TAX NEWS - June 2010

Tax will cut 'magnificent margins'

A mining tax with a lower rate would allow Australia to compete on a level playing field against other mining countries, a leading economist said.

Access Economics director Chris Richardson also warned that although Australia was in a mining boom, high profit margins would not last forever as other nations capitalised on their own resources.

He said any taxes on mining could not be compared to the petroleum industry's tax.

Just last week, Queensland Resources Council chief Michael Roche said the proposed resources tax could be similar to the petroleum tax.

But Mr Richardson said yesterday that the two were not comparable.

"I don't think the uplift factor is the make or break," he said. "I think it is the rate of the tax - the 40 per cent rate. In petroleum, the 40 per cent rate we've got is competing with some very high tax rates in the rest of the world, but in mining, hard-rock mining, tax rates in the rest of the world are much lower.

"If 40 per cent is the right rate in oil and gas, then it's too high in hard-rock mining because it's competing with very different tax rates in the rest of the world."

He said the tax would push Australia up on the global cost curve, meaning some business would go to Brazilian, Canadian or Indonesian mines.

"The impact on investment is very long lived," he said. "That doesn't mean the mining sector in Australia won't grow. What it does mean is that it grows less than it could have done.

"The key risk is the magnificent margins of the moment just don't last forever."