No Bubbles in Sight?

For those wishing for an antidote to negative news on the housing market, the person to read is Christopher Joye. (The institution to follow for optimism on debt is the Reserve Bank of Australia). I must admit that despite a lot of study, I simply have no idea whether there is a bubble or not in the Australian and Chinese housing markets. (After being a long time pessimist I fear being too optimistic and being wrong again in reverse).

Luckily I'm not paid to be either an optimist or a pessimist. What I think is obvious is that increased debt does lead to increased vulnerability as the RBA Governor recently warned about.

But that doesn’t mean it would be wise for that build-up in household leverage to continue unabated over the years ahead. One would have to think that, however well households have coped with the events of recent years, further big increases in indebtedness could increase their vulnerability to shocks – such as a fall in income – to a greater extent than would be prudent.

It may be that many households have sensed this. We see at present a certain caution in their behaviour: even though unemployment is low, and measures of confidence have been quite high, consumer spending has seen only modest growth. This may be partly attributable to the fact that the stimulus measures of late 2008 and early 2009 resulted in a bringing forward of spending on durables into that period from the current period (though purchases of motor vehicles by households – a different kind of durable – have increased strongly over recent months). But the long downward trend in the saving rate seems to have turned around and I think we are witnessing, at least just now, more caution in borrowing behaviour. Of course this will have been affected by the recent increase in interest rates but the level of rates is not actually high by the standards of the past decade or two. We can’t rule out something more fundamental at work.

We can’t know whether this apparent change will turn out to be durable. But if it did persist, and if that meant that we avoided a further significant increase in household leverage in this business cycle, it might be no bad thing. Moreover if a period of modest growth in consumer spending helped to make room for the build-up in investment activity that seems likely, perhaps that would be no bad thing either.

Fortunately, however, for those who don't like to sit on the fence like I (and the Governor it seems) do, there are definite proponents of boom or doom that you can read. For doom read Steve Keen; for boom (but not bubble) read Christopher Joye.

Joye's arguments are very persuasive and he always brings interesting data to the table. But I'm still concerned about the level of private debt in Australia. Most commentators are much more focused on public debt (partly because economists as a bunch are generally anti-govt and pro-market as a first principles assumption).

The problem with private debt is that there is no political constituency to develop policies to keep it down, as there is with public debt. Despite democratic pressures that encourage higher spending and lower taxation - what the Marxist James O'Connor in the 1970s called the "fiscal crisis of the state" and what others on the right called the "crisis of democracy" - eventually governments have to face the judgement of those from whom they borrow or tax.

While the 1980s did not signal the demise of the state as many predicted it did stop the growth of the state - at least while growth remained subdued. As Lindert (2004: 22) points out: "For all the often-reported “crisis” or “demise” of the welfare state, all one really sees after 1980 is a slowdown, not a decline, in the shares of GDP that welfare-state taxpayers put into such programs."

Recent events have shown just how important states remain in the global economy and I'm imagining that the last few years will show a considerable growth in the size of the state throughout the world. But as in the 1980s, this growth cannot continue and the constituencies in favour of fiscal retrenchment are reasserting themselves despite the uncertain nature of the recovery. Last week's G20 meeting was divisive compared to previous meetings and the major divide was over appropriate fiscal stances. (Just quietly those pesky global imbalances are unlikely to go away with the Germans tightening policy and the Americans keeping things pretty loose.

Retrenchment is well under way in Europe as countries as diverse as Greece and Ireland deal with fiscal crises. The Irish have decided to take harsh medicine and as a consequence the Irish population is going through hard times. Greece is another story and the major problem is actually building up a decent tax base. In other words, Greek authorities need to get people to pay tax. The Germans are major advocates of fiscal retrenchment, much to the annoyance of the United States.

One of the excellent points made by David Lindert (2004: 6) in his seminal study of social spending Growing Public is that governments are constrained by democracy:

There is no clear net cost to the welfare state, either in our first glance at the raw numbers or in deeper statistical analyses that hold many other things equal … It turns out there are many good reasons why radically different approaches to the welfare state have little or no net difference in their economic costs. Those reasons are many, in terms of an institutional list, but they boil down to a unified logic: Electoral democracy, for all its messiness and clumsiness, keeps the costs of either too much welfare or too little under control.

But what are the restrictions on the expansion of private debt? Governments have encouraged the growth of debt through taxation policies for housing and company debt.  And financial liberalisation has massively increased access to credit. Don't get me wrong. I'm not anti-financial liberalisation. I would much rather live in an era where access to credit is not rationed and the financial sector is innovative and consumer oriented. But like all good things there is need for balance.

Rather than deal with the consequences of private debt in Australia, governments have attempted to underpin debt through subsidies, guarantees and . There is a good reason for this - any major pay down of debt in Australia will lead to lower spending. Now I hope that the optimists are right, but in the back of my mind is the continuing worry about what level of debt is too much.

Undoubtedly Australia has survived a very big stress test, but it did so by increasing public debt to maintain private debt. As Keynes supposedly once said: "the unsustainable cannot be sustained".


Reference:
Peter H. Lindert (2004) Growing Public: Social Spending and Economic Growth since the Eighteenth Century, Cambridge, Cambridge University Press.

It's time for mining companies to stop bleating and start negotiating

Let's get one thing straight, mining companies making profits from assets owned by the Australian people should pay more tax. The profits made by mining companies are huge and Australia needs to redistribute this wealth across Australia so that we can develop a more diversified economy. There's no doubt at all that cutting the company tax rate by 2 per cent to 28 per cent and increasing the level of super to 12 per cent are good ideas that will be paid for by increased resource rent.

There's also no doubt that this country is a rich one primarily because we have redistributed wealth generated by our resource wealth - mostly agricultural until the 1960s - across Australian society throughout our history. Such redistribution should perhaps have been more extensive and governments could also have used it to build a more competitive, less insular, manufacturing sector. Nevertheless it is Australia’s ability to adapt – though often imperfect – over time to vulnerabilities that have allowed it to be in a position today to respond effectively to new vulnerabilities.

Up until the 1980s part of this redistribution process was done through the inefficient mechanism of tariffs. Tariffs helped to redistribute the wealth generated by Australia’s natural resource comparative advantage because the costs of tariffs and other forms of protection were borne by the resource exporters. For example, if a mining company needed to import machinery that was subject to a high tariff that aimed to protect a local producer then this was effectively a transfer of wealth from the miner to the local producers (and their workers). Farmers who bore increased costs were often compensated by elaborate forms of agricultural protectionism, such as statutory marketing arrangements that raised prices within Australia and which involved further redistribution. Tariffs were also, of course, an important source of state revenue.

Australia has abandoned tariff protectionism and embraced globalisation, but this does not mean we need to abandon redistribution. Indeed, Australia needs to spread the benefits of growth and openness as widely as possible by redistributing wealth and compensating the losers for the continual structural change necessary for adaptation to a globalising world.

While most countries have to adjust to the world ‘as it is’, the choice of adjustment strategy is not set by the forces of globalisation. Varying responses and outcomes are always possible: both the progress of globalisation and adjustments to its opportunities and constraints involve political choices shaped by citizens and the governments they elect.

I agree that the tax was sold badly and was made too complicated by the boffins at Treasury - in particular Ken Henry - who seems to suffer, like Kevin Rudd, from "I'm the smartest boy in the room syndrome". Perhaps it would have been easier just to lift resource rents or impose a federal rent. This would have the disadvantage of not being profits based, but it seems the miners don't like that when they are making large profits and believe that they will continue to do so into the future.

As usual this is all dependent on an assessment that China and India will continue to grow rapidly over the long-term (bolstering growth in the rest of Asia as well and underpinning resource prices). The short-sighted attitudes of miners will hopefully help to get rid of the very risky 40 per cent stake in any losses that the government's RSPT proposed. This was a bad idea and exposes the government to a loss of revenue when the economy slows down, further exacerbating the cyclical decline in government finances that occur during a recession or growth slowdown.

For those interested in a good article on why we need to get more from our non-renewable resources through a resource rent tax should read Sovereign risk? No, superannuation is at risk, thanks to mine bosses by Gerald Noonan

Sovereign risk? No, superannuation is at risk, thanks to mine bosses

June 28, 2010

GERARD NOONAN

There has been an uncommon flurry of interest about Australia in the global media over the past few days, courtesy of Julia Gillard's ascension to the prime ministership.

But when travelling overseas in more normal times, it is rare to read anything about the wide brown land in the press - except perhaps a tit-bit on cricket or tennis.

So imagine my surprise when, on a recent visit to Paris, I spotted a reference to Australia in the International Herald Tribune, an English-language paper owned by The New York Times.

The topic was not cricket, nor was it the miners' squabble with Labor over a resources rent tax. Instead, it was Australia's superannuation arrangements. In the article the writer had singled out two countries - the Netherlands and Australia - as shining examples of good public policy-making in a world of seriously unfunded pensions.

In Europe you can count on one hand the number of countries that can seriously claim to be able to pay for their ageing workforces in retirement. You need both hands and all toes to count the number of countries in Europe and in North America (yes, including the US) that have not got a hope in hell of properly looking after their ageing populations over the next two or three decades.

The Tribune mentioned Australia's compulsory 9 per cent of weekly wages which all employees pay into their super funds. The story noted the government had announced it was planning to lift the rate to 12 per cent (though it did not say that it would take until 2019 to get there).

Overall, the tone was complimentary. You got the impression the Tribune was a bit surprised at least someone had got it right, given all the talk of how the debt problems of the PIIGS counties (Portugal, Ireland, Italy, Greece and Spain) were potentially contagious and threatened a second bout of world economic pneumonia.

So it was something of a shock to return to Australia recently to find all anyone could talk about was executives of very rich mining companies bleating about a tax that they themselves had asked the Henry tax review to impose. The miners had argued to Henry that they preferred a profit tax to the crude royalty system that each state imposes on the amount of minerals they dig up and sell.

These minerals are, of course, part of the common wealth - that is, they belong to us all. We are happy for miners to dig the stuff up and sell it for a substantial profit. But there is a limit to how much profit any company is entitled to make out of common resources, and they should pay an appropriate amount back to the country of origin.

It was almost breathtaking to hear and read the extraordinary assertions made by some mining executives and fellow travellers in the finance industry about how a properly constituted tax would affect their investment plans. And in doing so, they had the chutzpah of raising the spectre of sovereign risk. If anyone seriously thinks a fair tax represents sovereign risk, they are kidding themselves. Try real sovereign risk: the sort of sovereign risk faced by countries that do not look to their fiscal bottom lines. The PIIGS group of countries - and add in Britain and California, both with huge debt problems - will have to endure decades of difficulties juggling their books to pay even modest pensions to their retiring citizens.

In my puzzlement, I wondered what had happened to the previously announced superannuation changes … were they still around, and what had happened to the 2 per cent corporate tax cut that the government also promised as part of its package to help ease the transition to the higher super payments?

No, all still in place. However, the ability of the government to fund the corporate tax cut - which in turn was partly aimed at easing the impact of a gradual superannuation increase over the next decade - was being jeopardised by petulant mining companies.

Now, of course, with the chief government digger, Kevin Rudd, interred in a grave as deep as the Kalgoorlie open pit, the wrangling over the details of a resource super profits tax will pass to others.

It is time for everyone to calm down. Markets hate uncertainty, and the Australian public deserves better. The miners and the government need to nut out the finer details of an appropriate tax and resolve the matter.

It would be a great pity to have to write to the editorial people at the Tribune and tell them they had it all wrong. That, at the last hurdle, the country which had put in place one of the best global examples of social policy for its ageing population had fallen foul of an extremely well-funded and self-interested campaign.

Gerard Noonan is the president of the Australian Institute of Superannuation Trustees and a former editor of The Australian Financial Review.

More stuff on fiscal stimulus ... this time from China

Almost on cue, the next thing I read on fiscal stimulus was a story from the NYT on the growth of debt in China: Local Debt in China Worries Its Auditor. See previous post.

What it shows is the need for balance. Advocates of fiscal stimulus cannot deny the tendency towards rent-seeking and inappropriate borrowing that occurs alongside monetary and fiscal stimulus.

SHANGHAI — China won praise last year for reviving domestic growth with aggressive bank lending and a $586 billion economic stimulus package. But now the nation’s top auditor is warning that the mounting debt of local governments could undermine the recovery in some parts of the country. 

Li Jiayi, head of the National Audit Office, said in a report to the legislature this week that borrowing by local governments had created public debt burdens totaling hundreds of billions of dollars. The report questions whether those governments have the resources to pay down the loans.

The warning is the latest indication that a portion of the government-backed loans and stimulus money could eventually be categorized as bad loans.

Once again there is no agreement on the extent of the problem.

It is unclear how serious a threat local government debt is to China’s booming economy. Some economists say the nation’s debt pales in comparison with that of the United States and Europe and that worries about record bank lending last year turning into mountains of bad debt are exaggerated.

Nicholas Lardy, an economist at the Peterson Institute for International Economics in Washington, said in a column this week in The Wall Street Journal that many of the worries were misplaced. He said that China was smart to invest in infrastructure projects last year and that if debts mounted, local government could service the debt by raising fees on water and subways.

But on Thursday Fitch Ratings, the credit rating agency, warned that record loan growth and aggressive efforts by state-run banks to repackage and sell debt to investors had raised credit risks in the country and could “lead to another financial crisis,” according to a report published by Bloomberg News.

In a release issued Wednesday by Fitch, Charlene Chu, the firm’s senior director for financial institutions in China, said that the financial positions of Chinese banks were more strained than they appeared to be and that “future asset quality deterioration is a near certainty.”

The Debate between Expansionists and Restrictionists

Right now there is an important debate going on in the United States and Europe between those who think the major aim of economic policy at the moment should be to do something about growing fiscal deficits and those who believe that the major aim should be to maintain economic activity.

Mohamed El-Erian argues that we need to go beyond what he calls "the false growth vs austerity debate" He argues that at this his weekend’s G20 meeting

In one corner stand the “growth now” camp, arguing that expansion is a pre-requisite to service their debt sustainably. Without it tax receipts implode, investment is turned away, and meeting future debt payments is harder. This camp abhors Europe’s shift towards austerity, questions Tuesday’s tough UK budget, and urges countries like Germany to adopt expansionary policies. Some advocate additional fiscal stimulus even for high deficit countries, like the US.

This debate he argues is "incomplete" and backward looking and countries need "to adopt both fiscal adjustment and higher medium-term growth as twin policy goals."

Squaring the circle of growth and fiscal stability needs policies that focus on long-term productivity gains and immediate help for those left behind. This means first enhancing human capital, including retraining parts of the labour force, and increasing labour mobility. Then new emphasis on infrastructure and technology investment is needed, with greater support for scientific advances that promise increased productivity. Finally all nations must begin an honest assessment of the social frictions coming in the next few years. In some countries (like the US) this means an urgent bolstering of social safety nets.

...

The world is facing deep structural challenges yet its leaders are stuck in a short-term, cyclical mindset. Until they break out of it we will see little more than fruitless discussions, national policy flip-flops, and a troubling lack of global policy harmonisation. Without action our future will be disappointing global growth and periodic sovereign debt crises. Let us hope this, if nothing else, is enough to bring the two camps together.

Paul Krugman is a major protagonist in this debate on the side of the expansionists. He is very critical of such views, implying that this is simply restrictionism.

In The Long Run, We Are Still All Dead

So, reading Mohamed El-Erian, I’m somewhat at a loss about what he’s actually saying; what, exactly, is the policy recommendation? But in any case, here’s what struck me: he writes,
The world is facing deep structural challenges yet its leaders are stuck in a short-term, cyclical mindset.

I disagree. If anything, we’re suffering from the opposite problem. Talk to German officials about high unemployment and the looming threat of deflation, and they ramble on about the demographic challenge and the cost of pensions.

I mean, why shouldn’t we be focused on the business cycle? We’ve suffered the worst cyclical downturn since the Great Depression; in terms of unemployment and output gaps, we have recovered almost none of the lost ground. Millions of willing workers are idle because of lack of demand; let them stay idle, and we can turn this into a long-term structural problem, but right now it is precisely a short-term, cyclical problem.

So saying that we need to focus on the long term, and not worry our little heads about trivial short-term issues like the highest long-term unemployment rate since the Great Depression, may sound like wisdom — but it’s actually folly.

Oh, and one more point — not about El-Erian, but about quite a few policymakers and economists: the attempt to shift the discussion away from the short run is not, as often portrayed, an act of vision of courage. On the contrary, it’s an act of cowardice, an attempt to evade responsibility for a disastrous state of affairs that we could fix, but choose not to.

Keynes had it right:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

What is most interesting for me as I read these debates are the implications for Australia. And just how different the situation is in Australia. This seems to be another 'world' that they are writing about. This is increasingly being explained by the argument that the global financial crisis should be seen as the North Atlantic financial crisis. (NAFC doesn't have as sweet a ring as GFC and makes me think of a football club from Adelaide).

Australia's fiscal position is relatively sound and the nature of the political debate in Australia ensures that even the small level of public debt is seen as a 'problem' that requires immediate action. One of the reasons why the Rudd govt introduced the Super profits tax was to bolster the ability of the budget to return to surplus sooner than originally planned.

We are in a very good position right now, but as always we continue to be vulnerable. Our success (and we could do better) has been built upon long-term growth and increases in national income bolstered by the terms of trade effect (relative increases of export prices over import prices). But eventually what happens in Europe and the United States matters to Asia and to us. China has continued to expand because of a huge fiscal stimulus and in turn growth in Europe and the United States has been bolstered by budgetary stimulus, financial guarantees and bailouts, and low monetary policy.

Without govt efforts the world would now be in a deep financially-induced depression. This is what the restrictionists and ant-govt zealots need to realise. Equally, however, expansionists need to (eventually) think about the growth of govt debt. This will involve both sides of the fiscal equation - spending and taxing.

We now live in a more globalised world economy. One of the benefits of that is that increased growth and the advancement of many developing countries with China and India showing rapid rates of growth. But globalisation increases vulnerabilities to negative effects as well. The aim of the G20 should be to foster the increased economic cooperation necessary to manage an increasingly globalised world economy. But international cooperation is no easy thing! States will have to continue looking after their own interests first, but a bias towards expansion in depressed areas will be beneficial for globalisation in the long-run.

The Leadership and the Economy

The week's events show that a political life in Australia can be nasty, brutish and short. Rudd was an amazing success as opposition leader and his early days were heightened by his govt's early response to the global financial crisis. There is no doubt, despite the views of stimulus non-believers like Griffith Uni's Tony Makin, that fiscal stimulus had a positive impact on Australian growth during the dark days of 2008-09. Rudd will be remembered, alongside Treasurer Swan and Treasury Secretary Henry as sound policy-makers who had a positive impact on Australia's economic situation during the GFC.

But Rudd and co. made mistakes. In their haste to get the stimulus out there they failed to properly supervise aspects of govt spending.  Rudd also failed to properly consult. He needed to take a lesson from the master of consensus Bob Hawke. I think this failure stems from Rudd's view that he was the smartest boy in the room and that 'post-hoc' consultation or the 'appearance' of consultation is good enough.

While this might fly in the public service (or in universities) it doesn't work when those who you fail to consult have made a truck load of cash in recent years and want the money to continue to be unaffected by higher taxes. Never get in the way of a miner and a pile of profits.

The Gillard govt will now need to get the mining tax right - there is no doubt that Australians should receive more from their non-renewable resources - but the effort to sell changes and to build a coalition to support them must be improved. Gillard could do worse than consult Hawke (or at least closely investigate) how this could be done.

Great distillation of newspaper commentary on business and the economy

Increasingly my favourite reportage on the reportage is a column by David Llewellyn-Smith called the Distillery. It's Australian business focused but always seems reasonable to me. The author seems to have a fairly strong bullsh-t detector and that's always a good thing given the rabid views of other commentators on Business Spectator (which BTW is a pretty good alternative source of business news even if Robert Gottliebsen seems to be too willing to shoot first, analyse later)

http://www.businessspectator.com.au/the-distillery

Great video on the mining tax

Just think if the opponents of changes to better societies for more people had their way, we'd still have feudalism!!

This country is a successful, rich country because we've redistributed wealth gleaned from our natural resources across Australian society, rather than let a wealthy few nationals and foreigners commandeer them like in Nigeria etc.

http://www.youtube.com/watch?v=H4PcQfz0MfU

Amid all the gloom and doom ...

The Australian has run very very hard against the Rudd govt and especially on the RSPT.

But lodged away in the Business Section was this little gem.

It would have been excellent if it had been placed next to a story by Xstrata about abandoning projects ...

Thermal coal set to boom, says bank

Michael Bennet
The Australian
June 03, 2010 12:00AM

THERMAL coal could become Australia's next booming commodity, Deutsche Bank predicts.

The German investment bank's global thermal coal team expects thermal coal contract prices to rise 26 per cent to $US120 ($144) a tonne by 2012 because of a rise in net imports from China and India.

The forecast led to local analysts upgrading their earnings guidance yesterday for a swag of coal miners, including BHP Billiton and Rio Tinto, despite the threat posed by the controversial resource super-profits tax.

"The seaborne thermal coal market is experiencing a transformation which may be as significant as that which occurred for the iron ore market over the past decade," Deutsche Bank's report says.

"In a similar way, we believe China and India together could transform the demand landscape for thermal coal over the next decade, displacing current western importers and evolving to dominate the industry."

The Reserve Bank of Australia reiterated this week that despite the recent softening of commodity prices in the wake of Europe's debt crisis and a slowdown in China, Australia's terms of trade were likely to remain at high levels.

Deutsche Bank's report shows this year's thermal coal contract prices were higher than expected at about $US98 a tonne and the bank expected the "very supportive" fundamentals to continue into next year and 2012.

Thermal coal suppliers have not moved to quarterly pricing as iron ore producers have, which provided a more stable earnings outlook, Deutsche said.

NSW miners Whitehaven Coal and Centennial Coal are Deutsche's preferred thermal coal stocks, and yesterday analyst Brendan Fitzpatrick upgraded Whitehaven to a buy and lifted Centennial's earnings per share by up to 65 per cent in full-year 2012.

Analyst Paul Young also upgraded earnings of BHP and Rio by up to 5.5 per cent in 2012-13 because of the size of their thermal coal businesses relative to their other divisions.

"We believe the competition for capital with other divisions means BHP's energy coal growth pipeline is more limited than Xstrata and Anglo," he said.

Deutsche reiterated its buy rating on Rio and BHP and upgraded its price targets to $96.50 and $48, respectively.

Queensland's Macarthur Coal was upgraded to a hold.

Good stuff from Bernard Keane in Crikey!

CRIKEY!

Drilling into Palmer’s myths
by Bernard Keane

http://www.crikey.com.au/2010/06/03/clive-takes-on-the-rspt-and-most-of-his-mates-in-the-process/


Yesterday’s debate at the National Press Club between Paul Howes and Clive Palmer over the RSPT wasn’t exactly a sell-out. Moreover, there was a curious absence of the many, many mining executives in town for ‘Minerals Week’, whom one would have thought would have been keen to support the most vociferous opponent of the RSPT.


I asked Palmer about the difference between the rhetoric of the miners and their supporters and what the industry is continuing to do on the ground. I noted that Australian-listed miners had outperformed the S&P/ASX 200 over the last month, had substantially outperformed overseas stock markets in the same period, and had seriously outperformed foreign miners.


Brazil’s Vale, for instance, supposedly poised to take advantage of our fiscal foolishness, lost 10.5% of its value in its New York listing in May. Anglo-American lost 13% on the NASDAQ. Freeport-McMoran lost 10%. Our miners only lost 6%.


Ah, replied Professor Palmer, that was because everyone knew the RSPT would never be implemented. Moreover, investment analysts were telling big investors exactly that. He named Credit Suisse.


It was the Peter Dutton defence, used by the member for Dickson to justify why he embarrassed his leader by buying BHP shares after the RSPT announcement, despite his party’s line that it was a disaster for the mining sector.


Unfortunately, the good professor’s claims are at odds with the views of a wide variety of commentators.


The chairman of Swiss outfit Xstrata, Mick Davis, chipped the Financial Times after it editorialised in favour of the tax. “Australia’s reputation as a stable regime for foreign investment has already been damaged and investments in Australian resources are at risk of being delayed or cancelled,” Davis said. By the way, Xstrata is listed in London and derives less than 40% of its earnings from Australia, but its stock has tanked 10% in the last month, much more than local miners.


Clive’s statement was also at odds with the views of Citigroup, which complained “at the very least, the uncertainty over implementation could delay projects by 12 months.” Then again, Citigroup recommended local mining stocks as a BUY after the tax was announced, so who knows what the hell they think?


Andrew Forrest also seems to have a different view. “The uncertainty in the financial markets caused by the proposed tax” was blamed by Forrest on his decision to review FMG’s projects.


Then there’s reactionary economist ‘Henry Thornton’ who declared “Australia now is widely perceived as a high ‘sovereign risk’ place to do business” and there needs to be a law against politicians lying (a rich statement indeed in this debate).


For that matter, there’s Palmer himself, who was reported as saying when visiting Mackay two weeks ago that “with the threat of the RSPT on Mackay’s mining industry, many future developments could be put on hold”/


Then there are our colleagues at Business Spectator who have been calling for a capital strike in response to the RSPT.


Contrary to Palmer’s claim that everyone knows the tax will never be implemented so everything is sweet, the miners and their cheerleaders have been consistent in their claim that the RSPT proposal is already damaging their industry and for that matter Australia’s entire reputation.


Yet they’re outperforming the stockmarket and their foreign mining competitors.


And they’re outperforming them for a reason: they know the RSPT won’t have anything like the impact they claim.


That’s why development is going full throttle in the Pilbara.


That’s why some of the biggest names in the resources sector, including BHP and Xstrata, are happily paying over the odds to buy QR’s coal lines.


That’s why Perth mining magnate Tony Sage (who’s more of a miner than Clive will ever be) declared the tax was a killer but then bought a million shares in his own company when the price dipped.


Professor Palmer’s explanation for why the miners are doing so well at the moment is about as plausible as the analysis of Das Kapital he was offering yesterday.


Oh and there’s one other firm at odds with Palmer. I contacted Credit Suisse to find out if their analysts had been telling investors that the RSPT could be ignored as it would never pass through federal parliament, as Palmer claimed. They could only point to a research note produced on May 10 that discussed the tax.


It noted the opposition opposed the tax, and that it would need the support of an independent senator to block an RSPT bill, assuming the bill would be introduced before the 2010-elected Senate sits next year. Credit Suisse’s conclusion? “Will it get through the Senate? This is a difficult question to answer, but if we can draw one insight from the ETS experience, the bill that is put to the Senate is likely to look significantly different to this ‘first draft’.”


That’s not quite what Palmer said. Perhaps he didn’t read Credit Suisse’s actual advice. It goes on to say:


“We have modelled a theoretical new iron ore project under the existing and proposed tax regimes. Using US$100/t installed capacity for capex and US$30/t of opex, our modelling suggests the economics are the same under both tax scenarios at a LT iron ore price of US$60/t. At prices below US$60/t, the new tax regime is actually more favourable and at prices up to US$70/t the impact on IRR in % change terms is less than 10%. Given the level of uncertainty around operating costs, capex, demand etc. we think it is safe to say that at a LT iron ore price of between US$55/t and US$70/t an investment decision is unlikely to be materially impacted by the RSPT.”


No wonder the miners stayed away from Clive yesterday.