From the Editor - Australia Government Proposes Massive New Mining Tax
Mining companies were quick to respond. Two of the largest mining companies, BHP Billiton and Rio Tinto, are headquartered in Melbourne. BHP said the tax would result in an increase in the total effective tax rate on the profits earned from its Australian operations from around 43% currently to around 57% from 2013. Last year, BHP paid more than $6.3 billion in taxes related to its Australian businesses. Rio Tinto said it was concerned about the arbitrary nature of selecting a round figure of 40% and the inclusion of existing operations. Both companies warned the new resources tax could erode Australia’s competitiveness, severely curtail investment and limit jobs growth.
The Minerals Council of Australia referred to it as a “tax grab.” In the rush to extract more than the $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, the council said. A secondary impact could mean there will be less tax revenue from mining for future generations of Australians.
The billions of dollars that have been invested in the country’s resource sector increased the wealth and provided job security for all Australians. In the last three years, according to BHP, 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 reinvested in resource and infrastructure projects in Australia. A key factor underpinning the decisions behind these investments, BHP explained, has been Australia’s reputation for providing a stable and competitive taxation regime.
Mining companies have come to expect this type of short-sighted behavior from greedy, uninformed politicians in developing countries. First and foremost, this is a populist play—redistributing the wealth from the rich miners—during an election year. If this is eventually enacted by Australia’s parliament, it will have serious long-term implications for the future of the country. Take for instance a mining company that has recently invested significant capital in a new operation only to have the tax policy change mid-stream; it can no longer trust Australians to keep their word. The next investment decision may likely move to another mining destination. The announcement that Xstrata will idle exploration activities in Australia should come as no surprise— look for other miners to follow suit.
Steve Fiscor, Editor-in-Chief, E&MJ