The New Resources Tax Reduces Mining Risk.

Haul Truck
Creative Commons License photo credit: jcarter

 

The Commonwealth of Australia was built on the sound principle natural resources are part of every Australian’s endowment.

The Henry Tax Review recommended and the Rudd government has accepted a new tax system for mining that builds on this idea. 

The Super Profits Resource Tax (SPRT) provides the community a share in the benefits – the economic rents – the sale of minerals brings.

Miners are unlike any other industry. They rely upon nature’s bounty. They discover but do not create mineral deposits.  The government grants the prospector a monopoly license to explore for and extract the ores, to take them away forever.

The SPRT reduces mining risk. The government shares in the cost of exploration and prospecting – significantly altering the commercial exposure. In time, the market will value government as a silent partner underwriting 40 per cent of the risk, giving Australian miners a huge advantage in exploration write-offs and infrastructure contributions. The $500 million rebate for exploration extends to new geothermal energy sources too.

Listed mining companies are wringing their hands about the costs of the SPRT while simultaneously offering a much more benign assessment to the stock exchange. If this change is so damaging, we should be observing the price of BHP and Rio Tinto shares falling hard, particularly in this time of sharemarket volatility.  They are not. This speaks volumes about the alleged ‘hardships’ the SPRT is imposing.

The 40 per cent tax on profits after deducting the bond rate falls on the excavating and processing of mineral ores. That is, low-grade mining is not discouraged as only the final profits are taxed. And taxing this way reduces the incentive to strip high grade ore from mines and abandoning the rest.

The debate about which point the super profits should be taxed from must be dealt with quickly. The five per cent above the government bond rate used by the Petroleum Resource Rent Tax is too generous, considering the exploration concessions announced. Perhaps two per cent above should be considered.

The SPRT is designed to not distort exploration and investment decisions.  Australia’s pre-eminent mining industry can and will flourish under SPRT while providing the country with a return for hosting mining activity.

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https://prosper.org.au/2010/05/21/the-new-resources-tax-reduces-mining-risk/