Tough out there? Not for all

News that the mining tax has raised four old copper coins and a pinch of pocket fluff should come as no thunderbolt from the blue.

So comprehensively licked has the government been in its dealings with the miners that Rio Tinto, BHP Billiton and Xstrata managed to skulk away with more than $2 billion in tax credits, while state governments made off with a cheeky hike in their royalties at Canberra's expense.

This pact was about politics, not tax. Kevin Rudd had just been rolled. Thanks to the shrill choir of pro-mining media and shellshock from the TV advertising blitzkrieg, it had become almost unpatriotic to expect a bunch of mining giants to stump up more tax during the biggest mining boom in history.

So it was that when Julia Gillard, Wayne Swan and Martin Ferguson sat down with the mining chiefs in mid-2010, they struck the worst deal since the Indians transferred Manhattan Island to the Dutch for a few trinkets.

As Peter Martin reported this week, there were no pointy-headed Treasury types in the cabinet room that day, no Ken Henrys, just three politicians and three executives.

In the end our valiant leaders knew enough to distinguish a loyalty payment from a royalty payment. They emerged smiling and triumphant that day, got the dreaded Mitch Hooke and his Minerals Council off their backs and soon scraped back into office.

BUT what of the enigmatic lads from the Swiss canton of Zug? BHP and Rio have been variously lauded and lambasted this week by revelations of their measly tax obligations.

But what of Xstrata, this third of the Big Three, whose shadowy operatives are wont to fly, stealthy as a CIA drone, beneath the radar?

We managed to detect an Xstrata operative this week, lurking behind a newspaper in dark glasses and a black hat. OK, that's just fantasy. Finance journalists don't get out much. We found him on the phone.

Alas, the 2012 financial statements are not yet filed, though, being "public" documents, they should soon be available to the public at a cost of no more than a few hundred dollars. Last year's effort showed tax was lumped in with royalties - and there was a $US579 million tax credit.

It may be that lads from Zug pay even less tax than Google Australia, and that's quite an accolade.

Meanwhile, Rio Tinto's profit result on Thursday, a better than expected $3 billion loss, plainly showed that the biggest risk facing our mining houses is not sovereign risk posed by government policy but the risk of investment bankers and their own management.

Some $14 billion in write-downs for mostly offshore acquisitions suggests that some $50 billion in proceeds of the mining boom have been squandered. That's just toting up write-downs over recent years.

Were one a lobbyist, one might append a few lazy billion to this figure via an "opportunity cost" calculation and the bond rate.

Falling commodity prices and a lower tax take mean a budget crunch is coming. As David Gruen, Treasury's head of Australian macroeconomics, noted this week, income growth was its weakest relative to economic growth since the financial crisis.

"IT'S still pretty tough out there," declared the chief executive of ANZ, Mike Smith, on Friday, perhaps auditioning for a spot with the Chaser boys.

Mike, who took home $17 million last year, had just handed down a $1.53 billion cash result for the quarter. Yes, it was up only 6 per cent, but considering the backdrop - the Reserve Bank says Australia is stuck with the slowest growth in credit for three decades - 6 per cent is pretty good.

As the four majors march towards their $30 billion collective annual bottom line, and the Commonwealth Bank alone is priced at $108 billion on the sharemarket, there is a change of rhetoric afoot.

While Smith was still running the "tough out there" angle, CommBank's Ian Narev unveiled a $7.1 billion bottom-line humdinger but refrained from crying poor.

He left the hardship petitions to the chief financial officer, David Craig, who said: "It's a very, very competitive banking industry."

Narev's line was to accept community unease over banking mega-profits as legitimate, rather than push the "tough out there" and "you don't understand" defences. He would try to "get the balance right" between shareholders and customers, he said. It is a sensible approach. Profits are the duty of bankers and competition policy the realm of governments. And the latter appear to be foundering.

When system growth is slow and margins ever fatter all round, there is something awry. For a commodity business buying and selling money to trot out a return on equity of 18 per cent, as CommBank did this week, is evidence enough.

Competition policy faces immense challenges, particularly as Australia is a nation of duopolies (packaging, beer, airlines, supermarkets) with a small population.

Electricity competition is at crisis point, as further evinced this week by the insouciance of SP AusNet in stiffing the public for a cool $100 million in smart meters, only to be apprehended by the Australian Energy Regulator. A rare sting.

As the Coles and Woolies duopoly saw a slather of calls this week for scrutiny over crunching their suppliers - and Coles handed down its mighty profit - here was further evidence that corporations are doing their job - making good profits - but government and competition policy are struggling.