May 142010

Did you watch Tony Abbott give his Budget Reply speech last night? If, like me, you did, you’d be wondering where the content was? If you didn’t, you missed absolutely nothing.

It was a bleat from start to finish. It was a poorly delivered, word-for-word read speech which was heavy on political rhetoric and so light on actual policy it’s a wonder the whole thing didn’t float off into the stratosphere. It’s patently clear the coalition has no policies aside from freezing the wages of public servants and not employing anyone in the Commonwealth public service for two years. Don’t go expecting customer service anytime before 2013 if Abbott gets back in.

Clearly, Abbott wants to fight the upcoming election on the Resources Rent Tax (RRT) which has been all the news over the past week. That fact alone bemuses me because multi-national conglomerates don’t elect governments. People elect governments, and dare I say it, ‘working families’ elect governments. I don’t believe Marius Kloppers, Tom Albanese or Andrew Forrest hold any more rights to vote than I do, in fact, less. Bottom line being that Mr & Mrs Average Joe & their 2.1 billy-lids don’t understand what RRT is now and they won’t understand it any more on polling day, so where’s the political benefit on running a scare campaign which no-one will understand on a concept which exists in economic cloud-cuckoo land? Have a read of this piece by Athol Fitzgibbons (does he??) ] and tell me, dear reader, whether you can discern whether he’s for or a’gin the concept of a resources rent tax/sovereign wealth fund/GBNT (great big new tax), and if so, just which model is he rooting for? Remember, he’s describing economic models, not fiscal realities. That’s where this argument against the RRT falls down.

Consider what, according to Athol Monkey-Porker, a resources rent tax is.

"royalties are levied as a payment to the owner of a resource to compensate for the depletion of that resource. The royalty is a price signal reflecting the fact that production subtracts from the value of a resource. Under simplified conditions the royalty on a unit of ore should be equal to the value of the same amount of ore in the ground immediately prior to depletion, appropriately discounted back to the present."

Discounted present values, ie: a leased asset, for which the owner of the asset not only receives payments on as it’s utilised – that is, dug up – but also on what isn’t dug up because the entire asset both in and out of the ground is leased. The concept, as Athol says, is relatively simple, but the practical execution in any manner approaching procedural fairness is an impossibility. There’s also a simplified version noted here.

There’s the other consideration of a resources rent tax to consider, and that’s putting a brake on the actual digging up & selling of the asset. I know full well why the miners of coal, iron ore, nickel, manganese, etcetera don’t want the tax and it comes down to market forces. Mineral resources, especially the big ones – iron ore, coal & uranium -  attract premium prices. Currently there’s a two-tier marketplace for iron ore from what I understand. At least in China which is our major marketplace. I’d suggest the miners are into playing those two-tier markets themselves, which is why Stern Hu is where he is right now, to a certain degree. More profit equals more tax to be paid on a rented asset, regardless of how many times you put it on or take it off the roundabout. Money for jam suddenly becomes a taxation liability and that’s just no good, is it. The argument for slowing the so-called resources boom, to my mind, has legs. The faster our resources are dug up & sold off overseas, the sooner the so-called boom ends. The resources are finite. Once they’re gone, all we’re left with are big holes in the ground which might make great lakes for recreation, if rain ever fell into them. Apart from that, they’re just big holes where something of value used to lie. John Quiggin also puts the case for the RRT in a clear and concise manner – something unusual for an economist. There is also a case for adjustment of the threshold to be raised from 6%, to something more akin to the off-shore RRT which has been in place since 1987. Something Abbott neglected to cover in his tirade last night. A threshold of somewhere between 12% and 15% over the government bond rate would be fairer, less divisive politically and economically, and still ensure that we, the asset owners, get value for what we’ll never see again.

Before I wind this up, I thought I’d point out two absolute and outright lies in Abbott’s address.

"Of course, there should be an electronic health record but hundreds of millions of dollars have already been spent to make this a reality and no more should be spent until it’s certain that we’re not throwing good money after bad."

Hundreds of millions of dollars. I urge the reader to go take a read of HealthConnect, an initiative of the Howard government, begun in 2004. Right around the time Abbott was Minister for Health. That’s six years ago. Three years of which this initiative languished in the Howardian policy pool, doubtless gulping in those so-called ‘hundreds of millions of dollars’. Of course, Tony didn’t point out this salient fact, merely avoided the reality and used this promised government agenda as a political weapon. HealthConnect doesn’t exist in any form except for system testbeds in six out of eight states & territories. We’re six years down the track and likely won’t see anything from this plan for another six. Hundreds of millions of dollars? Yes, it’s a gargantuan program, begun under a conservative regime and now continuing under a socially democratic regime. It’ll cost, no doubts there, but is Abbott somehow claiming his side could do it cheaper? How?

Then there’s this piece of disingenuousness.

 "The former government’s workplace reforms went too far but they helped to create more than 2 million new jobs, lift real wages by 20 per cent and more than double net household wealth between 1996 and 2007. We’ll seek to take the unfair dismissal monkey off the back of small businesses which are more like families than institutions. We’ll make Labor’s transitional employment agreements less transitional and Labor’s individual flexibility agreements more flexible. We have faith in Australian workers who are not as easily pushed around and exploited as the ACTU’s dishonest ad campaign is already making out."

He’s talking about a return to draconian industrial relations legislation. He won’t dare to call it ‘WorkChoices’, but that’s what Australian workers risk a return to if any conservative government carrying the dregs of the Howard years, led by Abbott, comes into power. I’m an Australian worker, Tony Abbott, and I’ve not been a Union Member for more than twenty years. I don’t allow anyone to push me around and I’m not alone. How dare you classify me and others like me as drones so easily coerced by your phantom trade union jackbooters.

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