Rudd Defends Australian Mining Tax

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

06 May 2010

Following the Australian government’s announcement of a 40% super profits tax on the country’s mining industry, there have been many attacks on the measure from mining companies, share investors and the parliamentary opposition, but the Prime Minister, Kevin Rudd, remains committed to the new tax.

During interviews that followed a meeting with mining companies at which, as he put it, they had “strong and robust” discussions, he emphasized the other side to the new tax, in that it would allow, from 2012, an increase to superannuation payments, investment in infrastructure in mining areas, incentives for mining exploration, and a reduction in the company tax rate, with additional tax breaks for small businesses.

The Prime Minister attempted to explain how the new tax would work. He said that the government was “basically applying the same sort of principles which you've seen with the petroleum resource rent tax; the offshore developments on the Northwest Shelf for the last twenty years.”

He said: “Let me go to the terms which apply to the definition of a super profits tax. Normal profits basically equal the revenue of the mining venture, minus their expenses. Super profits are revenues, minus expenses, minus what we would describe as an ordinary rate of return on investment. How do we define that, an ordinary rate of return on investment? That means what you would get if you were to invest it at broadly the long-term government bond rate of about 6%.”

“Profits on top of that - super profits, that is - mining companies get to retain 60% of those super profits,” he continued. “What we're talking about is that 40% would now be going to the Australia people, to build roads, rail, ports, and to provide tax breaks for all companies by bring down the company tax rate.”

In addition, he added, whereas a decade ago the government received about one-third of mining company profits in taxation, the ratio now was around one-seventh. In that period, while mining profits have gone up by about AUD80bn (USD72.4bn), the Treasury has only received additional tax revenues of some AUD9bn, and the government was now looking to return to a more equitable share. In that regard, he felt that the government’s fixing of the super profits tax rate at 40% was right.

With regard to the details of the proposed new tax, its implementation and the transition arrangements, he reiterated that the government wants to enter into detailed discussions with individual mining companies, large and small. That was why, he said, a large amount of time has been allocated for each company to consult with the Treasury on their particular circumstances.

On the other hand, Tony Abbott, the leader of Australia’s parliamentary opposition, was also forthright in his condemnation of this “great big new tax”. The super profits tax, he said, “is an act of economic vandalism that will have dire consequences for Australia’s most successful industry sector, with significant flow-on effects right across the economy.”

“By making the Australian resources sector the highest taxed in the world,” he added, “Mr Rudd’s new resources super tax will tip the balance for potential projects in favour of offshore destinations. This will cost our economy billions in investment, thousands of jobs, and put at risk the future of many regional communities that rely on resources projects for their prosperity.”

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