Incensed at the prospect of putting a greater share of its profits into government coffers, mining companies watched Australia stocks plummet on Monday following the government’s announcement of a 40-percent windfall tax on excess profits.
The industry warns the move would endanger projects worth billions, while the opposition says what the government calls a ‘fair share’ for the Australian public is simply a vote-driven move.
The government said Sunday it planned to impose the tax on “super profits”, as mining giants such as majority foreign-owned BHP Billiton and Rio Tinto reap the benefits of an Asia-driven commodities boom.
BHP, Rio slump
The Anglo-Australian BHP slumped 2.6 percent on the news to 39.72 dollars (36.76 US) and Rio Tinto fell 3.6 percent to 69.51 dollars.
Macarthur Coal dropped 7.0 percent to 14.89 dollars, while the Australian market overall was down just 0.53 percent at the morning break.
Prime Minister Kevin Rudd defended the proposed tax as a fair redistribution of income from the country’s natural assets.
“Resource profits were over $80bn higher over the last decade, but the Australian people only received an additional $9bn,” he said.
Noting that both BHP and Rio have hefty foreign ownership, Rudd said “it’s time for the Australian people… to get a fairer share of the natural wealth of this country, which ultimately is owned by all Australians”.
The miners argue they already pay significant taxes.
Miners could curb plans
Anglo-Swiss mining company Xstrata said the tax could scare miners out of Australia. The taxes will “result in significant and disproportionate additional taxation on the industry and could well curb the large-scale, long-term investments required to develop Australia’s natural resources”, it announced.
Under the proposal, which has to be approved by parliament, companies exploiting non-renewable resources would have to pay a 40-percent tax on extraordinary profits above capital returns from July 2012.
The Queensland Resources Council, an industry group, said the tax placed planned mining projects worth more than $100bn in the state at risk.
“The worry is that if the federal government gets the design and implementation arrangements badly wrong, the risk is that many of those $100bn worth of projects waiting a final go-ahead will not happen,” the council’s chief executive Michael Roche told ABC Radio.
“Instead they’ll happen elsewhere – in Africa, Asia or South America.”
Others dispute this, saying the stability of operating in developed democracies such as Australia is always a big draw-card for companies unwilling to invest capital in countries at risk of social, economic or political unrest.