I pay super profits tax why not miners

[J Martin]

hubby works for a mining/steel company and they are very concerned at this new tax (internal memo's). having just spent $40mil on upgrading one of their steel facilities in a remote location supporting a town of 30,000. if they have to pay a much higher tax on the ore that they dig out of the ground themselves to feed the facility, then it is a non-viable, loss making, non-competitive (with china/india) facility and will have to be written off and closed.

then we would buy the value added product in from china instead.

goodbye jobs, goodbye town, goodbye wasted investment.

You do realise it's a "profits" tax rather than "revenue" tax. The loss making argument is moot. Those resources still exist in the ground. So yes, jobs "today"are potentially lost( i don't pretend to know the grade of ore), but in 5-10-50 years time that ore will be mined....

What do you think the price of iron ore will be in 5-10-50 years? I'm going to bet with a world pop of 6bil peaking at 9 bil in 50 years, with a western standard of living going from 1.5billto 3+bill, the price of iron ore will be SIGNIFICANTLY HIGHER(accounting for inflation) than today.

So the question is? A mining super profits tax actually creates a long term benefit to our economy over the next few generations, rather than a short term GDP fix within a political cycle. Anyone who things differently is either partisan, ignorant, selfish(todays economy) or thinks that iron ore and coal prices will drop over the next generation or so.....Cmon guys,even the vested interests don't even believe that!!!

So the ONLY argument against a rent resource tax is ignorance,

 

[lizzie]

You do realise it's a "profits" tax rather than "revenue" tax. The loss making argument is moot.

it's not moot because the digging up of the ore, and making of the steel is two different arms of the same company - the digging up arm will make profit and have to pay super tax - which is passes on to its buyer - the steel making arm which, because of the increased price raw material cannot compete in finished product price with cheap overseas imports.

so the steel plant closes - town of 30,000 dies - australia loses it's biggest (and almost only) steel making company. australia become more reliant on, and at the mercy of, exporting raw and buying back finished.

i'm not saying protect the local industry with tariffs etc - but why bring in a tax that would deliberately wipe out an important part of industry.

 

[Bill.L]

Hi all,

Lizzie,

in a remote location supporting a town of 30,000.

so the steel plant closes - town of 30,000 dies

If you're talking Whyalla, the population is 22-23,000, unless there are 7-8,000 people hiding somewhere.

I find it interesting using the terms 'remote' and 'town of 30,000' in the same breath. To me remote is away from people and services, a town of 30,000 (or even one of 23,0000) usually has plenty of services.

This argument is so emotive with some people that some of the arguments are ceasing to make sense.

the digging up arm will make profit and have to pay super tax - which is passes on to its buyer - the steel making arm which, because of the increased price raw material cannot compete in finished product price with cheap overseas imports.

So why doesn't the digging up part of the company just sell to the other arm at a lower price, therefore making less profit, pay less tax, and give the steel making arm a competitive advantage (which can then make more profit)??

bye

 

[Ausprop]

Ok Ausprop, let's shut down every bank in Australia and see how far society gets. (Unless you're being sarcastic? )

I'm not saying shut them down, they do serve a role. It's just their super profits earnt from minimal risk deserve a super tax. It shouldbe higher than the miners 60% or so... i reckon 75% for these guys?

 

[Ausprop]

So why doesn't the digging up part of the company just sell to the other arm at a lower price, therefore making less profit, pay less tax, and give the steel making arm a competitive advantage (which can then make more profit)??

sounds like a part IVa tax scheme and probably breaches some trade agreements as well and various other tax breaches such as state based royalties?

 

[Ausprop]

for those looking for a simple worked example of how the tax equates to about 65% here is a nice article....

http://www.globalspeculator.com.au/documents/SuperProfitsTax.pdf

 

[willair]

I pay 30 % tax , if I work a few hours overtime or a second job ( super profit ) pay 40-45 % .
I also pay a hefty mortgage

The miners pay base rate 17 % on 10 million or 10 billion profit on a non renewable resource that doesn't have to be exploited in this generation .
Is that fair ?

Myself from a investment side of things i think it's fair,but the problem with any Government that values process over result,you always find out in time they are not telling you the whole truth,and anyone that has seen the large deviations in prices of some high end miners once the media let the public know would be thinking,some of the lower end non div paying specy have gone down in value by over 40%over the past few weeks..willair


















5..willair..

 

[handyandy]

Can somebody please quantify the current situation (the real figures - without hype) that miner pay?

I want to get an understanding of the level of royalties they pay.

Cheers

 

[Ausprop]

Can somebody please quantify the current situation (the real figures - without hype) that miner pay?

I want to get an understanding of the level of royalties they pay.

Cheers

Follow that link i posted HA... it lays it all down

 

[lizzie]

If you're talking Whyalla, the population is 22-23,000, unless there are 7-8,000 people hiding somewhere.

yes - whyalla. okay, so the pop is now around mid 20's. when we lived there all the locals would just say "town of 30,000", but i gather there have been a few layoffs in the mill since.

the mill is the lifeblood of the town. there is very little viable farming country around to service, there is no fishing industry, those that work in the mine drive 1hr each way along the highway - so if the town begins to die they may very well move closer.

but if the mill goes, then the town will die. the locals very unfondly recall back 15 odd years ago when the mill laid off a lot of staff in a massive restructure - nearly killed the town until the state government decided to buy massive amounts of housing for dept housing pensioners, and moved them all over there.

i just don't think the government has put a lot of thought into the flow on effect of their decision - whether it be large mines/mills such as this or mom and pop quarries employing 5 blokes..

 

[gooram]

I'm not sure why everyone is buying into the rhetoric from mining companies.

Of course large mining companies are going to defend their profit margins, but if you believe they are more concerned about the australian ecomony than a) their own profit, or b) the australian govt, then you are absolutely kidding yourselves.

The mining companies aren't going anywhere, any projects that have been shelved have been for reasons unrelated to the tax.

A good example here:

http://www.crikey.com.au/2010/06/04/what-you-wont-learn-about-the-xstrata-closures-from-the-media/

I'm not necessarily in favour of the tax as proposed, I agree some consultation/negotiation should take place, but to blindly believe what the minings companies are spouting is a bit foolish I think.

 

[Ausprop]

here are a few problems with the RESPECT tax...

* lack of consultation
* the timing (why now in the midst of GFC 1 and 2?)
* the equity and fairness of it
* the very essence of it

It is flawed from inception to it's core. It is so very reflective of Labor and the make up of the cabinet - look at where these blokes come from and it really isn't much different to the union boys turning up on site with the ol paper bag.

Anyone who thinks this is a good idea is just joining in for a free kick. Won't cost jobs or damage the economy? yeh right!

the only way it could be a good idea would be if demand was truly rampant and the economy on fire. This is some way off (and possibly never now). Even then would it be worth ruining the countrys reputation over? We have relinquished our credentials to a level of that of an african dictatorship. The worst part is the damage is done.

 

[handyandy]

Follow that link i posted HA... it lays it all down

Thanks for that.

Cheers

 

[Rolf Latham]

in my opinion they should just increase the export duty on all the resources

force them to process it all here and sell a product rather than raw materials

think we tried that.........................then our widgets didnt sell too well

Even the humble rotary victa mower, youd be hard pressed to find much made in australia on it I suspect

ta
rolf

 

[Strannik]

for those looking for a simple worked example of how the tax equates to about 65% here is a nice article....

http://www.globalspeculator.com.au/documents/SuperProfitsTax.pdf

it's surprising how some people call themselves investors but don't know simple math (not directed at you Ausprop, but the author of the paper)

in the first example the guy gives the numbers are:

Sales Revenue: 300
Operating Costs: 130
Royalty: 15
Interest Expense: 12
Depreciation: 20
Profit before tax: 123
Company Tax: 37 (30% of $123m)

Total Tax
State Royalty: 15
Company Tax: 37
Total: 52
Overall Tax Rate: 42% (42% of $123m)

Now i've highlighted the important bits.

In the first part of calculation, where he calculates profit before tax, he includes royalty. Then in the calculation of total tax he uses the same amount as a base for calculating percentage, which already had royalty subtracted. And then includes royalty again in the percentage.

So the real percentage of overall tax should've been 38% with the current tax rate.

In the example with new proposed structure we see the same mistake again. If you add the super tax and royalty back onto the base to get same 138m before tax profit, you will see that the percentage is not 64% but 57%

This perfectly shows how interested people can manipulate those who don't bother to do their own calculations.

 

[Strannik]

oh and by the way, BHP and/or rio increased prices of iron ore for Japan. i thought increasing prices would put them out of business

 

[HiEquity]

So the real percentage of overall tax should've been 38% with the current tax rate.

In the example with new proposed structure we see the same mistake again. If you add the super tax and royalty back onto the base to get same 138m before tax profit, you will see that the percentage is not 64% but 57%

Agreed. But it doesn't really change the nub of the problem. A 38% tax sounds quite reasonable. High but still OK.

Someone taking away 57% of your upside just sounds like a mug's game. Why would you take a risk for that? I certainly wouldn't. And fancy ideas about govt sharing downside risk are just that - fanciful. Hard to bring back a mining company from the dead when their only project just went belly up - being half dead with a bucket load of tax credits is pretty cold comfort... So in reality this just removes upside and that's it.

And for the record >40% tax on income is too high as well. But anything >50% means your working more for someone else than yourself - that's a psychological barrier as much as anything and gets you seriously questioning why you would bother. Just as it does in the big end of town.

As for Ken Henry's statement that he learned in high school that a profits based tax has no impact on prices - well you really have to wonder. Taken to its logical extreme that would mean taxing profits at 100% would have no impact! Of course it has an impact and it's all about the numbers - a 57% effective tax rate is just too high no matter how you cut it. The rate must come down or our sovereign risk rating is custard. If they reduced the rate and in exchange dropped their silly downside sharing ideas you would probably have an amicable outcome for all and govt could escape the nationalisation taint on this. And we could all just get on with life...

 

[Rolf Latham]

The rate must come down or our sovereign risk rating is custard.

Would u like some bananas with that custard

ta

rolf

 

[Strannik]

mistakes like that make me wonder what else might be wrong in his calculations

personally i can't be bothered to look for the whole tax deal to find out whether he included all the perks and deductions that miners will get in his calculations, and whether he calculated the super tax correctly. but that simple mistake makes me wonder.

with Swan saying that majority companies wouldn't be subject to the tax, i suspect there is something else this picture is missing.

 

[Ausprop]

mistakes like that make me wonder what else might be wrong in his calculations

personally i can't be bothered to look for the whole tax deal to find out whether he included all the perks and deductions that miners will get in his calculations, and whether he calculated the super tax correctly. but that simple mistake makes me wonder.

with Swan saying that majority companies wouldn't be subject to the tax, i suspect there is something else this picture is missing.

so you are saying dismiss this clown with his wild sensationalism, because swanny reckons it will be all good?