Resource Super Profits Tax

This Resource Super Profits Tax does seem to be a bit confusing, although in some ways it should be very simple.

If a company makes excess profits selling material that is the property of every Australian, (ie: our Land) then what is wrong with that company giving some of that excess profit back to us ?

I am not normally one to agree with the current Political leaders, but the theory behind this does seem pretty clear cut.

What is wrong though is the way it is being done. Unless I am reading it wrong.

Government Statement:

Before the last mining boom, the Australian people received $1 in every $3 of mining profits through royalties and resource charges. By the end of that boom, the share of profits had fallen to just $1 in every $7.

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The introduction of a Resource Super Profits Tax will tax resource projects on their profits, and effectively replace the current system of state royalties that tax production, but are blind to profit.

Why have these taxes dropped ? Surely a tax system is designed to tax profits correctly. $1 in $7 is a tax rate of only 14.3%. I assume that percentage quoted is Tax AND Royalties combined ? Or, as only royalties are mentioned, is there some tax being left out of those figures ? I tend to distrust all Politicians statements.

An Economists view:

Australia’s leading public economist, Ross Garnaut, backed the miners’ concerns about the risk to their financing abilities under the government’s proposal to have a 40 per cent interest in each project and offering to repay a miner for 40 per cent of the loss should the mine fail.

Current tax rate paid:

Deputy Prime Minister Julia Gillard weighed into the debate, saying that resources giants such as BHP and Rio Tinto effectively only paid a tax rate of about 13 per cent.

Treasury acknowledged in the consultation session that BHP pays on average 40 per cent effective tax rate over recent years, higher in 2009.

Is it 13% or is it 40% ? Is the deputy Prime Minister right, or is treasury right ? Confusing statements are no help to those who would like to know what is REALLY going on.

A Logical Point of View:

And while Ken Henry’s resources super profits tax is ”elegant” from a structural and economic viewpoint, you have to wonder why on earth the federal government simply didn’t extend the resources rent tax that has been operating for decades on our offshore petroleum industry.

Politically, that would have been far simpler to sell. And we might have had a debate based on logic rather than fear.

Now to look at some facts:

  1. The Mineral Royalty Act levies royalty at a rate of 18 per cent of the Net Value of mineral commodities sold or removed from a production unit.
  2. The company tax rate is 30%
A look at current tax rates, quoted by the Government at:

Effective tax rate under royalties plus 30% company tax

    Rate of Return Effective tax rate
    6% 45.40%
    10% 40.90%
    15% 38.70%
    20% 37.60%
    25% 36.90%
    50% 35.50%

There are a number of furphies associated with the Rudd government’s Resource Super Profit Tax.

The first furphy being that miners don’t pay their fair share for the minerals. Actually the miners pay exactly what the Crown demands. The state governments’ charge as much as they think they can get away with.

The main problem that I can see, is that if the Mining Companies decide that they can make, and retain, more profits in other countries, they should, in the interest of their shareholders, move out of Australia.

If that happens, we, the Australian taxpayer, lose out in a very big way.

I tend to agree with this comment by David Peever, the managing director of Rio Tinto Australia, “the growing uncertainty was undermining business confidence.”

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