Mining tax breakthrough MALCOLM MAIDEN July 1, 2010 - 2:01PM Comments 3 Ads by Google
Free Practice Account Want to learn more about cfds? We can help. Learn More www.GFT.com.au The Gillard government and Australia's big three miners have made significant progress in talks about a resources tax compromise and are now on the brink of an agreement that would end one of the biggest government-private sector brawls in history.
It's understood that BHP Billiton, Rio Tinto and Xstrata have agreed with the government now on the key elements of a new resources tax structure, including the creation of a new trigger point for the imposition of the tax, set at the 10-year Commonwealth bond yield plus 7 per cent.
With Prime Minister Julia Gillard in far north Queensland today for the funeral of killed Afghanistan soldier private Ben Chuck, the formal announcement of a deal could be held over.
The proposed new trigger point for the ''super profits'' tax to kick in is currently equal to a rate of about 12 per cent, around about the average cost of capital in the mining industry. The original tax cut in above the bond yield only, currently just over about 5 per cent.
The government is also believed to have resolved the miners' concerns that the tax will be retrospective in its application, by agreeing that the miners can inject their existing assets including the huge Pilbara iron ore mines and the rich east coast coal mines into the revised tax regime at market value. This is a huge concession.
Advertisement: Story continues below Retrospectivity, the rate at which the tax is imposed and the headline rate ? set originally at 40 per cent ? were the three key mining sector objections to proposed new tax. It was unclear at midday, east coast time, what deal had been struck on the headline rate, but the government is believed to have also given ground on this point, with people with knowledge of the talks saying the two sides were "nearly there" on an agreement.
The new agreement is also likely to not only see lower value resources including sand, gravel and limestone excluded from the regime, but exclude nickel mining and processing from the regime. That is another big win for the miners, who argued that the complicated, integrated nickel mining and processing process did not lend itself to the resources tax design.
The changes are all flowing from the government's agreement that its ambitious plan to structure the tax as an effective 40 per cent "co-investment" in mining projects, skimming 40 per cent of profits but also bearing 40 per cent of the development costs and 40 per cent of the risk, should be replaced by a simpler tax on profits that beat the miners' average cost of capital.
If the deal is confirmed as now expected, Julia Gillard will have met her first big test as Prime Minister.
Much more work will be needed to thrash out the fine details of the compromise, and smaller miners will need to be included in those talks. The government will also need to decide how it manages the revenue impact of the revisions, which will see the resources tax pull in less money than it would have. The proposed cut in company tax from 30 per cent to 28 per cent and the proposed increase in the superannuation guarantee from 9 per cent to 12 per cent have both been linked by the government to the resources tax and the revenue it was supposed to generate.
Those are however details: As soon as she became Prime Minister Gillard promised to settle the brawl with the miners quickly. The miners called a truce to their campaign against the tax in response, but warned that hostilities would resume if a deal was not clinched this week. It looks as if the new PM has met the deadline.
