Mining Tax Grab - How will it pan out?

Given the 40% mining tax grab under the guise of supernnuation changes, Rudd seems to have been caught on the back foot somewhat judging by the response of the mining industry & the market in general:

http://www.news.com.au/rio-shelves-...eat-up-on-rudds-new-tax/story-0-1225862821246

RIO Tinto has raised the stakes in the mining industry's fight with Kevin Rudd over his new super tax by shelving its $11 billion expansion plans in Western Australia.

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http://www.theaustralian.com.au/bus...udd-faces-miners/story-fn5eo6td-1225862783300

To start the evening, Mr Forrest, a friend of the Prime Minister, presented him with a pair of boxing gloves labelled "Fair suck of the sauce bottle mate" but that's where the humour ended.

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Given the response of the mining industry, will Rudd hold his nerve or will there be changes to the plan given there are already miners dropping expansion plans?

Krudd is an absolute idiot. Instead of encouraging more people to come to this country to work hard instead he taxes the hell out of the hard workers and lets the bludgers in who bleed our system dry..............

Is this guy seriously the biggest wanker ever?

I wonder if all the major companies moved offshore??? what would that mean to our economy?

New Political book coming out soon....

"How to lose an unlosable Election" by K Rudd

I doubt it will get through. There are greater economic repercussions and trickle down effects that will make those involved in the industry go to arms. I also doubt government has the balls to take on the miners. Rudd will be firmly bent over by the end of the talks. Apparently this tax will increase electricity costs as well. It has 'lose the election' flavor written all over it, if the miners ran a campaign.

Agreed. Will never get through, or if it does it will be a severly watered down version.

To what extent did the government or even Henry Liaise with the mining industry prior to the release of the government's position on this ?

When the Petroleum Resource Rent Tax (RRPT) was introduced, what was the impact on profitability of the companies concerned ?
Also, with the RRPT, was it a staged introduction/transfer from royalty base taxes (if any) to avoid a sudden impact on profitability from one year to the next ?

At face value, these questions appear not to have been considered by the government.

It will pan out with Krudd back peddeling just like he did with the ETS.

Lets hope the Kevin 07 people have seen the light?

How many more stuff ups does this guy have to make before people realise he has to go? Or how much more money does he have to waste before people realise he is just an idiot.

http://www.theaustralian.com.au/new...-win-any-respect/story-e6frg6zo-1225862745190

There is merit in this. But it relies on crucial assumptions. One is that having government as a silent partner, bearing a share of costs and risks, has no effect on the incentives for businesses to be efficient.

But this is incorrect, as every dollar of effort management invests in resisting union wage claims or increasing revenue now yields a smaller absolute return to the owners of the private equity.

The result: like cost-plus contracts in defence, Brown taxes can lead to slack management and slow productivity growth.

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The government setting a higher benchmark rate of return before levying a RRT and not providing rebates in loss years may be an alternative that is no less volatile then the above as for the government it can't go into the red.

This though could also lead to slack management and slow productivity growth if overall tax above that higher benchmark rate of return is prohibitive.

On the basis that it is reasonable for a country with natural resources to get a greater tax return than from corporate tax alone, is foreign ownership restrictions a better alternative ?

REVIEW OF AUSTRALIA’S TAXATION SYSTEM

Statement from Mitch Hooke, Chief Executive Officer, Minerals Council of Australia


The Federal Government’s plan to introduce a 40 per cent national mining tax can only be described as a revenue grab not taxation reform. It is an unprecedented double-tax that will hit the industry’s workforce, the millions of Australians with shares in superannuation or minerals companies and the thousands of small businesses that service the industry.

The real work on the proposed reforms will start tomorrow when the Government sits down with industry and gets a real-world understanding of the high-risk cyclical nature of the mining industry and the full impact of what they have announced. We will work with the Government to get the design and rate of a resource rent tax right.

If we don’t get the design and rate of this right, it will destroy value, slow investment and increase sovereign risk in the Australian minerals industry. Thousands of potential mining industry jobs will be lost – particularly in regional Australia - and millions of Australians with shares in superannuation and minerals companies will see the value of their investments decline.

It amounts to a new tax on the 500,000-plus workers employed directly and indirectly by the minerals sector, the small businesses that service mining and every Australian with investments in the industry.

In the rush to extract more than the $25 billion* already paid to Governments in taxes and royalties, the Commonwealth appears to have inadequately accounted for the stifling effects of this new tax on the minerals industry. These secondary impacts could well mean there will be less taxation revenue from mining for future generations of Australians.

With less rather than more taxation revenue from mining, the Government could well find itself unable to fund the broader taxation and superannuation commitments made today.

The minerals industry is not under-taxed... The Government has claimed today that the community is not getting a fair share from mining. It has focussed solely on royalties from mining and ignored the massive increases in company tax the minerals sector has paid over the last decade.

The total tax paid by minerals companies and workers in 2008/9 was about $25 billion. This has paid for schools, hospitals and roads across Australia. Australian Tax Office data shows the industry pays 13 per cent more tax than other sectors.

While making up about 8 per cent of the economy, mining companies contributed about 18 per cent of corporate income tax revenue during 2008-09. We are already punching above our weight in terms of tax take.

Investment risk ... Australia’s hard-earned reputation as a stable investment environment will be dramatically undermined by today’s announcement. If the Government’s new tax proposal goes ahead, $108 billion worth of future investment in the minerals industry will be under a cloud.

Under the plan announced today, Australia will have the highest taxed mining industry in the world.

When coupled with the looming Carbon Pollution Reduction Scheme, the proposal revealed today dramatically increases sovereign risk in Australia.

The world is awash with mineral resources and a taxation regime that puts Australia at an international disadvantage will drive investment dollars to other minerals rich economies – which defeats the purpose of today’s announcement.

Meaningful tax reform … Today’s announcement does not represent meaningful tax reform. In fact, it runs counter to the understanding that the Henry Review of Australia's Taxation System would streamline resource taxes not simply add a brand new tax.

The Government should not have locked in a rate for the new tax without extensive consultation with industry and other key stakeholders.

Today’s announcement also fails a basic equity test. By the Government’s own definition, this new tax should also be applied to other profit-making sectors.

As Australia’s most globalised industry, the minerals sector has an abiding interest in ensuring that tax reform makes Australia an even more attractive investment destination. That means keeping our tax rates competitive. It also means ensuring commercial decisions taken under existing tax arrangements are not compromised in a way that creates perceptions of sovereign risk.

For these reasons, the Minerals Council of Australia has said that the most important thing the Federal Government can do to promote certainty and confidence is make any reforms “prospective” – in other words, they should apply only to new investment. The Government has ignored this critical reform today.

As well as applying to new investment only, tax reform should also protect international competitiveness; be differentiated by resource commodities; levied on primary resource value and equitable and efficient.

Today’s announcement fails all these basic tests.

REVIEW OF AUSTRALIA’S TAXATION SYSTEM

Statement from Mitch Hooke, Chief Executive Officer, Minerals Council of Australia


The Federal Government’s plan to introduce a 40 per cent national mining tax can only be described as a revenue grab not taxation reform. It is an unprecedented double-tax that will hit the industry’s workforce, the millions of Australians with shares in superannuation or minerals companies and the thousands of small businesses that service the industry.

The real work on the proposed reforms will start tomorrow when the Government sits down with industry and gets a real-world understanding of the high-risk cyclical nature of the mining industry and the full impact of what they have announced. We will work with the Government to get the design and rate of a resource rent tax right.

If we don’t get the design and rate of this right, it will destroy value, slow investment and increase sovereign risk in the Australian minerals industry. Thousands of potential mining industry jobs will be lost – particularly in regional Australia - and millions of Australians with shares in superannuation and minerals companies will see the value of their investments decline.

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Whle it's overall an increase in tax, it's not double tax as miners will get rebates for state royalties paid.

As the government is not managing the distribution of the proposed RRT internally wrt its distribution to the states, he is correct in that it's not genuine tax reform.

The government should have negotiated design and rate beforehand before shooting first and asking questions later.

Mitch Hooke: 2 out of 3.
Government: 0 out of 2.

drsmith said:

To what extent did the government or even Henry Liaise with the mining industry prior to the release of the government's position on this ?

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The industry was not consulted at all. This, understandably, is one of their grievances and no doubt contributes to the hardening of their response.

The following article is from the Wall Street Journal:

Australia is the only developed country that didn't have a technical recession after the global financial crisis, mostly because its mining sector kept feeding China's economic boom. Now the Labor government has decided all that wealth creation was a bad thing, and it's time to levy a 40% "super profits" tax on these companies and redistribute the money.

The news was delivered by Kevin Rudd and Wayne Swan as the centrepiece of a proposed tax reform package two years in the making. They argued that mining companies did so well that they sucked labour and capital out of other parts of the country creating a 'two-tier' economy.

The Treasurer says he wants companies to be 'growing together', and would use the tax take to build infrastructure, help low income workers with their pensions, and 'fund' a tiny, across the board corporate tax cut.

This economic thinking runs counter to everything that made Australia rich over the last three decades: namely, the embrace of competition and capitalism, which rewards high risk with high returns. Setting up a mining company is not akin to opening a restaurant. Companies invest billions of dollars in exploration, build infrastructure to bring their products to a port, and then have to complete in a global marketplace and deal with volatile prices for their goods.

Now the Rudd government wants to impose an arbitrary diktat on one of the country's most globally competitive industries in the name of 'fairness'. The government claims it settled on the 40% rate by following the lead of other trend setters like the US state of Nevada. But why not 50%? Or 60%.

The truth is that all windfall taxes, however they are dressed up and sold by politicians, are arbitrary and economically damaging. BHP Billiton estimates the 'super profits' tax would raise its total effective tax rate to about 57 % from 43%, making Australia one of the most burdensome places to mine in the world.

That money, instead, will be redirected to the Rudd government, which estimates it will reap $3 billion alone in 2012, the first year the tax would go into effect.
What Rudd and Swan didn't say is that this bonanza helped fund the Labor government's unprecedented spending spree, which sent the country from a $19.7bn surplus into a $32.1bn deficit in a single year. Given that record, it's hard to have faith that Sunday's announcement is about 'fairness' as much as it's about plugging fiscal holes that the government itself created. If Rudd really wanted to reform the corporate tax system, he would simplify it and cut Australia's sky high rates much more than the proposed trim to 28% from 30%. That would spur investment, create jobs and ultimately, a bigger tax base.
What politician wouldn't like that.

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Says it all, really.

Julia said:

The industry was not consulted at all. This, understandably, is one of their grievances and no doubt contributes to the hardening of their response.

The following article is from the Wall Street Journal:

Says it all, really.

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This premise ain't necessairly so, cos investment and job creation and ultimately the tax base, don't go hand in glove with tax cuts.

...cut Australia's sky high rates much more than the proposed trim to 28% from 30%. That would spur investment, create jobs and ultimately, a bigger tax base.

What politician wouldn't like that.

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Macro economic sustainable investment and job creation is ultimately created from the demand side of economics, not the expense side of the P/L statement or liability side of the balance sheet of business.

One reason why I think the RBA may have raised rates a bit too fast here. All the stimulus only gave a short term shot to investment and job creation, which was already relatively strong on good demand. That stimulus effect may filter out soon and demand may wane a little as prices continue to rise, regardless of the henry tax in a year or two, if at all.

That, apart from the global problem of too much soverign debt, that people and gov's must address most likely by increasing tax, since nobody likes to go down in their living standards as seen in greece.

With the IMF demanding both increased taxes and lower expenses as in gov wages and programs for greece and likely others and the US likely heading the same way, from a MACRO economic longer term view, it may be inevetible and have just have the opposite effect to what most commentators are saying for Aus.

If one considers that world wide demand will ultimately slow sooner or later depending on when those worst affected countries increase taxes or curb expenditure, then it may be wise to introduce Henry's recomendation in some form sooner and use up some of that soverign risk margain that miners weigh up in their business decisions, to put Aus in a stronger position in the global dynamic. In other words, if Aus sorts it out now it may be implimented in a couple of years time when some of these other countries will be facing crisis decisions and probably considering increased taxes.

Remembering that if our customers have to increase taxes, demand will fall, similarly if our mineral competitors have to increase taxes, demand will also fall... hence the possible wisdom (in the long term reform view) of getting in early while the economy is still robust and get a bit of cream, rather than having to take the bitter pill, as the greeks feel they are, when their economy is broke.

Rembering... this is a foreward looking wider longer term MACRO view as I exect Henry was taking, albeit from a gov adviser perspective as distinct from wise politics... whereas most of the financial and economic comparisons are backward looking and assuming nothing else other than Henry in Aus will change.

drsmith said:

Whle it's overall an increase in tax, it's not double tax as miners will get rebates for state royalties paid.

As the government is not managing the distribution of the proposed RRT internally wrt its distribution to the states, he is correct in that it's not genuine tax reform.

The government should have negotiated design and rate beforehand before shooting first and asking questions later.

Mitch Hooke: 2 out of 3.
Government: 0 out of 2.

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Bernie Fraser on ABC radio this morning commented that he thought it was long over due also commented on his disappointment other tax reforms were over looked.

drsmith said:

To what extent did the government or even Henry Liaise with the mining industry prior to the release of the government's position on this ?

When the Petroleum Resource Rent Tax (RRPT) was introduced, what was the impact on profitability of the companies concerned ?
Also, with the RRPT, was it a staged introduction/transfer from royalty base taxes (if any) to avoid a sudden impact on profitability from one year to the next ?

At face value, these questions appear not to have been considered by the government.

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Please, correct me if I'm wrong; but I believe the petroleum rent tax was introduced in 1929. That was just about at the very beginning of oil exploration in this country, and the government of the day introduced it to assist exploration with a view of benefiting from production.

If the mining super tax had been introduced in, say, the 1950's or 60's, miners would also have had certainty about the parameters affecting the Feasibility of a move from exploration into production.

The problem with KRudd's grab at this stage lies in the timing:
Companies have stumped up $Billions to develop infrastructure, before earning a single cent. Just ask Twiggy, how hard it's been to get Fortescue to a stage where the first shipment of ore could be delivered to a paying customer. To now suddenly shift the goal posts and suggest all miners reduce their return on investment - that smells of Socialism: Privatise the risk, then socialise the rewards. "Sovereign Risk" is not only present in Third World countries

btw - has it yet occurred to anybody that a connection might exist between the - Liberal - Premier of WA refusing to give up a huge chunk of WA's GST entitlements in return for some vague reform promises to the Health system? And that the Premier also refused to transfer increased royalty payments into Canberra's coffers because additional mining activity requires substantial efforts in regional devlopment?

Why am I reminded of kids throwing a tantrum because they can't have the toy that they want when they want it...

http://au.ibtimes.com/articles/2266...cancels-two-multi-billion-mining-projects.htm

The controversy regarding the proposed super profit tax by the federal government still looms as mining businessman and a major financial backer of the Liberal National Party in Queensland Clive Palmer revealed that he postponed two big projects, one of which would have generated 3000 jobs.

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This is to be expected but is avoidable if the tax grab is changed. Given the lack of consultation with the industry, can we really be confident that the flow on effects have been porperly costed?

Mofra said:

http://au.ibtimes.com/articles/2266...cancels-two-multi-billion-mining-projects.htm


This is to be expected but is avoidable if the tax grab is changed. Given the lack of consultation with the industry, can we really be confident that the flow on effects have been porperly costed?

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I saw Palmer on the ABC last night muttering a bit under cross-examination, that one of those 'BIG' projects was still an exploration permit in SA that they hadn't really done much work on anyway... but it had BIG potential.

I'm afraid Palmer is far too closely aligned to the Nat's in Qld for me to take much notice of.

I used to support the local Nat member quite well... but with Palmer of late pronouncing himself as such a strong financial and vocal supporter of the Nats, it's a bit of a worry that the Nat's have (or the perception is at least) become more of a political arm of corporations, more so than anything in the past.

Peter Costello has had something to say regarding the TAX:
http://www.theaustralian.com.au/bus...leading-costello/story-e6frg9dx-1225863580994

It's Snake Pliskin said:

Peter Costello has had something to say regarding the TAX:
http://www.theaustralian.com.au/bus...leading-costello/story-e6frg9dx-1225863580994

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I suppose he was speaking in his position as a director of Future Fund board of guardians, but anyway, I respect his view a bit more than many of the others including Palmer... and I think even Costello is aware there's some water to flow under the bridge yet.

But I do wish someone would give the corrected figures on that historical tax/royalty to mining profits correlation.

I wonder if the reason why no one has, or will, is because it really doesn't change the ratio a hell of a lot.

Whiskers said:

I saw Palmer on the ABC last night muttering a bit under cross-examination, that one of those 'BIG' projects was still an exploration permit in SA that they hadn't really done much work on anyway... but it had BIG potential.

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It's important to remember that even though some of the big miners have OS investment, most of the companies that supply support for mining services are Australian.
Processing Equipment and Plant Machinery, Remote Camps, Engineers, Geologists, Catering Services, Trucks, Lawers, Accountants etc, the list is endless.

We've already had two tenders suspended since this bull$hit grab came out, and these projects were well past PFS stages, something to consider.

spooly74 said:

It's important to remember that even though some of the big miners have OS investment, 'ALL' of the companies that supply support for mining services are Australian.
Processing Equipment and Plant Machinery, Remote Camps, Engineers, Geologists, Catering Services, Trucks, Lawers, Accountants etc, the list is endless.

We've already had two tenders suspended since this bull$hit grab came out, and these projects were well past PFS stages, something to consider.

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Yes that's true... but, with there already being a shortage of workers, reflected in regular delays especially with laboratory analysis services etc, the economic effect of delaying a couple extra projects would not be significant on these support services in the short term at least.

In taking a pragmatic view, it's logical to expect some social and economic reform sway a bit the opposite way with Labor in after a long stint of Libs.

While trying not to get ones b@lls in a knot over what I can't change, the next best thing is to estimate the most likely development re change and position myself better for what eventually transpires.

Realistically, little or no tax reform will eventuate if the Libs support in the polls continue, so this scare on top of international issues may be a good buying or takeover opportunity for well funded businesses.

PS: I repeat, "But I do wish someone would give the corrected figures on that historical tax/royalty to mining profits correlation" since this is surely central to the facts of the issue.

I wonder if the reason why no one has, or will, is because it really doesn't change the ratio a hell of a lot.