The Australian government has been damned driven the last few weeks, led by Australia’s Prime Minister, Kevin Rudd, and Treasurer Wayne Swan, to make Australia’s resource miners pay much more tax than ever before.
Evidently, the very miners and industry that helped Australia remain safe and prosperous during the GFC is now an insufferable burden on the economy. Australia’s miners, have been declared to be “foreign companies” by Prime Minister Rudd – despite the millions of Australian’s that have shares in them, those Australian’s that have entrusted portions (sometimes quite large) of their superfunds to them and the industries that support both the miners.
So how does the current proposal change the mining game in Australia? Well, it is fairly complex, but in an effort to simplify it the example below is provided.
Well, as shown in the illustration below using a sample mine turning over $300 million annually, a large chunk of money that would normally go into further exploration, future expansion, workers, operating profits, bank loans repayments, shareholders dividends (and the list goes on) would now, under the implementation of the RSPT go to the Federal government.
Put another way using the same numbers:
The Australian government has said the the ‘once in a lifetime’ resources have to be taxed more for the benefit of future generations. However they’re not planning on setting up a sovereign fund for future generations to use when the resources have all been dug up. They’re using it to fund tax cuts for business and an infrastructure fund. They’re not putting anything away for the future generations: infrastructure will degrade and become obsolete and the tax cuts are neither here nor there.
After weeks of denying the mining industry’s claim that some projects would pay up to 57-58% tax, the federal treasurer Wayne Swan recently admitted that some miners would in-fact pay that amount, saying some “profitable companies that could reach that level”.
The question that the government is asking the Australian population to decide on is ‘what should be done with the profits’ – should they be spent on further exploration and expansion which has the potential to employ tens of thousands of people for a generation to come, and pay dividends, more state royalties and more company tax. Or should it be spent on tax cuts?
So ask yourself, would you borrow a few million, hundreds of millions, perhaps a lazy few billion dollars, dedicate years of work, take on huge amounts of personal and company risk, employ thousands of individuals, and dedicate it all into a business only to have the rules change on your and reap as little as 42 cents in the dollar which limits further growth and expansion?
Most of us can’t understand the risks and rewards at that scale though, so you may want to think about it in terms of your working wage: Would you spent thousands on study, train, and work hard for years to become very good in your job only to be told, arbitrarily, that you are making too much money, that the government wanted its fair share, and that the only way to do that was to hike your taxable income rate from around 38% to 58%, and you still have to pay GST on everything too?
It’s a tough ask.