TAX NEWS - June 2010

Profits tax sets bad example, says Rio Tinto finance chief Guy Elliot

Rio Tinto chief financial officer Guy Elliott says Australia is setting a "bad example" to the rest of the world when it comes to taxing mining profits.

Speaking to investors in London yesterday, Mr Elliott, one of Rio's three executive directors, said the planned resource super-profits tax would probably push up commodity prices if it was implemented in its current form.

Mr Elliott said the tax would also raise the company's long-term price assumptions.

"It will certainly have an impact (on commodity price assumptions)," he said. "If the tax went through unadjusted, it would have an effect on supply."

But the impact would be offset by increased supply from other regions such as Africa, Brazil and North America, he said.

This was because Australia's production would drop off in comparison to other nations because it had become a less attractive investment destination.

Asked whether there was a risk of a ripple effect to other countries from the proposed tax, Mr Elliott said: "Australia is certainly setting a bad example. I hope that they will change the proposal to something more sensible.

"Canada sees it as a fantastic opportunity."

If other nations implemented similar mining taxes, it would benefit Australia because there would be less chance investment dollars would flow to those countries.

Mr Elliott is Rio's highest-ranked employee after chief executive Tom Albanese.

He said Rio remained cautious about short-term volatility in prices and demand, but expected long-term demand to remain strong.

While China's economy grew faster than expected in the first quarter and demand continued to improve in developed countries, Rio was concerned China's attempt to cool its real estate market might be too aggressive, he said.

Sovereign debt concerns, foreign exchange movements and banking liquidity were also putting negative pressure on the recovery outlook.

Mr Elliott said Indian growth was expected to be a key source of demand in the medium to long term.

"India's GDP per capita is estimated to reach current levels in China in 15 years," he said.

The country's per capita consumption of steel, copper and aluminium was one-tenth that of China's last year.