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- ▼ July (10)
Wednesday, July 28, 2010
It is interesting how elections draw out all types of personal commentaries. Consider the latest criticism from Nobel Prize-winning US economist Joseph Stiglitz - which strikes me as self-defeating. He is critical of the "mining industry having too much influence on the political debate on Australia's mining tax". Why then should he seek any influence at all, and why did he take any position at all when he is not an Australian citizen, and clearly does not understand mining. I always knew how the Nobel Prize went to the undeserved...this is a case in point. Lack of critical insight being his problem.
He makes a comparison between the mining industry and regulation of the financial industry. Firstly, if one is having wealth expropriated from you, who else has a legitimate interest in the outcome other than the victim. The mining industry lives according to the rules. Is it fair and reasonable than shareholders and miners loose out because the government decides to change the rules in the middle of the game? Shareholders invested in mining projects based on a certain tax regime. The government has decided near the top of the boom to steal the upside in the stock price, which can only impose losses on shareholders in a specific sector of the economy. Its not even broad-based. It is grossly discriminatory.
He adopts the idea that 'resources were public' property. True enough, some years ago, the government adopted another arbitrary law saying all resources are govt owned. It then entered into mining title on certain terms, and now it wants to arbitrarily change them AGAIN. If it wants to do that it ought to do it to any new title applied after the law is enacted, not 'effectively' retrospectively applying to existing mining title.
There is a big difference also between public ownership of resources and public ownership of 'mineable reserves'. These companies have spent a lot of money proving up these resources, and the government wants to come in and take the 'value-add'. Rest assured if they thought mineral prices would collapse for the next 3 decades, they would drop the tax proposition because it was always about the money. It is utterly self-serving, unprincipled and unjust.
How can you compare that with regulation of the mining industry. Regulation ought to be about protecting citizens. This resource rent tax is utter and blatant extortion and expropriation. The fact that it is supported by a former 'paid' bureaucrat ('grim reeper') in the World Bank, is reason for questioning his ethical pretext.
He also said that "to date the windfall gain from the rise in iron ore had gone disproportionately to the companies, while a disproportionately small fraction had gone to Australian citizens".
The reality is that Australians have the opportunity to benefit from the mining industry if they so desire....they ought to invest, not support expropriation. I might add the people who made the 'windfall' are not necessarily the existing shareholders. Shareholders chage. In any respect, any wealth was 'made' by these companies and shareholders in accordance with the law. The law is to protect, not to sanction abuse.
His next argument is that: ''The natural resources belong to the people".
That's right, under some prior imposition government forcibly assumed ownership to all mineral resources. It has since sub-leased those lands to the mining industry, and the industry has acted in good faith with those laws, which were adopted by the government. Those resources are now 'mineral reserves', upgraded by the definition of valuable metal through drilling, geological and geophysical surveys. They are a value proposition, and these people saw the value, and the government wants to take it away, even though it defined the rules. If anything it is a testimony to the fact that governments can't see 'value', so why ought they be controlling it? They cab only result in the Australian people losing value. Expect all future exploration to go abroad. The trend was already there as it becomes much more difficult and expensive to find minerals (other than iron ore and coal) in Australia.
Its possible the govt is exposing taxpayers to huge market risk. Who knows. It also raises the spectre of corruption. Rudd/Gillard could have done a backyard deal with Rio Tinto and BHP to get their deal. That is why arbitrary law like this is wrong. It is a recipe for corruption. BHP in recent years has already been caught engaging in corruption...despite it supporting an ethics committee. Might these executives have a Swiss bank account since they met personally with the PM and ministers. Let's have some laws based on defensible principles.
Why does the Australian people have to benefit. They didn't create any value. Let them make their own wealth and not impose on others thrift or initiative.
I accept the argument that there could be a better system for auctioning exploration title, but actually that might only result in the government getting less, and market traders getting more, as it would only attract more speculators. Its not an issue of competition. Competition suggests more players, buyers and sellers, and that can only result in higher prices for title, as it will result in broader recognition of value. That is why Australia is cheaper than overseas markets, because we are a smaller market. But regardless, the benefit will go to speculators, not the government.
The reason why the govt needs to impose on others is because they are not able to efficiently run the economy. Despite miners producing a lot of value, they are unable to motivate the broader population of Australia to work, so they have to burden the mining industry with 40% tax, when Google pays just 0.5% of its income in tax. Why? Its going for the 'cheap shots'. Google can more easily shift its operations abroad than miners can move their mines abroad. Its pure extortion of those who are defenseless from the arbitrary power of government.
Arguments comparing tax expropriation to questions of regulation have no validity, and highlight the bias of this 'red-card' bureaucrat. He was an advisor to Clinton for heavens sake.
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