MINING PROFITS: THE FACTS

mining magnates

We’ve had a week of bamboozling statistics as the Federal Government brought down the budget and the opposition presented its alternative.

Neither presented a particular pretty picture – at least not for average workers.

But as baby bonuses and some planned carbon tax compensation payments are done away with, it must be truly gratifying for the big miners to know that having largely escaped the burden of the mining tax, they can continue to pocket their profits and government subsidies – and shovel much of it overseas.

Some 83 per cent of the mining industry in Australia is foreign owned. And according to an Australia Institute report, 81 per cent of their profits went abroad. Take the three biggest miners in Australia:

  • BHP, which we like to think is Australian, is in fact 76% foreign owned based on the domicile of its investors.
  • Rio Tinto is 83% foreign owned
  • X-Strata is 100% foreign owned.
  • Fortescue, Twiggy Forrest’s company, is 40% foreign owned.
  • Of the 100% Australian owned miners, foreign investment funds and companies have heavily invested in them.

 

Mining

The government Mineral Resources Rent Tax that the Treasurer Wayne Swan had hoped would raise $2 billion this financial year, hasn’t. In fact it’s raised a mere $126 million in revenue. That’s an almighty shortfall.

Wayne Swan admits the government miscalculated because the MRRT was imposed just as the mining boom stopped booming and as commodity prices, expected to remain high, didn’t. Global demand lowered in the years we thought the financial crisis was actually over.

Opposition leader Tony Abbott plans on scrapping the tax. But despite the paltry earnings of the mining tax, will axing it be fair? The miner’s profits are lower – but far from low. 

All of the companies doing the digging have historically paid royalties to the states. But these were woefully small which is why Kevin Rudd as prime minister decided to impose a 40 per cent super profits tax on all mining and petroleum companies on the realized value of the resource deposits they extracted.

As history shows, Julia Gillard renegotiated the tax with a handful of the big miners, after she ousted Mr. Rudd. The result is a 22.5% MRRT on a handful of iron ore and coal companies whose resource profits tip $50 million per annum.

The miners’ profits are enormous whether commodity prices are high or low. Even with profits on the decline because of lower commodity prices, the miners are expected to continue to strike bigger profit margins than the average Australian company for the next 25 years.  

Until this financial year, BHP’s profit margins have been steadily increasing. In fact, since 2003, they’ve doubled. Lower commodity prices amongst other factors, have seen BHP’s revenues fall 14% which sounds like a lot until you look at the profits – $15.4 billion.

Rio also posted net losses but profits still exceeded expectations – $9 billion in 2012.

Gina Rinehart’s Hancock Prospecting posted a $3.27 billion headline profit in its 2012 financial report.

But the MMRT, designed as a tax on super profits rather than normal profits, hasn’t bitten into these figures because it allows the miners to offset the values of their mines against the tax. Some are actually receiving tax credits. BHP, Rio, Fortesque and Hancock booked tax credits worth $6.4 billion in 2012.


With tax credits that large, the chances of any of the big mining four paying any mining tax in the foreseeable future is slim

Of course, like death, there’s no escaping tax. They all pay tax on their profits. Hancock Prospecting for example, paid $500 million for the year to June 30, 2012 out of its $3.27 billion profit. In Hancock’s case, the company’s profits make Gina Rinehart richer by the minute.

Though its hard to be exact because of fluctuating commodity prices and changing investment patterns, figures from a briefing paper for The Greens  shows that “from 2011-12 to 2015-16 foreign owners will earn $265 billion from their investments in Australia’s mining resources, an average $53 billion per annum. Over half of the forecast profits relate to iron ore and a significant component is from coal.”

The paper emphasizes that a large percentage of profits will be reinvested in Australia.

But a lot still makes its way overseas. Of the $37 billion profit to foreign equity owners in the 12 months to 31 March 2011, $7 billion was paid overseas as dividends or income withdrawals. Seven billion!

Some think this is state-sponsored theft. Others understand that without heavy overseas investment, the mining industry with the employment it provides and the taxes it pays, would be under-resourced at best and non-existent at worst.

Perhaps Australia would find a more acceptable middle ground if some of the handouts to the miners were subjected to some soul searching. 

Since 2009, the WA Government for example, has given miners $9.2 million under an “Exploration Incentive Scheme”.  Gina Rinehart pocketed nearly $39,000. Andrew “Twiggy” Forrest took nearly $62,000.

Last year Ms. Rinehart grew nearly $19 billion richer. If would take her just over a minute to earn the $39,000 she took from the West Australian taxpayers.

If you don’t believe me, take a look at this: http://www.howrichareyou.com.au

Gina Rinehart Fairfax

POST SCRIPT: Yesterday the Mining Council of Australia contacted me to put some of its own statistics.

It says:

  • Last year the industry paid in excess of $20 billion in company tax and royalties combined – a four-fold increase on the $4- $5 billion paid at the start of the mining boom.
  • 98% of mining profits have either been paid in taxes or reinvested back into Australian projects.
  • The industry’s effective tax rate (the tax ratio of taxes and royalties paid as a proportion of net revenues) has averaged 41.6 per cent since 2001-02.
  • Spinoff businesses have also grown from a $2- $3 billion industry at the start of the boom to sales near $30 billion and exports in the order of $12 billion.

 

MORE ARTICLES BY MONICA ATTARD

Cruising for Tragedy
Our Big Banks: Doing it “Tough”
Terrorism was just around the corner
Digging Our Way to China

 

Monica Attard*Monica Attard OAM is a five-time Walkley award-winning Australian journalist – including the Gold Walkley Award for Excellence in Journalism 1991. She was the host of the ABC’s PM, the World Today and Media Watch. She spent 28 years at the ABC, leaving to start up The Global Mail where she was, until recently, the Managing Editor. In 1997, Monica published a book entitled Russia: Which Way Paradise? documenting her time there as a foreign correspondent. You can follow her on Twitter: @attardmon.

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