We have to admit to laughing out very loud indeed after listening to the Fairy Ruddfather's interview on Perth radio yesterday. But more on that in a moment...
First, the Australian mainstream press can only be described as pathetic.
We're quite serious when we say they should all just resign.
The mainstream response to the government's tax review was amateur-hour. Now, I'll be honest, I've got no idea what goes on in these media 'lock-up' events. Our guess is that the press are given advance copies of the report, probably a Powerpoint presentation, and the opportunity to ask a few questions.
Oh, and a choice of tea or coffee and a few Arnott's biscuits.
Then they get to write the news and send it back to their editors as soon as the embargo is lifted.
In other words they've had a lot of time to filter through all the info. But if that's the case, how come they completely ignored the fact that this new Super Profits tax isn't really a tax on Super Profits at all?
And how come it took your editor less than an hour yesterday morning to realise that the Resource Super Profits Tax was a fraud. That it was nothing like the tax on big profits the leaks from last week and yesterday's reporting would have you believe.
The worst offender has to be the so-called premium business newspaper, the Australian Financial Review (AFR). If Standard & Poor's gave ratings on the media it would surely downgrade the AFR from business newspaper to comic book.
No wonder the mainstream news media is going down the toilet so fast if that's an example of their crappy workmanship.
And today's effort from the AFR isn't much better. In ten pages of further review it doesn't mention the Super Tax fraud once. The only place you'll find an admission of what the Super Tax really is is if you read the Editorial on page 70:
"[T]he RSPT has been mis-sold as a super profits tax. It's really just another tax on profits."
Which is uncannily similar to what we wrote in yesterday's Money Morning:
"There's nothing in that worked example about normal profits and super profits. It's just a tax on profits."
Maybe the AFR editor subscribes to Money Morning! Who knows.
But anyway, the fact is there's nothing special or super about the tax apart from the fact that it's a brazen attempt to rob investors of capital they've put at risk, and a brazen way of partially nationalising Australia's resources sector through the backdoor.
Remember, if BHP Billiton is correct in its estimates, the Australian government will hold the equivalent of a 57% stake in the big miner's Australian operations.
It makes you wonder how much effort BHP will go to to generate profits from this part of the business if it knows 57% will be expropriated by the Fairy Ruddfather and his parasitic chums.
But before I go on, click here and make sure you listen to the Fairy Ruddfather's lame interview on Perth radio. Just be warned... it's embarrassing. Actually I'll rephrase that, it's embarrassingly funny. Anyway, make up your own mind. Take a listen and I'll still be here when you're finished...
We loved this quote from him:
"If for example they were investing their funds in um, long term bond markets. In other words what would constitute a reasonable rate of return on an investment."
He's serious as well. What the Fairy Ruddfather is saying is that if highly speculative mining companies earn profits that are in excess of the risk-free interest rate (Government bonds) then this is deemed to be a Super Profit and should therefore attract a higher tax rate.
We're speechless.
Only a pen-pushing coercive sector bureaucrat could come up with such an idea. Based on this theory, we're guessing that 90% of all profitable Australian companies would be earning Super Profits.
What's stopping the government from expanding the scope of the Super Profits tax to those businesses as well?
But let me put it simply. Here's a worked example of how the Super Profits tax would work...
Let's say a mining company starts up with $8 million of capital. Which it invests in searching for raw materials.
Then let's say the mining firm generates $10 million of revenue.
Now let's minus $9 million of operating costs. That gives a gross profit of $1 million.
Then under this new Super Profit tax the mining company gets to earn a "normal" rate of return which is set at the10 year government bond rate. For example, 6%. 6% of $8 million (the starting capital) is $480,000.
So, the mining company's net profit, is $1 million, less the $480,000 deduction which leaves a Super Profit of $520,000. This is taxed at 40%.
What a joke.
In our example, the mining company makes a 10% gross profit and this is deemed to be in Super Profit territory.
Have you ever come across a bigger bunch of fools in your life than the chumps that came up with this idea? I know we haven't. It's clear that these sad little socialists don't care much for profits. As Chalpat Sonti in WA Today writes:
"It's been around since the days of Karl Marx, but Kevin Rudd's explanation of what constitutes the key part of his tax reforms might have more people reaching for Das Kapital."
But going back to the Fairy Ruddfather's interview, what's most obvious is his struggle to explain what a profit is, let alone a Super Profit. Then again, that's not surprising.
You see, we're not surprised a coercive sector servant doesn't know what a profit is. Because profits don't exist in the coercive sector. That's because there's no need to make a profit.
When you're in the coercive sector you're given a budget. It's then expected that you spend all of that money.
If there's any left over, well that's not good enough, clearly you're not serving the 'communidy' properly.
Coercive sector departments don't generate revenues or profits. They're given your taxpayer dollars which they then spend. And having spent his entire adult life sponging [Reader's voice: Don't you mean working?] in the coervice sector, it's not surprising he doesn't know the definition of a profit.
By using the risk-free government bond rate as the benchmark, it's clear they've fallen for their own spin, believing that government is just like a business. Therefore, in their minds the interest on a government bond is comparable to the profits made by a private business.
Seriously, I can barely contain the laughter as I write...
What these numbskulls are trying to say is that businesses - especially mining businesses - should only make reasonable profits. With a reasonable profit being the equivalent (ha, ha, ha) of the interest rate on a 10 year government bond. Anything in excess of that is - apparently - a Super Profit.
As an aside, if this isn't another opportunity for the government and central bank to manipulate interest rates I don't know what is. The higher the interest rate, the greater the 'normal' profit resource companies can make, and the lower the Super Tax liability.
On the other hand, the lower the interest rate, the less the resource company can deduct and therefore the higher the Super Tax liability.
Anyway, it makes you wonder why you'd bother with the hassle of running a mining business in the Western Australian desert if you know there will be an extra penalty if you make more than a 6% return on your capital.
Why not just shut up shop and buy some lovely government bonds instead. It's certainly less risky!
The whole reason for taking big risks such as convincing investors to give you millions of dollars, and then paying geologists to find certain types of rock, and then paying other guys to dig the stuff up, and then maybe even building a railway to cart the stuff away, and perhaps even funding port facilities... is that you hope to give your investors a big return.
Investors aren't after a "normal" return on a mining investment. Who in their right mind would invest in a speculative mining stock just on the off-chance they'll make 6%?
They'd need their head examining.
The incentive to invest in these risky stocks is that the company could make a big wad of cash. And if it does then you'll share in the bumper payday.
But if the parasitic government is coming in and swiping nearly 60% of the gains, it makes the whole rationale for the investment a lot less attractive.
It's clear the Fairy Ruddfather and his coercive sector cronies can't grasp the idea of making profits. Or rather, they don't like profits. In their mind no one should make a profit, instead profits should be redistributed to the government.
At the beginning of this article we suggested all mainstream journalists should resign based on their pathetic coverage of the Super Profits Tax. We'll make one exception, and that's for Chalpat Sonti of WA Today who we mentioned above.
At least Chalpat made the effort to give a scathing report of the Fairy Ruddfather's radio performance.
I mean, seriously, with all those resources (excuse the pun) behind them, the mainstream press just couldn't be bothered reading past the government summary document. Instead, it was left to your editor and a Perth radio host to pick apart the fraud that's going under the name of the Resource Super Profits Tax.
The Super Tax policy is a clear example of how government forcibly takes money from the productive part of the economy in order to give it to the unproductive part of the economy - namely, itself.
There's no better example of that than the recent Comsec 'State of the States' economic report - apologies for not referencing the Money Morning reader that sent us a copy, it's just that we can't find your original email!
We seriously wonder where the pillaging of private wealth will end.
In our opinion, the Resource Super Profits Tax is nothing more than a sneaky attempt by the government to increase taxes while demonising and punishing Australia's most productive and valuable industry - the resources sector.
As we write this morning, the government 'owned' BHP Billiton [ASX: BHP] is down another 1.4% in early trade. Meanwhile the money creating banks are travelling upwards quite nicely.
It's funny isn't it? One industry spends billions of dollars to recover useful and tangible resources. The other spends nothing to create money from thin air in order to ensure the continued expansion of credit, the property bubble, and the terminal indebtedness of the Australian population.
And the mainstream insists on telling us Australian banks are something to be proud of. That's an even bigger joke than the Fairy Ruddfather's radio performance.
