Government Snatching Extra Tax from Resources Sector Will Make Things Worse

“At the end of the day Im just a mug punter but even I with my limited intelligence know the definition of “super” I mean imagine if Super mans powers were slightly greater than that of the average man….. he wouldnt really be “Super man” now would he, he’d be “Slightly better than average man” doesnt have the same ring to it though does it?”

- Young-Trader, Hotcopper

We wrote about 8,000 words on the so-called Super Tax last week. But I reckon the post by ‘Young-Trader’ on Hotcopper sums it up just as well in only 65 words.

But before we get on to today’s Money Morning, a quick note about our new Money Morning YouTube channel. You can click here to view the, erm, only video we’ve managed to film so far.

We’ve been amazed at the number of people that have taken a look already. So, we’ll see if we can provide regular video updates on this site. Stay tuned over the next few weeks for more details…

Anyway, back to today’s Money Morning. We do find it amusing that Treasurer Wayne Swan would say that Australian mining companies are holding a “gun to the head“ of the nation.

Really? Exactly how are the mining companies doing that?

I don’t know about you, but the last time I checked, neither BHP Billiton [ASX: BHP] nor Rio Tinto [ASX: RIO], nor any of the other thousand-odd Australian mining companies have ever forced your editor to buy one of their products.

We could be wrong, but we’re pretty confident we’re right.

When we think about it, we’ve never seen the purchase of one tonne of iron ore automatically deducted from our pay packet.

And neither have we ever been informed that we’ve got to buy ten pounds of copper otherwise, well we’ve just got to whether we use it or not.

On the other hand, we’re 100% confident that every fortnight the government holds a gun to your editor’s head, forcing us to hand over a slice of our wages.

And we’re not just bleating over our own misfortune. You’re well aware of this yourself. Every week, fortnight or month, the government holds a gun to your head as it takes 20%, 30% or 40% of your wages.

And there’s nothing you can do about it. Unless you fancy taking tax tips from Glen Wheatley or Paul Hogan of course.

But forget all that, because this morning everything is fine with the world again. The Greeks have been bailed out, and Australian stocks are rallying.

As we write, those lovely banks are up – ANZ Bank [ASX: ANZ] up 2.7%, Commonwealth Bank [ASX: CBA] up 2.5% – and so are the resources stocks – BHP Billiton up 2%, Rio Tinto up 3% – so everything must be fine.

Phew! What a relief.

But the funniest thing about the last couple of weeks is how quiet the perma-bulls have been. They’re usually so vocal about how the recovery is going according to plan and how critics of government spending should just shut up.

And how everything will be fine as long as nobody sells their shares – “If we all refuse to sell then prices will never go down!”

You can see just how quiet they’ve been by looking at their absence from the Money Morning blogs, or by the lack of emails we’ve received into the Money Morning mailbag.

Of course today they’ll come back out of the word-work, or from under the table claiming they were too busy snapping up bargains.

Last Friday we asked, “where are the Keynesians now? Supposedly their spending plan was working. This is the way out of recession they said. Stoke the demand side and everything will be fine.”

That prompted our colleague, Nick Hubble over at The Daily Reckoning to point out exactly where the Keynesians are. They’re hiding under the table apparently! Nobel Prize for economics winner Paul Krugman wrote:

“And if Greece is in effect forced out of the euro, what happens to other shaky members?
I think I’ll go hide under the table now.”

We’ve taken some criticism from the Keynesians for daring to ridicule Krugman for his views. His view is that the US economy isn’t in better shape because politicians didn’t spend enough money on stimulus programmes.

But then, Krugman has a PhD and a Nobel Prize whereas your editor only has a DVD and a Third Prize, therefore Krugman is right and we’re wrong.

Naturally we beg to differ. Krugman couldn’t be any more wrong if he tried. And boy is he trying.

OK, maybe the “I think I’ll go hide under the table now” line is an attempt at a joke, but the reality is, the Keynesians have run out of ideas. Their one and only solution is to pour more and more money at the economy to try and stimulate a recovery.

The more spent the better. The more borrowed the better. The more that’s printed the better.

You see, the cruel thing about it is that all it does is give the impression of an economic recovery. What it hides is the real damaging effects. And because the damage is largely silent, you may never be 100% aware that it’s happening.

Sure, you may not have lost your job and unemployment is at record lows. But how come if everything is booming you don’t feel better off? In fact, you’re working longer hours but you can afford fewer luxuries.

And by luxuries I’m not talking about Gucci handbags and Cartier watches. I’m talking about soft toilet paper and brand-name cheese.

Your non-discretionary purchases have increased – food and fuel – so you’ve got less money left over to spend on fun things (not that toilet paper and cheese are all that fun, but you get what I mean!)

Yet you read in the paper and see on the news about how the Australian economy is booming. How China is buying up lots of resources. How property prices continue to surge upwards.

If that’s the case how come you don’t seem to be any better off today than you were two years ago?

That, my friend, is the work of inflation silently wreaking havoc on your wealth.

And don’t think that the government snatching extra tax from the resources sector will help you out, because it won’t. In fact, it will make it worse.

Because rather than the profits from the resources sector going straight into the pockets of investors and individuals, instead it will go straight to the government. And that’s where it gets to stoke the inflationary fires even more.

It’s all part of the inflationary policies both here and overseas. As new money is created by the central banks and bankers it first of all finds its way to those industries most favoured by the banks and the government.

But it doesn’t even need to create new money. It can just misallocate resources in the wrong areas, such as it typically does with any kind of government spending.

They take the money and spend it on all their little pet projects. Naturally this causes prices to rise through the economy as more new money chases the same number of resources and products.

By the time this new money finds its way into your pocket, it’s too late to be of any use to you as prices have already risen.

You can see that’s already happened with the increase in the consumer price index (CPI), which is already skirting close to the Reserve Bank of Australia’s supposed upper limit. The cost of living will always rise before you receive a matching rise in pay. You’re always playing catch up.

So even when your pay packet gets bigger you’re left scratching your head wondering where the extra money has gone. Naturally, you blame it on yourself for spending too much, or on evil businessmen for so-called profiteering.

That’s inflation for you. And it’s why the banks and governments love it so much. Because it gives them an unfair advantage.

They get to spend and lend the new cash first. Therefore they get the most bang for their buck.

But like any Ponzi scheme it requires a constant stream of new investors. Or in this case, a constant stream of new money to keep it propped up.

With the market up nearly 2% this morning compared with Friday’s close, has anything changed? No, not really. The phrase that does spring to mind is the one about a pig wearing lipstick.

And today we can certainly say that the little porker has scrubbed up a treat. Trouble is, when all is said and done… it’s still a pig!

Cheers,
Kris.

Government Snatching Extra Tax from Resources Sector Will Make Things Worse, 9.4 out of 10 based on 14 ratings

Tagged as: Australian mining companies, bhp billiton, central banks, government, inflation, Keynesian, Krugman, rio tinto, Super Tax, Wayne Swan