TAX NEWS - JUNE 2010

Australia tax: Swan says Mine Tax Not Sovereign Risk

01 June 2010, (Dow Jones) -- Australia's Treasurer Wayne Swan Tuesday dismissed industry claims that a proposed new 40% tax on resources sector super profits poses a substantial sovereign risk because it changes the regime for existing mines, and said such complaints were akin to steel mills telling miners they can't put up the price of iron ore.

The comments--likely aimed at mining giants BHP Billiton Ltd. (BHP.AU) and Rio Tinto PLC (RIO.AU), which engage in fierce negotiations to get the best prices for their iron ore--add fuel to an already intense debate waged between Canberra and industry since the tax proposal was unveiled May 2.

Miners are effectively "arguing that a government cannot change its pricing arrangements. It is the equivalent of the steel mills saying to the companies here that they can't put up the price of iron ore. It has to stay the same for 40 years. This is a nonsense," Swan told Dow Jones Newswires.

Firms such as BHP Billiton and Rio Tinto are spearheading an industry campaign against the tax, which Rio Tinto Chief Executive Tom Albanese last week described as the Anglo-Australian mining giant's biggest sovereign risk across its global portfolio.

Stepping up its response to what it called "contradictory information" about the amount of tax it already pays, Rio Tinto earlier Tuesday released an independent audit by PricewaterhouseCoopers that found it paid an average effective tax rate in Australia of 35.6% in the decade ended last December.

Swan last week said the mining sector pays only between 13% and 17% corporate tax once deductions are taken into account, citing research that was later questioned.

Swan also rejected local media reports he is visiting China later this week to reassure steelmakers that the proposed super profits tax won't lead to higher commodities prices.

"That is rubbish. This trip was planned before we made any announcements... about tax reform," he said.

And, the treasurer downplayed suggestions that the new tax--which will refund 40% of the carrying cost of loss-making projects--will encourage investment by Chinese state-owned firms which are concerned more with securing the core commodities needed to fuel that country's economic growth than making a commercial return.

"I think there's a lot of exaggeration going on about that and I don't intend to buy into it. Australia is a very attractive investment for international capital, whether it's Chinese state-owned investment or any other," Swan said.

Adding to the uncertainty facing the sector, however, the Labor government of Prime Minister Kevin Rudd Tuesday said any compromise with the mining sector over the tax changes is unlikely any time soon.

Swan said whether a deal is reached with industry ahead of a federal election expected within months "will partly depend on whether companies want to", adding that "all of them" would need to agree.

The controversial tax proposal has come at a high political cost to Labor, according to a voter poll published Tuesday. Public support for the prime minister has fallen to a fresh low of 36%, from 39% two weeks ago, while dissatisfaction with his performance rose to a new high of 54% from 51%.

Just 36% of voters were in favor of the mining tax, while 41% of voters opposed it. Tellingly, 98% of those polled felt the mining sector is key to the Australian economy.

The poll of 1,149 voters was taken May 28-30--just as Rudd's government Friday invoked special provisions to embark on a multimillion-dollar taxpayer-funded advertising campaign starting in weekend newspapers to promote the tax.

The main opposition Liberal-National coalition, led by Tony Abbott, is opposed to the tax and will scrap it if elected in a poll due by April 2011 at the latest.

Turning to the outlook for the Australian economy ahead of a Group of 20 finance ministers meeting starting in Busan Wednesday, Swan said the Asia-Pacific region is poised to account for a bigger share of global growth going forward.