The federal government’s response to the Henry tax review has prompted an angry response from the mining sector.
PANIC-STRICKEN miners are gearing up to fight the federal government’s proposed $9 billion a year resources rent tax, fearing it will gut the industry and force investment overseas.
Miners, state politicians and industry bodies have all condemned the proposed resources super profit tax (RSPT) as a threat to the industry and Australia’s standing as a stable investment destination.
News of the tax has already wiped billions off the value of local resources stocks and Australians’ superannuation savings, while the Minerals Council of Australia has warned it could threaten planned resources investments worth more than $100 billion.
Miners are now demanding a chance for further input before the scheme is finalised.
Slated to come into effect in July 2012, the proposal will require miners to pay tax equivalent to 40 per cent of the profits generated by individual projects once the upfront investment has been recovered.
Companies will be entitled to claim a deduction for RSPT paid on their ordinary company tax obligations and royalties paid to state governments, but the underlying tax rate for most will effectively rise to more than 55 per cent.
The only sop given to the industry is a move to allow explorers to claim a rebate on exploration in Australia.
“The stability and competitiveness of the tax system have been central to the investment in resources in Australia,” BHP Billiton chief executive Marius Kloppers said.
“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.”
Rio Tinto Australia managing director David Peever said the plan would make the Australian minerals sector the highest taxed in the world, seriously eroding competitiveness.
Chamber of Minerals and Energy of WA chief executive, Reg Howard-Smith, likened the tax to a “$9 billion hand brake” that would discourage new mining investment and erode the sector’s long-term contribution to the Australian economy.
“In simple terms, if the RSPT restricts growth, the overall pie will be smaller,” he said. “The government will receive less revenue and that means less money for infrastructure and services.”
Chamber of Commerce and Industry WA chief executive James Pearson said the tax would be particularly hard on WA.
“Western Australian businesses more than ever are being relied upon to lift the nation’s economy out of the downturn. The penalties to be imposed on the resources sector will make that task much harder,” he said.
Canberra has labelled the levy a ‘super profits tax’ on earnings over and above ‘normal’ rates of return to address what it claims is a growing gap between booming mining sector profits and taxes paid to government.
The government claims mining company taxes have grown by only $9 billion over the last decade, while mining profits have soared by $80 billion. But the minerals lobby disputes that, claiming the total government take including royalties and other government imposts actually matches the increase in profits over that period.
The government has also pegged the ‘normal’ rate of return to that of 10-year Australian government bonds, currently 5.7 per cent.
Blake Dawson tax partner Len Hertzman said that effectively meant all mining profits would be taxable under the scheme.
“Is this a super profits tax, or just a profits tax?” he asked. “No-one is going to invest in a project without expecting a return greater than the government bond rate, which is risk-free. Therefore, using the 10-year bond rate as the benchmark for ‘normal returns’ doesn’t make sense.”
The federal government has likened the scheme to the long-standing petroleum resources rent tax (PRRT) on offshore oil and gas production.
But key differences make the new tax significantly more onerous than the PRRT.
Under the PRRT, companies can recover all their capital investment before becoming liable for the tax.
That initial investment figure is escalated over the recovery period at a significant premium to the long-term bond rate.
In comparison, miners’ recoverable capital investment will only escalate in line with the long-term bond rate. Similarly, miners with existing operations will only be able to recover the book value of existing assets before paying the tax, rather than real or replacement value.
Australian Petroleum Production and Exploration Association head Belinda Robinson welcomed the retention of the PRRT for offshore production, but warned the new tax could pose a major threat to new onshore industries such as Queensland’s emerging coal-seam-gas industry.
Premier Colin Barnett also urged the federal government to rethink its position.
“This is a hopelessly designed tax arrangement and it should be opposed,” he told parliament. “I would ask the federal government to reconsider this whole proposal.”
FED: The Henry tax review at a glance
+ Introduction of a 40 per cent Resource Super Profits tax (RSPT) on profits earned from resources rather than production by July 1, 2012.
+ States will be able to keep existing royalties, but the federal government will provide companies with a refundable credit for current state royalties paid.
+ Resource Exploration Rebate to provide refundable tax offset at the company tax rate from July 1, 2011. Will apply to all resource companies, including geothermal.
+ New ongoing infrastructure fund to be established, with annual federal government contribution starting at $700 million in 2012/13. The fund will provide money to the states for infrastructure projects from 2012/13.
+ Phased in cut of the company tax rate from 30 per cent to 29 per cent in 2013/14 and 28 per cent in 2014/15.
+ Small business will be eligible for the 28 per cent rate from 2012/13.
+ Small business will also be able to immediately write off assets valued at under $5000 and be allowed to write off other assets (except buildings) in a single depreciation pool at a rate of 30 per cent.
+ Increasing the Superannuation Guarantee Rate from 9 per cent to 12 per cent by 2019/20.
+ Around 3.5 million low income earners on less than $37,000 will receive a $500 annual super top up from the government
+ Raising the the super guarantee age limit from 70 to 75.
+ Over 50s with lower super balances will be given more generous contribution
+ A higher concessional contributions cap of $50,000 for those aged 50 or over who have less than $500,000 saved in super.
+ No changes to the GST rate or base
+ Further changes to be announced later, including possible changes to income tax return process.
+ The changes are expected to increase Australian GDP by 0.7 per cent and real wages by 1.1 per cent - equivalent to an extra $450 per year in the pocket of the average full-time worker.
