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Resource Tax Will Create More Revenue for Australia, Gruen Says
Jun 2,2010 15:04CST
industry news

June 2 (Bloomberg) -- Australia's planned 40 percent tax on resource profits will raise more revenue for the government, senior Treasury official David Gruen said, as Prime Minister Kevin Rudd fights to win voter support for the levy.

"If you get rid of the royalties, or rebate the royalties, and introduce a tax which is more efficient in principle and in practice you can generate more revenue as well as reduce the distortions," Gruen, executive director of the Treasury's macroeconomics group, told a senate committee today. "That is the point of the tax."

The government has started a A$38.5 million ($32 million) advertizing blitz to counter an industry campaign of "misinformation," Treasurer Wayne Swan and Rudd have said. BHP Billiton Ltd., the world's largest resource company, and Rio Tinto Group are leading the battle against the levy, warning investment in the nation is under review because of the plan to double the tax burden.

"Miners are reassessing current and future projects," Minara Resources Ltd. Chief Executive Officer Peter Johnston said in a speech in Canberra today. Miners like Minara, Rio and BHP have gathered in Australia's capital city for their annual conference a day after Rudd said the 40 percent rate was "right."

Rudd is failing to win over voters, with 41 percent opposed to the tax and 36 percent in favor, in the lead up to an election due by April, a Newspoll survey published yesterday in the Australian newspaper showed. The poll showed 98 percent of people thought mining was an important part of the economy.

New Levy

The new levy, announced by Swan and Rudd on May 2 in response to Treasury Secretary Ken Henry's review of the tax system, kicks in at returns above the long-term Australian government bond rate of about 6 percent. Tax credits will be given to companies for royalties paid to state governments.

The tax is scheduled to be introduced to parliament in 2011 and implemented the following year. It will collect A$12 billion in its first two years, the government says.

"Billions of dollars of investments are already on hold" and "everyone" will be hurt by this tax, according to a Minerals Council of Australia ad running on the country's television networks. Council Chief Executive Officer Mitch Hooke countered Swan's claims it had spent A$100 million, saying the outlay was lower than the government's.

The government says its tax overhaul will give Australians a "fairer share" of the nation's natural resources. The industry is paying one dollar out of seven in tax now, down from one in every three dollars 10 years ago, Rudd said.

Legal Challenge

"Resources do not belong to the Australian people," billionaire miner Clive Palmer told the National Press Club in Canberra today. "Under our constitution, resources belong to the state governments."

Western Australia's Mines and Petroleum Minister Norman Moore yesterday said the state is considering a legal challenge to the tax.

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.

Mining and petroleum production in the state was worth more than A$70 billion last year, and the state has about A$170 billion of projects in the investment pipeline over the next five years, according to the state government.

"It is constitutional," Assistant Treasurer Nick Sherry told a senate committee in Canberra today. The tax "is supported by the constitution's taxation power as it is a tax on profits made from extracting resources, resources cease to be the property of the state once they are extracted."

Balanced Budget

The resources industry makes up about 10 percent of the $1.02 trillion economy in Australia, the biggest shipper of coal, iron ore and alumina. Swan last month said the national budget would return to surplus three years earlier than previously forecast with the help of the mining tax.

Treasury Executive Director David Parker, head of the consultation panel in talks with the resource industry, handed his first report to Swan on May 28, completing the initial phase of 18 months of discussions.

Australia will lose investment because of the tax, according to AngloGold Ashanti Ltd. chief executive officer Mark Cutifani. AngloGold, the world's third-largest gold producer, will target other nations for investment, he added.

"Other countries are looking to Australia as an example and they're rubbing their hands together," Cutifani said in a speech in Canberra today. "We are going to greater South Africa and we are going to compete with Australia, because that's what we're paid to do and that's our job."

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