- Money Morning Australia

What is the Future of the RSPT under Prime Minister Gillard?

Written on 29 June 2010 by Dr. Alex Cowie

Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy. ~Ernest Benn

As your regular editor Kris Sayce mentioned, I recently went to Africa ‘to kick some rocks’. I ‘kicked some rocks’ in a number of mining projects in South Africa and Botswana, and got a good feel for their futures, as well the logistical environment that the companies are working in.

My original return was delayed as I missed my flight. There had been a cops n’ robbers style shoot-out on the freeway to the airport, so the traffic was grid-locked for twenty kilometres. When I finally did step back onto Australian land, it was to the news that that land was now being managed by Prime Minister Gillard (PMG)!

This brought to mind another quote: ‘A week is a long time in politics’, which I’m sure is what Kevin Rudd is thinking right now. Either that or wondering at what time in the afternoon it is ok to pour the first scotch of the day when you are no longer running the country.

As editor of Diggers and Drillers, The first thing I thought was:

‘What does this mean for the future of the RSPT?’

So far we have had little to go on from Gillard, other than an ambiguous pledge to open the doors to negotiations on the RSPT.

The industry will need much more than that from Gillard before it takes any heat off the government. Seeing as the tax in its current form was the death-blow sending Rudd to the back benches with a face like vinegar, it would serve Gillard’s popularity polls well to clarify what the plan is, and pronto.

Would these negotiations take place pre-election? A kind smile and vague commitments beforehand are not going to cut the mustard. The mining industry has given her a moment’s reprieve, but will be as ruthless as they were with Rudd unless given a good reason to back off.

Is the Prime Minister even considering starting again from scratch on a foundation of extensive consultations, as per the shaping and introduction of the Petroleum Resource Rent Tax?

This would be the best possible outcome for all involved, but with the tax’s mad architect Wayne Swan now sitting in the co-pilot’s seat, it is probably just a tenuous dream.

If it came down to negotiating terms and conditions in an attempt to remodel this garden-shed-DIY-grade mess into something workable, there are three main points to haggle over.

Does it apply to projects already operating? If so, then it is effectively moving the goal posts on investment decisions made years or even decades ago. Imagine how you would feel if ten years into your mortgage, the bank completely rewrote its terms?

As for the scale of the tax, the threshold rate of 6% has to change. The weighted average cost of capital (the rate miners pay for money) is more like double that. So as long as there is such a gap between the two rates, miners would be bleeding money.

Then the 40% rate of the RSPT clearly needs to be dialled back to something less ridiculous as well.

I went to the Melbourne Mining Club’s Tax Forum last week, and Chris Richardson, the Director of Access Economics, pointed out that the net effect of all of this for shareholders is an effective tax rate on mining stocks as high as 67.9%.

At the same event, The CEO of the Minerals Council of Australia, Mitch Hooke, said that he was optimistic in regards to Gillard’s more consultative tone.

I will need something more tangible than optimism before I start recommending any of the many great mining projects based in Australia for my Diggers and Drillers readers again. For now, nearly everything is currently offshore and doing well for it.

Last night I watched Swan speak on the excellent ABC news after the G20 summit. He re-affirmed my offshore strategy for me. He said:

“Advanced economies have committed to at least halve deficits by 2013. Now of course, Australia will be returning to surplus by 2013,”

What gave me the chills is that following the government’s calculations, without some other tax or spending cuts, the only way in which this return to surplus is possible at the moment is if the RSPT goes ahead in its current form, adding $3 billion in revenue in 2012-2013. Gillard has also stated she is committed to this budget target.

So whilst Gillard is waving an olive branch in the air with one hand, it looks like her other hand is pointing at the miners, and flipping them the bird.

Make no mistake. Nothing is resolved at the moment. We are just moving into the second act of this RSPT saga.

Stay tuned.

Dr. Alex Cowie
For Money Morning Australia


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36 Comments For This Post

  1. peter fraser Says:

    What is the Future of Prime Minister Gillard under the RSPT?

  2. cb Says:

    That is an equally good question, PF. My hunch is that if she can push it through before or after Labor is re-elected, she will be just fine. Most of the danger for her lies, not in the RSPT itself, but in losing the election because of the argy-bargy over it. I am yet to read the article, but.

  3. cb Says:

    The most informative part of this article is the hint it gives as to the conditions under which miners spend/waste investors money on overseas projects, such as those in Africa. More and more of the evidence suggestes that it is not so super trying to avoid a domestic RSPT through these threatened means. If Gillard sees through the bluff and is able to stand her ground on the RSPT, one day this nation is going to thank her for it – provided that she survives long enough to implement the damn thing.

  4. Nick Says:

    Abbey…why do you think Gillard is in power?

  5. Nick Says:

    I wonder if Gillard knew about this? Keep an eye out for a “black swan”!


  6. michael francis Says:

    Australians should mine it, smelt it, forge it then export it. That’s where our future is and f–k flipping houses.

  7. Nick Says:

    MF…you can add “technology” to that list. We have the brains, we have the people. That is true “currency”.
    A house produces nothing but fond memories.

  8. cb Says:

    Abby – If you should ever lose your mind and decide to enter politics, you can count on my vote.

  9. cb Says:

    Abby – But I should also make it clear that the free passes and lunches our politicians are giving big business and special interest groups at taxpayers’s expense is no lesser drain, or threat, for our economic wellbeing. Can you see that?

  10. OREO-ruddxpin-BASHER-BUMMER Says:

    Obama DOCTRINE: Congress Just Declared Preemptive WAR on Iran
    June 28, 2010 by NotForSale2NWO


  11. OREO-ruddxpin-BASHER-BUMMER Says:

    The United States exists in two forms:
    1. The original United States that was in operation until 1860; a collection of sovereign Republics in the union. Under the original Constitution the States controlled the Federal Government; the Federal Government did not control the States and had very little authority.
    2. The original United States has been usurped by a separate and different UNITED STATES formed in 1871, which only controls the District of Columbia and it’s territories, and which is actually a corporation (the UNITED STATES CORPORATION) that acts as our current government. The United States Corporation operates under Corporate/Commercial/Public Law rather than Common/Private Law.

    Sovereign – A real person. Sovereigns can own property while Citizens/Subjects cannot. According to the original Constitution, all government comes from the Sovereign Individual. Without the Sovereign Individual, there is no government.

  12. The Wolf Says:

    Rudd ==> Gillard…like putting lipstick in a pig. The path to the Miners Tax Gouge will continue. There may be some tinkering…but what the ALP giveth in one hand will be taken in the nexteth…

    Fully expect to see the red carpet and rose petals scattered at the feet of all “productive” unions to enter the mining/O&G workplaces like Centurions returning to Rome after a successful conquest…

  13. The Wolf Says:

    Ah…lipstick on a pig…what was I thinking…musta been swigging some o’dat OP40 rum with Peefer Fra…Fra…Fra…[hic] Fraserer…

  14. Nick Says:

    How true Wolf.
    How wonderful to have Australia’s first female Prime Minister!!.
    That will make a difference!!

    Just like the US had the first black President. He even got a Nobel Prize in just a couple of weeks!! The euphoria!!…what do they think of him now??
    But it’s OK here in Oz mate, just keep buying houses. I can recommend you to someone that can help you with finance.!

  15. peter fraser Says:

    The Wolf @ 16 – well that ended the bubble in the rum currency trade.

    Then again the resultant shortage mayl shoot the price to the moon.

  16. Nick Says:

    If I didn’t know better, I could say this guy is my brother!

    For those who cannot understand this principle, learn it and learn it fast.


  17. GB Says:

    Another classic from Joye (i only read the start)
    1. There is no bubble in China’s property because their growth rates are similar to the bubble growth rates in Australia
    2. Looking at 10 year growth rates in China confirms there is no bubble however I have failed to realise that the property bubble in China has been going on longer than that. Maybe i should research the Asian financial crisis in the 90’s.

    Honestly Joye really is showing how little he understands the process. I think he can write well and can make nice graphs but he just cant apply theory to reality. This is confirmed by simply answering this question – if China’s property price growth is stable then why has the government been coming down hard on it since January? For instance, why increase the deposit required for a loan or why stop banks lending to people or why shut down 76 odd local government agencies who were playing the property market……. the list goes on and on and on


  18. GB Says:

    cb – you will like the comment below from his article

    “Afterwards, comparatively hum-drum folks like the RBA and yours truly are left to dismantle the voodoo”

    What a hero…

  19. GB Says:

    here comes the depression


  20. cb Says:

    Thanks, GB – good links, but I am yet to read that last one. Most of what Joye argues about China is something I simply cannot properly evaluate, so I will not rubbish it, but will allow myself the indulgence of remarking that the man never fails to make mention of his own greatness. Someone has to sing his praises, I guess.

    But what really caught my eyes was his quote of this tasty little morsel from legendary Robertson:
    “Rory remarked, “My clearest get-rich-quick dream is “shorting” gold at some yet-to-be-determined extraordinary price, just before it collapses under the weight of the investor herd rushing to exit.” ”

    The first thing I should note is that I do not disagree with it. Just like it happened thirty years ago, shorting gold just before its price collapses would make for a fantastic trade. But the point for now is that Robertson does not consider the current price level to be appropriate for going short, or at least not at this time, anyhow. Hence, Denning might be overstating Robertson’s position on gold, which would not surprise me in the least. They all exaggerate, they are all guilty. One is a hack, the other a quack, and people follow their advice at their own peril. As usual: Caveat emptor! Let the buyer beware!

  21. The Wolf Says:

    If you are hunting around for a bubble, Macquarie’s Rory Robertson has an idea – that most valuable of non-income producing investments, gold. In a proprietary research note published over the weekend, Rory remarked, “My clearest get-rich-quick dream is “shorting” gold at some yet-to-be-determined extraordinary price, just before it collapses under the weight of the investor herd rushing to exit.”

    Part of Joye article link from GB…

    Rory…could he be any clearer “at some yet-to-be-determined extraordinary price”? It appears that Rory believes that gold is not in a bubble if his “extraordinary price” measure has not yet registered on his “dream” gauge…

    Interesting article overall from Joye, he has waited for Sayce to take a holiday before producing a graph induced piece, full of meaningless comparisons…please child…try understanding China, rather than taking in several Cab Sav’s with “an economist that I hold in high regard”.

    Though, I will stand corrected if in the next several months we see the following added to the extensive BLog signature “Chris was recently invited to Beijing to Property Future 2015, where he was a lone voice of dissention with the view that Chinese property was not in any way shape or form a bubble. After fully utilising Microsoft Powerpoint 2007 in his 1hr keynote briefing, he was not sighted after lunch. Rumour has it that the deep fried pig stomach could have contributed to his absence, however a check of all toilets at the conference centre yielded no Chris. There was an unconfirmed report that C several weeks later that Chris was seen close to where Stern Hu was entertaining his new friends in his Ming Dynasty studio apartment with one window replete with bars, but a follow up was not permitted as the site where Stern lives has “cultural significance”.

    Looks like the Chinese don’t like voodoo deciphery…

  22. cb Says:

    GB – I have now caught up with that last one. Very interesting analysis. And if correct, as you say, here comes the depression … along with more and more QE programs and rivers of money flowing to the banksters, while the rest will have a drought. Some world … and you gotta start wondering: who is going to hang for it?

  23. cb Says:

    The Wolf – what do you think it will take for the gold price to collapse?
    What was it last time? Tall Paul Volcker and above 20% interest rates? Will this time be different?

  24. cb Says:

    Drew – I responded to your latest a few threads back. Cheers.

  25. GB Says:

    cb/wolf – i never read the full article. The guy irrates me like Carr does. I did like the way he compared gold to property over the last few years. The graph would look remarkably different if he backdated the graph to 1981.

    cb @ 25 – its good for gold (the qe program). Tomorrow is the big day though because the ECB turns off the tap. So austerity in the EU, stimulus exit in the US/EU and a slowing china – just wait for the next stimulus programs. Although its possible that they wont stimulate again and if thats the case say goodbye to Asia.

  26. cb Says:

    Rivers of money for the banksters, while the masses are starved of the same in order to preserve purchasing power?
    [KR55] Keiser Report – Markets! Finance! Invisible Gorillas! And Deficit Terrorism!!

  27. cb Says:

    Well, it looks like another day dripping with blood on the share market, while the metals train refuses a stop at lower prices.

  28. The Wolf Says:

    cb… hahaha… yep…interest rates need to go…ah…a tad higher !!

    GB…I read the full article…Joye identifies so many differences between China and Australia yet slaps up an array of graphs showing the numbers trending in similar ways… he has done the exact same thing that he harrangs Sayce for…

    Maybe his new best cubicle buddy Rory and him are lining up an expansion into China… you read it hear first folks…

  29. The Wolf Says:

    damn that OP40… I had cornerererered the market with Peeeeete….but [hic]…

    you read it HERE first folks…

  30. cb Says:

    Here is a fascinating phenomenon at the 4:30 minute mark. Test yourself:
    1. Focus on the passing of the ball and count the number of times it is passed from one player to another.
    2. Then review the clip to see if, and what, you missed.

    I sure missed it the first time, I must confess.

  31. Abby Says:

    Have you guys not yet learned that if Emperor Christopher Joye says it is so … then that makes it so!!???

    No matter how moronic the argument and lack of logic may be …

  32. Drew Says:

    thank cb – I’ve already replied (back in the gold thread).

  33. OREO-ruddxpin-BASHER-BUMMER Says:

    “””BLACK GOLD SWAN””””
    please read cis the whole worlds going to the shitter fast
    Panic brews on Gulf coast under suspicions of oil spill media blackout of threats to public safety
    A quiet panic is brewing among residents of Florida’s Gulf coast. People are starved for updates and official information, and the lack of them is accelerating conspiracy theories and rumors of a media blackout. Founded or not, to residents they are quite real.
    Unconfirmed reports of evacuations have been circling the internet, along with suggestions that they will never be implemented because the scale is too enormous. Why announce a plan that can’t be carried out? That has led to theories that human life is more expendable than political careers and BP’s public image.
    Official government websites like the Deepwater Horizon Response and FEMA are not providing the news people are looking for. Additionally, the mainstream media seems to be airing less information about the crisis rather than more.
    Case in point
    Since the Deepwater Horizon crisis began on April 20, 2010, Chris Matthews has been devoting a great deal of time to covering the oil spill crisis on Hardball. Tonight – nothing. Not a word. It was as if the millions of gallons of oil pouring into the Gulf, killing our ecosystem, and countess thousands of animals – didn’t exist. Other major networks like CNN have pushed news about the Gulf oil spill back to the third or fouth story. The worst environmental disaster in history is not important enough to be the lead story anymore?
    Here’s a news flash for the mainstream media – the crisis is getting worse, not better. Oil continues to spill at an incredible rate, more than a million gallons of toxic Corexit has been poured on top of it, and Hurricane Alex is now threatening to complicate recovery efforts and push more oil ashore.
    This website has been receiving emails from residents throughout Florida indicating fears of toxic fumes in the air, possible evacuations, and the dangers behind the massive gas bubble under the Macondo well that threatens to send a tsunami over the state of Florida at 600 MPH.
    While the facts behind the fears of people in Florida have not been confirmed by the government or BP, they are all rooted in genuine threats to the safety of the public. The oil spill is growing. There is an enormous amount of pressure under the Deepwater Horizon well. The BOP is leaning “10 to 12 degrees,” according to Coast Guard Admiral Thad Allen. And the existence of a ‘gas bubble’ under the well field has been confirmed.
    While official statements may be designed to prevent mass panic, hiding information appears to be making people even more nervous.
    In the midst of the worst oil spill disaster in history, now is not the time to leave it to people’s imaginations to figure out if and when they are genuinely in danger.

  34. OREO-ruddxpin-BASHER-BUMMER Says:

    YOU EVER HEARD ABOUT THE ????????????????

    Georgia GuideStones


  35. OREO-ruddxpin-BASHER-BUMMER Says:

    By Paul B. Farrell, MarketWatch
    A bigger meltdown than the credit crisis? Yes, Bush’s team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned “the lessons that markets are inherently unstable.” As a result, “the success in bailing out the system on the previous occasion led to a super-bubble.” Now “we are facing a yet larger bubble.” Worse than 2008?
    Yes, the game may be “in the refrigerator,” the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What’s coming could be worse than the 2000 dot-com crash and the 2008 meltdown combined, a “Super-Bubble” says Soros. And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek, is that “the president’s half-measures won’t fix our failed financial system” because he refuses to “bust up the too-big-to-fail banks.”
    Yes, Congress will pass something. But unfortunately, as reported on MSNBC, Senator Dodd, the reform bill’s sponsor, is a turncoat, working overtime with Wall Street lobbyists “to weaken financial reform,” leave us vulnerable to a new, bigger crash in the near future. And Wall Street lobbyists are spending hundreds of millions to kill reform.
    ‘White Swans:’ 2000 and 2008 crashes were predictable, next one too
    Recently Roubini was interviewed by Charlie Rose in BusinessWeek. His message confirms the worst. Roubini was questioned about his new book, “Crisis Economics.” Rose began by asking, “what have we learned from these crises of capitalism?” Roubini could easily have said, “nothing, we learned nothing.” His actual reply:
    “The first lesson is that crises are not ‘black swan’ events … they’re not just random outcomes. They are the result of a buildup of financial and policy vulnerability and mistakes — excessive risk-taking, leverage, debt, and so on.” They are ‘White Swans’ “because these events are predictable. But generation after generation, we seem to forget the past. When there’s a bubble, there’s euphoria. There’s irrational exuberance. Consumers can use their homes like ATM machines. Governments and policy makers are happy because they get reelected. Wall Street makes billions of dollars of profits. Everybody’s delusional.”
    Sound familiar? Yes indeed, in “This Time Is Different: Eight Centuries of Financial Folly,” economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The “90% ratio of government debt to GDP is a tipping point in economic growth.” For 800 years “you increase it over and beyond a high threshold, and boom!”
    Warning, fans, the numbers on the game-clock are flashing wildly. America’s ratio is now 92%, thanks to Obama’s $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.

  36. Frank Says:


    The “communist” named in the article


    father was actually employed by the CIA, so clearly these communist were just CIA plants running around discrediting communism by being utter wankers. So what if Gillard hung around with poxy CPA toads.

    It is not less peurile than Tony abbott’s “hetrosexula men’s collective”!


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