Rudd Likely to Give Ground on Resources Tax Threshold, WA's Barnett Says

Australian Prime Minister Kevin Rudd’s government is likely to compromise on the threshold at which his proposed tax on the profits of resource companies kicks in, Western Australia state Premier Colin Barnett said.

“It seems that the Commonwealth government is going to give some ground on the threshold, maybe make it more similar to the higher threshold that applies to the petroleum rent tax,” Barnett told Australian Broadcasting Corp. radio today.

Barnett joins a growing list calling on the government to water down the 40 percent tax on resource companies’ profits for fear it will discourage investment. Treasurer Wayne Swan has said he isn’t ruling anything in or out as negotiations with the country’s biggest mining companies continue.

“There’s nothing particularly rare about our minerals,” Barnett said. “If you see this tax put in place you will see, one after another, Australian mining projects, future projects, not proceed and I expect in this state we will lose a quarter of our future investment.”

Western Australia accounts for 62 percent of the nation’s mineral production, 73 percent of natural gas and 64 percent of crude oil and condensate. Mining and petroleum production in the state was worth more than A$70 billion ($59 billion) last year and the state has about A$170 billion of projects in the investment pipeline over the next five years, according to the government.

Tax Implementation

The government and resources companies are clashing over the definition of a so-called “super” profit, which the proposed tax sets at returns above the long-term Australian government bond rate of about 6 percent. The nation’s petroleum resource rent tax, also levied on profits at a rate of 40 percent and in place since July 1987, kicks in when returns exceed 11 percent.

Companies like BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group have asked the government to change the threshold during talks central government officials have held with about 80 resource companies.

Companies have said they’re reviewing investment decisions and may need to put projects on hold.

The first report from the panel consulting with resource industry executives on how the tax will be implemented was scheduled to be handed to the treasurer’s office today. The report is part of a consultation process Swan’s office says will last about 18 months.

“We believe they need to be paying a fairer share,” Rudd said in a television interview broadcast today on the Seven network in reference to mining companies operating in Australia.

To contact the reporter on this story: Marion Rae in Canberra at mrae3@bloomberg.net

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