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Get me a cold spoon, I feel an election coming on. An update of the Federal budget, a Treasurer tap dancing through the accounts and the cost of Julia Gillard's power grab and resources tax backflip for everyone to see. She's the $7.5 billion woman, because that's the cost to taxpayers of sorting out the tax after she grabbed power from Kevin Rudd. It's also a cost that the likes of Bill Shorten, AWU leader, Paul Howes and NSW right-winger, Mark Arbib, (some of those who installed her) should also share. Julia spruiks her economic cred today, she's starting $7.5 billion behind the game.

With so much raw material, it was natural that the columnists this morning couldn't hold back. The Australian's Economics Editor Michael Stutchbury's take was typical: "Strike me lucky: Wayne Swan's belated confession of a $7.5 billion mining tax backdown would have destroyed his budget surplus promise – except that the mining boom is even bigger than he could have imagined two months ago. So Labor will supposedly still get the budget back in the black by 2012-13, because the Treasury now reckons iron ore and coal prices will be even higher than it forecast in the May 11 budget...But the whole exercise is far too cute." 

And it went on from there: Jessica Irvine, the Sydney Morning Herald's economics writer was more brutal: "He spoke of the need to ''cut our cloth'' to suit the times but the Treasurer, Wayne Swan, has come close to resembling the emperor with no clothes. In the Hans Christian Andersen tale, an image-obsessed emperor is duped by yarn spinners into parading around town in his birthday suit. But this time, the emperor was aware of his indiscretion. There was no hiding yesterday the extent of the con job the Gillard government has done on the Australian people over the size of its concessions to the mining industry on its controversial resources rent tax."

The Australian Financial Review as all over the story (rightly) on page 1 and inside, with Chanticleer talking about a $6 billion rabbit being pulled out of the hat, well yes, but isn't that less than half a wabbit with another $7.5 billion still in the topper? Economics Editor, Alan Mitchell said Labor had tried to mislead the public and yesterday's effort will leave voters underwhelmed. 

And Business Spectator's Stephen Bartholmeusz got to the heart of the whole affair yesterday: "So now we know. The election-driven decision to gut the proposed resource tax on super profits wiped $7.5 billion off the government’s forward estimates of revenue and would have left the budget in deficit if it weren’t for the very convenient revision of commodity price forecasts... No wonder BHP Billiton, Rio Tinto and Xstrata, confronted with the prospect of the RSPT, came away from Canberra smiling after negotiating its replacement with the MRRT."

Fairfax's Malcolm Maiden drifted into the yarn on another tack, "Wayne Swan's economic statement and the stunningly strong consumer sentiment numbers for July that were also issued yesterday will help Labor's macro-economic management claims in the coming election campaign. Both also suggest, however, that a wildcard intervention from the Reserve Bank in the form of a rate rise is also possible if the election is held in late August. That would be fitting, given that the Reserve deserves half the credit for the undeniably solid macro-economic numbers that Swan released: its aggressive rate cuts during the crisis combined with government spending to keep the wolf from the door. There's a reconciliation of the cost and benefits of the resources tax backdown in the economic statement, too, but it is very broad-brush, and won't shut down claims that the government tried to hide the true cost of its retreat." And Gillard's ascension to PM.

Elsewhere a couple of decent stories were raked over: Adele Ferguson and Ben Butler looked at CFDs and reported that one of the major offenders, sorry offerers, of the product in Australia, Saxo Bank is under pressure back home: "Danish regulators have cracked down on Saxo Bank, which provided the online contracts-for-difference trading product sold by collapsed broker Sonray, ordering it to tell customers more about the risks of CFDs. Saxo Bank, whose CFD platform is also used by many other Australian financial groups, has also been ordered to hire an independent auditor to investigate allegations of ''front running'' and strengthen its anti-money-laundering capabilities." You would have thought ASIC should have forced Saxo to reveal the home town concerns about CFDs.

And online, Michael Pascoe wondered if ASIC was really interested in doing anything but standing on the sidelines: "So ASIC is awaiting further failures, leaving us to guess how big they have to be before the supposed gamekeeper stops trusting the poachers to inform the rabbits of the intricacies of snares and bullets... I almost hate to think, given that Storm Financial hasn’t done the trick despite running into nine figures and ASIC having given that reeking mess its tick of approval right up until the day it folded."

Corporate yarn of the day though was the fifth profit downgrade in a year (an Olympic record perhaps?) from Nufarm; John Durie in The Australian took aim and fired: "After five profit downgrades in 18 months, Nufarm boss Doug Rathbone's credibility clearly lies in tatters... The stock stood at $5.24 a share yesterday when trading was halted, ahead of the extraordinary 50 per cent profit downgrade just four months after the last one was made." Cue the class action folks.

Finally, a rare current reference: the minutes of the US Federal Reserve's Open Markets Committee released around 4 am today included downgrades in growth, higher unemployment forecasts, and for longer, lowered inflation outlook (a bigger whiff of deflation?) and this comment: "Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants’ interpretation of the Federal Reserve’s dual objectives; most expected the convergence process to take no more than five to six years." That means the Fed's best reckon the US economy won't be back to 'normal' until 2014-2016. And remember the Chinese economic data after noon today, there's a 'leak' in Beijing that suggests they could be soft.

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7 Comments

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Ashley Fernandes wrote:

I guess all our distinguished commentators that are now complaining about the money left on the table will undoubtedly get behind the Greens as they strive to right this state of affairs in the Senate next year. (See THE DISTILLERY: Roasting Julia, July 15).

Assuming they have the balance of power, I am sure they can insist on the original tax premise.

Come August, I'm sure the commentators will be right behind the push for additional taxation.

It has been sickening to watch the business press at work, fawning over the miners and how quickly they turn.

If it wasn't so upsetting it would be funny.

15 Jul 2010 8:27 AM

Leong S Oh wrote:

The Baltic Dry Index has been dropping 50 per cent in a month or so. Recent spot price for 62 per cent iron ore is down to $117 per tonne. Standard Chartered has told clients in China to prepared for a 30per cent fall in property prices in major cities. Are we headed for a glut in iron ore? (See THE DISTILLERY: Roasting Julia, July 15.)

15 Jul 2010 9:50 AM

Karl van Olden wrote:

It is disturbing that so much attention is being paid to headline numbers like the 'potential' $7.5 billion in tax foregone by Julia Gillard and Wayne Swan from the super profits mining tax renegotiation, when these values are based on bullish projections on how the rest of the world will be demanding Australia's minerals.

The real issue is how the economic management and policy direction of the current government has placed so much of the medium-term well being of the Australian economy on a bullish projection of coal and iron ore prices. These are notoriously hard to predict, especially with US demand set to falter and cautions about China's future growth rate abounding.

If that $6 billion is just a mirage making you feel confident in the face of an election, what is plan B, Julia and Wayne?

15 Jul 2010 11:07 AM

Brent Walker wrote:

If the PRRT couldn't apply to land based petroleum resources because they are owned by the states and not the Commonwealth, so why is it any different for the MRRT? Once the wily miners got the Commonwealth talking in terms of specific minerals I reckon they had 'em! Sure the Commonwealth is entitled to tax profits because they can be made anywhere from anything. But profits directly referrable to Australian land based minerals?

The miners came away from the talks grinning like foxes - because they know that they conned Swan into the MRRT.

A better analogy is the fox and the crow story. The crow is up a tree with a nice piece of meat so the fox tells her how beautiful she is and asks if she would she sing to him. Flattered the crow starts to sing – well you can guess the rest!

But of course this won't get exposed until after the election. Incidentally, given that none of the major miners have provided disclosure of the effect of this budgeted measure on their future profits. So this just adds to my belief that the whole thing has become a mirage. Also note what Colin Barnett said on ABC on July 2 regarding its constitutional validity. I think he was on the money also.

15 Jul 2010 12:54 PM

Michael Francis wrote:

Treasury wants us to believe that they can predict what commodity prices will be in 2014!

More, they want us to congratulate them on a surplus four years before it happens.

Don't they remember when it was said "the only useful purpose of Economists predictions is to make Astrology look like a respectful science."

15 Jul 2010 4:04 PM

Lisa Sanderson wrote:

Does anyone remember that the Labor party once criticised the Liberal government for making the economy too dependent on the minerals boom and China? Now the Labor government seems to be depending entirely on China and this ridiculous tax to bring the economy into surplus!

Is this a good idea when the Chinese economy is probably about to slow down? Many smaller mining companies will probably leave Australia for more competitive countries without a mining tax. This will not help either.

If the Australian people are stupid enough to elect Labor again, we will only hear more lies about China and the mining boom and more mistakes in the government's calculations will be hidden.

15 Jul 2010 4:50 PM

Phillip Newman wrote:

How on earth can Australians have lost $7.5 billion that they never had in the first place? (See THE DISTILLERY: Roasting Julia, July 15).

The tax never got up. It seem columnists are counting chickens which never hatched.

15 Jul 2010 8:25 PM

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