According to the current proposal by the government for the new mining tax, the so called Resource Super Profits Tax (RSPT) is due to be introduced on 1 July 2010 at a rate of 40% on the profits made from the exploitation of Australia’s non-renewable resources.
Why is the government doing this?
The present government has stated that the exploitation of Australia’s wealth of natural resources does not currently provide a fair return to the Australian community. Although there is no empirical evidence given to verify this, the government believes that the imposition of the new tax will increase employment and investment in the resources sector. There is no explanation as to how this is likely to occur, in traditional economics the imposition of a new tax is likely to reduce employment and investment in a sector where greater taxation is applied. However, the economic argument for the tax is that compared to the current system of taxation which is based on royalties rather than a proportion of profit the new RSPT will only impose taxation where the businesses are profitable. It could be argued that this is misguided because it removes the possible initial incentive for mining prospecting or the mining entrepreneur to invest because in an already risk laden business, losing 40% of the profit to taxation in addition to company income tax would be a serious disincentive to invest or to employ new staff, including through EU Workers. The government also argues that it will reduced national uncertainty be creating a nationwide uniform system of taxation for mining which may be true, but it will also be a new tax system that will be difficult to administer the compliance costs of many businesses will go up as they attempt to identify their exact obligations under the new system of taxation. It is also argued that this profit based resource taxation is used in countries such as Norway (50% on oil), Canada and the United States. However, with the exception of Norway’s tax on oil super profits, these other taxation systems do not exceed 20%. There is therefore very little evidence that the tax will work int he way that the government predicts. It will most likely do enormous damage to Australia’s national economy and prevent our largest export industry from performing competitively in an already globally competitive market.
Are the any exemptions of ways of reducing the tax?
One respite which mining companies may find in relation to this new tax is that the crude oil excise is going to be abolished a the same time as the imposition of this new tax. Resource companies will also be able to elect to stay with the current Petroleum Resource Rent Tax (PRRT) of move over onto the new tax system, although once this decision has been made it will not be capable of being reversed. It will also be possible to obtain credit for royalties paid to state governments in relation to the tax. Perhaps the most important element of the new tax proposal is that the basis of exemptions as they are proposed is that if there is no net benefit to society of applying the as in the case of minerals which are not super profitable or in the case of microbusinesses which face large compliance costs then it would be unlikely that the tax would be applied according to the current proposal.
