Miners of the world take note: it’s happening – mining super-tax contagion.
Amid the hoo-hah and howls of outrage Down Under about Canberra’s plans to slap a 40 per cent “super-profits” tax on mining companies, the Sydney Morning Herald reports on Thursday that China is now considering imposing a super-profits tax on resources companies.
China Daily, the Communist party’s main English-language newspaper, has held up Australia as an example for China to follow, saying on May 26:
A suggestion for this nation’s policymakers: if they are looking for guidelines to the long-awaited tax reform, take a good look at Australia’s latest plan to increase worker pension funds with a new tax on resource projects…
According to the Herald, China on June 1 unveiled its first resources tax, at a rate of 5 per cent on fossil fuels in Xinjiang, as a way of retaining some of the region’s mineral wealth in local hands. The report continues:
Since then a vice-premier, Li Keqiang, has advocated a national resources tax in a speech published in Seeking Truth, the Communist Party’s leading theory magazine. Officials have hinted that Xinjiang will be a pilot for a resource taxes that will gradually be imposed on all mineral resources.
On top of that, the report said, Chinese industry leaders are lobbying officials to obstruct the proposed tax, as they are in Australia.
Beijing’s deliberations, however, sit uncomfortably with the latest assertions by one of Australia’s top mining figures (and richest men) Andrew ‘Twiggy’ Forrest, chief executive of iron ore miner Fortescue Metals.
In a display of exquisitely awkard timing, Forrest at an “axe the tax” rally against the mining tax on Wednesday, praised China as an exemplary economy that was turning its back on communism by lowering resources taxes, saying, as the SMH reported:
”In China right now there’s a fierce debate about how to lower their resources tax to encourage the mining industry… I ask you which communist is turning capitalist and which capitalist is turning communist?”
As for further mining super-tax contagion, the FT’s Australia correspondent Peter Smith warns that various other countries have either changed or are reviewing their mining tax regimes, including Canada (or rather Quebec), Brazil and India.
But Australia, he notes, has gone much further than anyone else – conveniently providing other countries plenty of scope to follow Canberra’s lead less aggressively. Indeed, even a 20 per cent super-profits mining tax would look reasonable.
And as Lex noted recently, “the Chávez-like intervention of Australia, of all investment jurisdictions, tempts others to follow. A weak government in South Africa, for example, could easily rally popular support by saying the levy would be channelled into developmental projects”.
Ernst & Young told Smith that resource nationalism has been a risk for years but is now “shooting up the charts like a bullet”. The trouble is, it is virtually impossible to get a neat comparison of different regimes around the world.
According to Mike Elliott, E&Y’s global mining & metals leader, mining taxes vary widely between countries, and state governments within a country often impose different levies. On top of that, individual commodities are often taxed at different rates.
Rather than focus on taxes, Elliott prefers to look at a government’s “total take” from mining – a measure that includes taxes and royalties as well as government-mandated participation in resource projects and production-sharing contracts that provide government with a share of a project’s output at an agreed price or for free.
Ultimately what the mining companies evaluate is the total amount the government takes, and, as Elliott told the FT: “When you look at it [the mining super-profits tax] that way, Australia is not the highest, but it is not the lowest either”.
Related links:
Mining super-tax rage (Part II): Dark and light side – FT Alphaville
Mining super-tax rage (Part I): Xstrata on warpath – FT Alphaville
The not-so-horrid Henry tax – FT Alphaville
Miners spend big Down Under, where’s the outrage? – FT Alphaville