TAX NEWS - JUNE 2010

Australia Tax: Punitive tax puts Australian investment at risk

by M. L. Davis, 02 June 2010 -- Sir, the editorial regarding the Australian resources "super profits" tax (RSPT) ("Taxmen vs miners," May 31) betrays a disturbing level of ignorance of the proposal and utterly misrepresents the mining industry's position.

The RSPT is fundamentally more punitive than the 40 per cent rent tax imposed on the petroleum industry in Australia – a) the resources super profits tax (RSPT) applies to existing investments; the petroleum tax was prospective only; b) the resources super profits tax (RSPT) applies to any profit over the 10-year bond rate (6 per cent), well below any mining company's cost of capital; the petroleum rent tax includes a 5 per cent premium to the risk-free rate; c) the petroleum tax allows the full recovery of capital invested but the resources super profits tax is payable before companies can recover the capital invested; d) the Australian government refuses to consult on the key elements of its proposal; the petroleum tax involved two years of industry consultation.

Miners already pay profit-based company taxes in addition to mineral royalties. And mining companies pay a higher effective tax rate than any other industry, according to the Australian tax office. No mining company is against the principle of a profit-based tax or sensible taxation reform. But the resources super profits tax (RSPT) is a long way from that. It effectively introduces the government as an unwanted, noncontributing 40 per cent partner into our existing assets at a depreciated book value excluding intangibles, ignoring the substantial risks that have been borne by our shareholders.

Australia's reputation as a stable regime for foreign investment has already been damaged and investments in Australian resources are at risk of being delayed or cancelled. The consequences will be borne by mining communities, prospective employees, superannuation funds, customers, service providers and suppliers, impacting on Australia's prosperity, particularly in resource-rich remote or rural locations.

Resources are immovable but diversified mining companies have a choice of countries in which to invest. The government has shown itself willing to breach investors' trust and damage the economic case on which multi-billion dollar investments were made. In developing countries, we manage this risk by availing ourselves of fiscal stability agreements. Sovereign risk concerns about Australia may once have seemed absurd. Sadly, today they are foremost on every mining company board's agenda.

The mooted risk of other countries following suit is largely overdone. No other country is considering imposing such a punitive tax on its mining industry. Australia's resource taxation will be isolated as the highest in the world at 57 per cent. Indeed, many resource-rich nations regard this tax as an opportunity to gain a larger share of global mining investment – unfortunately for Australia, it is.