Dryblower returns for a second look at tax trouble ahead

IF Australia’s miners thought they had any hope of winning a reprieve from the threatened super tax, they’re wrong. As Dryblower will demonstrate for a second successive week, mining has been too successful and too loud for its own good.
Dryblower returns for a second look at tax trouble ahead Dryblower returns for a second look at tax trouble ahead Dryblower returns for a second look at tax trouble ahead Dryblower returns for a second look at tax trouble ahead Dryblower returns for a second look at tax trouble ahead


Tim Treadgold

The first issue, record profits, was flagged here last Monday with Xstrata and Rio Tinto due to report sky-high earnings this week.

A second, and potentially more significant, issue to inflame the pro-tax crowd developed on Friday when it became apparent that big corporate profits are being matched by massive personal fortunes.

On Friday and into the weekend, there was extensive coverage of the latest Australian “rich list”, the Forbes magazine estimates of the country’s richest people. Top of the totem pole were two iron ore super-richies: Gina Rinehart and Andrew Forrest.

Weighing in further down the 40-member list were the coal fortunes of Chris Wallin and Nathan Tinkler, with Tony Poli’s mix of coal and iron ore also scoring a mention.

Interesting as Wallin, Tinkler and Poli are, the real interest is in Rinehart and Forrest because they have “streeted” the traditional rich leaders, such as James Packer who, at $US4.4 billion ($A4.345 billion), is reckoned to be half as rich as Rinehart.

To paint an even clearer picture, Rinehart’s $US9 billion fortune makes her Australia’s 30th biggest company, if it was possible to list a person on the Australian Securities Exchange.

Forrest’s estimated $6.9 billion would make him Australia’s 38th biggest company if he was listed.

Combined, their $15.9 billion ranks them 17th on the ASX, bigger than the collective value of two Australian business icons, Foster’s and Qantas.

That’s right, two people are worth more than Australia’s biggest airline and biggest brewery.

Such massive lumps of personal wealth will stir political passion in Australia which has a long tradition of not allowing any single person to become too rich or any single industry too profitable. There is a long history of “equalising”, or lopping tall poppies, to use a colloquialism.

Until the Forbes list was published, it might have been argued that corporate profits are good for Australia with the big miners creating jobs and expanding the economy.

Personal wealth is different. It tends to sit in a big lump, doing nothing except highlighting inequality and almost becoming embarrassing, as shown in bizarre comments from the Rinehart camp that estimations of the cash flowing from her share in the famous Rio Tinto royalty are exaggerated.

Think about it for a second. Could that really be a person talking down the wealth of an employer? Curiously, the answer is yes – but when pressed for the correct information a cone of silence descends.

Extreme personal wealth will make it much harder next time for anti-tax voices to be heard, which prompts Dryblower to make two suggestions.

Firstly, that the use of billionaires in the front-line of last year’s anti-tax effort was a huge mistake, as shown in this little ditty sung by a radio announcer last week, to the tune of the union chant about “workers, united, can never be defeated” – with one word changed: “billionaires, united, can never be defeated”

Secondly, that this week’s profit-reporting period will rekindle the fire in the pro-tax crowd, and this time there will be no “axe the tax” chants from billionaires on the back of a flat-bed truck.

The ultimate irony of what’s about to happen is that the two people, Rinehart and Forrest, who did most to oppose the tax might now be the two people to do most to ensure it becomes law.

Recent events on the stock market, including the rash of iron ore company mergers, indicates that the industry knows what’s coming and is rushing to achieve economies of scale to withstand the pincer squeeze of higher taxes, and an inevitable slide in the iron ore price as new mines, in Australia and elsewhere, come online.

Investors would be wise to read the signs and while Dryblower does not give investment advice, he reckons the next few months could be as good as it gets for Australia’s iron ore boom.

*First published on Monday in ILN’s sister publication MiningNews.net.

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