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2010-06-16

How to fix the government's proposed RSPT?

There is report that the Rudd government may consider changes to its proposed RSPT. See Dennis Shanahan and Matthew Franklin "Kevin Rudd starts to budge on mine tax", 16/06/2010, http://www.theaustralian.com.au/politics/kevin-rudd-starts-to-budge-on-mine-tax/story-e6frgczf-1225880140102

The report says that "THE Rudd government is considering modifying the resource super-profits tax for the burgeoning coal-seam gas industry and changing the rules on the 40 per cent tax for different minerals - the first sign of compromise in its damaging battle with miners."

A number of broad principles should be adopted to fix the RSPT.

1. Abandon the idea of being an equity partner with mining companies, irrespective the level of partnership. The tax should be a royalty, not a return to equity.
2. Raise the tax free threshold to adequately reflect risks of private capitals in the mining industry, that is, instead of risk free threshold, it should be risk adjsuted tax free threshold.
3. Exempt the existing mining production and already invested and planned investment, with a provision that if the mineral prices are higher relative to some benchmark, then tax on those higher prices.
4. Determine what rate to tax above the risk adjusted tax free threshold.
5. While different minerals should be treated in the same way in principle, low value mineral products should be exempt from the tax. Alternatively, only in extremely rare cases where it is very clear to identify that the risks to private capital are different, a different risk adjustment be applied.

PS: I have developed another idea that may look better than any of the current resources tax proposals or other ideas, see http://mrlincolns.blogspot.com/2010/06/true-super-profits-tax-on-mineral.html

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