Email of the day (3)
Comment of the Day

June 01 2010

Commentary by Eoin Treacy

Email of the day (3)

on Australia's mining super tax
"Bit slow, but went to Prof Quiggin blog. He is a "Federation Fellow" i.e. acclaimed by fellow academics and paid at least twice average professorial salary. His main conclusion is that RIO/BHP have every expectation of future super profits - => buy on this pull back?

"May 26th, 2010 jquiggin 128 comments

"I've been busy for the last few days, working on a statement by a group of economists in support of the principle of a resource rent tax to replace existing royalties. The statement calls for informed debate about the proposal and takes no position on particular design issues, such as the choice between the existing system used for the Petroleum Resource Rent Tax (40 per cent on returns above about 11 per cent) and the government's proposed Resource Super Profits Tax (40 per cent on returns above the bond rate, with a corresponding offset for returns below the bond rate).

"My own view is that the RSPT design would be more efficient, but the losers under this design (those who can confidently expect high profits) have been very vocal, while the potential gainers (smaller miners undertaking riskier projects) have not given the government any support. Add to that the fact that the PRRT design is long-established (making scare campaigns a little bit harder) and simpler and there is a strong political case for a compromise along these lines. The most important thing is that the government cannot and should not back down on the basic principle of a resource rent tax."
http://johnquiggin.com/wp-content/uploads/2010/05/RSPTLetter.pdf
http://johnquiggin.com/wp-content/uploads/2010/05/Press-Release.pdf

Eoin Treacy's view Thank you for this informative commentary, contributed in the spirit of Empowerment Through Knowledge. How much additional tax major miners, with operations in Australia, are going to have to pay remains an open question, but the share prices of companies such as BHP Billiton and Rio Tinto have found at least short-term support in line with the wider global market, suggesting their decline was not exclusively as a result of the Super Tax.

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