Resource Super Profits Tax thingo whatsit

[ltd]

Originally Posted by irish2

The oil and gas industry in Australia makes up roughly a third of all mining operations and already has a 40% super profits tax. Has the tax driven up the price of oil and gas? We are one of the smallest players in the oil and gas industry so why do they continue to mine here when they will make no profit?

Oil and gas industry is exempted from royalties, they pay the resource rent tax. The northern shelf that is cited by the government as a working model does not pay the "super profits tax" at all.
What you are ostensibly suggesting is that foreign ownership is bad and that we all have to tax the hell out of the industry. This is disingenous as if you have superannuation, you too have a stakehold in these mining companies.
As for your assertion that Rio and BHP didn't lose much; are you living on Mars in a cave? They collectively had a tad over 8 billion dollars wiped off them in two days - that's not much to you?
Further, having this tax cut in at anything above the government bond rate of 6% has meant that the banks and superannuation companies will no longer finance either exploration or new projects. This has dire consequences on our country.

Finally, the price of the mined goods go up with increased input costs. They are after all a business and businesses need to make a profit or they go bust. BHP will not take it on the chin and absorb losses; ergo the price of minerals and commodities goes up. If the price of coal goes up so will the price of electricity. Iron ore goes up so will the price of cars - get the picture.

Just one very last point. Company Directors and managers are bound by law not to mislead the market or shareholders lest they find themselves before the supreme court facing a possibility of a custodial sentence.
Politicians on the other hand legally get to lie through parliamentary privilege; who would you trust?

[irish2]

Originally Posted by ltd

Oil and gas industry is exempted from royalties, they pay the resource rent tax. The northern shelf that is cited by the government as a working model does not pay the "super profits tax" at all.
What you are ostensibly suggesting is that foreign ownership is bad and that we all have to tax the hell out of the industry. This is disingenous as if you have superannuation, you too have a stakehold in these mining companies.
As for your assertion that Rio and BHP didn't lose much; are you living on Mars in a cave? They collectively had a tad over 8 billion dollars wiped off them in two days - that's not much to you?
Further, having this tax cut in at anything above the government bond rate of 6% has meant that the banks and superannuation companies will no longer finance either exploration or new projects. This has dire consequences on our country.

Finally, the price of the mined goods go up with increased input costs. They are after all a business and businesses need to make a profit or they go bust. BHP will not take it on the chin and absorb losses; ergo the price of minerals and commodities goes up. If the price of coal goes up so will the price of electricity. Iron ore goes up so will the price of cars - get the picture.

Just one very last point. Company Directors and managers are bound by law not to mislead the market or shareholders lest they find themselves before the supreme court facing a possibility of a custodial sentence.
Politicians on the other hand legally get to lie through parliamentary privilege; who would you trust?

Yes they lost 8 billion on paper, and still outperformed the rest of the sharemarket. You don't lose money until you sell. The stock in those companies has been sold by the company and therefore has no direct impact on the company no matter what the price. Ford US shares dropped below $1 and have gone back over $10. This is just what 'the market' considers a reasonable value for a percentage of the company or 'share'.

The royalties on all mines will be replaced with the next tax system. The tax is based on PROFITS so the price of minerals will not increase as the tax only kicks in after a PROFIT has been made. Understand a profit is what is made after ALL expenses are taken into account including wages, machinery, etc. So where are the increased input costs?

[robbyg]

think im over this thread fellas, we are going around in circles

[vztrt]

http://www.theage.com.au/business/ye...0607-xpjo.html

Yes, I exaggerated mining tax threat: Palmer
June 7, 2010 - 2:05PM

One of the most vocal critics of the Rudd government’s proposed resource profits tax has admitted he exaggerated the possible consequences.

Mining magnate Clive Palmer said in May he would cancel two projects in Western Australia’s Pilbara region, which would have employed 5000 people, because of the levy.

The executive chairman of Mineralogy said one of those projects would employ 3000 people and generate about $2 billion a year in exports.

But he has now told the ABC he may have exaggerated.

Asked if he had exaggerated the threat, Mr Palmer told tonight’s Four Corners program: ‘‘Probably. It should’ve been, you know, slowing them down, waiting to see what happens.’’

The federal government has been quick to criticise Mr Palmer, a prominent donor to Queensland’s Liberal National Party and Australia’s seventh richest man.

Small Business Minister Craig Emerson said Mr Palmer’s admissions cast doubt on the entire scare campaign over Labor’s proposed 40 per cent resources super profits tax.

‘‘Clive Palmer’s deliberate campaign of misinformation has been exposed for the scam it is,’’ he said in a statement.

AAP

[vztrt]

http://www.theage.com.au/business/mi...0604-xk33.html

Mining tax has 'significant flaws': Future Fund chief
June 4, 2010

Australia's sovereign wealth fund called for the government's planned resources tax to be amended or scrapped, saying it risks eroding the country's appeal to investors.

''There are several significant flaws,'' Future Fund Chairman David Murray said in an interview posted on the Business Spectator's website. ''The tax has to be changed or abandoned.''

The tax shouldn't be applied to existing resources projects, Mr Murray said. Mining royalties could alternatively be directed into a wealth fund, he said.

Criticism from the Future Fund, a government-owned entity with $68 billion of assets, increases pressure on Prime Minister Kevin Rudd as Australian miners ratchet up their campaign against the planned 40 per cent tax on so-called super profits. Mr Murray said he'd be ``extremely concerned'' as a mining company.

''If we can't achieve a design that does not penalize existing projects, that's a sovereign risk issue,'' Murray said in the interview. ``If there's a change, there has to be some process of putting aside returns from resources depletion for the longer term. Unless we do that, we'll be directing resources taxes of one sort or another to recurrent spending of government, which will cause significant problems later.''

Bloomberg News

[SpoolMan]

4 Corners current affairs program has a story on this tonight ABC 8.30pm, very good program 4 corners.
I seen on the a news snippet Clive Palmer admitting to some exaggeration.

[irish2]

Originally Posted by SpoolMan

4 Corners current affairs program has a story on this tonight ABC 8.30pm, very good program 4 corners.
I seen on the a news snippet Clive Palmer admitting to some exaggeration.

The man did make 8.5 billion dollars last year on the back of dividends. He would be stupid to not try and force the governments hand.

[SpoolMan]

I regard 4 corners as top current affairs program, they got plenty of views from both sides and its very interesting to hear all the stuff we dont get hear only what is feed to us through paid media adds.
Tomorrow I will post the link so those didn't see it can watch the 45 min show.

[ltd]

Sorry spoolman, I saw it too and my overall impression was; who does the ABC (a beacon of impartiality) always show in a good light?
* Why wasn't Swan pressed over the cherry picking of recommendations from Ken Henry's report and grabbing the super profits tax? Even Henry knows that there were other taxes to be cut to make it neutral, this new tax is only additional.
* Clive Palmer says he may have exaggerated, does that automatically mean the miners are all wrong?
* How can one gloss over the fact that there has been scant detail at all from the government?
* What about them now saying they're replacing the royalties; has anyone bothered to ask the states to volunteer that funding to the feds?

Do yourselves a favour, have a look at your super balances before and after this was announced and tell me it's "for the future of all Australians".

[SpoolMan]

It was balanced program with both sides getting there fair say, some may not like it because it wont be inline with there views.
Clive Palmer got busted telling porky's as did all those other overseas mining bosses with there over the top scare mongering, history repeating itself as the facts will show in the 4 corners report.
Heres a link to the there story:
http://www.abc.net.au/iview/#/series/four%20corners

[vztrt]

http://www.theage.com.au/opinion/pol...0607-xqn0.html

Resource tax amounts to 40% nationalisation of the mines
TIM COLEBATCH
June 8, 2010



It's good for miners to give more back, but is this the way to do it?

For five weeks, our politics has been dominated by a debate that for most of us has nothing to do with our daily lives, and which we have no hope of understanding. Yet it could decide who will govern us next.

What have we learnt from a month of claims and counter-claims on the resource rent tax? I think it comes down to three questions. Should we increase taxes on mining, to give shareholders less and the community more? If so, is this the right way to do it? And, all things considered, is this tax rise about the right amount?

(Future Fund chairman David Murray last week threw in a fourth question: What's the best way to use the new tax revenue? But while I agree with him that a big slab should be invested for long-term benefits, not spent, the first three are the key questions right now.)

The Rudd government chose this fight because it was confident that voters would agree they are not getting a fair share of the record prices now paid for Australia's minerals. Yet, in a month of debate, it has failed to make a convincing case on this. Even its new TV ads focus yet again on what miners pay in royalties to state governments. But why ignore the larger amount they pay in company tax to Canberra? In eight years, that has grown from $1.4 billion to $8.1 billion in 2007-08, and $10 billion-plus in 2008-09.

Treasurer Wayne Swan has hit back with estimates that, even including company tax, the community's share of mining profits has shrunk from 55 per cent over the five years to 2003-04 to 27 per cent in 2008-09. But that is based on Treasury's own estimate of mining companies' ''economic income'' - which it refuses to publish. All we know is that it makes no allowance for depreciation of capital equipment, which some of us might think essential to the industry.

Is the government's case really that weak? No. The Bureau of Statistics' recent round-up of industry data for 2008-09 estimates the profit margin in mining that year was 37.1 per cent. That's three times the industry average of 11.2 per cent. (Mind you, there were no banks in its survey). Mining earned 7.2 per cent of all industry income, but 23.4 per cent of all pre-tax operating profits. They're doing well.

Then there's a second argument the government fails to make, although it slyly alludes to it: the mining boom makes other industries unprofitable. Over the 20 years to 2005, the Australian dollar averaged US70¢: manufacturers, farmers and tourism operators could live with that. But in the past three years it has averaged US84¢, even including the months of financial panic - and US88¢ with the panic months excluded.

Analysts believe the mining boom is the main driver of the dollar's rise, which has wiped out sales and profits for industries lacking its huge profit margin as a cushion. And it's only in the early stages.

Access Economics estimates that mining companies have $107 billion of projects already committed or under construction, and another $186 billion in the pipeline. What impact would all that have on other Australian industries?

There are good reasons to believe the mining industry could pay a bigger return to the community - and it would be a good thing if our mineral wealth were extracted more slowly. But how?

Even the miners support the principle of a resource rent tax. But this version is fundamentally different to those operating elsewhere, including our own tax on the oil and gas industry. It amounts to a 40 per cent nationalisation of mining projects, with the miners paying the government's share of the costs upfront. They face a sharp fall in the value of their mines, while taxpayers face the risk of paying 40 per cent of the losses of unprofitable mines.

Why on earth did we end up with this? One striking feature of the debate is that, one university economist aside, no one has come out to support this version of the tax. Officials present it as taking from big miners to give to small miners, yet no small miners have come out to support it. And the industry has dented its assumption that a government IOU is as good to the miners as cash.

A first step back from the brink would be to scrap this version for something like the existing resource rent tax, under which oil and gas projects pay the government 40 per cent of profits above a benchmark set 5 percentage points higher than Kevin Rudd and Swan now propose.

How much should the government take for us? Well, it should heed the advice of Jean-Baptiste Colbert, finance minister to Louis XIV: ''The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.'' And, of course, without making the goose die of cold.

This is a big tax rise, maybe $12 billion extra a year on successful mining projects. Both sides effectively agree it would lift taxes and royalties by roughly half. That could easily be reduced - were it not that Rudd is now committed to spending virtually the lot.

Both sides are facing tough choices. If the government gives ground now to placate the miners, they will demand more; but if it doesn't, the fight goes on - and the government is losing. If the miners hang tough, they could end up with Tony Abbott as prime minister - but if Rudd gets back, they will have lost their best bargaining opportunity. And the real election will be about more than a mining tax.

Tim Colebatch is Age economics editor.

[vztrt]

http://www.theage.com.au/money/tax/c...0607-xp4f.html

Confidence undermined
June 7, 2010 - 12:24PM

David Potts gets his hands dirty grappling with the detail of the federal government's proposed resources tax.

It took a new tax to prove the point but the boom times for mining stocks may have moved on.

And don't blame the new resources super profits tax, not that it helps.

Some analysts say the tax won't make any difference to blue-chip mining stocks such as BHP Billiton and Rio Tinto, though they've kept that quiet.

If anything, these analysts are even more dismissive of the tax than the miners - perhaps a bit too dismissive.

Brokers seem convinced the tax won't happen because the government will back down, it'll lose the next election or (their preference) both.

They forget the government's credibility is on the line and that there's a huge budget hole that must be filled.

But then not all those who believe the tax will go ahead think the big miners, with plenty of alternative projects overseas, will be worse off.

"It won't affect the profitability of the majors because future investment decisions will be diverted to offshore," says an equities analyst at wise-owl.com, Tim Morris.

For most stocks it's impossible to say what the tax will do exactly.

There's a Treasury roadshow travelling around the country to sell, oops I mean explain, it all. I'm sure you're invited. Unfortunately it's raising more questions than it answers. All I can say is, next time you're digging in the garden, be careful: those minerals in the soil are taxable.

OK, only kidding. You can keep digging because the tax doesn't start for two years.

Just don't sell any surplus dirt because the super profits tax lurks where a mineral is "saleable".

Luckily Treasury doesn't realise dirt is a saleable commodity. Saleability can make a huge difference to how much tax a miner will pay, as the managing director of mining specialists Eagle Research Advisory, Keith Goode, points out in the case of bauxite or aluminium.

"It applies as close as possible to once a saleable product has been achieved, and hence may or may not include transport costs," he writes in his notes of the Treasury presentation. But if bauxite is the saleable point then there's the question of how gold ore is treated and what costs are taken into account.

Anyway the market has already slashed the 10 per cent to 15 per cent across-the-board cut in the valuations of mining stocks that some brokers say will be wrought by the tax.

Mind you, others say it'll be more like 20 per cent and Morningstar has slashed its valuations of small- to middle-sized resource companies with Australian mines or exploration mandates by up to 25 per cent.

"The immediate reaction in North America was to dump Australian mining stocks," Goode says. "All those years we've built up a reputation as a safe place have gone out the window. It's opened a Pandora's box even if the government doesn't go ahead with he tax."

Notice nobody is rushing to call marked-down resource stocks a buy.

"BHP is an opportunity to top up but we're waiting for the dust to settle," Morris says.

In fact the tax could set off a chain reaction of takeovers.

"There'll be more opportunities for consolidation as the smaller miners buckle under the pressure," says a resource analyst at Australian Stock Report, Stan Shamu. "It's bullish for the long term. There's no reason to panic."

Certainly the bigger miners with overseas assets have little to worry about, despite their public protestations.

Not so a stock such as Fortescue Metals Group, the whole future of which depends on mining in the Pilbara.

The fact is it's not so much the fine print of the tax as the blank spaces Treasury is filling in as it goes that's the worry.

"The devil will be in the detail that has still to be defined," says the chief executive of Lincoln, Elio D'Amato.

The tax isn't even what it says it is. It's not a tax and it's not on super profits. And that's just for starters.

Strictly speaking it's an economic rent - think glorified royalty where you get some deductions - and it's not on profits but cash flow.

That's why, for example, interest isn't deductible though miners can still claim it for ordinary company tax.

Speaking of which, the government gets its cut of revenues first, leaving less as collateral for potential lenders.

Banks won't like that one bit.

Nor is there a clear line in the sand where it cuts in.

A return on an investment above the 10-year bond rate is supposed to be a super profit.

It's not a threshold as such but a deduction every mining project gets before the tax kicks in.

It also moves every day; as we speak it's about 5.4 per cent. You could get more than that on a term deposit.

In the early 1980s it exceeded 16 per cent but, more alarmingly for miners, it's also been as low as 4 per cent.

For all I know it's possible to have a return on capital under this yet pay the tax if, for example, there was a windfall revenue gain one year.

And because it's based on a project - so companies will have to keep two sets of accounts for the two taxes - there's also the unresolved question of which head office costs can be allocated to it, and by how much.

A new tax isn't the miners' only problem either.
"Resource companies are at the peak of their earnings," says a resources expert at Sound Money, Sound Investments, Greg Canavan. "As the year unfolds, slower global growth will take the heat out of commodity prices."

Taxing the truth

1. Is the government telling the truth?

Its claim miners only pay 17 per cent tax is based on a discredited study using old figures. Rio Tinto says its tax is more like 35 per cent. Wayne Swan says "the tax share of mining profits" has "fallen dramatically in recent years". In 2004-05 it was 8 per cent. But in 2007-08 it was 14 per cent. Even a research paper by Treasury admits "the mining industry's contribution to total corporate tax collections has gradually increased over time".

The government's claim the tax will encourage more investment is just as shaky. But it's right that royalties discourage high-cost production so once they go, or are reimbursed, marginal mines will suddenly become profitable.

2. How about the miners?

They're right to say this has hurt our reputation but then they should know because they're the ones bad-mouthing us. It's also true the tax puts Australia at the top of taxing countries for iron ore, though not for energy. The miners make much of how their company tax payments have soared. But that's because their profits have. Remember they pay a flat rate of tax. Arguably when commodity prices are soaring the nation is entitled to a bit more of the action, just as you pay a higher tax rate as you earn more. (See (4) Will it push up prices? and (5) Will it hurt my super?)

3. But is Australia now a sovereign risk?

Come off it. Sovereign risk is when a country defaults on its debt or nationalises a company. We're one of only 18 countries with the top credit rating. Besides, it's not about taxing existing profits but those after 2012. (See (8) But isn't it retrospective?). Foolishly the government is selling the tax as a partnership with the mining industry. But who'd want the government as a partner? It even argues that in underwriting 40 per cent of spending, project risk is lower. The trouble is the chances of a risky project getting off the ground are lower too because from a lender's point of view the after-tax return drops. What you can say is it's made Australia a less-attractive destination for foreign investment in resources.

4. Will it push up prices?

No more than the cut in company tax will push them down.

5. Will it hurt my super?

No because the big miners will switch to offshore projects if they think the tax is going to hurt them. And remember the new tax pays for a cut in company tax. The franking credit will drop but companies will be able to afford a higher dividend. But because miners have to pay the new tax first, which is then a deduction for company tax, they may have fewer franking credits.

6. Does this make Australia the world's highest taxer of resources?

No. Norway has a higher rate on its North Sea oil deposits. But Treasury loves this tax because its world's best practice, which means nobody else has it. The mining companies are terrified other countries will decide it's a good idea too, in which case they'd have nowhere to hide. You can be sure the treasuries in other resource-rich countries will be pushing for the tax too — after all, it does raise more money.

7. Surely a 56.8 per cent tax rate all up is a bit rich?

It would be if every miner had to pay it. But Treasury's Ken Henry told a parliamentary committee that only a miner with an "infinite" return on capital would pay that much. More realistically, with a 15 per cent rate of return, a project would pay 45.3 per cent tax altogether, compared with 38.7 per cent now.

8. But isn't it retrospective?

If it is, so is every other tax. Remember it replaces (or rather refunds) state royalties that are already there. Also profits aren't taxed until 2012-13. An existing project gets a starting base, which is its book value. That's then depreciated over the first five years.

9. Aren't there any winners at all?

Some. A high-cost mine or one with a short lifespan won't have to pay either the new tax or royalties.

10. Didn't the resources sector save us from recession?

Not single-handedly. Don't forget the cash splashes and rate slashes. Henry says the resources sector cut back investment and shed labour big time during the GFC, even arguing unemployment would have hit 19 per cent if everybody else had done the same. But while they might not have been so kind to their own workers they did help prop up the rest of us by adding to national income through their exports.

[GasoLane]

Originally Posted by ltd

Do yourselves a favour, have a look at your super balances before and after this was announced and tell me it's "for the future of all Australians".

If my super fund invests in BHP or RIO it's not just BHP and RIO Australia.

[irish2]

Originally Posted by ltd

Do yourselves a favour, have a look at your super balances before and after this was announced and tell me it's "for the future of all Australians".

Superfunds invest in hundreds of different objects. If they had invested in only BHP over the month of May instead of the ASX 200 the superfund would have performed better.

[zdcol71]

I see Palmer last night on 4 Corners, backing down from saying investments were cancelled, to "being re-assesed".
Before everyone panics, these resources are available in Australia, and the fact is, the quantities we have of these resources dictates, on a world scale, they will be tapped.
The "super tax" is not simply a tax on mining revenue, but also on the about to explode Coal seam methane industry.I think the bottom line at present is that the big players in the energy supply market are realising that fossil fuels will be the "power of choice" for some time to come, be it oil, gas,(LNG, CSG, LPG) etc.
Sustainable energy, or clean energy,(wind,solar, hydro,etc) does not produce the economies of scale that fossil fuels do at present ,so it is no short odds that these won't get a good run politically for the time left that we are able to exploit these other energies from the ground.