Monday, May 03, 2010

Rudd's plan to kill off Australia's most profitable industry

Because of the risks involved, mining has to have higher returns than most businesses but Rudd plans to tax those higher returns away. Most likely result: No new mining projects, no new revenue from mining, no more job creation in mining and a gradual fall-off in mining exports -- which in turn will devalue the dollar and lead to higher prices for everyone. But in an election year none of that matters, apparently

THERE are three simple tests that should be applied to the government's plan for a new super tax on the minerals sector.

What problem is the new tax intended to fix? Will it harm or hinder investment, jobs and growth in the sector that kept Australia out of recession and underpinned economic growth over the past decade? And is there a better way? Let's test the five key propositions underpinning the government's case for a super tax on the resources sector against these criteria.

* First, the government argues that the existing arrangements - six different state and territory-based royalty regimes - are unwieldy and inefficient. But will the new tax streamline these arrangements? Actually, no. The states will still operate their own schemes (with Canberra rebating these imposts back to companies from its new super tax back).

So a mining company operating in several states will still pay royalties to them as well as dealing with the complexity of the new federal resource tax. And this is reform?

And what is the incentive for state governments to restrain themselves from levying new royalty hikes? None.

* Second, the government claims the new super tax will ensure the community gets a fair share of the dividend from mining expansion. Citigroup analysts wrote last week that Australian royalties and taxes are already some of the highest in the world. And this new super tax will make us the undisputed world champion on mining taxes.

Of course, the government claims that it missed out on $35 billion in revenue over the last decade. The facts tell a different story, but don't take my word for it. Prime Minister Kevin Rudd wrote last year that the mining boom had boosted commonwealth revenues by $334bn since 2004-5. That is the equivalent of a GFC-style stimulus package every year for the past 5 years. Treasurer Wayne Swan told the National Press Club a few months ago it had been raining gold bars as a result of the minerals boom.

Until yesterday, the federal Finance Minister, Lindsay Tanner, spoke frequently about the surge of revenue into government coffers as a result of higher commodity prices.

The simple fact is existing arrangements have delivered a big dividend to the Australian community. That is plain from the fact the mining sector accounts for almost 18 per cent of corporate tax revenues, despite accounting for about 8 per cent of the economy.

And the tax office's own data shows the average tax take from mining is 13 per cent higher than the all-industry average. We have a two-speed tax system and the mining sector is already in the fast lane.

* Third, the government has decided for the mining industry alone any profit higher than a 6 per cent return (the long-term government bond rate) is a super profit which will attract the new 40 per cent super tax. How will that promote investment in inherently risky mining projects?

One investment house, MF Global, wrote last week that with the tax charge on mining likely to increase, investors might want to diversify their holdings away from highly Australia-exposed stocks.

* Fourth, the government claims a new tax on the minerals sector will actually boost investment, jobs and growth in the sector. There are two critical issues here. The government plans to apply this new tax to existing mines. In other words, the rules applying to hundreds of billions of dollars of long-standing investments will change overnight (and dramatically). The value of projects will be summarily slashed.

Leaving aside the grave risks to Australia's reputation as a safe place to invest, working out the liability of 500 existing operations will be highly problematic. The only industry earning super-profits in the post-Henry era will be tax accounting. Then there is the question of the $108bn of minerals projects under feasibility study or awaiting a final investment decision.

The inevitable consequence is many of these projects will be reviewed involving lower growth, fewer jobs and reduced investment. The burden will fall heaviest on regional Australia, where one in four jobs depends on exports. But the impact will be wider. Just as the benefits of the mining boom spread through the Australian economy, so will the consequences of a self-induced slowing of the sector.

The beneficiary will be projects abroad. And there are plenty of overseas options. Australia provides for less than 10 per cent of global output in most of the key commodities. Investment capital will look elsewhere with a keener eye. Australia will be the only nation in the world with a super tax on mining projects.

It is worth noting in this context that the government cites the year 2000 as an informal benchmark for the optimal share of mining profits to royalty take. In that year, there were just three major mining projects under way.

* Finally, there is the proposition that the mining tax grab should fund corporate tax cuts, infrastructure provision and changes to superannuation.

The government argues that in defiance of economic logic, a new multi-billion dollar annual mining tax will actually increase mining output and therefore increase tax collections, which can then fund other commitments and promises.

But the more likely outcome - projects deferred, lower growth, and a new enthusiasm for off-shore investment - will mean revenue gains from the new tax could be much, much lower than the government anticipates. Locking in future spending on a gamble on future commodity prices is an interesting approach.

None of the above should be interpreted as a refusal on the part of the minerals sector to play a constructive role in resource tax reform. We have been saying for months that current arrangements can be improved. But key features of this version of reform falls well short.

There is a better way, but to find that solution, the consultation process established yesterday cannot be limited to technical design questions. The government's message seems confused.

The government wants more from the mining sector while taking actions that will slow it down. The government is tapping the brakes to slow the mining sector down and let the rest of the economy catch up.

But as American comedian George Carlin once said, when you step on the brakes your life is in your foot's hands.


More "stimulus" failures -- new school buildings unsafe

Buildings being constructed under the federal government's schools stimulus program are riddled with safety hazards, from slippery tiles and toxic carpets to poisonous fumes from unflued heaters.

Environmental scientists, building industry experts, health groups and the NSW Teachers Federation have raised concerns about the potential risks associated with buildings in the $16.2 billion program.

The NSW Integrated Program Office for the Building the Education Revolution program has maintained the buildings are of high quality, sometimes exceeding building code standards.

But schools have complained of dodgy workmanship, including incorrectly fitted light switches and fans, temporary foundations, leaking water tanks and lifting carpets.

With winter approaching, schools and health groups have raised the alarm about the installation of 3000 unflued gas heaters. Studies have shown that the heaters release a potentially poisonous stew of nitrogen dioxide, carbon monoxide, carbon dioxide and formaldehyde. They are being phased out of schools in every state except NSW and Queensland.

"These are new buildings going up at significant cost to the taxpayer," NSW Teachers Federation president Bob Lipscombe said. "Heating is a very small component of the overall cost of building work. It would not cost a huge amount to put alternative heating in these new buildings. The Department of Education is not acting in a reasonable way at all."

The NSW Department of Education and Training says the heaters are safe, provided doors and windows are kept open to provide ventilation. Schools in cold-climate zones say this is impractical.

Berridale Public School, in the Snowy Mountains, has an unflued heater in its new $900,000 library. "We have been constantly told the library is of a very high standard," Berridale School Council's Fiona Suthern said. "It's a building that cost close to $1 million. An unflued gas heater is not a high-standard heating device. We're not asking for something flash - just something safe."

Richard Kalina, from the Campaign Opposing Unflued Gas Heating, said: "I feel it's bordering on criminal. When parents take their children to school, they should expect their children will be in a safe environment. They are not safe."

A 2007 Commonwealth health report on unflued heaters found exposure to the fumes they emitted causes increased respiratory symptoms in children with asthma, and were also associated with new asthma cases in children. About 11 per cent of children in NSW have asthma. The Asthma Foundation NSW has called on the Department of Education to remove the 51,000 existing unflued heaters in NSW schools and stop ordering new ones.

A NSW Department of Education spokesman said there was "no substantiated instances" of heaters causing illness when properly operated.

The combination of exposure to unflued gas heaters, as well as fumes emitted from paint, new carpet and building materials, could cause toxic overload in children, according to environmental scientist Jo Immig of the National Toxics Network.

"We are concerned about the overall toxic load," she said. "This is particularly important as far as children are concerned because they are much more sensitive to toxins than adults. "We recommended that schools undertake building work or renovations when children are on school holidays to minimise the risk of chemical exposure."

New buildings also posed a risk of volatile organic compounds being released from carpet, paint and new furniture, Ms Immig said. "Carpets are potentially one of the most toxic things in the indoor environment."

Professor Margaret Burchett from the University of Technology, Sydney, said it could take months for indoor air quality to improve. "If you smell that newness smell in a building it's a nice smell but it's also toxic."

Murdoch University environmental toxicologist Peter Dingle said the rooms should be allowed to air before being used. "If the teachers and kids walk into a new classroom or hall and there is a smell in the room they should not go into it," Dr Dingle said.

Tile supplier Richard Earp and slip resistance expert Carl Strautins have raised concerns about the type of tiles used in toilet blocks, canteens and entrances, which they say can lose their grip over a short time and become a slip hazard. A department spokesman said all floor tiles used were certified anti-slip in line with the relevant standard.


Major NSW public hospital is "broke"

The hospital that Prime Minister Kevin Rudd and Premier Kristina Keneally chose as the location to trumpet health reforms is labouring under a budget shortfall of nearly $12 million and a spiralling surgical waiting list.

Documents leaked to The Sun-Herald show Blacktown Hospital was in the red by $11.94 million in January, making it one of the sickest establishments within the Sydney West Area Health Service (SWAHS).

Separate documents show Blacktown's waiting list nearly doubled from 570 patients in December 2008 to 921 in December last year. Mr Rudd and Ms Keneally visited the 350-bed Blacktown Hospital last week to announce just 18 new beds as part of what they described as their "historic health and hospital reform".

A week earlier, Blacktown's Labor MP Paul Gibson told a local newspaper: "We need another 110 beds, and we need them yesterday."

About one in five patients now being treated in nearby Westmead Hospital have been referred by Blacktown due to a bed shortage.

A fortnight ago it was revealed that the 13 hospitals in the Sydney West region had combined debts of $18.9 million at the end of the last financial year. SWAHS, which serves 1 million people, has been accused of failing to pay suppliers of medicines and diagnostic tests due to financial constraints.

Opposition health spokeswoman Jillian Skinner said Blacktown's financial woes were "highly embarrassing" for Mr Rudd and Ms Keneally. "Their announcement won't fix the $12 million budget blowout, it won't cut the waiting list which has more than doubled since 2006 … Blacktown Hospital … will now be in cost-cutting mode because of Labor's failed management of our health system."

A spokesman for Health Minister Carmel Tebbutt said Blacktown's budget shortfall varied by less than 5 per cent from its budget.

He said the hospital is $5 million over budget.

"It is the waiting time, not list, that is important and Blacktown has recently received enhancement money for surgery from the Area Health Service and is on track to meet its target of all patients being treated within clinical benchmarks by June 2010," he said.


Greenies as colonialists

They see themselves as the new aristocracy who can tell blacks what to do. Cape York Peninsula is roughly the size of England but the Greenies want it untouched by any development -- thus shafting the blacks who live there and who would profit from development

Throughout our exploration of the Queensland government's Wild Rivers legislation, it has dawned on me that colonisation of indigenous lands is a current process, not just something from the history books.

Until this point of realisation, my commonsense understanding of history held that colonisation was a process completed in my great-grandfather's day.

I do know about the forced removal and demolition of the Mapoon community on northern Cape York in the 1960s, but I guess I took that as an aberration - the aberrant behaviour of a now-discredited government - that could not happen today. The shotguns and bulldozers of the Mapoon case don't occur today, but colonisation of a more pernicious kind is still a reality.

Today it's happening under the banner of land management law driven by a political constituency for environmental protection.

It's about creation without consent of an ever-expanding body of land management law that has as its overall effect reduction in the level of autonomy indigenous people are able to exercise when managing their land.

The overall effect of non-consensual reduction of autonomy is denial of the established cultural processes of indigenous land management, and devaluation of the property rights of those indigenous land holders who have had their land management autonomy stripped away.

Given the outcomes of legal cases such as Mabo and Wik, which confirmed in certain places the continuous existence, not gracious reinstatement by the court or a government of the day, of native title over indigenous lands, does not the imposition of new land management law that denies traditional land management processes and reduces the underlying value of title constitute a colonial act? I think it does, and in this day and age that strikes me as a shameful thing for our society to accept.

I mentioned earlier the existence of a powerful political constituency for legislation protecting the environmental values of indigenous lands.

The Queensland government has its political allies for the Wild Rivers laws.

During the course of our research on Wild Rivers, we met some of the environmental groups engaged on this issue.

The passion, commitment, erudition, knowledge and political skill of these groups are undeniably attractive.

It's easy to understand how members are attracted to the cause.

But when they deploy these enviable skills to the project of legislating away, without consent, the property rights of indigenous people, they are partners in a new wave of colonisation of the cape.

Indigenous property rights are subordinated to an environmental aesthetic that is supported by sophisticated political clout, and so is successful.

Where historically indigenous property was taken so the colonisers could put the land to economic use, now it is taken to save the planet; to make up for the harm done to the planet through urban industrialisation and agriculture.

Indigenous communities can pay the price for our environmental miscreance.

Again, it shames me to think we find this tolerable.

As a consequence of working these things through, I've come to thinking about indigenous land management sovereignty. I wonder what we could come up with if we tried, in partnership with indigenous landholders on the cape and their leaders, to truly give authority over land management matters back to those people.


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