Super Tax

By Jason Fittler

Why are people happy to tax the mining companies more? Answer, because it is not going to affect them. Wrong.

Ignorance Intelligence – this is the latest coined phrase, it is when people rely on media and friends to educate themselves about the happenings in the world.

You do not want to be one of them so read the below information on Super Tax and see how it will affect you. There is a lot of noise around the super tax on the mining industry but today I simply want to take a look at the facts.

Facts

1. Mining companies currently pay royalities of between 5-10% depending on the state they are in. This is on top of the company tax rate of 30%. Average tax plus royalties is around 37%.
2. Super Tax will replace this royalties program and companies will pay 40% tax on profit earned above a set bench mark, plus the 30% company tax rate. On average mining companies will pay around 58% in tax from 2012.
3. The government has already spent the money which this new tax will generate to achieve their surplus. As such Rudd and Swan will not back down.
4. Exploration companies will benefit, large companies will not. Major projects will be shelved or move off shore. This is already happening.
5. This will not promote more economic activity.
6. This has created sovereign risk in Australia which will affect investment here.

Overall, the financial industry and the mining sector are outraged that such an idea would be considered in these times, the assumptions used to model the expected outcomes which the government is selling this tax on have not yet been released. I suspect that the assumptions are not in line with current practices.

Further concerns centre around Wayne Swans lack of understanding around business practices and internal rates or returns which normal business use to decide if a project is viable. It is also clear that this tax may be extended to other large Australian companies such as the banks.

There is still a long way to go before this tax becomes law, but this is certainly a case of killing the goose who lays the golden egg, the strategy needs a re-think. 

This government has lost Australians billions of dollars from their super balances due to their treatment of Telstra, BHP and RIO alone. The effect of this new tax will filter through the whole economy as business which rely on the mining giants lose work. The mining sector was digging Australia out of the Global Financial Crisis, who will dig us out now? 

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