How government killed the boom

BLAME for the abrupt end of the “super” phase of the resources boom that has led to a string of Australian coal, copper and iron ore projects being put on hold is being dumped on mining company management. Hogsback, however, suspects it will not take long for the role of government to take centre stage.

Staff Reporter

Painfully slow approvals, sky-high taxes, and encouragement of militant unions that have pushed wage rates through the roof are three “boom-stoppers” that are largely under government control.

Lower commodity prices are undoubtedly an issue, as Yancoal boss Murray Bailey said this week.

“Yancoal does not see any signs of improvement in coal markets in the next few months,” he said.

Global markets are, however, something all miners learn to deal with. Demand is one side of the business they cannot control.

Supply and the cost of generating that supply are issues more under the control of companies.

While most senior managers seem to be pussy-footing around the issue so far there are “cost questions” all levels of government ought to consider.

High rates of tax, and new layers of tax, are the first, and most obvious government-related issue that should be discussed in a post mortem of the resources boom that was supposed to last forever (or longer!).

The big tax issue, and the one generating most political heat, is the Mineral Resources Rent Tax, which is being levied by the federal government.

Amusingly, if anyone can see the humour in the MRRT, it seems likely that very few (if any) miners will actually pay a dollar in this new super-tax, which has been constructed as a levy on excess mining profits.

Collapsing coal and iron ore prices mean that excess will not be a word applied to profits for some time.

However, what the government did with its attack on mining profits, either in its current form, or the earlier (failed) resources super profits tax was send a powerful signal that the mining industry was to be treated as a cash cow, and whacked with as many taxes as it could bear.

Not surprisingly, Australia’s already well-earned reputation for being a high taxing and high operating-cost country, with a surplus of government regulations, moved up a notch with the MRRT, and then another notch with the carbon emissions tax.

Tax, however, is just one issue that should cause government to consider its role in smothering the boom. Regulation and high approval hurdles are another prime contributor to the project postponements that can be blamed on government.

This week’s big mothballing job, the shelving of BHP Billiton’s Olympic Dam expansion in South Australia has a “government caused” stamp all over it – even if the company is being careful to not say precisely that.

Going back over the Olympic Dam feasibility process and there is layer-on-layer of ridiculously high environmental hurdles, transport corridor hurdles, construction approval hurdles, local content hurdles, and skill shortage hurdles that added enormously to the cost of the proposed development.

For the South Australian government, which had pinned its future electoral success on Olympic Dam as the state’s biggest and most valuable project, the shelving of the $30 billion expansion could well be its kiss of death.

That is perhaps the ultimate irony because a government fumbling around for explanations and excuses as to why the Olympic Dam expansion is not proceeding should be looking most closely at its own approval processes, and demands made of BHP Billiton.

Wage costs are a third government-related issue because of the way the government, with its increasingly embarrassing ties to the union movement, has encouraged militant behaviour as a way of squeezing money out of miners.

This cocktail of bad government decisions is mixing in a damaging way with the downward spiral of commodity prices to force project developers to look closely at the business case for every investment.

It also has sparked a blame game that will reach the highest levels of government where any honest analysis will show that it was government itself which did as much as lower commodity prices to derail mining projects.

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