SA Mines and Energy Journal : April-May 2010
APRIL/MAY 2010 SA MINES & ENERGY JOURNAL 25 FINANCE There could be trouble in store for the big miners' stocks if plans for a resources rent tax takes effect. Few things get the blood boiling more than the prospect of big, fat taxes. So Prime Minister Kevin Rudd is sitting on the Henry Tax Review until the polls say it is safe to release both it and the Government's response. The Henry Tax Review was supposed to be about genuine tax reform. Australia has not had fundamental tax reform since the GST was introduced more than a decade ago. The Tax Act is complex and inefficient. More than 120 different taxes are imposed by federal, state and local governments, yet 90 per cent of tax revenue is picked up from 10 taxes. But a combination of leaks and the Rudd Government's need to raise revenue suggests it is more about lifting taxes. Business has made it clear any tax hikes will be frowned upon. Investor Pulse (a joint venture between marketing research group Colmar Brunton and Fairfax's BusinessDay) received a similar response from a panel of 2000 investors. From all the responses, one clear message stood out: Do not increase taxes on resource companies. The possibility of a resources rent tax on minerals, to replace state-based royalties, is anathema to investors. It is believed the Henry review wants to substitute a 40 per cent tax, charged on the profit margins of operating mines, for the mining royalties collected by state governments. Analysts have suggested the tax could cost mining giants BHP Billiton and Rio Tinto a combined US$5 billion in annual earnings. When asked directly if they agreed with the imposition of a new national resource rent tax, 58 per cent of investors said "no" and believed Australia should let market forces reshape Australia as a resource-centric economy. The other 42 per cent believed the Government was right to consider a resource rental tax to offset the higher dollar caused by strong resource exports for other industries. However, a staggering 92 per cent believed the higher taxes would hurt the share prices of resource stocks. Long-term effects were also considered, with 25 per cent believing a resource rental tax was "short- sighted" and likely to "damage mining" as an industry. More frightening was that 45 per cent of investors said the implications of the tax would make them rethink their investments in the sector. These figures suggest significant support for a mining campaign against the tax, at least among those actively in the stock market. However, the miners have a big job ahead of them balancing this campaign against an already-widespread perception among investors that the tax is damaging to earnings. Too vigorous a response could increase risk-aversion significantly. The miners have some room to move. When asked how the Government should deal with any resistance to the tax, 42 per cent of investors suggested authorities should "give in" to miner demands. If the miners threatened to move offshore, 23 per cent said "let them go" . The results sounded one note of caution in that 36 per cent of investors agreed the Government should counter- threaten with nationalisation of assets. This figure is likely to be higher among the general population. Investors were also sceptical in other areas of proposed reform. On the prospect of the introduction of congestion and distance-based charging to tackle the cost of road damage and traffic, which is estimated to more than double to $20 billion by 2020, investors were evenly split on the impact on listed toll road companies. Between now and the federal election, all political parties will get a lot of political donations and visits from lobby groups to try and convince them the Henry Review should remain in Rudd's bottom draw. - Fairfax Fix it, dear Henry The possibility of a resources rent tax on minerals has caused a ruckus, writes Adele Ferguson. Mining giants such as Rio Tinto could be hit hard by a resources rent tax.