Australian Mining Up In Arms Over New Tax

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

05 May 2010

The Minerals Council of Australia (MCA) has described the Australian government’s plan to introduce a 40% resource super profits tax on the mining sector as a ‘revenue grab,’ not taxation reform, while mining companies also attacked the proposed tax.

The MCA said that the new tax is “an unprecedented double-tax that will hit the industry’s workforce, the millions of Australians with shares in superannuation or minerals companies and the thousands of small businesses that service the industry.”

It confirmed, however, that it “will work with the government to get the design and rate of a resource rent tax right. If we don’t get the design and rate of this right, it will destroy value, slow investment and increase sovereign risk in the Australian minerals industry. Thousands of potential mining industry jobs will be lost – particularly in regional Australia.”

The MCA stated that the minerals industry is not under-taxed. The government, it said, “has claimed that the community is not getting a fair share from mining. It has focussed solely on royalties from mining and ignored the massive increases in company tax the minerals sector has paid over the last decade. The total tax paid by minerals companies and workers in 2008/9 was about AUD25bn (USD23bn).”

“Australian Taxation Office data shows the industry pays 13% more tax than other sectors,” it continued. “While making up about 8% of the economy, mining companies contributed about 18% of corporate income tax revenue during 2008-09. We are already punching above our weight in terms of tax take.”

On the other hand, it added that, “if the government’s new tax proposal goes ahead, AUD108bn worth of future investment in the minerals industry will be under a cloud. Under the plan announced today, Australia will have the highest taxed mining industry in the world.”

Xstrata plc’s response to the new resources tax was that it “will result in significant and disproportionate additional taxation on the industry and could well curb the large scale, long-term investments required to develop Australia’s natural resources for the benefit of all Australians.”

Mick Davis, Xstrata plc chief executive commented: “The Australian mining industry already makes an appropriate and proportionate contribution to the tax base of federal and state governments in addition to investment in infrastructure, substantial direct and indirect job creation. These proposed taxes reduce the very cash flows that are reinvested in maintaining or expanding existing Australian mines and in developing new operations, protecting existing jobs and creating new ones.”

“Mineral investments require long-term certainty over fiscal arrangements. The government’s intention to change the basis on which existing mining investments were entered into sends a particularly worrying signal and undermines Australia’s reputation as a stable investment destination, hampering the ability of mining companies and other investors to assess the basis for, or to commit to, future long-term investment.”

BHP Billiton also expressed its disappointment with the Australian government's plan to impose the new tax. The imposition of this new tax would result in an increase in the total effective tax rate on the group's profits earned from its Australian operations from around 43% currently to around 57% from 2013.

Its chief executive officer, Marius Kloppers, said: "The stability and competitiveness of the tax system have been central to the investment in resources in Australia. If implemented, these proposals seriously threaten Australia's competitiveness, jeopardise future investments and will adversely impact the future wealth and standard of living of all Australians."

"The government has not defined all aspects of the design, implementation and application of the new tax, and until they are clarified we cannot be certain what the full implications for the industry will be,” he added. “However, this significant new tax will have the effect of making investments in Australia much less attractive."

Rio Tinto plc also warned that the proposed new resources tax could erode Australia's competitiveness, severely curtail investment and limit jobs growth. Its managing director in Australia, David Peever, said: "We are concerned about the inclusion of existing operations and the apparently arbitrary way the new resources tax was set at 40%. Taxing 40% of profits over the long-term bond rate, together with corporation tax, would make the Australian minerals sector the highest taxed in the world, seriously eroding competitiveness.”

"And just as importantly,” he felt, “altering the rules for existing multi-billion dollar projects in mid-stream - after large amounts of capital have already been put at risk over many years - would be the worst possible message Australia could send to investors."

Nevertheless, all three companies confirmed that they would actively engage with the government, and will constructively contribute to the consultation process.

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