Market Wrap – WA Government Leans Hard On Mining Industry

Government Of Western Australia Leans Hard On Mining Industry

By Dale Gillham, Chief Investment Analyst at Wealth Within 

The WA Government is asking mining companies to cough up additional profits in order to fill a hole in their budget. I question this practice for two reasons, the first being whether Governments should be allowed to fix their inefficiencies by transferring the problem to companies or the public, and secondly, is this really a good way to manage the country’s precious resources?

Ratcheting up taxes in a mining bust will invariably see share prices fall, at least in the short term simply because of the uncertainty created around those affected.  Further any tweaking of taxes impacts on future investment into the sector. It is impossible for companies to plan and make decisions if there is uncertainty about the future?

The new taxes take effect from 1 January 2018, with the WA Government set to raise an additional $60 million in six months and $120 million by 30 June 2019. This money is likely to come from big gold miners such as Newcrest (NCM) and BHP Billiton (BHP).

It looks to me like just another example of poor planning and inefficient use of revenue by state Governments, and whilst governments spend money on worthwhile and essential services they also waste millions without much accountability and something needs to change. Governments cannot just keep spending as revenues decline and then shift the blame for their failings. Imagine if you ran your household budget like this.

Surely, it is common sense to be put money away for when the bust eventually occurs as boom times don’t last forever, and it’s fine to make hay while the sun shines but we all must plan for a rainy day and that includes governments.

What do we expect in the market?

As I have mentioned a few times, the current sideways move will end soon, and given what has occurred this week I believe the time is now. In a sideways market, we generally see larger price swings early as the market tries to work out direction before the sideways move comes to an end and the swings in price reduce. We have seen this occurring over the last three months and now may be the start of the breakout with a return to the uptrend.

Earlier this week, our market moved up strongly rising over 1.5 percent in the first three days before falling slightly on Thursday. It is reasonable to expect a market to fall slightly if it is about to break out, however, any fall will only last one or two days. If the market trades up next week and moves past 5836 points, then the probability that the market is breaking up out of the sideways move will increase.  

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