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Grasping the MRRT's property peril
15/09/2010
By Robert Gottliebsen
Business Spectator
The value of Australian houses and the level of the Australian stock market weigh heavily of the shoulders of Resource Minister Martin Ferguson and his “assistant”, former BHP Billiton chairman Don Argus.
The Ferguson-Argus committee has the task of refining and detailing the so-called MRRT which was the previous government’s second attempt at a mining tax. (See Time is miners' money, July 12.) The problem for the Gillard government is that the billions in revenue expected from the new mining tax hinges on estimates of world economic growth set prior to the most recent sharemarket rout.
Already the Greens and one or two of the independents are baying for more money from miners while the smaller miners say that the MRRT will make many of their projects uneconomic.
It is almost impossible to satisfy the two extremes. But first let’s underline what is at stake. Australian house prices are maintained at current levels because the world money markets are prepared to lend vast sums to Australian banks – funding about 40 per cent of every loan the banks make. The overseas institutions lend big sums to Australian banks in part because they have confidence that the country’s economy will be underpinned by hundreds of billions earmarked for new Australian mining projects. If the overseas institutions think that Australia will take actions that will halt much of this mining investment, the overseas banks will reduce the amount they are prepared to lend to Australian banks. (See A mammoth capital strike looms, May 6.)
In turn that will mean that there will be less money available to fund Australian houses and/or interest rates will need to be increased to attract a much bigger proportion of the Australian savings market into bank deposits. If either of these events take place house prices will decline sharply and the stock market will be ravaged slashing the value of Australian superannuation savings. (The RSPT's property price risk, June 16.)
15/09/2010
By Robert Gottliebsen
Business Spectator
The value of Australian houses and the level of the Australian stock market weigh heavily of the shoulders of Resource Minister Martin Ferguson and his “assistant”, former BHP Billiton chairman Don Argus.
The Ferguson-Argus committee has the task of refining and detailing the so-called MRRT which was the previous government’s second attempt at a mining tax. (See Time is miners' money, July 12.) The problem for the Gillard government is that the billions in revenue expected from the new mining tax hinges on estimates of world economic growth set prior to the most recent sharemarket rout.
Already the Greens and one or two of the independents are baying for more money from miners while the smaller miners say that the MRRT will make many of their projects uneconomic.
It is almost impossible to satisfy the two extremes. But first let’s underline what is at stake. Australian house prices are maintained at current levels because the world money markets are prepared to lend vast sums to Australian banks – funding about 40 per cent of every loan the banks make. The overseas institutions lend big sums to Australian banks in part because they have confidence that the country’s economy will be underpinned by hundreds of billions earmarked for new Australian mining projects. If the overseas institutions think that Australia will take actions that will halt much of this mining investment, the overseas banks will reduce the amount they are prepared to lend to Australian banks. (See A mammoth capital strike looms, May 6.)
In turn that will mean that there will be less money available to fund Australian houses and/or interest rates will need to be increased to attract a much bigger proportion of the Australian savings market into bank deposits. If either of these events take place house prices will decline sharply and the stock market will be ravaged slashing the value of Australian superannuation savings. (The RSPT's property price risk, June 16.)
I hadn't seen anybody connect these two before and don't know what to think. Surely it would only make a difference if the tax caused economic weakness?
Either way, it's interesting that he makes so clear the precarious state of house prices!
