Question for the canadians on mining

[mr friendly guy]

Ok in Australia we plan to increase taxes on so called "super profits" for miners. If any one is interested the government has hinted the super profits = profits above the bond market yield. Already Canada has indicated that this would make them more competitive relative to Australia.

Naturally we get groans from the mining industry and we have this letter about the Canadian experience iwth higher taxes. Now as a non Canadian I have no idea how true this is, so I will ask the Canadians on this board.

Before embarking on his resources tax grab, Kevin Rudd should have considered the experiences of Canada. In the 1980's Canadian PM Pierre Trudeau imposed a draconian oil royalty regime on the western producing provinces, mainly Alberta. Oil is to Alberta what iron ore is to WA.

The poilicy was, in effect, designed to halt the flow of Canadian oil at the world prices to the US and give Canadian consumers, predominantly in eastern Canada, the benefit of cheap oil.

The results devastated the local industry, investment dried up, drilling rigs and workers moved south of the border, Calgary real estate prices plummete as unemployed owners turned them back to the banks.

There was extreme resentment in the west towards the east and to this day Alberta has neither forgotten nor forgiven Mr Trudeau's Liberal Party.

More recently, Alberta Premier Ed Stelmach imposed a sizeable oil royalty increase on producers (nowhere near Mr Rudd's tax increase).

Again, investmnet, drilling rigs and workers moved to neighbouring Saskatchewan, which became the country's new boom province.

The Alberta Government was eventually forced into an embarassing retraction of the royalty increases.

<snip rest of it>

Thoughts.

[Lagmonster]

Ah, the NEP. Originator of the phrase, "Let the Eastern bastards freeze in the dark". Yeah, you could say the Albertans hated the ever loving shit out of the plan. I seem to recall that was one of the few times westerners actually talked openly about separatism, and it led to the creation of at least one new conservative political party, but I was still in grade school back then and an Ontarioan, so my memory of it was limited to the hilariously profane slogan the westerners were using.

You might want to look up the National Energy Program, or NEP, for more info on what actually happened.

[Ekiqa]

In the long run, hiking taxes on natural resources is an excellent way to boost government revenues.

Oil is needed, they wont stop pumping just because their profits are smaller. Same with ore's, there is a huge demand for metals, especially in China. An extra tax wont shut down the mines.

[mr friendly guy]

Already some mining companies are threatening to decrease operations. Apparently even if half the proposed plans in WA are canned, we are still set, so its not like the end of world scenario they are postulating. And that was hyperbole.

[Tritonic]

The results devastated the local industry, investment dried up, drilling rigs and workers moved south of the border, Calgary real estate prices plummeted as unemployed owners turned them back to the banks.

That's not surprising. In general, after-tax profits matter not only for motivation but also for potential growth rates. Even if owner motivation was exactly the same, the growth rates physically possible decrease with increased tax rates, for profits are not mere unnecessary extra but required for growth. (Sometimes that is disguised by options for financing, but being able to get money via anything, from taking bank loans to issuing stock or bonds, any form of investment, all depends upon at least the perception of eventual profit payback, proportional to the magnitude of such). A simplified example in America (and the basic principles of the tax system are similar in Canada) is form 1040 schedule C, though corporations use a more complicated form.

If your income and inventory assets grow over the fiscal cycle (such as line 35 versus line 41 of that form for an inventory change example), your taxes go up, and what's left over after setting aside funds for taxes is that amount of profit that can be reinvested (and/or, in the case of a corporation, used to pay back stockholders, getting stock to be perceived as high value, leading to more future funds acquired, giving more money for growth).

Of course, taxes are necessary to pay for the government, but watching the tradeoffs when setting optimal rates is quite important, not too low if to keep the deficit down but not too high either. We see that in China, for instance, a good litmus test, as we know they have no ideological bias towards capitalism (rather still calling themselves communists) but rather have moderate tax rates simply and solely for practical reasons, because it helps growth.

[bobalot]

Already some mining companies are threatening to decrease operations. Apparently even if half the proposed plans in WA are canned, we are still set, so its not like the end of world scenario they are postulating. And that was hyperbole.

They are bullshitting as usual.

Capital investment and mineral/gas exploration have been given generous incentives under the new tax system.

What these dickheads tend to forget is that the people of Australia collectively own these resources. They only have the right to mine these resources in exchange for some of the profits. If BHP and Rio don't want to pay, they can fuck off. There are plenty of other mining companies who can take their place.

Quite frankly flogging off our resources for almost two decades without getting a generous proportion for the people of Australia is simple incompetence on the part of the Federal Government.

[mr friendly guy]

What these dickheads tend to forget is that the people of Australia collectively own these resources. They only have the right to mine these resources in exchange for some of the profits. .

You would be forgiven for not realising that if you read the letters to the West Australian. Someone became outraged that they got taxed after spending lots of money on exploration and set up. What a shock, I mean how dare they tax me, after spending all those years studying, buying text books etc. I should be given a break for all that effort. * Boo hoo.

* and before someone starts crying that uni is subsidised by the government in the form of HECS so I can't complain, I am refering to the study for the Fellowship of the Royal Australasian College of Physicians, where I spend several thousand a year not to mention extra time studying when I already work overtime. That is not HECS funded. Hey, I deserve a tax break too.

[Darth Wong]

Ok in Australia we plan to increase taxes on so called "super profits" for miners. If any one is interested the government has hinted the super profits = profits above the bond market yield. Already Canada has indicated that this would make them more competitive relative to Australia.

Naturally we get groans from the mining industry and we have this letter about the Canadian experience iwth higher taxes. Now as a non Canadian I have no idea how true this is, so I will ask the Canadians on this board.

The Canadian experience, or the Alberta experience? Obviously, Albertans were pretty unhappy with it; any restriction on their commercialization of their energy resources would have limited their ability to profit off them, so they did in fact lose some. However, it could be argued that the nation as a whole did benefit, and that opportunistically gouging one's own countrymen during a time of great oil-related economic hardship would be ruthless and immoral. The NEP was certainly no more unreasonable than the huge equalization payments which were taken from Ontario during its manufacturing boom years, and we didn't complain anywhere near as much about those.

Albertan anger at the NEP should be considered with the fact in mind that Alberta has had conservative premiers since 1971: a period of almost four decades straight of conservative one-party rule. They're quite frankly mindless ideologically pure lemmings out there (any Albertans who disagree can feel free to prove me wrong by voting in someone from some other party one of these decades).

[mr friendly guy]

I was mainly thinking in terms of how bad it was for the Alberta economy, and the Canadian economy as a whole. Given that the mining companies in Australia are crying foul over loss of projects etc and people drawining on the "Canadian experience" as a parallel, I thought it would be prudent to find out how true these claims about events in Canada really were.

[Lusankya]

Hasn't Australia been on the "high“ end of ideal inflation for a while, due to the expansions in the mining sector? If so, a dampening of the mining industry would probably help somewhat with the inflation issue, which would be in the best interests of Australia.

Maybe not the best interests of the mining companies, but then again, the government's elected to work in the interests of Australia, and not in the best interests of the mining companies (though sometimes these two interests intersect). That's the way the theory goes anyway.

[mr friendly guy]

Thats my thought as well, controlling inflation particularly property prices. When the bust occurred a the time of the GFC there were miners who lost their jobs. One told the news he didn't know how he would cope especially with two mortgages. Now tell me you can't see how that would cause inflation, holding two mortgages.

If the mining companies can't pay their employees the double 6 figure salaries, or can't increase them as much hopefully it keeps a lid on inflation. Naturally though people shout about killing the golden goose and I suspect there are those who are a big fan of the "trickle down" economics.

[bobalot]

If the mining companies can't pay their employees the double 6 figure salaries, or can't increase them as much hopefully it keeps a lid on inflation. Naturally though people shout about killing the golden goose and I suspect there are those who are a big fan of the "trickle down" economics.

Are these people fucking retarded? The mining companies will still be making gigantic profits.

[Korto]

The thing is, of course, that this new tax hurts the most profitable companies and helps the least. The most profitable companies are the ones most able to pay lobbyists and buy advertising space, the least profitable are the least. Therefore if we have this new tax, the whole bloody sky will fall in.
I read that one power of this tax is it would create another moderating lever for the government, to try and restrain booms and cushion busts. While I wont get into any argument about how much it should be, I see this tax (concept-wise) as a Good Thing.
And BHP, Rio Tinto and the other big miners are full of shit. They're making money in big mining truck-loads and we all know it. They want to go elsewhere? Fine. The iron ore stays here. There'll be others wanting to dig it out, and the new tax makes it easier for start-ups.