Australian Government, Miners Edge Toward Super Tax Compromise
Source: Reuters, James Regan and Fayen Wong (5/17/10)
"One area of possible compromise is the level where the new tax kicks in."
The market capitalization of the ASX 300 Resources .AXKR has contracted by almost A$40 billion from mid-April highs when the government announced the new tax, which would be the world's stiffest on mining companies.
"Investors certainly have reacted coolly to the proposed new tax," CommSec chief economist James Craig said on Monday.
"At face value, investors appear to have overreacted to the proposed resource super-profits tax. The proposal is in its early days and legislation may not be submitted for another 18 months, but as always it is uncertainty that is the key issue."
Miners had previously appeared to present blanket opposition to the new 40% tax on super profits, warning it would damage Australia's resource sector, which is credited with saving the country from recession during the global downturn, thanks to China's hunger for industrial raw materials.
Resources Minister Martin Ferguson said the government recognized the new tax could hurt investment and aimed to wrap up tax negotiations quickly.
The government was committed to finding a "middle ground" on the tax, he said, adding that miners and the government had reached agreement on previous controversial resource taxes.
"This is important because it demonstrates that, inevitably, governments and industry find a middle ground with these reforms that accommodates both the best interests of shareholders and the national interest," said Ferguson.
One area of possible compromise is the level where the new tax kicks in. The Treasury's head mining tax negotiator will meet miners on June 10 to talk on possibly moving the approximately 6% tax trigger, based on long-term sovereign bond rates.