mining-magnates

MINING PROFITS: THE FACTS

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 graphic

 

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 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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36 Comments

  • Reply May 20, 2013

    VICTORIA Thompson

    Can’t bear to look at photos of those bloated toads. Have they no shame?

  • Reply May 20, 2013

    Janet G

    I listened to Gina Rinehart as she elected herself as the Youtube Queen of Australia last week. The question she asked of us all:

    Where would Australia be without the mining industry?

    I shook my head and thought, “Gina, you mucked up the question!” It’s supposed to be:

    Where would the mining industry be without Australia?

    It is our soil that you are renting, Gina, that has allowed your father, you and your kin to become so obscenely wealthy.

  • Reply May 20, 2013

    Carole/m

    Thanks Monica , Great to see some facts.
    Really appreciate this article.

    It’s really astonishing isn’t it that the biggest
    “Fat Cats” in the country are also the biggest whingers .

    Their making massive profits which mostly goes overseas and I believe they only employ about
    250,000. Most Australians are employed in small business.

    I don’t mind them operating as long as they pay
    ” Fair ” taxes and they are not . What the hell are we doing subsidising these massively profitable companies ???

    Where’s the ” FAIR GO ” for Australia .

    It seems that “Miss Piggy , Twiggy & Rupert the Frog ” have taken over , It’s amazing how easy that is when you control the Money and the Media to the extent that ,Tony Abbotts reply to the Budget , which was the same as his last ,
    RIDDLED WITH BLATANT LIES , slips through without any Media calling him out on the LIES.

    Australians are being deliberately lied to about the true state of the economy .

    WAKE UP AUSTRALIA. —- You’re being conned.

    Check out Independent Australia for ” 12 Biggest Budget Reply Porkie Pies- or most glaring falsehoods .”. by. Alan Austin .

    • Reply May 20, 2013

      JoanneH

      So true Carole/m, and wasn’t it nice to know that Gina was in Parliament with all the ‘rent-a-crowd’ on Thursday night to cheer on Rupert’s boy Tony.

      I wonder if Gina provided the champers for the dinner afterwards to celebrate his “brilliant” speech.
      Seems the exhilaration ended badly for Peta Credlin.

    • Reply September 2, 2015

      John Riley

      Folks nothings been mentioned here about the 7% royalties they pay on the coal iron ore etc. they dig this either Coal or ore out of the ground and they pay 7%, of net ok so someone making 19 billion dollars you would expect to pay a fair bit at 7%. but they dont they sell it all to there own subsidiary company registered in Singapore mainly, at a very low rate that is just making enough to pay for everything and because they are registered in Singapore they dont pay Aussie tax,also because they sell to them selves they appear to make very little profit. and they pay there employees and pay the paye off of that, but that the employees tax not theres but the next rourt is they are claiming the employees tax as there tax and get it back but the employees dont.

      ever wondered why the price of fuel is so high here yet the Brent price is so low same reason as above the Singapore mart is a private company owned by mainly Shell and BP they buy the fuel at Brent prices get it refined over there buy it back from there own company’s and sell it here at about 140.00 a liter at the moment where as with the brent price being say 40.00 per barrel it after all costs should only be around 44 cents a liter screwed again.so they done this because the Govt regulated the amount of profit they could make since then you will notice that Aussie refinery’s have been closing down

      above all here if you look at a company with shareholders they expect a good yearly profit that dosent happen they sell there shares so they have the need to make bigger and bigger profits thats all companys with shareholders

  • Reply May 20, 2013

    Geoffrey

    Dear Gina Rineheart….

    Sorry to be so succinct but……………no one is listening to you……..no one even likes you or gives a damn about you and your privileged struggles..

    I said love, I said pet………STFU.
    Avarice and Greed are not attractive characteristics….nor is looking down your nose at those less unfortunate than yourself….and I include your children in that one….as well as pretty much all of Australia. So suck this up Gina…go choke on that silver spoon you have in your mouth.

  • Reply May 20, 2013

    Michael Angwin

    Foreign investment is very good for Australia. We have always had foreign investment. It has been one of the sources of Australia’s growth and prosperity.

  • Reply May 20, 2013

    Carole/m

    Aaahh Geoffrey ,

    ” I said love , I said pet ….STFU

    Tears are running down my cheeks , really tickled my warped sense of humor .

  • Reply May 20, 2013

    Charles P

    Great piece, Monica … mining situation even worse than I thought – had originally thought it was only 50 per cent foreign owned or so … plus we can do way better on taxing the industry

  • Reply May 20, 2013

    Carole/m

    @ Michael Angwin

    Not against Foreign Investment , Michael, just expect them to pay fair taxes & stop using their Billions to lecture us and to stop using their Billions to overthrow the government that was elected by the people.

    A small dose of humility , less arrogance and some consideration for those less well off might help . I won’t be holding my breath waiting .

  • Reply May 20, 2013

    Lucille

    All that money, but they don’t have the sense to look after their bodies. They could afford the best chefs cooking the best foods, personal trainers, and private gyms, but I guess greedy is as greedy does, and extends to over eating. They won’t make old bones.

  • Reply May 20, 2013

    Gary Doggett

    Citing either The Australia Institute or the Greens as a fact-checker is precarious given that they are committed to either the winding down or closure of mining.
    An August 2011 analysis by the Reserve Bank of Australia calculates that through direct labour costs (around
    10 per cent of total mining operational revenue), the mining industry’s demand for domestically sourced intermediate inputs especially services (perhaps around 25 per cent of total revenue), tax and royalty payments (close to 15 per cent of total revenue in recent years), and the share of the after-tax profits owned by Australian residents (around 5–10 per cent of total revenue) suggests that overall, Australian residents accrued a little over half of the total receipts earned from current mining operations.

    This finding is consistent with the actual company data for spending across Queensland that can be found at http://www.queenslandeconomy.com.au.

  • Reply May 20, 2013

    David mining investor

    You can also buy mining company shares on the ASX. Instead of putting your money in poker machines or deposit your money safely in one of the big 4 banks, you could also invest in an Australian mining company, maybe you’ll get someof those dividends or maybe the mining company will go broke. That is the risk, if you don’t want to take the risk then don’t complain about those that do.

  • Reply May 20, 2013

    Annie Also

    “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.”
    Why why why? Why wasn’t this changed back to the original 40% in the budget? Nothing to lose, everything to gain! Big big disappointment.
    Thanks Monica for this piece.

  • Reply May 20, 2013

    Donald

    There is no simple answer to the obfuscation caused by the mining industry. I doubt we will ever get the hard facts on the financials simply because (as any intelligent investor knows) profit and loss can be covered up by creative accounting (more the profit). In a similar vein, I no longer believe either Labour or the Liberals (which is disgruntling because I have been a Liberal supporter most of my voting life, until now). So who do I vote for now ?

  • Reply May 20, 2013

    Carole/m

    Yes JoanneH ,

    Credlin. – Drink driving
    Dr Roberts ?? – Drunken threats re funding
    Cori Bernardi. – Gay marriage leading to marriage to animals .
    Abbott. – Sexist liar

    Charming little group.

    Add to that. :-
    Richard Torbay. NSW – sacked – corruption?
    Scott Driscoll. Qld. – corruption , sexual harassment.
    Andrew McIntosh – Vic – resigned leaking info.
    Geoff Shaw – Vic – illegal use of Gov. vehicle & fuel vouchers . still holds balance of power .
    Baillieu – Vic – Knifed as Premier
    Leader NT ??- Knifed while o/seas
    Ashby Conspiracy – possibly involving several Ministers and their staff & Mel Brough – candidate for next election.
    Mary Jo Fisher -Vic?- resigned after 2nd conviction – theft & assault .
    Tony Abbott about to be sued by David Etteridge
    Barbara Ramjan – suing News Ltd & Michael Kroger for claiming she lied about Abbott punching wall either side of her head .
    Then there’s the Ashby Conspiracy.

    There’s a definite pattern here. Add this to the fact that under John Howard , 7 -Ministers were stood down in the first two years of that government & 2 more in the last year.

    Think you can trust the LNP.????

  • Reply May 20, 2013

    Lorraine

    Excellent reporting.

  • Reply May 20, 2013

    johnward154

    Tony Abbott thinks Superannuation is a confidence trick? So what would he think of the national savings that would have been if this had been allowed to remain Australian Law.

    At the 1937 federal election, the United Australia Party had promised to introduce a system of national insurance that would provide medical cover and pensions for working people. The scheme was to be funded by contributions from government, employers and employees. Menzies, who had helped draft the policy, was an enthusiastic supporter of the scheme. For him it constituted good social policy and, once adequate superannuation funds had been accumulated, promised to relieve taxpayers of what was likely to become an intolerable burden in the future.

    Unfortunately the United Australia Party’s coalition partners were not nearly so keen about the proposal. Although a National Insurance Bill was passed, Country Party ministers continued to resist its implementation, arguing that the money was needed elsewhere, particularly to provide for ‘adequate defence’. After a series of stormy meetings, Cabinet succumbed to Country Party threats and decided to repeal the pension provisions of the Bill. Menzies immediately resigned from the ministry.

  • Reply May 20, 2013

    Rhoda

    I would like to see these companies made accountable for their social responsibilities. Any company making those kinds of profits should be providing and maintaining the necessary infrastructure and social services required by their activities and if they do not then the government should be charging them the necessary royalties to cover the cost to taxpayers.

    All payments to governments should be disclosed and made transparent. Miners are too rich and have too much power. A breeding ground for corruption.

  • Reply May 21, 2013

    Ella

    You are discussing tax take and yet you miss one of the critical mining taxes that flow to governments and voters – royalties. Post the MRRT, the key mineral producing states have taken the opportunity to significantly increase royalty rates that ‘offset’ the MRRT. So although the increase in the Federal receipts has been paltry, the increase at the State level has been very significant. You could argue that WA may need to go higher still on iron ore royalties but most of the rest of the mining industry is not earning its cost of capital and paying more than its fair share of tax.

  • Reply May 21, 2013

    Monica

    Hi Ella, yes I am aware of the state royalties issue. But the miners bottom line profits have taken those royalties into account. And of course they all pay very significant taxes which is noted in the story too. Thanks for pointing these things out though.

  • Reply May 21, 2013

    Gareth

    Monica, how could you honestly have written a story purporting to set out the facts on mining profits and taxation without once mentioning company tax, and by dismissing state royalties as “woefully small”?

    Iron ore royalties to Western Australia will exceed $4.2 billion this year. And because of the workings of the GST, about 88 per cent of that money will be redistributed to other State and Territory governments.

    Astonishing.

  • Reply May 21, 2013

    monica

    Gareth, woefully small compared to profits which remain huge.. In any event, i refer to them as woefully small prior to the RSPT which was abandoned by Prime Minister Gillard. The royalties were also renegotiated. But your point is taken re royalties flowing to other states. Thanks. M

  • Reply May 23, 2013

    Graeme Bampton

    Monica, The Mining Council likes making the point that the industry is now paying 4 times the tax that they were paying at the beginning of the “boom”. They never mention the increased profits. How have their profits grown during the boom? Are they paying an equivalent amount or are they perhaps even paying proportionately less? Personally, I see these arguments a bit irrelevant – what is relevant is what is a fair share for Australia. Cheers.

  • Reply May 28, 2013

    Lucille

    I want to pay $500 million in tax.

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  • Reply July 17, 2013

    Lyn

    Gary Doggett by that logic relying on the figures supplied by the Mining Industry is most suspect, given the very vested interest. They arent mining out of altruism, although the spin seems directed to convincing Australians they are doing us a favour. They dont have to be altruistic – just pay their fair tax share, if they are not.
    As to the he figures you supplied, your premise seems to be that because foreign miners spend in Australia in carrying on their businesses and there are some retained profits by Australian investors, this absolves them from paying a fair amount of tax? Well that would be a great lurk if I could use that to avoid or justify paying little personal tax – imagining the letter to the ATO – “Dear Commissioner , I spent all my funds in Australia so I would like a discount on my tax and PS I would also like to claim most of that private and therefore normally undeductible (but nevertheless still economically stimulating) spending as a deduction, like all businesses do, before you calculate my tax and then because of my spending, discount it
    ” Not going to happen.

  • […] Though the royalties that mining companies are paying are edging upward, especially in Western Australia which, it seems, has a small “budget crisis” in the making, they remain small for hugely profitable businesses.  ( see: Mining Profits . The Facts. The Hoopla. May 19. 2013) […]

  • […] [6] http://thehoopla.com.au/mining-profits-facts/ […]

  • Reply May 6, 2014

    Meeredith

    And I understand that during the GFC the mining industry shed 40000 jobs yet they constantly remind us that they saved Australia through the GFC.

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