London Calling reviews Australian taxation - the tax is dead, long live the tax...Published by MAC on 2010-07-09
The net result of the recent heated debate in Australia over whether mining companies should pay considerably more tax, led to the ousting of the prime minister after millions of dollars were subscribed to a high-profile advertising campaign by the big mining companies (Anglo-Australian entities such as BHP Billiton, Rio Tinto and Xstrata chief among them).
This was backed by real, or vacuous threats, to quit the country's shores - or at least withdraw from some key projects.
In fact, none of the companies have made concrete moves to do so, while investors' confidence in the industry, over the past 2 months, hasn't appeared to be significantly dented. Although Australia's fiscal policy has been in disarray for some time - not least following the September 2008 meltdown - the country is still the world's biggest supplier of coking coal, alumina, lead and iron ore - the three global giants would have cut off big chunks of their noses, had they actually followed through on their threats.
The compromise measures, now apparently agreed between miners and government, are in some respects not significantly different from the discredited "Super Profits" tax, except insofar as applying a tax rate of 30%, as opposed to 40%, charging at a lower "trigger point", and with fewer companies subject to the new measures.
The new tax will be called a "Resource Rent" - a well-worn concept, no doubt calculated to provoke far less anxiety than the spectre of companies ripping off the state and people and walking away with billions off ill-gotten gains.
In reality, however, while the former proposal was estimated to recoup Aus$12 billion in revenue for the government by 2012, the revised taxation regime is likely to garner only a little less (around Aus$10-11 billion).
Mind you, there's quite a lot to which the "missing" billion might have gone. Not least in increased dues to the Aboriginal communities who have had to sacrifice an increasing amount of their territory and resources to mining over the past 25 years.
The super profits tax versus the resource rent tax
2 July 2010
CANBERRA - Australia ended a damaging dispute with global miners on Friday by dumping its proposed "super profits" tax for a lower resources rent tax backed by big miners, clearing a major hurdle to call an early election.
The deal looks positive for miners and the government, since although miners will pay more tax the total will be less than under the "super profits" tax and the government still gets extra revenue to fulfil pre-election promises. Here are some key differences between the new resource rent tax and the proposed super profits tax it replaces:
* Minerals Resource Rent Tax headline rate 30 percent and applies only to iron ore and coal miners.
* Trigger point higher, at the 10-year bond rate plus 7 percent return on assets, currently around 12 percent.
* Petroleum Resource Rent Tax, which is currently applicable to offshore oil and gas projects, will be extended to onshore oil and gas projects. The petroleum tax rate is unchanged at 40 percent.
* Tax still to come into effect in 2012.
* Around 320 companies liable for the new tax. Miners with resource profits below A$50 million a year will not have a new tax liability.
* Investment made from July 1, 2012, can be written off immediately, rather than depreciated over a number of years.
* Lowers tax revenue by A$1.5 billion ($1.27 billion), now around A$10-11 billion, budget surplus still on track for 2013.
* Corporate tax rate to be cut by one percentage point to 29 percent by 2013-14, but not further under present fiscal conditions.
* Compulsory employer pension contributions to still rise from nine to 12 percent.
Super Profits Tax
* "Super Profits" mining tax was to be 40 percent and applied to all mining sectors.
* Trigger point lower, at 10-year bond rate, currently around 5 percent.
* All mining sectors included, from big ticket iron ore and coal to sectors such as sand, gravel and limestone.
* Around 2,500 companies would have faced the tax arrangements.
* Tax to come into effect in 2012.
* Would have raised A$12 billion in revenue.
* Corporate tax rate to be cut by 1 percentage point to 29 percent by 2013-14 and to 28 percent by mid-2014.
* Compulsory employer pension contributions to rise from 9 to 12 percent. (Reporting by Michael Perry; Editing by Ed Davies and Alex Richardson)
© Thomson Reuters 2010 All rights reserved