RSPT - Where the bloody hell are you?

The response by the funds management industry to the Resources Super Profits Tax (RSPT) or lack thereof, is baffling.  There are some 900 Australian fund managers, all making their living by having an opinion on subjects market related, and very few are shy about expressing these views in the public domain.  Yet, when a new tax is proposed that wiped billions from the market value of resources companies, threatens our nation’s reputation as a safe investment environment, and leads to delays and possible cancellation of projects amounting to tens of billions of dollars, they cannot find the words to register discontent.  And it’s this seemingly ambivalent view towards recent events that’s piqued our interest in the subject.

The arguments against the RSPT have already been laid out by the resources industry, market commentators and the Opposition, what's at stake in the short term is plain: $14 billion was wiped off the value of Australian resources companies, our international reputation has been tarnished, and tens of thousands of jobs will be lost in the coming months as projects are reassessed or canceled. In the medium term, resource companies will report reduced profits, and pay lower dividends. The effects will not be confined to the resource sector as many industries service the sector (banking, transport, construction to name a few).  The scheme is so complex (one might guess deliberately) that neither the companies nor analysts can model the exact impact.  The long term effect will be even more significant on our most globally important and efficient industry and the flow-on effects will impact every Australian. What's less well understood is the conflicts of interest this proposed tax has created for many fund managers and the risks this represents.

When management at Australia’s largest resources companies registered their opposition to the RSPT they have been vilified by Swan and Rudd.  Rudd is reported to have said, “Take with a grain of salt complaints from billionaires”, referring to Andrew Forrest’s (chairman and major shareholder of Fortesque Metals) statement that, “this is the nationalisation of 40% of the mining industry”.

Rudd's statement ignores that nearly every Australian has an interest in resources companies through various superannuation schemes and Australia has the highest proportion of share ownership in the world.  As a fund manager serving mostly wealthier Australian families and charities, PPM don't see this issue as being confined to an elite class of billionaire Australians - it effects our nation as a whole. As responsible stewards of our investors’ money, we feel a strong duty to oppose the proposed RSPT.

The broader funds management industry should be up in arms about the RSPT, but thus far, the response has been muted.  Maybe they see it as the necessary cost of increasing the superannuation contribution guarantee, which promises the funds management industry guaranteed growth for another decade.  Or perhaps the larger funds managers feel pressure from the very powerful industry super funds which have come out in support of the proposed tax.  It could even be that the big fund managers, many of which are wholly or part owned by the banks, fear themselves becoming the target for a super profits tax should the RSPT fail.  In any event, it’s disappointing that other fund managers are not advocating the interests of their investors.

BHP and RIO have 600,000 and 185,000 Australian shareholders respectively, and are reportedly taking steps to activate them through Town-Hall style meetings, probably a response to the lack of support from the funds management industry.

PPM urges the funds management industry and all investors to become involved in the RSPT debate. We encourage super fund trustees to query their fund managers on their position and take appropriate steps to ensure the interests of investors are being promoted.

Elton Doyle