06-July-2010
Portfolio Media Releases, The Economy
Labor’s evasion of the truth concerning the new mining tax could create a perpetual black hole in the Budget.
Furthermore, within three days of the announcement the Resources Minister, Martin Ferguson, has promised miners he will consider further changes to the deal.
“This latest misleading and incompetent episode suggests that the Federal Labor Government’s pathetic record as an economic manager has not changed under the new prime minister,” said Andrew Robb, Shadow Minister for Finance.
“The amateurish haste, cynicism and deception that drove this quick-fix are symptomatic of the Rudd-Gillard approach of the past three years,” Mr Robb said.
“Yesterday’s revelation by the Treasury Secretary that predicted revenue levels in excess of $10 billion are based on the spurious assumption that world record commodity prices will prevail in three and four years time, compounds the trickery.
“Such an assumption, if realised at all, will be short-lived and will create a perpetual financial black hole in the budget,” Mr Robb said.
“Such an assumption also ignores the significant supply response emerging around the world, driven by the current high prices.
“Furthermore, analysts have said that the changes announced mean than instead of the net present value of a typical mining company being reduced by 11 per cent under the original Labor proposal, Julia Gillard’s back down will mean the net present value will be reduced by just one per cent.
“Future revenue from this tax will go nowhere towards funding commitments promised to be paid for by this tax.
“This has been a tawdry smoke and mirrors exercise. Unless Labor’s reckless spending is stopped, getting the budget back in the black is a pipedream,” Mr Robb said.
The cost and incompetence of this sorry saga is further emphasised by:
- The intention to indefinitely take $10.5 billion in income from the shareholders of a small section of Australian companies.
- The loss of shareholder value. As companies are typically valued at a multiple of about 12-14 times their annual earnings, this intended tax grab represents a transfer of capital value from shareholders of something like $120-140 billion.
- The constitutional cloud hanging over the deal.
- The lack of information provided to investors.
- The fact that to attract investment into junior exploration requires the expectation of a long-term equity rate of return, pre-tax, of 20 to 25 per cent.
- The drying up of project finances for the second tier developments, until the details of this tax are finalised.
- The dire impact on the financing of junior exploration.
- And the prospect that the tax may well affect little more than 100 companies from a tax revenue point-of-view, further undermines the budget projections – while affecting at least hundreds of firms from a future financing perspective, showing the stupidity of negotiating a deal only with the “cashed up” majors.
“The ripple effects are enormous. Labor’s approach further increases Australia’s vulnerability to any double dip recession emerging in the Northern Hemisphere,” Mr Robb said.
Media Contact: Cameron Hill on 0408 239 521