Adam Schwab writes:RESOURCES SUPER PROFITS TAXSince the...

Adam Schwab writes:
RESOURCES SUPER PROFITS TAX
Since the announcement of the RSPT, the All Ordinaries Index has fallen by 10% (largely on global concerns of a double-dip worldwide recession). However, the share price performance of miners with only local operations and companies that service the Australian mining industry have performed significantly worse than the benchmark.

Boart Longyear, which provides drilling services, has seen its share price slump 20% since May 2 when the RSPT was announced, respected mining services provider Monadelphous has dropped by 18% while Fleetwood (which provides temporary housing structures for remote mining companies) has fallen by 11%. Seven Group Holdings, which recently merged with Kerry Stokes privately owned Caterpillar franchise WesTrac, has slumped by 18%. Further, as Greshams David Feetham pointed out, mining companies with exclusively Australian operations have slumped by 12% since the RSPT was announced, compared to a fall of less than 1% for mining companies with predominantly overseas-based businesses.

Strangely, the government noted in documents announcing the planned lowering of company tax rates that "internationally mobile capital can be especially sensitive to tax rates. A lower company tax rate will improve incentives to invest in Australia". Just to clarify the governments thinking -- lower taxes on companies will increase investment, unless those companies are mining companies, in which case higher taxes will increase investment.

But let us for a moment ignore the poor logic or what investors think of the super tax. What is more concerning is that the government appears to have based the RSPT tax on Owen Hegartys "stronger for longer" principles. In fact, the government said as much in its tax reform overview, noting that:

"Continuing growth in China and India will support global growth, and will be associated with strong demand for Australias abundant natural resources. This means higher commodity prices which will support the Australian economy as we rebound from the global financial crisis."