Australia looks at 40 percent tax on mining profit

Canberra:  Australia would heavily tax the booming profits of its mining companies under a tax system overhaul proposed yesterday.

The proposed tax would also be invested in infrastructure to support mining operations, and reduce corporate taxes.

The proposed 40 per cent tax on resource profits targets industries that have grown rapidly as they've produced the raw materials that feed burgeoning Chinese and Indian manufacturing demand.

Mining royalties currently paid to Australian state governments do not reflect rising commodity prices.

The government said mining profits rose by A$74 billion (Dh271 billion) in the past decade, yet government revenues from resources increased by only $8.3 billion.

GDP increase

Under the plan the government would introduce the so-called Resource Super Profits Tax in July 2012. The company tax rate would be cut from 30 per cent to 29 per cent in July 2013 and to 28 per cent a year later.

The government forecasted the cut in company tax combined with the mining tax would increase Australia's gross domestic product by 0.7 per cent a year.

"These changes will not be welcomed by every business or every interest group, but they are the considered, responsible changes we need if we are to turn our success during the global recession into enduring gains for our economy, our people and our nation," Prime Minister Kevin Rudd said in a statement.

Treasurer Wayne Swan told reporters he could not say whether tax legislation would be introduced to Parliament before national elections were held at a date to be set late this year.

The legislation would need the support of opposition senators to pass the upper house, where Rudd's centre-left Labor Party government only holds a minority of seats.

The main opposition Liberal Party said the tax would cost mining companies $8.3 billion a year and devalue blue chip shares in global giants including BHP Billiton and Rio Tinto.

"If you are determined to kill the mining boom stone dead, who could hardly have more precisely calculated a measure to achieve it," opposition leader Tony Abbott said.

The mining boom was the main reason Australia had avoided recession during the global financial crisis, he said.

Minerals Council of Australia chief executive Mitch Hooke warned that mining investment could stall or shift to other countries under the plan.

Australia already had the highest-taxed mining industry in the world, he said.

Refund costs

"There is real risk that many of these taxation gains that the government is banking on may prove illusory if the secondary round impacts are a deterrent to investment," Hooke said.

Under the tax overhaul, resource-rich states would continue to reap mining royalties, but the federal government would refund those costs to mining companies before calculating their federal tax debt.

The tax would be levied on profits after the cost of mining operations, capital investment and dividends to shareholders are deducted.

About $5.1 billion of the mining tax revenue would be spent over a decade on public infrastructure critical to the industry such as ports, rail and roads.

The government argues the tax shift will prevent a "two-speed economy" in Australia where non-resource industries such as manufacturing, construction and tourism cannot attract investment or staff because they cannot match lucrative mining wages.

Under the plan the government would increase the proportion of salaries that Australian workers must save for their retirements from the current rate of 9 per cent to 12 per cent by 2020.