What Will Become of the Australian Mining Tax?

“It’s a great day for redheads,” Australia’s new Prime Minister, Julia Gillard, is said to have proclaimed after her predecessor, Kevin Rudd, was ousted from the nation’s top job yesterday.

Your editor has nothing against redheads…but he had hoped the new PM would have more pressing issues on her mind than hair color. She is, after all, replacing a fellow Labor Party member who suffered one of the most precipitous popularity declines in Australian political history. The Rudd government, which came to power in a landslide victory back in 2007, soared to a popularity peak of 74% just last year. But when all was said and done, “K-Rudd,” as his dwindling group of acolytes better knew him, didn’t even last a full (3-year) term.

Although Mr. Rudd’s follies were many and varied, perhaps the leading catalyst for his political demise was his inept handling of the Resource Super Profits Tax. Without going into too much detail, Rudd had been pushing for a crushing 40% tax hike on top end profits for Australia’s most successful industry – the mining industry. Unsurprisingly, this didn’t go over well with the nation’s producers, considered by most to be the engine room of the country’s economic growth.

The story is a classic “producer vs. parasite” tale, as our Reckoner-in Chief, Bill Bonner, might phrase it. Rudd, like any other socialist bully would do, attempted to sell the tax to the Australian public under the familiar “fair share” slogan.

“The infrastructure needs of this state are vast and on the existing tax base cannot be funded,” he told Australian reporters while on a recent visit to Western Australia, the nation’s largest mining state. “We say the sector of the economy most able to share a greater part of the burden for funding our infrastructure needs for the future is in fact our most profitable mining companies.”

If this sounds like thinly veiled Marxist rhetoric, that’s because it is. As the founder of that ill fated, though persistently insidious ideology himself famously noted: “From each according to his ability, to each according to his need.”

At least the miners themselves had the good sense to call it as they saw it. Andrew “Twiggy” Forrest, chief of Fortescue Metals Group, must have cut a Hank Rearden-like figure when he rallied his troops from the back of a flat bed truck on the same day Rudd visited the Great Western State.

“In China right now there’s a fierce debate about how to lower their resources tax to encourage the mining industry,” announced Mr. Forrest. Australia, he said, was doing the exact opposite.

“I ask you,” he bellowed, “which communist is turning capitalist and which capitalist is turning communist?”

Protesters attending the rally held up placards and chanted, “super tax, super stupid,” “super tax kills jobs” and “Rudd’s mining tax hurts us all.”

After meeting with the then-PM later that day, Mr. Forrest told the nation’s mining community – including 30,000 of his own employees, many of whose jobs the proposed tax put in serious jeopardy – that he and Rudd had “nothing more to talk about.”

Now that Rudd has been dumped, that statement is truer than ever. Your editor certainly doesn’t expect that the new prime minister will do any better, of course (she is expected to remain loyal to the very tax that saw to Rudd’s eventual undoing, for instance), but in a world where parasites are sprouting like mushrooms in a dung heap, we “greedy industrialists” must take our victories when and where we can get them.

Unfortunately, the “producer vs. parasite” battle is not confined to Australia. It rages on, all across the developed world. You can barely take your hands out of your pockets to light a cigarette without some greedy socialist spendthrift going for your wallet. Their spending is all for “the greater good,” we are told, and to sure up that “still fragile recovery” we’ve been hearing so much about. But in the end, their central philosophy still hinges on the assumption that a small group of enlightened politicians can spend individuals’ hard-earned money better than they can.

Invariably, this arrogant assumption ends in tears. In this case, thankfully, those tears belonged to Mr. Rudd.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning