Chavez - in Australia?

[ricketyclik]

It aggregated data from the tax paid by, and profits before tax of, companies across countries and industries.

I asked the MCA yesterday if they had anything to show how the study was flawed, beyond being “small” (a small sample size of course could understate or overstate ETRs depending on the companies that ended up in the sample). They directed me to a Citigroup study released before the release of the Henry Review.

The study compared different royalty rates across the world and found that Australia had among the highest royalty rates. It also tried to assess the total tax burden faced by mining companies, but did this simply by adding royalties to the official corporate tax rate, without any adjustment for what tax breaks, concessions and deductions miners could claim.

The American study, in contrast, looked at actual tax paid by companies.

This morning the Minerals Council changed tack and cited ATO data to claim that the industry faced the highest ETRs in the country. However, that data is based on net income, not profit before tax, as the US study is, and relies on ATO’s domestic data, rather than companies’ own reported tax and profit results across all their operations.

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[trev]

The American study, in contrast, looked at actual tax paid by companies.

The American study looked at actual company tax paid, NOT all taxes paid. That means it excluded around 2/3rd of the total tax paid by the companies and included only 1/3rd. If you exclude 2/3rd of the data, it is not an authoritive study, stop quoting or using quotes from it.

[ricketyclik]

This is the best analysis of the tax I've read so far. He's actually sat down and crunched the numbers himself (as he is prone to). He participates in the comments section afterward, setting straight a lot of common misconceptions in the process. If only the government were this articulate.

Oh, and he's definitely not partisan (like some around here )

Mining the figures uncovers deception
George Megalogenis From: The Australian May 25, 2010 12:00AM

THE mining industry is by far the nation's highest-taxed sector because it pays royalties. But it is one of the lowest-taxed for federal company tax, based on the industry's own calculations.

The effective company tax rate for miners is 27.81 per cent, the 14th lowest out of 19 sectors. When royalties, which at present go to state governments, are taken into account, the industry moves to 41.34 per cent, the highest for total tax.

The Rudd government missed the political opportunity to make this point because it relied instead on old data from US researchers Kevin S. Markle and Douglas Shackelford, of the National Bureau of Economic Research, that is no longer applicable.

Both sides in the super-profits tax debate - Labor and the mining companies - have engaged in selective quoting of official statistics. And both sides have confused the public by comparing apples with oranges.

The Australian has sifted through the data and the competing claims to find mining is paying a significantly lower rate of tax to Canberra than other sectors.

However, the proposed resource super-profits tax will change that equation by applying a second tax at the federal end to replace the state-based royalties, which will be refunded out of the proceeds of the new tax.

Using the figures the Minerals Council of Australia cites in its defence, mining is taxed less at a federal level than all but five sectors: accommodation and food; electricity, gas and water; agriculture; real estate; and financial services.

The mining industry says its effective tax rate of 27.81 per cent is higher than the all-industry average of 24.56 per cent. But the average is dragged down by the 21.54 per cent rate paid by financial services.

Comparing apples with apples, mining pays 0.57 percentage points less than manufacturing and 0.63 points less than construction. The highest-taxed sector is public administration and safety, which is 1.84 points above mining at 29.65 per cent.

Royalties change the equation because they take the effective tax rate for federal and state taxes to 41.34 per cent.

The nub of the super-profits tax debate is how the Rudd government's new regime stands up against the old.

For mining companies with low profit margins, the new regime is a winner. For any project earning less than 10 per cent return on its investment, the Rudd government's new tax will collect less in total.

But even this figure can leave the public scratching their heads, because it looks at the effective tax rate on a simple measure of the profits.

The actual tax paid by an industry is determined by what it declares to the taxation office, less its costs.

This is where both sides tend to bamboozle even themselves by throwing different concepts into the argument.

The mining companies complain on the one hand that they pay company tax plus royalties of 41.34 per cent, yet BHP tells its shareholders it pays 43 per cent.

BHP chairman Jac Nasser wrote last week: "The government's proposal would see the total effective tax rate on BHP Billiton's Australian profits increase from 43 per cent to 57 per cent, making the Australian resources industry the highest-taxed in the world."

But that 43 per cent figure doesn't square with the industry average of 41.34 per cent, because the former relates to profits while the latter refers to taxable income.

So how does BHP get to 57 per cent under the new regime? By assuming a rate of return on its investments of more than 50 per cent - a profit figure that, unwittingly, helps Labor's case to secure a better tax deal for the community.

The mining companies have been collecting more money in recent years not because they are necessarily more efficient, but because China has inflated the price for our coal and iron ore.

Either way, the story happens to be the same. Mining is taxed less than most other sectors when it comes to corporate tax.

[ricketyclik]

A slightly different take again, by Ross Gittins.

Let's mine bright ideas and stop being shrinking violets
May 26, 2010

... In their fight to avoid paying more tax, the big mining companies are seeking to play on our self-doubts. No other country has such a resource tax, they claim, and nowhere else are they required to pay so much. If Australia persists with this weird tax they'll cancel their projects and take their money elsewhere.

Oh dear, don't desert us. Please!

Know what their problem is? Australia, being one of the world's leading mining nations, is a world leader in designing taxes that increase the public's take without discouraging mining activity or otherwise damaging the economy.

The resource super-profits tax is a state-of-the-art tax, designed by our leading economists not to do all the bad things it's being accused of. It's a close relative of an earlier Australian invention, the resource rent tax, developed by Professor Ross Garnaut and others at the Australian National University.

The big international mining companies are fighting it partly because they fear that, once its success has been demonstrated, it will be copied by other countries. And they're fighting it by trying to press our cringe button: if no one else is doing it, it must be a dumb thing to do.

The miners are right to fear the tax will be adopted by other countries because that's just what's happened to that other great invention of Australian economists, the ''income-contingent loan'' (known to you as HECS, the higher education contribution scheme). This one was invented by Professor Bruce Chapman, also of the ANU.

We cringers think of Australia as a small country that carries no weight in the world. But the world's big companies see us as a potential setter of dangerous precedents. Whenever we decide to do something novel that could impinge on their profits, they quietly assist their local colleagues in trying to dissuade us.

The world's tobacco companies are still trying to prevent us preceding with our path-breaking move to plain cigarette packaging. When the Reserve Bank moved to end the banks' ban on shopkeepers charging a fee to people paying by credit card, the two international card companies were most agitated.

Turns out the world has more faith in Australian innovations than we do.

[ricketyclik]

No Zevico, you've got that wrong. The "super" refers to superannuation - it is a tax to fund Australian citizens' retirement.

Just for the record, Zevico was correct on this and I was wrong. Sorry, it's taken me a while to acknowledge my error.

[trev]

Private sector is now shrinking

The latest GDP figures for Australia shows that only the gov't sector is now expanding and contributing growth to Australia. Growth ran at an annual rate of 2% for the last 3 months, all from gov't spending. The interest rises by the Reserve bank has now choked off all private sector growth, leaving Australia dependent on gov't spending for our growth.
As the stimulus spending cannot continue ad infinitum, our economy is now in a precarious situation. Nearly every day more mining projects are being suspended or canned altogether, mining companies are genmerally blaming the lack of finance, banks will no longer lend on mining projects because trhere is increased cash flow will not repay the loans as gov't steals most of the profits. So there seems to be nowhere that future growth will come from, looks like there will be the possibility of a recession here, creaated entirely by an incompetent gov't and its stupidity. And things were so much better here with a resilient economy, large gov't surpluses and a mining boom that looked like it would go for an eternity.

[ricketyclik]

Interest rates aren't set by the government.

The mining sector has out-performed the rest of the economy since the announcement of the resources super profits tax.

Me thinks there is partisanship here yet again. We would already be in recession if it weren't for the stimulus, but you're blaming the government for heading us toward recession

[trev]

Interest rates aren't set by the government.

Correct, BUT they would be definitely lower if the gov't was not stimulating an economy by far more than necesary AND lower interest rates would result in an economy with private sector growth AND that is the only type of sustainable growth.

Me thinks there is partisanship here yet again.

Yes, I have become very strongly partisan as I have seen the policies of the current gov't and have realised how dangerous they are to our great country. I have been on poly for a 8 years, it is only now I have starting sticking the boot into our gov't and for very good reason.

[ricketyclik]

Correct, BUT they would be definitely lower if the gov't was not stimulating an economy by far more than necesary AND lower interest rates would result in an economy with private sector growth AND that is the only type of sustainable growth.

But there wouldn't be private sector growth if we had 10% unemployment, which is where we'd be if the magic R word had come about in early 2009. I do agree that in an ideal world growth would be driven by real demand, not artificial, as it's obviously the only sustainable type, but if we hadn't had the artificial growth, the real growth wouldn't have been there either (over the last couple of years).

[azzaman333]

It's not about windfall profits - it's about the fact that once these resources, which belong to everyone, have been mined, that's it, they're gone forever.

To me it makes perfect sense that the Australian public should get a share of the profits, and if the mining companies want to go elsewhere then let them. The minerals/ores/fossil fuels aren't going anywhere, so when they're ready to pay our price they know how to contact us.

We get more money through shares in the mining companies.

[ricketyclik]

And you will note that mining shares have out-performed the rest of the market over the last couple of months, through the tax controversy.

So increasing the tax will not damage the share value.

[Kuciwalker]

It's not about windfall profits - it's about the fact that once these resources, which belong to everyone, have been mined, that's it, they're gone forever.

To me it makes perfect sense that the Australian public should get a share of the profits, and if the mining companies want to go elsewhere then let them. The minerals/ores/fossil fuels aren't going anywhere, so when they're ready to pay our price they know how to contact us.

No, you're an idiot. The correct mechanism to ensure that the Australian people are compensated for their natural resources is by auctioning rights to extract them, which I suspect is already done.

[ricketyclik]

No, you're an idiot.

Excellent argument. Clearly a man who knows what he is talking about.

(By the way, the US tax take on minerals is higher than Australia's. Is your mining industry packing up and leaving?)

[ricketyclik]

The correct mechanism to ensure that the Australian people are compensated for their natural resources is by auctioning rights to extract them, which I suspect is already done.

You do realise that many of these mine's lives span multiple decades, right?

[trev]

The mining sector has out-performed the rest of the economy since the announcement of the resources super profits tax.

Be very selective in your quotes.
The fact is that the value of mining shares are highly dependent on global prices for mineral ores etc. A better test of the impact of the tax is a comparison in share prices between those mining companies who have primarily overseas operations and those who have primarily Australian operations. Here there is a 15% advantage to those companies with overseas mines since the tax has been announced. So the propsed tax which will not be operational for 18 months or more has already had a big impact on share price.