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Issue #1457      2 June 2010

Mining companies cry wolf

“In fact, it could be argued that the financial crisis and the subsequent economic downturn was a mere blip on the radar screen of the wealthy,” John Stensholt, wrote in the Business Review Weekly (May 27-June 30, 2010 – BRW Rich 200 list issue). The rich are getting richer and no group more so than the mining magnates and the corporations they control.

The five mining billionaires on the BRW Rich 200 list for 2010 increased their personal wealth by a total of $6.2 billion last year. They hardly noticed the “blip” but the workers whose labour delivered their riches were not so lucky. During the “blip” the mining industry shed 15.2 percent of its employees, according to Treasury head Ken Henry.

Henry made the point before a Senate Estimates Committee hearing last week. He also said that the resources sector did not save the economy from recession. If every industry had shed labour at the same rate then unemployment would have reached 19 percent. The government’s stimulus package and sacrifices by workers (wage cuts, shorter hours and job losses) did more to prevent a deeper downturn. The quick turnaround, thanks to China, in mining profits inflated the GDP figure, in an economy that is otherwise relatively flat and a “recovery” that has not reached the majority of workers.

The shareholders of BHP Billiton are hardly doing it tough. Their dividend payments have increased by 400 percent over the last five years. Imagine if the workers whose labour created the wealth asked for a 400 percent wage rise!

Bully boys

Yet BHP, whose profitability is not endangered by the Rudd government’s proposed Resources Super Profit Tax (RSPT), is at the forefront of the dirty industry campaign to block the tax. The tax will not kick in unless the profit rate rises above a certain level – the final details are still being thrashed out in negotiations with the industry. Threats by mining companies not to go ahead with planned and new projects are political.

BHP’s threats include cancelling its $21 billion expansion of its Olympic Dam mine. The expansion includes increasing the output of uranium oxide from 4,500 tonnes per anum to 19,000 per annum. Hopefully, its threats are genuine and the tax, not the mine expansion, goes ahead. It would not hurt either to suspend for a future date the plunder of some of our non-renewable resources for future generations.

Andrew Forrest, CEO of Fortescue Metals Group, is at the forefront of the attack on the RSPT. His personal fortunes suffered a blip last year, falling to a miserable $2.38 billion before bouncing back up to $4.24 billion this year. He has threatened not to go ahead with more than $15 billion of investments if the government does not back down.

Chris Wallin is another mining magnate who is wallowing in profits. His personal riches shot up from $595 million last year to $2.59 billion this year.

Gina Reinhart, heir to the notorious anti-worker mining magnate Lang Hancock, saw her wealth rise from $3.47 billion last year to $4.75 billion this year. She’s not friend of labour either. She recently called on the government to form a special economic zone to allow for overseas workers to be brought in to work on the construction of new coal mining projects, the aim being a low wage, non-union zone with super-exploitation and super profits – and of course no super profit tax.

Shareholders of BHP Billiton are hardly doing it tough. Their dividend payments have increased by 400 percent over the last five years. Imagine if the workers whose labour created the wealth asked for a 400 percent wage rise! Pictured here, BHP Billiton Chief Executive Marius Klopperson on the cover of a CEO's report in 2008.

A few tax facts

The resource companies receive billions of dollars in tax concessions from the working people of Australia. Although mining companies can produce figures showing they have paid 30 cents in the dollar on profits, the reality is quite different. If the gross operating profit is taken into consideration – before deductions for interest costs, depreciation, losses brought forward from a previous year, etc, etc and other fancy book keeping then the story is very different.

Mining companies receive very generous concessions as well as infrastructure. These include millions of dollars in the diesel fuel rebate from the government – 38.143 cents for every litre and cheaper electricity tariffs because of their high volume usage! There is also the lower tax on superannuation payments and dividend imputation where the tax on income paid to shareholders is effectively refunded to share holders through tax credits.

Treasurer Wayne Swan was not exaggerating when he reported that, “wholly-domestic mining companies paid an effective tax rate of only 17 percent and multinational mining companies paid an effective tax rate of only 13 percent – both dramatically below the headline company tax rate of 30 percent.”

The 40 percent RSPT kicks in when profits (sale price minus costs incurred) reach a certain return on capital. The proposed return is based on the official bond rate, but this is being hotly fought by the corporate sector and the government is likely to capitulate on that.

The RSPT package could actually result in mining corporations paying less tax than they do now. They will receive subsidies (through tax credits) of $300,000 for every million dollars spent on exploration and a tax credit (i.e. refund) for royalties paid to the states. These royalties are based on the volume of production, which makes it harder to avoid payment. Taxing profits opens up avenues of transfer pricing and other mechanisms to disguise the real profit being extracted from a mining project.

There are other changes related to carrying forward losses and tax credits to future years and the government covering 40 percent of losses where a company gets into trouble.

Australia has large endowments of non–renewable resources, including the world’s largest economically demonstrated reserves of brown coal, lead, mineral sands (rutile and zircon), nickel, silver, uranium and zinc; and the second largest reserves of bauxite, copper, gold and iron ore

(Geoscience Australia 2009).

Whose wealth?

The government correctly pointed out that “The Australian community owns the mineral and petroleum resources located in Australia.” It also made the point that “Australia’s substantial endowments of non-renewable resources should be of great benefit to all Australians.” At present the amount of tax it pays does not reflect this.

“Existing resource taxes and royalties have only delivered a small share of the increased value of resource deposits. Resource profits were over $80 billion higher in 2008-2009 than in 1999-2000, but governments only collected an additional $9 billion through resource charges,” the government argued.

The government’s arguments are strong, but its policy decisions weak. The introduction of a higher rate of tax or an additional tax on resource companies has the potential to share the wealth amongst the people of Australia. The most effective tax is on production – royalties as paid now to the states. Even more effective and desirable is that the mining companies should be nationalised and then tax would not be an issue, the billions of dividends could flow directly to the public purse.

Additional revenue from taxing super profits, increasing royalty payments or direct public ownership of the mining companies could be used to fund social projects, including higher unemployment benefits and pensions, public housing, education and health services. Then, it could be said that the wealth that is owned by the Australian community really is of great benefit to all Australians. At the same the original owners of this wealth should not be forgotten; a percentage of all super profit taxes and royalties should be directed to the social and economic needs of Indigenous Australians.  

Next article – The sinking of the Cheonan: Another Gulf of Tonkin incident

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