Treasurer Wayne Swan is simply wrong in claiming that gaining no revenue from his mining super profits tax is a temporary event. That absence of revenue signals a fundamental change to Australia which politicians on both sides need to understand – and that particularly applies to the federal treasurer and his shadow.
If Wayne Swan is merely playing politics then, I guess, that is understandable. But my fear is that both Swan and Treasury do not understand what is happening to Australian mineral exports and the way it is going to change our nation and particularly Queensland.
There are a lot of places worse off than Australia but we have got to stop pretending nothing has changed. By 2014 most of the mining investment projects will be completed and there will be very few additional projects for the rest of the decade. Most of the new projects will not enjoy their expected profits. We have to start being clever. Unfortunately in Australia this lack of understanding among politicians that the boom is over covers both sides of politics. On the coalition side Queensland Premier Campbell Newman is making the same mistakes as Wayne Swan.
So lets describe what has happened starting with Queensland and NSW coal. Most of the Queensland coal mines are barely breaking even – particularly if they are producing steaming coal. This is not going to change significantly on the steaming coal side because the discovery of enormous quantities of gas in the US has freed up US coal for export. While US coal is high cost it effectively puts a ceiling on the price. Resources Minister Martin Ferguson (who does understand what has happened to the Australian mineral boom) is right when he says that Australian miners have let their costs blow out. Accordingly we will see substantial cost reductions via head office and later mine retrenchments. Of course bad labour deals caused by bad management and the government fanning union power via the industrial relations act have made the situation worse and this will contribute to more coal mine closures in Queensland and NSW.
At least for Wayne Swan, suggesting the situation was temporary was merely rhetoric. Campbell Newman’s lack of understanding caused him make the situation worse – he increased state royalty rates on struggling coal miners. He may have thought that the higher royalties could be recouped as an offset from Swan’s super mining profits tax, which is restricted to coal and iron ore. Australian coal miners will not be paying the mining super profits tax for the foreseeable future so Swan’s tax is merely an iron ore tax. There will be no Queensland royalty offset. Newman simply did a silly thing. Queensland tourism and coal mining are both under pressure from the high Australian dollar and are very vulnerable to the currency wars. (The looming battle for currency advantage, October 25; The high price of our dangerous dollar, October 26).
Newman should have reduced Queensland royalties – not increased them – to help the industry through this crisis.
This bring us back to Canberra and Wayne Swan.
The Swan mining tax is now only just an iron ore tax and if there is to be any revenue it will be raised from just two companies, BHP and Rio Tinto. But because the Swan tax was constructed as a super profits tax, the market values of Rio’s Hamersley and BHP’s Mount Newman mining networks were set at inflated levels because iron ore prices were then at their peak.
However unlike coal, the iron ore market does not have the same level of over supply so in time it will recover some ground although boom time levels are unlikely to be reached for a long time.
If iron ore recovers the tax may raise some money but nothing like the crazy Treasury estimates. In any event as this was a tax on mining super profits, which happen only occasionally, it should therefore have been put into the future fund. Instead Wayne Swan spent it on annual charges – smaller business tax concessions linked to the gradual rise in the superannuation guarantee charge from 9 to 12 per cent. Those annual charges must now be found from somewhere else.