Questions and Answers

Your questions answered here... As the tax has changed, but the underlying modelling is unclear, some of the questions relate to the previous PRST with some information still relevant to the MRRT, others are more general. We will update these FAQs soon, but our blog and campaign page has the latest commentaries and information. The Government has limited the information available abiut the latest changes and underlying numbers.

Q. How much tax do mining companies actually pay now? Is it 13-17% as the Government claimed? How much will they pay after the tax?

A. ATO figures show that on top of royalties (taxed by State Governments) mining companies pay around 27.8% in company tax.  A range of estimates suggest the total tax paid by companies is around 38-41% currently. A graph from Citibank analysts (right) shows the effective rate of tax that will be paid if the super profits tax is imposed at around 58%.  

The Government’s claim that mining companies only pay 13-17% tax has been debunked. It was a figure based on a draft paper by an American student, which has since been withdrawn even by the student.   Despite initially suggesting otherwise, Wayne Swan has now conceded that a number of mining companies might be right on their estimate of up to 58% tax if the super tax goes ahead.

A 58% rate of tax will be amongst the highest in the world and will encourage major mining players and investors to shift capital offshore costing Australian jobs.

Q. Isn't the so-called super profits tax like the Rent Resources tax that is said to be a more efficient way of getting companies to pay tax on resource use?

A. There are a range of theoretical views about a pure Rent Resource Tax. Some miners are said to be willing to negotiate a pure rent resource tax albeit at a much lower level than proposed. However, the Rudd super tax is not a pure rent resource tax. Even the architect of an Australian rent resource tax, Professor Ross Garnaut, has criticised the lack of consultation and urged the Government to listen to concerns and redesign thisr tax proposal.

The Rudd super tax is not about improving the tax system or the mining industry, it is about raising extra revenue. The quantum and design of the tax, lack of consultation and reneging on an election promise to not use taxpayer funds for political advertising all underscore the risks of this tax grab.

Q. The Rudd Government says the tax will grow the mining sector. Isn't this true?

A. This proposition has been roundly debunked. Access Economics modelling says that it is more likely to impact negatively with increased returns to occur only after 50-100 years. John Ralph, former leading banker, mining director and Head of the Ralph Review of Business Taxation said "A suggestion that an increase in taxation would result in an increase in investment could only be made by somebody not living in the real world. If a computer model predicts this, then the assumptions on which the model is based need to be re-examined. As always with computers, remember GIGO (garbage in, garbage out)."

Q. But hasn't this sort of tax already been implemented with the Petroleum Rent Resource Tax (PRRT) on the North West shelf oil and gas fields?

A. No. The PRRT and the Rudd Resource Super Profits Tax (RSPT) are not the same thing. The PRRT exempted existing projects and the tax impacts on oil and gas are totally different to minerals. Indeed, if they were the same thing, the Government could have proposed to bring minerals under the existing PRRT regime – but they didn't. The RSPT is a new tax.

For those interested in a direct comparison see the attached article by Freehills.

Q. Isn't this just about making a few wealthy miners pay a fairer share?

A. No. That's the political rhetoric, not the purpose. The purpose is to raise around $9 billion extra tax a year and that will have an impact not only on the mining industry, but investment, jobs and other sectors.

While there are various campaigns by organisations like the AWU that suggests the RSPT is a tax on some wealthy individuals, that is not the case at all. If that was the case they would be targeting the income tax of those individuals, not the profits of the companies which are owned by shareholders.

While the level of tax being paid and the impact was hotly disputed at first, it is clear the mining sector is paying royalties (at different rates depending on the State and the resource), company tax at around 30% as well as a range of other taxes and charges. Estimates are that companies' effective tax rate is around 41%. Even the Treasurer has had to concede that the impact on some companies could be up around 58% which is very high by world standards.

A range of experts and commentators have all criticised both the design and the level of tax proposed. For example Access Economics modelling showed that while, in theory, charging rent of resources and taxing profits is preferable, they said "There is no practical way to isolate ‘rents’ on minerals from the effort to extract them," he said. "That makes the RSPT a tax on effort and entrepreneurial expertise as well as a tax on mineral resource rents. The upshot is that miners are being taxed on some of their 'normal profit' as well as any 'super profit'."

"Any income that's not resource rent, but is taxed as though it is, will become among the most highly taxed types of income in Australia . . . The cost impact of the new tax will send some greenfield developments towards Canada, Indonesia, Brazil and other places.

Here at ComeOn, we believe that wealthy executives and mining companies can stand up for themselves. However, it's clear this tax affects a whole range of other people the Government has forgotten. Ordinary workers, retirees, mum and dad shareholders, small business and the economy at large. At a time where the world economy is still shaky, a radical tax on Australia’s major earner is bad for us all.

That's why the Rudd super tax needs to be radically changed or abandoned.

Q. What is the economic impact of this Tax?

A. One of the big problems is that the Government didn't consult in the design of the tax and its modelling is based on theory and questionable assumptions. It is a major impost on a sector currently providing 48% of Australia's exports. That is a major part of our National economy while the world economy is still shaky. There is a growing consensus that the tax as proposed represents considerable risks to our economy and to our reputation as a safe place to invest.

Even a major supporter of Rent Resource Taxes, Professor Ross Garnaut, has urged the Government to rethink it. The head of Australia's $60 billion Future Fund, David Murray, says it needs to be redesigned or abandoned and the former Head of a major review of Business taxation, John Ralph, says that assumptions that an increased tax will grow projects is not in the real world.

We know the tax is already making a number of companies rethink their projects – with one article suggesting $84 billion in potential projects are now under review or on hold. A recent Queensland Chamber of Commerce and Industry survey found 81 per cent of businesses who were surveyed believe that the RSPT will have a direct negative impact on their business and the broader economy.

The multiplier effect of mining investment and jobs on the broader economy is considerable. Any tax inspired downturn in the mining industry, which provided 48% of exports and 10% of the overall economy, will be felt across all sectors of the economy. One of the most significant risks concerning the mining sector, economists and other experts is "Sovereign Risk", which is the risk to potential investors of changing policies and taxes. Increased sovereign risk increases the cost of capital and increases the desirability of other potential countries for investors.

KPMG modelling for the mining sector (KPMG Econtech also provided modelling for Treasury) found that as proposed the Rudd Super Tax would negatively impact on a number of Australia's major mining sectors.

Q. But isn't this tax to pay for increased superannuation for workers, extra infrastructure and small business tax breaks?

A. No. Superannuation guarantee levies are paid by employers. Not by the Government. The Government proposes to increase the levy charged from 9% to 12%. The budget provided for about $700 million in infrastructure funding, while the super tax will raise around $9bn per year by the end of the current estimates period. That's less than 10%. Finally, while the Government has proposed to provide a company tax reduction from 30% to 28% for small businesses, most small businesses won't be eligible because the break is proposed only for a minority who are incorporated companies – which most are not. Indeed, most small businesses with employees will be paying more tax as a result of the increased superannuation guarantee levy.

The Government has tied its promises on superannuation, company tax and infrastructure to the Rudd Super Tax legislation but there is no structural reason to do so. Indeed, a considerably lower profits tax would still easily pay for the Government's measures?

Q. Doesn't the RSPT help small companies while charging higher for the big mining companies? Isn't this about the taxpayer having a stake in mining projects?

A. In theory, yes; but the mining sector and many economists are overwhelmingly united against the proposal to have taxpayers carry the risks of marginal speculative ventures while potentially frightening away the more efficient and profitable ventures. Even small miners are opposed to the proposed tax and design.

According The Australian, explorers have said the government's plan to be a 40 per cent stakeholder in every resources project was not of benefit to the sector, as it created a "moral hazard".

Managing director of junior explorer Encounter Resources Will Robinson told The Australian that the junior sector was collateral damage in the government's pursuit of the big end of town. "As the tax plan stands, it is going to encourage mediocrity and disincentivise exploration, and while the targets are the BHPs and Rios, the smaller end of town is going to bear the brunt," he said.

Athol Fitzgerald, a reputable mining economist and director of the Allen Consulting Group, says it is well established that resource rents are hard to identify and measure and that trying to tax them can easily damage normal profits and future investment. Fitzgerald told the Weekend AFR he can't see any value in the way the RSPT is structured to encourage otherwise marginal projects to produce, while taking more tax from highly successful miners. "Why help some fly-by-night operator if this means BHP doesn't develop a new deposit?" he asks.

Even supporters of the tax have urged the tax to be lower, imposed and on higher threshold of profit and be redesigned to take into account a range of concerns.

Q. Apart from Kevin Rudd and Wayne Swan – do you know of other supporters of the Rudd Super Profits Tax?

A. Yes, Canada,  PNG and Chile are three nations said to be supporting this tax because it will make investment in their nations' projects more attractive to investors than Australian projects.

The new tax was warmly applauded by the executive director of the PNG Chamber of Mines and Petroleum, Greg Anderson. He said  "I'm delighted the Australian government is driving companies offshore, because we are going to pick some of them up," Mr Anderson told The Australian. "It loads the dice in our favour."

According to Canada's finance minister, Jim Flaherty. Australia's proposed new tax on its resources industry could be a huge competitive advantage for Canada.