Swan, Ahead of Australia Tax Review, Urges `Fair Share' of Mining Profits

Australia’s Treasurer Wayne Swan, speaking ahead of the release of a major review of the nation’s tax system today, said profits from the mining industry should be “fairly” shared.

“It’s very important that all Australians receive a fair share of mining industry profits,” Swan said in an interview on Channel Ten’s “Meet the Press” program today. “Before the boom something like one in three dollars in mining industry profits came from the royalty regimes run by the states. That’s fallen to something like one in seven.”

Swan is due to release the government’s response to Treasury Secretary Ken Henry’s 10-year plan for a more efficient tax system at 2:30 p.m. in Canberra. Media speculation has focused on a resource rent tax that would be levied on the profits of mining companies such as BHP Billiton Ltd. and Rio Tinto Group, according to Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney.

A national tax on miners would replace a web of earnings- based royalties set by state governments. Today’s review may show that Australia faces a A$35 billion ($32.3 billion) shortfall in taxes from commodity companies, the Australian Financial Review reported yesterday, without disclosing where it obtained the information.

A 40 percent resource rent tax could cut the earnings of Rio Tinto by as much as 30 percent and BHP Billiton’s by 19 percent, according to Merrill Lynch & Co.

‘Extremely Profitable’

“Mining companies have been extremely profitable in recent times,” Swan said yesterday to reporters in Canberra. “But, as I said before, when it comes to state mining taxes they have dropped dramatically as a share of those mining profits. So that’s just one issue which is considered in the report.”

The government commissioned the review almost two years ago and it was handed to Swan at the end of last year. It aims to eliminate many of the 125 local, state and federal taxes currently in place. Of that total, 10 taxes, including state mining and petroleum rent tax, reap 90 percent of revenue.

“Tax reform is a decade-long process,” Swan said today. “We can’t necessarily legislate all of these things in the budget because when you are engaged in tax reform you have to go through a consultative process.”

Mining companies say a resource rent tax would jeopardize investment and jobs in an industry that makes up about a tenth of Australia’s A$1.21 trillion ($1.12 trillion) economy and employs about 333,000 people.

Transitional Rules

Any new tax regime “must be carefully designed from an international competitiveness perspective,” BHP’s outgoing Chairman Don Argus said in October. “Whatever is decided, the transitional rules applying to existing projects will be critical to the success of any policy reform in this area,” said Argus, who stepped down at the end of March.

Swan said the government’s response to the so-called Henry Review would be about making sections of the economy pay their “fair share.”

“We share the objective of a prosperous mining industry in this country, one in which all Australians can share fairly and one which is quite attractive for investment,” he said today.

Economic growth in Australia, one of few nations to skirt last year’s global recession, will accelerate to 3.5 percent in 2011 from 3 percent this year, the International Monetary Fund said last week. The Australian currency posted its third- straight monthly gain last month and has risen 26.9 percent in the past year.

Other Changes

“In view of the mining sector, it’s not a question who collects the tax, it’s the amount of tax collected that determines the investment horizons of Australia,” Minister for Resources and Energy Martin Ferguson said last week. “That’s clearly an issue that the government will have to consider.”

JPMorgan’s Walters said other possible changes in the review could be tax breaks on mineral-exploration expenditure and incentives for savings.

“Media speculation suggests there may be a reduction in the company tax rate -- from 30 percent to 25 percent -- to enhance international tax competition,” he said. “This change would partly assuage the pain inflicted by the implementation of the resource rent tax.”

Still, Prime Minister Kevin Rudd’s government may be reluctant to implement tax reforms that are unpopular with the electorate. The government faces an election within a year and Swan is due to release this year’s budget on May 11.

“The government has been sitting on the review for four months, which suggests some of the panel’s recommendations may be politically unpalatable, particularly in an election year,” Walters said. The government is “very unlikely to scare the horses in the lead-up to the election.”

To contact the reporters on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

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