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Flanagan's tax anger spills to papers

Atlas Iron chief David Flanagan has taken the next step in a growing mining industry campaign against the proposed resources super profit tax, penning an open letter to the prime minister that will be published in newspapers tomorrow.

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Nedlands
SUPER PROFITS? On top of its other glaring flaws, Kevin Rudd’s so-called ‘Super Profits’ tax seeks to set modern finance theory back at least 20-25 years (since Modigliani and Miller won their Nobel prizes). As Colin Barnett pointed out the other day, who would invest in mining projects for a 6% return? So why is a return above 6% going to be taxed as a ‘Super profit?’ The long-term government bond rate may be what finance theory calls the much lower ‘risk-free’ rate that underpins the returns investors demand, but why should that define a ‘SUPER’ profit? It wouldn’t surprise me if BHP’s or RIO’s cost of capital were double the 6% threshold! That’s what RISK CAPITAL costs, and explains why RIO announced yesterday that it has decided to expand its CANADIAN iron ore operations, which have nowhere near the natural advantages of its Pilbara operations. Those of us in the minerals industry who thought Australia had low political risk vs. Africa, which also has great resources, just learned a new lesson: While the political risk of a coup is low, Australia might make up for that through confiscatory taxes!

Perth
yep Rich, and if profits above the 6% bond rate are to be taxed, then why won't everyone with a dollar to invest just buy government bonds and save themselves the heartache?

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