Australia Defends Mining Tax

by Mary Swire, Tax-News.com, Hong Kong

17 May 2010

In the midst of negative comments from both the mining industry and the parliamentary opposition in the country, Australia’s Treasurer, Wayne Swan, has reiterated that the government is firmly committed to a resource super profits tax (RSPT), and its proposed rate of 40%.

In a television interview, he said that the RSPT, in place of the royalties system, would “give the Australian people a fair return for the mineral resources that they own, because we haven't been getting that fair return over the last decade. A decade ago, royalties were AUD1 in AUD3 of mining profits. Now they're AUD1 in AUD7.”

He reminded his interviewer that the RSPT would be a super profits tax, not merely a profits tax. Australia’s Prime Minister, Kevin Rudd, had previously attempted to explain how “super profits” would probably be defined as “revenues, minus expenses, minus an ordinary rate of return on investment,” which could be the current 6% long-term government bond rate. It would operate similarly to the existing 40% petroleum resources rent tax (PRRT).

He confirmed that the exact terms of the tax will be the subject of negotiations with all companies in the mining sector. He did not want to pre-judge how those discussions would proceed, but also confirmed that there would be “generous transitional provisions for existing projects.”

While he was aware that some profitable companies would end up having to pay more tax, “at the moment the royalty regime really punishes a lot of miners whether they make a profit or not,” and many mining companies in low-value commodities might do much better in an RSPT than they currently do in a royalty regime.

He repeated that the government is “committed to a 40% rate”. This is the same rate as the PRRT. He said that, while the government is genuine in its consultation and discussion process with the mining industry, and there would be generous transitional provisions, the government believed that the proposed rate would give a “fair value” to taxpayers.

These comments were made in the teeth of extremely negative comments received from Tony Abbott, the leader of the opposition, who has said that he would make the RSPT on the miners the main focus of the general election this year. In a radio interview, he called the new mining tax “a cash grab from a government that is addicted to spending.”

On the other hand, the Minerals Council of Australia has confirmed that the minerals resources industry is ready to engage in genuine good-faith consultation with the Resource Tax Consultative Panel, but it thinks the terms of reference for that consultation are too limited.

In particular, it continued, the government has indicated that the panel will “not be consulting on... the key parameters determined by the Australian government”. In its opinion, that prevents the industry from considering “fundamental elements of the proposed new tax, including the 40% rate, the definition of “super profit,” whether existing projects should be covered, and whether the tax should apply at a differential rate to different commodities.

The chairman of BHP Billiton, Jac Nasser, in a letter to shareholders, appears to have softened the company’s approach to the new tax. He disclosed that the company has “no issue with a review and reform of the tax system, but it must be conducted around sound principles."

"Any reform proposal must only apply to new investments, not to existing investments,” Nasser wrote.

“Additionally, any reform should not disadvantage the resources industry compared to other industries in Australia,” he adds, “and it absolutely must not disadvantage the Australian resources industry compared to other countries. In other words, any reform must not destroy the necessary incentives to keep investing in Australia's growth engine, the resources industry.”

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