Are Mining Exports Really Keeping the AUD High?

 We are talking about a robbery in the realms of tens of billions of unpaid tax while much of gas goes to China to build weapons to threaten Australian freedom, keeps the AUD high hollowing out other tradeables, and trashes carbon output targets with failed CCS.

https://www.macrobusiness.com.au/2022/01/morrisons-gas-cartel-to-plunder-australia-indefinitely/

This snippet from that other site got me thinking. To keep the AUD high then the money being used to buy these exports must be staying in Australia. If it was converted into offshore currency immediately for transfer of profits then the net effect on the AUD would be zero and the foreign currency at the end of the chain would be the one being kept high. The way that it would increase the value of the AUD would be with increased demand to purchase AUD internationally but the transfer of the profits offshore would produce and equivalent supply of additional AUD to meet that demand resulting in no change in price or supply/demand ratios. If the profits remain in Australia then there would be a net increase in demand for AUD with the resultant increase in price compared to without that demand.

This begs the question, are the proceeds from mining actually keeping the AUD high and therefore remaining onshore or are they being sent offshore and having little or no effect on the level of the AUD. You can’t both have your cake and eat it claiming it is both being sent offshore and also keeping the AUD high.

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Peachy

Last I checked, most mining and oil/gas companies sell their commodities in USD….

which is to say that you are possibly quite right. BigGas or BigCoal or BigWhatever is owned and financed somewhere else and their customers are somewhere else.

so they don’t give a shit about Australia. Australia is jsut where the quarry/well happens to be. They come, extract the material and sell it somewhere else.^

just like if (thought experiment) major reserves of oil/gold/whatever were found on the Moon and they went there and got them. The Moon itself wouldn’t be any better off, nor would Moon-dollars rise in value, would it now?

^
now, obviously the stuff doesn’t jump out of the ground itself, so they do need to pay salaries here, build rail infrastructure, service their machinery, etc – this requires AUD. but this is a small small fraction of revenues. Margins are strong.

Last edited 8 months ago by Peachy
emusplatt

WA treasury should be running an offshore USD investment vehicle for royalties….hide the royalties overseas to game the federal gov’t gst fiscal equalisation panjandrum

Freddy

Partly true. Productive oil companies (rather than exploratory) would convert a proportion of their profits to pay taxes, dividends, wages, etc.

Peachy

Rio and bhp pay a shitload of tax in Australia. Both corporate (on profits) and royalties (on production).

now, maybe they should pay a bit more or a bit less, but this is at the margin

PS: that is why they get to tell the government what to do, like the banks.

Last edited 8 months ago by Peachy
Freddy

Too general. I have owned oil stocks that actually paid taxes, and also split the rest of their money in AUD and USD. Those with zero profits are reinvesting in new explorations. With the shift away from fossil fuels more of them will cash in on existing reserves rather than exploring for new reserves.

Last edited 8 months ago by Freddy
Freddy

No idea. I recall a similar discussion on MB a few years ago, and someone pointed out the amount of foreign money indirectly coming back into Aus property via offshore funding. I think pre-TFF it was something like 45% of mortgage funding coming from offshore.

Ramjet

Depends on the bank and their funding profile. But let’s focus on the big banks. About 60% of their assets (loans) are funded by deposits. The rest has to be funded through wholesale markets of which three quarters is offshore.

https://www.rba.gov.au/publications/bulletin/2021/mar/developments-in-banks-funding-costs-and-lending-rates.html#:~:text=Banks%20obtain%20funding%20from%20retail,funding%20now%20comes%20from%20deposits.

You will notice issuance of bonds has been down, so the TFF is to thank for that.

Peachy

Yeh, so that’s just the cost of extraction (and maintenance of production) that gets paid in aud.

Ramjet

Doesn’t BHP ‘sell’ the minerals to its own marketing arm in Singapore and the marketing arm makes all of the profits?

Peachy

They pay tax in Australia on almost all of the profits made by the marketing arm, too.

I think Rio does something similar but pay Australian tax on less than half the profits of their Singapore marketing arm.

emusplatt

ATO belted ’em ..exxon too. .. corporates still transfer price tho’

robert2013

Seems logical, but most currency transactions are for speculative or hedging purposes rather than practical ones. The underlying use value of a currency and its price could be misaligned for substantial periods. It’s worth investigating in more detail.

Reus's Large MEMBER

Hell no, it is all the RE that is being bought up to launder money from China that is keeping the dollar up, ask yourself this question, we have not had any immigration and the FHB’s have been slashing out on new builds left right and center, so why do we have a rental crisis, there should be heaps of empty houses that the FHB’s moved out of as well as all the sea / mountain / green change sellers, so who is buying up all the houses that are empty now. Seem to remember that it is a very Asian thing to not rent our a house so that it does not get damaged if you are keeping it as a offshore asset.

Peachy

we have not had any immigration and the FHB’s have been slashing out on new builds left right and center, so why do we have a rental crisis

my theory is that it’s a timing thing. A lot of the “new builds” are knock-down rebuilds.

At least from the time that the old house is demolished until the new house is ready to move into (12-24mo) it reduces housing supply.

so the big HomeBuilder flourish has likely crunched supply in the shorter term. (It will expand somewhat in the longer term, in respect of true new builds (not knock-downs))

Ramjet

There is a shortage of things that people actually want to live ie houses and an oversupply of things that people don’t want to live ie studio apartments. What are we knocking down and what are we building?

Stewie

Probably a bit of both sides of the equation, supply and demand. You are right that some profits bleed away the AUD gains as they are paid back out to shareholders, but there are other factors working in the AUD’s favour as well.

Demand for our commodities is high and money is pouring in, maybe not as high as in peak commodity boom back in 2012, but the thing that is missing this time around is the import demand pull of hosing 250,000 migrants a year into the Aust economy and seeing them fed, housed, clothed, entertained and serviced.

emusplatt

instructions from rio…. lizzen up marky boy

“development of the pandemic does not lead to government-imposed restrictions “

Our guidance assumes development of the pandemic does not lead to government-imposed restrictions and widespread protracted cases related to new highly contagious variants with high severity, which could result in a significant number of our production critical workforce and contractor base being unable to work due to illness and/or isolation requirements. This risk extends to prolonged interruption of service from a key partner or supplier which could lead to severely constrained operational activity of a key asset or project. This risk is exacerbated globally by tight labour markets and supply chain delays.