miners like Cape Lambert that have two comparable projects, it’s a no-brainer to focus its resources on the project that will have the better return.
What does that mean for Australia? Well, for all those that are worried about not getting a good deal on “their” resources, this will surely be good news for them. Because rather than Cape Lambert extracting 1.5 billion tonnes of iron ore from the ground, employing hundreds of people on the site and providing work for allied industries, instead the iron ore will remain in the ground for everyone to enjoy.
We wonder how many people will now claim that the iron ore at Cape Lambert South is theirs now. Any takers? Thought not. It seems the bludgers aren’t quite so keen on the iron ore when it’s in the ground. It only gets their interest after someone has done all the hard work to extract it.
Of course, if they don’t like it remaining in the ground they could always go and grab their fair share for themselves. By our calculations it’s about 68 tonnes per Australian!
They’ll need a big wheelbarrow for that. What a joke.
It’s the old story isn’t it? The thieving government wasn’t happy with stealing 30% of company profits, so they thought they’d try and grab a bit more. Except the geniuses in government will soon realise they’ll now get 40% of nothing.
No wonder they can’t find a job in the private sector with that kind of logic.
But isn’t it funny how the pollies and bludgers are complaining about BHP and Rio Tinto having big foreign ownership, and how it’s terrible all these profits are heading offshore.
Well, it’s hardly surprising is it? Not when you consider that the Australian economy, government and banking sector are too busy funnelling investor’s cash elsewhere, namely the housing market.
Perhaps if the government and banks weren’t quite so eager to encourage everyone to buy as many houses as possible there might be some cash left over for people to invest in mining projects.
Instead, the banks’ loan books are laden with greater than a 50% exposure to the mortgage market. That’s easy money. Keep piling in to the giant property Ponzi scheme.
And because the banks know the housing market is on the verge of a catastrophic collapse, they’ve got to keep piling more money in. And all the better if the governments chip in with the home buyers grants.
We’ve said it for some time now, so we’re not just jumping on the bandwagon, behind the mirage of a strong economy lies the reality of an Australian economy which is doomed to collapse like never before.
The government has become over confident. It truly believes it saved Australia from the global economic meltdown and that it can now micro manage and manipulate the economy to greater wealth.
It can’t. It’s just manipulating it to the credit-gorged poorhouse.
Australia has been supported by one thing – the demand for resources from China. But with the cracks in China already starting to show, the government will realise that it won’t just be Cape Lambert that it will receive 40% of nothing, it will be the same story for the majority of the Australian resources sector.
Of course, on the plus side, at least you’ll have a 1/22,000,000th share of unrecovered raw materials, kept securely for you several hundred metres below the surface. Oh, and a house.
Let’s see how productive housing is then!
Cheers,
Kris.
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And this link will take you to the latest interview with Canada’s own prophet of doom, Garth Turner. Some are said to be waiting for God, others on a house price crash, while the chosen ones are waiting on no-one, being too busy doing God’s work. All in all, you gotta say that it is an interesting world.
http://www.howestreet.com/
Nick, I am watching that clip now. Taleb is awsome. He is one of the few who really go to the heart of the matter, and in particular that the system is loaded with risk and uncertainty, and that when an accident is waiting to happen, it probably will. He is realistic, however, in that he concedes that nobody can know for sure if, and when, things fall over, and this is the point which I have been trying to make from time to time, that nobody really knows, and those who say they do, are doing themselves and others a disservice. What we can all agree on is that there are massive risks in the system, and that this is no time for taking undue risks. Gamblers, backed by tax payer money, of course, are a different cattle of fish. Volatility suits them just fine. In fact, they are the ones who are creating it.
…but wont this tax present Hostralia with 2 major gains in the way of the need for an ETS – if all these miners suspend their projects and take their balls overseas less carbon polutants (isnt that ETS objective) and if they stop ripping everything out of the ground in such a great hurry then the boom will still look good when they come back in 10-15years time when other countries reserves are all tapped out (how high will profits be then with limited world resources). What makes me laugh most is how these well-heeled individuals (Buffett, Gates etc) and companies work so hard to get all these profits then (whether its guilty conscience or whatever) suddenly develop a humanitarian streak and give a large portion of it away to charities and projects. Even the banks support charities so wheres the difference between them giving it later to get the publicity or governments taking it earlier (saves having to dish out all those knighthoods and medals) and spending it not only where it is needed but WHEN it is needed ie NOW.
Sobering thought – a lot of China’s coal import need in last couple of years was due to them closing a lot of their own mines for “safety inspections” that took upto 12 months to complete (AFR report last year) created a nice bubble in other countries so reigning in some of the current headfast dash may also tip the balance of “power” over the market back into Hostralian hands from China.
Peter C @ 8:
i could not have said it any better myself!
that’s what the socialist, government loving, tax loving nanny staters here just don’t get.
Peter C – I personally would take a different view of matters. Your argument makes the assumption that everybody’s work and contribution is fairly and justly rewarded. It is not. Taxing the oligarchs, so that the lives of less fortunate and disadvantaged citizens may be improved somewhat, many would argue, is part and parcel of good government and the creation of a good society.
There are plenty of good, hones and very hard working people who work long hours at thankless, dangerous and backbreaking stuff, and do not get proportional and fair remuneration for it.
In the present case, the riches being dug up by miners is the common property of all Australians, be it iron ore, coal, silver, or gold, and it is only fair that exceptionally succesful companies who are digging up and selling off these non-renewable resources make a higher contribution to the common good and welfare of the nation as a whole.
Earl – Very good points. It just goes to show what a furphy and con the ETS was, doesn’t it? But, unbelievably, the bastards still haven’t given up on introducing it at a later time. I continue to see all manners of research reports, such as the one on last night’s Catalyst, which continue to hammer how dangerous CO2 is for the future. Last night’s program, for example, lifts the bar to another level, by not focusing on the now questionable assertion of catastrophic warming, but on the effects of elevated CO2 levels on plant life. What we know is that yields would increase by some 20% if CO2 levels doubled from current levels, but the new argument is that, while that is true, the plants would produce far less nutritionally important proteins, yada, yada, yada.
And not only that, but that many plants that we eat now would become dangerously toxic for consumption. Imagine that. With arguments like that from reputable scientists, it looks like an ETS will sooner or later be jammed down our collective throats.
cb – Totally agree, and further more as human (why isnt it humane?) beings we have not progressed very far from the days of olde just a couple of hundred years ago when society had debtors prisons for the poor.
Taking the half and half scenario put forward I guess I’d be broadly categorised as the half that are supposedly “taking”. I got laid off last March 09 (my bank only made $65m interim profit so had to cut back to “survive”) and since then despite averaging upto 10 job applications a month I remain unemployed. From my p-o-v Im banging my head against the age discrimination ceiling (over 55). We ARENT actually TAKING anything because we are “surviving” on my wife’s pay but with all the utility price increases the brick wall of default is fast approaching – so off to debtors prison for me maybe. If people are so concerned about protecting their idol that is money why dont they stop blaming/beating up on those with (through no fault of their own) little and go after some of those with lots that have been appropriated through less than honest dealings. Australian tax cheats with overseas tax havens – their amnesty ends soon, should be interesting to see what happens next. Swiss banks fought to avoid providing USA govt with 50,000 account holders and ended up giving a list of some 2000. The first prosecution involved a “hidden” bank balance of $1m. Even if we said the average of all accounts was only $1m thats $50,000,000,000 floating round the globe for private equity traders and private bankers to build on and increase tax free. How odd that a football team that “rorts” a sporting system that ultimately affects only those fans that follow the code gets swift and precise action against it but those that potentially “rort” a global system that affects everything from house mortgages through to government budgets get an amnesty. We (as beings) really need a values check.
TGIF.
Just after 2:30 PM Eastern today, the U.S. stock indexes crashed nearly 10% in several minutes of panic. And all because of…
…Greece?
Greece, dear reader.
If you believe that one, then please — stop reading. I can’t say anything you’ll find helpful.
But if you remain tuned to this station, I will observe that the nonsense began instantly. At exactly 2:45 PM The New York Times put up a headline which claimed “Stocks Plunge on Concerns Over Greece.” The story itself reported absolutely nothing NEW about Greece, for the simple reason that there IS nothing new. Everyone who cares already knew the relevant facts about that country’s financial crisis. It’s been in the news for weeks and months.
So the story did NOT become “worse” today, or more “threatening” today. This was not the day Greece became “the first of several dominoes in Europe that could fall.”
Then there’s the U.S. dollar rally this week — is “Greece” the reason? Or, is this week part of a rally that’s been underway all year, contrary to the conventional wisdom but in agreement with EWI’s forecast?
Crude oil futures fell 3.6% today. The CRB Commodity Index is down nearly 6% on the week. “Greece” again? Or, part of “The Great Credit Contraction” spelled out in the May issue of The Elliott Wave Financial Forecast?
Neither the word “Greece” nor the phrase “Greek financial crisis” appear in Bob Prechter’s latest Elliott Wave Theorist. But, you may recall that issue’s headline, which I quoted in a recent email message I sent you: “A Deadly Bearish Big Picture.”
Here’s what else my email said:
If you’ve read any of Prechter’s books or heard him in an interview, you know that overstatement is not his style. When he says the “Big Picture” is “Deadly Bearish,” that is exactly what he means.
The past week has brought that “Big Picture” a lot closer. The issue at hand is what YOU need to do as an investor. Market tops are a process — in recent months, you’ve probably found the top of this bear market rally frustrating indeed.
Yet the brief version of the story is simple: The frustration is over. It’s time to get in front of where the trend will go from here.
Our charts, analysis and forecasts are a few clicks away. Follow this link to begin.
Regards,
Robert Folsom
Robert Folsom
Elliott Wave International
“Taxation is theft of private property”? Are you kidding? I have never heard anything so stupid and selfish in my life! You must be a follower of Ayn Rand’s “Objectivism” Theory. Look what that got us into. Ask Alan Greenspan. Perhaps he has “seen the Light” by now.
This anti-social attitude should be fought all the way. It’s “TEA baggers” all over. Sorry, but not in my country!
Good is see people writing about tax as theft.
The sooner more people realise this, and no longer want to stay as children being looked after by someone else, the sooner we’ll all have a chance at growing this economy from our own efforts…for the benefit everyone who participates.
I saw a bumper sticker..”Ban mining…let the bastards freeze in the dark”
Looks like a few more of us will be left freezing in the dark by the actions of foolish government. (I’m being nice…I don’t think most of the politicians realise how morally bankrupt they are)
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