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Friday, July 2, 2010

BURBS BREAKDOWN: A new year, a new PM, and a new look resource tax...

First of all, Happy New Year!! I know that may make me sound nerdy, but hey when you live and breathe finance, it’s a big deal.

Speaking of big deals – what a week! Since my last posting we’ve sworn in a new Prime Minister, welcomed in a new financial year, and witnessed a backflip on the resource tax.

My tip for the day – expect an election announcement within the next few days. Timing couldn’t be better for Labour. I have some fairly strong opinions about what has happened over the past week, but this is a money blog, not a political platform. However, whether you agree with what Labour has done or not, you have to give them credit for being shrewd.

Anyway, let’s get back to the resource tax because it is THE hot topic of the moment. With all the hype and noise, I thought it was time to bring it down to proverbial “brass tacks”.

It’s really as simple as this – following the GFC, the government have been desperately seeking ways to get the country back into the black. As well they should! When things were just starting to get nasty back in 2007, I told my clients that the Libs had left us a fairly substantial war chest, and therefore I was fairly confident Australia would be able to “export its way out of a recession”. Guess what; I was right.

Here we have an industry that continued to boom throughout one of the worst financial crises we’ve ever experienced, so frankly, it was an easy target. Furthermore, it kinda makes sense. After all, Australian resources belong to the Australian people, not the mining companies.

You’ll recall from my Henry Report posting in May, that the Government announced it would introduce a “Resource Super Profit Tax” of 40% from 1 July 2012, on profits made from exploitation of non-renewable resources. Basically this tax would apply to any profits over and above 5%, and when you consider the types of profits the bigger mining companies are making, that’s potentially a whole lotta moulah! In fact it was expected to raise $9-12 billion in additional tax revenue for the Government.

I think we all know how well it went over with the mining industry, and the public in general… Personally, I believe Kevin Rudd lost his job primarily because of this very reason. With three debacles already under their belt (emissions trading, insulation, school building…) Labour couldn’t afford to risk the election over the resource tax.

And pronto, we have a new PM – a female at that – and a very quick resource tax backflip announced today. Not quite a back down, but a decent flip. The tax will be reduced to 30% and will be on profits over and above 12%. Furthermore, it will be renamed the “Mineral Resource Rent Tax”, and be limited to mined iron ore and coal.

So that’s the breakdown. Obviously it’s a lot more complex that that, so if you want to know more just send an email to and I’ll shoot you a copy of the BHP, Rio, and Xstrata press release which is very comprehensive.

Talk soon,
PS. 10 points for anyone that can guess the very vague movie reference I’ve hidden in this week’s blog.