Mining rents and ‘super profits’

Finally, rising expectations with respect to environmental and social performance by the industry have increased the costs and lengthened the lead times for bringing new capacity into production. These measures have largely been supported by the large players in the sector, not just because it is the right thing to do, but because it makes good business sense. Making it harder for juniors and artisanal miners to bring capacity into production has kept the supercyle going for longer because it has inhibited the factors that have traditionally clipped the peaks off cycles.

There have been defences of the policy, some coming from the union officials who should be questioning the policy in the interests of their members, that have reflected the outmoded assumption that because the resources are not mobile and are located in Australia, the miners will have no option but to get on and pay the tax.

It is true that natural resources are not mobile, but capital is, and in a world where there are plenty of opportunities for investment, decreasing the likely returns in Australia will inevitably shift investment.

Australia is unique among the markets of the developed world. Mining has recently usually accounted for around 20 per cent of the value of the ASX. The closest comparator is Canada, where the percentage is around only a quarter of that.

A shift in those relativities has begun. The use of the language of “super profit” for domestic political consumption has not helped.

Unless the government addresses these issues, the increase in the Superannuation Guarantee - itself a good idea - will do nothing to offset the losses in all our superannuation investments resulting from the misapplication of an inherently good policy.

The government can save the situation by changing the trigger, dropping retrospectivity and perhaps graduating the rate to make it progressive. But that will require that it acknowledge its error.

This measure might not even be smart politics. Superannuation guarantee has made us all at least petit capitalists, with a stake in the profitability of business. In addition, substantially more of us are direct shareholders than are trade union members.

Taxing a sector that represents a fifth of the value of the stock market as if earnings greater than the government bond rate might not be as popular as its architects think. Nor is taxing economic rent at too high a rate necessarily good policy, as a simple example shows.

In 2009, BHP Billiton earned $2.47 a share, but paid only $1.01 in dividends. It remains a growth play, rather than a yield play, because the difference was invested in developing new mines and oil resources. Would it be better public policy to have invested more of margin in more insulation or more COLAs for schools under the rhetoric of an education “revolution”?