Tuesday, May 25, 2010

Minara Resources criticises resource rent tax

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This article by the SMH highlights some of the mining industry response to the Rudd government's resource rent tax. Minara Resources is threatening to move investment offshore, and says it will pay a 58% tax rate on its profits. This of course far exceeds other nations and industries.
The Canadian government has welcomed the Australian move to higher tax rates as it moves in the opposite direction.
Andrew Sheldon

Thursday, May 13, 2010

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Perhaps a good measure of just how attractive mineral exploration is in Australia compared to other countries is to compare companies:
1. The following stocks have projects outside Australia:
2. The following list of stocks have projects in Australia:

The reason why foreign miners perform better is:
1. Foreign governments are probably less likely to adopt tax impost than fascist Western governments in the 'modern era' as we profess to be saving these poor countries who we think are 'uncivilised' because they have less money and 'unsophisticated' governments that don't intrude into every aspect of their lives.
2. Developing countries are more prospective - miners can get large tracts of land with greater certainty of discovery, i.e. The companies above control hundreds of kilometres of attractive geological terrain. Such of it is as prospective as Western Australia 'used to be'
3. Australia's easy resources have been found. Miners/explorers have to go deeper to find good deposits, and most already found.

The reality is that Rudd has wiped out a great deal of wealth from Australians by unilaterally unveiling a tax which has wiped off their balance sheets. How irresponsible! He clearly does not realise that most Australian miners have projects overseas, or have already realised the wealth. He is too late to tax it because he causes untold wealth by trying to tax it.
Andrew Sheldon

Tuesday, May 11, 2010

Gary Morgan's disdain for the Resource Rent Tax

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As much as I share Gary Morgan's disdain for the Resource Rent Tax, I agree with the ASX that his political views as expressed through the ASX were legitimately 'censored'. It is not a restriction of free speech, it is a quality control requirement. He ought to highlight scientific evidence or render philosophical deductive analytical inferences to support his views. Fortunately, the role of this site is to provide philosophical justifications for why this tax is illegitimate.
Partly the reason why media and political commentary is so bad is that participants do not recognise reason as the standard of value. It is easy to get emotive about such issues, but at the end of the day opinions have to be substantiated. The argument that the mining industry is going to be injured by this policy can be argued in terms of:
1. Pragmatic loss of money
2. Ethical or philosophical terms
I find the first solely relied upon by the miners, when in fact the ASX is looking for the later. That is what we have attempted to do on this website. We will provide more subject to the miners interest.
Full story at SMH Online.
Andrew Sheldon

Monday, May 10, 2010

Understanding the proposed Resource Rent Tax

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Here are some links to information on the Resource Rent Tax:
1. Allens Arthur Robinson website
2. Critique of neutral impacts of Resource Rent Tax - see website
3. The Resource Rent Tax - sample application to petroleum
4. Description of petroleum resource rent tax
Andrew Sheldon
Resource Rent Tax
Applied Critical Thinking | www.SheldonThinks.com

Sunday, May 9, 2010

Resource Rent Tax to slow growth

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Investment bankers are starting to come out with preliminary statements about the Resource Rent Tax slowing Australia's economic growth. The SMH media article cites a 0.5% reduction in growth by UBS, but this ignores the other impacts which we cited in our article, i.e. Sovereign risk deterioration and cost of capital increase, in addition to the reduced investment. They also ignore the lost capital gains from subdued interest in capital acquisitions. Their estimates were preliminary.
Andrew Sheldon
Resource Rent Tax
Applied Critical Thinking | www.SheldonThinks.com

Saturday, May 8, 2010

Tax grap prompts WA secession talk

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This article on ABC News highlights the anguish that Kevin Rudd is causing. Australia was one country before Rudd exerted his power. Now there is talk of seccession of WA from the Australian Federation. I am from NSW, but I would happily move to WA if this is the way the Federal government wants to go, and I think its a very clever move, because its easier to blackmail a state population than the whole country. Kevin will lose this one.
This is clever politics in WA, and I fully support the move. Maybe the new nation of WA can be called "Ruddless" and the rest "Ruddy-Hell". But I would prefer to see Rudd step down, or the Governor General remove him. Unbelievable that he thought he could get away with this cheap politics. I also think the mining industry has the capacity to seek a High Court resolution to this under the Constitution. I think Rudd has breached the 'good government' spirit of the law. This is indeed thought provoking for Australians. I hope they come to reflect more on ethical matters, and stop living off the miners back. REMOVE RUDD!!!
We all owe a great debt to the mining industry for creating so much wealth. I personally think its not just owned by miners. I think there is some justification for some of the money going back to the public, but not Rudd's hands, not his way, and not the amount he wants to take. He is an extortionist preying on the interests of the a minority.
Andrew Sheldon
Resource Rent Tax
Applied Critical Thinking | www.SheldonThinks.com

Rudd election promises are paid by persecuting miners

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Kevin Rudd is offering Australians a swag of benefits if they accept his proposal to tax miners by an 'added 40%', taking their tax burden to 53%. This has to go down in history as the most vile appeal to short-range parasitism ever conjured up by any political party. This is the type of cynical politics which occurs in the Philippines and other developing countries. I hope Rudd is not appealing to the mantra 'Smart Australians' because this really treats us like we are really stupid, short range, parasites living off the government's every concession and entitlement. I hope Australians have more self-respect than to take this path.
Here is a list of Rudd's election promises. Its all contingent upon the tax. I don't even think Rudd plans to implement it. He is doing it merely to get elected. I think he has put up some an aggressive tax upon a small minority - the mining industry - knowing that the Liberals would knock it down. He knows that 'throwing the mining industry under the truck' will deliver him a spending budget bigger than the Liberals who cannot follow them, or force them to compete on the same lunacy. Its a clever ploy, if it were not so utterly evil.
I would ask people to empathise with the mining industry. Yes, mining profits are high, but consider that commodity prices were at record lows for 15 years in the 1990s, and that a significant amount of gains are eroded by the strong $A, since commodities are priced in USD. Also the high cost of services in the mining industry is placing huge pressure on miners. Basically a lot of the benefits are already flowing to the community in higher wages and population growth.
Another reason for empathising is that - by supporting Rudd's cynical politics of 'leveraged' extortion of the majority over a minority, you are going to be next to feel the impact of government. Rudd will happily see 90% of Australians living on mining-funded welfare in order to keep him in power. I hope Australians see through this type of vile strategy, and recognise that pride comes from earning one's income, not expropriating it from the mining industry. If anyone feels persecuted by the mining industry, speak up now, and ask Rudd to actually support a better justice system...sorry but he is too busy persecuting minorities. Yes, the mining industry is a minority, as it employs less than 5% of Australians directly, but it finances a lot of downstream economic activity.
Rudd really wants to dictate what is good for us. In order to do that he is placing money in our pockets which we did not earn. If your parents did that, Dr Phil would say you were the worst type of parent - an indulgent, abusive parent. Why is it alright for Rudd to do the same? This is utter abuse!
Andrew Sheldon

Miners adopting wrong argument over resource rent tax

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The strategy to date of the miners is going to result in the government adopting this resource rent tax. The reason is the moral ambivalence of 'big business'. I am not suggesting for a moment that business is immoral, I am saying they are uncertain about their moral value, and thus not able to communicate a consistent ethical argument which would give their case the legitimacy which I know they have. The problem is that they, like the broader community, are a product of Christian philosophical values. Christianity and capitalism have existed alongside each other for a long time. Christianity has a legacy of retaining the 'moral high ground' whilst business was always about practicality. It is not surprising therefore that:
1. Government will appeal to the common good, the need to raise money in this financial crisis
2. Big business in contrast is going to argue that it needs to make a 'reasonable rate of return' if it is to sustain long term investment.

This is not a compelling argument. Big business will lose with this approach. Why? Because people, like business people, think short term. They are thinking they are in a financial crisis, they would prefer the tax burden to apply elsewhere. We don't have the ability to pay, 'big business' does. Business loses by this measure. By definition, business tends to make profits, and have a surplus. The public and government can spend without consequences because there is always someone to pick up the pieces. You might say that the government picks up after the big business fails, e.g. The HIH Insurance debacle. But that is only because of the community-wide implications of financial failure.

The proper argument
The decision to adopt a Resource Rent Tax is political folly, however it is just one piece of a succession of follies. They have their origin in the structure of government, and the values underpinning those structures. Unless big business repudiate that legacy of values and political structures, we are looking at the march of Rudd's fascism down Bond Street...or is it Bridge Street....Collins Street.
History is replete with examples of government ineptness, both as moral agents and executives. They spend tax receipts with no regard for consequences. They are not 'earners' of capital, they are expropriators. I would prefer money leave Australia than end up in the hands of government because I know that foreigner earned it. If we treat investors right, they will came back. Rudd's strategy will drive them away.
History is also full of examples of government applying a tax to one minority, and upon the principle of 'divide and rule', spreading their taxing powers to others. They do this by appealing to some majority. Eventually we end up all paying more tax because government by its nature is not efficient. They did not earn the right to occupy government. Understand that our politicians are not the best that our political system can produce, they are the worst. They are the best liars, the best manipulators of spin, and you deserve them because you allow them their ethical disposition to fester. Stamp out the cancer destroying politics in Australia! Require more of your politicians. Limit their arbitrary powers. Require laws to be based on principles. Require political parties to have coherent value systems.
Business needs to make this debate about ethics. It is business who is on the back foot on this issue because of their ambivalence. Business of course has a bad reputation because of the practices of a few, e.g. HIH CEO, Alan Bond, etc. The reality however is that it is government which allows these bad examples to fester. i.e. The lack of effective, under-resourced regulation in Australia, the arbitrary laws which facilitate loopholing of tax codes and statutory regimes. Accounting principles and Common Law do not allow this, the arbitrary 'creep' of statutory and tax legislation does! Stop it before it destroys the country; reducing it to a lower level of depravity than it has already fallen to.
Andrew Sheldon www.sheldonthinks.com

Friday, May 7, 2010

Rudd's right to collect 'resource rent'

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We might question the moral legitimacy of Kevin Rudd's policy initiative to apply a 'resource rent' to mineral resources. Resource rent taxes are not a new concept. They are most often applied to the oil & gas industry. Royalties are something similar of course, however they are relatively small amounts. Another important difference is that royalties of 3-5% are charged upon revenue. The latest proposal by the government is to grab 40% of the 'excess profits' of business. What is more amazing, is the level at which these taxes are to apply.
Resource rent tax and royalties are a popular means of taxation for two reasons:
1. It's easy to trace the movement of materials, and production records also make it easy to hold parties to account for the tax.
2. It is very hard for businesses or resource developers to avoid the tax in as much as resources are usually fixed in-situ. You can't move a resource if you don't like a nation's political or tax regime. This is why Rudd's actions amount to extortion. Business has no choice. Of course if they did, they would be less inclined to develop resources here.

These are the practical aspects of the tax which provide some justification for taxing resources, however it is fair to say if practicality were the sole basis for taxation, then mining companies would have to pass on a great costs, and we might have a great deal of difficulty affording products made from these resources.
Resources are simply things which possess an economic value; whether water, minerals, land, trees, etc.
What about the ethics of the tax?
There are a number of ethical considerations which justify the governments expropriation of wealth from people generally, and mining companies in particular in this case:
1. Right to tax based on the democratic tradition which grants the majority the right to impose its will upon the minority (as conveyed) through the representative parliamentary system.
2. Government ownership of land based on the proclamation of Australia as a British protectorate, later ceded to the people of Australia, with the Australian government as its custodian.
3. Government statutory provisions for the ownership of resources and certain public lands. Usually these resources are defined on the basis of depth below ground level, distance from perennial drainages, from shoreline or as simply the edge of the continental shelf. These proclamations of course need to be supported by alternative or competing government claims. In most cases these claims have long since been settled. The Timor Sea Gap being a recent exception.

The fairness of the resource rent tax
There is some justification for a resource rent tax if you accept the public ownership of resources. This raises the question though as to whether government should control any rents collected, and how might it otherwise be dispersed. Might it be negotiated between vested interests on the basis of principle or decided by the government. Clearly there are conflict of interest issues. I personally would prefer a court approved corporate system, and that might favour the proceeds being used to facilitate the provision of justice, which is currently underfunded.
The other issue is the level of tax. It would seem unreasonable for the government to be able to 'extort' a higher level of tax from one group (i.e. miners) because this group is 'easy pickings'. The fact that miners have no capacity to avoid the tax should not be justification for imposing it.
Another consideration is the extent to which the mining company has actually added value to the resource, or paid for the resource. i.e. Iron ore resources in Australia or coal seam gas are in-situ; i.e. Relatively easy to find, and essentially known to exist without much doubt. It is merely a question of exploration to delineate a bankable resource. In such cases, the miner is not really adding value beyond that which was not already known. In contrast, a gold explorer does find resources which were 'blind', and they require a great deal more effort to delineate. The same is true for conventional oil & gas.
The appropriate way for the government to handle this issue might be to establish the royalties before areas are released for exploration. It could be a basis upon which competitive tendering is undertaken, or perhaps the government prefers a fixed royalty and a floating tender price.

The use of resource rent funds
Another question is what the resource rent tax receipts should be spent upon? I would suggest they seem best suited for general expenditure since an allocation to infrastructure development would lead to a worse outcome.

Current situation
In the context of the current situation, the Rudd government is proposing to impose a tax which is not a priori. The damage has already been done because investors have marked down the value of these projects and the companies which own them. The government in so doing has done irrevocable injury to the interests of shareholders. That should in itself be grounds for the Governor-General to dismiss the Prime Minister from office.
Clearly, there are two issues:
1. The inappropriateness of levying a fee for which the people or business can have not prior notice.
2. The inappropriateness of the government levying any tax
3. The desire of people for business to be taxes - because it might lessen the future burden on them. This is the 'divide and rule' principle of government. The government is more strategic here because they have the miners and banks attacking each other when they should be working together to dislodge the Australian 'fascist' government.

It is no accident that we have a fascist government. Rudd did not blow in with the last storm. He is but one of a succession of fascists, and he fits remarkably well with the contemporary values of Australia, in fact any Western society. It is societies values which have to be challenged. Business will not win this debate unless they engage in a pronounced media campaign to capture the minds of the Australian people.

The fairness of government's powers
The problem with this approach to governance is that it is by its nature unfair. It is destined to place an unfair burden upon the minority in as much as the majority has the power. The resource rent tax, which imposes an unfair burden upon resource companies (and its shareholders) is an example of such abuse. The existence of the Senate was intended to protect the people from precisely this form of abuse. The Senate often fails in this regard because the Senate comprises party members affiliated with the parties in the Lower House. The consolidation of representation was not entirely expected when it occurred after Federation. Irrespective of the 'spirit of the law', it can be construed from the structure of our democracy that there was the expectancy that reason would be the standard of value in our parliamentary system. Why do I think so? There are several reasons:
1. The parliament is required to act in accordance with the Constitution. The standard of value in this regard is reason, as adjudicated by the High Court. The way in which the government proposes such bills, debates bills, but acts without regard for the interests of minorities (as the 'spirit of the Constitution' requires) is testimony to the fact that parliament has become an instrument for the imposition of arbitrary, fascist rule. It might have a democratic 'err of legitimacy', but in fact such laws are in defiance of the law.
2. The Constitution established a certain number of seats in each house of parliament. It established seats, as opposed to groups of committees, because individuals representing the interests of members were intended to act based on their judgement, and not to subjugate it to political parties, which since the 1910s politicians have given greater allegiance.
3. The very existence of the Senate implies a spirit of principled policy making. So does the requirement for the High Court to interpret or oversee the actions of the parliament. These twin considerations imply that the parliament was always intended to act with due regard for principle, and that arbitrary policy which conveys a strategy of 'divide and rule' by government is really an act of extortion rather than good and proper government.
4. Lastly there is a requirement for the Australian parliament to act in accordance with the Constitutional requirement of 'good government'. The High Court has left this concept open, and it is also a very powerful basis for restricting the arbitrary powers of government. If the concept was not intended to protect 'principles of law', what was it intended to protect? The arbitrary power of the mob? (be it legitimatised by democratic vote).

The limiting of the parliaments powers to make laws is an important measure. It is however more important that any moral agency acts in accordance with principle to ensure equal policy for all Australians. The reason why statutory law is displacing Common Law is because it is entirely incompatible with it. The reason why government is able to expropriate from others because it targets minorities, and slowly universalises the arbitrary measure. i.e. Taxation was first imposed on the minority of rich people. Had the poor known they would be paying tax (and probably more) they might have thought otherwise of their seeming advantage.

I invite any and all Australians interested in supporting a High Court challenge to limit the arbitrary powers of parliament to visit our website Judicial Analytics, and register your interest.
Andrew Sheldon www.sheldonthinks.com

Wednesday, May 5, 2010

Bankers and miners behaving like children

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One of the saddest aspects of this debate over Resource Rent Tax (RRT) has been the strategic idiocy of 'Big Business'. Rather than working together and arguing that the government has no right to do this, they are behaving like children in a 'tit-for-tat'. Read the following article and you will see what I mean. The mining industry is arguing with the banking industry about who pays more tax. Duh!
They should be working together to attack the government. This is why people pay taxation because they concede the moral imperative to the government. They concede that the government has the right to unilaterally and arbitrarily expropriate wealth or income from whoever they wish. As long as they do this they will pay a huge price - they will lose the war.
As much as I might think banking CEOs are unprincipled pricks who behave unethically, this is a time to see where that policy is going to hurt you as a shareholder in mining projects, or even any taxpayer who is ultimately going to end up in a socialist 'paradise' under Red Ruddy.
This is just like in the 1800s when the poor were on the sides of government when they accepted 'taxation of the rich'. Now we all pay excessive amounts of taxation.
The implication is that the banking industry ought to be on the side of the miners....if only because they would like to see miners able to develop projects so they can earn more interest income.
Andrew Sheldon www.sheldonthinks.com

The ethics of a Resource Rent Tax

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The Resource Rent Tax (RRT) is not a new tax - it is already applied to the oil industry all around the world. The justification of course is that oil is used by everyone so its a great resource to tax at every stage of the production process. The utility of oil ensures that it is a relatively price inelastic good.
Probably the biggest beneficiary of the resource rent tax will be NZ, Indonesia and PNG. Why? Because:
  1. NZ has huge resources of iron sands off its coast. Those resources are remote from Asia, however if they are developed, they will justify a large capacity port able to handle 180,000 dwt vessels. Higher iron ore prices will result in more expensive steel, so NZ & PNG timber resources will also benefit as more houses will be built with wood. Rio Tinto controls those resources in NZ. Of course they will need to duplicate infrastructure, and ships will have to travel further...so much for Rudd's green(house) credentials. Well I guess we all going to end up paying more tax, so that's pretty green, not having anything to spend....or is that red. Not sure what colour communism uses these days. I think green.
  2. Same problem for other minerals. Of course when the Resource Rent Tax was applied to oil, people probably did not expect that it would be applied to other minerals. The point is that if you get on this slippery slope of conceding a moral principle (i.e. that its ok to tax oil because you are a beneficiary), eventually the predators go after you. It was the same back in the 1800s when they introduced the first income taxes. They were introduced on the 'rich'. The "majority" (i.e. poor) thought this was a great system. Today the poor pay as much, if not more, tax than the rich. So you think that is justification for more taxes on the rich? Crazy, that is the thinking that got you where you are today. The answer is principles people! Not more arbitrary powers to government.
  3. PNG as well as Indonesia have iron sands along their coast, which are likely to benefit as a result of the Australian government's policy. i.e. Indo Mines and MIL Resources. These resources are on the coast - not 300km inland, and they are closer to Asia.
Pity us that the mining industry are such poor victims. They could never identify the underlying principles. Like you, decades they abandoned ideology, and they dare not alienate themselves by justifying a label by government that they are 'ideologues'. Ouch! That hurt.
The reality is that 'Big Business' is equally to blame for this state of affairs by mounting such a weak moral argument against taxation....in fact against the way government is structured.
Andrew Sheldon www.sheldonthinks.com

Rudd is a model comrade for China

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Australia's tax system under Kevin Rudd is a model for the Communist Party of China according to a SMH article. Communist in name only, the Chinese government is really fascists, but that is a cosmetic issue really. Fundamentally, like Kevin Rudd, they embrace the politics of expropriation, and using the 'common good' as a basis for imposing their values on others. Its simply a matter of degree. On this issue, Rudd is ahead of the communist party. Mind you I have always been suspicious for any collectivist in generating ideas. My suspicion is that Rudd was not even the originator of this idea. My suspicion is that the idea originated in a Commonwealth Heads of State meeting. Probably the president of Ghana, which has recently imposed a 10% tax on gold production, probably said to Rudd, why don't you tax your resources at mine gate, so then we can raise our taxes more in future.
Another concern with this policy is that the government is actually creaming off the upside in commodity prices, which are already reduced for Australian miners by the rising Australia dollar whenever commodity prices rise. There is another problem with this policy: It will disadvantage Australian investors. After all if you are an investor and you do not benefit from a rising exchange rate, why would you invest in commodities based businesses since you don't get any upside. Why would you invest a lot of money in exploration if you could not see the benefits in 3-10 years time.
The implication is that resource projects in Australia will be less valued by Australian investors. This is indeed a paradox because Rudd thinks he is reclaiming wealth for 'all Australians'. Like all silly government policy, it has the opposite effect. Foreign companies will buy into resource projects when they are worth a lot less. i.e. The local partner who discovered the project will get less money from the acquirer. There will also be less money for exploration. Australian miners will go offshore because there is less benefit.
We will also see more consolidation of mining. Contrary to the view that BHP & Rio Tinto will lose out, I think they will benefit from being able to buy projects cheaper. It will be the taxpayer who loses in every way. Consider:
  1. Loss of jobs as less investment in mining, less exploration
  2. Diminished value of mining stocks because less return, less value attached to any discovery they make
  3. Less export revenue
  4. Increased takeover of under-priced Australian projects
  5. Foreigners will get the benefit in 5-10 time when the Liberals reverse the policy
  6. We will see Labor returned to office because they gifted to Australians money in the short term for a long term source of taxes.
  7. Super funds have already made losses from the announcement of the tax - yes, your money
The nation declines once again because politicians and voters thought non-conceptually and short-range.
Andrew Sheldon www.sheldonthinks.com

Placing your trust in govt and mining CEOs

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You might have expected a defense of our freedoms from a Liberal Party. Rhetorically they are the people one would tend to look to for such a defense. But the best they can do comes from Andrew Robb, Liberal Party President (if I'm not mistaken):
"This is a monstrous action and my expectation is that this won't come to the parliament until next term. My expectation is that it would be either dumped or fundamentally changed".
You have to understand that 'explicit' ideology is so old-fashion. They prefer instead the pragmatic, behind closed doors approach which does not alienate voters who are morally ambivalent about principles. The problem is that parliamentarians are going to love the idea of government controlling the extra cash. The idea that its negotiable is a problem. The fact that Liberals are ideologically non-committal is a problem. This is despite the fact that Liberals have all the rhetoric about freedom on their website, but note how it does not translate into action. They just describe it with adjectives like 'abhorrent'. It never leads to any 'verbs' or education. That is what this website is about. We place the ideology back in liberalism.
This is why representative democracy ultimately leads to fascism. Its all about numbers and not about principles. Principles are so 1960s. Well ok, 1920s since the principles of the 1960s were arbitrarily constructed.
The justification for this intervention by the government is of course to take what is readily available, and what can otherwise not be withdrawn. You cannot move mines. Really its extortion. Consider that the tax will mean that the mining industry will be paying 55% in the dollar, whilst based on reports, Google is paying almost zero tax in Australia, by transferring profits using clever accounting to Ireland.
We have long complained about the unfairness of the taxation system and the arbitrariness of it, and the fact that one arbitrary measure leads to another as business finds loopholes. You can patch up arbitrary law which have no context. The arbitrary is arbitrary because it does not relate to the facts of reality. That's why there are always holes in it.

The government has suggested that the 40% tax would be levied upon the excessive or 'super' profits of miners from 2012 onwards. The proceeds will be used to finance corporate tax cuts, boost retirement pension savings and build infrastructure.

The problem with this is that there is no need for government intervention on these matters. These companies can fund their own infrastructure, and should be required to do so. Why do we want governments, with no business acumen, to be building railways and ports. In their hands it will be simply corruption of people and the system. Retirement savings are the concern of retires...why should miners fund these. By their very existence mining companies are already funding savings in Australia by pushing up incomes, property prices, etc. Mind you, the government is artificially doing that all by itself. This policy is itself an effort to force savings in the country. If land was freely subdivided, the value of your house would probably halve.

Clearly the mining industry should not be used to finance tax cuts, as they already pay the most tax, and are only targeted because the government is too lazy to make tax cuts. It does not have management skills, so it passes the costs onto taxpayers....usually the weak and vulnerable. In this case the mining industry because they cannot shift their mining projects offshore.

My problem is the approach of the mining industry. The government likes to deal with BHP Billiton and Rio Tinto and Fortescue Metals. Why? Well, because these companies represent:
1. Big business - manager 'CEO' class running global conglomerates
2. Hugely wealthy individuals like Andrew Forrest
Why would voters have any sympathy for this class of people. There are so few 'Twiggy's', so why care? The reason is that this is why government is un-principled and gets away with this type of behaviour, because it targets minorities, who it thinks you will have no consideration for. I have no idea whether Andrew Forrest has any principles, I just think that his life means something to him, so if we are going to have empathy for animals in this day and age, why don't we have any for people, no matter how rich. Because I suspect, and maybe I'm wrong that business is more than money to Mr Forrest, just as your career is more to you than just money. In fact given that Andrew Forrest has more money, I'm willing to guess it means relatively less to him than you. This might make you think, all the more reason to take it from him. But lets ask what impact that might have on his estimate of the parasites who expropriate his money. Ask yourself that, and you will understand why business ethics sux in this country, and everywhere else. Its because you have no respect for their interests, so why should they have any respect for yours. By engaging in this 'dog fight' we all risk moving towards anarchy or fascism. Look at the street riots in Greece because of government debt debacle.
Another problem is having a 'manager' class of CEOs, i.e. The CEOs of Rio Tinto and BHP Billiton, controlling your money as investors. They ultimately have no interest in this outcome. You might think they do because they have share option incentive schemes. The problem is that they have little control over government policy. My guess is that their options incentive will be adjusted to reflect the higher taxes these corporations will make. The implication is that shareholders have no voice....just Twiggy. That lone individual. My guess is that he's been too busy making money over the years to develop any grounded & coherent abstract principles. We live in hope, because I have no confidence in the other 2 CEOs heading this industry 'representation'.
I wanted to be a CEO like Andrew Forrest when I was 13yo. I studied geology, mining, finance, accounting. But I also studied philosophy, and learnt how pathetic people think and could not see myself surviving living on their terms. So I just became an investor, and when I knew what I was talking about ....I started writing. In those days, the Australian Financial Review used to have detailed news about how these corporate entrepreneurs did their deals. The newspapers are simply press releases and mindless editorial these days. No investigative journalism. Industry-prepared pieces with advertising.
Andrew Sheldon www.sheldonthinks.com

Tuesday, May 4, 2010

Global tax rates by type

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There are those countries which have something to promote when it comes to taxation. Consider Hong Kong. In the Asia-Pacific region it has the most forgiving tax regime. You can see a list of the taxes levied by country at the Invest HK website. I would caution you however these are other factors to consider - for instance:
1. Sovereign risk - HK is Chinese controlled so things might change. The same goes for any government, and some governments are prone to be more predictable than others, as Australia's Kevin Rudd is proving.
2. Your context - Depending on why you need a company in another country. Will it be an expense/cost centre, a revenue centre, an investment holding company, etc. Different countries treat different things differently. i.e. If its a holding company then a Goods & Services tax is not going to make a lot of difference.
Kind of amazing how some countries can support their economies on so little tax isn't it. Makes me wonder why you decide to pay so much. Oh that's right, you're a slave. You forgot. I guess you thought there needed to be a gun pointed at your head before you were defined as a slave. No, there just needs to be the threat of a gun pointing at your head, or the prospect of having your money siphoned from your bank account, or a tax office appointed debt collector taking possession on your home. Guns are so old fashion when you have an 'unrepresentative' democracy to destroy your freedoms. Don't get me wrong the idea of a representative democracy convened by you people scares me more. Give me consensus based democracy anytime.
3. The accuracy of the information - Forbes is the source of this information, and a reader suggests the numbers for France are wrong.
4. The information context - As a reader suggested, US might have lower taxes than Europe, but they have less complicated tax system, i.e. state & local taxes, etc.

If you think about this chart a bit you might just come up with a 'freedom strategy', or tax minimisation strategy if you prefer.
Andrew Sheldon www.sheldonthinks.com

Ruddy deceit will increase sovereign risk

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Unsurprisingly the major miners have come out and made very strong statements about the new ‘resource rent’ tax being considered by the Australian Rudd government. There are a few things we need to acknowledge:
  1. These companies often buy into these projects – If they government ‘suddenly’ adopts this policy, they will damage the sovereign risk rating of Australia, and they will thus increase the cost of capital levied upon all business.
  2. Any government which has bought a mining resource will sue the Australian government, i.e. Xstrata, BHP Billiton will sue the Australian government for unfairly targeting them, and the taxpayer will pay!!
  3. These companies in most cases had to find these resources. The idea that these resources are ‘owned by Australians’, and therefore have the right to apply any arbitrary tax is grossly unfair to investors. Deceitful and opportunistic parasitism you could say.
  4. Rudd was flagrantly dishonest by suggesting that resource companies only paid $8 billion on its $80 billion in earnings. He failed to acknowledge that they also paid resource rent, income taxes, and actually pay 43% of their profits in tax – compared to 30% by the banks
  5. This is the 2nd time a Labor government has gone after the resources sector – the last time they proceeded to adopt a ‘gold sector’ tax, which was previously royalty free, even though they pay income taxes.
  6. Regardless of whether there is a new tax or not – consider the losses caused by fund managers – yes your fund managers – when the Rudd government without any warning decided to adopt this very ‘opportunistic tax’.
This is a very deceitful path by Rudd because it highlights the lack of responsibility of this guy. He wastes billions on flivilous expenditure over the last 2 years, and now he looks to the most productive sector of the Australian industry, and kicks it in the knees. Absolute parasite.

Can I say to Australians...there is something you should never do...elect a person with a detached sense of reality into office. i.e. Bureaucrats. The second is....don't create opportunities for them to 'divide and rule'. Rudd wants you to accept this tax as 'easy or uncontroversial' tax money because he thinks mining employs only 3% of employment, and in the short term it will capture money for government right, but long range (which Rudd doesn't care about) it will marginalise Australia in the global mining industry. Mining services will shift overseas, income will shift overseas, geologists will shift overseas. More companies will be run from London.
He is destroying australia's long term prospects for his short term political gains. He wants to use the money to buy concessions so he can convince you to vote for him. I don't even think the policy will be adopted. He will backed down after the election, and those 'promises' will be dropped. Its all smoke and mirrors. Get rid of him! Better still get rid of them all - vote for a libertarian. They are not perfect, but at least they are destined to leave you alone.
Andrew Sheldon www.sheldonthinks.com

Monday, May 3, 2010

Unfairness of tax system

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The unfairness of the tax system. What I find particularly annoying with government is its arbitrariness. The tax that it targets certain groups because:
1. They earn more, so are judged to have more capacity to pay
2. They have less capacity to dodge the tax
3. They have less political power to lobby government because they are a minority interest

Case in point. The Australian (Rudd) government is pursuing higher taxing revenues from Australian miners because it expects commodity prices to be higher in the future. At the same time Google pays almost no tax in Australia. I have no problem with Google paying no tax because I dare say that the Australian government offers no benefits to Google that Google doesn't pay for. The problem I have is that miners have no capacity to take their business or expenses offshore like Google.
The problem is this arbitrary tax system is not fair. It is not fair because it is not based on user pays principles. Google earned revenues (estimated) of $600 million plus in the last financial year, and paid $0.7 million in income taxes. Mining companies earned revenues of $60 billion and paid $8 billion in tax.
The Australian government is going after the miners because its easier. Where is the justice in that? Frankly I would simply prefer it if the miners and Google paid for what they used, and we did the same. Those that want library services or to use a community swimming pool paid for them.
If you think principles are 'unrealistic' then I suggest you examine the implications of your arbitrary politics, because they end up in disempowering everyone, everyone jumping through hoops to clear laws, everyone creating all types of loop holes. It results in a great deal of complexity which need not exist, giving a lot of people anxieties they don't need....if not worse. Who does all this affect the most - the poor - who it was supposed to help. Yes, that is right. Income tax was first levied on the rich, and now the poor pay the highest rates, as businesses use all sorts of schemes (i.e. loopholes, legal or otherwise) to evade tax, which they would never openly display their discontent with, in the fear that they might be the subject of an audit.
Andrew Sheldon www.sheldonthinks.com

Kevin Rudd - the opportunistic tax parasite

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Kevin Rudd will probably go down in history as Australia's worst prime minister. So what's the trouble. Well he started off badly by 'doubling up' the Liberals silly first home buyers grant - at the worst possible time. This shows that he has no understanding of markets and economics. Now he is deciding to tax the 'super profits' from mining. Basically he has taken all the superlative profits that can come from mining. This is a mistake for several reasons:
1. We want government spending less money than more - why? Because they are so terribly bad at it. e.g. The grant to fund insulation, heat pumps and wind farms. All the grants went to installers, not to the buyers, since the installers simply raises their prices. You might expect it to have reduced installations, as installers thought they could buy a fishing boat with the profits and work just 3 day a week. Great life if you can get it.
2. We want to encourage exploration in Australia. This proposal is going to result in Australian mining companies spending less exploration dollars in Australia. Jobs and mining income will go overseas to African states. Marx would be ground. Rudd isn't even original, since President of Ghana is doing the same thing.
3. We want to encourage risk taking. This is foremost a tax on risk-taking or high risk mineral exploration. Not all mining is the same. Some mineral exploration is marginal, and other exploration is easy. For instance, under Qld there are huge resources of coal. You know its there, you just have to delineate it and prove its economic viability. Gold exploration is not so easy. Even if there is gold, its a long process to prove up, and there is a high risk of failure.

I personally think this is not simply a tax on companies, its punishment upon investors, and its taking profits from mining companies before they sell out equity to Chinese companies for huge gains. I actually have no problem with a resource rent tax if its a user pay tax, but the point is moot when you have so much government largesse, a welfare system that ought not to exist, a justice system which does not function. Giving the government more money is not going to solve these issues. Building a nuclear reactor in parliament house would. Privatising education would help.
If the government wanted to soften the impact of this plan and to retain the revenue its so keen to expropriate from the mining industry, then I suggest it should restrict the tax to certain 'low risk commodities' like coal, iron ore, alumina and oil & gas. Why? Because these industries truly are blessed and are globally strategic.

Other commodities like copper, gold, rare earths, lead, zinc, silver, etc are often marginal propositions. We don't need the government picking winners. I would have more to say if I knew the detail. However let me say that this plan was introduced with no warning. Fascism! Absolute fascism! Where is the logic for introducing this - other than Rudd's opportunistic grab for money. Never trust a bureaucrat in power Australia! Utterly no sense of reality. Same as lawyers. Useless! Utterly useless. Even the libertarian one's who wouldn't know how to defend freedom if their genitalia depended on it.
Andrew Sheldon www.sheldonthinks.com

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