IMF Endorses Australian Windfall Profits Tax
I’m afraid I can’t find the report on the IMF website but this news story indicates IMF support for the new Australian tax on windfall mining profits.
The obvious thought, if it’s good there, why not here?
The Advertiser (Australia)
May 17, 2010 Monday
IMF backs super tax on nation’s big miners
BYLINE: BEN BUTLER
THE INTERNATIONAL Monetary Fund has backed the Rudd Government’s proposed Resources Super Profit Tax, saying that will help the government recover from the global financial crisis.
With company tax becoming a less reliable source of government income, resource rent taxes gave mineral-rich countries, such as Australia , “brighter” prospects of repairing crisis-battered budget balance sheets, the IMF says.
“Movement towards explicit rent taxation, could produce a marked revenue enhancement,” IMF staff economists said in a paper.
That came as fierce debate rages over the tax with the government yesterday mounting a media blitz to sell the levy while big miners BHP and Rio Tinto repeated warnings it could hurt investment. Both sides again said they were willing to negotiate. No major projects have been cancelled.
“Prospects are brighter in resource-rich economies,” the IMF paper said. “Though not immune to pressures of international tax competition, the element of location-specific rent in resource returns provides a potentially robust source of relatively non-distorting revenue. Over-taxation of rents subsequent to discovery risks deterring exploration, however.”
Treasurer Wayne Swan told ABC TV that miners “know in their heart of hearts that they are going to have to pay a bit more”.
The Australian Workers Union launched a TV commercial attacking industry bosses for getting rich through decades of “taking things out of Australia” and saying it was “time they put something back”.
In an email to staff, the head of Rio Tinto’s Australian operation David Peever said the tax “could erode Australia’s international competitiveness, curtail investment and limit jobs growth”. BHP chief Marius Kloppers said the RSPT was an “opportunistic” and “unfair” bid to fill a tax gap.
Here is a link to a conference they held on the topic
http://www.imf.org/external/np/seminars/eng/2008/taxnatural/
The Australian Treasury’s website provides a good synopsis of the resource tax proposal.
Currently, different Australian states levy different royalties. The proposal to replace them with a uniform national charge would prevent states from undercutting each other’s royalties. In a similar vein, I have suggested that Canadian provinces should coordinate to charge higher royalties.
While Australia’s resource tax proposal is positive, it was part of a broader tax review that also recommended lower corporate taxes. In particular, the review argued that Australian corporate tax cuts are needed in response to Canadian corporate tax cuts.
Just a few years ago, Canada supposedly needed lower corporate taxes to compete with Australia. Now, we are leading the race to the bottom.
Looks like they’re still working through the details, according to this story.
There are indeed many important details to work out. The original proposal was for the new tax to apply to profits in excess of the long-term government bond rate (i.e. the 6% reported by Bloomberg).
Australia’s tax review justified that low definition of “normal profit†by promising to share the investment risk through refunds for less profitable projects. Still, I am not surprised by reports that the government is now considering a higher threshold for the new tax.
Xstrata shelves investment in Australia mining tax row:
(http://news.bbc.co.uk/2/hi/business/10223337.stm)
The sentence “Over-taxation of rents subsequent to discovery risks deterring exploration, however” in the IMF paper appears prescient. They might have said “exploration and employment” to be even more accurate.
It will be interesting to see if Kevin Rudd stays on as PM:
(http://noir.bloomberg.com/apps/news?pid=20601108&sid=ax5oNfRNQp1E)
Note:
Some 78 percent of voters surveyed in nine parliamentary districts in Western Australia and Queensland said the tax should be scrapped or changed, according to a Newspoll survey commissioned by the mining industry and published in the Australian newspaper on June 7. The survey of 1,800 people taken between May 31 and June 3 didn’t provide a margin of error.
Clearly a poll commissioned by the mining industry might have some spin, but 78%?
Rudd stepped down.
The negotiation/climbdown continues:
(http://news.bbc.co.uk/2/hi/business/10401431.stm)