While Rio Tinto and former chief executive Tom Albanese deny fraud charges brought by the U.S. Securities and Exchange Commission, critics in our hemisphere are asking what is going on in the Australian Securities and Investments Commission. A more important question is what happened to our politicians in 2010 when Albanese insulted our nation.
I remember it only too well and so do my friends because I was making loud, angry noises. With expletives deleted, my comments remain ever so slightly politically incorrect. Who is this bloke, I asked, with the Albanian name and the American accent, paying himself seven million dollars a year to dig holes in our ground, saying Australia presents a sovereign risk because we are attempting to put a value on our non-renewable resources? Australia! A sovereign risk! Australia, one of the pioneers of modern democracy, one of the world’s most stable, most open, most transparent, most accountable societies If Tom Albanese had made that comment in my hearing in my physical presence I would have given him five seconds to apologise.
I was waiting for similar shouts of outrage from our politicians when the Rio chief took his extreme position against the Resource Super Profits Tax proposed by our government. I waited in vain. What was wrong with our politicians? Did they think it was not the done thing to criticise highly-paid executives of multinational companies? Were they afraid they would jeopardise their chances of a seat in the board room on retirement from the Parliament? Did they believe Milton Friedman? Did they agree with Tom Albanese? Did they have any idea why they were sitting in our Parliament?
A pertinent comment at the time was from Tony Harris, a former civil servant, writing in the Australian Financial Review. “Rio Tinto shareholders have suffered much at the hands of their management,” wrote Harris. “Much more than the expected impost of the proposed tax, but that same management is allowed to make ill-measured claims about ‘sovereign risk’ without adequate rebuttal.”
The best comment on the mining tax was published in the Financial Times of London on 30 May 2010 and re-printed in the Australian Financial Review. I remember thinking at the time that the London piece was so well written I could not have done better myself, a concession I seldom make. It is worth quoting:
Resource extraction follows the economics of treasure hunting; once out of the ground, a treasure’s value bears no relation to the cost it took to dig it up. That potentially huge extra value should belong to the nation in which it was found. Australia has for years levied a “petroleum rent tax of 40 per cent on oil and gas profits before applying the normal corporation tax of 30 per cent to the remainder.
Canberra now wants to do the same in mining. Good. A profit tax is much more efficient, and will finance lowering corporation taxes to 28 per cent. That will benefit non-resource sectors, while mining companies will face a combined tax of 56.8 per cent – perfectly bearable for large miners that routinely enjoy earnings well above 20 per cent of equity.
A reasonable tax reform does not destroy Canberra’s reputation for solid and predictable mining governance. The charge that it turns Australia into the “No. 1 sovereign risk issue” made by Tom Albanese, chief executive or Rio Tinto, is absurd.
The plan is not perfect. It does not allow enough cost deduction in viable projects while it exposes the government too much to unprofitable ones. But these are minor snags.
The industry’s greatest fear is that other countries follow Canberra’s lead. As the benefits of the tax reform become visible there is no reason why they should not.
Thus the gurus of London’s financial press laid an even heavier burden on Australia’s governing classes. They were required to stand up not just for their own nation but for all the mineral producing countries of the world. Our people responded to the challenge like worms crawling into the garden soil. I can’t remember who was leading the Liberals in opposition at that time, whether Turnbull or Abbot, and I can’t be bothered checking but I do remember Malcolm Turnbull’s comment. He said the Liberals were not in favour of new taxes, or words to that effect. Such a banal statement from someone of his intelligence and education. In the Passion Play unfolding the Liberals played the role of Pontius Pilate, washing their hands of the affair.
The Labor Party allowed itself to be over-run by a handful of Judases. The internal cannibalisation of the Party was astonishing to even the most cynical observer. The media happily filled their pockets with millions of pieces of silver to broadcast semi-literate advertising. The miners brought the show down to the level of Monty Python farce when the heiress, Gina Rinehart, climbed on to the back of a truck and addressed her national television audience with a primal scream. “Axe the tax,” she howled,
Australia spends a lot of money on education. Our politicians and bureaucrats are forever telling our teachers how to do their jobs, putting them and their students under stress with all manner of silly tests and paperwork. But why bother teaching kids to read if their adults are going to behave like apes?
When Kevin Rudd and Wayne Swan introduced the Resource Super Profits Tax even sympathetic commentators like Robert Manne asked if they needed to be quite so rude to the miners. Manne also wondered if the tax had to be quite so complicated. Ross Garnaut, who understood the complexities better than most, also commented on the lack of consultation with miners but noted: “Nevertheless the quality of the policy proposal is not determined by the manner of its announcement.” My main criticism was why did not Wayne Swan table the entire Henry taxation review as soon as Ken Henry and his team completed the project? The Super Profits Tax was part of a big picture. We should have more faith in the ability of the public to understand major issues.
I doubt if there is any way to simplify these policies so they can be explained by Sydney shock jocks and television advertising copy-writers using Dick and Dora Grade One literacy skills. When economists warn us that what we are about to read is “wonkish” we need to read on, even if we are out of our depth. Some of it will stick. In their turn, economists and other social scientists may from time to time make an effort to explain their ideas in plain language, though I admit this is not always possible. Keynes was up-front in the first sentence of his introduction to The General Theory. “This book is chiefly addressed to my fellow economists. I hope that it will be intelligible to others. But its main purpose is to deal with difficult questions of theory ….”
In Australia our parliaments are capable of conducting comprehensive and sincere debates on social issues, such as the assisted dying legislation now before the Victorian Parliament. When it comes to the political economy we revert to dumbed-down stereotypes and irrelevant personality attacks. In last week’s post I wrote that the failure to put in place the mining tax in 2010 was the central catastrophe in 21st century Australian politics. Paul Frijters agreed with me, while noting that the 21st century has a way to run. Let us hope that in the remaining 82 years and two months our parliaments, media and industry never sink to the depths of depravity witnessed in 2010.
Jerry Roberts is a former parliamentary reporter