Analysts Warn of Global 'Tax Contagion'


". . .Canada, Peru and Chile may be next."

Australia's planned 40% tax on mining profits has set a benchmark for other countries weighing higher levies, reducing earnings forecasts for BHP Billiton and Rio Tinto and the attraction of mining stocks.

"It could create what the miners are now describing at a global level as a type of tax contagion," UBS Commodities Analyst Tom Price said. "They might levy a new tax at the miners in Brazil. Canada is another mineral province and South Africa."

Citigroup Analyst Craig Sainsbury said Canada, Peru and Chile may be next.

"Resource nationalism" was a major risk facing miners, said Evy Hambro, manager of BlackRock Investment Management's flagship $US14.3 billion ($17.2bn) World Mining Fund.

Chile, the biggest copper exporter, is proposing a temporary rise in mining taxes to help pay for earthquake reconstruction. Brazil, the second-biggest iron ore exporter, may tax shipments of the commodity or raise royalties.

Australia's tax plan is "global financial markets suicide," according to Charlie Aitken, executive director of Southern Cross Equities.

Mining companies' earnings may be cut by almost a third when the tax starts in 2012, according to Moody's Investor Services. The tax would be broadly credit-negative for the sector and would raise uncertainty for some companies over the short to medium term, Moody's said.

The tax may also prompt European and Scandinavian nations to seek a greater share of revenue from production, according to Magnus Ericsson of mining data and analysis company Raw Materials Group.

Nations that resist may attract investment.

South Africa taxes mining companies at 33%, Canada 23% and China 30% compared with a forecast 58% in Australia after the tax, according to Citigroup data.

Canada's Finance Minister Jim Flaherty said this month that he was opposed to raising taxes and the Australian levy made Canadian outfits more competitive.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe