RSPT - investment community concern over its impact on Australian economy

Discussion Leader's Argument:


Australian investors remain perplexed by the recently proposed Resources Super Profit Tax (RSPT). Key areas of concern remain:

1) the level at which the tax kicks in,

2) the period to which it applies (currently it is retrospective),

3) the tax is NPV destructive, and

4) it makes Australia less compelling as a capital / infrastructure destination to competitive geographies.

With the windfall in resources tax revenue being a key driver for revenue growth for the Australian Government, the proposed changes are causing a very high level of concern for resource companies and also their future investment intentions. A further ramification is sovereign risk.

We have seen a substantial outflow of international investment from both a direct equity perspective and currency deterioration. This view will remain until the Govt. articulates its long-term view to regulatory intervention, and how far these measures are taken.

Do you agree or disagree? On a scale of 1 to 10 (1 Extremely Poor, 10 Very good) how would you rate the RSPT?

Relevant Articles:

Client Page Member Comments

Executive Director (Investment Banking Client Page Member)
Rating 1 Given that the government had the Henry review report for some time and elected to simply come out with a policy statement without referring to industry first is of concern. Although the government says the door is open to discussion, they remain adament that the tax is right and has been calculated correctly. Unfortunately the public does not understand it, and is being led by campaigns from both sides that are emotional. At the end of the day, if the implementation of the \"tax\" leaves companies essentially no worse off, then it is fine - this suggests that State governments lose all royalties to the Federal government. at the moment the ramifications are that Overseas investors have no confidence in the Aussie market and have sold us down, this would destroy value of putting an additional 3% into Super. Rudd can\'t afford to back flip again, but with this and the possibility of an ETS around the corner, we are beginning to become a very heavily taxed country.
Equities Analyst (Investment Banking Client Page Member)
FIrst ... RSPT is a \"super-tax\", not a \"super-profits\" tax. The Petroleum Resoruces Rent Tax (PRRT) allows recovery of capital, and a return of long term bond plus market return on that capital , \'before\' the 40% tax rate applies. RSPT does not. That is a very significant difference in structure between RSPT and the PRRT. Queensland Rail, which operates bulk rail freight hauling coal, insists to its coalminer customers that it needs to make a 15% rate of return on its rail (above and below) charges. In fact it needs to do that to ensure a successful listing. Its business is based on take-or-pay rail contracts, which are hardly risky, more like iron-clad. The government promise to pay (40% of) losses, thereby justifying use of the long term bond rate (~6%)as a level for tax implementation is a tragic ploy, as few financiers believe that the government would not reneg on commitments, by crying poor. Banks will not rely on the tail end, they never do. All they banks see is the high government \'take\', leaving less cash to service lower supplied debt, requiring more equity for project funding, diluting value more. Making any significant tax retrospective is verging on expropriation. Significant capital has been invested, based on a \'known\' and \'trusted\' financial, regulatory and tax regime. Those assumptions (of stability) can no longer be made. Investor trust had been breached. That is extremely damaging. Under the structure of the tax we assessed that some companies who had (fortuitously) recnelty spent capital, were not markedly affected, while several who were wise enough to develop low capiex porjects that deliver high marigns, were hammered on an npv basis. The tax is understood to kick in above the EBIT line which means it distorts the ifnance decision, thereby allowing less debt and requiring more dilutive equity. If the RSPT raises $9 billion of tax, which is deductible from corporate tax, then $2.7 billion less corporate tax will be paid, and $2.7 billion less franking credits will be generated for Australian investors. (However, ... this needs checking ... I understand that offshore investors may claim both the corporate tax and RSPT against their foreign tax under international tax treaties). Who is better off here? ... It might not be the Australians, certianly they are worse off for receiving less franking credits. This affects all investors including everyone with superannuation. Definition of the tax scheme was non-existent. We asked Treasury for details regarding inclusions in capital base and in RSPT deductions, and received only vague replies. One company we asked was told by Treasury to \"use your own judgement!\" No wonder companies cannot definitively say how much worse/better off they are ... there is a vaccuum of detail. The Association of Superannuation Funds today (11 June) made a particularly vaccuous statement, saying that RSPT would not affect funds much \"this year\". Now that was a blinding glimpse of the obvious! Of course it will not have maximum effect until closer to or after 2012, when the tax takes effect. Lack of consultation: to have a team of boffins, who have no experience in the financial operations of the resources sector, construct and put forward a tax without doing real-world, real-numbers, testing is a very bad approach. Is a RSPT needed? The resources industry pays royalties (specifically to the crown for the minerals) and taxes after taking signficant investment risk. In a good economic environment it reinvests much of the returns in additional exploration and development. I very much doubt you will have the government engaging in exploration. It is not investing in project development, only stepping up to take profits from projects. Where is the value-add in that? If considered neecessary, implement a true \'super-profits\' tax, after capital is recouped and an above-market return on that capital has been achieved. PNG has had one for years ... it distorts the capital investment profile but hey! ... it is a stable \'political\' regime and participants know what to expect. Note Mark Cutifani\'s comments in AFR on a (Tuesday 01 June p.16) where he describes in two paragraphs, the difference in margins for oil & gas and for minerals, which is a key to understanding the impact of a 40% take on minerals profits. Spot on! Rank ... if one is the lowest then begrudgingly \"1\". Please describe risk appropriately. Most people do not. \'Sovereign\' risk is properly the risk that when you lend money to a \"sovereign\", a king, queen or goevernment, that they will default on the terms of the interest or repayment of the debt. .... e.g. Greece, the PIGS et al. \'Political Risk\' relates to risks associated with returns from one\'s operations and investments when \'politicians change the rules\' regarding any of: tax rates, royalties, currency exchange rates, repatriation of profits or dividends, terms applying to tenements or licences to operate, ownership of property (expropriation), setting of interest rates, and regulations regarding commercial operation, et al. \'Commercial/Market\' and \'Operating\' risks are self-evident. The announcement and proposed implementation of RSPT is high-level political risk. e.g. PNG has high sovereign risk as it is nearly broke, but has lower political risk than Australia. It has operated by the rules, more than Australia has done. Lastly - Resources are where you find them, or if you stop exploration, where ever they are deposited. Capital is (very) mobile. There are better, less risky places to invest than in resources in Australia ... e.g. Laos, Thailand, Vietnam, (only recently) Indonesia, Botswana, Namibia, Ghana, Tanzania, Zambia, UK, France, Greenland and PNG. et al. regards
Head of Institutional Sales (Investment Banking Client Page Member)
Rating 1. The RSPT is an ill conceived strategy by the Prime Minister, the Deputy PM and the Treasurer to incite a have vs have nots style class war in Australia. Australia as a a nation has evolved resulting in this type of devisive policy only creating uncertainty amongst the populous. The uncertainty has had a direct impact on share mkt valuations and consumer confidence. These two factors are highly correlated and the impact in the REAL economy is now staring to be felt. Feedback from all my contacts exposed to the consumer have confirmed the uncertainty is resulting in inertia. Even at full employment and in an environment of wage increases the consumer STOPPED, around the same time as the RSPT was announced. The result of the current situation for BIG and small business in Australia is top line slowing at the same time as costs (wages)are rising. If the consumer keeps their hands in their pockets for the next 2-3mths we will start to see people being retrenched in Australia and this is something none of us want to see. We need the government to provide leadership in bringing the parties together to address the RSPT ASAP.
Equity Sales (Investment Banking Client Page Member)
Rate the RSPT quite poor, 2;
Chairman (Corporate Client Page Member)
The Iluka Board accepts that governments have an obligation to impose fair and efficient taxes that ensure that the mineral resources of Australia are explored for, developed, mined and sold for the benefit of all Australians – current and future generations. But we are of the view that the currently proposed RSPT does not achieve these aims. Iluka’s concerns can be summarised as follows: A retrospective tax on mining company investments: The RSPT will be applied to earnings from all of Iluka’s current Australian operations despite the fact that this additional impost was not factored into the decision to invest to create those operations. Put simply, the “goal posts” have been shifted. Iluka has not generated adequate profits for some time, with the company being in a major transformation from its reliance on its maturing high cost Western Australian operational base to two new, high quality and long life operations in Victoria and South Australia. The company has asked Shareholders to forgo dividends since May 2007 and has invested over $650 million in the last three years to deliver these new projects, with the aim of improving returns to shareholders, including the potential to resume dividend payments as circumstances allow. Just at the stage where Shareholders expect a return to profitability, and a reward for their patience and support, the Federal Government has announced a “super profits” tax on resources - changing the taxation landscape without any recognition of the history of profitability of this company and, I would suggest, others in the resources sector. Threshold for commencement of “super profits” tax is too low: The selection of the Commonwealth Government Ten Year Bond rate - currently at around 6 per cent - as the threshold for the application of tax is too low in Iluka’s view. It does not appropriately reflect the risk - through boom and bust cycles - inherent in a typical resources project and business. Selection of such a low threshold will deter investment in projects and reflects a poor understanding of what drives resources investment. Significant uncertainty created by lack of adequate consultation: Many mining projects face unique challenges and prior consultation with a broad cross-section of the resource industry would have helped to address the details of the RSPT. In Iluka’s case, there are many aspects of the proposed tax which require clarification before it will be possible to determine the likely impact of the RSPT on the company. Until those matters are clarified, investment decisions are clouded in uncertainty and, logically, many may well be deferred. Project deferral means associated new jobs are not created. Iluka, through its Managing Director, David Robb, and his management team will be seeking every opportunity to engage with the Government on this issue. Australia’s international competitiveness: It is not surprising that a frequently asked question by existing and potential shareholders in the company, both here and in the major capital markets overseas, relates to the likely impact of the tax on the company and the wider resources sector in Australia. Iluka’s initial analysis suggests the company should be sheltered for some time by the large amount of capital spent recently on new projects. Based on this analysis, the medium-term impact of this proposed tax on the overall value of Iluka as a business is likely to be small. Even so, the proposed tax has had a clear and negative impact on Iluka’s share price. The issue of sovereign risk has been raised in relation to the Government’s actions. This hasn’t happened for more than 30 years and impacts investor confidence at a time when confidence is essential if investment and growth are to flow to Australia rather than other countries. Reducing Australia’s attractiveness as a place to invest is an illogical thing to do at any time, but the impact is exacerbated when global growth is still volatile and “safe” destinations for investment funds are strongly favoured. The RSPT, as proposed, makes Australia seem a “less safe” place to invest. As a result, Iluka Directors are concerned that this proposed tax will result in lower growth in the national economy.
CEO (Corporate Client Page Member)
Rating 1. Despite the tax being ill-conceived and poorly thought through, you have to say the timing of its introduction could not have been worse. For months the Government has been saying \"we are not out of the woods yet\" and ongoing stimulus and higher debt levels are essential. Rather contradictory isn\'t it. Just when we were seeing an improvement in new projects, this has certainly stopped new projects in their tracks. My company is a service provider into the resource sector but overall this is a small part of what we do. This part of our business has stalled. The problem is not that our revenue has been pushed back but rather the implications for the cost of capital sitting behind these projects. Already the banks are questioning the sustainability of the contracts underpinning our finance and we are expecting to see an increase in the cost of funds as a result of the additional uncertainty. If we are feeling this, I can\'t imagine the corresponding funding implications at the project level. For instance, a 50 or 100 basis point increase on our funding is likely to be nothing compared to the same increase on the 40 billion plus of projects we supply into. The sad fact is that nearly all of the funds are sourced off-shore and whether the tax is implemented or not, there is likely to be hundreds of millions of dollars in additional interest payments that flow out of our country irrespective of whether the tax is implemented now or not. Another ironic fact experienced first hand is the dramatic impact on small businesses. Of course the tax is partly aimed at funding a token tax break for small business. We are a diversified business so a pause in our resource services division does not necessarily have a material impact on the overall business performance. Our suppliers to this side of the business are however severely impacted. As we cancel some of our equipment contracts, some of our suppliers are facing insolvency. One supplier has had to reduce his workforce from 75 to 25 people and ask for a \'rental holiday\' from his landlord. In turn, some of his suppliers are having to do the same. What the Government fails to understand is that many of the small businesses they are trying to \'lessen the paperwork\' for are the ones that will be most severely hurt by the tax. It is a shame that some of our smaller suppliers will not be around long enough to enjoy the 2% small business tax saving Mr Rudd is promising them.
Managing Director (Corporate Client Page Member)
1 for the RSPT. It is a blatant attempt by Chairman Rudd to \"take from the rich to give to the poor\" to get himself re-elected with the bonus of centralising even more money (power) in his inept hands. Not only does the RSPT reduce investment in the resources sector such ill conceived and unpredictable government behaviour reduces confidence in Australia as an investment destination for any industry sector.
CEO (Corporate Client Page Member)
I rate the tax as a 1, and that is only because there was no ranking below Extremely Poor. It is Whitlamesque in its conception and in the way it has been clumsily announced and promoted. It has had a disastrous impact on investment confidence. It demonstrates that the Labour Party still has classist and xenophobic roots in the way the government has attempted to marshall the so called \"working familiies\" against the greedy foreign capitalists.....I thought that went out with Jim Cairns! What I find most extraordinary is that the government implicitly assumes a one size fits all benchmark for return of capital regardless of risk. That was the wooly thinking that gave us command economies and the soviet union. The only way to properly implement this concept would be to link it at lower rates to a risk adjusted rate of return. And who would detetrmine that? imagine the tax office determining how risky a project is in advance and setting a benchmark rate of return! Dumb idea, badly structured, announced in a moment of desparation to avoid a budget deficit, and promoted in a divisive way by morons who can\'t admit they\'ve made a mistake.
Managing Director (Corporate Client Page Member)
I agree. I rate the tax as a 1, extremely poor. Even if the tax was well conceived it has been poorly implemented. No Green/White Paper process and smacks of being rushed. Labour\'s Gary Gray, at a CEDA lunch on the tax said that we should \"get over\" the implementation and everything would be sorted out before 1 July 2012. Nothing deters investors like uncertainty and the implementers of the Super Tax just do not understand investment, risk and corporate finance. Leaving critical issues unresolved for 2 years is just not acceptable. The Government\'s inability to recognise the practical impacts of the Super Tax means that there is no alternative but to change the Government, not change the tax.
CEO (Corporate Client Page Member)
Comments as follows: 1) level that the tax kicks in is way too low and is not commercial - in our case we are a junior exploration company that is relying on risk funding from shareholders. This tax will not only make attracting funds exceedingly more difficult but also smash the potential risk rated returns. 2) Retrospectivity has severely eroded our image as a great place to invest - you cannot move the goal posts mid game without a commensurate downgrade in Australia\'s sovereign risk profile, as these businesses have all been set up under specific tax assumptions. I am sure some compensation could be worked out to make this palatable to their respective shareholders but to date there appears little acknowledgement of the sovereign risk issues nor genuine negotiation. 3) Yes Australia is not the only country with world class mineral deposits and it will drive investment and exploration offshore - you only need to analyse what has happened to Mongolia when they introduced the RRT. Even if the tax is revoked, it then takes a long time to claw back exploration which is the life blood to new mines and investment.
CEO (Corporate Client Page Member)
Rating of 2. This is bad tax policy - it\'s fundamentally flawed and has to be reconsidered. People talk about the potential impact but it\'s already hurt Australia. Tax reform should be about growing the economy and improving Australia\'s competitiveness but this will achieve the opposite. I firmly believe there already has been some damage done to Australia\'s reputation overseas. In meetings I have had recently (outside Australia), they\'re all asking me what\'s happening in Australia? They\'re concerned about this and they want to know why is Australia doing this. More extensive consultation with the industry, and I mean proper, two-way dialogue could have avoided a lot of the problems because we could have pointed out why the proposal won\'t work in the real world. It\'s not too late to sit down with the sector and work this through though.
CEO (Corporate Client Page Member)
I agree with the statement about outflow of foreign investment and I strongly agree about the damage this Big New Bad Tax has had on our sovereign risk. The concept of an RSPT is something the Resources Sector would have been willing to consider if it had followed due process with consultation (green & white papers) ahead of implementation. And the Energy sector is familiar with its offshore precurser, the PRRT. However, the Fabulous four of Rudd, Gillard, Swan and Tanner seem to have gone too far by not consulting with their cabinet colleagues on this tax, or its due process. I wish the press had picked up on this as rumour has it that Resources Minister Ferguson was not even consulted ahead of rollout!? And Gillard was quoted in the media as saying that there was support from the sector for more taxation. She was wrong: there is support through a willingness to consider a different [alternative] taxation regime, not support for another big bad new tax. So, on that basis, I would rate the RSPT a 3 at the moment until the apparent consultation process is complete and we see if there are changes or not. The 40%refundability/transferability concept of exploration failures could well be an incentive and should be nurtured through the consultation process, with as broad a ring-fence as possible. But small market caps need to see the refund as cold hard cash for it to be of use. However, the threshold rate for taxation of 6% is no incentive for anyone to invest. I remember a senior corporate executive at ExxonMobil saying Exxon does not get out of bed for anything less that an unrisked 15% ROR.
CFO (Corporate Client Page Member)
I would rate this proposal as 1. The Government has ambushed the industry through a recycled and discredited resource rent tax mechanism that has demonstrably failed when applied elsewhere. In terms of its own motto \"Fairer, Simpler, Stronger\", this proposal weakens Australia\'s competitiveness, is demonstrably unfair in its design and adds multiple layers of complexity to an already complex fiscal regime. To those claiming that PRRT has been a success, consider the fall in Australia\'s self sustainability in crude oil production since PRRT was introduced 20 years ago while a massive increase in deepwater exploration and production has occured in offshore regions of West Africa, Brazil and Gulf of Mexico. As for Gorgon, this has taken the better part of 30 years to bring to development. And PRRT is still a source of dispute with cases before the Federal Court. The lack of consultation with industry has led to a poorly designed tax with gaping holes of uncertainty. Fundamental issues such as taxing points, netback formulae, treatment of contract mining and even project definition have not been thought through by Treasury. On top of the high tax rate and retrospectivity, these issues will be the source of uncertainty and dispute for years to come. The result will be the gradual decline of the Australian mining industry as investment capital seeks new mineral resources in countries with more certain and simple tax regimes, while existing projects gradually wither away.
Managing Director (Corporate Client Page Member)
AGREE that intervention and change is required. RATING of 2 - Very poorly structured and articulated RSPT.
Executive Director (Corporate Client Page Member)
I agree in concept to a tax that recognises the non-renewable nature of the state owned resources that are targeted but as I don’t understand the overall gross tax position, can’t comment on the appropriateness of the 40% level. I do however, rate as a 1, the poor policy construction by the government that is a greater risk to the investment community as it shows that a gouging mentality (not dissimilar to the banks) with little forethought to what it does to business down the line. With everyone\'s business now contingent on investor sentiment in one form or another, a lack of predictability or increased risk as a result of poor decision making at the Government level is the key concern. My business is a quasi PPP where it funds social infrastructure where government cannot. A government prepared to put at risk an industry (in this case, resources) based on poorly structured and researched policy is a risk to all of us and increases Australia\'s risk profile as an investment destination. Government should be here to improve predictability, not increase volatility. The retrospective nature of the tax rubs salt into the wound and is a sign of a desperate government trying to balance the books and a gouge. Does this sound familiar?
Principal (Corporate Client Page Member)
The international capital markets are highly efficient and so the outflows from Australian resource stocks reflect their view. Capital has voted. It is highly destructive for Brand Australia, historically a stable destination that we have come to take for granted in the 20 years of the Hawke/Keating and Howard/Costello teams. However, the inexperienced, and perhaps over zealous social reformist agenda of the present Rudd government are harsh reminders that the Emperor can indeed shed his clothes and endanger us all. On the specifics, well, its all been said: retrospectivity, the level the tax cuts in that does not allow for risk incentive....
Managing Director (Corporate Client Page Member)
This is an ill thought out tax grab by a desperate Govt that has no idea how important the Resources industry is to all Australians. They do not seem to realise it is more important that most of employees in this industry are paying within the top marginal tax rate. Encourage this not kill it. To then offer to underwrite a 40% portin of projects that fail is telling as to how naive the Govt employed economists really are. There needs to be no compromise, this tax as it is drafted is unworkable. To have it retrospective is very dangerous as it tells all of the propective investores arround the world we cannot be trusted not to change the rules mid - stream. This Govt are absolute amatuers and are hopeless. Rate of RSPT - minus 1
Managing Director (Corporate Client Page Member)
I would rate it a 1. The current proposal is ill-conceived, ill-considered which is likely to have numerous unintended negative consequences for both the industry, the Government, the tax payers and the country. It was ill-conceived because it was proposed for political expediency only. It is not tax reform by any measure but a tax grab by the Commonwealth to bring (or to be seen to bring) the budget back into surplus in three years. Mining companies were seen to be an easy target by this Government notwithstanding their major contribution to the economy of this country. It was ill-considered because there was no consultation with the industry, or anyone else for that matter, before the announcement. One would have thought that the States (who under the Constitution own the resources) would have been consulted if it was true tax reform. Clearly, they were not and this point further emphasises the \"tax grab\" proposition. The unintended consequences are well known and include the lack of future investment in the industry and consequent impact on employment, the flight of foreign capital and the increase in sovereign risk. In terms of the structure of the RSPT it may be theoretically \"elegant\" but it is a \"dog with fleas\" from a practical perspective. The allowance equivalent to the 10 Year Commonwealth Government bond rate does not reflect the systematic risks of the industry or the unsystematic risks inherent in a resources project. The industry will not develop projects that are assessed to have a nominal return lower than 10%. The proposal for the Government to underwrite the potential losses of a project (which is the rationale for the use of the risk free rate as the RSPT allowance rate) will not be reflected in companies or financiers decision making processes. In our view, it is inappropriate for the Government to underwrite the development of marginal projects (and expose taxpayers to significant contingent liabilities as a result) and shows a distinct lack of appreciation for the industry. The rate of the RSPT and the level at which it is levied would make Australia the least attractive fiscal regime in the world - capital is mobile and will flow to areas where it generates the greatest return. Undoubtedly it will not flow into Australia and the impact on the balance of payments may be significant. The retrospective nature of the tax creates significant issues for projects that have relied on debt markets for development capital and significantly increases Australia’s sovereign risk.
Non Executive Director (Corporate Client Page Member)
There is a cartoon going around with the caption \"we should put something in the Constitution in case the voters elect a moron\". I guess they didn\'t allow for a collection of morons! I work overseas mainly (as a result of past Federal Government reforms like native title) and from that perspective all that is seen is a 40% tax on the project and then 30% corporate tax. Overseas investors don\'t see the detail and aren\'t really interested in understanding - I can\'t blame them for that as it is - at the moment at least - too complex.
Head of Finance (Corporate Client Page Member)
1) the level at which the tax kicks in, The level it kicks in should be higher and the long term bond rate is an extremely unfair and unsatisfactory allowance. It should be closer in operation to the Petroleum Resource Rent Tax 2) the period to which it applies (currently it is retrospective), If the tax model wasn\'t so flawed the retrospective cover would be OK, as it is only supposed to catch excess profits. 3) the tax is NPV destructive, and Umm, its an additional tax, that\'s a drag on NPV. 4) it makes Australia less compelling as a capital / infrastructure destination to competitive geographies. Maybe, but all countries should have a resource rent tax. However, the revenues must be put into Sovereign Wealth Funds not used for recurrent government expenditure. The problem with this one is it has been put together in a very poor way and the proceeds are used poorly.
Managing Director (Corporate Client Page Member)
This comes from Andrew Drummond, Managing Director of Minemakers Ltd, which aims to start production from a phosphate mine in the Northern Territory. I will look at some other areas that do not appear to have been covered by other correspondence to date. Firstly, our development is planned for the Northern Territory. This jurisdiction already has a profits-based Royalty so any philosophical arguments about why that is inherently a better royalty than an ad valorum one are already covered in the Territory. Bottom line is that the Territory\'s royalty rate is now set at 20% of profits, but there are significant and sensible allowances which generally result in offsets to this. The allowances include being able to offset interest on borrowed capital for project construction and start-up. This will not apply under the RSPT and for this to be the case is stupid. As far as the Northern Territory is concerned, its Royalty rate will be unaffected so there is nothing in it particularly for that government, one way or the other. However it will be sweeping a large amount of money out of the Northern Territory and this money was intended to be used, as our company has often stated, for stepwise expansions of the project in terms of output, upgrading by beneficiation, and getting into downstream processing to produce fertiliser. A second issue that we see affects cash flows and the ability to be able to service payments to suppliers and so on as required. As has been announced to date for the supertax, we would still have to pay the Northern Territory Royalty and the Commonwealth Royalty. At some yet to be announced time, the Commonwealth has promised that it will refund to the Company the Royalty that will have paid to the NT Government. We do not know whether this will be at the end of the month or after June 30, or after extensive auditing battles between the Company and Canberra. In the meanwhile most of the sales revenue will be heading off to government coffers before we have a chance to be able to pay our contract miners and employees and so on. One also then has to worry that Canberra will change its mind and not return all of the money back to the Company. This is not an idle nightmare: this is what already happens with the diesel rebate which is supposed to return all of the extra excise that the mining companies pay for off-road use of diesel. Naturally, it is both late in coming and 100% of it simply does not come. This is another tax by stealth by Canberra. The economics for our project post the introduction of the RSPT have been independently modelled by our consultant mining accountants. They see that 50% of operating profits will go to Governments. While it has been widely documented that many mining companies or intended ones have had a sharp decrease in their share price, there is another aspect to this which has not been as widely commented upon. In our case, as an example, our share price has been reduced by about 40% since the announcement of this crazy supertax. While this is damaging to our current shareholders, there is a double whammy which will occur in the future. That is that as we go to the financial markets and try to raise capital by selling shares, we are doing it off a lesser share price, this means that we had to sell more new shares because of the lower price to get the constant amount of capital that is required to develop the project. So this means that our current shareholders get even more diluted than they should have done during a normal capital raising based on the share price prior to the announcement of the supertax.
Chief Operating Officer (Corporate Client Page Member)
There hasn\'t been enough thought to how the RSPT is positioned and calculated. Rudd govt has raised the spectre of Australia being considered an uncertain sovereign risk unnecessarily. An \"infrastructure & environment\" levy demonstrating fair rent for additional environmental and infrastructure strains caused by the mining industry would have been met with a different reaction / acceptance. Rate RSPT 2.
Non Executive Director (Corporate Client Page Member)
Here are my views on what has been proposed, including its potential impact on Iluka. I understand and accept the principle of a resources rent tax. Ensuring that the mineral resources of Australia are explored for, developed, mined and sold for the benefit of all Australians - current and future generations - should of course be the aim of government policy, including tax policy. And a properly designed resources rent tax can be a logical, fair and efficient tax. In a nutshell though, I believe what has been announced is not designed with this aim in mind. If it was, the Henry tax review report would have received an earlier release and been followed by time for more considered debate and consultation before policies were settled. Prospective, not retrospective, changes would then have followed, on which industry could base future decisions with confidence. The government position is not one of principle or fairness. It is not one of providing for future generations. Instead, revenue raised will go largely on recurrent expenditure and not into, for example, a sovereign wealth fund investing for the long term national future, as in Norway. The proposed tax is ill-conceived, ill-considered and inappropriate at this time. This is not a \"super profits\" tax. The name, the rhetoric about foreign-owned companies and government statements about the share of tax paid by the mining sector amount to an attempt to distort, disguise and sell what is an additional, complex, highly discriminatory tax burden on one sector of the economy. Many Australian resources companies do not earn \"super profits\" but will pay higher tax rates than other companies operating in Australia. As the Australian economy, led by the resources sector supplying the burgeoning growth in developing economies such as China, recovers, the rest of the world continues to suffer after shocks and fall out from the GFC. So why put our strong competitive position at risk? Some specific points about the proposed tax: 1. The selection of the 10 year government bond rate - currently around 6% - as the threshold for the tax is too low. It does not appropriately reflect the risk - through both boom and bust cycles - inherent in a typical resources project 2. Strong projects will be able to carry the burden of this additional tax. More marginal ones will not, despite the prospect of risk sharing with the government. Investment decisions are made with an eye towards profit generation, not a partial refund if the project goes belly-up. Projects will be delayed and some will be abandoned. Growth in Australia\'s resources industry will be slower. 3. For most Australians, any benefits from proposed changes to superannuation contributions are likely to be offset by a fall in investment returns in the super funds to which they contribute and which, typically, hold significant investments in Australian resources companies. Long life, low operating cost projects are the logical investment focus for long liability superannuation funds - however these are the very projects that will be hit hardest by the proposed tax. 4. Capital for resources projects is mobile and will go where the risk/return balance is judged to be most attractive. That, in future, may not be Australia, with its mining industry now facing the highest taxes in the world and with \"sovereign risk\" a new, previously unthinkable, issue for investors in Australia to consider. Some Australian fund managers are already redirecting a portion of their portfolio investments away from Australia and offshore funds do not need to be invested here if they can get more attractive resources exposure from companies without an exposure to tax uncertainties in Australia. This has already had the predictable effect of lower share prices for Australian resource companies. 5. The proposed tax represents a significant transfer of shareholders\' funds to the government - which will have the equivalent of a 40% stake in all mining projects - which is why some people have referred to it as \"nationalisation\". What does it all mean for Iluka? The answer is that it is too early to tell. A lack of consultation beforehand and an absence of solid detail from the government about how the tax is to work, mean that representations and negotiations on the detailed design of the tax will continue well beyond this year\'s election and into 2011. There are likely to be many twists and turns along the way. For example, in Iluka\'s case, whether the tax would apply to the company as a whole, to regions or to individual projects within regions is not clear. The point at which tax is to be levied is not clear. The interaction of the tax with royalties is not clear. And so on. But future projects will still have to be assessed, including some we had planned to commit to this year. Our corporate plan will have to consider returns we can make in Australia under this proposed new tax regime versus elsewhere. We will need to review how much of our exploration expenditure is spent in Australia versus in other countries. Unfortunately, it is unlikely the final shape of any \"super profits\" tax will be known until well into next year, making these assessments difficult. The point in the value chain at which the tax is levied is particularly relevant for us. Should it be at the back end of our concentrators - on production of HMC? Or should it be after we have produced a number of finished products at the MSP? How will our substantial investment in value adding activities such as SR production be treated? Treating SR production as a \"resource extraction activity\" and therefore subject to the tax, rather than a \"manufacturing activity\" and not subject to it, would be illogical and put many Iluka jobs at risk. However, despite all the uncertainty, our initial analysis suggests we could be sheltered for some time by the large amount of capital we have spent recently on solid projects. Based on this analysis, the medium term impact of this proposed tax on the overall value of Iluka as a business is likely to be small. Even so, the proposed tax has had a clear and negative impact on Iluka\'s share price. But just because the proposed tax is currently assessed as being likely to have a small impact on Iluka does not mean it is a tax we should accept without debate. Iluka will participate fully in discussions with treasury and the government about the proposed tax. The so-called \"super profits\" tax is nothing of the sort. I do not believe it is good for Australia and I hope that most Australians reject it. David Robb MD Iluka Resources Limited
Corporate Finance & Treasury (Corporate Client Page Member)
The tax has highly theoretical underpinnings, but as some people often to say, \"communism works in theory\". The design RSPT is fundamentally flawed when theory moves to practice – even ignoring the stupidity of imposing such a tax retrospectively. Ken Henry has argued that by providing a Government guaranteed back ended rebate they are effectively underwriting and de-risking 40% of the project. Theoretically this means that the financial markets should treat 40% of the project as the equivalent of a Government bond with the other 60% of the invested capital as a normal risky resources project. It is argued that this will allow projects to fund the de-risked portion at the Government bond rate, with the balance funded utilising a normal capital structure for a risky project. This is the rationale for utilising the bond rate as the uplift rate. The theoretical end result is more debt in the capital and a lower cost of capital. When you work through the numbers, the theoretical lower cost of capital should compensate projects for the lower cashflow, so previously NPV projects remain so and vice versa. For this reason Henry argues it is non-distortionary. But this fundamentally breaks down in the real world. For this work in the real world the financial markets would need to treat the Government guarantee as risk free and rely on it to fund the 40% of the project as if it were a Government bond. This won’t happen because (i) the guarantee is back ended but lenders lend against regular cashflows; and (ii) lenders wont treat the guarantee as risk free due to risk that future Government’s won’t stand behind it (just look at Government Guaranteed bank debt that trades at a premium to the bond rate. RBS bonds guaranteed by the Australian Government trade at a circa 120bp premium to the bond rate). We have spoken with our rating agencies and they have confirmed the above – they will not provide greater latitude to gear up projects despite the theoretical government guarantee contained in the RSPT. This may seem like a technical point but it goes to the heart of why the design of the RSPT will be massively value destructive. Even Ross Garnaut and Ken Henry have admitted that if the markets don’t value the government guarantee as intended, the tax will be distortionary – a perhaps obvious point that all people other than the current Government seem to grasp. This result will mean projects will be able to borrow less for a given capital investment causing cost of capital to rise (not fall as the theory intends). The higher cost of capital combined with lower cashflow means the tax will be highly value destructive causing many projects to no longer be viable. There are other unintended consequences. Those project most reliant on project financing are Australian owned companies with limited balance sheet capacity which will simply be unable to get projects off the ground if they cannot raise funding. It will be large foreign owned multi nationals, or sovereign funds best placed to fund projects and if the RSPT is introduced as planned we will inevitably see more projects shifting into foreign ownership - clearly not an intended outcome of the tax’ design. Further it will drive foreign investment offshore, and not just because of the ludicrous policy of imposing the RSPT retrospectively and increasing perceptions of sovereign risk. The RSPT completely changes the risk return profile available to investors. An equity investor seeking resources returns wants the risk associated with commodity projects, not a government bond. By effectively imposing Government bond returns on 40% of the project it will drive foreign investors away from Australia to markets where they get their target investment profile of a dollar of resource risk and return for every dollar they invest. And none of these critiques even considers the stupidity of imposing such a major change in the tax regime on existing projects which must surely be the height of naivety.
CFO (Corporate Client Page Member)
I would rate the RSPT proposal as a 1 and in particular the so called \"Consultation Process\" an absolute farce! On recently attending the so called \"Consultation Process\" we got given the RSPT Party Line by a number of Treasury / ATO lackies, who then could not answer any of the difficult quessions!! And then to be told that a submission had already been submitted. Why bother - the Government is implementing policy on the industry that saved Australia being thrown into the depths of the GFC and this is how we get rewarded!! Thanks Kevin Rudd for Nothing!! The only way to get rid of the RSPT is to get rid of Kevin Rudd.
CEO (Corporate Client Page Member)
Rate RSPT as a 1. This is due to the poor structure of the proposed tax, but particularly the way it has been imposed on the community. Consistent behaviour by govt with a consultative process results in \"no suprises\" approach and confidence in the regulatory & govt system. This was NOT followed and has cast doubt over Australia as a reliable investment destination where consistent behavious can be expected. We saw the govt \"about face\" on so many issues that it just cant be trusted on anything. Whether or not resource companies contribute a higher amount to the government in taxes has not really been discussed because the results that the govt wanted was railroaded in from the start. It was just seen as a part of the economy that was doing well with few votes to lose, so gouge it. The govt also fails to realise that resource companies can invest in many parts of the globe and are always dealing with unreliable govts in thrid world destinations. Australia has effectively increased its risk profile to that of many thrid world countries where the resources wealth exits, but other tax/royalty/secure title issues may arise. It was hoped that through consultation a reasonable structure could be achieved, but the govt is simply not interested.
CFO (Corporate Client Page Member)
Rating of 1.  The introduction of any new tax must be done in a way that doesn’t increase sovereign risk. No-one wants a tax that increases sovereign risk. A tax shouldn’t distort the decision-making process on a potential project. Instead it should help create an environment that encourages investment. That\'s what tax reform should be about. The tax should ensure Australia is competitive in respect to other mining countries. We have already seen other countries identify the potential opportunities presented by Australia\'s move to dramatically increase the taxes on the mining sector. The next step by the government is important. The minerals sector wants to work with the Government to get it right and it makes sense for the government to work with us. If we get a process in place to allow proper negotiations we can share an understanding of the issues and work on fixing this tax. As it stands, the tax would limit investment and jobs growth. 
CEO (Corporate Client Page Member)
RSPT is consistent with prior actions.....Telstra strong arm tactics to confiscate their assets for NBN...Healthcare private asset destruction by the provision of free licences for all together with a reduction in funding that is far greater proportionaly than RSPT(how would the hotel industry respond to free hotel licences for all?)....rural investments now isolated from other income support.The key feature of all of these initiatives is that because of their retrospective effect is that there is a loss of investment made over often decades.Hence one cannot make any investment now with any confidence the rules will not be changed in the future.One could expect more of the same with capital gains on homes etc starting with the easy target high end
CFO (Corporate Client Page Member)
There will be cost increases in home construction costs through building materials cost increases.This is largely through the low value quarry commodities. These cost increases are due to little or no rebate for Goverment Royalties as materials are extracted from privately owned resources. > Further cost increases are likely from the flow through of the RSPT on metals etc into appliances and hardware used in the construction of a house. Obviously the final impact will depend on the final negotiation of the tax. > The stupidity of making housing even more unaffordable, when it should be the driver of the other half of the 2 speed economy in states that do not reap the same mining benefits. >Employment, consumption and value-add all occur in Australia so why add an inefficient tax the will impact on the very people they are trying to help. > Tax act will just become more complicated than already is. >Also more cost compliance costs for Australian business to manage recording and reporting (and the risk error)on top of other new obligations including carbon reporting. (Every new govt idea results in more reporting and management). > Difficulty and lack of clarity around the taxing point. > Likely to be virtually impossible to determine the value of many quarry materials for tax purposes because there is no market for a large proportion as they are often owned by the Building Materials company who does very significant value add before there is a sale. > Lack of clarity around impacts on gas and electricity which not only impacts on every home owner in every quarterly bill and remember, we (as both companies and householders)have already been hit with gas and electricity increases of up to 100% in the last 2 years (eg; gas in WA).This has also impacted housing costs. We rate the RSPT a 0 out of 10 for the low value quarry products industry. Even the Henry report suggested that it should not be implimented. Please contact me if you would like further input
Head of M&A (Corporate Client Page Member)
I strongly agree with the Discussion Leaders argument, and I rate the RSPT a 1, extremely poor.
CEO (Corporate Client Page Member)
I rate the tax as 1. Extremely poor. Its sheer magnitude is a massive, unreasonable and unfair new impost on an important industry. While existing mines will of necessity struggle on, exploration dollars will leave the country, and take with them the future of the Australian mining industry. As a profits-based tax it is first and foremost a tax on ability. It will penalise lean, well-managed mining operations and protect wasteful and badly managed operations. This, together with the capital guarantee, creates perverse incentives that must over time reduce the competitiveness and profitability of the Australian mining industry, retard its growth, and deter foreign investment. The retrospective nature of the tax is the epitome of sovereign risk - Australia has thrown away 20 years of hard-earned credibility. The government\'s deeply mendacious approach to the selling of this tax has been damaging to the social fabric in Australia and certainly damaging to the mining industry: It is not possible to honestly call this a tax on \"super\" profits. It is not possible to honestly proclaim, without qualification, that \"resources belong to all Australians\". It is dishonest to say that Australian mining companies pay a 17% tax rate. It is not possible to honestly say that Australian mining companies are not paying their \"fair share\". There is simply no case for this tax, other than the government\'s desire for additional revenue. To that end they appear willing to impose a complex, theoretical new tax, that has never been tried anywhere in the world, on Australia\'s most open and competitive industry. Even if you buy all their other arguments, is it worth the risk? What is the justification? The tax is wrong in its philosophy, its magnitude, its structure, and its implimentation. David Moore Managing Director Mincor Resources NL
Deputy Chairman (Corporate Client Page Member)
Mining has been fundamental to the development of Australia as a nation. Recently we’ve experienced a boom fuelled by the industrialisation and urbanisation of China and India. Australia is an attractive place in which to invest due to the following factors: - our iron ore and coal are very high quality and keenly sought after by international buyers - the industrial relations climate is relatively stable and the political framework of our democratic system is enviable - corruption is negligible compared to many other supplier countries - inflation has largely been under control for nearly two decades Australia has almost always relied on foreign capital to develop its industries. Our savings base has been too small to allow us to fund the massive developments in oil and gas projects, in iron ore mines or in coal export facilities without international support. When these investments have been made they have led to the development of the nation, employing many thousands of people and contributing to the tax and royalty income of the various levels of government. Attracting foreign capital and domestic savings from superannuation to continue to invest in resources and infrastructure projects is vital for the future growth of this country. As a nation we have to continue to invest and grow, otherwise our standard of living will decline. Capital is increasingly mobile as evidenced by the billions of dollars of Australian superannuation that is invested overseas. We are really competing against other resource rich nations like Canada, Brazil, Africa and Indonesia for these investment dollars. I credit the Federal Government with its attempts at tax reform through the Henry Report which had some very positive features. Initiatives to support investment in infrastructure, to support our national savings and encouraging investment are worthy considerations. However if Australia is to continue to be considered a secure place to invest it needs to think about the impact of changes that it makes to Australia’s regulatory and taxation framework, and how it goes about introducing them. Any changes to taxation of the resources industry, or any other industry, should not penalise investment decisions made in good faith at some time in the past. I just don’t think that’s fair on business or investors who have to make investment decisions faced with uncertainty about the future. There’s also an argument that taxation changes need to recognise an appropriate threshold before they kick in. Taxation should be efficient, equitable and recognise that investment in resources projects is not risk free. Coal and iron ore have different rates of return and should be treated differently, just as in our construction business roads and building are treated differently. Taxation needs to be simple to apply and administer and, if done well, will be more willingly paid. We all understand that we have to pay our taxes but it is appropriate that we consider all the options for raising the taxes that we need in this country. I’m not averse to some form of resources super profit tax but it should be applied fairly and not reduce employment or diminish Australia’s status as a safe, secure place in which to invest. If we can get the substance of the current debate right Australia will be better for it and the Leighton Group will continue to see a good level of opportunities for construction and mining work. However if investment goes overseas, the Leighton Group will shift its resources – people and equipment – to those countries which are more conducive to the development of their resources. Countries like Mongolia or Indonesia where we already have a presence and are likely to be openly encouraged to invest. Wal King Leighton Holdings
CFO (Corporate Client Page Member)
I rate the tax as a 1. The main concern with the tax is the effect it has on trying to obtain bank funding for new projects. The tax is payable prior to allowing for the repayment of debt, which most mining companies require in order to get a project up and running. Once the extra tax is deducted, there is insufficient cashflow available to repay the bank loan. It also has a very negative impact on bank covenants, meaning that either banks will not lend the required money to get the project up, or that it will cause a default on loan convenants and trigger disastrous bank default situations. However, if the government believes that they are taking a 40% \"risk\" in projects, as they are touting, this problem could be solved by the government providing 40% of the up-front funding via a loan to the company. I believe this is not on offer however..... Another issue is the transitional arrangements, whereby companies that have been responsible are penalised because they have conservatively written expenditure off their balance sheet and this expenditure is excluded as an allowance by the RSPT. If we HAD to have this tax (and I don\'t believe the high risk nature of mining can take any extra burden), there would have to be an up-front deduction of all capital costs and historical exploration, prior to calculating and paying the extra tax.
Chairman (Corporate Client Page Member)
Dear Nick Thank you for the opportunity to contribute. On a scale of 1-10, I rate the RSPT well below zero. The RSPT is already damaging Australia\'s reputation as a place to invest. It will seriously damage the capacity of Australian resources companies to grow and to commence new projects. The manner in which the government introduced the RSPT without consultation and with an advertising campaign against the mining industry already planned is without precedent and something we hope never to see again in Australian politics. The government would now like to negotiate a way out of the situation it has created but this must not be done other than in an open and transparent manner. To do otherwise would be to repeat the lack of proper process that brought us to where we currently find ourselves. Once again thank you for your leadership on this issue and for the opportunity to participate. Kind regards Andrew Forrest CEO Fortescue Metals Group Ltd
CEO (Corporate Client Page Member)
I rate it 1.
CFO (Corporate Client Page Member)
I would rate the RSPT as a 2 - very poor. While acknowledging there is some academic and political value in taxing industries that extract, rather than generate, resources, the RSPT is a very poor tax because: (a) the RSPT was recommended by the Henry Review to one part of a major tax restructure, involving both tax rates and bases. It is inappropriate to select only one or two items from the Review (b) the poor consultation (c) the retrospectivity (d) the degree of difficulty in calculating the RSPT on a \"project\" rather than \"corporate\" basis (e) the inherent assumption that any profits over the bond rate are \"super profits\", whereas resources companies (and their shareholders) are entitled to be compensated for the risks undertaken in exploration, production and marketing The worst component of the RSPT is the divisive effects on the Australian community, with the Federal Govt implying to \"working families\" that the resources companies are not paying their \"fair share\" of taxes and are using up resources owned by \"all Australians. The resources companies are responding with \"Chicken Little\" comments that don\'t address the key weaknesses of RSPT. Every appropriately structured investment or superannuation fund will have holdings of resource stocks. The impact of RSPT will reduce the earnings and values of these funds, reducing the savings and superannuation of many Australians.
Principal Consultant (Corporate Client Page Member)
3 - it is not practical and will significantly impact the industry. The concept of a super profits tax (being a true level of super profit before tax comes into effect) is better than ad valorem rates.
MD (Corporate Client Page Member)
Australia\'s economic reforms over recent decades have been based on being internationally competitive and adaptive to change. However when it comes to the RSPT the Government\'s view is that it is quite acceptable, in fact it is desirable to be the highest taxing resource jurisdiction and this will somehow enhance resource investment! Furthermore they seem totally resistant to changing the key aspects of this long term tax reform for the nation\'s benefit because they need a short term fix to balance the budget. The perception of Australia\'s sovereign risk has definitely been increased with this inept tax proposal. The retrospectivity of its application means that investors will view our investment environment as more susceptible to major changes in the future and hence be be less stable over the longer term. The one size fits all tax approach of the RSPT fails to account for the very different economics of different resources.
Chairman (Corporate Client Page Member)
The RSPT is quite simply inane. And, on a scale of 1 to 10, it is a 1. It is destructive in terms of investment, in both literal and psychological terms. What it really means is that any Labor government should feel free to levy a tax on any business in any sector who is performing well. It is simply a wealth transfer from the private sector to the government because their spending is out of control and they have realised that they need to replenish the coffers to keep funding their mates because there is little more capacity to increase overall indebtedness. All Labor knows how to do is tax and spend but, in this case, Rudd has spent what he didn\'t have; he squandered the Howard Government\'s surplus and then created a massive debt on the notion that they could spend their way to prosperity which, of course, has never and will never be done. In short, it is idiot economics and this Government is a complete disgrace. They are sending us back to the Dark Ages with re-unionisation of the marketplace coupled with wasteful spending which will have no lasting affect. Rudd is far worse than Whitlam and we are going to pay dearly for this Government\'s wasteful ways. I have nothing good to say about Rudd, his Government nor this wrong-headed tax. And you can quote me. Peter Dr Peter C Farrell AM Founder and Executive Chairman ResMed Inc. 9001 Spectrum Center Blvd. San Diego CA 92123
Chairman (Corporate Client Page Member)
I rate the RSPT introduction process as a 1 and the RSPT as a 3. Although some form of resources tax was signalled in the lead up to the Government\'s announcement of the RSPT, the lack of a real consultation process, the lack of clarity around the details of the Henry Review recommendations more broadly and the selective (politically driven) approach to which elements of the Henry Review would be adopted has been extremely poor. On the RSPT itself, it is a poorly structured impost. To have the LTBR as the hurdle for determination of the trigger for super profits is ridiculous and shows not only a misunderstanding of how major capital investment decisions are made but suggests a lack of understanding of the difference between Government and corporate debt and the difference between weighted average cost of capital and corporate hurdle rates. As a minimum, this aspect needs to be completely re-thought. To then retrospectively apply this tax to existing projects which were sanctioned on a certain understanding of expected risks and returns also unduly penalises the sponsors of existing projects. These sponsors entered into material, long life investments on the understanding of a certain fiscal and regulatory regime and, although some \"tweaking\" would always be expected, a wholesale change to the fundamental fiscal regime is not something many, if any, businesses would have expected as a likely or even possible outcome. The RSPT as currently structured unduly hurts those businesses and leaders that have shown foresight and risk appetite to invest in the Australian resources sector over a number of decades. When the Petroleum Resources Rent Tax was introduced a number of decades ago, it was introduced as a prospective tax only. The Bass Strait operations were subsequently added into the regime but only after discussions between the project sponsors and the Federal and State Governments in order to derive a mutually agreeable outcome. On the whole, this objective was achieved but only through real, transparent and unpoliticised consultation. The application of an RSPT on new projects has already harmed Australia\'s international reputation. In a very short space of time, we have gone from an economic icon on the global scale for the way we managed through the GFC to a global case study in how to mismanage our economic legacy. It only takes a short read of the European media or to talk to US investors, analysts and bankers (which I have recently done) to fully recognise the negative profile the RSPT has generated across the globe in a short space of time. I would compare this to the way the UK Government effectively killed off investment in its oil and gas industry through the introduction, and subsequent increase, of the Petroleum Resource Tax - exploration and investment has never recovered and the UK is now in a very weak energy position as a direct result. Not only has our international reputation been harmed but the billions of dollars already invested, as well as many more billions of future investment, are at real risk specifically because of the RSPT. The Government must act decisively and quickly in order to rebuild trust and credibility if we are to retain and continue to attract investors. Our natural resource endowment will not disappear if the RSPT is introduced. However, our ability to leverage that legacy for future generations will be impacted if there is a lack of appetite for investment in Australia.
CEO (Corporate Client Page Member)
I agree entirely and strongly with the comments made and I rate the RSPT at a score of 2 out of 10.
Principal (Institutional Client Page Member)
I wouldn\'t even give it a 1. Its not a \"super profits tax\" its a \"super tax on profits\". The tax was introduced with no consultation. It was devised by a bunch of boffins who\'ve never worked outside Canberra\'s cloisted chambers. As a result they\'ve left unintended consequences for the rest of the community to pick up. These include the closure of the Whyalla steelworks whose recent upgrade depended on a new iron ore mine. The boffins did no study of comparable international tax rates. Nor did they consider the possibility resource companies might re-direct their capital elsewhere. In the real world mines that lose money dont get built. So no banker will give a value for the government\'s 40% rebate on mine closures. Whilst the companies will pay higher taxes their franking credits will decline (the RSPT generates none). Essential details like the taxing point havn\'t been considered? Is the taxing point at the mine gate or the port? If a resource like Queensland coal seam gas is processed will the taxing point be before or after processing? RSPT is illustrative of the current chaotic system of government led by a \"policy wonk\". Decisions are made on the fly with little to no understanding of the consequences. The RSPT is the latest of a string of policy miss steps including the tragic insulation debacle and the BERr ie \"Building the Education Revolution \"rort\" not to mention the climate change \"flip flop\". As Tony Abbott said \"if this tax is so good for the miners why arn\'t other industries lining up begging for a super profits tax to be placed on them\"? Better not give this government any ideas. Banks might be next.
Fund Manager (Institutional Client Page Member)
1 6% hurdle rate is ridiculous - no-one will invest in mining projects at that level. Structure will encourage all sorts of \"avoidance\" techniques and structures. So it won\'t be effective anyway. International competitiveness will be lost - with projects going overseas.
Portfolio Manager (Institutional Client Page Member)
This tax should not get a positive ranking. It should be ranked way off the negative end of the scale. Everything about this tax is flawed. Lets start with underlying ideology. Why should mining companies be expected to pay a higher rate of tax than other companies? What is the merit of having the government come in as a 40% \"silent partner\"? One term for this is socialism. Lets go on to the rate. Taxing an entity at (significantly) more than a 50% rate on its profits is immoral. Retrospectivity. Of course governments can change tax rates from time to time. But there is an unwritten rule, and it is just plain common sense, that for projects with long lead times, long life spans, and which involve massive capital investment, the rules of the game will not be turned on their head once the project has started. Let\'s face it. This tax is flawed in its entirety. There should be no tolerance for it in this country. No end of tinkering will improve it sufficiently. It should be dropped. End of story.
Equities Analyst (Investment Banking Client Page Member)
Rate the RSPT 1 - worst idea, ever. The mining sector already pays enough tax in my view. I consider any tax regime which results in a effective tax rate of over 50% as being contrary to the capitalist system. Which whilst not perfect, is better than any other system I know of. Three key points on why I disagree with this tax. 1.) It is not a profits tax, it’s a cashflow tax. The fact that it is applied before interest is one of the key reasons it will inhibit further investment, as it reduces a project’s ability to meet interest repayments. Therefore making it less likely the project will be able to raise debt. 2.) It’s retrospective. There are many variables that companies model prior to making an investment decision in Australia. An increase in the effective tax rate from ~37% (corporate tax + royalties) to ~50% is not one of them. Companies do consider these eventualities when investing in Africa which is why they often enter into stability agreements which set tax and royalty rates for the duration of the project. This point then leads into the increased political risk that will now be attributed to Australia. 3.) The PRRT did kill off offshore exploration. This is evidenced in BHP’s exploration spend on a country by country basis since the PRRT was introduced. There has been a big initiative by government to increase offshore petroleum exploration in the last 2-3 years. They have provided a lot of geotechnical data to stimulate exploration but it hasn’t worked. This will occur in the minerals industry if the RSPT is introduced. However, this problem won’t be readily observable until 10-15 years down the track.
Executive Director (Investment Banking Client Page Member)
Poor on consultation Poor on definition So RSPT has to be ranked 1 But few denials that a super profits tax was not warranted PRRT with different capital inflation rates for different commodities/projects will obviously be the compromise. Like all good political clashes however both sides unlikely to admit this early. Regarding timing of this initial compromise (fine details will take a lot longer to put in place) the key will be whether the Government and/or the Miners feel happy to risk an election.
Strategy & Business Development (Corporate Client Page Member)
I rate it a 1. Prior to the last election Janette Howard made the observation that Mr Rudd does not understand economics. With the RSPT he proves that while he might manage a pass in economics 101, he understands nothing beyond a little theory. The RSPT is the product of mixing two parts bureaucrat with one part theory, and leaving it to fester for 6 months at 20 degrees. The sovereign risk is real, not just because mining is in the crosshairs, but because the next industry in this country that succeeds will be the next to be asked to \"share the wealth around\". If we ever became a true regional banking hub, we might have super taxes on banks, or on bonuses. If tourism becomes our saviour, watch out for the return of bed taxes.
Executive (Corporate Client Page Member)
Agree. Rating it a 2. Thetiming is terrible. Any talk of introducing a new tax especially a tax aimed at curtailing the resource sector in a time where a potential 2nd wave of GFC is a potential is very short sited and unfortunate. This is another ill thoughout of initiative of the Rudd Govt and I don\'t trust them doing anything effectively and well.
Manager (Corporate Client Page Member)
I strongly agree with the Discussion Leaders argument and other comments made by respondents below. I rate the RSPT a 1 - if I could, I would give it a -5! Rudd and his croonies are using the misgiuded umbrella of reform to introduce a range of structural problems that benefits no one but lawyers and civil servants. I hope the Australian public sees through this woeful lack of leadership and votes them out at the next election.
Head (Corporate Client Page Member)
I would rate the RSPT as a 1. Essentially this tax is not neccessary it should be abandoned. The Australian Government Balance Sheet is extremely strong. If Abandoned the forgone revenue will have no long term structural impact on the deficit (merely extending the point where the budget moves from deficit to surplus by a year or two). The amounts collected while material to industry and raising sovereign risk concerns for investors, is relatively small compared to the total public expenditure. The much larger impact will be from a strengthening economy (higher tax reciepts) and the withdrawal of one-time stimulus programs. There will be no Impact to AAA rating (either with RSPT or without). Rudd\'s advisors have badly miscalculated the politics of this tax. They were too concerned around the size of the 10/11 deficit (and the claims by the opposition of labour spending like drunken sailors)then they needed to be. Ultimately this argument could have been simply stared down with unemployment low, the business community neutral to positive on the budget, and the relative success of Australia vs other countries in recent years. Ironically it is the RSPT that raises questions regarding economic management.
Executive Vice President (Corporate Client Page Member)
I would give it a 1 if that. This is a proposed tax that has not had nearly enough thought put into it as to the potential negative ramifications (which have already been proven). Its a failed process that is only too typical of the current Labour government.
CEO (Corporate Client Page Member)
The tax itself is destructive to WA. But the real issue is the lack of consultation. The PM generates policy on the fly, then gets surprised by the backlash. Basic stakeholder management is embarrassingly absent.
CFO (Corporate Client Page Member)
Rating of 1 - if the idea was to destroy overseas investor confidence in Australia, it was an excellent way to do it. It will take a long time to undo the damage that this has caused, especially when coupled with the current government\'s view that Telstra\'s assets are their\'s to deal with as they wish without any thought as to the rights of shareholders. The NBN is a political white elephant that needs funding, despite it not appearing in the budget as it is an \'investment\'. No wonder off-shore money is flowing out of Australia in search of safer havens. There has been no consultation and the system has been devised by theoretical economists and bureaucrats who obviously have no idea how the real world works. Other issues with the tax are : a) No franking credits generated - tax paid over to the federal government is only being given back to shareholders on the post-RSPT profits, which gives rise to double taxation on the proceeds of these mines. The argument that this is a \'rent\' instead does not wash - it is a tax being used to plug holes in a budget. Spending cuts and the reduction of vast numbers of public servants in Canberra might be a start to overcoming budget deficits. b) Hurdle rate is ridiculously low - the idea of a 40% \'rebate\' on failed projects needs to be ditched if it means that the rate can be increased. c) Confusion reigns over whether the taxing point is the pit, after processing etc. and what \'sale price\' will be used - all of which coudl have been achieved through a longer consultation period. c) Retrospectivity - one simply cannot apply the tax to projects that have already been financed taking into account the known variables. This will destroy value, and it begagrs belief to think that the government cannot see this. This affects every Australian\'s superannuation fund. To quote Thomas Cranmer, \"there is no man so blind as he that will not see, nor so dull as he that will not understand.\"

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