Resource Rents in the Eye of the Storm

Comes the Storm
Creative Commons License photo credit: versageek

The might of the Australian mining industry is throwing everything it can at mainstream Australia at present.

Can Joe 6 pack comprehend the difference between industry that is man-made ie car manufacturing, versus the mining industry, who are ripping up our valuable earth as if they scientifically produced the iron ore?

Apparently, the Rudd Government is largely doing what the mining industry asked for in their submission. Thanks to the ever accurate Peter Martin, we read that the difference between now and the collapsing 2008 economic environment (when the Henry submissions were sent) is that ‘decades of profits to come’ are now expected.

Mining magnates have flipped their view now that they realise how much they will be contributing back to the commonwealth.

Miners had supported the Resource Rent Tax because it included the ability to write off losses.

The ramifications of the earth’s privatisation are rearing their head where ever we look at the moment:

  • Greece has run out of money due to a poor taxation system. The bursting of their property bubble has made their pensioners even angrier at having the retirement age raised from 53 to 67.
  • Goldman Sachs is facing a raft of fraud cases and is now attempting an out of court settlement. The risky nature of the US property bubble saw the use of dodgy derivatives to offset this risk.
  • Aus-Aid has announced a $53m ‘aid’ package to map and value the Pacific’s resources. We know this is code for ‘so we can sell it off to our mates in high places’. Tragically none of this money is being spent in Vanuatu to train local ni-vans on how to value the land (we are not sure about the rest of the Pacific). A hand-out ‘beg-for-aid’ mentality is ensured.
  • Indonesia has opened up its property market to foreign investors.
  • East Timor desperately needs land reform to move on from the post Indonesian rule and disputes over land title.
  • China’s property bubble is on the precipice. Check how land speculators are dodging China’s credit restrictions.

Have a listen to our Renegade Economists podcast. The bottom line is that more people need to understand geonomics, an earth based economic system.

You can do this by joining Alanna Hartzok’s Earth Rights course. It takes about 4 hours to arm yourself with knowledge to read between the lines to decipher what the big boys are really up to. Click on the Earth Rights Pacific class to join so we can discuss local issues.

The earth has been sold off and the message in this course is that we can reclaim it, not by force but by redirecting the invisible hand to value and share the earth’s resources on all our behalf, not just for neo-colonising land speculators.

Negative Gearing Too Risky? So Are Property Bubbles…

The Rudd- Swan government’s flat denial of negative gearing reform proves that modern politics is incapable of dealing with the difficult questions. It was all too risky in an election year.

The dreams of working families are set to play second fiddle to the propertied class for years to come. But yet the announced reforms are the most significant tax reforms in living memory Mr Swan? Who are you playing us for?

Even more so today as interest rates are again raised. Hurrah – those who already own property don’t even have to ask for a subsidy from their subjects – the government is cheering the way via negative gearing write-offs.

The higher the interest rate, the greater the write-off.

Today’s write-offs equate to a $29.44m gift to the owners of the Great Australian Dream (1.6m negative gearing property owners with an average $300K mortgage over 30 years x 0.25/ 40%).

Working class people will have to pay the wealthiest via their taxes to cover this $30m trickle up.

All this and more is obvious to foreign economic experts. Our government and selected media insiders are the only ones that can’t acknowledge our bubble mania.

Our land and housing prices are more than 70% over their long term average, according to one visiting expert, Edward Chancellor, but yet the Rudd government has failed to even consider reforming the two most obvious tax distortions, negative gearing or the 50% capital gains tax deduction.

Post bubble, will renters thank negative gearing for keeping housing so high that they can’t enter the market?

Will they be happy when their superannuation investments are wiped out 2 – 3 times before retirement because of the dominance of lobbyocracy lording over long term thinking? Asset Bubbles in a financialised economy are ever so risky.

And Swan tempts young people to scream by saying that he is proud of the $700m first annual federal permanent infrastructure fund. Remember the statement:

“Your Taxes Fund the Infrastructure That Makes My Land More Valuable.”

“Cheers”

The Henry Review has opened up the field of discussion on land taxes – hurrah! However, we must take them to task over this statement:

Though the Review’s proposed reforms to taxes, in particular stamp duty and land tax, could play significant roles in addressing housing affordability, other policies are likely to have a more pronounced impact on the responsiveness of housing supply.

This has been jumped upon by the property lobby as another clarion call for further urban sprawl forever policies. What about the property lobby’s willingness to openly declare they will crimp supply to bump up profits? See Mirvac here and Stockland there.

Forget the fact that the National Housing Supply Council wimped out on stating that there are 622,781 speculative vacancies in Australia. Read our calculations plus other immediate supply resolutions in One Handed Housing Supply.

Christopher Joye even critiques the ABS/ government for there being no solid land valuation statistics. For years we have been wanting a central body to release the State data uniformly; S.A’s land price data is released the month after collection, whilst Victoria’s takes 18 sleepy months.

However, back to the land supply versus zoning issue. No government body has openly recognised the role of speculative vacancies. This must become a central COAG issue.

Few are talking about the need to build upwards, not outwards. Rob Adams talks about 500,000 people being able to be housed along our transport routes. Nothing was done about that by the Vic State Govt, but you can bet your bottom dollar the astute investor would have bought up along tram routes in cultural hot spots (see Sydney Rd).

The government must look at these factors to have a rounded view of the housing market.

Yesterday’s announcement’s that property prices have increased by 20% in the last year must make minimum wage earners wince. Workers received no wage increase last year, following a 4.1% increase (Oct 08) and a 7.7% increase in Dec 06.

‘Working families’ KRudd? The joke is on wage slaves when capital gains holds the reins.

Who lays the ALP’s golden eggs?

Henry Review & Mining Magnates: Please Note ‘Commonwealth’

Bisbee - Copper mine / Lavender Pit
Creative Commons License photo credit: s_mestdagh

The gloves are off in the battle between the people and the mining magnates.

Today Swan admitted the 40% Resource Super Profit tax is not set in stone. This was code for ‘come buy me a coffee and let’s see what we can do about it’.

“We’ve outlined the design of the tax, we’ve said within the design of the tax we’re happy to sit down and talk about all of the transitional arrangements.”



With state royalties still to be paid, the Fed – State tradeoff in moving to one resource rent system will in the meantime see some churning in the tax refunds miners in participating states will endure. This opens the negotiating door for the miners.

But will the RSPT tax the miners out of existence?

It can’t possibly do this because the RSPT is based on profits. This allows mining companies and their CEO’s to maintain their bonuses. This deftly meets the ‘political’ in political economy.

With the growth in mining investment in W.A (a royalty rate of 7%) versus S.Australia’s 3.5%, there has been little discernible difference. The higher royalty rate hasn’t scared off investment. Why? Because miners understand their business is much more profitable than mass manufacturing of cars for example.

Scarcity dominates this decision. Natural resources are scarce and so with a Chinese led boom, miners are sure to profit. An RSPT is a way to re-balance the advantage mining companies have with their scarce resource versus car manufacturers, who produce a non-scarce resource.

Regarding China, a Resource Rents system is an assertion of sovereignty (now tagged ‘sovereign risk’ for mining investors). Kevin Rudd reminds us of our sovereignty here: talking up the value of our common-wealth (if only he remembered who his seat is named after and why):

Prime Minister Kevin Rudd said the redistribution of wealth was justified and long overdue, adding that much of the income generated by mining the resources which were owned by the Australian people went offshore.

“Over the last decade the mining companies generated $80 billion in higher profits. At the same time, governments on behalf of the Australian people, received only an additional $9 billion,” Mr Rudd told ABC Radio.

“BHP is 40 per cent foreign owned, Rio Tinto is more than 70 per cent foreign owned. That means these massively increased profits … built on Australian resources are mostly, in fact going overseas.”

Dear Mr Magnate, please note the term Commonwealth!

WIL Surprisingly Accurate

Shades of Aerosols
Creative Commons License photo credit: NASA Goddard Photo and Video

Tohm Curtis

Week #5 – Diary of Eco Finance student

Mid semester break rolls in and Group Assignments begin. Group assignments are one of those marketable nightmares that are the direct result of Work Integrated Learning (WIL). It is one of the many popular ways Higher Education tries to simulate employment to make people more employable.

For those disputing whether Group Assignments are a new thing, let me clarify: All pervasive group assignments are a new thing. A largely mathematical/statistics based assignment was traditionally done by an individual. Now it is given to 5.

While I’ve always criticized Group Assignments as “enough work for 5 people, done by 1.” I find it hard to make a case against them, given the objectives of WIL.

Grossly unfair, inequitable and stressful they do accurately reflect an office environment. That is an individual is recruited into a unit that is to all extents and purposes an unknown to them, much like being randomly assigned to a group of students.

Pareto applies in the office as it does in Group assignments. 80% of the work will be done by 20% of the group. For a group of 5 people this means 1 person. Which is how group assignments generally fall out.

All that’s missing is the aspect of management. In Australia’s culture of ‘working’ managers (people who do the work of the employees, rather than managing the employees), group assignments are close enough. But the ‘rookie’ manager mistake in group assignments is to delegate work to a dead-weight group member.

In the working world you could actually fire this deadweight loss (though generally managers don’t because they either feel more loyalty to the employee/friend than the firm’s customers or it could be politically unpopular). You can’t in a group assignment. Sure you can give them 0% credit, if they sign off on it, but this rarely happens.

No the status-quo is to drag the deadweight along for the glory.

If as a student you want to test out your managerial talent though, you can actually try and delegate. Usually the work is done by one person by default, they are simply the most risk averse or impatient and plough ahead before a group can actually meet.

Few students (and employees) have the maturity to realize there is more reward in mastering group assignments through trial and error than the short run reward of good marks in that particular subject.

Sounds like management to me! Alas, just because the reflection of reality is accurate doesn’t mean it’s good. Universities are supposed to be the cutting edge, and thus should be rising above the unpleasant realities.