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.

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Andrew Sheldon www.sheldonthinks.com