Myth 1: The tax will hurt the Australian economy

Many analysts and business groups have come out in support of the mining tax. A group of twenty economists led by the former ACCC Chairman, Professor Alan Fels, have put to bed claims that this tax will hurt the Australian economy, saying that there is “no substance to claims that it could lead to a rise in the cost of living.” Furthermore, they say that “mining is different from other industries. It exploits our natural resources. The Australian public should share in that benefit..” and the present taxation system does not adequately capture the “excess profits” that are presently being made by the mining industry.

As addressed in Fact no. 5, economic modelling has found that the mining tax would result in about $450 more in the pocket of the average worker each year. The price of various products would drop, inflationary pressure on interest rates would be lower and Australia’s GDP would rise by 0.7%.


Myth 2: The tax will hurt the mining industry

Update:
Clive Palmer, the self-declared spokesman for the mining industry, has recently retracted his claims that he had scrapped mining projects due to the resource tax. He now says that he was exaggerating.

If one listens to the mining CEOs and the Liberal party then this tax will spell the end of mining in Australia. However, according to just about everyone else, the tax will not hurt the mining industry at all; it may even benefit it. A group of twenty economists led by former ACCC Chairman, Professor Alan Fels, have released a statement in support of the new tax. They argue that the current system of royalties actually deters production, as it means that the miners must pay the states whether they are turning a profit or not. Whereas, if we tax the profits which return above 6% on the initial investment, projects which would otherwise be too expensive become profitable. The table below illustrates this, showing that projects which return up to 10% on the initial investment make more money under the new system.


Source: Treasurer’s Economic Note on RSPT

The economist, Chris Murphy has put forward a similar point, saying that because the resource tax only taxed profits and “not the first dollar of production” it was a better deal for miners. He also pointed out that the mining industry had even originally supported the idea.

The Organisation of Economic Cooperation and Development (OECD) has also come out in support of the tax, asserting that “”what drives investors is not necessarily that they are going to pay higher or lower tax but the availability of raw materials… If you look at these things strategically rather than with your sights on the profit of next year or next quarter, of course [it will continue to be] a wise thing to take the plunge, to take the risk and invest in Australia.”

Finally, the association of superannuation funds, known as the Industry Super Network, has called on the big miners, including BHP Billiton, Rio Tinto and Fortescue Metals to drop their fear campaigns. Chief Executive, David Whitely, has said that “I think in recent days it’s become increasingly difficult to separate the truth from myth. What we’re having on almost every morning now and every day are increasingly hyperbolic statements being made by the Minerals Council and the mining sector itself about the potential effects of the tax.” In regards to the impact of the tax on miners’ share prices, he said “Our assessment is that the announcement has had to date a negligible effect on the share prices of the resources sector.”


Myth 3: The mining industry saved Australia from recession

Over the course of 2009, 15 percent of people working in the mining industry lost their jobs. Treasury Secretary Ken Henry has said that “Had every industry in Australia behaved in the same way, our unemployment rate would have increased from 4.6 per cent to 19 per cent in six months.” Therefore, it is misleading to argue that the industry saved us from recession. The table below illustrates this clearly.


Myth 4: The big mining companies are majority Australian-owned

The true level of foreign ownership of our mining companies can be hard to quantify. Who better to look to than Rio Tinto’s own Global Head of Strategy, Doug Ritchie. In a keynote address to CEDA on the 7th of May 2009 he said “The major mining companies – BHPB, Rio Tinto, Anglo, Xstrata – are now majority foreign owned, and that ownership has allowed Australia access to the global capital it needs to develop its resources. The stock of foreign investment in Australia at 31 December 2007 totalled $1.6 trillion. And mining companies, most of which are foreign owned or controlled, produced 8 per cent of our national GDP in 2008.”.

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