FYI | Dec 12 2011
By Gavin Wendt, Founding Director & Senior Resource Analyst MineLife Pty Ltd
As Australians we’re pretty much ‘relaxed and comfortable’ types, as former PM John Howard once famously described us. For the most part this reference seems fairly innocuous – and it is.
Where the problem however arises is with our politicians – from the Greens and Labor side of politics. The relaxed and comfortable notion instead takes on a darker tone – one of complacency.
Its ultimate manifestation is the attitude of the Labor-Greens coalition with respect to our resources industry, which is very much under attack. Meddling politicians seemingly want to interfere and hamstring the one sector of our economy that’s actually working well – the mining industry.
At a time when we as a nation should be doing everything in our power to encourage investment in our sector, our politicians instead seem hell bent on doing everything they can to drive investors away.
Whether its ad-hoc restrictions on coal seam gas, the mining tax, the carbon tax, or greater red and green tape on resource projects, Australia’s federal politicians and bureaucrats seemingly don’t have enough hours in the day to dream up ways of hampering the one industry that’s kept us out of recession.
The mining industry is the factor that differentiates us from the economic basket-cases in Europe and elsewhere.
Politicians point to the cleverness of their sizeable spending programs in helping to keep Australia out of recession. The truth is that if it was spending that kept the financial wolves from the door in this country, the United States and Western Europe would not be in the financial mire that they are now.
Throwing money at the problem has not helped – in fact it’s made things worse. After all, most overseas governments have spent a much greater sum in terms of stimulus measures, representing a much larger proportion of their respective GDPs.
The key differentiating factor between us and the economic strugglers has been the fact that we are fortunate enough to have a strong, vibrant and efficient mining industry. A mining industry located just a relatively short shipping-distance from the world’s modern-day economic powerhouse, China.
Rather than embracing the resource sector, to envious politicians in Canberra the mining industry is viewed as a necessary evil. Senator Bob Brown’s persistent comments about the industry are both naïve and dangerous, as they highlight a Greens agenda aimed at phasing out Australia’s coal industry – an act that can only be viewed as economic vandalism. As are his ill-founded attacks on the coal seam gas industry in Australia.
Senator Brown’s attacks on the level of foreign investment in our mining industry are also hugely misinformed and ill-founded. If it were not for foreign investment dating back as far as the 1850s in this country, we would not have a mining industry to speak of.
Investment dollars from all over the world – initially from Britain, then continental Europe, North America, Japan, and now the emerging economic juggernauts – China and India – have helped establish over the past 150 years the resources industry that our politicians now take for granted.
Senator Brown also focuses on the earnings and dividends that flow out of the country. But he conveniently ignores the much greater sum that’s reinvested in the country – the many hundreds of billions of dollars of taxation and royalties that have been captured by State and Federal governments over recent years.
And that’s not counting the salaries and benefits paid to employees, as well as the sums invested in exploration and development.
The Pilbara iron ore operations in Western Australia and the Eastern States coal industries in NSW and Queensland, supply the bulk of the export revenues that have helped keep us out of recession. These were established by companies with long-term vision, roughly 40 years ago.
Such massive investment decisions aren’t made lightly. They reflect a level of confidence in the future financial and political stability of our country.
But our politicians conveniently ignore this. In a thinly-veiled, politically-motivated cash-grab, they are comfortable threatening the long-term health and investment appeal of our stand-out industry, the mining sector.
I don’t know of any industry where greater levels of taxation, no matter what the level of offsetting compensation, have led to growth and prosperity. Yet here we are with a mining tax and a carbon tax.
The move to so-called “renewable” energy is farcical. In reality, wind, wave, solar and whatever else falls into the renewable will likely only ever account for around 20% (at best) of base-load power generation requirements. The bulk of power generation will still have to be provided by a combination of coal, gas, hydro and nuclear energy. That is the harsh reality, irrespective of your politics.
Inevitably, the impacts of greater economic imposts on our minerals industry will be felt – but crucially not necessarily immediately. Whilst mineral deposits are of course not transportable, investment dollars are. Ultimately, the junior players that account for the bulk of ‘greenfields’ exploration in this country will shift their investment focus offshore.
What this means is that the next generation of Pilbaras, Olympic Dams, Prominent Hills, Cadias, De Grussas and Bowen Basins won’t be found here in Australia – instead they’ll be unearthed in places like Africa, Central Asia and South America. Fewer, newer operations will be brought on stream in this country as a result.
When politicians refer to the supposed damage being done to future generations by inaction on the climate change front, they blindly ignore the damage they themselves are doing to future generations through the systematic degradation of our best performing industry, the mining sector.
Labor and Greens politicians should jointly be held to account for their actions.
In this vein I thought I’d conclude by sharing with you the following comments by Anthony Peters, who writes for the International Financing Review in Europe.
“Meanwhile, there were bright pictures on the telly this morning of a beaming Julia Gillard who has seen her Mining Tax passed by Australia's lower house by just two votes. I believe that she, like so many politicians, hasn't fathomed that we are in a globalised economy and although Australia might be sitting on a pile of raw materials which cannot be moved like banks or other service industry head offices from one tax or regulatory jurisdiction to another, the big investment dollars could leave the Lucky Country and head for Africa or South America.
Commodity extraction is a particularly long cycle business and any effects which a change in the taxation of miners might have will only become evident once Ms Gillard is sipping frosties by the pool while drawing the generous pension of a former Prime Monster. I am drawn to comparing this move with the taxation of pension funds' dividend income here in the United Kingdom which already looked bad when it was introduced by the invisible Scotsman but which has proven to be an absolute disaster for pension savings and one which will blight a generation.”
All views expressed are the author's, not FNArena's (see our disclaimer).
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