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Natural Resources

Australia Grabs for Mineral Wealth


Somewhere in the outback, a rugged-looking man walks toward his SUV, looks directly at the camera, and warns about the dangers of a proposal to raise taxes on Australia's mining companies. "Billions of dollars of investments are already on hold," he tells viewers on TV and the Internet. Describing a future of job losses and lower returns for pension funds, the man asks ominously, "Who will be hurt by this super tax? Everyone."

The ad is part of an ad blitz launched by mining giants including BHP Billiton to kill Prime Minister Kevin Rudd's plan for a 40 percent windfall profits tax on the industry. Rudd's Labor government is initiating a $30 million ad campaign of its own to counter the industry's efforts. Right now polls indicate 41 percent of Australians oppose the tax and 36 percent support it. The opposition Liberal Party condemns the idea. Australia's treasurer, Wayne Swan, said in an e-mail that the tax would raise $10 billion in its first two years. That "will allow the government to cut business taxes, especially for small business, boost retirement savings, and invest in infrastructure."

Investors are concerned that the tax, which still needs to pass in Parliament, would especially hurt companies that operate mostly at home. After news of the proposal, shares in Fortescue Metals, an iron ore company that does all its mining in Australia, dropped 25 percent. The price of the Sydney-traded stock has since climbed back 13 percent amid optimism that the well-organized expressions of outrage will force the government to back down. Like BHP and Rio Tinto (RTP), Fortescue may reconsider investing in Australia. As Rudd told reporters on May 30, "it's going to be a tough fight."

The bottom line: The Labor government in Australia wants a windfall profits tax on mining companies. The industry is launching a well-financed counterattack.>

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.
Behrmann is a reporter for Bloomberg News.
Rae is a reporter for Bloomberg News.

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