The Distillery: TLC from BHP

BHP Billiton chief executive Andrew Mackenzie has laid out the company’s cards as Prime Minister Kevin Rudd and Opposition Leader Tony Abbott prepare to play their hands. While Australia’s business commentators aren’t particularly surprised by anything that Mackenzie said in his speech to the Asia Society lunch yesterday, it’s the timing that’s significant.

Fairfax’s Malcolm Maiden observes Mackenzie hasn’t just reclaimed the term ‘Big Australian’ for BHP Billiton, which was quietly dropped after the merger with South Africa’s Billiton back in 2001, but reworked it to ‘Global Australian’.

“Mackenzie's description of BHP Billiton as the Global Australian is actually borrowed from one of my Fairfax Media colleagues, Australian Financial Review columnist Matthew Stevens, but the shift itself sets BHP up to be a more active and open participant in national debates, by making its interdependency with Australia more explicit. BHP was one of the leaders of the successful revolt against the Rudd government's first attempt at introducing a mining super profits tax, and BHP chairman Jac Nasser went on the record last year saying restrictive labour laws and uncertainty about tax in Australia were undermining the resources sector. Mackenzie seems to be looking for less-abrasive relations.”

Without further ado, let’s tap The Australian Financial Review’s Matthew Stevens for his take on Mackenzie’s speech.

“In the recent past Mackenzie has talked about the need for a productivity compact between government, business and their shared constituents. On Wednesday in Melbourne he highlighted the need for ‘a new dialogue’ on productivity that would produce understanding at worst and agreement at best on the ‘comprehensive reforms’ needed to ‘get it right’. It seems a fair bet that the language of the Mackenzie dialectic is influenced by his discrete high level engagement with Demos, the left-leaning think tank that helped construct the Third Way rhetoric on which Tony Blair built his success. But none of that means Mackenzie is any sort of soft touch to local Labor’s indulgence of the primordial industrial relations pursued by some of our most industry-critical unions.”

Speaking of which, The Australian’s John Durie writes on the two big rows that BHP Billiton has to have out with the government – whichever party is at the head of it at the end of the election – about the big tax it pays and the big wages that unions demand.

“The speech was aimed at showing there was plenty of blue sky left but 'industry and policymakers must now re-commit to Australia's future competitiveness to make sure Australia remains a supplier of choice and captures the substantial economic benefits available'. Mackenzie's advice, on the eve of the corporate profit reporting season, and as the election campaign gets moving, is both well timed and important in focusing attention right where it should be focused. While politicians seemingly love to debate semantics and talk about what may happen, Mackenzie is telling them what must happen now.”

Business Spectator’s Stephen Bartholomeusz focuses on the costs of the mining industry, which is a particularly important issue as falling prices over the course of the next few years put the low-cost producers in prime position.

“As Mackenzie said, the larger part of the productivity challenge rests with the industry and its management, which have responded already with mine closures and large scale cost-cutting and labour-shedding as they try to wind back the indulgences of the boom period. BHP has itself taken out about $US2 billion ($2.231 billion) of annualised costs, if not more, and is attacking the capital intensity of its portfolio. The significant value in the decline of the Australian dollar this year will also help companies like BHP and Rio Tinto that have the larger part of their operations in Australia and therefore have predominantly Australian dollar cost bases but US dollar revenues. Ultimately, however, the future competitiveness of the resources sector is also influenced by the overall competitiveness and productivity of the Australian economy, which means there is also a role for governments and other institutions in helping to ensure that the sector, despite the fallback in commodity prices and the deceleration of investment, is still able to maximise its contribution to economic growth."

The Herald Sun’s Terry McCrann on the other hand writes on the company tax rate and the promise from the Coalition to cut it by 1.5 percentage points as Mackenzie eyes the next phase of the China boom.

“The two key things about the Opposition's promise to cut the company tax rate by 1.5 percentage points are that it shows it cares and that it just might be prepared to take, or at least start to take, the tough decisions. There are unlikely to be any votes in a company tax cut promise. Outside those who would be voting, in many cases in desperation, for the Opposition, it's probably a net vote loser. Why should we give a tax cut to companies like BHP Billiton, which later this month will reveal a profit of about $14 billion? If you can find $5 billion for a tax cut, why not a tax cut for the average punter – and voter? Except that such a tax cut is not mostly about a BHP, but the hundreds of thousands of other, more challenged, more stressed businesses in Australia.”

The Australian’s Asia Pacific editor Rowan Callick notes that Richard Marles, one of the most popular people in politics, is our fourth trade minister in “the six years of the Rudd-Gillard-Rudd governments”.

With this election based largely on Australia’s future prosperity, there’s little discussion about economics diplomacy, which is one of the most crucial factors, Callick argues.

Sticking with the election, The Australian’s economics editor David Uren takes us through the ins and outs of the Charter of Budget Honesty and the instances where an opposition has been brought undone by the system. This is in reference to the Coalition’s planned cut to the company tax rate. Fairfax’s Tim Colebatch describes the plan as “arithmetically challenging”.

In other company news, The Australian Financial Review’s Chanticleer columnist Tony Boyd said “you could almost hear the relief” of 21st Century Fox boss Chase Carey on a conference call that bid farewell to Rupert Murdoch’s struggling newspaper assets.

Fairfax’s Elizabeth Knight tries to put the Kevin Rudd Twitter jabs from Rupert Murdoch to one side and acknowledges the threat posed by the national broadband network to the media mogul’s Foxtel holdings is real, “but years away”.

And finally, Fairfax’s Michael West reports that a shareholder class action has been launched against the estate of the late Allco founder David Coe for losses from the collapse of the financial group.