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TAX NEWS - JUNE 2010

Australia Tax: 'Robin Hood' move on mining lambasted

by Jeremy Lemer and William MacNamara, 03 June 2021 -- The tax on mining proposed by the Australian government is an attempt to steal from the rich to give to the poor that could dramatically increase the risks of operating in the country, according to the chief executive of BHP Billiton.

Marius Kloppers attacked the plan as brazen "Robin Hooding" that could seriously undermine investment, particularly in long-term projects that require lots of capital up front.

"The short-run projects with low margins will see no real impact. The big thing is where you have high-capital and therefore intrinsically high-margin projects which are long-dated," Mr Kloppers said.

"And guess what our basic business model strategy is? Just that," he said. "And the same is true of all of the other major mining companies."

Mr Kloppers is one of several mining bosses who have suggested, since the super-tax proposal was introduced in May, that it misunderstands the economics of the mining industry. While blue-chip miners may make spectacular headline profits when commodity prices are high, they are also required to reinvest billions of dollars in their projects over the course of the four to 10 years it may take to build a large, new mine.

During the commodities boom that ended in 2008, the industry was characterised by ever-rising profits and ever-rising fixed costs.

Rio Tinto this week said it earned A$37.4bn (£21.3bn) in post-tax profits in Australia from 2000 to 2009, but in the same period reinvested A$38.4bn, which includes A$26.4bn in capital expenditure and the rest through acquisitions.

Mr Kloppers declined to identify specific projects that could be hit, but analysts have pointed to the Olympic Dam project, an 11-year scheme for copper, gold, and uranium mines in South Australia.

"There has been a huge change in what we would regard as sovereign risk in Australia," Mr Kloppers said. "Brazil, Canada, Chile, Peru: those are safer places to do business. We have large operations there. . .and they have half the tax rate."

James Ferguson, head of mining tax for the UK at Deloitte, said the effective tax rate for mining in Canada, another stable and resource-rich country, was about 30 per cent compared with the mooted 57 per cent for Australia.

He cautioned against accepting the 57 per cent figure as anything other than a generalisation, saying the more important point was that any rate above 50 per cent "is reaching a tipping point".

He said: "Look at the UK income tax regime, and it's the same. There is a tipping point for a lot of people when over half of the investment they make or the effort they put in goes to the government. That's what's damaging here."

Mr Kloppers suggested last month that the BHP dividend pay-out could be endangered by the proposal as it stands.
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