Outrage in the mining industry as Australia proposes 40 per cent tax

Mining giants line up to condemn 'Henry' tax in one of the world's biggest markets. Alistair Dawber reports

Some of the giants of the mining industry, and their backers in the City of London, have reacted with a mixture of anger and surprise to plans by the Australian government to impose a new resources tax. Shares in London-listed companies fell by as much as 7 per cent in trading yesterday, which was the stock market's first opportunity to react to the Canberra administration's plans to introduce a so-called "resources super-profits tax" from July 2012. The 40 per cent charge has already become known as the Henry tax, after Australia's Treasury minister, Ken Henry.

There is strong public support in Australia for higher levies on mining groups. Commodities such as iron ore and coal form a large part of Australian exports, and as prices have recovered from savage drops last year there have been calls for the profitable sector to contribute more to the economic recovery.

"The Australian people deserve a fair return on the resources which they themselves own," said the Prime Minister, Kevin Rudd. Arguing that the some of the biggest miners were largely foreign-owned and had made $80bn (£53bn) over the past 10 years, Mr Rudd added: "At the same time governments, on behalf of the Australian people, have received only an additional $9bn over that period. That means these massively increased profits, built on Australian resources, are mostly, in fact, going overseas."

The tax will be levied on profits from Australian onshore mining operations. Companies would get a refund of state royalties, but combined with company taxes and after allowing for extraction costs and recouping capital investment, the miners will pay a statutory rate of about 58 per cent, according to Treasury estimates.

Some companies have responded by threatening to withdraw investment from Australia. The US coal miner Peabody said on Monday it would "factor in" the potential effects of the tax on its bid for its Australian rival Macarthur, while the iron ore exploration group Cape Lambert said it had scrapped plans for a A$400m (£242m) iron ore project in Western Australia's Pilbara region.

However, Mr Rudd is gambling on the mining groups largely swallowing the proposals. BHP Billiton and Rio Tinto, two of the biggest operators in the country, condemned the Henry tax yesterday, but rejected speculation that it could scupper their huge $116bn joint venture in Pilbara. Both have said they could save $100m in synergies from the project. Rio and BHP are listed in London and Sydney.

Nonetheless, both offered thinly veiled threats that they could withdraw investment from other projects. David Peever, Rio Tinto's managing director in Australia, rejected Mr Rudd's suggestion that the taxpayer was not seeing an adequate return from the mining sector.

"All Australians benefit from a strong mining sector. In the same way all Australians are affected by measures that hurt the mining sector," he said. "Australia was saved from the worst of the [global financial crisis] by the strength of the resources sector, but the same industry is now being portrayed by the government as not paying its way."

Marius Kloppers, the chief executive of BHP, said: "The stability and competitiveness of the tax system have been central to the investment in resources in Australia."

Mick Davis, the chief executive of Xstrata, which has coal, copper and nickel assets in Australia, described the tax as "highly regrettable". Anglo American, which made about 10 per cent of its operating profit from Australia last year, declined to comment.

Rio and BHP could be hit particularly hard. Some analysts predict that the company could see its Australian earnings fall by as much as 30 per cent, while BHP could see an extra 19 per cent of its earnings going to the Australian taxpayer.

The mining groups know that if Canberra is determined to push through the proposals there is little likelihood of them significantly paring back investments. Australia's mineral-rich territory is key to their operations, meaning that any critical statements are likely to sound rather hollow in the longer term. In what could be a fillip for the sector, analysts pointed out that commodity prices could actually increase as a result of any tax increase, because funds are withdrawn from less profitable assets and supply is cut.

There is also significant doubt about whether the proposals will ever be enacted. Mr Rudd's minority Labour government has failed to get several bills on to the statute book in recent months, and faces a general election by next April at the latest. There will be many on the right of the political system who will oppose the Henry tax, which would make Australia one of the most expensive markets for the mining industry.

The effective rate in Australia would rise from 43 per cent to 58 per cent, compared to 40 per cent in the US and 38 per cent in Brazil, which is run by its socialist President, Luiz Inacio Lula da Silva.

Analysts also doubted that the effect of the tax would be as bad as the market initially feared. Michael Rawlinson, of Liberum Capital, said that the plans still have a number of hurdles to overcome before becoming law: "We think the proposal is unlikely to be successful in its current form. The mining sector is already a key tax generator and employer for Australia, therefore we do not consider it likely that government will impose onerous legislation that would inhibit Australia's status as a mining-friendly jurisdiction."

The real danger for the miners is if the Henry tax leads to demands for higher levies elsewhere. As Christian Georges, of Olivetree Securities, said yesterday, the move could lead to other administrations casting an envious eye over mining sector profits.

"Governments in southern Africa and South America in particular will see the move by Australia and think that higher taxes on the mining industry are distinctly attractive. Not only do many have big deficits, but levies like the Henry tax also play very well with electorates," he said.

Suggested Topics
News
Alan Bennett has criticised the “repellent” reality shows which dominate our screens
tvBut he does like Stewart Lee
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
tech
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Sport
David Moyes and Louis van Gaal
football
PROMOTED VIDEO
News
i100
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
News
Former Governor of Alaska Sarah Palin, left, with her daughter, Bristol
newsShe's 'proud' of eldest daughter, who 'punched host in the face'
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Life and Style
food + drink
News
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
News
A cabin crew member photographed the devastation after one flight
news
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits