CFMEU - Mining and Energy Division
Olympic Dam hiccup caused by high dollar, not high taxes
The multinational mining giant formerly known as the Big Australian announced a massive US $15.4 billion net profit yesterday afternoon (simultaneously on stock exchanges around the world, reflecting the global behemoth it has become).
It was reported in some places as ‘BHP profit down 35 per cent’. That’s true. But then last year’s $23 billion mega profit was up 80 per cent on the previous year, knocking all previous corporate profit records out of the park.
So a bit of perspective is in order.
This year’s $15.4 billion profit is still the second biggest corporate profit ever recorded in Australia. It is more than double the highest profit ever made in our next most profitable sector – banking. And the banks don’t mind raking in a buck.
And remember the $15.4 billion is net profit – underlying earnings (which take out one-off impacts like CEO Marius Kloppers’ dud deal on US gas shale assets) were a rudely healthy US$17.1 billion.
Following the ‘profit slide’, there is much speculation about Australia’s mining boom coming to an end – pushed along by BHP’s announcement it is delaying plans to expand its South Australian Olympic Dam project.
Mining companies love to announce they will delay projects that haven’t started yet. It is a great way to get governments quaking in their boots, without actually doing anything.
Public fear that mining companies will pack up their diggers and move to Africa is a very helpful tool in the utility belt of mining company bosses. They like to use it to their political advantage where possible to convince politicians that mining companies should, say, pay less tax.
We all saw the extraordinary performance the mining companies put on over the Minerals Resource Rent Tax.
In its final form the MRRT was a modest tax on a highly profitable industry in the grip of a one-off boom. Now, the most vigorous complaint against it – even from the Coalition who are vowing to scrap it – is that the MRRT will fail to raise enough revenue.
It matters that Australians understand what is really happening in their mining industry, because the mining industry is having a major impact on our economy, affecting all of us.
Commentary suggesting that somehow a $15.4 billion profit from BHP is not big enough and reflects the end times of our mining boom misrepresents what is going on here.
What we know about the mining industry in Australia is that investment is continuing at a furious rate. It’s growing too fast, frankly, causing social and economic ructions as it goes.
We know this is a boom with a lifespan of at least a couple of decades as the rapidly-growing economies of Asia buy up our high quality resources to fuel their industrialisation.
Along the way there will be hiccups. There will be ups and downs in commodity prices in particular markets. There will be floods that affect production. There will be industrial action from time to time as workers look for fair treatment while they deliver the spoils. Over the course of the next 20 years there will be profits that are mega-high one year, not quite as high the next.
But to be sucked into a short-sighted panic that our boom is coming to an end prevents us from taking the action we need to take to manage this boom of ours.
Here’s something else we know about the mining boom. It has pushed our dollar into a protracted period of record-high territory.
Traditionally the Australian dollar has softened in line with commodity prices, easing cost pressures when sale prices are lower, as they have been over the past few months. But this is no longer the case.
Australia’s strong economic performance amidst global economic uncertainty means the Australian dollar has become a safe haven for international investors, keeping it artificially high.
The high dollar has been hammering industries including manufacturing, tourism and education, putting thousands of people out of work – now it has come back to bite mining too, as commodity prices fall from their record highs but the dollar stays there.
BHP’s profit announcement today shouldn’t spark panic about the state of our mining industry. It should spark a debate about where our boom is heading and how we are going manage it in the long term, in the interests of all Australians.
The MRRT was a good start. We need to build on it with a discussion about how we get a fair share for all Australians - including future Australians; and most urgently, how we keep the dollar at a level that delivers for Australians jobs, right across the economy.
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