With every man and his dog now climbing all over that monumental waste of shareholders’ funds it is worth moving on to the dog’s breakfast being scattered around the back lawn as the Australian government fiddles around with its mining tax.
No prize this time for Dryblower pointing out that the tax is a blooper in the making. Even his dog knows that.
But, what takes the debate to a new level is to ponder what evasive action is already being plotted by the miners and their high-paid accounting and legal advisers.
Because we don’t yet know all the details of the tax, it is impossible to describe accurately what changes might occur among the miners, though it is certain there will be changes in the size and shape of companies in the name of tax avoidance.
To explain with crystal clarity why the mining industry is heading into a period of wholesale change driven by the imposition of a big new tax you can look back in time to an era when windows were taxed in parts of Europe – leading to an era of solid brick buildings with few windows – or you can look at a closer event.
In the Indonesian capital of Jakarta there is chronic traffic congestion, a story repeated across booming Asia.
Government officials, perhaps aided by Dryblower’s dog, hatched a tax plan to thin the traffic. The rule requires that cars on major roads at peak hours carry at least three passengers – with police dotted along the road counting heads.
At first, the major victims of this rule are single men heading off to pick up their Miss Paramour, or the couple heading for a private canoodling spot where three is definitely a crowd.
The solution, and don’t you love the ingenuity of private enterprise, is the creation of an entirely new industry which Dryblower will call “rent a head”
The way this works is that under-employed Jakarta residents will wait at the start of the new taxing zone and rent themselves out as passengers to achieve the three-person rule. Nifty, isn’t it?
For a modest fee, which is far less than the threatened fine, the driver gets to his destination without police hassles.
The rentee gets a small fee for a free ride, and probably catches another ride back to his starting point, or jumps in a bus and goes home. The traffic remains snarled and the government gets nothing.
What’s this got to do with the mining tax? Everything, because it shows the lengths people will go to avoid tax.
Consider this suggestion from Dryblower, and approved by the dog. If an iron ore mining company is in danger of making a profit greater than $50 million, or whatever the new threshold will be, split the company.
The tax man, naturally, will be watching out for this, but all the accountants need is a set of rules from the government and a route around the tax can be planned – perhaps even going as far as creating a series of separate listed companies which can clearly prove their independence as defined by the tax act.
Splitting might sound expensive, but so too is the 22.5% super tax which is what awaits an iron ore miner which succeeds in making more than $50 million a year – and at today’s iron ore price that is just about everybody, even a company shipping out just 1-2 million tonnes a year.
There is nothing new in this suggestion to the mining world’s hyper-active entrepreneurial class.
The people not thinking about the tax manoeuvres that lie ahead are in government because their problems are (a) they have no idea how business works, (b) they don’t understand the importance of minimising tax, and (c) they haven’t got a dog as smart as Dryblower’s to advise them.
*Dryblower is a weekly column on ILN’s sister publication MiningNews.net.