Boom! Could its end blow up the Budget?
All those rocks and vapors we have been selling to overseas customers by the boatload have protected Australia from the economic frailty of other countries and made it a freak of the industrialised world. So any suggestions revenue from those gasses and gravel is likely to fall steeply is a matter of huge concern.
Particularly at a time when the Government is facing higher and additional bills while scrambling to present a minimalist Budget surplus.
Thus the trepidation is understandable when giant miner BHP Billiton defers a $30 billion Olympic Dam expansion in South Australia because of, in part, “subdued commodity prices”. Is this the the first sign of the minerals bubble deflating?
One industry analyst has called lower current prices “the beginning of the end” of the boom, but most observers believe there is still a lot of money to come from Australian mining.
Resources Minister Martin Ferguson points to $270 billion in investment in resources ventures and says, “We have done well.”
He also said today the boom was over but soon after corrected himself to say that was in relation to prices. The investment in projects would continue because demand was still there.
The focus on commodity prices underlines that movements in that area and in the value of the Australian dollar can have a greater effect on mining developments than a tax regime.
Taxes don’t have a big fan club in the resources industry but at least they are constants.
Prices and exchange rates can be tossed around like soft toys in an swirling global market where failing economies can contaminate even the strongest neighbours.
Today the iron ore price to China was the lowest since December, 2009. It was $US104 a tonne, down from $US106 a tonne on Tuesday. A sudden tax jolt of that proportion would severely harm a project.
As long as China and India are still growing heartily, they will need our minerals, even if they are demanding to pay less for them. The viability of an individual project is not a simple equation, much as the Opposition would like it to be for political purposes.
Opposition Leader Tony Abbott is firmly on the side of the argument which insists that tax is the determinant of a mining project’s success, and he says the Labor Government’s mining tax (which is not levied on the Olympic Dam copper and uranium) and carbon pricing are what did BHP in.
The company has not mentioned taxes and in its statement yesterday blamed prices and “higher capital costs”. Mr Abbott seemed to be indicating the BHP executives were not telling all the story behind their decision.
Assistant Treasurer David Bradbury today said Mr Abbott effectively accused BHP of misleading shareholders and the Stock Exchange.
Mr Bradbury accused Mr Abbott of alleging “that one of the most respected international companies, BHP, had misled investors and misled the market by not providing a full and frank disclosure of the reasons surrounding their decision”.
“He did that, and then he went further to suggest that their reason for doing so was because they didn’t want to make a bad situation worse.
“What we have here is a Leader of the Opposition who will allow no fact, no law, no person or company’s reputation to ever get in the way of his reckless and irresponsible scare campaign.”
Tony Abbott also has had to explain why he last night told ABC TV’s 7.30 he had not read the BHP statement before he accused the Government of ruining Olympic Dam plans with its taxes. He had been referring to something else, he said.
On many interview occasions Mr Abbott can get away with chanting “stop the boats, pink batts, carbon tax” and even get applauded by friendly journalists.
The Australian economy and the global resources market can’t be reduced to a series of chants.
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