If Kevin Rudd had proposed a Super Banking Tax he’d probably still be in power, and the tax may have even raised some money. Alas, ANZ’s $5.7 billion fiscal year profit is all its own. And alas, none of the big three miners included in the government’s revised mining tax — BHP Billiton, Rio Tinto, and Xstrata — paid a single cent in tax in the first quarter, according to today’s Australian.
Zero is not a big number, and it’s certainly a lot less than $10.6 billion, which is how much the Australian government originally hoped to raise with the mining tax. But Monday was the deadline for the big three posting their first quarter payment. And according to the paper, they paid nothing.
The math isn’t terribly hard here, even if you’re a politician. The Mineral Resources Rent Tax is paid on a quarterly basis. The quarterly payment is an estimate of the annual liability divided by four. Given that the first quarterly payment is zero, it follows that the anything zero divided by four is also zero. The tax is a big zero.
You can’t really blame the miners for this. Sure, they probably shifted some capital spending around to get the profit level below the threshold at which the mining tax kicks in (provided anyone understands how the mining tax actually works). But the super profits are gone because the super cycle is over.
Even the Reserve Bank understands this. Remember, the RBA claimed the mining boom had three basic phases: the price boom (driven by a supply deficit and a surprise surge in demand), the investment boom (scheduled to end next year but probably already over), and the volume boom (where all that investment leads to increased export volumes).
Each phase delivers different benefits to the economy. The price boom led to instant profits. You didn’t have to increase iron ore and coal exports to make money. Prices did the trick. The investment boom delivered jobs and incomes to the miners and mining services (and to shareholders). The volume boom has yet to materialise. And there is some doubt about it, at least in your editor’s eyes.
The designers of the mining tax made a simple mistake: they were greedy when they should have been fearful. Prices contain information. But not everyone receives that information in the same way. To a big government-loving busybody, high mining profits are like a honey pot that must be raided. The money is irresistible, especially to people who make a living taking other people’s money and finding ways to lose it.
But a more informed understanding of the commodity price spike would have told the government that it was all part of the commodities cycle. That high prices don’t last forever. And that years of low margins and low profits precede these periodic glory days. But you can’t blame the government for being stupid and greedy any more than you can blame a frog for being green and toady. A thing can only be what it is.
The stock market doesn’t seem too fussed about the mining tax bust. By now, the expectation of lower mining profits and earnings ought to be priced into the Aussie stock market. And investors ought to have completed their rotation out of high-growth shares and into something more sustainable.
Maybe 4600 is the new 4500. When you look at a year-to-date chart for the All Ordinaries, you see a rally that ended in early May with the index sticking its nose over 4500 and then falling back to 4033 by early June. It’s up 12% since then. But breaking through 4600 will require a whole new campaign, we reckon.
We ran into a distracted and heavily stubbled Murray Dawes upon returning to our Melbourne HQ this morning. Murray’s been looking for a large sell-off in the market. He explains his position on the stock market here . He later ducked his head in to apologise for his distraction. It turns out he has quite a few short positions on at the moment in Slipstream Trader, so there’s more than a little at stake with his view.
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From the Archives…
China’s GDP Growth Ponzi Scheme
19-10-2012 – Greg Canavan
An Australian Property Boom and Bust all at Once
18-10-2012 – Greg Canavan
The Fed’s New Stooge
17-10-2012 – Bill Bonner
Discordian Religious Advice for the Investor
16-10-2012 – Nick Hubble
Electric Cars and Platinum Mines
15-10-2012 – Dan Denning