The mining industry has scored a major victory in the battle with the Government over the Resources Super Profits Tax, with the Government cutting the tax on super profits from 40% to 30%.
But the compromise from the Government has come at a cost for the wider business community, with the Government abandoning its plan to reduce the company tax rate from 30% to 28%, and will instead cut the rate to 29% from 2012-13 for small businesses with less than $2 million in turnover, and from 2013-14 for all other businesses.
The immediate asset write-off for small businesses which buy assets worth up to $5,000 will be retained, as will the changes to superannuation and increased infrastructure investment.
The tax compromise, formally announced this morning, will see the Super Profits Tax only applied to iron ore and coal, while the current Petroleum Resource Rent Tax will be retained. This will reduce the number of affected companies from 2,500 to 320.
To further distance the Government from the RSPT disaster, the tax will also be renamed to the Mining Resources Rent Tax.
As well as cutting the headline tax rate from 40% to 30%, the Government will increase the “uplift rate” – the return the mining companies can take before the tax kicks in – by 7%, such that it is 7% above the long-term bond rate. Based on a long-term historical bond rate of 5%, the uplift rate will be around 12%.
The miners will also be allowed to access faster depreciation rates for new investment, whereby new investment made after July 2012 will be able to be written off immediately.
The changes will reduce the amount of revenue coming to Government coffers over the next four years, from an estimated $12 billion to about $10.5 billion.
However, the Government will make savings from its original RSPT plan by abandoning its original plan to provide rebates for unprofitable projects.
While the compromise will be seen as a back down from the Government, it will also be seen as a win for new Prime Minister Julia Gillard, who has been able to quickly reach a compromise on an issue that has become a major distraction for the Government.
Gillard, Treasurer Wayne Swan and Resources Minister Martin Ferguson reached the deal by negotiating with Australia’s three biggest mining companies: BHP Billiton, Rio Tinto and Xstrata.
The Government says it will establish a policy transition group, led by Ferguson and former BHP Billiton chair Don Argus, to consult further with industry and push the deal through.
Gillard rejected claims that the Government should have come to a deal earlier, while Kevin Rudd was still in power.
“As Prime Minster I have put my stamp on the approach that was taken here. This is how you get reform done.”
Treasurer Wayne Swan described the debate around the tax changes as “difficult” and “untidy” but said the Government had brokered a good deal.
More to come.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
