Big new taxes and world economy start to bite

The news that BHP Billiton has decided to scrap its extensions to the Olympic Dam mine should be a wake up call to the federal government. The company was to spend $30 billion on the project. In addition to this, it has also halted a plan to spend 419 billion on Port Headland harbor extensions, and $4.2 billion plans for coal mines in Queensland.

A couple of weeks ago warnings were issued about foreign investors being scared off opportunities here by the tax regime, industrial relations, the high dollar, as well as uncertainty over government action:

A global survey of executives from multinational corporations shows a growing reluctance to invest in Australia due to the cumulative impact of the carbon tax, spiking labour costs, the rising Australian dollar and political uncertainty, according to media reports.

The survey of more than 100 global chief executives was conducted by the CEO Forum Group and found that the primary hurdles they see to investing in Australia are jeopardising the country's reputation as a business-friendly destination for foreign investment and could prompt some corporations to shift their Australian units to Asian nations, The Australian Financial Review reported. …

… The survey found that 45 per cent of executives at global companies are less likely to invest in Australia, The Australian reported. Attendees at the forum include executives from global companies with Australian subsidiaries such as 3M Australia, Alcatel-Lucent, Bank of America Merrill Lynch, Cargill, Dell, Dow Chemical, Dun & Bradstreet, GE, GM Holden, IBM, Intel, Shell and Zurich Financial, according to The Australian.

There are a number of reasons quoted for the BHP withdrawal from projects including the competitiveness of the market, the slowing of growth in China and the high cost of development. The Minerals Council raises the drop in our international competitiveness:

Escalating costs have been putting pressure on resource projects throughout the country. Minerals Council of Australia chief executive Mitch Hooke said that in the highly competitive markets for coal, copper and nickel, more than half of Australia's operating mines had costs above global averages.

"The cause is increased labour, energy and transport costs, and a high exchange rate," he said. "While our capital project costs were previously globally competitive, they are now much higher than global averages. Even in iron ore, we have lost our operating cost advantage for all but established Pilbara projects.” He said Australia's declining competitiveness was evident in global market share.

Despite volume growth, Australia's market share fell in most commodities between 2000 and 2010. "If Australia's competitiveness continues to decline, we will fail to capture our share of growth," he said.

The political blame game has started but it is noted that The BHP Billiton CEO Marius Kloppers did not mention the mining or carbon tax among his reasons for the company’s actions.

He can hardly do so. Kloppers was complicit in the dirty deal with Gillard to introduce the mining tax, and in the immediate aftermath of the 2010 election he called for a carbon tax, “to give the business community certainty.” It has never been explained how the tax gave certainty. Certainty had already been given by the Prime Minister with her assurance, “There will be no carbon tax under a government I lead.”

While Martain Fergusson maintains that these taxes are not an issue, BHP would be suffering a reduction of earnings owing to the mining tax on coal and iron ore, and would have to factor the costs of the carbon tax into it’s future expenditures. Given Kloppers call for a carbon tax, he can hardly use it as a reason for the companies actions.