Aussie election stalemate leaves miners in dark

August 23, 2010

Nature may abhor a vacuum, but Australia needn’t. The country’s first hung parliament in 70 years should not frighten investors. The bad news is that a proposed “supertax” on mining, despite its appealing logic, may not survive the political wrangling.

Two days after votes were cast, prime minister Julia Gillard’s incumbent Labor party looks likely to emerge three seats short of a majority in the 150-seat lower house. Australia’s benchmark index has barely budged, and the Aussie dollar rose slightly. The reason? The economy needs little work. Unemployment is probably as low as it can go, and debt is a meagre 6 percent of GDP.

Gillard must now woo the stragglers, likely to include one Green lawmaker and three independents. With little to play for in terms of economic policy, the bulk of the horse-trading will revolve around secondary issues like broadband access in rural areas, water usage, and carbon trading.

But the biggest bargaining chip looks to be the proposed mining tax, which would raise an estimated A$10.5 billion in two years by applying a levy to mining profits. The opposition National Liberal Coalition is unambiguously against the tax. Labor is in favour, though Gillard has already watered down the proposal inherited from her ousted predecessor, Kevin Rudd, by cutting the headline rate from 40 percent to 30 percent.

Taxing miners’ profits rather than levying fixed rents on production, as happens now, is a good idea. It would make the good times less good, but the bad times less bad. It would also capture some of the gains that commodity producers have earned as a result of easy money disgorged by governments, which has helped to push up prices.

While it is too early to call, the odds of independent candidates, who represent rural areas, backing the tax as it stands look slim. That would be a shame. Mining’s contribution to Australia’s economy is easy to overstate — it generates 6.7 percent of the country’s GDP but accounts for just 3 percent of jobs. Yet measured by gross profit margins, it is by far the country’s most profitable industry. If the tax is dumped, the miners — not Australia — will have won.

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“If the tax is dumped, the miners — not Australia — will have won.”
And Kevin Rudd was dumped (no pun intended) for advocating this tax?
Are Australians stabbing themselves or hoodwinked?

Posted by doctorjay317 | Report as abusive