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


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



36 Responses to “What is the Future of the RSPT under Prime Minister Gillard?”

  1. Abby

    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 …

  2. Drew

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

  3. OREO-ruddxpin-BASHER-BUMMER

    “””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.

  4. OREO-ruddxpin-BASHER-BUMMER

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

    Georgia GuideStones


  5. OREO-ruddxpin-BASHER-BUMMER

    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.

  6. Frank


    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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Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@moneymorning.com.au