Ground control to Major Rudd ...

In the parallel universe of political spin inhabited by Kevin Rudd and his advisers, a new benchmark has been set with the Prime Minister’s announcement that his massive 40 per cent tax on mining profits would be “good” for the mining sector and would encourage its expansion.

The Rudd Budget is a shameless con.

The entire house of cards rests upon an assumption that investment in the mining sector will increase significantly.

Just how imposing a 40 per cent super tax - on top of company tax, payroll tax and licence fees - will lead to increased investment, is anyone’s guess.

Mr Rudd has maintained the line that his massive tax is good for the sector, as mining companies suspended hundreds of millions of dollars in projects and more than $14 billion was wiped from the value of mining shares.

Mining giant Xstrata announced it would cancel all exploration activity in the Mount Isa and Cloncurry regions of Queensland, which has put a cloud of uncertainty over jobs and the health of the regional economy.

Other miners including Santos are deferring projects and reviewing cost structures. The mining services industry is bracing for the fall out.

State Labor governments are panicking as they see the strongest economic performers in their states under attack from Federal Labor. Queensland Premier Anna Bligh has expressed public concern about the impact on jobs. South Australia expressed alarm at the prospect of the Olympic Dam project being mothballed.

Western Australian Liberal Premier Colin Barnett has released a detailed repudiation of Mr Rudd’s claims that the tax will be good for Western Australia.

However, the reaction internationally reveals a grain of truth in Mr Rudd’s claim that it will be good for the mining sector - just not ours.

Toronto’s Globe and Mail newspaper has reported that Rio Tinto has approved an expansion of its iron ore activities in Canada, with an initial investment of US$400 million.

This project has been hold since 2008, but Rio Tinto will now go ahead because of the “attractiveness of investing in Canada” and the need to evaluate the impact of the proposed 40 per cent mining tax on its Australian operations.

There are also numerous reports of mining companies turning their attention to Africa in terms of long-term exploration and development.

Macquarie Bank is reportedly advising its clients that Australia was "now seen as being a high sovereign risk destination to invest" and that there was a "significant risk of major capital flight out of Australia".

The Wall Street Journal, in its scathing assessment of Mr Rudd’s super tax, put it succinctly in its editorial, “This economic thinking runs counter to everything that made Australia rich over the last three decades: namely, the embrace of competition and capitalism, which rewards high risk with high returns. … The truth is that all windfall taxes, however they are dressed up and sold by politicians, are arbitrary and economically damaging.”

The Rudd political spin machine also whipped up the old ideological class warfare rhetoric with the Prime Minister portraying mining companies as rapacious foreigners who take away the resources owned by Australians and fail to pay their way while sending profits offshore.

However, Xstrata, for example, pointed out that since it commenced operations in 2002, it had invested $45 billion in Australia exceeding the $44 billion it had earned.

As the CEO Mick Davis said: “And we were planning to continue to invest more in Australia than our operations would have generated. The proposed tax will significantly impair the cash flows available to sustain our operations and has introduced great investment uncertainty.”

Wealth redistribution rather than wealth creation is the Labor way.

The government has indicated that it will “consult” with the mining sector over the design of the super tax, but as Labor heavy weight Graeme Richardson wrote in his book “Whatever it Takes” , standard Labor practice is to consult, consult and consult and then do exactly what it intended in the first place.

The mining companies should not expect any concessions.

The government has already spent the $9 billion per annum it expects to raise from the super tax.

Given his logic that the tax is “good” for the miners, Mr Rudd must be deeply confused as to why no other sector is lining up for an additional 40 per cent tax slug to underpin their future growth.