22 May 2010

Mining - Subsidised At One End, Taxed At The Other.

Overall, mining companies are given big subsidies in Australia. Most of these are state-based subsidies but there are Federally-based ones as well, such as the diesel fuel rebate. The idea has been that removing our mineral wealth is a good thing, and must be encouraged to stimulate 'development'. In Tasmania I estimate that half of the island's hydro electricity generating capacity goes to metal refining. One company alone (RioTinto-Alcan) is using a quarter of Tasmania's electricity. There are two other big electro-metallurgists on the island. In Queensland the huge drag lines in open-cut coal mines are electric. This electricity is supplied at a fraction of the price of domestic power, and in Tasmania has the potential to bankrupt the state during a prolonged drought. Assuming Rudd's 'super profits mining tax' is applied to mineral refining as well as mining, then Rudd is taxing profits derived in part from subsidies. My contention is that taken as a whole, Rudd's tax regime will become the equivalent of the financial derivatives market. We will see hybrid taxation 'products' growing 'feed lot' industries that the government can fatten and then skim-off the subsidised profits.

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