The Mining Tax – A personal view

Being so closely involved with the mining industry, I naturally read all of the press and am across the industry briefings that outline the problems with the RSPT as proposed. 

The message from Marius Kloppers, CEO of BHP, and other mining chiefs is quite clear.  They are unhappy with the 40% rate of the proposed tax, that it applies to existing projects, the threshold of the 10 yr bond rate (around 6%) applied to the book value rather than the market value of projects,  and the lack of differentiation between commodities.  The process by which the tax has been ‘sprung’ on the industry has added to the united hostility to the proposal. 

Other commentators have talked about the issue of financing new projects, the fact that the Government underwriting losses on projects up to 40% has no ‘bankable’ value in the real world, and the sovereign risk perception created in the minds of international investors. 

On the other hand I have been asking family members – not involved in any way with mining, on their thoughts on the tax.  Almost without exception, all believe that the industry can pay more tax, that they see no reason why we shouldn’t benefit more as a nation from our non-renewable resources, and that they think the big miners are running a scare campaign.

So how do I respond to these comments?

I reduce the argument down to one simple, basic point.  That the tax as proposed will mean that there could be significantly less investment in Australian mining projects.

This will have a significant impact on jobs, growth, national income and therefore on Australian living standards.  This is why the current proposal needs to be modified.   This seems to hit the mark with the people I talk to.

If this message gets through to the public and to the Government, the proposal will inevitably be modified.  

Author - Gary Linton, Managing Director - Prospect Consulting