BHP Record Profits and 4 Corners Money Pit

Karl FitzgeraldCommentary2 Comments

Tagebau Garzweiler
Creative Commons License photo credit: BK59

Last night saw the media highlight two essential points. On the same day that BHP announced it’s fifth consecutive record profit of $17.8 billion for the year, 4 Corners discussed how high land and housing prices in the mining town of Port Headland were strangling the community.

Both media pieces overlooked the fundamental role of the community in creating the value that naturally accrues to natural resources. Over the last 5 years of record profits for BHP, the ratio of royalty related payments to dividends has averaged 50.6%. In 2003 shareholders received 61% more in dividends than all tiers of government from resource rents. It was around this time that BHP CEO Chip Goodyear chided the business community with comments like ‘Our hard work has paid for your tax cuts’. In 2007 the community received 56% of the amount paid to shareholders. Why should shareholders get more than the rest of the community?

We ask here whether so called owners of resources are entrepreneurial geniuses or just extremely privileged to benefit from the gifts of nature? For that reason, Government should have the courage to withstand the criticism to any changes in royalty rates. Since when did mining companies and land developers become royalty? Why should mining companies have the right to demand meetings with government to ‘negotiate’ what it will pay?

Port Headland demonstrates the danger of allowing what is technically known as economic rent to accrue in land prices. Watch 4 Corner’s The Money Pit: A Boom town running on empty and put the 2 + 2 we discuss here together.

Ask yourself – does it make sense for millions to be made in the region and for little to be given back to the community that makes it all possible? Why do land prices appreciate faster than wages? How can we ensure that the fundamental human right, the right to a roof over our head, isn’t subverted by land prices?

Land prices are no longer reflective of what can actually be earnt off the land. Land banking speculators understand this. A quick look on google earth sees that there are vacant blocks of land in Port Headland. Withhold supply, maintain scarcity, push up prices. Builders can afford to drip feed the new buildings to the market, always ensuring that demand is greater than supply.

Enter 2 Monks Pl, Port Headland into google earth and you can see that the capacity is there. Maybe there aren’t enough builders. Surely if houses are going for $1.5 million then their wages could be paid? The problem is the rents. Astute land investors/ speculators understand that demand is high for locations where $100 000 – $200 000 p.a can be earnt. With no other alternative place for the wage earner to live, they must pay the asking price for housing or move to the shanty towns. When no competition is possible, land monopolists are free to charge the exorbitant rents that are chasing locals out of town. This is the Law of Rent in action.

BHP announces record profits, largely earnt in the Port Headland region, but the workers struggle to pay rents. Sound sensible? Land monopolisation of rents ensures this trend continues. Wage earners are guaranteed to never get ahead under the rules of today’s economic system.

If instead the community earnt a share of the land rents, then such speculative power would no longer be possible. Land rents could replace taxation as a revenue source, ensuing the community gets it’s share in the naturally increasing land prices. All land would then be used efficiently. Land hoarding would not be viable, putting downward pressure on prices. Yearly land valuations would see that land rents are charged upon what can be earnt off the site, rather than what one speculator can convince another to pay.

Those households living closer to prime/ new infrastructure would pay comparatively more than those on the periphery. It makes sense for those close by to pay more in respect for this service. The BHP rail yard would obviously pay a larger land rent in respect for the income that such a facility makes possible. Together, these forces give the local government more revenue to finance infrastructure whilst simultaneously providing the ability to keep land prices at earnable, responsible levels.

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