Friday, June 4, 2010

Don’t Mention The Super Tax

One of the wealthiest blokes I ever met, a fellow long since gone to the great country club in the sky, once said “Don’t complain about paying tax: if you’re paying tax it means you’re making a profit.” It’s a piece of advice which might sound a little old fashioned in a world where everything that cuts into the bottom line is considered evil, regardless of whether there is any benefit attached. But it might be worth remembering when considering the current argument over the proposed Resource Super Profit Tax.

The mining company Xstrata has made front page news by claiming to suspend two projects in Queensland at the cost of more than 3000 jobs. The fact that the vast bulk of those jobs do not yet exist has been bypassed in much of the argument which has ensued, and the 60 contractors who were due to start have all reportedly moved on to other jobs without any problem. Such is the demand for workers in the mining sector, which is a pretty good indicator of the strength of activity in the sector.

But while nobody is actually lining up to claim the dole just yet, this announcement has been represented by the mining lobby as an example of the impact of the proposed new tax. The government on the other hand insists that the decision to suspend the projects was driven by other factors, and that Xstrata and the rest of the mining lobby are using it as a tactical ploy in their battle against the tax, using the jobs of hard working Australians as nothing more than pawns in the process. You don’t have to be too cynical to see that this could be the case.

The biggest problem the Prime Minister seems to have is his apparent propensity for imagining that he can run everything himself, without fully consulting anyone else, and expecting that everyone will just do as they’re told. The fact of the matter is that even the mining lobby wants tax reform, but the way the government has pushed the proposal onto the sector has been counter productive. It’s not the idea of a profits based tax that is the problem, but the questions of how much, who pays, and to whom.

Properly designed, such a tax would actually help the mining sector operate more efficiently, while also delivering a realistic share of the so called “super profits” to the government. If you only pay the tax on windfall profits it should be self evident that it is not going to send the big miners, or anybody else, broke. The real argument should be about the definition of just how much is a super profit, meaning where to set the threshold, and how big a slice is fair, while relieving the miners of the burden of the state royalties which they currently pay.

Of course, a big part of the problem has been the terrible way in which the government has presented its plan. If they paid any marketing or public relations consultants they should ask for their money back, because it should never have been referred to as a new tax. Nobody wants a new tax because we already have to pay far too many taxes. Instead, it should have been described as a new tax system, just as the GST was when it was introduced. And it should never have been called the Resource Super Profits Tax, because everyone is just referring to it now as a “Super Tax” and nobody likes the sound of that.

If taxes are bad, then you could be forgiven for thinking that a “super tax” must be super bad. It so easily gives the impression of being such a monster tax that it will suck all the money out of the industry, when the truth is that there is zero impact on operating costs. In fact, when you take into consideration the reduction in company tax, the rebates on royalties and the rebates for investment, it should actually help reduce operating costs, leading to bigger profits in the long run.

In the end, if you’re paying a lot of tax, it is only because you are making a truck load of profits, and who in their right mind would complain about that?

Thursday, June 3, 2010

Not Happy, Barbara!

Well it’s always fun to have a go at bashing the banks. After all, they seem to do everything they can to make it so tempting. Any hint of a bank actually making money and there are sensational headlines about banks gouging customers to produce super profits. The Sydney Morning Herald today leveled the gouging allegation at the big four banks because the Herald had performed its own analysis of Reserve Bank figures and came up with the notion that banks have been increasing interest rate faster than the increases in their costs, thus inflating their own profits.

While there is no end to the fun we can have at the expense of the banks, really the joke, and the expense, is on us. The Herald calculates that fixed interest mortgage customers, personal borrowers, and business borrowers are all paying above the odds, contributing to the $14 odd billion combined profit of the big four. Oddly enough, the same analysis seems to indicate that customers with variable rate mortgages are actually getting a better deal, with bank profits actually falling for those particular loans.

The banks argue that any apparent increase in their interest rate margin reflects not only the higher costs confronting the banks, but also the increased risks associated with those loans. Personally, I am less concerned about up front interest rates which we can see and compare easily, allowing us to choose between banks, but more concerned with the labyrinth of fees and charges, many of which I feel are unjustified and excessive. I would be more concerned about standards of service, and the sometimes abrasive marketing tactics of the banks. It is those tactics which are lampooned in a television ad by one of the big four banks themselves.

You have probably seen the ads which feature a woman supposedly called Barbara who works for “a big bank”, telling a disgruntled customer that she doesn’t care about her complaint. It is rather funny, because we all realize there is a grain of truth within the parody. However, the Financial Services Union doesn’t think it’s funny at all. They claim that it denigrates not only the banking industry, but also bank employees who have no choice but to promote and defend the policies of the bank for whom they work. They do have a point. It’s not the fault of the customer service people that banks are sometimes annoying.

But the real irony here is that the advertisement is actually for one of the big four banks, which prompts thoughts of people in glass houses rather rashly throwing stones.

Wednesday, June 2, 2010

Izzy Worth $3.6 Million?

So Izzy a traitor? Izzy a stuntman? Or Izzy a valuable asset who should be retained by Queensland to give them the best chance of winning game two of the State of Origin, and thus wrapping up the series? The signing of Broncos Rugby League star Israel Folau to the new Greater Western Sydney AFL team has been described as very expensive publicity stunt, and as a very very big punt by the AFL. The immediate reaction from the Queensland Rugby League has been to declare that he has played his last State of Origin Match, amidst acrimonious cries of treachery, disloyalty and betrayal. But just who has Israel Folau betrayed?

While it remains to be seen whether or not he can actually kick a Sherrin, he has already scored a six pointer for the AFL in terms of the publicity for his new team and his new code. He’s also kicked a goal as far as his contract is concerned with a reported $3.6 million over four years for switching over to the dark side. In doing so, he leaves behind a code which is still struggling with an increasingly unworkable salary cap system which has resulted in the Melbourne Storm scandal, from which the fallout is still casting a shadow over the integrity of this year’s competition.

Anyone with any common sense can see that he would be a mug not to take the opportunity which has been presented to him. It’s an opportunity which can guarantee his future financial security, and the security of his family, and in the end those things are priorities for all of us. To deny him that, and to label him as a traitor is just petty. Worse than that, to punish his alleged disloyalty by dropping him from the State of Origin team is a simple case of cutting off the nose to spite the face. And it is spite. It is simply saying “this is what we do to punish people who dare to accept a better offer”, without considering the question of whether or not he is the best man for the job. After all, he is still contracted to play Rugby League until the end of the season, so why shouldn’t he do what he is paid for and play?

Picture this: the unthinkable happens and Queensland, playing without Israel Folau, loses the second match and the series is tied at one all. Do the selectors then beg him to come back to help the team secure a glorious Queensland victory? Or do they stick to their guns, even if it means they don’t field their best possible team? Surely, the first priority of selectors should be to consider who is available to play now, not what they plan to do next year and the year after.

Tuesday, June 1, 2010

None Of The Above

The latest Newspoll figures show that both the government and the opposition have lost support to the tune of two percentage points each. The beneficiary of this disaffection with both major parties has been the Greens who have increased their primary vote figure by four percent, taking them to their highest ever level of popularity. In fact support for the Greens is now more than double what it was at the last federal election in 2007. When the numbers are crunched down to the two party preferred figures the Rudd Government just squeaks home with 51%, up one point from the previous poll.

What this appears to tell us is that an increasing number of voters are not happy with either major party and want to direct their vote elsewhere. On the words of one newspaper report (in the Telegraph) “Voters are facing a choice between a Prime Minister they don't like, and an alternative they like even less.” It’s a view that’s born out by the fact that both the Prime Minister and the Leader of the Opposition have seen their disapproval ratings increase, up to 54% and 49% respectively. In other words, there’s a good proportion of Australian voters who will go to the election this year wishing they could tick the box for “none of the above”.

When the Greens 16% is added to those who support other minor parties and independents, it adds up to 24% of Australians who have lost faith in the major parties. Of course, the reality is that Green preferences will most likely deliver a victory to Kevin Rudd’s government, but it is also likely to see more Greens in the Senate, giving them the balance of power in their own right, and possibly even a Green in the lower House. While it’s not really likely that we’ll end up with a hung parliament like Great Britain, it’s clear that the Greens are almost certain to be in a position to wield considerably more influence.

Monday, May 31, 2010

There's No Monopoly On Hypocrisy

If there’s one thing Australians really don’t like it’s hypocrisy. The Rudd Government’s decision to suspend its own rules about tax payer funded advertising and spend $38 million on promoting the proposed new Resource Super Profits Tax is the latest in a long line of misjudgments eroding their credibility. In 2007, then Opposition Leader Kevin Rudd described the misuse of government advertising as “a long term cancer on our democracy”, and promised to refer all advertising campaigns to the Auditor General for approval. In government, Kevin Rudd backed away from the commitment to be guided by the Auditor General and instead introduced a set of guidelines administered by a committee. But in the face of a concerted advertising blitz by the mining companies opposing the new tax, Kevin Rudd has simply suspended his own guidelines so that he can spend our money mounting a counter offensive in the media.

Of course, this is nothing new. It has been done over and over again by government after government, spending taxpayers’ money on government “information” campaigns which really amounted to nothing more than propaganda for policy decisions. No doubt, the Prime Minister will be tempted to make much of his predecessor’s record in this area. In fact, the Howard Government were masters of the game, spending around $2 billion on such campaigns over their ten year term of office. The Howard Government spent about $420 million of our money telling us that the GST was a good thing, and another $120 million telling us all that Work Choices would make the world a better place. On that scale, Mr. Rudd’s $38 million budget seems positively modest.

The difference is however that when Mr. Howard was asked to justify the expenditure he simply said that it was something that all governments did. That wasn’t hypocrisy, that was just brazen. But he was right. All governments did it, and as we can see, they still do now. Mr. Rudd, on the other hand, promised that he would not. His government would be different. His government could be trusted to keep its hands off our taxes and refrain from such tawdry behavior. Instead, Mr. Rudd has shown that his government is no different form any other in this respect, spending our money not only on the mining tax ads, but also on ads telling us all how wonderful health and hospital reform will be. We all know that we need hospital reform, and we can’t wait for it to actually deliver improved services, but we don’t need an advertising campaign to tell us what we already know. We just need them to get on with making it happen.

In some respects it could be argued that the mining tax ad campaign actually has some legitimacy because the government is faced with a similar campaign mounted by its critics which is quite blatantly propaganda for the mining lobby. The government is in a position where it is damned if it responds and damned if it doesn’t. And although the decision to run the campaign looks like hypocrisy from a government which promised not to do such a thing, it should also be clear that nobody has a monopoly on manipulating the truth. The mining companies should also be criticized for misappropriating their shareholders funds to pay for an unproductive advertising campaign which is blatantly political, and not entirely truthful.

Obviously, the mining companies paying for those ads are doing so from deep pockets. When you think carefully about it that would seem to indicate that perhaps the government might have a point about the miners being in a position to pay a fair share to the citizens of Australia through the proposed new tax. Furthermore, they are paying for their ads with the unwitting and unwilling assistance of the taxpayers anyway, because you can bet your bottom dollar that come tax time they’ll be claiming the expense as a write off. But most importantly, there is evidence to suggest that the proposed tax is not the factor which has driven their share prices lower.

At a time when share markets around the world have once again been rattled by concerns over sovereign debt in places like Greece, Portugal, and Spain, the Australian share market has been no exception. Our markets have fallen just like everyone else’s, with a decline in the ASX 200 of more than 7% across the month of May. In fact, if anything the mining sector has bucked the trend with a fall of less than 5%, well and truly outperforming the rest of the market. Far from driving the market down, it could easily be interpreted as a positive effect on the mining sector. But of course, the mining companies won’t be spending millions of dollars on an advertising campaign to tell us that.

Now who are the hypocrites?