The Federal Government may call its new tax on the mining industry reform, but in truth it is an opportunistic tax grab that is putting our global reputation as a reliable place to invest at risk.
Financial experts are reinforcing this view.
Credit Suisse estimates the value of mining stocks will decline around 5 to 15% while Morgan Stanley predicts a drop in value of around 15 to 30% by 2015.
The range of prediction reflects overwhelming confusion about a tax which was poorly designed with little consultation.
The industry welcomes taxation reform, but it must be practical, workable and not threaten Australia’s competitiveness.
The Australian Tax Office says that the mining industry pays on average 27.81% company tax with an effective tax rate of 41.3% when you include royalty payments.
Lump in the 40% tax on so called ‘super profits’ and you take the mining industry to an effective tax rate of 58%, which is more than double the take in Canada.
By introducing this tax, Canberra is rolling the dice on $17 billion worth of potential and current resource projects still subject to final investment decisions in NSW, not to mention the 270 projects worth $300 billion and 120,000 jobs that were going through feasibility around Australia.
The retrospective nature of the RSPT is a fundamental flaw creating issues of sovereign risk.
Mining investment is high risk and long-term.
Moving the goalposts on investments already made sends negative signals to capital which is infinitely more mobile than our mineral wealth.
Furthermore, financial markets will price in this sovereign risk to the cost of capital and that will affect every business in every sector that seeks to raise investment funds.
The resource sector helped Australia get through the Global Financial Crisis and has contributed strongly to Government coffers with $80 billion in taxes and royalties going into State and Federal Treasuries in the past decade.
The proposed RSPT is a wasted opportunity to achieve mutual long-term benefits through growth and genuine reform.
This is taking the low road and demonstrating short-term vision.
The industry is rock solid in its resolve to have its serious concerns addressed.
We are engaging with the Government and explaining our concerns clearly and constructively.
We need genuine reform which delivers for all Australians.