Australian Treasurer Wayne Swan yesterday described as “myths” claims a planned new 40 percent tax on mining profits would hit investment or push up domestic prices.
In a weekly economic note, Swan said the new 40 percent “resource super profits tax” would replace an inefficient royalties system and as a result, should boost investment.
Prices of most commodities subject to the tax were set on international markets, he said, and Treasury analysis showed it should not affect prices of coal, gas or electricity within Australia.
PHOTO: AFP
The new tax has caused an outcry from mining companies since it was announced earlier this month. They have put a series of major projects on hold and have been backed by the conservative opposition, which has vowed to cancel the tax if it wins an election due later this year.
In a recorded interview broadcast yesterday, Fortescue Metals Group chief executive Andrew Forrest said the resources sector had saved Australia during the global downturn from a crisis such as that in Greece and the new tax threatened its future by deterring investment.
However, Swan said mining companies were currently getting a better deal than the average Australian taxpayer.
Thanks to various concessions, Australian-owned mining companies currently pay an effective 17 percent rate of company tax, he said, while foreign-owned companies paid just 13 percent. Those figures are far below the official company tax rate of 30 percent and well below the effective rates paid by the retail and manufacturing industries, he said.
“All companies in Australia are required to pay company tax, but very few businesses receive as their primary input the non-renewable resources that belong to the Australian people,” Swan said.
“No other business would try to argue that they should get their primary input for free courtesy of the Australian people just because they pay company tax — and neither should Australia’s largest mining companies. In our tax system, an ordinary worker who earns an extra dollar through their hard work pays higher tax, but a mining company that earns massive amounts pays the same flat, low rate of company tax,” he said.
Swan also denied the tax would harm existing projects, saying mining companies would receive “generous recognition of their past investment costs.”
However, Forrest said in his interview with the Australian Broadcasting Corp that bankers had pulled out of some planned Fortescue projects, including the A$9 billion (US$7.4 billion) Solomon Hub project in Western Australia State, to create an iron ore mine producing 160 million tonnes a year.
China is a key customer for Australia’s resources, particularly iron ore, and Forrest said a note from a Chinese consulate had made clear that the tax had undermined Australia’s competitive advantage.
“[The note] said Australia’s competitive advantage to China over Brazil, over India, over these massive competitors Australia competes against, that competitive advantage we did have is now gone,” Forrest said.
The new tax is set to raise about A$12 billion in its first two years and is scheduled to be implemented from July 2012. Since it was announced, a series of mining companies have suspended major investment projects.
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