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Oct 26, 2012

Crony capitalism; mining tax compliance costs fall on small sector

Cartoon: By Pickering 
Last night’s post on the tax that yielded nothing mentioned a number of costs associated with its implementation.  One, which was inadvertently left out, was compliance costs for the companies, which may have to pay the tax.  Regardless of liability for the tax, companies that can potentially be required to pay; i.e. iron ore or coal miners have to do the paperwork and assessments just the same.
We mentioned that the majors of the industry helped to design the tax and seem to have come out quite well from their efforts.  The juniors, minors, and minnows though, still have the burden of costs associated with it imposed on them: 
… The smaller end of the sector, which was left out of the room when Julia Gillard negotiated the minerals resource rent tax with BHP Billiton, Rio Tinto and Xstrata, is being hit with huge compliance bills to address the complexity of the tax. 
Atlas Iron managing director Ken Brinsden said the Pilbara miner had already spent about $2 million only to determine it will not pay the tax, adding it was unlikely the juniors would have to pay the tax under any scenario. 
"Nobody wins at where we are at today," he said.  "If you love the idea that the mining industry should be taxed, you haven't won because nobody is paying it, and in the meantime, it is costing us to comply to be a part of the mining tax regime, only to find that we are not paying it. 
"We have spent the best part of $2m in compliance to find that we are not paying the tax and that we wouldn't reasonably expect to pay the tax under almost any circumstance you can imagine as we go forward with the iron ore price." 
The Australian exclusively revealed yesterday that Australia's three biggest miners -- BHP Billiton, Rio Tinto and Xstrata -- have zero liability under the MRRT so far in 2012-13. 
Simon Bennison, chief executive of the Association of Mining and Exploration Companies, said the majors had negotiated such complex arrangements that it made it extraordinarily expensive for the junior miners to comply.
Mid range mining executives such as Twiggy Forrest were outraged when the three majors decided to drop their opposition, and negotiate the tax with Gillard and Swan.  These people are smart enough to know that the big three see them only as competitors and that any agreement arrived at, would not bring much joy to them.
The whole episode is a classical lesson in the machinations of crony capitalism, in which the bigs get into bed with the government bit the smalls are the ones that get screwed. BHP Billiton, Rio Tinto and Xstrata, have done a deal in which a tax was imposed that they paid nothing on, but the smaller companies have the disadvantage of having to pay similar compliance costs out of a much smaller bottom line.
The MRRT is a dud tax from a dud government which has only succeeded in raising the cost of doing business, while the proposed beneficiaries have been dudded as well. 

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