A miner's plea for tax continuity
BHP chairman Jacques Nasser has delivered an understated rebuke to Australian governments – federal and state – suggesting that if they fiddle with taxes now they are actually playing with fire.
When you understand the two lead-up events you can grasp the power of what Nasser was saying and why he did not mince words.
First, last month BHP chief executive Marius Kloppers, Rio Tinto CEO Tom Albanese and Peabody chief Greg Boyce all personally contacted Queensland Premier Campbell Newman telling him that a big rise in royalties would not raise anything like the theoretical amount that might be calculated because of the major mine closures royalty rises would trigger.
Newman did not listen to the corporate CEOs and the Queensland budget went ahead with the royalty rise and forecast a huge revenue rise.
So at Wednesday’s lunch Nasser’s eyes narrowed and, in a slightly hushed tone, he said "there will be consequences” and that the royalty revenues "would not eventuate” – in other words, the high royalties would not raise as much money as the government expected.
Nasser did not spell out the "consequences” but Campbell Newman knows what they are – big mine closures. Nasser said that many Queensland coal mines were cashflow negative.
Nasser pointed out that global coal resources were abundant. To develop coal, miners wanted to deal with governments that were "real” – in other words they showed continuity. He did not go any further.
The second hidden event that influenced what Nasser was saying came from the discussions currently taking place with the federal government over possible changes to tax concessions to pay for a lower company tax.
When the miners walked into the discussion they discovered that almost all the concessions that the government is considering changing are aimed at the mining industry – they include diesel fuel price hikes, thin capitalisation rule changes, and exploration write-off changes.
In the interests of the nation, Nasser almost pleaded with governments not to make further changes to taxation which were aimed at business.
Nasser did not confirm what I wrote this morning – that the series of government actions will cause a mining investment strike once current projects are completed (Australia is becoming a sovereign risk, September 12). But he left everyone in no doubt that unless someone in Canberra and Queensland wakes up to the fact that the game has changed investment is going to be slashed.