Oh and its not just WA and Qld that will fill the effects

Taxing times bring jobs threat

Noel Dyson
Wednesday, 12 May 2010
ABOUT 140,000 jobs could be under threat in New South Wales if the Australian government’s resource super-profits tax proceeds in its present form.


That is the view NSW Minerals Council chief executive Dr Nikki Williams gave to the Schneider Electric Connects User Conference in Sydney today.

The figure of 140,000 comes from the fact that there are 35,000 people employed in the NSW mining industry and that the accepted mining multiplier effect is four-fold.

Williams pointed out that those non-mining jobs were not just with suppliers to the mining sector. It included the small businesses in mining towns that only exist because of the mining sector.

The closure of BHP Billiton’s nickel operation in Ravensthorpe showed just how devastating a mine closure could be on the businesses.

What has Williams worried about the RSPT is not just the fact that it is 40%, nor the fact that miners have to pay 40c for every dollar they make over a 6% profit rate. Her concern is the fact that the tax is retrospective.

Her reasoning is that the tax could threaten the economic viability of a number of mines. That would mean they would have to close and that could trigger a devastating impact on the regional economies they operate in.

That is not to mention the prospect of losing out on projects that were close to being given the green light. The 40% tax might just make those numbers fail to stack up.

In essence, Williams said, the Rudd government had made Australia the highest taxing mining regime in the world. With the way the tax is proposed to work, the effective tax rate is 57%, she argues. (While Norway has a rate of 78%, much of its industry is nationalised so it could be argued that it does not really count.)

Capital is highly mobile in the mining sector. While Australia has an abundance of resources and close proximity to key mining markets such as China, this 40% impost on every cent of profit above 6% changes the picture a bit. Suddenly other jurisdictions become more attractive.

“The collective rubbing together of hands in other mining jurisdictions is completely different to the sounds coming from here,” Williams said.

“In April 2009, the Fraser Institute ranked Australian states alongside other mining jurisdictions. New South Wales was ranked 20th, one place above Botswana as an exploration destination. I can only speculate on what will happen with the super profits tax.”

Williams pointed to the signs that the mere thought of the tax was proving enough for some companies. Peabody, she said, had cut its bid for Macarthur Coal, citing the RPST as one of the reasons, while Incitec Pivot and Xstrata Copper have said they would stop exploration drilling programs.

“What the prime minister has done is hand the reins to the middle classes of the emerging economies in China and India,” Williams said. “God forbid if China sneezes. Australia will catch pneumonia.”

Not that the NSW Minerals Council is against changes to the tax system.

It wants taxes that are prospective – meaning they apply to new projects only. Williams said making taxes retrospective, such as the RSPT was, would create issues of sovereign risk.

Any tax changes need to be internationally competitive. They also must recognise that not all taxes on minerals are equal and tax each one accordingly. The changes should be levied on the primary resource value only. Finally, the taxes must be efficient.

“We believe that the resource super-profit tax should abolish state royalty regimes,” Williams said. “But I also believe that the states must not lose control of the revenues from the replacement regime.

“As an industry we’ve been arguing for a flow-through share scheme that would allow a company’s unused deductions to flow through to shareholders.

“What we’ve ended up with is the resource super-profits tax, a resource exploration rebate, a state infrastructure fund and a reduction in the company tax rate.”

Williams said while there were some positives in the tax package, it fell short of the principles the Minerals Council wanted applied to tax changes.

There is a little bit of hope though.

While Prime Minister Kevin Rudd has insisted that the 40% rate will remain, Williams believes there is room to move on other issues.

The 6% rate that the tax kicks in, for example. Maybe that can move to a higher level. Williams said the Petroleum Rent Tax kicked in at about 11%.

The way the RSPT is structured does not allow companies to claim for interest. That may be another area for negotiation.

Williams said a major difference between the petroleum and mining taxes is the way capital is invested.

With petroleum, she said, the bulk of the capital is invested up front and then there is a steady revenue stream.

With mining, however, there is an initial large capital investment followed by fairly regular capital investments throughout the life of the project.

Fortescue Metals Group is a case in point. Williams said that company had high debt levels and the fact that it would not be able to claim the interest on those repayments would be a disadvantage to it.

The other is that the government could agree to apply the tax to prospective projects only and not those that are already operating.

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