Fierce struggle in Australia tax

May 13, 2010
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, SYDNEY, May 13 – Australia\’s proposed new tax on mining profits has prompted a fierce struggle between the industry and the government for the extraordinary riches of the Asia-led commodities boom, analysts said.

Prime Minister Kevin Rudd\’s plans to impose a 40 percent levy on the so-called "super profits" of resources firms was met with anger from the nation\’s most valuable export sector, which warns it will kill investment.

With mining companies\’ share prices diving, resources firms hit back, accusing Canberra of essentially nationalising the industry while the opposition said it could "kill the goose which laid Australia\’s golden egg".

"The companies are crying blue, bloody murder but you would expect them to — they\’ve had their eggs stolen," BIS Shrapnel economist Frank Gelber said.

The government hopes to raise billions of dollars with the tax and use the money to "spread the benefits" of the mining boom around the country.

"Provided commodity prices hold up high, we\’re taking a lot of money out of the mining sector and we\’re giving it to the rest of the economy. Now there is some logic to that," Gelber told AFP.

"But the other thing is that these guys entered into these mining projects in good faith, with certain rules, and we just shifted the goal posts. Now we\’re here, both sides have to take the consequences."

Major miners have attacked the proposal, with Anglo-Australian giant BHP Billiton saying it placed a shadow over some projects, including expansion at its Olympic Dam uranium and copper mine, and would drive investment offshore.

Rio Tinto said it was reviewing all new Australian capital projects in response to the plans, which it described as "shocking".

And United States firm Peabody Energy cited the tax as a reason to cut its takeover bid for coal miner Macarthur, while it was also blamed by Anglo-Swiss firm Xstrata for its suspension of a 27 million US dollar copper exploration project.

Rudd has even taken a tumble in polls after announcing the levy, which could also reduce the value of Australians\’ retirement savings as they are heavily invested in blue-chip stocks such as BHP.

Rudd, who is expected to call an election this year, defended the Resources Super Profits Tax, saying he had been warned that "you\’re going to hear lots of people crying wolf" on the issue.

He said government modelling showed the mining industry would actually grow despite the levy because it taxed profits, not volume.

Soaring commodity prices have seen Australian exports jump significantly since 2000. Coal exports surged 123.9 percent to be worth 54.4 billion dollars (48.65 billion US) in 2008-2009 while iron ore rose 66.9 percent to 34.2 billion dollars.

Bob Gregory, an economist at the Australian National University, said the government appeared confident the mining boom — which the central bank has said could stretch for decades as China and India industrialise — was assured.

And while the tax would hit the share prices of mining firms, he was less certain it would damage the industry, which in 2008-2009 was the nation\’s best export sector, earning 127.5 billion Australian dollars.

"I think the Australian government, and us the people, we don\’t want to scare off large amounts of investment," professor Gregory said.

"Even though mining investment poses all sorts of problems — by making us more reliant on China and that sort of stuff — you don\’t want to take the risk of scaring off too much investment."

Gelber said the tax was unlikely to impact those mines already producing but it was understandable the sector was "squirming on the hook" given that mining was a high-risk activity.

"Now prices are so high, all the current round of projects that are about to start or have just started, they are going to proceed," he said.

"But what it could affect are projects when the prices are lower because the profits are lower. It\’s an awfully profitable activity at these prices. But the real question is, will these prices last forever?"

James Wilson, a Perth-based research analyst for DJ Carmichael, said many companies may now be examining projects in different countries including Canada, which is reducing its corporate taxes.

"A lot of people will be looking at whether projects are better value off-shore," he said.

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