BEN SMALL MP
FEDERAL MEMBER FOR FORREST
SHADOW ASSISTANT MINISTER FOR INFRASTRUCTURE
SHADOW ASSISTANT MINISTER FOR ELECTORAL MATTERS
OPPOSITION WHIP
Why Labor's CGT will kill the next Golden Goose
There’s missing the point, and then there’s being so far wide of the mark that it is almost negligent. And unfortunately that’s where the conversation about Labor’s capital gains tax grab has gone in recent days, cheered on by the Teals who are desperately trying to appease their inner-city donors by calling for founders in the tech sector alone to spared.
Every dollar the Commonwealth spends on hospitals, submarines, pensions and pork-barrel train lines for a bankrupt Victorian Government is underwritten, in no small part, by holes in the ground in Western Australia and under its tunning turquoise waters.
It is high time that Albanese and Chalmers, along with the posse of Teals in the Federal Parliament, remember who paid to find them in the first place, because the big holes we see today spitting out cash began as little holes funded by mum-and-dad investors taking a punt twenty, thirty or forty years ago.
Western Australia's mining and resources sector contributes more to the national economy than any other single industry. Literally billions in GST, company tax and income tax from the incredibly well-paid workers in the Pilbara donned in fluoro PPE (not that long ago I was one) flows to prop up a Commonwealth budget that would be unrecognisable without it.
Analysis puts WA's net contribution to the Commonwealth at more than $13,000 per person, 19 times more than the next-best contributor, New South Wales, which manages to chip in a paltry $700 per person. Every other state and territory has its hand out.
But here’s the kicker – none of those mines or gas wells existed before Australians took a punt, put their own hard-earned capital on the line and backed a fledgling exploration company hoping to make it big.
From the iron ore mines in the Pilbara, to the gold mines in the Goldfields, and the gas fields onshore and off, each began life as a junior exploration project. A geologist with a hunch, a
small team of people with a 4WD and a caravan, maybe a drill rig hired with the last of the company’s money, backed by a register of shareholders made up overwhelmingly of ordinary, aspirational Aussies punting a few thousand dollars on the chance that this tenement, this time, might be the one.
Fortescue, Northern Star, Mineral Resources, Pilbara Minerals, Liontown – all speculative juniors funded by mum-and-dad investors who understood the risk and took it anyway.
Kill that pipeline by crippling the investment in shares, particularly capital raising at the speculative stage of mineral exploration - and you kill the next generation of nation-building projects. The majors do not undertake greenfields exploration at scale, they buy proven discoveries from the juniors. No juniors, no discoveries. No discoveries, no mines. No mines, no prospect ever of a Commonwealth budget surplus.
How’s that for generational fairness? We live high on the bounties of exploration done decades ago, and tax out of existence the very activity that would see future prosperity for our kids?
This is one very important reason why proposed changes to Australia's capital gains tax regime are so dangerous, and so poorly understood by Labor, the Greens and the Teals who all seem to hate mining and be desperate to tax gas out of existence.
Junior explorers are, by definition, loss-making for years. Investors accept that. They accept that nineteen out of twenty exploration plays will return nothing but dirt. They tolerate the risk because of the asymmetric upside: if the twentieth one hits, the capital gain compensates for all the duds. Take a hammer to the CGT discount for the investors, and those brave souls who start exploration companies, and the maths simply stops working.
There is also a question of basic fairness here - when a tech founder in Sydney or Melbourne risks everything to build a startup, the political left falls over itself to praise their entrepreneurial courage. But when an Australian hitches up a caravan, drives a thousand kilometres into the desert, and risks everything to find the next great orebody, suddenly they don’t deserve the same recognition according to the Teals who are cheering on Labor’s tax grab.
They are doing the same thing. They are putting their own capital, their own time, and their own livelihoods on the line to build something out of nothing. The Australian who backs a junior explorer on the ASX is not gaming the system any more than the venture capitalist who writes a cheque to a Silicon Valley-style startup. They should not be treated as second class entrepreneurs because their factory floor happens to be in the red dust of the Pilbara rather than a co-working space in Surry Hills.
Western Australia has built the prosperity of this nation on the back of risk-takers who looked at empty desert and saw immense opportunity. Labor, and their mates the Greens and Teals, should think very carefully before taxing that out of existence.
ENDS