Dr Ian Gould, Chairman of the South Australian Minerals and Petroleum Experts Group has described the Henry Tax Review’s super tax on resources as a potentially unsuitable cyclical underwriter of Australia’s future health and retirement expectations. “Handled poorly, the super tax will mean Australia’s overall sovereign risk rating will fall, even if South Australia remains the best place in which to undertake resource investment…….. The only answer to overcoming this changed sentiment will be strong championing by the sector to state its case and its investment appeal…..” Xstrata notes the plan to impose a structural change to the taxation of the Australian resources sector which will result in significant and disproportionate additional taxation on the industry and could well curb the large scale, long term investments required to develop Australia’s natural resources for the benefit of all Australians.
BHP Billiton expressed its disappointment with the Australian Government’s plan to impose a new resource rent tax. The imposition of this new tax would result in an increase in the total effective tax rate on the group’s profits earned from its Australian operations from around 43% currently to around 57% from 2013. “Multi-billion dollar, long-term investments in the Australian resources sector have contributed significantly to the prosperity of all Australians. In the last three years the resources sector has contributed 18% of Australia’s GDP, is the largest contributor to Australian export revenues at 42% and has been the largest contributor to corporate tax revenues. Much of the profit in the sector has been re-invested in resource and infrastructure projects in Australia. A key factor underpinning the decisions behind these investments has been Australia’s reputation for providing a stable and competitive taxation regime,” the company stated.
BHP Billiton Chief Executive Officer Marius Kloppers said: “The stability and competitiveness of the tax system have been central to the investment in resources in Australia. If implemented, these proposals seriously threaten Australia’s competitiveness, jeopardise future investments and will adversely impact the future wealth and standard of living of all Australians.”
BHP Billiton recognises that governments will review taxation policy and rates from time to time. The group, however, has been advocating that taxation changes should be designed so that they preserve the basis upon which past capital investments have been made, maintain the future international competitiveness of Australia’s resources industry, acknowledge that different products have different return characteristics, and encourage private investment in infrastructure and processing. Kloppers said: “The Government has not defined all aspects of the design, implementation and application of the new tax, and until they are clarified we cannot be certain what the full implications for the industry will be. However, this significant new tax will have the effect of making investments in Australia much less attractive.”
Mick Davis, Xstrata CEO commented: “It is very disappointing that the Australian government is planning to impose additional taxation that will see Australia levying the highest taxes on its minerals sector of any country in the world. The Australian mining industry already makes an appropriate and proportionate contribution to the tax base of Federal and State Governments in addition to investment in infrastructure, substantial direct and indirect job creation and support for the communities associated with our operations. These proposed taxes reduce the very cash flows that are reinvested in maintaining or expanding existing Australian mines and in developing new operations, protecting existing jobs and creating new ones.
“Mineral investments require long-term certainty over fiscal arrangements. The government’s intention to change the basis on which existing mining investments were entered into sends a particularly worrying signal and undermines Australia’s reputation as a stable investment destination, hampering the ability of mining companies and other investors to assess the basis for, or to commit to, future long-term investment. It is highly regrettable that the Australian government intends to single out one of the country’s most important and competitive industries for punitive tax treatment, potentially damaging the entire nation’s global competitiveness.”
“The development of a nation’s mineral resources requires a collaborative partnership between industry and government, which must acknowledge that global diversified mining companies and their investors have multiple investment opportunities across the world. We will engage constructively with government to discuss the full implications of the proposed regime on the mining industry and to clarify a number of outstanding issues in respect of the tax proposal.”
Mitch Hooke, Chief Executive Officer, Minerals Council of Australia said “the plan to introduce a 40% 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 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 A$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.”
He went on to say that the minerals industry is not under-taxed… “The Government has claimed 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 A$25 billion. This has paid for schools, hospitals and roads across Australia. Australian Tax Office data shows the industry pays 13% more tax than other sectors.
“While making up about 8% of the economy, mining companies contributed about 18% of corporate income tax revenue during 2008-09. We are already punching above our weight in terms of tax take.
“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, A$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.
“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.”
The federal government has rolled the dice on the future of more than A$100 billion worth of resource sector projects in Queensland still subject to final investment decisions, Queensland Resources Council Chief Executive Michael Roche said. But the federal government’s new 40% tax on the engine room of the Queensland economy will need a “super sales job” to be interpreted by the resources sector as anything other than a tax grab. Roche said that in the aftermath of the “lip-service” paid to industry consultation over the ill-fated Carbon Pollution Reduction Scheme, there would be deep scepticism over the federal government’s latest commitment to industry consultation.
“There’s a strong perception among QRC members that the federal government believes the resources sector has a limitless ability to pay more and more tax, particularly after it was targeted to cross-subsidise handouts under the failed CPRS,” he said. “If the federal government is serious about consulting with industry in the long-term interests of the Queensland and Australian economies, it has to road test what is a complex set of new arrangements with resource sector people – not just through a computer model in the Treasury building in Canberra.
“The federal government has to implement a final package that will stand up to the test of ensuring Queensland’s resources sector stays globally competitive. “Right now, the only cheers you are hearing are from our minerals and energy export competitors in Africa, Asia and South America,” Roche said. QRC figures state the minerals and energy sector in Queensland generates more than 20% of the state’s gross product, is responsible for one in every eight jobs and paid almost A$8 billion in state royalties and federal taxes in 2008-09.
The South Australian Premier, Mike Rann, commented at the opening of the Paydirt 2010 SA Resources & Investment Conference yesterday “…I’ve not yet had an opportunity to examine the Review’s recommendations in close detail, and our Treasurer, Kevin Foley, will be briefing Cabinet later today as well as outlining the Government’s response over the course of this morning…
“…However, my initial response is that we will work closely with other States, our government agencies and, of course, the resources industry during the consultation period, in order to finalise our response to the Federal Government…
“..Our over-riding aim is to ensure that South Australia has an internationally-competitive fiscal regime that provides certainty for all investors in the long term…
“..While there will be further negotiation and clarification required, I was reassured by the announcement that there will be no double dipping, with mining companies receiving a rebate for State royalties paid…”
