Australia proposes 40 percent tax on mining profits booming due to China, India demand

Australia looks at 40 percent tax on mining profit

CANBERRA, Australia — Australia would heavily tax the booming profits of its mining companies under a tax system overhaul proposed Sunday that also would invest in infrastructure to support mining operations and reduce corporate taxes.

The new 40 percent tax on resource profits targets industries that have grown rapidly as they’ve produced the raw materials that feed burgeoning Chinese and Indian manufacturing demand.

Mining royalties currently paid to Australian state governments do not reflect rising commodity prices. The government says mining profits rose by 80 billion Australian dollars ($74 billion) in the past decade, yet government revenues from resources increased by only AU$9 billion.

The government would introduce the so-called Resource Super Profits Tax in July 2012. The company tax rate would be cut from 30 percent to 29 percent in July 2013 and to 28 percent a year later.

The government forecasts that the cut in company tax combined with the mining tax would increase Australia’s gross domestic product by 0.7 percent a year.

“These changes will not be welcomed by every business or every interest group, but they are the considered, responsible changes we need if we are to turn our success during the global recession into enduring gains for our economy, our people and our nation,” Prime Minister Kevin Rudd said in a statement.

Treasurer Wayne Swan told reporters he could not say whether tax legislation would be introduced to Parliament before national elections are held at a date to be set late this year.

The legislation would need the support of some opposition senators to pass the upper house, where Rudd’s center-left Labor Party government only holds a minority of seats.

The main opposition Liberal Party said the tax would cost mining companies AU$9 billion a year and devalue blue chip shares in global giants including BHP Billiton and Rio Tinto.

“If you are determined to kill the mining boom stone dead, who could hardly have more precisely calculated a measure to achieve it,” opposition leader Tony Abbott told reporters.

The mining boom was the main reason Australia had avoided recession during the global financial crisis, he said.

Mitch Hooke, chief executive of the Minerals Council of Australia which represents mining companies, warned that mining investment could stall or shift to other countries. Australia already had the highest-taxed mining industry in the world, he said.

“There is real risk that many of these taxation gains that the government is banking on may prove illusory if the secondary round impacts are a deterrent to investment,” Hooke told reporters.

Under the tax overhaul, resource-rich states would continue to reap mining royalties, but the federal government would refund those costs to mining companies before calculating their federal tax debt.

The tax would be levied on profits after all the costs of mining operations, capital investment and dividends to shareholders are deducted.

Marginally viable mine companies would potentially be better-off in cases where the costs of extracting minerals barely cover royalty charges because of a price downturn or when the ore deposit is almost exhausted.

About AU$5.6 billion of the mining tax revenue would be spent over a decade on public infrastructure critical to the industry such as ports, rail and roads.

The government argues the tax shift would prevent a “two-speed economy” emerging in Australia where non-resource industries such as manufacturing, construction and tourism cannot attract investment or staff because they cannot afford to match the lucrative wages offered by the mining industry.

Also as part of the tax overhaul, the government would increase the proportion of salaries that Australian workers must save for their retirements from the current rate of 9 percent to 12 percent by 2020.