Friday, May 28, 2010
The mining industry did not save Australia from recession as is widely believed, according to the head of the Treasury. And any investor who thinks the proposed new tax is causing stock market jitters deserves to do their dough.
In two hours of calm, defiant and at times barbed evidence to a Senate committee just ahead of leaving on an overseas holiday Treasury boss Ken Henry rubbished claims the mining industry was Australia's Saviour, poured scorn on suggestions that it was highly taxed and inferred that what its executives say in private they don't repeat in public.
Asked whether the government was planning to water down the proposed new tax in response to industry concerns he said he was aware of no such proposal.
Asked whether he still expected mining investment to boom as forecast in the budget he said he had seen nothing to make him change his mind.
Turning to the industry's role in the economy he said he had "lost count of the number of times" he had heard people say it saved Australia from recession.
"These statements are not supported by facts," he added.
"It is true that Australia avoided a recession... but the Australian mining industry actually experienced quite a deep recession. In the first six months of 2009 it shed 15 per cent of its workers. Mining investment collapsed, mining output collapsed."
"Had every industry behaved that way our unemployment rate would have climbed to 19 per cent."
As industry claim that Tax Office data showed it paid tax at around the rate of 30 per cent was "not very surprising and not very meaningful".
"Tax payable divided by taxable income will of course come close to the statutory rate."
"But the mining sector is a very significant beneficiary of very large concessions that cut its taxable income to a fraction of its total income."
"We could remove all those concessions and not change the industry's claimed tax rate but I am sure it would regard the removal as significant."
Claims by industry executives that they were shelving or putting on hold investments because of the proposed tax needed to be taken with a grain of salt.
"There are always questions about when specific investments will be undertaken."
"Recently the chief executive of one rather large company said to me, by the way this was before the announcement of the tax, that he had 30 or 40 years work in these projects on the table".
"Today to hear the same mining executive talk you would think that his expectations had been that all of these projects were going to be rolled out next year."
"Frankly there is more than enough investment in train in the mining sector. The limit is access to the labour and capital needed to undertake the projects."
"Some companies in the west have fly-in fly-out arrangements form eastern capital cities. That tells you there's a supply constraint."
Asked whether the proposed 40 per cent super profits tax rate would harm investment he said if the rate was 70 or 80 per cent it would make no difference. "In concept anything short of 100 per cent would make no difference."
"I don't want to make too much of this but other countries such as Norway have managed to attract substantial investment taking 95 per cent of the profits."
Asked whether the proposed tax had hurt share prices he said there was "a lot of volatility out there", but that "people who really believe that share price volatility is due to the tax stand to lose some money I would suggest."
Published in today's SMH and Age
COLEBATCH: Henry fends off (most of) his critics
KEN Henry made the most of his reluctant appearance before a Senate committee. He put down his critics, and gave a lucid explanation of his resource rent tax offset only by an own goal and one sharp senator getting through his defences.
The Treasury boss had it easy as Coalition senators virtually invited him to explain how the tax would work, why it was needed, and what were the flaws in the arguments against it.
He challenged the Minerals Council's claim that miners pay 41 per cent of their income in tax and royalties, rising to 58 per cent in the new scheme.
Yes, he said, on their taxable income but only because tax breaks for depreciation made their taxable income "a fraction of their economic income".
"It's not very meaningful," he said. "We could remove all the mining industry's tax concessions and not change its effective rate of tax calculated [that] way." Yet losing billions of dollars a year in tax breaks would be "of some significance".
And yes, under the new scheme, in theory a company could have to pay tax as high as 56.8 per cent of its taxable income. But it would do that only if its profits were "infinitely high". On Treasury estimates, only companies earning returns of more than 25 per cent a year would pay 50 per cent of their income in tax.
Henry said he knew of no decisions to change the tax, despite speculation that the government will lift the threshold for resource profits from 6 per cent to 11 per cent. But he hinted darkly that if it did, there could be other changes to claw back the revenue loss.
But he kicked one own goal, claiming that, far from the mining industry "saving Australia from recession", the truth was the reverse: mining had "quite a deep recession", yet Australia had none. Mining shed 15 per cent of its employees, he said.
Bunk. The seasonally adjusted jobs figures are not reliable at that level. They show that mining jobs rose 30 per cent in the last nine months of 2008, then shrank 15 per cent in six months, then rose another 15 per cent. How can anyone believe that when the national accounts show mining output in 2009 was basically flat, with at most a brief fall of 1.2 per cent?
Then, under persistent questioning from independent Nick Xenophon, Henry conceded that the optimistic modelling of the tax ignored the prospect that mi.ning projects could be deferred in response to the tax, to focus on the (very) long-term benefits. "Frankly, there is more than enough investment in train in the mining sector," he said.
. Three of the best things written about the Resource Super Profits Tax
. Wednesday column: We'll still be mining
. Mistrust anyone who produces a graph like this: