Resource rent porky pies

The federal Treasurer claims that the chief executives of Rio Tinto and BHP, Tom Albanese and Marius Kloppers are either lying or ignorant. And he justifies that extraordinary claim with an odd profit analysis report that has come out of America (BHP moves to clarify tax position, May 24). This is the sort of stuff you expected in the bad days in South America and in some African nations today. Until now Australia was above our resource competitors in sovereign risk, which is why we are so prosperous.

The Australian government has resorted to African-style politics because while a resource rent tax (and maybe a tax rise) made a lot of sense in principle, the government did not undertake the required detailed work and consultation before blundering into a badly formed tax and then incorporating it into budget forward estimates so it had limited room to move.

It's no wonder Rio Tinto has declared Australia an area of major global sovereign risk and will only invest here if the project is essential for long-term mine life. I should add that I am being unfair to Africa, because there are many nations there that can now legitimately declare they are have lower sovereign risk than Australia.

It's not just in the profits claim that the government is telling what are "quarter truths" – statements that have an element truth but are deliberately or accidentally misleading. I have picked seven "quarter truths” that the government has used to justify its actions.

1) The government claimed a KPMG report said the mining tax would have no effect on investment. The capital strike by Rio Tinto – and the one coming from BHP (The mother of all capital strikes begins, May 24) – show that conclusion was blatantly wrong and makes KPMG look like fools. But what KPMG said was that over 10, 15 or 20 years miners would return to Australian deposits, so over the very long term it will have no effect. Meanwhile thousands of engineers and geologists must work overseas.

2) Leaving aside the KPMG report, the government continually says that the tax will not affect mining investment. The truth is that there are some 270 projects involving $300 billion in investments that are at risk. Some will go ahead, but those that are close to final decision making have been frozen by the banks and must now wait 18 months or so before the tax is settled. More people will lose their jobs.

3) The government has tried to paint BHP as a foreign company. This requires no extra comment.

4) Prime Minister Kevin Rudd said the mining tax had no effect on the currency and that the Australian dollar fall was totally due to events overseas. I exploded that "quarter truth” yesterday (Rudd's dollar delusion, May 24). In addition, the Canadian dollar which is also affected by similar forces, has performed much better than our currency.

5) Ministers say that there has been consultation with the mining companies, but the consultation is confined to a very narrow agenda. All the big issues like the 6 per cent trigger rate and retrospectivity are off the table.

6) The government says the cost of capital for mining companies is 6 per cent. Every business person in Australia knows that is stupid.

7) The government says the plan to give money back to miners if they lose money, thereby making the government a stakeholder, will help project economics. The government did not understand that banks will not count that offer in assessing the equity capital required for a mining project because it is doubtful any government would actually pay it in a global recession. Moreover it lifts sovereign risk.

These are all elementary mistakes that are based on a grain of truth. Until now Australia was seen as a stable country without African-style outbursts.

And remember that it was all so unnecessary. A well researched resource rent tax would not have required "quarter truths” to be justified.