Should Mining Tax Be Given The Flick?

A recent report released by the National Australia Bank stated that exporters’ sales have hit “a near 13-year high in March”. This, NAB suggests, indicates that the miners are “pumping out product from new and expanded mines”, while enjoying a lower dollar. The NAB says this is the part of the cycle where “investments start to pay off in export sales and increased profits”. Given this, we need to ask the question, should the government continue with its plans to unwind the Mineral Resources Rent Tax (MRRT)?

The answer is in understanding how cycles impact markets. It can be shown how the mining industry will always experience a boom followed by a bust or slowdown in investment, whether or not this tax remains in place. The choice by the big miners, such as BHP or RIO, to develop a mine in Australia will have more to do with the current phase of the investment cycle, the value of the dollar and the company’s ability to hedge, and of course the level of demand for ore from global markets. Given this, I don’t believe that leaving the MRRT in place will have as big an impact as lobbyists would have us believe.

With increased profits in this next phase, the tax has the potential to relieve a bit of pressure on the Federal budget short term, and long term provide important funding for infrastructure projects. Remember that if the tax is unwound these taxes will have to come from somewhere else.

So what do we expect in the market?

On Wednesday the market finally pushed up strongly in a decisive move to close above an important level of resistance at around 5450 points before continuing to trade higher on Thursday. This rise, although welcome, may have surprised many investors given gains have been suppressed by recent negative news about the Ukraine, a slowdown in Chinese growth, and locally, very sensitive subjects such as our unemployment rate which is likely to continue to rise.

For those regular readers, you will recall that the All Ordinaries index has been trading sideways in a zigzag formation since September 2013, which means that while investors may have received some dividends there has been very little growth. Given that we are now seeing the rise we have been waiting for, the market is now much more likely to continue higher in line with our forecast to between 5600 and 5800 points. What this demonstrates is how patience is a very important part of investing, and so is having a short and medium term view on the market.

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To your profitable trading,

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’. Dale has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment adviceto traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.