Proposed "Supertax" on Mining Profits in Australia Effectively Dead

The "supertax" on mining company profits proposed by former Australian Prime Minister Kevin Rudd has resulted in his departure from the top political position in his country.

This spring Mr. Rudd proposed that large mining firms pay up to 50 percent in their profits to the Australian tax collectors. Reaction from the mining industry was fast and sharp: They were uniformly against it. But what was much more surprising was the negative reaction among Australian voters.

Midway through his first term as prime minister, Mr. Rudd was quite popular until this year. First he back tracked on his campaign pledge to address climate change. Then he proposed the ill-fated supertax without consulting with the target of the tax -- the companies themselves.

The Financial Times ("Rudderless Labor," June 24, 2010) has opined, "A more flexible prime minister might have deflected [mining companies'] assault by agreeing to consult with them. But Mr. Rudd was no such leader."

Late last week his Liberal party had had enough. He was sacked and has been replaced by Julia Gillard. One of her first items of business has been to call a cease fire with the big mining firms.

In a June 16 posting, I asked whether the proposed supertax "portend[ed] a more difficult investment environment for mining companies? One way to look at it is that if Australia can do this, then anyone can (and may)." Well, we have the answer now. The supertax is effectively dead in Australia, mostly likely along with Mr. Rudd's political future.

Mining Investment Risk Rising in Australia: "Resource Super Profits Tax" Debate Heats Up

The political debate in Australia over the government's proposed "resources super profits tax" is now well underway.

As characterized recently in the Financial Times ("Australian super tax increases investment risk," June 3, 2010), "The proposition...is for mining companies to take on 100 percent of the costs and risks associated with their investments but pay more than 50 percent of the gain to the government." Anyone interested in the intersection of nation state tax and resource policy with mining company investment decisions should read the article.

Australian Prime Minister Kevin Rudd has argued that such a tax would be fairer to the Australian people. On the other hand, the major mining companies operating in the country are uniformly against it.

Does this portend a more difficult investment environment for mining companies? One way to look at it is that if Australia can do this, then anyone can (and may).