Friday, May 28, 2010

National Emergency?

Wow, if this is even somewhat accurate this is both outrageous and crazy. Using national emergency powers to campaign for the RSPT? If it is really political then the Labor Party or the Unions etc. should fund it. The opposition doesn't get to spend public money on this.

I haven't said much about the RSPT, but, yes, I am against it. I happen to think the royalties regime makes sense but I can see some of the arguments against it. I would accept some introduction of a tax along the lines of the PRRT (Petroleum Resource Rent Tax) at a high enough level to replace the state royalties and the reduction in corporation tax on mining companies with the funds going back to the states probably. IN theory though I think royalties that are then invested in a sovereign wealth fund are the best option.


Darren said...

Hi Moom,
I'm for RSPT tax in principle, but this has been wrongly targetted

- It should not be retrospective
- it should build a soveriegn wealth fund like Norway (or at least only invest in infrastructure) rather than short term tax
- it should have a higher kick in rate (ie not bond rate)
- it should not give credits for the states rent tax, since the states will simply bump up their rent before it comes in, hence diverting money and wealth from commonwealth to states (WA/QLD)

Long on BHP, RIO, ORG and a number of juniors as with any diversified portfolio, and 33 years old.

mOOm said...

Hi Darren, thanks for your comments.

The government's plan deals with the states potential increasing their royalty rates by only refunding them up to the current level (not sure if that is indexed for inflation).

The interest rate in the plan isn't really a "kick in rate". The plan (which mostly has been explained terribly) basically has the government as a 40% passive shareholder in every mining project. The government guarantees to refund 40% of losses should a project eventually fail. They'll pay the 6% or whatever on that refund. If you do make money in the meantime you can deduct exploration expenditure, depreciation etc. from income to compute the "tax" payable and the government agrees to add the long-term bond rate to those carried forward losses. Under the regular corporation tax the rate is zero.

The problem, is that this "tax" isn't a super-profits tax at all and there has been a lot of confusion due to the way it has been named and sold by Rudd and Swan.

The government is also expecting that given their guarantee on losses that banks will be willing to lend money to mining companies at the long-term bond rate for 40% of the costs of each project. The mining companies say that is unrealistic, partly because no-one trusts the government to really eventually refund losses.

Personally, I'm opposed to the government being a 40% shareholder in every mining project. There is some good economic theory behind royalties but the Henry review chose to ignore it and spin royalties as a bad tax.