TAX NEWS - June 2010

Australia Tax: New tax creates 'lots of issues'

Mining executive Giulio Casello says the proposed 40 per cent super profits tax has "created a lot of issues" around funding for future projects.

Mr Casello, the chief operating officer of Chinese-owned Sinosteel MidWest and chairman of the Geraldton Iron ore Alliance, said the tax was not designed to handle the "inter-dependency" of mining projects and their infrastructure requirements.

"It's created uncertainty, so therefore it's created a lot of issues in actually raising the capital which'll happen over the next few years," he told ABC's Inside Business program.

Mr Casello, whose iron-ore business is based in Western Australia, said Chinese investors were "still very committed to the region" but that they would be keeping a close watch on the impact the tax has "on cashflows".

Mr Casello's comments add to a storm of protest from miners about the controversial tax amid speculation the Federal Government will move to alter the proposal to reflect the existing petroleum resource rent tax.

This could involve ditching a proposed 40 per cent guarantee on losses and lifting the profit trigger for the tax from the long-term bond rate, which is about 6 per cent, to above 10 per cent.

However, Treasurer Wayne Swan's office yesterday stood behind the central thrust of the levy.

"A profits-based tax is key to leveraging the opportunities presented by growth in Asia," Mr Swan wrote in his weekly economic note.

Mr Swan also argued the current royalty-based system for mining had left Australia "short-changed".

He pointed to recent rises in coking coal contract prices from $163 a tonne to an estimated $225, but claimed royalties under Queensland's system only rose from $13.30 a tonne to $19.50 a tonne.

"The ultimate owners of our mineral wealth aren't receiving fair value under this system of royalties," Mr Swan wrote.

Finance advisory group Deloitte yesterday said an index of the market capitalisation of WA-listed companies decreased by $20.7 billion to $143.8 billion in the month to May because of uncertainty around the tax.

"The WA market has been unsettled by the combined impacts of the instability in Europe, the uncertainty caused by the proposed (tax) in Australia and declining commodity prices during the month," Deloitte said.

Sinosteel's Mr Casello argued yesterday that the tax "created uncertainty" about proposed infrastructure for five mines working in an iron-ore alliance.

"It's created a lot of issues in actually raising the capital which'll happen over the next few years," he said.

He said there was "no way" he could say whether the proposed tax would actually stop projects.

Mr Casello argued that another problem was a tax consultation group was limited in being able to discuss some areas of the proposal, with the effect on "regional issues" being "outside the areas that they could really talk to us constructively about".