The new resource super profit tax (RSPT) is “gobsmacking” and slams an industry already punching above its weight in its contribution to the success of the Australian economy as a whole, according to a South Australian mining leader. Addressing the second day in Adelaide today of the Paydirt 2010 South Australian Resources and Investment Conference, SA Chamber of Mines and Energy President, John Roberts, said it was numbing to have such a proposed tax imposed on the industry at a time when it was one of the few sectors generating real growth. “Very clearly there are a number of issues in the Federal Government’s tax initiatives announced last Sunday that require substantive clarification and no doubt negotiation.” See also yesterday’s longer post on this subject.

“Our industry Australia wide comprised 8% of the country’s total economy last year but contributed 18% to the total income tax bucket,” he said. “More concernedly, Australian Taxation office records show that the resources sector pays 13% more as a collective industry than any other sector. It is an industry whose health is essential to the well being and lifestyle of Australia and it is gobsmacking so see the imposition of such a tax at this time.”

Roberts said many explorers and miners would struggle to understand why other sectors which had fared much better in the Federal Government’s tax package but did little more than “move money around without creating anything” were not equally taxed. “This is not a super profits tax, but a tax on the very first dollar of profit – taxed at the super profits rate of 40% plus state taxes plus income tax,” he said.

“Few outside Australia’s mining industry realise just how difficult an industry it is,” Mr Roberts said. “We have to spend millions in high risk money and even though well supported in this State by the South Australian Government, nevertheless the real money that goes towards finding economic deposits has to come from shareholders at the very front end of exploration. Many of these shareholder investment monies have already been taxed so they are ‘heavy dollars’ already.

“Mining is not a case of drilling one hole and the money pours out. Even one successful hole has to be followed by extensive permitting, and battles against the weather, ground conditions and variable metallurgical recovery rates – factors that make this industry so different to almost any other business sector. In addition, mineral commodities have the added difficulty of being difficult to find in the first place so that by the time a mine is commissioned, margins can be extremely tight.”

Rio Tinto has also warned the new resources tax could erode Australia’s competitiveness, severely curtail investment and limit jobs growth. Rio Tinto Managing Director Australia David Peever said the final design and implementation of the additional resources tax was crucial to ensuring unintended consequences didn’t filter through to other sectors of the national economy. “We are concerned about the inclusion of existing operations and the apparently arbitrary way the new resources tax was set at 40%. Taxing 40% of profits over the long-term bond rate, together with corporation tax, would make the Australian minerals sector the highest taxed in the world, seriously eroding competitiveness,” he said.

And just as importantly, altering the rules for existing multi-billion dollar projects in mid stream – after large amounts of capital have already been put at risk over many years – would be the worst possible message Australia could send to investors. Peever rejected suggestions that the Australian community was not extracting a fair return from the growth in the mining sector, noting the industry already pays more tax than other parts of the economy. “All Australians benefit from a strong mining sector. In the same way all Australians are affected by measures that hurt the mining sector. Australia was saved from the worst of the GFC by the strength of the resources sector, but the same industry is now being portrayed by the Government as not paying its way.

“Periods of high commodity prices also give the industry the capacity to invest through the cycle and to return value to ordinary shareholders. Across commodity price cycles, Rio Tinto has maintained its strong record of investment in Australia for more than a generation, expanding its business and creating wealth for shareholders and the broader Australian community. Rio Tinto, like other mining companies, continues to deliver a wide range of local and regional community benefits that are not recognised in the basic taxation statistics. Investments in local infrastructure and agreements made with indigenous communities, for example, are provided on top of mining royalties and company taxes.”

Rio Tinto will continue to keep its shareholders and customers informed about issues of concern regarding particular aspects of the Governments tax proposals, Peever said. “Rio Tinto is not opposed to tax reform. We support genuine tax reform that protects against sovereign risk, improves the competitiveness of the resources sector as an investment destination and promotes economic growth,” he said. “We will comprehensively analyse the potential impact on our business of all of the Government’s proposals and want to play a proactive, constructive role in the consultation process outlined by the Government.”