Yesterday’s announcement by BHP Billiton Chief Executive, Marius Kloppers that an expansion of the company’s Olympic Dam uranium and copper mine in South Australia could be affected by the country’s proposed resource so-called super-profits tax comes as no surprise. This is a major warning only a week after the Federal Government released details of a new resources tax in its publication, “The Resource Super Profits Tax: a fair return to the nation”.
It seems far from ‘fair’ to put at risk investment in the industry that has played such a central role in South Australia’s growth and given Australia its relatively smooth ride through the Global Financial Crisis. Mining companies already bear massive risks and costs associated with exploration and investment and this new, complex tax is simply another financial burden.
The Resource Super Profits Tax (RSPT), proposed to start 1 July 2012, suggests at a rate of 40% on super profits made from the exploitation of Australia’s non-renewable resources. The tax is on profits remaining after a normal return on capital in the extraction of natural resources. While the headline rate is 40%, there will be a whopping combined statutory rate of approximately 57%.
Petroleum projects already within the scope of the Petroleum Resource Rent Tax (PRRT) will have the option of opting into the RSPT or staying in the PRRT. The RSPT will replace the crude oil excise and operate in parallel with State and Territory royalty regimes. Credits will be available for State-based royalties paid, refundable if the royalties exceed the RSPT, however the level of credit available has not been determined and could well be less that the royalty paid.
The new tax is complicated both in terms of its operation and its rationale. Many hours of tax lawyer’s time and serious accounting advice will be required to bring mining and resources firms into line with the new regime. It is a whole new tax system - a whole new layer of complexity and cost embedded into every aspects of our resources sector.
The RSPT is simply out of touch with the market. Marginal producers who incur higher costs and therefore derive lower profit will be better off compared to those who operate their projects efficiently and who make real money. Even compared to the limited number of other countries with profits based resource tax, the rate is extremely high (40% instead of 20% as it is in many countries including Saudia Arabia, Russia and Canada).
The Government’s seems to believe resources companies have no alternative but to develop their Australian projects like BHP Billiton’s massive expansion at Olympic Dam. But it is obvious that resources companies looking at major investments opportunities in both Australia and South Australia, like BHP Billiton and Beach Energy also have a range of investment opportunities across the world. If the government increases the risk of Australian resources projects and reduces the ability to profit, Australian projects are just less likely to be pursued just as BHP Billiton has just indicated.
Australians have enjoyed the benefits of the resources boom and have been looking forward to more economic spinoffs from the mining sector. The Resource Super Profits Tax is not ‘fair’ as it is a major threat to our country’s prosperity and to the economic future of South Australia.