Australia’s government is committed to its planned additional tax on natural resource companies and the 40 percent rate is “right” because firms aren’t paying a fair amount, Prime Minister Kevin Rudd said.
“We do not expect to land an agreement with the mining industry any time soon,” Rudd told reporters in Canberra today. “The government remains fully committed” to the tax and “is not surprised that it is meeting fierce resistance.”
The comments are the strongest so far from Rudd and follow those from other members of his government who say companies exaggerate their benefit to the economy. Firms such as BHP Billiton Ltd. and Rio Tinto Group are leading a campaign to pressure the government to dilute the tax, which opinion surveys show lacks public support ahead of elections required by April.
“Public opinion is very fluid, people are confused about the tax,” Malcolm MacKerras, visiting fellow in political science at the University of New South Wales, said in a phone interview from Canberra today. “They tend to think the mining industry saved the economy from recession.”
Mackerras said he expects the election to be called in August and held in October.
Companies have taken out full-page advertisements in Australian newspapers to lobby for changes to the legislation and the Minerals Council of Australia is running television spots. Rudd is failing to win over voters, with 41 percent opposed to the tax and 36 percent in favor, according to a Newspoll survey published today in the Australian newspaper.
‘Massive Misinformation’
The government is spending A$38.5 million ($32.3 million) on a radio, print and television ad campaign to counter what Treasurer Wayne Swan has described as a “massive misinformation” campaign.
The 40 percent rate is “right” and talks with companies will continue on implementing the tax, which is scheduled to replace output-based royalties charged by the country’s state governments from 2012, Rudd said. “We don’t intend to be railroaded by any particular timetable.”
Australia, the world’s biggest shipper of coal and iron ore, announced the new tax on May 2 as part of an overhaul that also includes a phased cut in company tax rates to 28 percent from 30 percent by mid-2014.
Support for the opposition Greens party rose 4 percentage points to a record 16 percent amid debate on the tax, according to the Newspoll telephone survey of 1,149 people between May 28 and 30. Rudd’s Labor party and the opposition Liberal-National coalition slipped 2 percentage points in their primary vote to 35 and 41 percent, the survey showed.
Skirted Recession
Australia’s economy skirted last year’s global recession and surged in the final three months of 2009, buoyed by demand for the nation’s coal and iron ore by China and India and a jobs boom that pushed down unemployment to around half that of the U.S. and Europe.
Central bank governor, Glenn Stevens, left the nation’s benchmark interest rate unchanged at 4.5 percent earlier today, after raising it from a half-century low of 3 percent since October, amid concerns the global economy may be cooling. “Commodity prices have also softened, though those important for Australia remain at very high levels,” Stephens said.
Treasury Executive Director David Parker, head of the consultation panel in talks with the resource industry on the new tax, handed his first report to Swan on May 28, completing the initial phase of 18 months of negotiations.
‘Super’ profit
Rudd’s government and the mining and energy industry are clashing over the definition of a “super” profit, which the proposed tax sets at returns above the long-term Australian government bond rate of about 6 percent. The nation’s petroleum resource rent tax, also levied on profits at a rate of 40 percent and in place since July 1987, kicks in when returns exceed 11 percent.
Companies also don’t want the government guarantee to give a tax break of 40 percent on the cost of money-losing projects, as “they don’t plan to fail,” Tax Counsel Yasser El-Ansary, of the Institute of Chartered Accountants in Australia, said in a phone interview from Sydney.
The state government of Western Australia is considering a legal challenge to the tax should it proceed, the state’s Mines and Petroleum Minister Norman Moore said. Western Australia accounts for 62 percent of the nation’s mineral production, 73 percent of natural gas and 64 percent of crude oil and condensate.
Implementing the tax at returns of above 6 percent shows the federal government’s proposal is flawed, Moore said.
“It will just encourage people to put their money into government bonds, put their feet up and watch television,” he said.
Mining and petroleum production in the state was worth more than A$70 billion last year and the state has about A$170 billion worth of projects in the investment pipeline over the next five years, according to the government.
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